Local Government and Micro-business: A Possible Marriage?

“Clusters" is the new magic development formula that the government recently imported from Harvard. But what is today’s reality for municipal governments and micro-businesses, two essential players in any such productive conglomerate?

José Luis Rocha

Although decentralization and the potential of micro businesses appear to be two essential pivots of local and national development, they have surprisingly been kept apart. Both local development as a responsibility of local government and expanding the informal micro-business sector offer interesting capacities to generate jobs and contribute to the GDP, but they remain like a perfect match that rarely dares touch, which has hindered the synergistic benefits they offer from being tapped.

One significant symptom is that experts in municipalism ignore almost everything related to micro-business, while experts in micro-business tend not to venture into municipalism. In Nicaragua, where micro-businesses carry such obvious weight in job generation, only one study—by sociologist Alicia Sáez—has described the link between municipal governments and micro-businesses, and even it focuses on tax relations. Nicaragua has extensive bibliographies on both micro-businesses and the role of municipal governments, but they very rarely touch on the points where both development strategies meet. Some initiatives in this area, such as those developed within the framework of the World Bank’s PROTIERRA program, a pioneering project of municipal support to micro-businesses, have not been systematized or suitably analyzed. Having been labeled a "poverty reduction" program, a cliché that tends to generate mental drowsiness and myopia, its full potential was not even perceived much less developed.

Local development:
A European concept

Like all fashionable concepts projected as standard currency, "local development" is subject to devaluations and distortions. And at the end of the day, it suffers the same fate as the pre-packaged sermon passed from friar to friar: it neither converts, diverts nor subverts. Still, there is no shortage of people willing to pontificate on the subject, although unfortunately very few know where it came from and what it implies.

The proposal, paradigm or idea of local development came from Europe, where it was initially conceived as a more equitable way of geographically distributing different kinds of resources, including professionals, funds, technology, culture and industry. In principle, the term "local" refers to an emphasis on helping regions with little industrialization attract the resources needed to speed up their development. This process must of course be induced by some entity with directive input from all: the government to balance the geographical resource distribution, private business for its own particular interests and local stakeholders for their direct benefit.

The galloping unemployment in Europe and the rest of the world has demonstrated that the free play of market forces does not resolve productive problems without high social costs. It has also revealed the failure of central government to manage two strategic variables in the structural change processes: technology and human resources. Many experts now admit that macroeconomic policies are not enough to achieve national growth, let alone avoid regional imbalances. There is a need for specific policies to foster the development of the most lagging regions, disseminate technology there and efficiently incorporate their human resources. The challenge for the local governments grows increasingly serious as the economy becomes internationalized.

Europe is still in an experimental phase

In Europe, where the context favors the changes needed to modify the geographical development imbalance, local initiatives were geared towards supplying services, based on intermediary organizations with limited administrative sophistication. The success is due to the capacity to coordinate the activities territorially and get public and private agents to cooperate.

The businesspeople share the role of promoters/mediators of the productive adjustment with local public administrators. Different agents from outside the zone participate in the activities, whether by importing business know-how or providing support from the central administrations.

The policy of local development is still in an experimental phase in Europe. The central governments’ continuing passivity toward regional problems encourages many European cities to promote local development strategies to control the depression’s effects and foster the emergence and development of local businesses.

Decentralizing = Deconcentrating

Certain steps have also been taken in this direction in Latin America. The decentralization process undertaken in various Latin American countries, including Nicaragua, turns municipal governments into fundamental protagonists of local development. The idea is to facilitate democratic participation, territorial productive restructuring, modernizing of the state, rationalization of financial resources—or fiscal efficiency—and even rural development on the assumption that it will provide technology transfer. All too often, however, decentralization ends up as little more than the central government apparatus decongesting itself of responsibilities previously attributed to it without passing on to the new bearer of these responsibilities the resources to deal with them.

