Group exercise. Otieno: A business owner in Rwanda

Transcription

1 Otieno: A business owner in Rwanda Otieno owns an export trade business. He hires five workers on a regular basis and as his market position is good, he is thinking of expanding his operations, and hire more workers. He has just obtained a loan from the country s first investment bank that is specialised in enhancing the productivity of growth-oriented businesses. Otieno also gets support from a business association, which is registered as an employer organisation. Otieno has registered all his employees, who get full employment benefits. This comes as a cost but he thinks that the well-being of his employees has contributed to higher productivity and staff motivation. He is a bit frustrated though by the unfair competition of his competitors. Indeed some employers in his sector, who are not declaring their workers are creating unfair competition as they can provide cheaper goods and services than companies respecting the rules, including health and safety obligations, payment of social security contributions and working conditions. His employers organization is working with the government to address this issue. Otieno pays taxes under a simplified taxation format introduced by the Government for small enterprises. This tax scheme means that he pays a lower tax rate than large enterprises on the basis of a relatively simple annual tax declaration form. Would you qualify Otieno s business as a formal or as an informal business? What are the reasons for Otieno s business being formal / informal?

2 Rafael: the owner of a restaurant in the Dominican Republic Rafael is 35 years old and is the owner of a small restaurant, which is not registered even though he claims so because he pays a tax to the municipality. He employs a family member (his nephew), but during peak times, he hires other seasonal workers to fulfil the needs. Working hours are often long and working conditions are poor: in particular, the kitchen of the restaurant is badly lit, not very well equipped and with insufficient ventilation. Because of that, the restaurants at the neighbourhood get more clients. Sometimes, his workers do not show up as a threat for not offering better contract conditions. Rafael remains competitive only because he sells special local dishes. Rafael has considered registering some of his workers, but after spending a day going to different local agencies, he was daunted by the amount of documents to fill out, the costs of registering, and the number of different institutions that he needs to get permits and certifications from, dealing in particular with the food sector. He is also afraid that local authorities can shut down his eating place because of poor working conditions and lack of compliance with sanitary regulations. He also wonders whether he will be able to pay taxes every year as his revenues fluctuate. Rafael wants to improve the situation of his workers and at the same time his business, but he is worried because of the costs implied by taxes and social security. Indeed hiring informal workers and family members helps him remain competitive. Rafael is also a member of a small business association but does not have time to attend meetings to better understand how he can get support from the association, Would you qualify Rafael s business as a formal or as an informal business? What are the reasons for Rafael s business being formal / informal?

3 Maya: A trader in Cambodia Ms. Maya Duong operates a small business that buys garlic in Vietnam and sells it in Cambodia. The business is composed of herself (manager), her elder brother (driver) and a female employee in charge of the distribution of the garlic to clients in Cambodia. The business model is easy. Maya and her brother drive to Vietnam in the morning, buy the garlic in a small town close to the border and drive back to Cambodia in the evening. They generally undertake this trip two times a week. Depending on the season, they bring vegetables from Cambodia to Vietnam, selling them to their business contacts in the same border town. Maya and her brother know well the customs officers working at the border and regularly buy them some gifts. The garlic is sold to local shops and restaurants in Maya s home town in Cambodia. Maya s clients are regular customers and her sales have been stable over the years. She has not seen any increase in her sales though, because the town where she lives and works is quite remote and no new restaurants or shops have been opened. Whereas the overall Cambodian economy has been growing over the past years, this growth has not translated to any increase in sales or income for Maya s business. Income from the business, though, has covered the cost of living of Maya and her two employees. So far, Maya s business is completely informal. It is not registered with the municipality, it is not paying taxes and the salaries are paid informally without any social security contributions. From time to time informal taxes need to be paid to local policemen in order for Maya not to get into trouble. Maya is tired of the routine and she is worried about the lack of growth prospects. She dreams about starting a formal import-export business as this may allow her to diversify the range of products she could be trading and increase the volume as she could be eligible for a bank loan. She fears, however, that she may not have the right qualifications to open such a business. She has also heard that opening a business formally may increases certain costs. She has not shared her ambitions with anybody as people would probably just be laughing about her. Would you qualify Maya s business as a formal or as an informal business? What are the reasons for Maya s business being formal / informal?

