Part 1 - Key Considerations in the Development of Entrepreneurship Policy

The Business Case for Entrepreneurship Policy

Theory: from Entrepreneurship to Economic Growth

• Micro, small and medium sized enterprise comprise a majority of small businesses in Africa, and it is expected that incremental improvement in their state has the potential to create ripple effects on the national economy.
• While there is a lack of tested results concerning the long-term relationship between entrepreneurship and productivity growth, there is widespread perception among scholars and policymakers that a link exists between entrepreneurship and GDP-growth (as a narrow proxy for welfare).
• Factors often mentioned contributing to this relationship are: the introduction of new innovations, increasing market competition, increase in employment, boost in productivity, structural changes and macroeconomic stability.
• Entrepreneurship results in a more efficient use of resources, stemming from innovation, increased competition and improved production efficiency. This is reflected through the rise in Total Factor Productivity (TFP). TFP measures the efficiency with which firms turn inputs into outputs.
• TFP contributes as a major factor for the long-term sustainable  Gross Domestic Product (GDP) growth and wealth creation. GDP is a measure of a country’s economic health and is used as a main measure of output and economic activity. It is defined as the total monetary value of all the finished goods and services produced in a country within a specific period of time.
• A study on Total factor productivity and the role of entrepreneurship, shows that entrepreneurship (as defined by business ownership) is shown to have a long-term effect on Total Factor Productivity and thereby on economic growth. In the words of Romer: “economic growth springs from better recipes, not just from more cooking”. The next slide illustrates this relationship.

Graphic: from Entrepreneurship to Economic Growth

Entrepreneurship leads to improved production efficiency stemming from innovation, leading to an increase in Total Factor Productivity (TFP). Improvement in TFP promotes long term sustainable Gross Domestic Product (GDP) growth. This positive relationship between, entrepreneurship, TFP and GDP growth has been reflected above

Evidence from Africa: from Entrepreneurship to Economic Growth

• The impact of entrepreneurship on economic growth has also been shown to hold true for African countries. A study covering 12 African countries including among others Senegal, Zambia and Ghana shows that entrepreneurship[...] is instrumental to economic growth.
• Similarly, a study in Nigeria indicated that entrepreneurship is indispensable in achieving sustainable economic growth as it brings positive impact on the economy. Even more striking, data shows that in Nigeria, the technology sector contributed more to the country’s overall GDP than the oil and gas sector did between 2010-2019.
• A study from Rwanda underscores the positive impact of entrepreneurship, arguing that support for firms in the internationally competitive tradable sector can boost local employment.

"The tradable sector displays the largest employment potential, as 1 job created there leads to the creation of 6 to 7 jobs in the local economy."

Focusing on the ‘right’ entrepreneurship

• A small caution is needed before going into types of interventions that foster entrepreneurship. We need to distinguish between “necessity entrepreneurship”, which is having to become an entrepreneur because you have no better option, and “opportunity entrepreneurship,” which is a deliberate choice to start a business based on the perception that a business opportunity exists. Necessity entrepreneurship has no effect on economic development. In contrast, opportunity entrepreneurship has a positive and significant effect. Entrepreneurship is not meant to fill the void left by governments for shirking their responsibilities to provide basic public services, such as education and access to electricity.
• A successful business ecosystem is not so much about the quantity of entrepreneurs, but about the quality of the entrepreneurs in your country. Constructive entrepreneurship requires an enabling environment with certain characteristics on the macro- and micro level.
• In the remainder of this toolkit, you will discover a vast array of interventions grouped in 7 policy areas (see section 3), all geared towards increasing the quality of entrepreneurship in your country.

Types of Policy Instruments to Promote Entrepreneurship

This toolkit focuses on Startup Acts and other legislative instruments such as Small Business Acts. However, these are just few of the public policy instruments that governments have at their disposal to accelerate entrepreneurship and sustainable, equitable development. This section provides a brief non-exhaustive overview of other public policy instruments that can be deployed.

• Strategic Instruments (complementary and new forms of action). For example
  • Visions, Strategies & Plans
  • Policies

• Legislative & Regulatory Instruments (laws, regulations, charters, directives, etc.) enforceable and backed by threat of sanctions, fines or other disciplinary action, may include regulatory reforms, incentives, etc. Specific Regulatory Frameworks include Small Business Acts, Start-up Acts.

• Economic and financial instruments. For example:
  • Subsidies
  • Grant funding
  • Public funding
  • Public-private partnerships which share costs, benefits and risks

Questions for reflection

• In your country, have these different types of policy instruments already been introduced?
• Which policy instrument seem to be lacking ?
• Given the current policy framework, which would be most effective in addressing your entrepreneurial ecosystem ?
  
  ➔ This will allow you to identify the type of policy instrument you will need to focus on during our work together throughout this toolkit.

Strategic Instruments

Visions, Strategies & Plans

• Governments often set broad visions for national development that set high level goals for economic development for the long term (20-40 years). These are subsequently broken down into medium-term strategies that focus on specific goals within a four to five-year period. These strategies are plans that form the basis of policies and laws.
• In practice however, governments may use these terminologies interchangeably given that vision documents contain strategies which in themselves are plans, e.g. Ghana’s National Development Plan, known as Vision 2020 or Kenya’s Vision 2030 Strategy, or Senegal’s 2035 Vision. Like policies, they do not carry the weight of the law, but instead service as frameworks from which laws are created.
• SME strategies may be defined within these vision and strategy documents or may be created for specific sectors of interest.

Nigeria’s Vision (NIIEV)

Nigeria ICT Innovation and Entrepreneurship Vision (NIIEV)
2019

Points of Interest

• The objective of the policy is  to foster job creation and an increase in the tax and export base through the promotion of competitive new and existing SMEs mainly in value added sectors.

Impact in Numbers

• 246 startups and 125 IT hubs and ecosystem builders have been supported.

• More than 500 jobs have been generated through entrepreneurship training programmes.

• The 2019 Nigeria ICT Innovation and Entrepreneurship Vision (NIIEV) recognizes the role of the public sector in facilitating entrepreneurship, and seeks to address the challenges faced by SMEs in the face of the new digital economy

• It was developed by the National Information Technology Development Agency (NITDA), as part of its mandate to support entrepreneurship and commercialization of the country’s ICT sector, together with Nigerian entrepreneurs.

• The NIIEV addresses three thematic areas and fourteen specific goals for the sector.
  • Digital Infrastructure - 95% of population to have access to the Internet by 2025
  • Education Reform, Skills Development And R&D - digital literacy rates of 75% by 2025
  • Supporting The Ecosystem For Innovation And Entrepreneurship- ICT to contribute 25% of national GDP.

