June 30, 2008 - Based on new information generated for this study, the World Bank document "Towards More Productive and Formal Firms " provides policy recommendations aimed at increasing the productivity of micro and small firms in Bolivia and at creating incentives for these companies to formalize.

 

The study is based on a detailed analysis of micro and small enterprises, particularly regarding the factors that determine their productivity and profitability, and their motivations to remain informal or to formalize. In order to evaluate in depth these factors, focus groups were conducted and a new survey was carried out to around 640 companies in six different sectors of the Bolivian economy, including formal and informal enterprises, both in urban and rural areas. The survey allowed a rigorous capture of information concerning the factors that affect the firms’ profits and their decision to formalize.

 

The qualitative analysis based on focus groups revealed, among other outcomes, that access to capital is seen as the major constraint to productivity for micro and small enterprises. However, the survey reveals that register at the municipal level can improve companies' access to financing; while obtaining a Tax Identification Number – NIT, registry with the tax office – does not. Another important outcome of the study shows that obtaining the NIT generates considerably higher profits for small businesses (between 2 and 5 employees) due to better access to clients that seek for tax-deductible  receipts, but a decline in profits for bigger or smaller firms, contrasting with the view that formality always increases profits.

 

Based on these and other findings, the study outlines recommendations for public policies, both to increase the productivity of micro and small enterprises and to encourage their formalization. These recommendations, and the new information on which they are based, open the door to further discussions with government authorities, as well as other options supported by the World Bank, in its effort to encourage the development of the country.