Piloting the Entreprenant Status: In search of a successful formalization model

1. Innovations in Investment Climate Reforms An Impact Evaluation Workshop Paris, November 2012 BENIN Piloting the Entreprenant Status:In search of a successful formalization model Impact Evaluation Concept Note

2. Context • New (OHADA) Entreprenant legal status aims at encouraging formalization by: • Making registration very simple and cheap; • Inviting member states to design their own package of incentives to encourage informal firms to adopt the new status • The objective of this Impact Evaluation (IE) is to support the Government of Benin identify a package of incentives (II) that works best in terms of impact on formalization and performance of newly formalized Entreprenant businesses. • It will focus on specific segments of the informal sector and reach informal firms through partner institutions.

3. What is new and special about this project? • Compared to recent formalization pilots, this pilot will innovate in three ways : • The mix of incentives proposed: • Easy/cheap entry, information, ID card, basic books keeping training. • Dedicated microfinance product. • Increased predictability of tax obligations and (some) protection from arbitrary tax inspections. • It will target the intervention on specific segments of the informal sector that are most likely to benefit from formalizing: high-end of informal firms, as identified through partner institutions (MFIs, handicraft associations, market management organizations). Example: artisans, carpenters, garments, large shop owners in Cotonou main market. • It will have a phased approach, where the government will progressively expand on the set of services proposed to Entreprenants and expand to other segments of the informal sector.

4. Research questions Understand the impact on formalization rates, behavior and performance (in each of 2 to 3 segments targeted) of newly formalized firms that are offered: • Treatment [A]: simplification/cost reduction of registration process and providing a rich set of information/training to newly registered Entreprenants (registration process, tax guide, existing benefits/services, knowledge of rights and legal status etc.) + a picture ID card to reinforce the sense of legalized status + basic training on book keeping + preferential access to lower-price CGA services. • [A] + Treatment [B]: eligibility to dedicated “Entreprenant” microfiance and banking products. • [A] + Treatment [C]: offer visibility/predictability and assurance on future tax obligations and a sense of “protection” against abuse from tax inspections from local authority (municipality etc.) – SMS hotline, free hotline number to report that business was inspected, “maccarons”, certificate of payment, “gold card” at end of year 2, etc. • [A] + [B] + [C] , if sample size permits. + a control group

5. Next steps • Identifier les sources de base de données pour effectuerl’échantillonnage: • Clients des institutions de microcrédits (PADME, banque ORAC?, ASMAB) • Base de données du Ministère du commerce et de l’industrie (autorisationsprovisoires). • Listes de la SOGEMA • Listes des membres des associations d’artisans • Etc. • Plan d’actions: • Mission d’identification et de consultation de partenairespotentiels (GUF, CGA, DGI, MFIs, etc.) • Préparationd’unepré-enquête terrain d’identification des segments et source d’échantillonage • Arbitrage des questions en suspens (coûts GUF, CGA), partenairesmicrocrédit, clarification du régime fiscal, etc. • Plan d’actions de mise en oeuvre du statut et des troisgroupes de traitement (A,B,C). • Préparation de la stratégied’évaluationd’impact et du protocole.