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Policies

• Oftentimes governments realize the value and the potential of the SME sector to transform their economies but are faced with disjointed and uncoordinated measures administered by various actors in the entrepreneurial ecosystem. Strategic instruments can be used as guide posts to set key priorities for implementation.
• Policies provide a broad outline of goals, methods and principles that governments seek to achieve, but have no legal basis. This sets policies apart from legislative instruments such as Small Business Acts, which set specific procedures to be followed under penalty of prosecution.
• A policy document may identify new laws needed to achieve the set goals or reference existing institutional and legal frameworks that support it.

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Tanzania SME Policy

Tanzanian SME Development Policy
2003

Points of Interest

• Tanzania's SME Development Policy​, implemented since 2003, is estimated to have led to a fivefold increase of the number of businesses in 10 years, creating 370,000 jobs.

• The 2003 Tanzanian SME Development Policy (2003) is the earliest policy of the kind, it followed a participatory approach for preparation, using zonal workshops and consultations over a period of years.

• This policy was holistic in scope and developed to serve as a guideline for stakeholders, while offering strategic directions aligned with the national vision (National Vision 2025).

• It sets out 7 pillars in support of SME development:
  • Legal and Regulatory Framework,
  • Physical Infrastructure,
  • Business Development Services,
  • Access to Finance,
  • Institutional Framework for SMEs Development
  • Rural Industrialization,
  • Cross Cutting Issues

Legislative & Regulatory Instruments

Considerations

• This section will provide you with a detailed study of Startup Acts & Small Business Acts (SBAs), as we believe these are the instruments, best suited to address needs of an entrepreneurial ecosystem in a targeted and effective manner.
• When well targeted and broadly supported, they have the potential to create an enabling environment for innovation and growth.

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Startup Act vs Small Business Acts (Definitions)

Startup Acts	Small Business Acts
Legislative instruments aimed at fostering entrepreneurship and enabling the development of new firms with high growth potential. Most Startup Acts create incentives (taxes, subsidies, procurement, etc.) for firms considered as startups according to their respective definitions, which are mostly based on the perceived potential for growth and innovation.	Legislative instruments (laws), with a transversal scope, aiming to boost the creation and development of SMEs. ​They can come under the official name of SBAs, SME Laws and Acts, Decrees following SME Charters, Business and Small-Scale Industries Acts, Small and Micro Enterprises Acts, Small Enterprises Development Acts, among others.
The first growth entrepreneurship policies appeared in the early 1990s in countries such as Finland, the Netherlands, and Scotland. Since then, other countries have adopted startup-specific legislation, such as, for instance, the Italian Startup Act in 2012. In Africa, the first Startups Acts to be adopted were in Tunisia (2018) and Senegal (2019). Startup Acts are under development or consideration in many other countries such as Benin, the Democratic Republic of Congo, Egypt, Ethiopia, Ghana, and Rwanda. Many of these processes have been developed through the work of i4Policy, with joint leadership from startup communities and senior government champions.	SBAs generally embrace a traditional classification of the firms, based mostly on their size, on the rationale that these firms are disadvantaged due to their limited scale. Some SBAs have been used as blanket instruments to establish agencies and other bodies responsible for implementation, specifying little about specific interventions accorded to SMEs

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Startup Act vs Small Business Acts (Differences)

Small Business Acts (SBAs)			Startup Acts
Legislative Instruments (laws)
	Targets firms by criteria like size, employees, annual turnover, etc.			Targets firms based on perceived potential for growth and innovation in addition to  size criteria
	Transversal scope			Aiming to foster an ecosystem for high-growth firms, with general enabling environment support combined with comprehensive support for firms to reach scale
	Aiming to boost new firm creationand survivability

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Considerations

• Without proper analysis of ecosystem impacts, both Startup Acts and Small Business Acts have the potential to create market distortions.
• In order to positively impact the ecosystem and the market, the design and implementation of Entrepreneurship policy needs to be preceded by discussions with the ecosystem to identify their needs and understand the level of maturity of the market.
  
  ➔ The next 15-20 slides will walk you through a detailed study of Startup Acts, after which Small Business Acts will be discussed. Lastly, the last slides of the present section will summarize aspects of both legislations, before moving on to a set of recommendations and lessons learned from i4Policy’s experience.

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Startup Acts: Criteria for startups

The predominant criteria found in the three African Startup Acts of Tunisia, Senegal and Mali include criteria related to the number of years of existence,  the criterion of independence which requires that the majority of the capital be owned by individuals, as well as a criterion related to growth potential or the innovative nature of the business model.

Tunisian Startup criteria
AGE		SIZE		INDEPENDENCE		INNOVATION		SCALABILITY
No more than 8 years of existence		No more than 100 employees and $5.3m in total assets or annual turnover		More than two-thirds of capital held by natural persons or investors		Discretionary: Strong innovative character, defined as “providing an interesting and differentiated solution to a given problem		Discretionary: Perceived growth potential, product-market fit, proof of concept, & team capabilities

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Comparison of Startup Acts: Senegal, Tunisia, Italy, Nigeria, Kenya

The following slides contain a side-by-side comparison of the Startup Acts of Senegal, Tunisia, Italy, Nigeria and Kenya. We present i) the policy objectives that they address, ii) the startup definition in use and iii) the non-fiscal and fiscal incentives that the countries implemented.

