Instrumentos:

Own-account startups

96. Let us say hypothetically that we are targeting active own-account startups as the beneficiaries of a business support program limited to the group’s most pressing needs. Such a program would focus on access to business space and utilities for the tax registered or licensed of the group, and on access to finance for the unregistered and unlicensed. These emphases would be based on the assumption that the most pressing need of a group would be what affects the largest percentage of its membership. Skills and crime are not major issues for the tax registered or licensed, but both affect almost as many of the unregistered and unlicensed as does the lack of access to business space and utilities.

97. The percentage of the unregistered and unlicensed of active own-account startups who complained of lack of access to finance in the survey sample was second only to the percentage of post-startup own-account enterprises that complained about the same issue. Active own account startups should therefore be a priority beneficiary, for example, of a program that introduced a microfinance product, just as they should be for, say, a lease program for business space or market stalls. Active own-account startups should also be among the priority beneficiaries of a business skills development program since it is the group for which the highest percentage of members rate skills as a major constraint.

Start-up micro-employers

98. For start-up micro-employers also, lack of business space and access to utilities are of greater concern than lack of access to finance for the tax registered or licensed; and the reverse for the unregistered and unlicensed. Skills constitute a major constraint only for the tax registered or licensed of the group.

99. Again, let us hypothesize that we chose start-up micro-employers as a priority target for a business support scheme limited to the group’s most pressing need. The focus of the scheme would be access to business space, not access to finance, for the tax registered or licensed; and

67 the reverse for the unregistered and unlicensed. Crime would be the third most pressing problem for this group as a whole.

100. The complaint rate against lack of business space was larger for the tax registered or licensed of this group than for any other group of active enterprises in the survey sample. The complaint rate against shortage of skills also was the highest for the tax registered and licensed of this group than for any other. Consequently, the tax registered or licensed of this group should be the priority target for an innovative lease program for business space or a voucher program for training in business skills. To put it another way, let’s say, for example, that we had a business support program focused entirely on easing the business space constraint for microenterprises, and, for some reason, we had to limit participation to sections of the sector that are most in need. In this scenario, the tax registered or licensed among start-up active micro-employers would be the group most in need, not the tax registered or licensed among start-up active own-account enterprises.

101. The unregistered and unlicensed of the start-up active micro-employers also would be a priority group of programs targeted for improving access to finance since the percentage of them that complain of lack of access was comparable to that of any group of active enterprises.

Constraints to Youth-owned active enterprises Businesses of young high school graduates

102. This group’s top concern is access to business space and utilities, followed by access to finance. Because it had the highest complaint rate against access to business space, this group would be a priority target for programs focused on improving access to space. This group also would be a priority target of interventions to improve access to finance. The rationale would be not because it had the highest complaint against access to finance in the survey sample (in fact it had the third highest rate), but because it was the most productive of all groups and hence would be a likelier source of effective demand for new financial products.

Businesses of youth who had not completed high school

103. This group’s reported top concern is lack of access to finance. The group would be a priority target for programs to improve access to finance for a second reason: its complaint rate against lack of access to finance was almost as high as any other group in the survey sample including non-youth-owned enterprises of older high school graduates. The non-graduate business owners also are one of the groups most affected by crime.

Other groups of active enterprises as constraints groups

104. Access to finance is the most complained about issue for active post-startup micro– employers and was rated by the group as far more important than access to business space and utilities. Lack of skills also was reported as a major constraint. This group would be a priority beneficiary of a program for improved access to finance.

68 105. The top problem of active enterprises of older high school graduates also is access to finance. Thus, this group also would be a priority beneficiary for access to finance programs as well as programs to strengthen access to business space and utilities.

4 Conclusion: lessons for the design of market assessments for services

106. There are two kinds of micro-businesses in Botswana today. One group sometimes is known as “opportunity entrepreneurs” or “active entrepreneurs.” This group comprises people who would successfully earn a living in the labor market if they chose to, but are self employed because they are better off in business than they would be working for someone else. In contrast, those who are alternatively referred to as “necessity entrepreneurs,” “involuntary entrepreneurs,” or “survivalists” are self employed by default. They were rationed out of the labor market even though they would have taken paid work at the going rate if there had been enough jobs.