In Nicaragua, reduction of the state started during the last years of the Sandinista government (1987-89), when the central government and its institutions were "compacted" in response to a mammoth public finance crisis. The municipality—so important during Spanish colonial times and the post-independence era until President Fruto Chamorro did away with it—was rediscovered, and in that climate the Municipalities Law was promulgated, incorporating the concept of municipal autonomy and defining local government participation in public sector administration.

The state reduction process increased during Violeta Chamorro’s administration (1990-96) as part of the changes involved in the political, economic and social transition after the FSLN lost the elections. The municipal governments stopped being mere providers of traditional basic services and assumed certain responsibilities that had previously corresponded to the central government, including natural resource conservation, cadastre, everything related to municipal development and the regulation of collective transport, but without receiving any extra financial transfers from the central level.

The reforms made to the Constitution in 1995 to improve the balance of power between the different state branches established that the National Assembly would earmark part of the national budget to strengthening those municipalities with the lowest revenue. The Municipalities Law was itself reformed in 1997 to redefine the concept of autonomy, assign broad responsibilities to the municipal governments and establish the local authority’s leadership in the municipality.

Since the end of the 1990s, the Nicaraguan state has been expected to transfer responsibilities and resources to the municipalities, but the central government has not lived up to that expectation because decentralization has in practice involved deconcentrating and transferring responsibilities but not resources. The central government does not provide enough resources to the municipal governments and most municipalities do not have remotely enough resources to provide their inhabitants with all of the services for which the local governments are responsible. The approximately US$5 million provided to the country’s 151 municipal governments in 2000 were quite simply not enough. For example, the municipality of Siuna in the North Atlantic Autonomous Region had an income of under $160,000 in 1999, of which less than a third came from the central government. As the Siuna municipal government must provide services to a population of over 60,000 inhabitants, its limited revenue amounted to the equivalent of $2.6 per inhabitant.

Things were no better in 2001, when the municipal governments only managed to squeeze 1% of the national budget out of the National Assembly. This was the equivalent of some $6.7 million, which did not even compensate for that year’s currency devaluation or population growth. A fund of that size for a population of 5 million inhabitants represents $1.34 per person per year, less than the cost of a gallon of diesel, a plate of food, a third of a ream of paper or the daily wage of the lowest paid agricultural worker.

Crumbs for the local governments

Most independent analysts agree that there is still a very strong centralist culture in Nicaragua, with the concept of decentralization not so much appropriated as imposed by the structural adjustment policies. Gustavo Salinas Valle, executive management assistant of the Association of Nicaraguan Municipalities (AMUNIC), sums it up this way: "The decentralization process in Nicaragua has hardly got off the ground. Some say we have already taken significant steps because they confuse decentralization with deconcentration. What we have seen starting with Violeta Chamorro’s administration has been the reduction of the state and the de-concentration of big and very centralized ministries by creating territorial representation for them. But all of this does not add up to decentralizing the state. The only real progress is a document approving the general guidelines."
The local governments continue receiving crumbs. The big public works in the municipalities are entrusted to central government entities such as the Emergency Social Investment Fund (FISE) or the Rural Development Fund (IDR) whose budgets easily outstrip the municipal capacity, despite the fact that municipal governments are more efficient. It has been demonstrated that a municipality spends one córdoba for every 3 spent by FISE and every 3.50 spent by the IDR. This is just one example of the efficiency and savings that decentralization offers; it is not exploited because the national political culture dictates that personal links dominate over effective and rational resource employment in assigning public contracts.

Other problems are caused by assigning certain responsibilities to the municipal governments without clearly defining how they should coordinate with other government authorities that have responsibilities in the same area. Thus while the responsibility for municipal roads has been decentralized, the task is shared by the Ministry of Transport and Infrastructure (MTI). The result of this overlap is that the MTI finally decides what roads to build, how much money will be involved, how much it will contribute and when it will do them. With the municipal governments’ hands tied, they must accept the investments the MTI decides to make. Responsibility for the environment was also decentralized, but it depends on the decisions and opinions of the central Ministry of Natural Resources and the Environment (MARENA), as local MARENA offices do not have sufficient attributes.

