45641 DECEMBER 2007 ABOUT THE AUTHORS “To Permit or Not to Permit� — Tools for SANJAR IBRAGIMOV is the Deputy Project Manager Reforming Permits and Licensing Systems of this project and joined IFC in 2004 as a Legal Analyst in the Business Enabling Environ- This SmartLesson discusses the experience in permits and licensing ment Project in Tashkent, Uzbekistan. Two years later, reforms undertaken in a number of countries of Eastern Europe and he moved to the Ukraine Central Asia. It seeks to contribute to IFC’s knowledge bank of business Business Enabling Environ- ment Project as Legal Advisor. enabling environment reforms, within the context of developing the BOBIR TAYMETOV global product on licensing. joined IFC in 2002 with the Uzbekistan Small and Medium The distinctions between licenses and permits procedures. At the same time, the coverage of Enterprise Policy Project as a are blurred, and the terms are often used permits in the CIS is nearly universal and legal specialist. He led the interchangeably. Activities requiring a license presents a de facto continuation of the team’s work on streamlining the inspection system in the in one country can require a permit in another, previous Soviet system—everything that is not country, with a focus on and in a third remain unregulated. European explicitly permitted is prohibited. Many promotion of the introduction countries usually do not differentiate licenses agencies responded to the new licensing of a risk-based inspection from permits and consider the two procedures regulations by increasing the number of system in all inspectorates. In 2006, Bobir joined the as unified. At the same time, in Eastern Europe permits issued. Moscow office of IFC Advisory and Central Asia, licenses are separated from Services in Europe and Central permits, based on the following criteria: Permits are usually of unlegislated validity, the Asia, formerly known as the Licenses are required for continued activity of cost of obtaining a permit is not specified, and Private Enterprise Partnership a certain type (communications, transporta- issuance procedures are convoluted. And the for Eastern Europe and Central Asia (PEP-ECA) as a tion, use of natural resources) or activities re- scope of application of permits is typically Legal Analyst. quiring a particular expertise; permits are wider than that of licenses (see box below). linked to one-off activities or activities under- The result is a complex, time-consuming, and APPROVING MANAGER taken in a specific location—a fire or building costly system of universal control, leading to a Sanda Liepina, Senior permit, for example. In practice, firms that high level of bureaucracy accompanied by a Operations Manager, IFC Advisory Services in Europe need to obtain licenses often still need to nearly endemic level of bribery, all of which and Central Aisa, Business obtain permits, and the distinctions between deters private sector development. Enabling Environment; Dina the two types of regulatory instruments are Nicholas, Acting Senior not significant. Operations Manager, IFC Advisory Services in Europe Comparison of licenses versus permits and Central Asia, Business In most countries of the Commonwealth of Enabling Environment. Independent States (CIS), licensing reforms LICENSES PERMITS took place in the early 2000s, resulting in Belarus 400 1,290a relatively straightforward legislation that Tajikstan 66 179a provided an exhaustive list of licenses or licensed activities and specified issuance Ukraine 60 1,300b Uzbekistan 73 200c Examples of permits in the CIS a Preliminary calculation by IFC b Preliminary calculation by government agencies Ukraine: 1) Every entrepreneur locating a busi- c Calculation by Ministry of Justice ness in any building needs to receive a separate permit from the Fire Authority; 2) each employee of a licensed tour operator needs to obtain a In most European countries, the trend is to separate permit “to accompany tourists during require permits or licenses for potentially tours.� hazardous activities. But in the CIS, everything Uzbekistan: A permit is required for placing ad- is regulated in the same manner, with no clear vertisements on mail going through the post evidence of increased safety of employees, (versus other conduits). improved environmental protection, or other social benefits of this all-encompassing IFC SMARTLESSONS — DECEMBER 2007 1 approach. Nor does this system markedly decrease risk. 2) Whatever the reform approach taken, a review And, IFC’s enterprise surveys in the region reveal that a mechanism should be built into the system. large number of companies admit to paying bribes when receiving permits and licenses. A mechanism for regular review of licenses and permits ensures that the reform is not a one–off activity, rather Given the prevalence of the problem, the task of IFC’s outdated and unnecessary licenses and permits are regularly advisory projects in Europe and Central Asia, starting in vetted and new procedures are not introduced to take their 2002, has been to ensure that the permits system is also place. Practice also shows that this mechanism must be fixed systematized and brought under a reasonable regulatory in law to ensure that agencies conform to its provisions framework. once the initial reforms are over. Tools for reforming the permits and licensing Reform Goal #1: Reduce the number of permits and their system coverage Of the possible reform goals related to reducing the permits Reducing the number and coverage of permits and licenses and licensing burden, the three most common are: is usually to ensure that only the necessary processes remain. • Reducing the number and coverage of permits (time However, defining “necessary� permits is often a problem. frame for realization: about 12 