	Senegal	Tunisia	Italy	Nigeria	Kenya
Policy Objectives	The law sets out the conditions for the creation and promotion of startups  in Senegal based on creativity, innovation, the use of new technologies, the achievement of high added value and competitiveness at the national and international level.	The objective of this law is to set up an incentive framework for the creation and development of Startups based, in particular, on creativity, innovation and the use of new technologies and achieving a strong added value and competitiveness at the national and international levels.	The general objective of the Italie Startup act is to promote sustainable growth, technological advancement and, in particular, to create favourable conditions for the development of a new business culture inclined towards innovation. Other explicit goals of this policy are enhancing social mobility, generating new employment, especially for the youth, reinforcing the links between universities and businesses, and increasing the capacity of Italy to attract foreign capitals and talents.	The objective of the Nigeria Startup Act is to provide a legal and institutional framework for the development of startups in Nigeria, and to: provide an enabling environment for the establishment, development and operation of startups in Nigeria; provide for the development and growth of technology-related talent; and Position Nigeria's startup ecosystem, as the leading digital technology centre in Africa, having excellent innovators with cutting edge skills and exportable capacity	The objective of the Kenya Startup Act is to provide a framework that would foster a culture of innovative thinking and entrepreneurship, to promote an enabling environment for the establishment, development, conduct of business and regulation of startups.
Startup definition	1) Be legally incorporated for less than eight (8) year 2) must have strong growth potential in search of a disruptive business model and financing mechanisms adapted to its specific characteristics in order to deploy its exceptional capacity for value creation	1) The human resources do not exceed the ceilings set by government decree (less than 100) 2) Total balance sheet and its annual turnover do not exceed the ceilings set by government decree ($5.3M) 3) More than two-thirds (2/3) of its capital is held by natural persons, venture capital investment companies, collective investment funds. investment, seed money and any other investment body 4) Its activity has strong potential for economic growth 5) Its business model is highly innovative, utilizing cutting-edge technology.	1) A company with a shared capital 2) Must be newly incorporated or have been operational for less than 5 years (not before 18-12-2012) 3) Do not distribute profits 4) have a yearly turnover lower than €5 million 5) Have their headquarters in Italy or in another EU country, but with at least a production branch in Italy 6) Have as exclusive or prevalent company object the production, development, and commercialization of innovative goods or services of high technological value 7) Not result of a merger, split-up or selling-off of a company or branch.	1) Be registered as a limited liability company and be incorporated for a period of not more than 10 years 2) The number of employees less than 100 3) Its objects are innovation, development, production, improvement and commercialisation of a digital technology innovative product or process. 4) Annual profit should not exceed N 120,000,000 5) It is a holder or repository of a product or process of digital technology, or the owner or author of a registered software 6) It has at least 51 percent of its shares held by one or more Nigerians.	1) Be newly registered or has been in existence for a period of not more than seven years from the date of its incorporation or registration 2) Be majority owned by one or more citizens of Kenya 3) At least fifteen percent the entity’s expenses can be attributed to research and development activities 4) Its objects are innovation, development, improvement and commercialisation of innovative products, processes or services or if it is a scalable business model 5) Have their headquarters in Kenya
Age	Be legally incorporated for less than eight (8) year	More than two-thirds (2/3) of its capital is held by natural persons, venture capital investment companies, collective investment funds. investment, seed money and any other investment body	Must be newly incorporated or have been operational for less than 5 years (not before 18 December 2012)	Be registered as a limited liability company and be incorporated for a period of not more than 10 years	Be newly registered or has been in existence for a period of not more than seven years from the date of its incorporation or registration. The period shall be up to ten years in case of startups in the biotechnology sector
Employees		The human resources do not exceed the ceilings set by government decree (less than 100)	> 1/3 of the workforce has a PhD, is PhD student or researcher (or, alternatively 2/3 of the workforce must hold a Master’s degree)	The number of employees should be less than 100
Financials		Total balance sheet and its annual turnover do not exceed the ceilings set by government decree ($5.3M)	A company with shared capital Have a yearly turnover lower than €5 million Do not distribute profits Are not the result of a merger, split-up or selling-off of a company or branch.	Annual profit should not exceed N 120,000,000 Less than 50% of foreign participation. Foreign companies may be labelled as startups if the ultimate beneficial owners of its foreign shareholders are Nigerian citizens.	Be majority owned by one or more citizens of Kenya
Business Model		Its business model is highly innovative, utilizing cutting-edge technology	Exclusive/ prevalent company object is production, development and commercialization of innovative goods or services. This is identified by at least one of these criteria: > 15% of the company’s expenses can be attributed to R&D; > 1/3 of the workforce has a PhD, is PhD student or researcher (or, alternatively 2/3 has a Master’s); firm is holder, depositary or licensee of a patent (IP), or owner and author of registered software.	Its objects are innovation, development, production, improvement, and commercialisation of a digital technology innovative product or process; It is a holder or repository of a product or process of digital technology, or the owner or author of a registered software.	At least fifteen percent the entity’s expenses can be attributed to research and development activities. Its objects are innovation, development, improvement and commercialisation of innovative products, processes or services or if it is a scalable business model.
Growth Potential	Must have strong growth potential in search of a disruptive business model and financing adapted to its specific characteristics to deploy exceptional capacity for value creation	Its activity has strong potential for economic growth
Location			Have their headquarters in Italy or in another EU country, but with at least a production site branch in Italy		Have their headquarters in Kenya
Non-Fiscal incentives Governance	A platform, accessible online, allowing any startup to complete the formalities related to registration and labelling Facilitation measures and customs procedures that are more favorable to them in accordance with the laws and regulations in force Startups are supported in the protection of startup innovations by national and international intellectual property protection bodies	The Ministry in charge of the digital economy shall assume the direct and indirect costs of intellectual property registration for Startup Startup Guarantee Fund" which aims to guarantee the participations of private equity firms, venture capital funds, seed funds and any other investment body	Incorporation and following statutory modifications by means of a standard model with digital signature Cuts to red tape and fees “Fail fast” procedure Certified incubators have a special track to use the Italia Startup Visa program	Establish a Startup Support and Engagement Portal ("Startup Portal") which shall serve as a platform through which a startup conducts registration process with relevant Ministries, Departments and Agencies (''MDAs"). Support the protection of intellectual property rights and assist startups in internationalising and commercialising their rights.	To support the establishment and development of startups; Subsidise the formalisation of startups Facilitate the protection of the intellectual property of innovations by startups in Kenya and with international organisations;
Non-Fiscal incentives Finance	The State may subsidize the formalization of the company Labelled startups benefit from funds, in particular in the form of loans, from public and private sources, intended mainly to finance eligible startups Alternative strategies and mechanisms for financing startups are defined and implemented	Startups are legally entitled to issue convertible bonds, are authorized to issue multiple convertible bonds, regardless of the option periods for conversion The right to open a special account in foreign currency with approved intermediaries, without capital controls on funds raised Any promoter of a Startup may benefit from a Startup scholarship for a duration of one (01) year	Possibility to collect capital through equity crowdfunding authorized online portals Flexible corporate management Extension of terms for covering losses Remuneration through stock options and work for equity schemes Fast-track, simplified and free-of-charge access for innovative startups and certified incubators to the SME Guarantee Fund Subsidized financing scheme for innovative startups based in Italy	Labelled startups have access to to grants and loan facilities administered by the Central Bank of Nigeria (CBN), the Bank of Industry or other bodies statutorily. A credit guarantee scheme has been established to provide accessible financial support to labelled startups Startups may raise funds through crowdfunding intermediaries and commodities investment platforms (“platforms”)	Establish a credit guarantee scheme for the provision of accessible financial support to startups
Non-Fiscal incentives Business Support	Public or private support structures can benefit from incentives to facilitate the support of start-ups. The support and coordination commission sets up a training and capacity building platform reserved for legally registered start-ups. Startups are supported in research and development activities	Any public agent or employee of a private company, may benefit from the right to Startup Leave for creation of a Startup for a period of (01) year renewable once	Italian Trade Agency provides assistance in legal, corporate and fiscal activities, as well as real estate and credit matters	The National Information Technology Development Agency (NITDA) would implement a training and capacity building program for startups. NITDA  shall collaborate with the National Universities Commission, universities, and polytechnics within Nigeria to develop modules, programs and hold workshops aimed at impacting knowledge necessary for the establishment and running of a startup in Nigeria.	Support for training and capacity building of startups and set up of a platform setting out information on available training programs, mentors, resource persons and other such information at the national and the county level of government Facilitate the startups to file and register patents at the international level.
Non-Fiscal incentives Market Access	A 5% preference margin is granted to any labelled startup participating in a call for tenders for a public contract. Applicants for a public contract, delegation or partnership contract who agree to subcontract 30% of the services covered by the contract startups or who submit a group offer with startups may benefit from a 5% preference margin		Conversion to innovative SME status (extending the incentives at the stage of maturity)	Startup Portal to provide opportunities for a startup to enter into contracts with the Federal Government, through public procurement or other engagement processes
Non-Fiscal incentives Infrastructure	Startups benefit from support in reserving the domain name ".sn"		Access to an online portal (opportunity to manage a public profile)	Access to an online portal
Non-Fiscal incentives Labor market		-Any young graduate legally eligible for the employment programs, and who creates a Startup, retains the right to benefit from these programs for a maximum period of three (03) years	Tailor-made labor law Flexible remuneration system	An eligible employee of a labelled startup shall be entitled to personal income tax exemption of 35% on the income of the employee for a period of two years from the date of engagement by a labelled startup.
Non-Fiscal incentives			Referenced in the law but from other regulations: Italia Startup Visa program Italia Startup Hub program A pilot project for the creation of Contamination Labs
Fiscal incentives	Special tax advantages as provided for in the General Tax Code	-The following are fully deductible and within the limit of income or profit subject to tax- Income and profits reinvested in the underwriting of the initial capital or increased capital of Startup Income or profits reinvested in the capital subscription of venture capital companies, or placed with them in the form of venture capital funds, seed funds or any other investment body The profits from the sale of the securities relating to the shares in the Startups are exempt from the capital gains tax. Exemption from corporation tax and the assumption by the State of employers' and employees' contributions to the statutory social security scheme.	Exemption from the duty to affix the compliance visa for compensation of VAT credit Tax incentives for corporate and private investments in startups, both by individuals and by legal entities Exempted from fiscal penalties applied to so-called “dummy companies” Referenced in the law but from other regulations: Transfer of startup fiscal losses to listed sponsor companies R&D Tax credit Patent box (exclude from taxation 50% of the income deriving from commercial use of intangible assets)	Under the Pioneer Status Incentive Scheme tax reliefs may be granted for labelled startups that fall within the industries captured by PSI. A labelled startup may be entitled to exemption from the payment of income tax or any other tax chargeable on its income or revenue for an initial period of four years and an additional period of three years,	The Act discusses putting in place measures for the granting of fiscal incentives including tax incentives that are necessary for the development of startups in the country.
Original texts	Loi N° 2020-01 du 6 janvier 2020, relative à la création et à la promotion de la Startup au Sénégal.	Loi n° 2018-20 du 17 avril 2018, relative aux Startups.	LEGGE 17 dicembre 2012, n. 221 Gazzetta Ufficiale, Roma, n. 294, 18/12/2012	NIGERIA STARTUP BILL, 2021	Kenya Gazette Supplement No. 163 (Senate Bills No. 16), SENATE BILLS, 2020; NAIROBI, 14th September, 2020
	http://www.numerique.gouv.sn/mediatheque/documentation/loi-relative-à-la-création-et-à-la-promotion-de-la-startup-au-sénégal	https://www.mtc.gov.tn/fileadmin//user_upload/Loi2018_20.pdf	https://www.gazzettaufficiale.it/eli/id/2012/12/18/012G0244/sg	The Nigeria Startup Bill is currently being debated at the Nigerian National Assembly for adoption. See https://startupbill.ng/ for a timeline of events, the current draft and the consultation output.	The Kenya Startup Bill is currently being debated for adoption