The lack of regulatory legislation for the responsibilities legally attributed to the municipalities still represents a challenge for the decentralization process. Without it, municipal governments are completely defenseless in demanding their most basic rights when trampled on by central government bodies. One extreme example is that when the Forestry Institute (INAFOR) grants a concession for wood extraction it is required to pay the municipal government 25% of the license cost. Like other autonomous state entities, however, INAFOR does not want to pay legally required taxes to the municipal governments so it either pays out less than it should or nothing at all.

The "strongman":
A centralizing tradition

In reality, then, the truly decisive mechanisms remain centralized. It is an unbroken circle in which our cultural mindset ratifies the figure of the traditional strongman, or cacique, because he centralizes the greatest attributions and he continues to centralize them because we ratify it. Following the public sector hierarchy upwards, this ultimately leads us to the President of the Republic as the supreme administrator and determining factor in all decisions taken.

This traditional leadership style is not the only thing centralized. The political parties also concentrate so much on controlling central government that they are barely distracted by the idea of fighting for quotas of local power, which they condescendingly view as small potatoes. They are forever looking for macro solutions rather than community improvements. The political classes still maintain a petty vision of local government capacities, while the central government views them as the eternally underprivileged in need of help, rejecting any possibility that they might be able to improve their capacity and make more effective use of public spending.

Decentralization of this type leaves little hope for the local governments’ capacity to promote micro-business. To start with, several institutional weaknesses have been detected in municipal government performance. There is limited trust among the stakeholders involved, who all too often opt for confrontation rather than collaboration; limited capacity for coordination; minimal information management; opportunism; a culture that encourages local strongmen; an economic context that works against decentralization; and an inability to get the legal framework to operate.

The Atlantic regions:
Aborted autochthonous models

The notion of decentralization acquires other nuances in Nicaragua’s more culturally removed Caribbean coast region. An inveterate lack of tact or even cultural curiosity characterizes the relations imposed by a government based in the Pacific region—consisting of and representing a mainly mestizo population—with the mainly indigenous Nicaraguan Caribbean Coast. Among other results is the wasting or even sweeping away of certain forms of organization that could be used to lay the foundations of a more participatory decentralization model than is possible in the Pacific, one that is also genuinely adapted to the Caribbean reality.

According to Ricardo Pereira of the Atlantic Coast Human Promotion and Development Office (OPHDESCA), if the notion of decentralization is very weak on the Pacific side of the country, "the same is even more true in the Caribbean Coast. The municipal government scheme ignores the leadership forms of the indigenous authorities. A mayor is now chosen through elections and political parties, but previously councils of elders, which the municipal government now ignores, governed the communities. Other traditional community authority figures receive the same kind of treatment. Judicial authorities and the municipal government also ignore the communal judge, a respected local dignitary who has nothing to do with the judicial branch, just as they ignore the síndico, who is responsible for land use and usufruct. Indigenous Mayangna and Garífuna communities therefore view the municipal officials as aggressors and an imposed concept."
The municipal divisions in the Caribbean Coast do not coincide with the indigenous communities’ geographical divisions. The political parties that participate in the elections are from the Pacific side, while the only truly Caribbean coast party, YATAMA, was stopped from participating in last November’s municipal elections as part of the political imposition engineered by the FSLN and the PLC in their famous pact. Municipal policy is a dish cooked up in the Pacific region that the Caribbean region’s inhabitants are forced to swallow even though it is full of ingredients that disagree with their own culture. Both the Council of Elders and the figures of the síndico and the community judge could be used as institutional foundations for a form of decentralization molded to local particularities, but the Pacific has opted to impose its own decentralization schemes, resulting in its inevitable abortion.