months); In the European Union, permits and licenses can be broadly • Simplifying issuance procedures (time frame for arranged by purpose, as shown in the chart below. realization: about four months); and • Increasing legal awareness of entrepreneurs and Yet, although there are high-level principles applicable to government officials (time frame for realization: about various regulatory tools, there still is a lack of detailed best four months of active work, followed by monitoring). practice information on what types of activities should best be regulated with what tools. These goals can Function Purpose Examples be pursued in parallel or sepa- Sectoral, business legislation, Notifying state agencies that rately. Given that Informational technical safety business activity has been a reduction of the established coverage or num- ber of permits in some countries State control of enterprise Environmental safety, industrial Control requires signifi- activity safety, labor law cant political will (to overcome vested interests), in such cases it Issuance of radio frequencies, Management of scarce resources; licenses for use of limited may be necessary Management Market regulation environmental resources to focus first on (mining, forestry, fishing) simplifying issu- ance procedures and increasing Functions not applicable to permits: the legal aware- (1) Promotion or restriction of competition ness of entrepre- (2) Revenue generation neurs and gov- (3) A source of information, if it is possible to get the information from other state bodies or third parties ernment. Lessons Learned 3) Given the current dearth of practical information, IFC should invest in building up a knowledge base of 1) Whether a project undertakes all permits-reform regulation—what activities are subject to what types of goals in parallel, or works step-by-step, depends on the regulatory instruments in which countries. political context. This can then be used to promote and inform reforms in In countries with strongly reform-minded governments, client countries and save resources currently spent by both the coverage and issuance of permits can be tackled individual project teams in gathering such information. simultaneously. In the CIS, Georgia is an example of where this has occurred: Licenses and permits were reduced from The key tools for reduction in the number of permits and 909 to 159, and coverage (the share of firms that need their coverage are new legislation and the guillotine permits or licenses) was halved1. But this is a rare case. In process. The guillotine implies a comprehensive review of most countries, IFC has had to move step-by-step, tackling the current stock of permits and approvals, and requires issuance, coverage, and awareness work in stages. state agencies to substantiate the existence of each. Those 1 For additional information about licensing reform in Georgia, please see �Licens- permits that have no apparent benefits are sent to the ing 159 activities—not 909,� by Svetlana Bagaudinova, Dana Omran, and Umar guillotine at a date specified by the government. This Shavurov. 2 IFC SMARTLESSONS — DECEMBER 2007 system has two significant benefits: 1) the burden of proof 4) Don’t tie permit reform to mandatory reduction is placed on state agencies rather than on the private sector, (guillotine) of unnecessary permits. and 2) clear deadlines are set at the top level of government. However, licenses and permits still need to be reviewed on Although reduction is an important process, it depends a permanent basis. heavily on political will at the top levels of government. If this is lacking, or if entrenched interests prove too strong, it During the guillotine process, the following steps are is important to be able to simplify issuance procedures taken: separately—resulting in a de facto reduction in key problems for entrepreneurs, such as the time and cost required to 1. Creation of a single-list inventory of all permits that obtain permits. These improvements also help build exist in the country momentum for more radical reforms. 2. Development of special criteria for reduction of Reform Goal #2: Simplify the issuance procedures permits, for example: • Outdated, do not comply with modern Another focus of IFC’s work in the region was to introduce requirements in the Law on Permits simplified issuance procedures to • Contradict general market principles reduce delays. All projects working on the issue agreed that • Used for revenue generation the law should include a “one-stop shop� approach (Ukraine • Issued for nonhazardous business activity or Law on Permits; draft Uzbekistan Law on Permits), a “silence actions is consent� principle (draft Uzbekistan Law on Permits), and • Duplicate other administrative procedures, such a “self-certification� principle (Ukraine Law on Permits). as registration, certification, and so on • Used as a source of information when the Tools for Simplification of Issuance information can be received from third parties One-stop shop is a mechanism whereby the applicant does 3. Elimination of licenses and permits meeting criteria, not need to pass through all agencies and departments, but and a final list of remaining valid permits contained in only has to apply and receive documents in one department a single legislative act. or cabinet. The department is responsible for collecting all necessary approvals and issuing the permit for the applicant. Following are steps for introducing an effective one-stop Uzbekistan Case shop: The government, assisted by IFC, gathered all permits in one list. Criteria were then developed for reduction: 1) outdated permits • Establish authority responsible for clear functioning of introduced during the transition period, but no longer in compli- the one-stop shop; ance with modern