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Startup Act: Tunisia

Tunisian Startup Act
2018

Points of Interest

• Tunisia was the first African country to pass such an Act. One of the primary objectives was to attract investment and make the country a destination of choice for international startups as well as local.

Impact in Numbers

• 401 labels awarded between April 2019 and December 2020.
• 3,222 jobs created by startups.
• In 2020, 82 startups raised a total of $8.2 million.

• The 2018 Tunisian Startup Act, had a primary objective of creating an incentive framework for startups that was based on “creativity, innovation and the use of new technologies.” 20 measures include reforms such as:
  • Startup Leave to co-founders with option to return to employer without penalty,
  • Startup Scholarship for co-founders (up to ~USD 1700),
  • Intellectual property registration help for licensing and patents,
  • Multiple tax and finance incentives
  • Amicable liquidation through Guarantee Funds, exemption from corporate tax, etc.

• The process was collaborative and participatory. Tunisia’s Startup ecosystem lobbied policymakers on their priorities for the Act in what has been called “bottom-up policy making.”

• A task force of 70+ leading actors, worked to simplify over 100+ measures proposed

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Startup Act: Senegal

Senegalese Startup Act
2019

Points of Interest

• 1000+ citizens engaged using over 50 co-creation activities and innovative platforms like a Facebook consultation chatbot

• Stakeholders went through 20 iterations of the Startup Act

• The 2019 Senegalese Startup Act granted a specific status and legal regime for the registration and labeling of Senegalese startups.

• It grants subsidies for the
  • formalization of companies,
  • access to a domain name(.SN),
  • international intellectual property protection, support to incubators,
  • research and development,
  • training platforms,
  • access to specific public and private funds;
  • and public procurement preferences.

• Discussions fueled complementary changes to the Finance law which resulted in the simplification of the tax regime (11 rates to 2), reduction of registration fees by 60%, and 3yr tax holiday.

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Small Business Act: Morocco

Moroccan SME Act
2002

Points of Interest

• This Act is outdated and limited to a few measures that are not reflective of multiple programs implemented in support of SMEs. The Government recently set up a multi-stakeholder technical committee charged with conceiving an SBA that will ensure coherence to existing sectoral strategies and programs and which gives better visibility to the State’s actions in favor of entrepreneurship.

• The Moroccan Act enacts the SME Charter of 23 July 2002, which is a framework for the promotion of SMEs.

• Defines criteria for beneficiaries i.e. small business and medium businesses, which include size, annual turnover limits and percentage of capital or voting rights owned by external parties.
• Interventions:
  • Establishment of various VC instruments for SME financing
  • Support for Public Procurement
  • Support for the development of land, business incubators and technology parks
  • Tax deductions and exemptions for SMEs in key sectors, investors subscribed to a failing SME.

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Small Business Act: Senegal

Senegalese Small Business Act
2008

Points of Interest

• The Small Business Act was later followed by the 2017 Economic Modernization Act that defines the status of SMEs, procurement quotas for SMEs, etc

• The 2008 Senegalese Small Business Act establishes a framework for the development of Senegalese SMEs.
• Defines criteria for beneficiaries i.e. small business and medium businesses, which include size and annual turnover limits
• Addresses multiple challenges faced by SMEs including:
  • Financing - provision of guaranteed funds, thematic funds, venture capital, loans
  • Research & Development financing
  • Support for associations and organizations supporting SMEs
  • Establishment of incubators
  • Support for standardization and certification
  • Access to land

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Key Criteria found in SME and Startup Act Definitions

The eligibility requirements  of SME and Startup Acts varies across different instruments. Out of all the legislative and regulatory instruments reviewed, the table below gives the percentage of instruments that indicate a specific requirement.