Italy: not a single shoe factory, but
thousands producing heels, soles, uppers…

Policies aimed at strengthening the development of micro-businesses have proved enormously productive for countries such as Italy, which came late to industrialization. After the Second World War, Italy was unable to follow the traditional industrial development path involving huge industrial dimensions with economies of scale as Germany and Japan did. It lacked the capital and the infrastructure, its domestic market was too small, its research was weak and it did not have the skilled labor required. In short, it had none of the conditions for deploying the forms of technological innovation employed by large-scale companies.

The only solution was to segment the production process, letting each company specialize in just one production stage, but applying all of the necessary economies of scale and therefore all of the innovations to that particular stage. Italy has maximized the idea of a local company that produces just one part—sometimes a minimal one—of the final product. Following this model, Italy has become the world’s biggest shoe producer, though one would be hard put to find a shoe factory in that country. What can be found are thousands of local factories producing heels, uppers, soles, buckles and linings and thousands more assembling these parts. The same is true of the country’s furniture, glass, clothing and toy industries.

If the model is to function, of course, the companies that specialize in one of the different tasks have to be linked, be located in the same territory, have the same kind of culture and therefore be able to produce while somehow trusting the capacity of the neighboring company. In other words, the model needs certain institutional conditions to prosper.

The model adopted in Italy’s industrial districts is certainly not the only way for micro-businesses to contribute to development, but it does provide certain clues and alternatives and demonstrates a successful strategy based on market segmentation.

A promising majority sector
currently stagnant and decaying

In Nicaragua’s case the importance of the micro-business sector in promoting the country’s economic development is based a number of different factors. These include the fact that it already accounts for the majority of Nicaraguan companies; its job generation and flexible productive processes could be competitive internationally; it makes intensive use of national raw materials, particularly natural resources; it has limited financial capital requirements; and it has the capacity to link up vertically with big industries and horizontally through consortiums.

National micro-businesses can currently be grouped into several different sectors, with 51% involved in retail commerce, 17% in manufacturing, 8% in community, social and personal services, 6% in restaurants, hotels and bars and 18% in other activities. The weight of urban medium, small and micro-businesses can be seen in the table below. While large-scale urban business only generates 13.21% of urban employment, companies with fewer than 51 workers generate 84%, absorbing a total workforce of 283,979. Meanwhile, urban companies with fewer than 21 workers provide work for 267,003 people, or almost 80% of all urban wage earners. In addition to all these small, medium and micro companies, farms of fewer than 35 hectares represent a further total of 341,129 agricultural businesses and almost 90% of Nicaragua’s 381,072 farms.

The government’s "cluster" proposal theoretically consists of modernizing this sector under the supposition that historical international experience indicates that countries that provide more support to medium, small and micro-businesses have traditionally competed better and maintained high economic growth rates. But in practice, this sector is in a state of financial and technological stagnation. Few micro-businesses have efficiently employed the subsidies and protections provided to them and many are in an obvious state of decay following market liberalization, with imported footwear, furniture and clothes offering lower prices and higher quality than national products.

For several decades now we have witnessed a geographic shift that is swelling Managua to the detriment of other cities. This includes a brain drain to the capital and the concentration of industrial and trading companies there (goods previously had other export points, such as Puerto Morazán, with various routes that left profits behind in local areas). At the same time, companies are going bust or being absorbed by transnational corporations because local producers cannot compete with the avalanche of products imported in the context of trade liberalization. For example, traditional small-scale producers of cheap wood furniture cannot compete in either price or quality with imported plastic and iron furniture. The result is that industry, technology and local revenue are all on the decline.

Over a hundred per cent open

Many development promoters, such as UNIDO program official Donald Morales, are aware that the strength of micro-businesses in Nicaragua "is significant and covers a pretty significant proportion of the country’s total number of businesses." But he is also clear that "it has been impossible to exploit that potential to produce a slightly more advanced level of growth and development."
Some think that the main obstacle is our economy’s competitive openness, which generates various problems. As Morales stresses, "our economy is over 100% open, which means that total exports plus imports exceed national production." These businesses thus will have to compete not only abroad, but also nationally.

