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Governance

At the FCV Forum, a focus on jump-starting job creation: Boosting SMEs amid woes of Fragility, Conflict and Violence

Christopher Colford's picture



Jump-starting job growth is difficult enough when a country’s investment climate is supportive, when its government has clear goals and competent capabilities, and when its business leaders can make far-sighted plans. When an economy is riven by the chaos of war, or when it is newly emerging from a severe social trauma, channeling capital toward private-sector job creation is even harder.

Amid this year’s FCV Forum at the World Bank Group – focusing on economies gripped by fragility, conflict and violence (FCV) – a seminar combining Financial Sector and Private Sector priorities heard a sobering picture from expert practitioners who have been on the front lines of promoting job growth in economies that are in turmoil. Moderated by John Speakman, the Lead PSD Specialist in the Bank Group’s practice on Trade and Competitiveness – who is the author of a new book on small-scale entrepreneurs in FCV situations – a panel explored the daunting challenges of promoting private-sector growth when countries are in turmoil.

Would-be job creators confront an enormously complex task in FCV situations. Yet the panelists agreed that there is reason for hope – even in the most tumultuous FCV conditions – if financing can be targeted toward promising startup companies, and especially toward potential “gazelle” firms that can energize new sectors of the economy.

“Ultimately, it’s all about money: Poor people are poor because they don’t have money,” said Hugh Scott of KPMG, whothe Africa Enterprise Challenge Fund (AECF). “It’s the delivery channel – the financing mechanism – that’s making the difference” in the 23 African countries where the ACF has offered grants and interest-free loans to about 800 private-sector firms, producing a net development impact of about $66 billion.

The difficult business environment and increased risk profile in FCV countries means that traditional lenders (primarily banks) are all the more hesitant to lend, said Scott – making such vehicles as “challenge funds,” which focus on promising small and startup firms, even more important. As co-founder of invest2innovate (and current World Bank Group consultant) Sadaf Lakhani noted, the “ecosystem problem” for Small and Medium-sized Enterprises (SMEs) and startups is all the more complex when countries face “a political economy of war.” As she had observed during her work with invest2innovate -- a nonprofit angel investing and accelerator organization -- such frequent FCV afflictions as corruption, patronage, fragmented markets and capital flight make it even more difficult for managers and lenders to identify, evaluate and accelerate startups.     

Bank financing, in fact, is not always a ready source of funds for startup ventures, as noted by Simon Bell, the Global Lead on SME Finance at the Bank Group. Banks weigh the historical profit-and-loss performance of would-be borrowers – yet the entrepreneurs who are behind the “small sub-set of firms,” like the so-called “gazelles,” that are destined to create jobs quickly have little or no financial track record. Startups are thus often viewed warily by risk-averse bankers. Drawing on his long experience in the MENA region, Bell underscored that a priority in FCV states is ensuring that there is “a continuum of financial institutions and services” – like early-stage financing, private equity, venture capital and angel financing – that can provide critically important financing at various stages of a dynamic company’s growth.

To help give a boost to startups and young firms, the International Finance Corporation has created several financing mechanisms that are having a positive impact on job growth. The SME Ventures Program, created in 2008 with a $100 million allocation from IFC, has aimed to reach businesses in the poorest of the poor countries, often in FCV situations, said its Program Manager, Tracy Washington. Having financed about 60 SMEs, and having already supported the creation of about 1,000 direct jobs and many more indirect jobs, the SME Ventures Program has had a positive “demonstration effect,” inspiring new entrants to serve the marketplace once they have witnessed IFC’s strong performance. In addition, IFC's Global SME Finance Facility, described by Senior Investment Officer Florence Boupda, has provided investment capital and advisory services to 27 financial institutions in 18 countries since 2007 – including 17 projects in seven FCV countries.

