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Will South Asia make the most of cheap oil?

Markus Kitzmuller's picture

The world economy today presents itself as a diverse canvas full of challenges and opportunities. Advanced economies continue to struggle towards recovery, with the US on its way to tighten monetary policy as the economy picks up while a still weak Eurozone awaits quantitative easing to kick in. At the same time, plunging oil prices have set in motion significant real income shifts from exporters to importers of oil. Astonishingly, amidst all this turmoil, South Asia has emerged as the fastest growing region in the world over the second half of 2014. Led by a strong India, South Asia is set to further accelerate from 7 percent real growth in 2015 to 7.6 percent by 2017, leaving behind a slowing East Asia gradually landed in second spot by China.

While bolstered by record low inflation and strong external positions across the region, the biggest question yet to be addressed by policy makers in South Asia will be how to make the most of cheap oil.
All countries are net oil importers as well as large providers of fuel and related food subsidies, therefore bound to benefit from low oil prices. However, the biggest oil price dividend to be cashed in by South Asia is one yet to be earned, and not one that will automatically transit through government or consumer accounts. The current constellation of macroeconomic tailwinds provides a unique opportunity for policy makers to rationalize energy prices and to improve fiscal policy. Decoupling external oil prices from fiscal deficits may decrease vulnerability to future oil price hikes – something that may very well happen in the medium term. Furthermore, cheap oil offers a great opportunity to introduce carbon taxation and address the negative externalities from the use of fossil fuels.

The World Bank’s latest South Asia Economic Focus (April 2015) titled “Making the most of cheap oil” provides deeper insights regarding South Asia’s diverse policy challenges and opportunities stemming from cheap oil.
A first major realization is that the pass through from oil prices to domestic South Asian economies is as diverse as the countries themselves, thanks to a variety of different policy environments across countries and oil products. This is also reflected in recent dynamics, seeing India taking determined action towards rationalizing fuel and energy prices, even introducing a de facto carbon tax and beginning to reap fiscal and environmental benefits. Other countries have so far shown less or no enthusiasm towards reform, in spite of significant and/or increasing oil dependency (particularly in electricity generation, one of the region’s weak spots). 

Public spaces - not a “nice to have” but a basic need for cities

Sangmoo Kim's picture
The benefits of public spaces in the poorest parts of the world
Source: World Bank Staff

We often think of amenities such as quality streets, squares, waterfronts, public buildings, and other well-designed public spaces as luxury amenities for affluent communities. However, research increasingly suggests that they are even more critical to well-being of the poor and the development of their communities, who often do not have spacious homes and gardens to retreat to.

Living in a confined room without adequate space and sunlight increases the likelihood of health problems, restricts interaction and other productive activities. Public spaces are the living rooms, gardens and corridors of urban areas. They serve to extend small living spaces and providing areas for social interaction and economic activities, which improves the development and desirability of a community. This increases productivity and attracts human capital while providing an improved quality of life as highlighted in the upcoming Urbanization in South Asia report.

Despite their importance, public spaces are often poorly integrated or neglected in planning and urban development. However, more and more research suggests that investing in them can create prosperous, livable, and equitable cities in developing countries. UN-Habitat has studied the contribution of streets as public spaces on the prosperity of cities, which finds a correlation between expansive street grids and prosperity as well as developing a public space toolkit.

Agriculture as Enterprise: An Evolution of Thought and Perspective to Increase Outcomes for India's Farmers

It started with data!
In 2007-08, an evaluation by Catalyst Management Services of a tribal livelihoods initiative for the State Planning Commission of Madhya Pradesh showed that agriculture as a livelihoods option was unproductive and  for small tribal farmers; leaving them without a profitable livelihood option. But it wasn’t because of prices, or barriers to entry. Instead, it was because crucial services and government schemes were not reaching those who needed them most.
According to the data, only 10-12% of small producers were able to access vital extension schemes and a mere 7-8% of other government schemes. The evaluation found that large farms were crowding out the smaller farmers from accessing key subsidies and benefits. So the State Planning Commission posed a challenge: find a way to reach these marginalized tribal farmers in Madhya Pradesh. 