But they have numerous problems competing, one of which is low managerial capacity. Most businesses do not keep accounts and do not understand that keeping a large inventory of materials and products limits capital rotation and stops them from exploiting various business opportunities. Furthermore, they do not know about the relevant technological processes so do not acquire ones that are more suitable to improve competitiveness.

They also suffer institutional problems, such as the regulatory framework that places a large number of obstacles and limitations in the way of their development. For example, there are many requirements for setting up a new business, regardless of its size. Some believe that more than an adequate legal framework is needed, that the National Assembly legislators also need to create a national vision, shared by the local governments, so they can help create the right conditions for fostering investment in the country.

Economic business units or
small subsistence businesses?

There is no single micro-business model in Nicaragua, but rather a number of different ones. The basic concept considers micro-businesses to be economic units that employ a maximum of five workers and possess fixed assets and working capital totaling under $20,000. Micro-businesses tend to exploit family labor and local resources, have limited capital, labor-intensive technologies and an unskilled work force that acquired its knowledge outside the formal education sector.

Luis Murillo, coordinator of the Central American University’s graduate course on local development, emphasizes that any micro-business support strategy must be based on a clear concept of what micro-business really is, so as to design policies suitably adapted to the sector. Murillo warns that "most nongovernmental organizations establish a kind of unarticulated plan. For example, they establish and finance a training plan, but this doesn’t generate any genuine micro-business activity, which is a serious conceptual problem because it confuses the perception of micro-business as a productive economic unit that makes business decisions with small units engaging in some kind of subsistence activity. Until a real conceptualization is defined and development plans are created for the micro-business sector, we’re not going to see any great advances."

The classification of micro-businesses

A study by the National Statistics and Census Institute (INEC), the Ministry of Development, Industry and Commerce (MIFIC) and the German development agency GTZ showed that 91.4% of micro-businesses—defined strictly by having five employees or less—keep no records that allow their operations’ financial results to be determined with any certainty. Another 7.2% keep only notes with no controls and a mere 1.4% keep accounts.

This study, the most complete done to date, calculated that there were 148,082 micro-businesses in January 1999, although its census, survey and analysis only covered urban micro-businesses and there is no equivalent national rural study. The table below presents the activities used by the survey to classify the universe of urban micro-businesses.

The dizzying growth of Managua, which now accounts for approximately a fifth of the country’s five million inhabitants, has produced an enormous concentration of micro-businesses, just under a quarter of the national total. They have provided a buffer against unemployment for a growing economically active population that largely lacks the training to find any other kind of work.

Furniture and shoes:
More useful classifications

The classification of micro-business in the INEC-MIFIC-GTZ study was based only on the number of workers, which immediately introduced a bias. For example, the enormous income differences among the companies were not considered, giving a rather forced situation in which car trading was thrown in the same bag as retail trading in the municipal market.

Some economists have echoed the need to draw up classifications that include other criteria and can be used in the design of differentiated policies. Mario Davide Parrilli and Eddy Narváez from the UCA’s Nitlapán Research and Development Institute have studied the industrial furniture and footwear sectors and created different classifications for their producers and retailers based on a combination of price levels, quality (fine, ordinary and market), number of workers, volume of revenue, market segment in which their products are located (top, medium, low or export class), number of years operating, worker skills and model of demand (to order, linked to a particular merchant or on display at the workshop). The combination of these variables provides a more realistic classification that allows a hierarchy of policies to be applied with greater or lesser urgency and adaptation: financial products (repayment periods, interest rates, amounts that can be absorbed), technology, promotion of fairs, etc.
Unfortunately, these studies only cover two branches. Other limitations are that they focus on the whole branch, rather than exclusively on micro-business, and thus do not detail the different types of micro-business; and that they do not explore in enough depth the micro-businesses’ institutional links, particularly with local government. For all that, they undoubtedly provide a better indication of where different efforts should be directed.