Employee Requirements

In instruments reviewed:

• Micro and Very Small Enterprises (VSE) do not exceed 10 people.
• Small Enterprises do not exceed 50 people.
• Medium Enterprises do not exceed 250 people (in SBAs), or 200 people (in Policies)

Capital Requirements

• These include limits on the amount of capital (equity) held by nationals and large companies, but also the maximum value of investments for each category of enterprise.

Limits on Operation

• All Startup Acts provide limits on the maximum years of operation (4-8 years)

Requirement	SBAs	Start-up Acts	Policies
Employee criteria	65%	66%	100%
Annual Turnover Requirements	72%	33%	50%
Capital Requirements	50%	33%	100%
Limit on years of Operation	-	100%	-
Growth Potential requirement	-	100%	-

Country	Instrument	Categorization	Size (# of employees)			Annual Turnover		Capital Requirements
SBA		Type	Micro/ Very Small	Small	Medium	Cap	Factor of per capita GDP	Paid-In Capital / Capital Investments
Algeria	SME Act	Very Small Enterprise (VSE), Small Enterprise, Medium Enterprise	1-9	10-49	50-250	VSE < 40 M Dinar Small < 40 M Dinar Medium < 4 B Dinar	VSE - 89x Small - 89x Medium - 8912x	Cannot be held up to 25% by one or more large companies. Not owned by private equity by more than 49%
Benin	Decree on National Charter for SMEs	Micro-Enterprise, Small Enterprise, Medium Enterprise	1-5	5-49	50-99	Micro < 5 M CFA Francs Small < 150 M CFA Francs Medium < 2 B CFA Francs	Micro - 16x Small - 473x Medium - 6301x
Kenya	Small and Micro Enterprises Act	Micro-enterprise, small business	1-9	10-50	n/a	Micro < 500K Shillings Small < 5M Shillings	Micro - 5x Small - 52x	Micro: Manufacturing investment/registered capital <10M shillings, farming/service investment/registered capital <5M shillings Small: Manufacturing investment/registered capital 10-50M shillings, farming/service investment/registered capital 5-20M shillings
Senegal	SME Act	Small Enterprise, Medium Enterprise	n/a	1-20	21-250	Small: limits set by Single Aggregate Contribution Medium: limits set by Single Aggregate Contribution to 5B CFA Francs	Medium - 7908x

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Recommendations

A series of tentative lessons learned can be drawn from the assessments of and the literature on entrepreneurship policy, both regarding the process of designing SBAs and Startup Acts as well as their technical content.

1. Be participatory: Involving entrepreneurs and their partners (incubators, investors, etc.) in the process of co-designing and co-evaluating entrepreneurship legislation and policies is crucial. It will help you better understand their needs and incorporate knowledge and preferences of beneficiaries into your decision-making while strengthening social capital.
   • This is also called the “Big tent approach”,  which implies that the process of engagement is collaborative and involves all relevant stakeholders in the tech-enabled startup ecosystem including the government.
2. Think in ecosystems: Recognize the ecosystems and interconnections in which entrepreneurs grow. It is imperative that the policies are long-term, holistic, and well-coordinated.
3. Integrate your instrument within the existing legislative/regulatory framework: your country will most likely have a number of legislations affecting businesses (laws on taxes, procurement, intellectual property etc.). When creating you instrument related to startups, it is crucial to integrate and align with these existing texts. Collaborate with Ministries, agencies and authorities in charge of these existing legislations: their experience will inform your work on Startups.
4. Address Framework Conditions: Trying to target growth potential as the core policy goal of any initiative is fraught. This is because future growth for new companies is difficult to predict. Recent research argues for a reorientation away from actively searching for high-potential firms towards framework conditions: improving allocative efficiency, encouraging Business-to-Business spillovers  and strengthening firm capabilities.
5. Be Clear and Objective about the Target: It is important to clearly define the beneficiary targets of the legislation and policies, the policy objective(s), and to avoid discretionary selection methods,  where firms are selected subjectively based on perceived growth potential, innovation, or other factors. What is problematic in such processes is to develop, assess and administer qualitative selection criteria, usually associated with “desirable” characteristics that are “unobservable,” which turn them into a complex subject for laws.
6. Focus on Open Implementation and Monitoring: Priority should be given to the quality of execution and ensuring that monitoring and data collection mechanisms are in place to embed learning and iteration throughout. This implies, inter alia, detailed action plans, sufficient institutional anchoring and coordination across the public sector.

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Acknowledging the limits of SBAs and Startup Acts

Although SBAs and Startup Acts provide the legal basis for improving the business and regulatory environment, their official approval does not automatically translate into results, even when they follow the aforementioned recommendation.

• It is important to remember that public policy still cannot solve every obstacle to entrepreneurship by itself.
• There is limited research and evidence on where entrepreneurship policy must stop, and how to optimize the additionality of publicly-funded interventions undertaken by the private sector.
• Under adverse conditions, entrepreneurship policies can fail to produce positive effects, not by flaws in policy design, but rather due to structural limitations. Evidence is lacking on what types of structural preconditions and context are necessary for such policies to generate satisfactory results.

Economic & Financial Instruments

Fiscal measures, public programs, public guarantee funds & equity investment funds and governance reforms are some of the few financial instruments that can be used by governments to address the challenges faced by entrepreneurs.

• Fiscal measures - Are a tool used by governments, most often adopted through their annual Budget Laws, to promote the development of SMEs and startups, especially to attract investments.
  • Mauritius is an example of a country that has used these measures to establish itself as a prime location for setting up and administering private equity and venture capital funds. It provides various options for how funds can be structured and have positioned itself as a low-risk country given its Investment Promotion Agreements with at least 23 countries.

• Public guarantee funds and public equity investment funds - In order to address challenges entrepreneurs face with access to finance, governments are increasingly using public guarantee funds, which reduce/eliminate the need for collateral required by commercial lenders and assume some of the risk involved in financing SME loans.
  • Morocco’s Central Guarantee Fund (CCG) has been hailed as an outstanding example of a public guarantee fund for SMEs and other firms. CCG guarantees between 50 and 85% of investment funds for projects, and 50% of credits for financial restructuring in all sectors except real estate and high-sea fishing.

• Public programs - Governments may also invest in other forms of spending such as infrastructure, mentorship programs, national competitions, and entrepreneurship training programs to support SMEs.
  • For example, Angola’s sovereign wealth fund (FSDEA) established a social impact platform called Kijinga, which is targeted at startups on the outskirts of its cities. It also established a $250M equity fund for struggling entrepreneurs and launched the Future Leaders Scholarship program, which sends young graduates to the Zurich University of Applied Sciences for studies in professional investment management

• Governance reforms - A common objective of many countries seeking to drive productivity in the SME sector is the removal of barriers to doing business through the simplification of business registration procedures and the implementation of reforms that reduce the cost of doing business. 
  • One country that has achieved great success in this area is Rwanda. The 2013 World Bank Group Doing Business Report highlights a number of initiatives used to achieve this success in the past two decades.