What is the secret of success in social inclusion? An example from Himachal Pradesh

Soumya Kapoor Mehta's picture
We started with a standard warm-up question as Gangi Devi, our first respondent, sat in anticipation. “Tell me a little bit about your society. What is distinctive about the Himachali way of life?” A smile lined up a face creased otherwise with wrinkles. “We are a peaceful society,” she said after thinking a little. “People here are good to one another, we stand by each other.” A person sitting next to her added for good measure, “We Himachalis are very innocent people.”
For those working in the development space in India, the state of  Himachal Pradesh, a small state ensconced in the Himalayas with a population of 7 million, is an outlier for many reasons, not least of which is Gangi Devi’s near puritan response.
Gangi Devi lives near a tourist centre close to Shimla, the state capital, which has seen increasing tourist footfall in recent years. Even as her community is debating the costs and benefits of increased activity around their village, Gangi Devi and her neighbours trust that the state government would keep people’s interests in mind and address adverse impacts, if any, of increased tourism on the environment.
Their belief in the government is supported by real actions. Himachal Pradesh is the first state in India to ban the use of plastic bags. Smoking in public spaces in the city of Shimla is punishable by law.
Governance in Himachal Pradesh looks doubly impressive when considered against an enviable development record

Does political risk deter FDI from emerging markets?

Laura Gómez-Mera's picture

Investors touring a factory in Canada. Source - Province of British Columbia“Ask anyone you meet on the street whether political risk has risen in the last few years, and you’d likely get a convincing yes,” a high official from Canada’s Export Development Center recently wrote.
Investors have always worried about the political landscape in host markets. But it’s true. Concerns over political risk are on the rise.
The most recent EIU’s Global Business Barometer shows that the proportion of executives that identified political risk as one of their main concerns increased from 36 percent in 2013 to 42 percent in 2014. MIGA’s Political Risk Survey tells a similar story: 20 percent of investors identified political risk as the most important constraint on Foreign Direct Investment (FDI) in developing economies. Indeed, according to risk management firm AON, political risk is now tenth on the list of main risks facing organizations today and is likely to rise in the ranking in the next few years.
With FDI from emerging markets also on the rise, are the concerns of these investors any different?

Newest private participation in infrastructure update shows growth and challenges

Clive Harris's picture

In 2013, investment commitments to infrastructure projects with private participation declined by 24 percent from the previous year.  It should be welcome news that the first half of 2014 (H1) data – just released from the World Bank Group’s Private Participation in Infrastructure (PPI) database, covering energy, water and sanitation and transport – shows a 23 percent increase compared to the first half of 2013, with total investments reaching US$51.2 billion.

closer look shows, however, that this growth is largely due to commitments in Latin America and the Caribbean, and more specifically in Brazil. In fact, without Brazil, total private infrastructure investment falls to $21.9 billion – 32 percent lower than the first half of 2013. During H1, Brazil dominated the investment landscape, commanding $29.2 billion, or 57 percent of the global total.

Four out of six regions reported declining investment levels: East Asia and the Pacific, South Asia, Africa, and the Middle East. Fewer projects precipitated the decrease in many cases. Specifically, India has experienced rapidly falling investment, with only $3.6 billion in H1, compared to a peak of $23.8 billion in H1 of 2012. That amount was still enough to keep India in the top five countries for private infrastructure investment. In order of significance, those countries are:  Brazil, Turkey, Mexico, India, and China.

Sector investments were paced by transport and energy, which together accounted for nearly all private infrastructure projects that were collected in this update. The energy sector captured high investment levels primarily due to renewable energy projects, which totaled 59 percent of overall energy investments, and it is poised to continue growth due to its increasing role in global energy generation.

The energy sector also had the biggest number of new projects (70), followed by transport (28), then water and sewerage (12). However, transport claimed the greatest overall investment, at $36 billion, or 71 percent of the global total.

While we need to see what the data for the second half of 2014 show, what we have to date suggests that infrastructure gaps may continue to grow as the private sector contributes less. It also suggests that, in many emerging-market economies, there is much work to be done to bring projects to the market that will attract private investment and represent a good deal for the governments concerned. 

Financial inclusion: Stepping-stone to prosperity

Sri Mulyani Indrawati's picture

In Pakistan, Salma Riaz, right, shows Saba Bibi how to use her new cell phone to receive payments. © Muzammil Pasha/World BankTwo and a half billion people in the world do not have access to formal financial services. This includes 80% of the poor — those who live on less than $2 a day. Small businesses are similarly disadvantaged: As many as 200 million say they lack the financing they need to thrive.

This is why we at the World Bank want men and women around the world to have access to a bank account or a device, such as a cell phone, that will let them store money and send and receive payments. This is a basic building block for people to manage their financial lives.

Why is this so important? Financial inclusion helps lift people out of poverty and can help speed economic development. It can draw more women into the mainstream of economic activity, harnessing their contributions to society. And it will help governments provide more efficient delivery of services to their people by streamlining transfers and cutting administrative costs.

A step out of poverty

Studies show that access to the financial system can reduce income inequality, boost job creation, and make people less vulnerable to unexpected losses of income. People who are "unbanked" find it harder to save, plan for the future, start a business, or recover from a crisis.

Being able to save, make non-cash payments, send or receive remittances, get credit, or get insurance can be instrumental in raising living standards and helping businesses prosper. It helps people to invest more in education or health care.