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Eastern Europe and Central Asia

Unofficial payments, barriers to trade, and other obstacles to running a business in Azerbaijan

Submitted by Mohammad Amin on Thu, 2011-01-20 13:14

Editor's Note: The following post was submitted jointly by Mohammad Amin and Arvind Jain, both of the World Bank Group's Enterprise Analysis Unit.

The Enterprise Analysis Unit at the World Bank recently put out a short Country Note on the current state of the business climate in Azerbaijan. The note is based on newly collected firm-level data on various aspects of the business climate and experiences of a statistically representative sample of firms (Enterprise Surveys). The data also contain information on various measures of performance and the structure of the firms. Some of the important findings discussed in the note are summarized below.

Between 2005 and 2009, there were significant improvements in Azerbaijan’s business environment, particularly in terms of increased access to finance and reductions in tax payment-related bribery. Firms interviewed in 2005 and 2009 reported increased use of credit-financed investments and increased sales on credit. Nevertheless, firms faced many severe constraints, including corruption and a business environment that was not conducive to international trade. For example, 32 percent of the firms in Azerbaijan reported unofficial payments to public officials to get things done compared with an average of 17 percent in Eastern European and Central Asian (ECA) countries. Female participation in ownership was the lowest in the ECA region (figure 1). Firms in Azerbaijan were also less likely to export their products, have their own website, and use email to communicate with their clients than firms in the rest of ECA region.

What is so special about onions in India?

Submitted by Mohammad Amin on Tue, 2011-01-18 12:20

You might find it hard to believe, but high prices of onions can trigger the fall of the government in India. In 1998, a supply side shock led to a sharp increase in onion prices in the country and most notably, in the state of Delhi. In the following elections, the ruling party was routed in large part due to its failure to control the price of onions in the capital state. Today, onion prices in India are up again, rising by over 100% in just three weeks in December. On December 20th and 21st onion prices had skyrocketed to Rs 70-85/kg in major cities of India from Rs 30-35 in early December, due to crop damage caused by abnormal rainfall in the key growing states of Maharashtra and Karnataka.

Realizing the possible political fallout as a result of the price increase, the government has moved swiftly this time to bring prices down. Apart from cracking down on hoarders, the government has lowered import duties on onions, ordered state-run trading agencies to import more onions from neighboring countries and banned the export of onions (some exceptions apply to the export ban).

Facebook: A powerful tool to increase public access to government officials

Submitted by Mohammad Amin on Tue, 2011-01-04 10:39

Most of the attention on governance in developing countries is on developing efficient rules and regulations. That is, given the social and economic priorities of a country, rules and regulations should work towards achieving priorities in the least costly way. However, another dimension of governance that must be discussed is accessibility of government officials to the public. Arguably, better access would increase transparency and help citizens and businesses voice their ideas and concerns, thereby allowing for more effective implementation of laws. What are some innovative ways of improving accessibility to government officials?

Regime Type: Do private firms have a preference?

Submitted by Mohammad Amin on Wed, 2010-11-10 18:33

One can reasonably expect that frequent and unpredictable changes in economic policy might adversely affect investment by the private sector and the overall growth of the economy. For all practical purposes, uncertainty about future economic policies is a step towards economic anarchy. But precisely what causes firms in some countries to have higher uncertainty about future economic policies than others? Does the underlying political structure matter? What elements of the political structure, if any, matter for the level of policy uncertainty as perceived by private agents?

Looking for a place to invest?

Submitted by Kusi Hornberger on Tue, 2010-11-09 19:45

Survey data suggest it might not be that easy for manufacturing multinationals to find information on suitable industrial investment sites in many countries around the world.

It will probably come as no surprise that FDI in the manufacturing sector is in decline. According to UNCTAD, the services and primary sectors continue to capture an increasing share of FDI as the years pass. Despite these trends, manufacturing still represents somewhere between 30 to 45% of total cross-border FDI inflows annually, and there have been more than 3,000 new manufacturing investment projects annually over the last decade.