The challenge for the future, agreed Boupda and Washington, will be to find additional ways to combine Bank Group interventions in ways that continue to choose companies with the greatest potential and that maximize the impact of Bank Group support. Their insights were underscored by Bell, who emphasized that “globally, employment is our issue” – and who asserted that “there are points of light all around” in this “very exciting” area, as various arms of the Bank Group focus on “the employment imperative.”

Finding ways “to apply the most innovative solutions to the most challenging situations,” especially in FCV and other traumatized countries, remains the grand challenge for international financial institutions, concluded Michael Botzung, IFC’s manager for fragile and conflict-affected countries in Sub-Saharan Africa. Yet the determination of the energetic practitioners on the SME financing panel reminded the FCV Forum audience why there is cause for hope – and why, in Speakman’s words, the intensive WBG-wide efforts to promote job creation in the toughest FCV situations is “one of the things that makes us proud to be with the World Bank Group.”
 

#TakeOn Fragility Conflict and Violence

Engaging citizens: a game changer for development?

Mario Marcel's picture



Nearly every week, I read news stories about citizens clamoring for change in governance- citizens who want their voices heard and acted upon. In countries all over the globe, citizen groups are working (sometimes with governments and sometimes against them) to build a more citizen-centric approach to governance. Why? People—ordinary citizens—are at the heart of good governance, and governments are genuinely more effective when they listen to and work with citizens to tackle development challenges.

Engaging citizens can help improve transparency and accountability of public policies, promote citizens’ trust, forge consensus around important reforms, and build the political and public support necessary to sustain them.  

Justice proposed for sustainable development goals

Heike Gramckow's picture
​Source UN, 2014. The Road to Dignity by 2030: Ending Poverty, Transforming All Lives and Protecting the Planet

This year will see a major milestone with the adoption of sustainable development goals (SDGs) by the UN’s member states. Expanding on the 8 Millennium Development Goals (MDGs) set in 2000, the currently envisioned 17 SDGs are aiming to address broader, transformative economic, environmental and social changes. For the first time, however, the centrality of justice in achieving sustainable development has been recognized in the Open Working Group’s proposed Goal 16:
 
Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels.
 
The mention of justice, governance and peaceful societies in the SDGs is seen as an important step, but one that will pose many challenges. Secretary General Ban Ki-Moon has put his support behind the inclusion of justice as a central pillar for achieving sustainable development.

Myanmar sees early progress in its public procurement reform

Zhentu Liu's picture
 Markus Kostner / World Bank


Myanmar is embarking on a triple transition: from an authoritarian military system to democratic governance; from a centrally directed economy to market oriented reforms; and from several decades of conflict to peace.

Since 2011, leaving behind decades of isolation, fragility and conflict, a reformist government has steered unprecedented political and economic reforms intended to open Myanmar to the global economy, boost growth, and reduce poverty.
 
As part of its economic reforms, Myanmar seeks to establish a modern public procurement regime and has taken a series of actions including the issuance of two Presidential Instructions and two directives on Public Procurement to establish the basis for an open and competitive public procurement system.

Weekly Wire: The Global Forum

Roxanne Bauer's picture

These are some of the views and reports relevant to our readers that caught our attention this week.

 
Africa in 2030: drones, telemedicine and robots?
The Guardian
In 2000 the CIA’s national intelligence council made a series of pessimistic predictions about Africa. They suggested that sub-saharan Africa would become “less important to the international economy” by 2015; that African democracy had gone “as far as it could go”; and that technological advances would “not have a substantial positive impact on the African economies.”  Clearly, predictions don’t always come true. Between 2000 and 2012, the number of mobile connections in Africa grew by 44%. In 2011, mobile operators and their associated businesses in Africa has a “direct economic impact” of $32bn, and payed $12bn in taxes. It made up 4.4% of sub-Saharan Africa’s GDP, according to a 2012 report.  But the advances in communications are not the only element defining Africa’s future:
 
Good Governance: Well-Meaning Slogan Or Desirable Development Goal?
Forbes
Corruption last year cost the world more than one trillion dollars. That is a trillion dollars we can’t use to get better health care, education, food and environment. And corruption is only part of the problem of poor governance – many countries are run ineffectively, lacking accountability, transparency and rule of law.  Running countries better would have obvious benefits. It would not only reduce corruption but governments would provide more services the public wants and at better quality. It is also likely that economic growth would increase. In a recent UN survey of seven million people around the world, an honest and responsive government was fourth in the list of people’s priorities, with only education and healthcare and better jobs being rated higher.  But how should we get better governance?

