Good Practices in Labour Administration

Programme for the Promotion of Self-Employment and Microbusiness (PRODAME)

The case of Peru

The labour administration of Peru has introduced a scheme to generate employment by encouraging the establishment of enterprises or the registration of small and microbusinesses in the informal urban sector ⁽¹⁾. This scheme is implemented by the National Directorate of Employment and Vocational Training of the Ministry of Labour and Social Promotion, which entrusted the task to a small team of promoters who were granted broad autonomy with a view to achieving the quantitative aims recommended by the Directorate. Since 1995, this body has offered users various services, including technical and legal assistance, the organization of business-management training courses, and various information and management tools for enterprise bosses.

At the beginning of the 1990s, statistics pointed to an increasing concentration of employment in the small and microbusiness sector, which covered more than 40 per cent of the active wage-earning population. Small and medium-sized enterprises (SMEs), which represent a high percentage of existing businesses, generate approximately 75 per cent of national productive employment and 42 per cent of gross domestic product. Since small and microbusinesses play a major role in job creation, the Ministry of Labour and Social Promotion decided to adopt various programmes based on the labour market in order to promote employment, including the Programme for the Promotion of Self-Employment and Microbusiness (PRODAME), implemented since November 1990 in the metropolitan area of Lima and, since October 1994, in all regions of the country.

The activities of PRODAME, which are aimed in particular at workers in the informal urban sector, are based on the provisions of Legislative Decree N° 705 (Law on the Promotion of Small and Microbusinesses) and Supreme Decree N° 002-97-TR (Law on Labour Productivity and Competitiveness).

The aim of PRODAME is to promote the creation of job opportunities by encouraging the establishment of small and microbusinesses. It formalizes the situation of small and microbusinesses active in the country by allowing them to register in accordance with the law; PRODAME substantially reduces the length of the proceedings involved in and cost of setting up businesses by offering fast-track procedures free of charge, and also provides the opportunity to conclude interinstitutional cooperation agreements. All private individuals wishing to set up or to obtain legal recognition for a small or medium-sized enterprise, whose capital is less than or equal to US$5000 (five thousand American dollars) and, in the case of companies, whose maximum number of members is 6 (six), may participate in the programme; there is no upper limit on the capital for individual enterprises with limited liability.

The following services are offered as part of the programme:

• Technical assistance relating to the legal aspects and management of a business.
• Free preparation and registration of formal instruments of establishment of small and microbusinesses.
• A fifty per cent reduction in legal costs, pursuant to the Agreement signed with the Law Society of Lima..
• Talks and seminars on vocational training and retraining, information days relating to social security, fiscal obligations and business management organized by relevant specialists.
• Provision of information on:
  • the institutions offering funding, vocational training, technical assistance and other services to the small and microbusiness sector;
  • the investment alternatives for small and microbusinesses, grouped together by economic sector;
  • the conditions and procedures for obtaining operating licences from municipal authorities, together with special authorizations and permits from public institutions.

The management, implementation and evaluation of PRODAME have been entrusted to the National Directorate of Employment and Vocational Training (DNEFP), a technical standard-setting department of the Ministry of Labour and Social Promotion; the Sub-Directorate of Employment Promotion manages the implementation of PRODAME by means of a team of seven specialists in the field, four lawyers, an economist, a business administrator and a systems analyst employed to devise appropriate software. This software, entitled "System for devising formal instruments of establishment (SEM)", automatically establishes such instruments; it is sufficient to input the required data and an instrument is ready within about twenty minutes.

At national level, the implementation of PRODAME has been entrusted to the Regional Directorates of Labour and Social Promotion of PRODAME; the staff managing programme implementation at regional level consist of three officials appointed by each headquarters; only one of these officials devotes his or her efforts exclusively to PRODAME, while the others undertake various activities under the remit of the Directorate of Employment and Vocational Training.

The services offered under PRODAME take several forms - brochures, leaflets and other means of communication - either directly through the promoters of PRODAME, or at the request of third parties and as part of informal talks on vocational training, workshops, seminars, conferences, and participation in festivals and exhibitions.

The activities undertaken and the results obtained by PRODAME, both in the metropolitan areas of Lima and Callao and at national level, are assessed on a permanent basis and published in the monthly statistical report issued by the Ministry of Labour and Social Promotion. These statistics are calculated monthly, on the basis of information forwarded by the regional Directorates of Labour and Social Promotion; the statistics are compared with the objectives assigned to the Ministry and enable the implementation of the programme to be monitored in a satisfactory manner. For example, the aim set for 1998 was to establish 3 500 small and microbusinesses at national level, while in reality 3 689 were set up, i.e. the results obtained exceeded the aim set by 5.4 per cent. In 1998, 530 informal talks were held on vocational training, in which 28 572 people participated; furthermore, 19 682 users requested the services provided by PRODAME. In the first quarter of 1999, 119 informal talks were held on vocational training at national level, in which 6 799 people participated.