4 Leyla: A rural entrepreneur in Jordan Leyla owns a food processing business in small rural town in Jordan. She hires two workers on a regular basis and usually another three to four workers during the peak season. As productivity rises, she is thinking of expanding her operations. She has just obtained a loan from a private bank and she also gets the support from a local women business association. A while ago Leyla decided to formalize her business in order to make it grow and access new markets. She registered her business with the municipality and with the Chamber of Commerce. She has also registered two of her employees who now get full labour benefits. This comes as a cost but brings also benefits: she thinks that the security and well-being of her employees have contributed to a higher productivity for her business. At times she gets annoyed with the time she has to spend on the administrative work related to the payment of the social security contributions each month, but she is quickly learning and spends less time on it every month. The situation, however, also produces some jealousy amongst the temporary workers who join the firm during the peak season and who don t have any social benefits. Recently, one of them had an accident at the work floor, which was not covered by insurance, meaning that Leyla had to cover part of the hospital expenses. Leyla, however, considers that the cost of formalizing all of her workers at once cannot yet be covered by the income generated by the business. Would you qualify Leyla s business as a formal or as an informal business? What are the reasons for Leyla s business being formal / informal?

5 Lorena: successful entrepreneur in Kenya Lorena Mburu was born in one of the most beautiful parts of Kenya, a region home to wildlife, pink flamingos and dormant volcanoes. But amidst this natural beauty are the slums of Kaptembwa where she grew up, on the outskirts of Nakuru town. Around 140,000 people live there in insanitary conditions, doing what they can to eke out a living. Lorena grew up in a place where there was no waste collection. The sewage used to encroach into people s homes. The people in the area were desperate. Most of them were not doing very well economically so they would take some of the plastic waste and melt it to make ornaments and small things out of it to sell. Lorena developed the idea to turn plastic waste into poles and fence post as an alternative to timber. She is now the owner and director of Eco-Post Recycling, an enterprise that has created more than 200 jobs. Lorena considers she was one of the more fortunate girls in her neighbourhood, whose parents worked very hard for her and her sister to study. After she graduated, she got a job in a bank but kept thinking about where she came from. She was very passionate about trying to make a difference, especially for women and youth. She didn t think working at the bank would help me so she resigned and started a recycling project working with boys who would pick up plastics in the industrial area. Through a project managed by the Kenyan Government, with financial support of an international organization, she received business advice, training in writing business plans, sales and marketing skills. The project connected her with a microfinance institution, where she received her fist loan. When the business started to grow, she got the support of a business incubator, where she received help in complying with all the formalities of registering with the municipality and with the tax authorities. Having formalized her business, it was not too difficult for her to access loans from a local commercial bank. Lorena has won a number of awards and is regularly invited to speak at seminars on entrepreneurship. Would you qualify Lorena s business as a formal or as an informal business? What are the reasons for Lorena s business being formal / informal?

6 John, the owner of a small farm in Kenya John is 41 years old and lives, together with his wife and two daughters, on a small plot of land. John and his wife both work on the farm and during peak times, they hire two other seasonal women workers from a neighbouring village to help them with the harvest. Working hours on the farm are long. John s farm has belonged to the family for generations. The land title of the farm is not registered, but everybody in the village knows which fields belong to the family. John doesn t pay any official taxes, but he contributes, just like everybody else does, to the village fund in order to help with the maintenance of the village church. John has never thought of the possibility to register himself, his family member or the seasonal workers in any social security scheme. He thinks it is too expensive to contribute to social security scheme and difficult to contribute in a regular basis because of seasonal instability of income. He also believes that the benefits offered by the schemes do not take into account the nature of his work and the needs of his family. Sometimes he is worried about who will take care of the family when something would happen to him, but he doesn t think that contributing to a formal social security scheme would be of any benefit, he thinks it is better to try and save although this is not always possible, or rely on support from other family members. John does not have sustainable market for his produce and currently sells his products to informal traders who then sell them on to consumers/national markets or to export companies. He wants to expand his business but he does not know who to talk to. He feels it is not worthwhile to approach a bank as he does not have the land titles to his farm and he is not registered, so they cannot offer them any collateral. John is interested in improving his business management skills, but so far he has not found affordable finance and training opportunities. Would you qualify John s farm as a formal or as an informal business? What are the reasons for John s farm being formal / informal?