The economic and financial interventions you could implement will be further detailed in Part 3.1 of the toolkit titled “Finance”.   

Beneficiary Targeting Defining Your Target Audience

Approaches to Beneficiary Selection

All Startup, SME and Entrepreneurship Policies determine criteria to define SMEs and Startups which can be beneficiaries of financial incentives and specific schemes, generally using the number of employees, annual turnover, and capital requirements.

To determine which entrepreneurs, meet the criteria, standards, and expectations to benefit from a policy intervention, a selection process is often put in place by policymakers. This selection process of firms receiving grants and/or incentives can be either objective or discretionary.

• Discretionary Selection: Often seen in Start-up Acts in an effort to select firms with high-growth potential i.e.  identify “high growth firms” or “innovative firms”
• Entitlement Based Selection: Beneficiaries selected on objective, rules-based selection process

Discretionary selection

• Discretionary selection targets firms based on perceived growth potential or strategic priority. This process is often modelled on Venture Capital selection to pick ‘outsize’ growth (= very large).
• A discretionary selection process is often overseen by a selection committee composed of both public and private actors.
• The goal of this method in the certification process is to ensure due diligence, value for money of offered incentives or to establish a startup brand.
• The difficulty of a discretionary selection process is that it can perpetuate biases and is prone to elite capture, if accountability measures are not in place.
• Moreover, the technical design of a discretionary selection process also tends to be problematic, as developing, assessing and administering qualitative selection criteria, usually associated with “desirable” characteristics that are “unobservable,” turn them into a complex subject for laws.

Tunisian Startup Labeling Process

• Upon verification of first three criteria (age, size, independence), Tunisian startup applications are reviewed by the Startup College (committee) for innovation and scalability criteria.
• The Startup College is made up of a President and eight members, all volunteers, from the public and private sectors in connection with Startups, entrepreneurship, innovation, investment and support. The composition, prerogatives and operation are set by of the College are set by law.

Provisions for Eligible Startups
AGE		SIZE		INDEPENDENCE		INNOVATION		SCALABILITY
No more than 8 years of existence		No more than 100 employees and $5.3m in total assets or annual turnover		More than two-thirds of capital held by natural persons or investors		Discretionary: Strong innovative character, defined as “providing an interesting and differentiated solution to a given problem		Discretionary: Perceived growth potential, product-market fit, proof of concept, & team capabilities

Tunisia Startup Act Labeling Process

Between March 2019 (start) and April 2022 the committee received 1295 applications via the Startups portal. Startup Labels have been granted to 694, with 293 Pre-labels granted but not yet transformed.

Entitlement-based selection

• In an Entitlement-based selection procedure, firms are selected based on objective, rule-based criteria. All firms that can proof that they match the stated criteria, qualify for the incentives provided by the entrepreneurship policy.
• By utilizing a transparent and objective, rule-based procedure, entitlement-based selection helps to avoid moral hazard, reduces oversight expenditure, and mitigates perverse incentives.
• To determine which entrepreneurs, meet the criteria, standards, and expectations to benefit from the policy intervention, a labelization process is often put in place by policymakers.
• For example, in Burkina Faso, to qualify as an SME, companies must meet the conditions defined by the SME act and sign the SME Charter, following which they are registered in a national register.
• Ivory Coast’s SBA and the Rwandan Investment Code are also examples of entitlement based processes. The next slide provides more details on the case of Ivory Coast.
  

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Le Statut de l'Entreprenant

Criteria for Obtaining Entrepreneur Status in Ivory Coast

The conditions for acquiring the status of Entrepreneur are:

• be at least 18 years old, failing which, be an emancipated minor
• carry out a civil, commercial, artisanal or agricultural professional activity
• have an up-to-date identity card or any other document in lieu of carrying out the activity
• transmit detailed information on the nature of the activity and where it is carried out
• have personal telephone contacts identified in the name of the entrepreneur
• have a turnover that does not exceed the following thresholds for two consecutive years:
  • 30 million for trading companies
  • 20 million for craft and related businesses
  • 10 million for service companies.

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Recommendations

• In most country processes where i4Policy has been involved, the Foundation recommended implementing an entitlement-based process, for the following reasons:
  • It offers clear-cut criteria for being considered as a beneficiary or not: either a firm meets these criteria, or it does not.
  • There is less need to establish separate selection/labeling committees, which can be ill-positioned to accurately determine whether a firm has growth potential or is innovative.
  • It reduces the red tape surrounding the selection/labeling process, which means fewer bureaucratic bottlenecks and delays, which could occur if the administration has to handle a sizable amount of applicants, and less potential for corruption.
• Entitlement processes are widely used to deploy tax incentives programs for firms in the USA and the rest of the world. In Africa, 56% of legislations reviewed in a benchmarking study conducted by i4Policy employ an entitlement-based labeling process (often through registration schemes), while 16% contain a discretionary process.

Developing inclusive business policies

Definition of inclusive business

The International Finance Corporation defines inclusive business as:

‘a private sector approach to providing goods, services, and livelihoods on a commercially viable basis, either at scale or scalable, to people at the base of the pyramid by making them part of the value chain of companies’ core business as suppliers, distributors, retailers, or customers’.

• This means that inclusive businesses are economically profitable, environmentally and socially responsible entrepreneurial initiatives, which integrate low-income communities in its value chain, for the mutual benefit of both the company and the community.
• A key characteristic of inclusive business is that it concerns highly innovative solutions to supply affordable products and services to meet basic needs of the poor (i.e. water, food, sanitation, housing and healthcare).

The government of Mauritius explains these inclusive business models with the help of the figure shown on the right:

• First, (local) entrepreneurs come up with a new and innovative business model to supply the basic needs of low-income communities.
• The entrepreneurs then hire locally, and/or ensure that other parties in their value chain provide employment to local communities.
• Together, this ensures a) that basic needs of the community are fulfilled and b) creates higher purchasing power for the community.
• Over time, this  transforms into higher demand for products and services.

Why supporting inclusive business ?

• Supporting inclusive business initiatives through entrepreneurship policy is important since entrepreneurs from underrepresented or disadvantaged groups face greater barriers to business creation. Their challenges often include a lack of entrepreneurship skills, difficulty in accessing finance and navigating the regulatory framework and fear of failure. Women are particularly affected by these and often face significant (additional) barriers to start a business.
• Inclusive business initiatives can help overcome these barriers and are an important vehicle for achieving inclusive growth, as they:
  • Improve the livelihoods of low-income populations
  • Create income and employment opportunities for low-income communities – either directly or via companies' value chains (suppliers, distributors, retailers, service providers)
  • Help businesses turn underserved populations into dynamic consumer markets and diverse new sources of supply.

Over 60% of young people (18-24) across 14 African countries have an idea for a business or social enterprise that will benefit those living in their community.