A number of classifications that would be useful in designing a strategy have not yet been researched, indicating that there is still a long way to go. These include degree of initiative; reliability level (whose indicators could include credit records for foreign links and community-level reputation for local links); support received from NGOs; gender balance; relations with and impact of trade associations and local organizations; and capacity to generate jobs and introduce new ecological technologies and techniques.

A law favoring the marriage of
local governments and micro-businesses

The Municipalities Law and its regulations do not explicitly mention the municipal government’s relations with micro-businesses and therefore establish no direct norms in this respect. They do, however, prescribe a series of mandates that place those governments firmly in the local development arena. These mandates are specified in several articles of the law, particularly those referring to local government’s role in the municipality’s socioeconomic development and in conserving the environment and the natural resources within its territorial limits.

Local governments previously defined themselves exclusively as providers of local services, such as garbage collection, the registry of births and deaths and supervision of slaughterhouses. But Latin America is subject to a trend that is promoting a new profile for local governments. According to this turn of events, municipalities are expected to play a lead role in coordinating local economic development.

According to Gustavo Salinas Valle, "the interesting thing is that local government now has the obligation of providing responses to many demands, although not necessarily by itself. This is the important point, as it can do so in different ways, such as contracting third parties associated in municipal companies or mixed businesses in which small businesspeople can be partners with all of the corresponding rights and obligations. What it can’t afford is not to do so. I think there are great possibilities of small and medium companies doing sound business with local governments as the latter do not have enough human and monetary resources to go it alone."

Micro-businesses
providing municipal services

The new mandates for local government have not led to any real support for micro-business. The municipal governments are too weighed down by their obligations and their minimal technical and financial capacity. The failure to specify the concrete form that municipal fostering of socioeconomic development should take has left the design of an effective local development strategy in limbo. Armando Morales of GTZ feels that "up to now there has been no specific framework for municipal support to micro-business. Some articles of some regulations do touch on the issue, but in a very casuistic way. Other legal initiatives are largely limited to either the micro-businesses or the municipalities, while the legal frameworks are very weak and not very specific."
The municipal government must provide many services to the community, such as the construction of alleys and sidewalks. A small business could specialize in this construction, providing the service for a group of municipalities rather than just one small one. There are a number of different possibilities for developing such businesses, although micro-businesses must keep in mind the legal instruments required for mixed businesses, associative businesses, the privatization or the co-management of certain businesses for the provision of certain municipal services.

The following are just a few in a long list of areas that could be entrusted to micro-businesses by the local government: the promotion of tourism; tax collection; public garbage collection; treatment and disposal of solid waste; promotion, guarantee and regulation of transport within the municipality and administration of inter-urban bus terminals; construction and maintenance of works to benefit the community (sidewalks, squares, community centers, health centers, roads and streets, bridges, parks and recreation and sport centers); maintenance and administration of cemeteries; maintenance of markets, slaughterhouses and public clothes-washing areas and the guaranteeing of their security and hygienic conditions; rainwater drainage and elimination of puddles and pools of water; provision of water, drains, electricity and sewage treatment services; administration of river and lake ports; protection of the municipality’s archeological and artistic heritage; promotion of the arts through museums, exhibitions, fairs, traditional celebrations, music bands and the protection of monuments and historic sites; and construction, maintenance and administration of libraries.

The tradition of centralizing everything, however, also operates on the local level and in some cases municipal governments are reticent to delegate their obligations, even when the services are being contracted out. In most cases, however, the problem is also financial in nature. Municipal governments often lack the resources to pay micro-businesses for their existing outside services, let alone for doing the work that the municipal government cannot even afford to do itself.