PRODAME does not only make it easier to set-up businesses, but also takes initiatives to improve vocational training and to disseminate information of use to enterprise bosses, both in Lima and through the regional Directorates of Labour and Social Promotion. In this context, the "Annual Vocational Training Scheme for 1999" has been devised; the scheme provides for the organization of twelve different events in the course of the year in the metropolitan area of Lima; for this purpose, it has sought to combine all possible efforts to offer information of greater use to our users as regards business management and the labour-related provisions in force, with the support of the National Directorate of Fiscal Administration (SUNAT), the Social Sickness Insurance Programme (ESSALUD), the non-governmental organization (NGO) and officials of the Ministry of Labour and Social Promotion.

In addition to the measures taken in accordance with the main objective of the Programme, in 1997 a first follow-up and assessment study was carried out in relation to the businesses set up as part of PRODAME; a survey was devised and conducted for a sample of 872 businesses in the metropolitan area of Lima in order to assess the degree of effectiveness, productivity, growth and job creation in these economic units, and also to obtain information enabling the needs of these units to be surveyed in relation to vocational training or technical assistance.

This study gathered together basic information designed to evaluate the state of microbusiness in this sector. The most interesting results provided by the survey have led to the observation that half of the businesses have continued to conduct their activities since the time when they were established. The survey also demonstrated that the main problems affecting this sector are above all a lack of access to funding, excessive taxation, a market which is too limited and inappropriate vocational training.

The productivity levels achieved by the staff of PRODAME bear witness to their great devotion to the successful conduct of the programme. The fact that the members of staff, who are young specialists, are directly responsible for their results helps to make the internal operations of the work team very dynamic, and thus contributes to the effectiveness and efficiency of the services provided.

For the current year, the aim is to set up 5 000 small and microbusinesses at national level. During the first quarter of 1999, PRODAME has in particular managed to establish and obtain legal recognition for 1 109 small and microbusinesses at national level, with an efficiency rate ⁽²⁾ of 83.4% of existing demand. If the results are looked at in comparative terms, it is observed that during the reference period the increase has been 22.5 per cent over the corresponding period of 1998, a phenomenon explained partly by the fact that during January 1998 no businesses were set up owing to the amendment of the General Law on Companies. The results obtained are essentially due to the measures constantly taken by national promoters with regard to guidance and the dissemination of information. In addition, PRODAME's participation in various events - such as informal talks and seminars organized at the request of corporate associations of microbusinesses and other different institutions - has also played an important role.

Furthermore, it is planned to monitor and evaluate the businesses set up through PRODAME in the metropolitan area of Lima on the date when the verification of the sample begins, in order then to survey the pilot scheme. Similarly, a programme dissemination campaign will be organized by distributing posters and leaflets in the areas where the concentration of unregistered businesses is highest.

The implementation of the specific development project (Fronteras vivas = Living Borders) in the border region with Ecuador in the north-east sector of Condorcanqui is planned for the month of May. The Programme for the Promotion of Self-Employment and Microbusiness will be defined and implemented taking into account this new project, and two promoters will be employed and given responsibility for disseminating the Programme in coordination with the Bagua Regional Directorate of Labour and Social Promotion and the National Directorate of Employment and Vocational Training.

In the same way as people who are unemployed and wish to set up their own businesses, small and microbusinesses in the informal sector will benefit from this free decentralized service. The motivation of these enterprise bosses lies in the fact this service not only enables them to set up businesses and to reduce considerably the administrative procedures necessary and the subsequent costs, but also to make a saving of 50% on legal fees by invoking the Agreement signed with the Law Society of Lima and Callao. Consequently, the service provided offers considerable assistance which means that an ever-increasing number of enterprise bosses in the informal sector move to the formal sector of the economy, without being obliged to do so.

The scheme in question was originally set up without any legal basis, but the results it has produced have exceeded all hopes, owing to the services provided, which meet the needs of the labour market and the national economy.

To sum up, PRODAME administers not only the provision of a useful service for users but is also responsible for promoting a voluntary undertaking. The bosses of small and microbusinesses in the informal sector will benefit from this free decentralized service. People wishing to set up businesses request assistance from the Programme since the procedures undertaken are swift and legal costs are lower in accordance with the Agreement concluded with the Law Society of Lima and Callao. The service provided offers considerable assistance which means that an ever-increasing number of enterprise bosses in the informal sector move to the formal sector of the economy, without being obliged to do so.

1. In 1997, the working population employed in the Peruvian informal sector represented approximately 50% of national employment.

2. Efficiency rate = formal instruments established/formal instruments established + those still to be approved.