The highest percentage was found in Togo where 91% of the young people placed a strong emphasis on social returns from their business ideas and crafting efficiency gains for business, followed by Ethiopia (88%) and Senegal (82%).

Recommendations for supporting inclusive business

The OECD presented a number of recommendations in 2018 to strengthen social inclusion through inclusive entrepreneurship. These are the key recommendations for policymakers to take note of:

Deepen your understanding of the challenges that target groups face in entrepreneurship.

1. Invest in data collection and assess the impact of inclusive entrepreneurship policies.
2. Make it easier for people to acquire entrepreneurship skills. Offer entrepreneurship training courses and provide support (i.e. finance, coaching, mentoring).
3. Provide flexibility in the way social security is paid. Allow for lump sum payments to support business creation and provide allowances or continue to pay unemployment benefits for a fixed period to people who start up from unemployment.
4. Offer business development support to upgrade the quality of businesses started, specifically for people from under-represented and disadvantaged groups.
5. Build entrepreneurial networks of growth-oriented entrepreneurs from outside the mainstream population.

Evidence, Monitoring & Evaluation

There is an evidence gap about what works. Only, 45% of SBAs and Startup Acts refer to any M&E Framework…

Even fewer have any publicly available evaluations...

Monitoring & Evaluation Basics

Monitoring and Evaluation (M&E) helps to assess which policies are working well and which are not, gives insight into costs and benefits and can help determine which policies should be pursued, extended or even stopped.

Enabling and encouraging continuous feedback loops is essential to improve the design and implementation of entrepreneurship policies. This section explains monitoring and evaluation (see also table below) and provides for a greater understanding of these tools.

Source: Asian Development Bank (2013). Kazakhstan: Improving Capacity to Support SME Development.
Monitoring	Evaluation
Clarifies program objectives Links activities and their resources to objectives Translates objectives into performance indicators and sets targets Routinely collects data on these indicators, compares actual results with targets Reports progress to stakeholders  and alerts them to problems	Analyses why intended results were or were not achieved Assesses specific causal contributions of activities to results Examines implementation process Explores unintended results Provides lessons highlights significant accomplishments or program potential and offers recommendations for improvement

Components of M&E

It is essential to start planning the M&E process during the design phase of your policy. Considering which variables to monitor and which actors to involve early on will enable the responsible monitoring body to carry out the M&E process systematically and effectively in the future.

A comprehensive M&E plan includes the following components;

• M&E Mandate: The mandate clarifies the purpose of M&E and the value it brings to the organisation. It contains formal agreements that ensure that M&E will be done and is supported by adequate resources.
• M&E Plan: The plan describes which activities need to be monitored and evaluated. It also prescribes who is responsible for the process (responsibility), how it will be carried out (methods) and when the process takes place (timing). The plan also describes what will be done with the data and information gathered and how it will inform future policy iteration.
• M&E Processes and Structure: The processes and structure in a M&E plan clarify what resources will be required and where they will be committed. This part of the plan also lists the stakeholders that are involved and accountable for the M&E process and contains safeguards to ensure that resources are used effectively, efficiently and with accountabilities.

Challenges to M&E

Monitoring and Evaluation of regulatory instruments can be challenging and it is not always clear where to start. Bussmann (2010) summarizes the challenges to M&E of regulatory instruments in his appropriately titled publication ‘Evaluation of legislation: Skating on Thin Ice’, drawing from examples from Switzerland.

He distinguishes between the following theoretical and practical challenges that need to be taken into account when designing a M&E Plan for regulatory instruments.

Theoretical Challenges

• Not Time Bound: Laws are intended for unlimited periods of time and apply to an entire territory and population. Policies (which may aggregate programs and laws) are focused on specific outcomes.
• Multiple objectives: Laws address cross-cutting issues and often try to achieve multiple aims. As a result, counterfactual evidence (evidence assessing results of a change) can be difficult to obtain. Missing links to impact and implementation: For example, of 308 evaluations conducted on Swiss legislation, it was estimated that just 10 concerned laws. In five of the evaluations completed, the findings were not internally consistent (e.g. stakeholders were satisfied with the law, but there was no evidence of success or positive impacts) and had missing links on implementation
• Interactions / difficulties isolating partial effects: Different parts of a law may interact with each other, making it difficult to isolate the effects of each program (a multi-treatment problem). Parts of the law may also interact with other laws, creating unclear boundaries on the subject of evaluation.
• Attribution not possible for entire population: causal attribution for laws that address an entire population is not possible because the method requires the evaluation of differences between target and control groups. Hence a different method of evaluation is required.

Practical challenges

• Lack of data: In some cases, existing data surrounding the area of interest may not be readily available. Outside of data available at statistical agencies, data often exists in siloed government agencies. It may be necessary to commission new research to understand specific challenges for SMEs.
• Lack of financial and human resources: Governments can lack the capacity to conduct research due to a lack of funding or human resources.
• Coordination: Multiple stakeholders are involved with issues of entrepreneurship and with reporting, monitoring and evaluating. Coordination is required to aggregate national or regional efforts on entrepreneurship.

Approaches to M&E

Potential Approaches	Description	Notes
Experimental Strategy	Testing partial components: Though the experimental approach to evaluating the whole law might not be feasible, some legislation includes “experimental zone” that may allow for testing of new treatment and implementation models.	These areas may be evaluated with quantitative or qualitative methods, especially if there is rich data on target populations as some countries have on MSMEs.
Descriptive Strategy	Descriptive status or report: This strategy describes the situation, providing information on the status of implementation, budgets, and outcomes without attempting to address causality.	Outcomes may be caused by different factors (e.g. economic growth or decline) and shed little light on interventions included in the law.
Strategy of Plausible Arguments	Multiple Pieces of Evidence: The approach uses plausible arguments to find “as many pieces of evidence to piece together the mosaic of the chain of effects”.	Draw on comparisons (repeated observations) of what is or is not working, to provide some evidence of change. Draw on developments of new knowledge and retrospective evaluations that provide guidance on how to improve a law or whether it should be abolished.

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M&E Process

• For each of the potential approaches presented on the previous slide, it holds that policymakers should aim to establish a clear chain of results.
• This implies starting the M&E process from the program inputs and working towards measurable outputs and outcomes.
• The OECD argues that a ‘logic’ model can help build such a framework.
  • An example is shown on the left. This model was drafted for the evaluation of SME Policy in Jordan in 2019
  • A second example is presented on the next slide. This concerns the logic model behind the M&E of the 10-year Master plan for the SME sector in Mauritius

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Data collection and measurable outcomes

• Monitoring and evaluation processes include data collection, defining roles and responsibilities of actors and deciding on frequency of reporting. Appropriate indicators need to be defined for each stage.
• Key Performance Indicators (KPIs) are generally used for this. These are measurable targets for the desired level of performance for each policy. Section 2 of the toolkit discusses KPIs in more detail and provides an extensive list of examples.
• Defining and monitoring KPIs is an important aspect of any M&E system. It allows policymakers and stakeholders to monitor progress on inputs, activities, outputs, outcomes and impacts in a transparent and objective manner.