Active enterprises as potential markets for BDS

107. This report on the results of the Botswana Pilot Survey of Microenterprises has highlighted the sharp contrast that exists between the two segments of the microenterprise sector in productivity and development potential. The degree of contrast is not surprising given the underlying difference between the two groups in business motivation. We think that the contrast has far-reaching implications for the scope of programs of interventions for the development of markets in financial products and BDS tailored to the needs of the sector. The contrast suggests that, in principle, such programs should target only businesses of active entrepreneurs, not those of involuntary entrepreneurs. The appropriate interventions for the latter should be those relating to markets in training programs in labor market skills. Productivity and growth patterns in the survey data suggest that only active enterprises have a realistic chance of evolving into viable and growth-oriented businesses that will have sustainable effective demand for these financial products and BDS over the long term.

108. Nevertheless, the subpopulation of active microenterprises is extremely heterogeneous in enterprise capabilities and constraints. This diversity may need to be taken into account in the design of public investment programs to develop markets for financial products and BDS tailored to the needs of the sector. Indeed, it may be advisable to concentrate initial investments in the participation of the more promising of segments of the subpopulation in the evolving markets. The report has identified such segments via characteristics of both businesses and their owners.

More promising active enterprises

109. An analysis of the relative productivity of many of these segments suggests that youth- owned active enterprises in general, and those of young high school graduates in particular, constitute the most promising group on which to focus initial efforts at developing markets for financial products and BDS . The second most promising group of active enterprises identified by owner characteristics is that of businesses of older high school graduates. Youth-owned active

69 enterprises and active enterprises of older high school graduates constitute 13 percent and 9 percent, respectively, of the pilot survey sample.

110. Youth-owned active enterprises largely overlap what we have termed “start-up active enterprises,” defined as active enterprises that came into existence within the last five years. Start-up active enterprises are as promising and productive as active enterprises of young high school graduates. This finding is not surprising since high school graduates account for a high proportion of start-ups. Initial public investments in the development of markets for financial products and BDS probably should also concentrate on inducing the participation of start-up active enterprises. A minority of these are own-account enterprises, but 75 percent of them are micro–employers (engage 2–4 people). The second most promising group of active enterprises identified by business characteristics is that of post-startup active micro-employers. Start-up active enterprises and post-startup active micro-employers constitute 13 percent and 10 percent, respectively of the sample. Together, they overlap the combined subsamples of youth-owned active enterprises.

111. Thus, the basic message of this report is that intervention programs for the development of markets in financial services and BDS for microenterprises initially should target youth- owned active enterprises. This group constitutes approximately 13 percent of the pilot survey sample and overlaps almost exactly the subpopulation of start-up active enterprises. The second most promising target of the programs should be active enterprises of older high school graduates. This second group constitutes approximately 9 percent of the sample and more or less coincides with the subsample of post-startup active micro-employers. Only to the degree that programs have reached these first and second most promising groups are they likely to succeed in extending markets and services to a third group of active microenterprises, namely, post- startup own-account active enterprises. Essentially, they are active enterprises of older owners who did not graduate from high school and constitute approximately 4 percent of the pilot survey sample.

112. Thus, the maximum initial target that public investment in the development of markets in financial products and BDS should aim to reach in Botswana is probably no more than 26 percent of the population of microenterprises. This estimate assumes that the proportion of active enterprises of the pilot survey sample is a reliable proxy for the true proportion of active enterprises in the national population.

Involuntary enterprises

113. If a given mix of financial products and BDS does not eventually find a ready market in active microenterprises, it is extremely unlikely to find a market in the involuntary microenterprises, which constitute as high as 75 percent of micro-businesses in the country. The report shows that, controlling for observable human capital variables of owners, location, and line of business, involuntary enterprises consistently underperform active entrepreneurs in both productivity and growth by very large margins.

114. More than providing BDS, the policy challenge that the population of involuntary entrepreneurs poses is probably integrating the younger among them in the formal labor market through training and skills development schemes. In this context, it is very significant that this

70 subgroup of business owners is overwhelmingly dominated by young people. Approximately 68 percent of the group are aged 29 years or less. The youth of this group means that, in principle, the majority are trainable in new labor market skills.

115. This conclusion is reinforced by the fact that approximately 49 percent–51 percent of the group have been in business for fewer than 5 years, and are own-account workers. These factors may mean that they are not too locked into their current occupation to join or rejoin the formal labor market. This leaves approximately one-third or less of the group who have been in their current occupations for too long and probably are too old to be retrained for a labor market career. These workers probably would benefit more from business support schemes than from schemes for labor market training.

