Syndicate content

Private Sector Development

Making cities competitive – What will it take?

Megha Mukim's picture



Cities are the future. They are where people live and work. They are where growth happens and where innovation takes place. But they are also poles of poverty and, much too often, centers of unemployment.

How can we unleash the potential of cities? How do we make them more competitive? These are urgent questions. Questions, as it turns out, with complex answers – that could potentially have huge returns for job creation and poverty reduction.

Cities vary enormously when it comes to their economic performance. While 72 percent of cities grow faster than their countries, these benefits do not happen uniformly across all cities. The top 10 percent of cities increase GDP almost three times more than the remaining 90 percent. They create jobs four to five times faster. Their residents enjoy higher incomes and productivity, and they are magnets for external investment.
 
We’re not just talking about the “household names”among global cities: Competitive cities are often secondary cities, many of them exhibiting success amidst adversity – some landlocked and in lagging regions within their countries. For instance, Saltillo (Mexico), Meknes (Morocco), Coimbatore (India), Gaziantep (Turkey), Bucaramanga (Colombia), and Onitsha (Nigeria) are a few examples of cities that have been competitive in the last decade.
 
So how do cities become competitive? We define competitive cities as those that successfully help firms and industries create jobs, raise productivity and increase the incomes of citizens. A team at the World Bank Group spent the last 18 months investigating, creating and updating our knowledge base for the benefit of WBG’s clients. In our forthcoming report, “Competitive Cities for Jobs and Growth,”* we find that the recipe includes several basic ingredients.

In the long term, cities moving up the income ladder will transform their economies, changing from “market towns” to “production centers” to “financial and creative centers,” increasing efficiencies and productivity at each stage. But economic data clearly shows there are large gains to be had even without full-scale economic transformation: Cities can move from $2,500 to $20,000 in per capita income while still remaining a “production center.”  In such cases, cities become more competitive at what they already do, finding niche products and markets in tradable goods and services. Competitive cities are those that manage to attract new firms and investors, while still nurturing established businesses and longtime residents. 
 
What sort of policies do competitive cities use? We find that leading cities focus their energies on leveraging both economy-wide and sector-specific policies. In practice, we see how successful cities create a favorable business climate and target individual sectors for pro-active economic development initiatives. They use a combination of policies focused on cross-cutting issues such as land, capital markets and infrastructure, while not losing focus on the needs of different industries and firms. The crucial factor is consultation, collaboration and partnerships with the private sector. In fact, success also involves building coalitions for growth with neighbors and other tiers of government.

Islamic finance: Strong standards of corporate governance are a 'sine qua non'

Nihat Gumus's picture



Proper corporate governance practices in financial institutions should provide added value by enhancing the protection of depositor and investor rights, facilitating access to finance, reducing the cost of capital, improving operational performance, and increasing institutions’ soundness against external shocks. Ensuring strong corporate governance standards is thus essential to the stability and health of all financial institutions, worldwide.
 
Good governance is an important priority for Islamic finance, an aspect of international finance that has enjoyed a stage of significant growth over the past decade. The volume of financial assets that are managed according to Islamic principles has a value of around $2 trillion, having experienced a cumulative average annual growth rate of about 16 percent since 2009 (Graph 1).

Graph 1: The Size of Islamic Finance Assets (USD Billion)


 
Banking has traditionally been the leading sector in the realm of Islamic finance, but the share of other products and institutions within the total realm of Islamic financial assets has been steadily increasing,  as well (Graph 2). For instance, the Sukuk sector – which focuses on securitized asset-based securities – has seen considerable growth over the past six years and, as of 2014, amounted to more than $300 billion. Similar momentum is driving the growth of the Islamic Funds and Takaful (Islamic insurance) sectors. From 2009 to 2014, the assets under management of Islamic Funds has increased from about $40 billion to about $60 billion, while the amount of total gross contribution to Islamic insurance has surged from $7 billion to more than $14 billion.

Graph 2: The Size of Islamic Finance Assets by Sector 2014 YE (%)


 

Climate of hope, amid a season of summitry: Anticipation builds for vital summits on sustainability and climate change

Christopher Colford's picture
Speeding through a season of summitry, the world’s policymakers now have sustainability at the forefront of their autumn agenda – and the private sector, as well, must rise to the sustainability challenge. Anticipation is building for this month’s opening of the United Nations General Assembly, where the next-generation blueprint for global development – the long-awaited, painstakingly crafted Sustainable Development Goals (SDGs)  – will enshrine sustainability as the central long-term international priority.
 
Sustainability writ large – in all its environmental, social and economic dimensions – has been the theme driving the global debate as the SDGs have taken shape. A comprehensive plan that prioritizes 17 objectives – with 169 indicators to measure their progress toward completion – the SDGs will frame the global agenda through 2030. The SDGs’ adoption – at a U.N. summit from September 25 to 27 – will be a pivotal checkpoint along this year’s complex pathway of diplomacy, which will culminate in Paris in December with a crucial conference on the greatest of all sustainability issues: climate change.

Optimism seems to be steadily increasing as diplomats continue to negotiate a global climate-change deal. The hope is for an ambitious agreement at the so-called COP 21 conference – the 21st gathering of the Conference of Parties in the climate-change negotiations. The question, however, is how ambitious that pact will be.

As Rachel Kyte – the World Bank Group Vice President and Special Envoy on Climate Change – pointed out in a start-of-September forum at the World Bank: “I think that everything is in place for a deal to be struck in Paris, a deal that is universal, that brings everybody in to the table. . . . So a universal deal, a universal framework . . . is possible. The question, I think, is how strong a deal it's going to be.”
 