Positive experiences:
Mayors with initiative and charisma

Despite the mountain of difficulties, there are positive experiences of municipal promotion of micro-business. The municipal governments that acted on this idea have been able to exploit existing opportunities offered by the law or have contrived their own to blaze a trail with innovations that greatly benefit micro-businesses. Such positive experiences can be classified into four groups:
* Those started under initiative of the local government.

* Those based on existing traditions.

* Those carried out within large projects financed by multilateral organizations, usually the World Bank.

* Those based on collaboration between NGOs and municipal governments.

Those in the first group are the least institutional in nature, because they are based on the charisma of the incumbent mayor and depend almost entirely upon his or her initiative. Nicaragua’s long-standing tradition by which a new administration sweeps out all members of the previous one on taking office—sometimes even when they are from the same party—has developed into a Sisyphean process of starting over and over again, continually cutting any thread linking policies and institutional memory.

A detailed systematization of information gathered on the municipalities could one day lead to an educational manual on municipalism, with a referential methodology, a list of useful suggestions or even a packet of reforms to the existing laws. Its value would be tremendous.

San Francisco Libre:
A good example

One of the most notable experiences was that undertaken by the previous mayor of San Francisco Libre following the flooding of this lakeside municipality caused by Hurricane Mitch. Recognizing the insolvency of local cooperatives and many individual farmers, which meant they could not pay their property taxes, the mayor decided to use the old barter mechanism by which they could pay their local taxes by providing road maintenance, a service for which the municipal government is responsible. This system can obviously be used with other services, such as garbage collection, construction, environmental care and promotion of tourism. This flexible approach means that micro-businesses can honor their tax obligations without being pushed toward bankruptcy, while the local inhabitants receive their services. In such a poor country with a culture of tax evasion and of having bank debts pardoned when the debtor falls on hard times, this trade-off also creates a breathing space without undermining the sense of obligation to pay taxes and repay loans.

Other examples have involved municipal governments reaching collaboration agreements with market venders who agree to provide the maintenance around their allotted stalls or share electricity costs in lieu of taxes. In some municipalities the local government has gotten stall owners to put in their own electricity meters and pay the corresponding bills, thus reducing the cost of honoring its own responsibilities.

Experiences rooted in tradition

Experiences that tap into an existing tradition are found in municipalities where inhabitants have earned a reputation for specializing in some kind of industry recognized nationally and sometimes even internationally. Such experiences involve local government officials, many of whom are directly interested in developing the industry because either they or their relatives make their living at it. The municipality of Diriomo, for example, has a long tradition of producing and selling candy and the fried food traditionally sold on street corners in Nicaragua. Several cooperatives provide credit and support to producers or finance small industries and shops selling different kinds of candy and fried food, activities that are coordinated with the local government.

The multitude of micro-businesses in the municipality of Masaya that make footwear, hammocks, bags, ceramics, embroidery and textiles have excellent relations with the local government, which promotes their development. There are similar experiences in the municipality of La Paz Centro, known for its pottery and a chewy white cheese known as quesillo, and León where micro-businesses produce cinder blocks for construction.

Masatepe has a long tradition of manufacturing wooden rocking chairs. The municipal government got involved in both training and the search for markets when the design and materials were changed and there was a need for training in the use of different woods and designs. The new model requires flexible woods and vegetable fibers found in Nicaragua’s Caribbean Coast region and efforts are currently being made to establish inter-municipal links. To promote other kinds of furniture, the municipal government created showrooms in the old railway station where producers can market their products with its support.

In the department of Nueva Segovia, development of the forestry industry has created a tradition of links between pine producers, furniture makers and municipal governments that have given rise to a number of interesting initiatives. The forest owners, municipal governments and manufacturers created a Tripartite Forestry Fund, initially used to carry out a forestry pre-inventory and to control fires, as part of an effort known as the Nueva Segovia Forestry Social Triangle. This in turn gave rise to the Association of Nueva Segovian Municipalities (AMUNSE), a municipal association that is one of the few successful examples of its kind in Nicaragua, due to the department’s strong associative tradition. Nueva Segovia is renowned for the diversity of its trade associations and an unusually strong productive sector that is able to hammer out consensual responses and act as the counterpart in public, private, national and foreign initiatives.