116. The question is really whether the businesses of this last group are dynamic and productive enough to ultimately provide effective demand for micro-financial products and micro-BDS. Unfortunately we do not have the data needed to answer this question. What we can say at this point is that active enterprises in general, and certain segments of them in particular, are far more likely to eventually provide the market for these products and services than any involuntary enterprises. If public investments in developing these markets have to be prioritized to enterprises in which the return to the efforts is most likely to be positive, then priority should be given to investing in the participations of active enterprises in the markets over investing in the participation of involuntary enterprises.

Youth-owned active enterprises as a constraints group

117. The survey shows that as potential markets for new financial products and BDS, youth- owned active enterprises rate lack of access to financing, business space and utilities, and skills as major constraints to business development. However, the weight they attach to each of these constraints relative to the others depends on the business owners’ education. For example, business space and access to public utilities is the top concern for active enterprises of high school graduates and is followed by access to finance as the second most important issue of concern for that group. Although it rates skills and security of property as important issues as well, this group is far less concerned about either of these two issues than other active enterprises.

118. In contrast, businesses of active young entrepreneurs who had not completed high school form the group that is most affected by the skills constraints and by property crime. Nevertheless, both of these come second and third behind access to finance as the top of the list of concerns of this group.

Active startups as a constraints group

119. Looking at differences in needs from another perspective, namely, across the age groups of businesses rather than the age groups of their owners, we see a high degree of interaction between the tax registration and licensing status of active enterprises and the relative weights that their owners attach to different constraints to business development. In particular, as the more promising age group of active enterprises, active startups that are registered for tax or hold a

71 license are more likely to be constrained by business space and access to public utilities than they are by financing, although both constraints top their list of concerns.

120. In contrast, access to finance is more of a constraint than lack or shortage of business space and utilities for active startups that are not registered for tax and do not carry a business licenses. Active startups also are the group that is reportedly most constrained by lack of skills. This is true both of own-account startups and start-up micro-employers, but with significant difference in the relative weight given to this particular constraint by tax registration and licensing status within each group. Among start-up micro-employers, those registered for tax or holding licenses are far more likely to be affected by the skills constraint than the unregistered and the unlicensed. Conversely, among own-account start ups, the skills constraint is felt more strongly by the unregistered and the unlicensed.

Formalization and access to services

121. Priority needs vary by tax registration and licensing status because whether a business is formal is an important determinant of its access to markets and services. In particular, formal businesses are more likely to have better access to finance, more likely to operate from nonresidential business premises connected to public utilities, and less exposed to property crime (probably because of the better location of their activities and assets). Moreover, formal microenterprises are far more productive than informal ones, in part because of their better access to services. Thus, there is some evidence that improving microenterprises’ access to BDS may need to encourage formalization by removing some of the impediments to registration that survey respondents cited.

122. The most common reasons that respondents gave for not registering their businesses included the desire to avoid four things: paying taxes, compliance with labor laws, prohibitive registration fees, and the cost of compliance with other aspects of business regulation. Respondents who cited any of these reasons recognized that the lack of official status and recognition that not having registered or not holding a license entailed also would bar them from access to key services and markets. The reason that they did not register regardless was that they did not think that there were attractive enough services and products whose value would outweigh the anticipated costs of becoming and staying registered or licensed.

Toward markets in financial products and BDS for active microenterprises

123. The information that the pilot survey has generated on the various capability and constraints groups of microenterprises will be useful input to future efforts to make available new financial products and new BDS to active microenterprises in Botswana. An essential component of the efforts will be a formal assessment of the market for existing and potential products and services among the two most promising groups of active enterprises identified in this report. They are active startups and active youth-owned enterprises, with a particular focus on micro-employers and businesses owned by young high school graduates.

124. The Donor Committee (2001) guidelines define the scope for formal market assessments to include four analytic tasks: (a) evaluate a target group’s awareness and willingness and ability to pay for existing products, (b) evaluate the group’s willingness to pay for potential products,

72 (c) assess the extent of segmentation of the wider markets for existing or potential products that the group may be supported to participate in, and (d) assess the potential for crowding out private demand or supply by public interventions in markets. The main findings of this report will be useful input to the design of tasks (a) and (b). The tasks will require much more data on each constraints group than has been generated by the pilot survey. The additional data will have to be collected through focus group discussions with microenterprise owners within each group, more open in-depth interviews with enterprise owners and BDS providers, market observation, and