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Private Sector Development

Unbundling and targeting the business environment for firm growth

L.Colin Xu's picture

There are many views about how a country develops. Some view institutions as the key determinant, while others emphasize the fundamental importance of human capital. Still others highlight the importance of infrastructure, while the World Bank and other international organizations have argued for improving the overall business environment in which firms operate. Finally, a recent strand of literature has emphasized the importance of agglomeration economies as a source of long-term growth. What, however, are the relative explanatory power of these alternative, though not necessarily-mutually exclusive, views? And are their effects specific to the context such as the level of development, the sector in which a firm operates, firm size and age? Answering these questions is important because governments only have limited resources to deal with key challenges. If there are bottlenecks to a country’s development, it is important to diagnose these to provide a sounder basis for policy.

Fresh thinking on economic cooperation in South Asia

Nikita Singla's picture
 Aamir Khan/ Pakistan, Sreerupa Sengupta/ India, Sanjay Kathuria/ World Bank, Mahfuz Kabir & Surendar Singh/ Bangladesh) Photo By: Marcio De La Cruz/ World Bank
Young Economists sharing the stage with Sanjay Kathuria, Lead Economist and Coordinator, Regional Integration (Left to Right: Aamir Khan/ Pakistan, Sreerupa Sengupta/ India, Sanjay Kathuria/ World Bank, Mahfuz Kabir/Bangladesh & Surendar Singh/ India). Photo by: Marcio De La Cruz/ World Bank


That regional cooperation in South Asia is lower than optimal levels is well accepted. It is usually ascribed to – the asymmetry in size between India and the rest, conflicts and historical political tensions, a trust deficit, limited transport connectivity, and onerous logistics, among many other factors.

Deepening regional integration requires sufficient policy-relevant analytical work on the costs and benefits of both intra-regional trade and investment. An effective cross-border network of young professionals can contribute to fresh thinking on emerging economic cooperation issues in South Asia.

Against this background, the World Bank Group sponsored a competitive request for proposals.  Awardees from Bangladesh, India, and Pakistan, after being actively mentored by seasoned World Bank staff over a period of two years, convened in Washington DC to present their new and exciting research. Research areas included regional value chains, production sharing and the impact assessment of alternative preferential trade agreements in the region.

Young Economists offer fresh thoughts on economic cooperation in South Asia

Mahfuz Kabir, Acting Research Director, Bangladesh Institute of International and Strategic Studies and Surendar Singh, Policy Analyst, Consumer Unity Trust Society (CUTS International) presented their research: Of Streams and Tides, India-Bangladesh Value Chains in Textiles and Clothing (T&C). They focus on how to tackle three main trade barriers for T&C: a) high tariffs for selected, but important goods for the industries of both countries; b) inefficient customs procedures and c) divergent criteria for rules of origin classification.

Sreerupa Sengupta, Ph.D. Scholar at Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi discussed Trade Cooperation and Production Sharing in South Asia – An Indian Perspective. Reviewing the pattern of Indian exports and imports in the last twenty years, her research focuses on comparing the Global Value Chain (GVC) participation rate of India with East Asian and ASEAN economies. Barriers to higher participation include a) lack of openness in the FDI sector; b) lack of adequate port infrastructure, and long port dwell times; and c) lack of Mutual Recognition Agreements (MRAs).

Aamir Khan, Assistant Professor, Department of Management Sciences, COMSATS Institute of Information Technology, Islamabad presented his work on Economy Wide Impact of Regional Integration in South Asia - Options for Pakistan. His research analyzes the reasons for Pakistan not being able to take full advantage of its Free Trade Agreement (FTA) with China, and finds that the granting of ASEAN-type concessions to Pakistan in its FTA with China would be more beneficial than the current FTA arrangement. The work also draws lessons for FTAs that are currently being negotiated by South Asian countries.

It takes an ecosystem: How networks can boost Africa’s incubators

Alexandre Laure's picture
Also available in: Français
 
 Bond’Innov
Dynamic entrepreneurs supported by the North-South incubator Bond’Innov. Photo Credit: Bond’Innov


Across francophone Africa, incubators are emerging rapidly to support a new generation of young entrepreneurs. Despite their huge potential, however, incubators are just one of many players in a typical entrepreneurial ecosystem.  So it is increasingly important that incubators — in addition to allocating the necessary resources, services and funding to worthy start-ups — provide them with a platform to share and transfer knowledge across the ecosystem, not only with each other but also with the investors, research centers and industry experts upon which their businesses will ultimately depend.

As with Impact Hub Bamako, incubators can be part of broader international franchises, while others are anchored by academic, public or private bodies (or some hybrid of the three) and may already be associated with other incubators. Bond’innov, for example, is an incubator that promotes entrepreneurship cooperation between the global North and the South and that is headquartered in Paris and located on-campus with the Institute for Development Research, a large multidisciplinary research organization operating in more than 50 developing countries.