The Specter Haunting Davos – Piketty as ‘Banquo’s Ghost’: Reforming 'the Mercenary Society' via an Energetic Agenda

Christopher Colford's picture



Metaphor of the month, via a deft dispatch from Davos: Thomas “Piketty was not in attendance this year – which was like putting on ‘Hamlet’ without the Prince” of Denmark, quipped Larry Elliott, the economics editor of The Guardian, as he needled ostentatious Davos-goers for only half-heartedly living up to the Davos dictum  of being “ ‘committed to improving the state of the world,’ provided nothing much changes.” 

Let’s shift the Shakespearean citation slightly, from “Hamlet” to “Macbeth”: Like Banquo’s ghost, the specter of Piketty’s analysis of inequality and injustice seemed to haunt many private-sector leaders at Davos this year – and thus the scholar from the Paris School of Economics didn’t need to be present in order to have a powerful impact at this year’s World Economic Forum.

Amid last week's self-exculpatory denialism from the unrepentant-oligarch wing of the Davos Man culture, one could almost hear the apologists for plutocracy and the free-market fatalists joining the conscience-stricken Macbeth in shrieking to Banquo's implacable apparition: “Thou canst not say I did it! Never shake thy gory locks at me!

The Davos 2015 parade of plutocrats may have been worth all the time and trouble, after all – despite its customary spectacles of self-indulgence – if the pageantry helped pique the conscience of some of the One Percenters and their courtiers, at least momentarily. “Most of the conversations between chief executives here are about Piketty-type issues. They talk about things [at Davos that] they wouldn’t be talking about back in the boardroom,” one eminent corporate leader told Elliott of The Guardian. Piketty-inspired concerns about inequality – along with fears of chronic economic stagnation and an irretrievably despoiled planetseem likely to inform this year’s top-level global policy forums, from Addis Ababa in July to the United Nations in September to Paris in December.
 
Signaling that many private-sector leaders have been awoken by, and are responding to, Piketty's landmark analysis of the intensifying concentration of capital in ever-fewer hands – which is provoking a more rigid stratification of society along hardening lines of social class – the World Economic Forum itself set the stage for Davos 2015 by publishing a 14-point agenda for promoting more inclusive growth. That analysis, searching for constructive solutions, is certainly a welcome contribution to the debate. Yet Piketty’s analysis of the widening gaps between the ultra-wealthy and everyone else – with Davos as perhaps an inadvertent self-parody of the cocooned Uber One Percent – suggests that there’s scant hope for mending a torn society unless policymakers enact policy changes on a vast scale: by (among other priorities) adopting greater progressivity in tax rates and enforcing a crackdown on cross-border tax evasion.

(An aside, regarding those who quibble with a point of Piketty-era terminology – and those who have attempted, and have conspicuously failed, to refute Piketty’s logic. Using a chicken-and-egg argument, some theorists lament the Piketty-inspired focus on the term “inequality,” insisting that inequality may be the outgrowth of, rather than the cause of, economic stagnation and social stratification. Fair enough. Yet such casuistry dwells on a distinction without a practical difference. Enacting pro-growth programs to avoid “secular stagnation” would surely be wise policymaking. Yet no serious plan would envision going back to a pre-2008-style “GDP growth at any cost” approach. The global financial crisis of 2008 revealed the recklessness of simplistic gun-the-engine, GDP-uber-alles policies that produce merely unsustainable, low-quality growthToday’s pragmatists, instead, champion a more inclusive economy that eases social divisions and sustains broader opportunity – promoting what the World Bank Group calls “shared prosperity.”)