World Bank experiences

Multilateral organizations have also made efforts to get the municipal governments playing an active role in promoting of micro-businesses. One of the most impressive programs was financed by the World Bank and operated under the name of PROTIERRA. Each municipality’s technical unit (UTM) proposed projects that the Institute of Municipal Promotion (INIFOM) financed through a portfolio provided by the World Bank. In practice, the UTMs acted with a great deal of independence from the municipal governments and administered resources that often outweighed the municipal budget, without producing the hoped-for technology transfer. It should be stressed that apart from the direct achievements, such as training producers and providing credit to micro-businesses that cannot access other sources of financing, the pioneering success here was providing the impetus for institutionalizing local governments as development promoters.

Experiences with NGOs

NGOs are filling a vacuum with respect to development plans, strategies for building a more competitive local economic fabric and the provision of financing and technology. There have been many experiences of collaboration between NGOs and municipal governments and even some attempts to formalize such links. The Spanish NGO Solidaridad Internacional has reached the healthy extreme of demanding that its national counterpart NGOs get an endorsement from the municipalities where they want to operate. Unfortunately, some local governments do not know how to exploit this precondition to coordinate and direct the NGOs’ work by inserting it within a municipal development strategy—often because they don’t have a strategy or proposals and thus welcome any kind of investment into their territory.

One example of promoting micro-businesses came from Ocotal’s municipal government, which used funds from NGOs during the post-Mitch reconstruction period to create micro-businesses that would provide the population with jobs and absorb the technology transfer that tends to flood in with emergency situations. The most famous project in Ocotal was a factory that produced adobe for the houses of the hurricane victims. This was initially supported by a Spanish NGO and administered by the municipal government with the aim of eventually turning it over to the workers.

Another very positive experience is the NGO Xochilt Acalt, through which women of Malpaisillo in the department of León are organized into an education, services and production project to provide health, literacy and technical training services and promote agricultural, livestock and industrial activities through several micro-businesses. They are currently starting up a civic participation program to foster democracy and a more participatory political culture. The project’s main component is a series of training sessions for rural district leaders carried out in collaboration with the municipal government. The local government’s sponsorship of a mobile clinic, one of the Xochilt Acalt Center’s most important achievements and the project’s first initiative, was an important factor in launching it. According to the center’s founders, "During the first few years [the government] had a particularly positive attitude towards the center, to such an extent that at the end of 1992 the Municipal Council approved a monthly subsidy of a thousand córdobas to cover the clinic’s fuel costs. And when the cinder block operation was privatized and turned into a micro-business, we were benefited by being a municipal institution that had carried out social work with the women."

A possible marriage?

It is possible that the combination of all these different initiatives—those promoted by NGOs or the World Bank and those based on traditions or promoted by charismatic mayors—could gradually mold a new municipal culture and lead to legal reforms. But there is still a long way to go if a body of formally constituted laws and procedures is to materialize. It requires collaboration by other stakeholders who are currently conspicuous by their absence on what is still a restricted stage with numerous obstacles waiting in the wings, including the apathy of both the centralist politicians ensconced in their well-paid National Assembly seats and the upper echelons of their particular parties.

There is a need to exorcise many more demons, negotiate many more obstacles and build up a solid institutional framework. Only by doing so can we hope for the true micro-business potential to be exploited, for decentralization to become a reality and for both realities to coincide in a mutually strengthening process. It will take quite a matchmaker to succeed in marrying the two processes.

José Luis Rocha is a Nitlapán-UCA researcher and member of the envío editorial council.

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