Challenge statement
Challenge type: If you are working on multiple challenges, please indicate if this is your "big bet" or "exploratory" challenge.
Please note: we ask you to only submit a maximum of 3 challenges - 1x Big Bet, 2x Exploratory. Each challenge must be submitted individually.
BIG BET
Challenge statement: What is your challenge? (Please answer in specific terms: "Our challenge is that...”.)
Our challenge is to promote business and employment formalization by addressing problems of productivity, associativity, and decent work in local industrial manufacturing clusters.
To address these problems, we will focus on garment production clusters and implement an experimental program to develop territorial capacities in the industry of three Paraguayan cities: Yaguaron, Pilar, and Mariano Roque Alonso. This intervention seeks to improve the working conditions, productivity and associativity of micro, small and medium-sized industries through the promotion of local value chains and the implementation of personalized business development and improvement programs that will connect small garment workshops with anchor companies. These programs will facilitate a series of capacity building activities based on the demand of anchor companies and a diagnostic of barriers and opportunities that exist in each cluster.
In addition, by addressing this challenge with a focus on impact evaluation and collaborating with other private-publica SME promotion and support programs (such as the network of Business Support Centers - or CAE by its Spanish name), we are contributing to strengthening intersectoral capacities for participatory research and development of innovative, evidence-based, and integrated strategies for SME formalization and promotion. We’ll co-produce and disseminate actionable evidence and knowledge about the impact of integrated SME formalization and promotion strategies, improving capacities for scaling and institutionalization integrated strategies for SME formalization and promotion.
Background: What is the history of your challenge? What is causing or driving it? Who is involved? How does the current situation look like? What undesired effects does it produce?
In Paraguay, 64% of the population aged 15 and over that works outside of agriculture have informal occupations, according to data from the National Statistics Institute (INE) 2018 Permanent Household Survey. In addition, the structure of informality in Paraguay, as in many countries, produces groups of workers that are particularly vulnerable to exclusion from social security systems and other labor rights. Women, young people, and the rural population have above-average informality rates, workers with few years of education, the self-employed and employees of micro, small, and medium-sized enterprises (SMEs). For example, UNDP Paraguay’s Socioeconomic Report (2020) states that 63.9% of working women with dependent children hold informal employment.
Our work with this challenge starts in 2020, with the creation of a Participatory Employment Formalization Laboratory, integrated to the national Labour and Social Security Ministry. Through the work in this lab, we developed a portfolio of interventions for employment formalization that included experimenting with decent work rights training and reflection, the prototype of an advisory call-center for employers interested in formalizing their employees, and productivity-oriented programs for both employers and employees. We conducted these experiments in the context of the construction, domestic work, and garment manufacturing sectors. The combined lessons from these experiences led us to put a focus on SMEs formalization through productivity, decent work, and associativity promotion.
Paraguayan public policies have placed strategic priority on enterprise and employment formalization as part of larger strategies for strengthening the MSME sector in general. For example, the Strategic Promotion and Formalization Plan for Development and Competitiveness MSMEs, established by the Ministry of Industry and Commerce emphasizes on the following goals:
1.2 Develop value chains with a territorial approach
1.3 Increase the competitiveness of MSMEs
3.1 Develop a training system for MSMEs
6.3 Strengthen the capacities of MSMEs to access credit
7.3 Promote a favorable ecosystem for the formalization of MSMEs
7.3 Promote the formalization of employment in MSMEs
9.1 Promote research and development applied to MSMEs
Similarly, three pillars of the Paraguayan Governments’ Integrated Strategy for Employment Formalization call for:
3. Development of nexuses for the transition of vulnerable populations to formal
employment
4. Sensibilization for Formalization
5. Generation of Information for Formalization
Our work in this challenge will contribute to Paraguay’s National Development Plan 2030, in its Strategic Axis 2 "Inclusive economic growth" and its transversal lines 2.1 "Promote employment and social security" and 2.2 "Promote competitiveness and innovation"
Finally, the framework we will follow to address this challenge will contribute to achieving UNDP Paraguay’s CPD Outcome 2 “by 2024, Paraguay will be implementing public policies that promote the generation of sustainable livelihoods, decent work and economic inclusion, focusing on people in vulnerable situations and using a rights- and gender-sensitive approach.”
https://www.mic.gov.py/mic/w/mic/pdf/PLAN%20ESTRAT%C3%89GICO%20DE%20MIPYMES%202018-2023.pdf
https://undp.sharepoint.com/:b:/s/PUNDAccLabParaguay/EWYGPgiGWvtBmBH2b3dWruQBnntyCuH4n9HHz2dsra42aw?e=bh9iwp
https://drive.google.com/file/d/1nYzKQrGsLnrtnDfvgn7gzkvFO_qwHfKD/view
Quantitative evidence: What (official) data sources do you have on this challenge that better exemplifies the importance and urgency of this frontier challenge? You can add text, a link, or a picture.
We generated original quantitative data about employment formalization in our previous learning loops. These data are focused in two productive sectors: construction and domestic work. Our results suggest that lack of knowledge about social insurance policies, benefits and procedures among employers and workers leads them to undervalue social insurance and limits their interest in contributing. This information is key to develop strategies to overcome the problems of employment formalization in Paraguay.
On the other hand, we produced quantitative data on the flexible production potential of a garment cluster in the city of Yaguarón, Paraguay. Our findings show that offering training in productive management to workshops has a positive impact on increasing their productive efficiency, a result that frames solutions for the challenge of increasing the productivity of SMEs as a step to achieve their formalization.