Judging by Piketty’s esteem among Davos 2015 participants, most leaders of the private sector – all but a recalcitrant few, some of whom dwell on the free-market fundamentalist fringe – have evidently gotten the message (at last): Chronic inequality and stifled social mobility have reached a socially intolerable and perhaps politically destabilizing intensity. Yet if all but an eccentric remnant in the private sector “get it,” do public-sector policymakers – many of whom seem ever-eager to do the bidding of the most self-aggrandizing monied interests? The Davos-style ideal of “capitalism for the long term” is motivated by “enlightened self-interest,” yet many boardrooms – and those politicians who are forever at their beck and call – apparently need still more enlightenment and less self-interest.

Charting the next steps beyond Piketty's “Capital in the Twenty-First Century" – advancing from academic analysis to social action – will be the next order of business in 2015, a year with parliamentary elections in several pivotal countries. Just in time for the post-Davos and pre-election season, a newly published book seems poised to pick up where Piketty left off: emphasizing that society needs a healthier balance between private-sector dynamism and public-sector activism, undergirded by a humane sense that an economy with truly shared prosperity should prioritize social fairness.

With their appetites whetted by early excerpts published this week in The Observer, many admirers of Piketty will be eager to read “How Good We Can Be: Ending the Mercenary Society and Building a Great Country” by Will Hutton, the principal of Hertford College, Oxford. Hutton – for all his gloom about the injustices inflicted on his native United Kingdom over the past 35 years – advances an optimistic agenda that might show the way toward correcting decades’ worth of policy errors.

“Inequality has become a challenge to us as moral beings,” declares Hutton, reinforcing Piketty’s view of a society starkly stratified by social class. A callousness toward social divisions has spilled over from the economic realm into political decision-making, resulting in an “amoral deficit of integrity” – and Hutton is not shy about pointing to a specific turning point, or about naming a specific name.

“Ever since [Margaret] Thatcher’s election in 1979, Britain’s elites have relegated concerns about inequality below the existential question of how to restore our capitalist economy to economic health, a matter deemed to transcend all other considerations,” writes Hutton. “The language of the socioeconomic landscape has been commanded by words like efficiency, productivity, wealth generation, aspiration, entrepreneur, pro-business and incentives. To the extent they are significant at all, preoccupations with inequality have been seen as of second-order importance.”

The “raw trends” of the weakened power of wage-earners and the strengthened dominance of capital-owners – the outgrowth of Piketty’s iconic formula, r>g – “are then exacerbated by the reduction of taxation on capital, companies and higher earners in the name of promoting incentives and 'wealth generation.' " No wonder, Hutton asserts, that the United Kingdom has suffered “a stunning increase in inequality, the fastest in the OECD.”

Readers who were drawn to Piketty’s logic – yet who were left by "Capital" with a despairing feeling of “where do we go from here?” – are likely to warm to Hutton’s work, which extends the logic of his influential 1995 analysis, “The State We’re In.”

“Indifference to the growing gap between rich and poor, in all its multiple dimensions, is the first-order-category mistake of our times," warns Hutton. "No lasting solution to the socioeconomic crisis through which we are living is possible without addressing it.”

Recalling his years of energetic columns in The Guardian and The Observer, Hutton’s activist economic prescription in “How Good We Can Be” seems likely to include a better-focused approach to industrial policy; targeted investment in innovation capacity; pro-entrepreneurship mechanisms to sharpen competitiveness; and pro-active tax policies that ease rather than intensify the wealth divide.

Many of those who missed this year’s Davos triumph of Piketty-style reasoning are now awaiting the arrival of Hutton’s new book on this side of the Atlantic. Piketty scored the scholarly sensation of 2014 with the publication of “Capital.” My early hunch is that Hutton, with “How Good We Can Be,” just might achieve a similar agenda-setting success in 2015.
 