Which raises the practical question: How do companies and their advisors locate suitable investment locations for their manufacturing projects when considering entry in new markets? The World Bank Group’s Investing Across Borders database suggests that it might not be that easy in most countries around the world. The database's index on Access to land information compares countries on the ease of access to land-related information through the countries’ land administration systems, including land registries, cadastres and land information systems and finds that globally of the 87 countries surveyed the average score is relatively low 41.4 out of 100 (Figure 1 below the jump; click on the image for a larger version).

Coming Full Circle: Bucket baths at IFC

Submitted by David Lawrence on Tue, 2010-08-31 10:11

Bucket bath When I applied for work at the International Finance Corporation way back in 1996, I had no idea that the battle against poverty would involve so many bucket baths, or that I would be taking them throughout my career.

It started with my very first assignment, in Sumy, a town of 300,000 in Ukraine. My water was heated by a frightening device, now rarely seen, called a kolonka, which was a metal box in your bathroom that heated water by gas. A good kolonka worked well; when you turned on the hot water tap, the device would fire up and provide enough hot water to take a shower or wash dishes. But my kolonka only worked if the water moved through it at a trickle, making a shower impossible. So every morning, I would slowly fill my red plastic bucket with hot water and take a bucket bath before heading off to do IFC business.

Who are those turkeys on Twitter?

Submitted by Ryan Hahn on Thu, 2010-08-26 10:35

The image below belongs to Filippo Minelli's Contradictions series. The World Bank has at least 11 Twitter feeds (and probably many more that I am not aware of). Also check out his Flags series. Can you guess which country gets to raise the 'Bananas' flag?

Just in case you aren't already, you can follow the PSD Blog's Twitter feed @worldbankpsd.

Lamp

The aggregate demand crisis in eastern Europe is not over

Submitted by Ryan Hahn on Thu, 2010-05-27 17:04

That's my main takeaway from just-released data based on surveys of over 1,800 firms in eastern Europe. In mid-July 2009, firms in six countries were asked whether they had seen an increase, decrease, or no change in sales from the previous year. The numbers then were not pretty—75% of firms reported a decrease in sales (based on an average of country-level data).

The same set of firms were surveyed again in February and March of this year, and there was little improvement. This time, 68% of firms reported a decrease in sales on a year earlier, not a particularly large improvement (especially in light of the fact that more firms have become insolvent or were impossible to locate in this most recent survey). Many of these countries have not had the luxury of engaging in fiscal stimulus policies unlike their richer neighbors to the west.

The Evolution of Private Enterprise: Russian McDonald's Edition

Submitted by Brian Hoyt on Tue, 2010-02-02 16:56

McDonaldsRussia McDonald's is celebrating its 20th anniversary in Russia this week. One of the most interesting aspects of McDonald's' Russian adventure is the evolution of its supply chain, which has developed remarkably in the past 20 years. Today, McDonald's sources all of its ingredients from outside purveyors, an 180 degree shift from when the company opened its first outlet in 1990:

The company celebrated a different milestone earlier this year by outsourcing the last product — hamburger buns — it had made at a proprietary factory outside Moscow called McComplex. It was built before the chain opened its first restaurant. Nearly everywhere else, McDonald’s buys ingredients, rather than making its own. But in the Soviet Union, there simply were no private businesses to supply the 300 or so distinct ingredients needed by a McDonald’s outlet.

Everything — from frozen French fries to pie filling — had to be made from scratch at a sprawling factory.

In the 20 years since McDonald’s arrived in Russia, enough private enterprises have sprung up to supply nearly every ingredient needed to operate one of its restaurants.

Today, private businesses in Russia supply 80 percent of the ingredients in a McDonald’s, a reversal from the ratio when it opened in 1990 and 80 percent of ingredients were imported.

McDonald's restaurants in Russia employ 25,000 workers, while its suppliers provide roughly 100,000 jobs.

Perhaps The Economist should come up with a supplement to its Big Mac index. Instead of purchasing power parity, the index could measure the level of private sector development by looking at the McDonald's supply chain.

(H/T Tyler Cowen. Photo credit: Barrybar)