In addition to this, there are a number of sources of quantitative data to analyze the informal sector:
The National Statistics Institute’s General Directory of Businesses and Establishments.
The Vice Ministry of Economics maintains data available on request.
The vice ministry of SMEs has a variety of potentially useful administrative data available on request.
Qualitative evidence: What weak signals have you recently spotted that characterizes its urgency? Please provide qualitative information that better exemplifies the importance and urgency of this frontier challenge. You can add text, a link, or a picture.
In Paraguay, it is urgent to develop strategies to combat the high rate of informality, the very limited social protection for workers and limited avenues for the growth of SMEs. However, given very limited public resources, discovering ways to optimize current efforts at formalization is a high priority.
Currently, the Ministry of Labor and the Presidential Social Policy Delivery Unit are developing policy proposals for new Social Insurance schemes specifically for SMEs with the goal of formalizing employment in these enterprises.
In addition, the Ministry of Industry and Commerce is developing a proposal to construct local Entrepreneur Support Centers, based on state-level programs funded by the Small Business Administration in the US. These centers are promoted by the Ministry but led at the local level by a triple helix mechanism that includes representatives from academia, the private sector and the municipality. We developed, in collaboration with two of these centers, supply and demand mapping of MSME supply and demand in the automotive, tourism and gastronomy sectors based on surveys of entrepreneurs and key stakeholders in the cities of San Lorenzo and Encarnación. From this mapping, service prototypes were devised to meet the specific demand of each sector.
We also have qualitative data from our previous cycles of construction, domestic work, and flexible production. These data were collected through interviews, focus groups, and cultural probes.
In terms of employment formalization, we found that the lack of knowledge about social security rights contributes to the maintenance of social and gender norms that encourage workers to seek security in terms of personal favors from employers and reciprocity in familial relationships rather than as a matter of employers' labor rights and legal obligations. In the construction and apparel industry, this lack of knowledge is complicated by fluctuations in demand that firms meet by using temporary employment. This generates high employee turnover and disincentives for registering workers for social insurance and creates legal ambiguities regarding employers’ responsibility to ensure dependent workers.
In terms of enterprise formalization, we found that in the Yaguarón apparel cluster, interpersonal kinship networks help to respond quickly and flexibly to requests and are important for the dissemination of support services. It is necessary to study in greater detail how they work, to identify what advantages and disadvantages they have for productive and collective efficiency. Another key point for the formalization is the associativity. In this experience, the Association of Garment Makers of Yaguarón is an important actor for the provision of services and collective investment to improve the efficiency of the cluster, since it has legal status, and is made up of larger-scale workshops, a higher level of formality, and relationship with public and private institutions outside the cluster.
This information allows us not only to identify the problem, but also to design possible solutions focused on the people affected.
Value proposition: What added value or unique value proposition is your Accelerator Lab bringing to solving this challenge? Why is it your Lab that needs to work on this challenge and not other actors within UNDP, other stakeholders in the country respectively? Why is it worth investing resources to this challenge?
From all the learning we obtained in previous cycles, we have acquired the experience and knowledge necessary to address this challenge with the following differentials:
Given that we have been articulating relationships with various stakeholders that are directly focused on the topic addressed, we can build a multi-stakeholder working group composed of representatives of public-sector, private-sector, and civil society institutions at the local and national levels to co-design and implement the project interventions.
Based on lessons from previous learning loops on employment and enterprise formalization, we are able to develop a portfolio of “value-chain”, “cluster”-based, and gender-focused interventions that address labor productivity, decent work conditions, and SMEs associativity. We can help local governments and SMEs emerging associations and groups in the implementation of pilots of these interventions, focused on specific territorial SME clusters, evaluating their impact using through our battery of R&D accelerator lab methods.
As part of our capabilities, we can help local institutions to collect and analyze original data about SMEs in their territories, promoting collaboration in the generation of evidence that informs the design and development of SMEs improvement programs
Short “tweet” summary: We would like to tweet what you are working on, can you summarize your challenge in a maximum of 280 characters?
We are developing a program to promote territorial capacities and promoting local value chains in garment industrial clusters, with the goal of improving decent work conditions, productivity and associativity of micro, small and medium-sized industries.
Learning questions
Learning question: What is your learning question for this challenge? What do you need to know or understand to work on your challenge statement?
How can we improve capacities to expand and institutionalize integrated strategies for SME formalization and promotion? What are the characteristics and needs of the garment workshops that are part of a cluster?
To what stage(s) in the learning cycle does your learning question relate?
Explore, Test
Usage of methods: Relating to your choice above, how will you use your methods & tools for this learning question? What value do these add in answering your learning question?
During the exploratory stage of the learning cycle, we are planning to straighten relationship with the local stakeholders, working closely to characterize the garment workshops of each cluster. We’ll be using stakeholder mapping, on-site surveys, focal groups, non-structured interviews, etc.
We’ll design and validate the terms of the agreement between the garment associations and the enterprises for the pilot through co-creation and collective intelligence tools and methodologies.
Existing data gaps: Relating to your choice above, what existing gaps in data or information do these new sources of data addressing? What value do these add in answering your learning question?
The existing information is incomplete and outdated, considering the 2011 economical census and the lack of systematize documents available in the garment associations and local municipalities of the selected clusters (Yaguarón, Pilar and San Lorenzo).
Answering our learning questions of this stage contributes to the visibility, sense of clustering of the garment workshops, interest of collective assets and possible benefits of being part of an association.
8Decent work and economic growth
9Industry, innovation and infrastructure
11Sustainable cities and communities
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