#TakeOn Inequality


 

Technology Alone Will Not Save the World: Lessons from the 2015 Gates Letter

Suvojit Chattopadhyay's picture

Melinda and Bill Gates have made an annual tradition of publishing their thoughts on international development and its key challenges. Given the substance, I assume these letters reflect an annual manifesto for the organisation they head, the Bill and Melinda Gates Foundation (BMGF). Last year, I wrote about how the Gates Annual Letter was disappointing, perhaps not in the context of what the BMGF itself does, but what it ought to be doing, given its $42 bn muscle and its influential promoter, Bill Gates.

This year, the letter makes four “big bets” for 2030: child deaths will go down by half, and more diseases will be eradicated than ever before; Africa will be able to feed itself; mobile banking will help the poor radically transform their lives; and better software will revolutionise learning. In short, fast-tracking the identification ­technological fixes and expanding their reach over the next fifteen years will deliver a better world.

Unfortunately, these bets seem to me to be wildly optimistic. I may be quibbling, but from what we have learnt from research, there seem to be many reasons to suggest that we should be cautious with our optimism regarding what we can achieve with technology. The complexities of working on power, politics and implementation find no mention in the letter. Let us look a little more closely at each one of the bets to find out why that matters so much.

Is technology good or bad in the fight against corruption?

Victoria L. Lemieux's picture



Consider that as much as $1 trillion vanishes from the developing world’s economies every year, according to an estimate by the non-profit group Global Financial Integrity.  Now consider that, according to OECD figures, in 2012-2013 Net Overseas Development Aid was $134 billion.  These figures underscore why the fight against corruption and ending impunity are critical to the goals of ending poverty and achieving shared prosperity. 

In December of 2014 the World Bank hosted the 3rd Biennial International Corruption Hunters’ Alliance meeting focused on fighting corruption - and the vast illicit outflows generated by corruption - to share know-how and experiences in the use of both traditional and alternative corruption fighting approaches.

Though there were many examples of the successful use of technology to fight corruption presented at the meeting, a report (pdf) published from one of the sessions raises questions about whether technology always supports anti-corruption efforts. 

Dr. Anne Thurston of the International Records Management Trust spoke about problems that are arising as governments become more reliant on the use of ICTs: digital media deteriorate, software changes, and hardware becomes obsolete. The risk is that if digital records are not managed professionally, their integrity and value as legal evidence can become compromised. 

Public financial management reforms: determined by conditions or resulting from the right approach?

Verena Fritz's picture



Reforms of public financial management (PFM) systems – pursued by many countries and supported by development partners -- have attracted quite a bit of debate and analysis in recent years. Significant variation in progress achieved and lack of broad-based and sustained improvements in metrics of PFM performance, as reflected in CPIA ratings and PEFA scores, suggest to many observers that outcomes have not matched reform efforts and expectations. 

This has led to a search for better solutions in two directions. First, grounding reform efforts in stronger problem analysis, and based on this, developing a better fit of reform approaches to specific country circumstances. Second, seeking a better understanding of non-technical aspects and, in particular, the role of political economy drivers in influencing which PFM reforms are pursued where and with what degree of success. ‘Doing things differently’ along these lines sounds promising – but reformers and development partners may well question whether we know enough to pursue such alternative approaches on a wider scale. 

Technical Education in India: What Makes Good Governance “Good”?

Jessica Lee's picture


During a recent trip to India, we met with Professor Anil Sahasrabudhe, a dynamic, positive man who will likely remind you of a favorite uncle. In 2004, he was in the less satisfactory position of being director at the College of Engineering in Pune (COEP), located 150 km southeast of Mumbai. At that time, the institution had no financial or academic autonomy, no governance structure, and no administrative freedom. Ten years later, in 2014, the institution had turned around, garnering national awards and recognition. What helped spark the change? While several factors made an impact, Professor Sahasrabudhe mentions good governance first.


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