requirements; 2) permits that duplicate other • Create an effective mechanism of cooperation between administrative procedures (registration, licensing, and so on) state bodies engaged in the process of issuance; and are not directed at reducing risks to the community; and 3) • Identify the rights and responsibilities of each state permits contradicting general market principles. Finally, the offi- body engaged in the issuance process; and cials fixed the list of residuary permits in a draft Law on Permits. • Set a clear deadline for document review. Using these criteria, the government eliminated 11 of the most commonly received permits in Uzbekistan. The process is ongo- Silence is consent requires government officials to respond ing, and will be completed with the adoption of the Law on to the application of a citizen or entrepreneur within an Permits. allotted time frame. Otherwise, the citizen or entrepreneur may undertake the requested action without additional delay (tacit authorization). The “silence is consent� EU and CIS practice shows that the process of cleaning up principle does not extend to all administrative procedures. licenses and permits should be set in law, rather than in lower Time limitations: Italy—30 days; Mexico—19 days for legislative acts. This ensures that positive reductions to the several types of documents. system are difficult to reverse. and it leads to improved legislative stability and improved stability of the business Self-certification requires the applicant to ensure full environment. compliance with the legislation, acknowledging full responsibility in case of noncompliance. The procedure Three key principles embodied in the legislation of EU can be used for less risky business activity or actions, countries have also proved useful for securing stability in the implying a de facto reduction in coverage. business environment in our region. They are: 5) Use issuance good practices such as silence is consent • Government bodies cannot issue permits that are not and self-certification based on risk assessment. stipulated in laws; • All activities not said to require permits can be carried Divide all permits into high-, medium-, and low-risk groups, out freely, and; and define which permit should conform to which issuance • The law includes detailed procedures for issuance and procedure. Risks can be categorized in accordance with the revocation of permits. principles of health and safety, environment, and public security. For instance, the principle of silence is consent, IFC SMARTLESSONS — DECEMBER 2007 3 One-stop shop High risk Medium risk Low risk Key criteria defined; significant scope of Silence is consent Criteria to be fulfilled are Self-certification principle Criteria discretion remains with issuing authority defined; no discretion for issuing authority to self-certify defined with clearly limited review periods, can be Key to implementation is a program to ensure applicable to permits that are issued for that government officials are trained to use medium-risk activities. Self-certification, which new procedures, and that entrepreneurs are implies “automatic� issuance, can be used for informed about key changes, understand the permits and licenses issued for low-risk improvements made, and can use this legal activities (permits whose function is essentially knowledge to defend basic rights. This is a key informational rather than one of control). aspect of reforms in developing countries. Thus, in Ukraine, approximately 90 percent of fire permits should be issued through self- The following tools can be used to increase certification, while the remaining 10 percent, legal awareness for entrepreneurs and which involve high-risk actions or activities, government officials: can be issued through a regular procedure. • Easy-to-read brochures distributed to It is important that the silence is consent entrepreneurs principle define a realistic term of issuance. • Clear procedural maps, available in issuance For example, in Georgia, any permit should be offices issued in under 20 days; after that period, the • Seminars, training, and informational applicant may proceed with the activity roundtables aimed at increasing dialogue without actually receiving the permit. between the private sector and government; and Reform Goal # 3: Increase the legal awareness • Public service announcements on television of entrepreneurs and government officials focused on presenting information on procedural changes. 6) Reforms are not finished once legislation is enacted: Assistance with implementation is vital to ensure that changes reach entrepreneurs. Reform champions and donor agencies often stop focusing on a particular reform once legislation has been adopted, but training For a map of permits and licenses in the CIS, sessions for government officials and please download Annex on the SmartLessons awareness campaigns for entrepreneurs are site: “The State of Licensing/Permit Reforms important means of translating legislation in Selected Countries of Eastern Europe and into real, practical impact for the private sector Central Asia.� in the field. DISCLAIMER IFC SmartLessons is an awards program to share lessons learned in development-oriented advisory services and investment operations. The findings, interpretations, and conclusions expressed in this paper are those of the author(s) and do not necessarily reflect the views of IFC or its partner organizations, the Executive Directors of The World Bank or the governments they represent. IFC does not assume any responsibility for the completeness or accuracy of the information contained in this document. Please see the terms and conditions at www.ifc.org/ smartlessons or contact the program at smartlessons@ifc.org. 4 IFC SMARTLESSONS — DECEMBER 2007