Measurement of the Municipal Competitiveness
In 2009, the United States Agency for International Development (USAID), within the framework of its Promoting Economic Opportunities Program supported the implementation of the Municipal Competitiveness Index Project known as 2009 MCI. The Project was executed by RTI International and the Escuela Superior de Economía y Negocios (ESEN).
The MCI is a measurement tool of the business climate or environment at the municipal level based on the collection of information regarding the main conditions that investors and entrepreneurs take into account to decide where to set up their business for the first time or to expand their existing investments or businesses. There are nine (9) municipal-level business environment conditions measured by the Municipal Competitiveness Index, as follows:
- TRANSPARENCY: It measures the degree of openness to providing and facilitating access to information and foreseeability of changes to regulations affecting businesses in the municipality.
- MUNICIPAL SERVICES: the quality of services that the municipality provides to the private sector.
- PROACTIVITY: the level of dynamism of the municipal government to develop and promote initiatives that attract and retain investment and improve the local climate for doing business.
- INFORMAL PAYMENTS: it measures the magnitude, incidence and cost of informal payments required from investors or entrepreneurs to start or operate a business.
- PUBLIC SAFETY: it measures the capacity of municipalities for preventing and controlling crime and the impact of delinquency on businesses.
- TIME TO COMPLIANCE: it measures the cost of time that businesses must invest to comply with local regulations, the frequency of inspections and the proper way to conduct them.
- RATES AND TAXES: the amount of local taxes and other fees required to operate a business.
- ENTRY COSTS: the cost of time and ease of registering and starting a business operation.
- MUNICIPAL REGULATIONS: it measures the number of regulations for operating a business.
The data concerning these issues were analyzed and combined to create a general classification with regard to the municipal competitiveness of the local business environment.
The objective of the Municipal Competitiveness Index is to promote the creation of a favorable environment for investment and the creation of more business and job opportunities in the municipalities that would contribute to improving the quality of life of the population and municipal governance, and guiding them towards their local economic development.
- Improved local government and private sector performance. The MCI identifies the strengths but also the constraints of the policies and regulations that give shape to the business environment. In this way, stakeholders, municipalities, private initiative and community can easily identify and discuss possible reforms to improve the business environment and reach agreements to implement them for everyone's benefit. Through the MCI, the business community can identify municipalities which offer better conditions to invest and operate their businesses.
- Encouraging local investment and promoting better business and job opportunities. A business-friendly environment is attractive to investors willing to set up a new business or expand their existing operations. New businesses generate more jobs and revenue for the benefit of the municipal population and the municipality as well, considering that the latter needs income to provide the quality public services that the population demands.
- Improving the living standards of the municipal population. An improved business environment impacts municipal competitiveness improvement which leads to improving the quality of life of the inhabitants. This ongoing improvement effort generates a virtuous circle of economic growth and social well leading the municipalities towards the achievement of their local economic development (LED).
- Encouraging a healthy competition among municipalities. Municipalities with low scores in some sub-indices may learn from their stronger neighbors; municipalities with high scores may attract attention through their success stories and support other municipalities to replicate them.
- Informing about the progress made by the municipalities for national and international purposes. Central government leaders and international cooperation agencies may use the tool for creating action plans to reform and identify the best practices among the Salvadoran municipalities for their potential replication across the nation and the region.
- Fostering additional research. Students and scholars in the field of economic development may use the MCI analysis and data set for conducting additional research on the topic in support of the local economic development efforts.
MCI methodological aspects
The methodology developed for the El Salvador MCI has been previously applied in several Asian countries including Vietnam and Indonesia, also using USAID funds. The methodology is been proven as a valuable tool for promoting dialog and a healthy competition in the field of local private sector development. The MCI methodology was adjusted to the specific context of El Salvador by RTI International (RTI), who was in charge of the MCI Project management, and its local partner, the Escuela Superior de Economía y Negocios (ESEN).
RTI along with the ESEN evaluated and ranked the 100 most populated municipalities of the country based on nine aspects of incidence on the local economy and governance. The result of the assessment is a tool for determining the competitiveness level of the municipalities, which may be used by municipal and central government leaders, cooperation agencies and other stakeholders engaged in economic development in order to identify the best practices of the Salvadoran municipalities and prepare local action plans for enhancing reforms or replicating them in other areas of the country. In like manner, the business community may use the MCI results to find out which municipalities offer the best conditions for investment or to advocate for better policies and procedures relating the private sector at the local and national level.
- Building the MCI and its sub-indices is based on collecting information and data through two surveys: one aimed to business owners with fixed establishments and the other focused on mayors and municipal officials.
- Survey development. The design of the questions contained in the surveys responds to the inputs provided in several meetings with key actors (business owners, organizations and municipal officials) of the municipalities.
- Survey validation: Validation was made through research focused on the municipal business environment of El Salvador and information was collected through regional meetings with focus groups and pilot tests with groups of business owners and municipal officials.
- Generation of variables. The information contained in the surveys generates 450 variables from which 56 indicators are built and developed.
- The MCI measures all municipalities on the same basis. In order to ensure that comparison among municipalities of different sizes and characteristics is made under equal conditions, the MCI eliminates inequality in resource allocation (population, location, natural resources, market access, qualified labor) through statistical adjustment.
- Sampling design. A sample of conglomerates made up of geographic blocks of business establishments selected with probability in proportion to the number of business establishments within each block was used. The sampling frame is based on the updated Directory of Business Establishments of the 2005 Economic Census (MINEC-DIGESTYC) made up of business establishments with a fixed location in the municipalities under study. The sample consists of 40 business establishments per municipality. An oversample of large business establishments is used for the municipalities of San Salvador, Santa Ana and San Miguel. The sample size is statistically sufficient to conduct the factorial analysis. The margin for error is 3%.
MCI municipality ranking
Scores are tallied for each MCI sub-index to determine how much one municipality differs from another in each aspect of the business environment being measured. The municipalities are ranked in a scale from 1 to 10 for each sub-index, where 10 represents the best relative performance and 1 represents the lowest. In order to create a general MCI score, all the scores of each sub-index are combined and weighted. As a result, the nine sub-indices do no contribute equally to the MCI.
Five performance categories were created to classify the results: Excellent, High, Average, Low, and Very Low. For more details on this ranking, please see the "DOCUMENTS" section on this internet site.