• Good KPIs are;
  • specific, measurable (quantifiable), attainable (realistic), relevant (to the goal), and time-bound (attainable within a specified time frame)
  • Provide objective evidence of progress towards achieving a desired goal
  • Measure what was intended to be measured to help inform better decision making
  • Offer a comparison that gauges the degree of performance change over time
  • Can track efficiency, effectiveness, quality, timelines, governance, compliance, behaviours, project performance, personnel performance, and resource utilisation
    
    

Government policymakers need to exercise considerable judgement about what evidence to seek out, when and from whom; and about how to ensure it informs decisions effectively and in a timely manner.

Improving the use of Evidence

Types of Evidence

• In order to be able to draw reliable conclusions from Monitoring and Evaluation approaches, the evidence collected needs to be of as high quality as possible, within limitations of accessibility and budget.
• Policymakers need to be assured that the evidence they are basing their decisions on was sourced using recognised best practices, whether this is through surveys, research or consultation with stakeholder and citizens.
• Reliable evidence is needed to respond to immediate pressures and to anticipate future needs, meaning that a range of types of evidence will be required for effective policy development and implementation.
• Note that there is no single approach to evidence-based policymaking: policy work around entrepreneurship is very varied and different Ministries will require different types of evidence and use it in different ways at different times. This means that an evidence-based approach to making entrepreneurship policy must be flexible and pay equal attention to the quality of the processes through which evidence is sourced and used, as well as the quality of the evidence itself.

It is helpful to consider four different types of evidence that are needed to make up an ‘evidence base’:

• Statistical and administrative data, whose purpose is to paint a picture of the situation;
• Evidence from research, whose purpose is to uncover causal links and relationships, helping to understand why things happen the way they do;
• Evidence from citizens and stakeholders, whose purpose is to understand what different groups of people value and what they consider to be legitimate.  This evidence could be collected as part of a survey or a research project, but could also come from inclusive and participatory engagement processes;
• Evidence from evaluations, whose purpose is to uncover what worked in the past, for whom, how and why.
  
  

Statistical and administrative data			Evidence from research			Evidence from citizens and stakeholders			Evidence from evaluations

• The evidence base for entrepreneurship policy should cover all four types of evidence, though not necessarily at 25% each. It is up to individual policy makers to decide where there may be a weakness in the evidence base and if so, what type of evidence will be needed to cover it.
• An over-reliance on research can lead to technocratic policy making with little citizen involvement or practical experience taken into account. Citizen evidence needs to be balanced with technical research. Policies based solely on what has been shown to be effective may also be slow to innovate. Combining evidence from research and participation by citizens leads to evidence-informed policy.
• Consider how you think change is likely to happen (your ‘theory of change’ for entrepreneurship policy). Evidence can confirm your theory of change, challenge it, expand it, explain it, enrich your general understanding and/or help you anticipate what might come next.
• If you only seek out evidence that confirms what you think is likely to happen, you will be unprepared for the unexpected or unable to explain complex relationships – which will affect how effective policy implementation is likely to be.

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Making the evidence base robust

If policy making requires a mix of types of evidence, it follows that one single study does not make a robust evidence base. A single study, set of data, consultation report or evaluation may have been well conducted but you will also need to ensure that:

• The context within which it is set is similar to the context you are working in not just the country context but the socio-cultural and economic contexts as well;
• The questions it seeks to answer are the same as, or very similar to, the specific questions you are asking;
• It uses appropriate methods (peer review of the study is important to clarify this);
• There is a logic to its arguments, and it is transparent about what it can and cannot conclude.

When dealing with a body of evidence the questions are slightly different. There is no magic number as to how many pieces of evidence constitute a complete body of evidence, but we can give some general guidelines.

• First, you should consider whether you have included all four types of evidence discussed before, with at least two examples of each type.  Each individual piece of evidence should be assessed against the questions above, but in addition you should ask:
  • Context: are all the pieces of evidence relevant to your current context?  If not, why not and what difference might this make to the conclusions you could draw?
  • Consistency: do all the pieces of evidence point towards the same conclusions or do they disagree with one another (and if so, why?).  What does this imply, and where else could you look for further evidence that might improve the overall picture?

• Second, remember that any weakness in the evidence base increases the risk of taking a poor decision. It may not be possible to augment the empirical part of the evidence base with more data, research or evaluation evidence within the time available.
  If this is the case, you can strengthen the evidence base by consulting widely with stakeholders to develop a sense of the shared view on the topic.  This may not lead to a clear conclusion, but if it is done in an inclusive and participatory manner it increases the overall robustness of the evidence base.  

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M&E clauses in SME and entrepreneurship policies

SME/ Entrepreneurship Policy	Interim/Final Report	Frequency of Reporting	Logical Framework (indicators, outcomes or areas of focus)	Data & Data Collection Process	Roles and Responsibilities
Mauritius (10-year Master Plan for the SME sector, 2016)	✔ Programme performance reports to measure results, identify challenges and sharing reports with stakeholders	✔ Bi-annual	✔ Full logical framework with more detailed KPIs and detailed activities by initiative	✔	✔ Three-tier structure - i) an inter-ministerial committee, ii) a high-level steering committee for operationalising the recommended actions, and iii) up to six technical committees for implementing, reviewing, and reporting high impact initiatives and actions
Nigeria (National Policy on Micro, Small and Medium Enterprises, 2015)	✔ Baseline report with key MSMEs statistics and indicators	✔ Independent monitoring teams on a half-year basis, and an annual review of baseline data and statistics through the SME Development Agency and the National Bureau of Statistics	✔ Action plans that include high-level objectives, detailed activities, and time frames for completion	✔	✔ National Council on MSMEs and  state and local government councils
Rwanda (SME Policy, 2010)	✔	✔	✔ Includes policy objectives, policy choices, and strategies to achieve the policy objectives, timeframe, and responsible implementing agencies	X	✔ Ministry of Industry and Trade and  support from implementing ministries and agencies
Tanzania (SME Development Policy, 2003)	✔ Publication of a document at a regular forum of SME stakeholders	X	✔ Action plans that include high-level objectives, detailed activities, and time frames for completion	X	✔ Ministry of Industry and Trade and  support from implementing ministries and agencies

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Further Reading

• About SME Challenges
  • World Bank Group (2019). Typology of SMEs

• Understanding your Ecosystem
  • GIZ (2021). Guide to Strengthening Entrepreneurial Ecosystems
  • Aspen Institute (2013). Ecosystem Diagnostic Toolkit

• Understanding Entrepreneurship Policy
  • UNCTAD Entrepreneurship Policy Framework

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Continue to

Part 2 - Assessing Your Ecosystem

Part 3 - Policy Interventions by Topic Area

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