Sri Lanka: Building a more resilient economy

Smriti Daniel's picture



At the launch of the Sri Lanka Development Update (SLDU), our Twitter chat #SLDU2017: Environmental Benefits of Economic Management set out to explore how Sri Lanka could meet the twin challenges of increasing its physical and financial resilience.
 
The panel comprised experts from the World Bank - Country Director for Sri Lanka and the Maldives, Idah Pswarayi-Riddihough; Senior Economist Ralph van Doorn and senior environmental specialist Darshani De Silva – and Kanchana Wickramasinghe, a research economist in the Institute of Policy Studies. Together, they unpacked the SLDU, discussed its key findings and fielded questions from across the region around its main themes.
 
The bi-annual report, notes key economic developments over the preceding months, placing them in a longer term and global perspective; in the Special Focus section, it explores topics of particular policy significance to Sri Lanka. 
 
Ralph started with the idea that Sri Lanka faces a window of opportunity during which key reforms could transform the country and its economy. He noted that Sri Lanka’s position in the global economy improved its global growth prospects, as well as that of its key export partners. Low commodity prices and the restoration of the GSP+ preferential trade arrangement with the EU had also combined to improve the outlook for the Sri Lankan economy.

For Idah, the country’s mood and the government’s commitment to change were critical to success:   
 
The panel delved into how natural disasters and extreme weather events posed a threat to Sri Lanka’s growing economy. In the short-term the damage was clear and serious, with losses amounting to several billions a year, as Idah noted in her blog. During the chat, she emphasised how Sri Lanka needed to be prepared for future disasters or it would cost the country enormously.
 
Kanchana pointed out that in the long-term, disasters could set back poverty alleviation efforts, especially in agricultural and rural areas, adding:
 

With the chat underway, questions poured in from an online audience who were interested in diverse issues – from managing Sri Lanka’s ongoing drought and its impact on the Northern Province to what insights the SLDU had to offer other countries in the region such as India.

A portrait of PPPs in Latin America

Gastón Astesiano's picture


Photo: Deutsche Welle | Flickr Creative Commons 

As in many regions, countries in Latin America and the Caribbean are underinvesting in infrastructure—spending in the sector is only about half of the $300 billion needed annually to encourage growth and reduce poverty. Addressing this issue involves the successful interaction between public officials and leading infrastructure actors, particularly in the private sector. Stimulating such public-private dialogue is a priority for the Inter-American Development Bank (IDB) Group, a technical partner of the Global Infrastructure Facility (GIF). Along with other partners, our recently established PPP unit supports governments, international financial institutions, and the private sector to develop infrastructure projects.
 
It was therefore a privilege for me to moderate a panel on country infrastructure programs in Latin America at the GIF’s annual Advisory Council meeting in April 2017. We covered three countries—Colombia, Argentina and Peru—at different stages of PPP market development. The findings were encouraging and illustrate a path forward for other countries in the region:

How do import tariffs on cars affect competitiveness? The case of India and Pakistan

Priyam Saraf's picture

For decades, various governments around the world have used trade-distorting policies (tariff and non-tariff barriers) to support the development of local automotive industries that would not have otherwise been economically viable. However, to what extent are these policies, which once helped attract market-seeking automakers (or Original Equipment Manufacturers: OEMs), still serving the interests of these countries is uncertain.

In fact, for India and Pakistan, two of the biggest South Asian automotive producers, a recent World Bank Group report highlights that such polices might be reducing competitiveness and slowing down the spread of world-class good practices in the value chain. These effects need to considered carefully. A process of reform via gradual reduction of import tariffs and convergence with international environmental and safety standards is recommended to enhance competitiveness of this sector.

In the automotive sector, India is the world’s sixth-largest auto producer by volume, but it owns less than 1 percent of global export markets compared with more than 3 percent for China, 4.5 percent for Korea and 7 percent for Mexico. The average auto firm in India exported only 5 percent of its total sales, compared to 16 percent in China. Productivity levels in India are one-third the levels in China, and this gap persists for OEMs that are sub-scale, with below-average investment in innovation and skills, and with low participation in global value chains (GVCs). All these factors were discussed in a previous Private Sector Development blog post. The situation is worse in Pakistan, with lower levels of exports and productivity, and with similar factors driving it.

Trade policies, through tariff and non-tariff barriers, play an important role in shaping the external environment, which in turn influences a firm’s incentive to become more productive (or not). Firms facing greater competition in their product markets are inclined to raise the minimum productivity threshold to operate profitably and reduce inefficiencies. They do this both through investing in productivity-enhancing activities and through reducing costs, which in turn helps them capture greater market shares. Competition also helps reallocate resources from the less-productive to the more-productive firms, increasing the incentives for all firms to invest in the within-firm productivity levers such as innovation and skills.

Three ways creative community spaces are transforming cities

Victor Mulas's picture

Start-ups are transforming cities. Entrepreneurs are inspiring creative communities and transforming the social and economic landscape of the neighborhoods where they cluster.
 
What drives entrepreneurs together and creates these communities? To answer this question, we looked at catalysts of entrepreneurial communities in cities around the world. The team found that a range of spaces — such as innovation hubs, incubators, maker spaces and fab labs — are at the core of these communities. They represent the main link between entrepreneurs and the broader economic and social fabric of the city. We call these “Creative Community Spaces” (CCS).
 
How are these CCS helping transform our cities? We compiled a set of case studies from around the world and analyzed their impact. There are more details in this report.


 

Bankability: More than de-risking projects

Cosette Canilao's picture


Photo: Highways England | Flickr Creative Commons

When PPP investors are asked what they look for in a project, they would typically reply they like projects that are bankable, where risks are fairly allocated between the government and the sponsor. When one probes deeper though as to where they normally invest, you might elicit this response: in a market where there is deep commitment by the government to undertake an effective PPP program. This is a very telling answer sometimes lost to governments that want to pursue ambitious PPP programs. Bankability for a developing country involves more than de-risking projects. More importantly, it entails de-risking the country and its PPP program. 

Corporate Innovation 2.0: How companies are creating new products and services to compete in the all-tech age

Victor Mulas's picture

Explaining the idea factory through Legos at the Strengthening Lebanon’s Mobile Internet Ecosystem workshops. Photo by Shamir Vasdev / World Bank
 



The corporate world is at the forefront of the tech-led transformation of the economy. The democratization of technology, whereby exponential cost reductions have allowed almost anyone to produce tech-based innovations, is disrupting core sectors of the economy. 
 
Technology disruption is not confined anymore to the digital world. Data analytics, artificial intelligence, 3-D printing, robotics, sensorization, and an ever-evolving list of technology platforms have blurred the boundaries that once-protected physical ("brick and mortar") sectors, such as the hospitality, automobile, construction and manufacturing sectors.

Business as usual has not served companies in these sectors well. Traditional innovation models to create products and services do not match the pace and agility of competitive disruption from tech actors (e.g., large technology platforms with unbeatable access to data access and capital, such as Google or Amazon, and small and agile local startups). Thus, a new corporate innovation model, “Corporate Innovation 2.0,” is emerging.
 
The main characteristic of this new model is that it’s open by nature, as opposed to having a closed R&D process. Established companies tend to offer good structures for marketing, distribution, processes, scaling up products, etc., but, compared to start-ups, they often have a weakness in generating and rapidly applying creativity to develop new products and services.
 
Using open innovation techniques, corporations are trying to address this weakness by absorbing start-up innovation. We have seen three main types of mechanisms in this emerging model: corporate accelerators, competitions to generate new ideas, and co-creation with startups of new products and services. 

What’s holding back India’s automotive sector?

Priyam Saraf's picture

For several decades, manufacturing in the automotive sector has made a strong contribution to spurring national growth, to promoting technology acquisition, and to raising incomes for workers across skill levels in developing economies as well as in developed nations. In India – the world’s sixth-largest producer of cars, where the automotive sector has been growing but at well below its tremendous potential – productivity levels would need to increase rapidly. A wave of autonomous functionality in vehicles and other technology-driven disruptions are not far away with the involvement of tech giants like Google, Tesla, and Uber. This makes the need to improve productivity in order to respond quickly to changing environments even more critical for traditional automakers. 

Some long-awaited reforms in India to improve automotive manufacturing performance came through this year. In July, the Government of India implemented a unified Goods and Services Tax (GST) regime to replace the multiple taxes that had been levied, in the past, by the state and central governments. This makes for a more integrated market, with uniformity in tax rates where automakers will be helped by easier compliance, the removal of cascading effect of taxes and the reduction of the costs of doing business. Reinforcing this, the union budget allocation in February allows for more investments in roads and highways, farm-friendly policies and income-tax reform for the middle class. Those steps will increase demand for small passenger vehicles and for the farm-equipment segment. This is all good news for the automakers in India.

Still, much more needs to be done to increase overall productivity in this job-creating and technology-rich sector. According to a recently published report by the World Bank Group, entitled “Automotive in South Asia: From Fringe to Global,” productivity (measured by value added per worker) in India’s auto sector remains less than one-third the level of China. From 1993 to 2004, the growth rate of Total Factor Productivity in China’s automotive sector was 6.1 percent per year, compared to only 1.1 percent in India. The growth rate of labor productivity was 9.8 percent per year in China, compared to 3.1 percent in India. Even though India has been increasing production of units at 11 percent to 15 percent per year (from 2005 through 2015) , it could do much better on improving productivity levels.


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