Rachel Kyte on Climate Action


As the clock ticks down to the deadline for a deal in Paris, Kyte (in conversation with Kalee Kreider of the United Nations Foundation) offered a detailed analysis of the intricacies surrounding the final stages of the negotiations: “The question, really, now is the level of ambition, the strength of that deal. And that's politics, not science. That's politics, not economics.”

Mission to Myanmar: Promoting the full development potential of an economy in transition

Cecile Fruman's picture
In Yangon, the urban modernization of Myanmar is well under way | Photo by Stephanie Liu


How do you help a burgeoning democracy like Myanmar with its transition to a market-based economy after 50 years of isolation, poor infrastructure and limited capacity for reform? You do it by  engaging closely with the government, the private sector and development partners, and by providing the full range of data, financing and knowledge available across all sectors of the economy.

As I conclude my first visit to Myanmar, a fragile and conflict-affected country where the World Bank Group started our development engagement just three years ago, I've witnessed first-hand how the WBG can best support such an economy in transition. As Myanmar looks forward to its first free and fair election in over two generations – an event coming up in November – the challenge will be to ensure continued reform momentum during a period of dramatic political change.
 
Seldom have we faced such dramatic circumstances in a country where our engagement is in such an early stage and where the development potential is so great. A country of 50 million people that went from once being the rice basket of Asia to today having the lowest life expectancy and the second-highest rate of infant and child mortality among ASEAN countries as well as vast untapped farmland, Myanmar provides a once-in-a-lifetime development opportunity. This situation offers a chance for the WBG’s Trade and Competitiveness Global Practice to contribute to the transformation of an economy and society by supporting regulatory reforms, improving trade policy and trade facilitation, helping generate investment and improving the ability of the country to compete in one of the world’s most dynamic regions.
 
I was privileged during my visit to meet with the Minister and Deputy Minister of Commerce and their senior staff, and to open the Third Session of the Trade Sector Working Group, which the WBG co-chairs with the European Union and the Ministry of Commerce. Surrounded by India, China, Bangladesh, Thailand and Lao PDR – countries that together have about 40 percent of the world’s population – Myanmar has markets at its doorstep that are ready to be tapped. The removal of investment and trade sanctions by the West has also opened significant new opportunities farther afield.

To meet the jobs challenge, maximize the impact of SMEs

Klaus Tilmes's picture

The urgent challenge of generating jobs and incomes – as the world’s working-age population is poised to soar – will require making the most of all the job-creating energies of the private sector and the strategy-setting skill of the public sector. Today in Ankara, Turkey, the World Bank Group renewed its commitment to strengthen the global economy’s most promising and inclusive source of job creation: small and medium-sized enterprises (SMEs).

At a signing ceremony at the B20 conference of global business leaders – coinciding with the G20 forum of government leaders from the world’s largest economies – the Bank Group joined in a partnership with a new organization promoted by the B20: the World SME Forum (WSF), which is to become the global platform to coordinate practical assistance and policy support for SMEs.

Based in İstanbul, WSF has been founded through a partnership between the Union of Chambers and Commodity Exchanges of Turkey (TOBB), the International Chamber of Commerce (ICC), and ICC’s World Chambers Federation.



World Bank Group President Jim Yong Kim – in Ankara, Turkey, on September 4, 2015 – signs a Memorandum of Understanding to confirm the Bank Group's partnership with the World SME Forum. Also signing the document, along with President Kim, is Rifat Hisarciklioglu, the Chairman of B20 Turkey and the President of TOBB (the Union of Chambers and Commodity Exchanges of Turkey).

SMEs are a vital engine of innovation and entrepreneurship, and the success of the SME sector is central to every country’s prospects for job creation and economic growth. Providing support for SMEs is a fundamental priority for the World Bank Group, as we pursue our global goals of eradicating extreme poverty by the year 2030 and boosting shared prosperity.

SMEs are crucial to every economy: They provide as much as two-thirds of all employment, according to a recent survey of 104 countries – and, in the 85 countries that showed positive net job creation, the smallest-size enterprises accounted for more than half of total net new jobs.

Unpacking the bond surge and slump in Emerging Markets

Erik Feyen's picture

The volatility that’s now shaking the global financial system seems likely to have some of its most profound effects on the world’s emerging markets and developing economies (EMDEs). As policymakers seek to ride out the late-summer storm, it’s more vital than ever for economists and investors to understand how and why those economies got into today’s predicament.  

In the wake of the global financial crisis that began in 2007, the extraordinary monetary policies (EMPs) pursued by the world’s developed economies – its wealthier nations – triggered a buying spree in emerging and developing economies (EMDEs). Those countries experienced an unparalleled surge in total gross capital inflows from an annual average of $0.5 trillion from 2000 to 2007 to $1.1 trillion from 2010 to 2013. EMDE external bond issuance, which had been increasing steadily before the crisis, accelerated rapidly post-crisis and has now reached unprecedented levels.

From 2009 to 2014, EMDE corporates and sovereigns cumulatively issued $1.5 trillion in external bonds – almost a tripling from $520 billion in the period from 2002 to 2007. The recent surge in issuance is driven by corporates, which issued a total of about $300 billion in 2014 compared to $14 billion in 2000 (Figure 1). Most of that issuance is denominated in foreign currencies (Figure 2). Cumulative post-crisis issuance of bonds relative to the size of the economy has risen to unprecedented levels – a phenomenon that is widespread and not driven by a single country or region (Figure 3).
 

Activist strategies to sharpen economies' competitive edge: When Bernanke & Company speaks, policymakers listen

Christopher Colford's picture

So much for the myth that Washington empties out during the month of August. A standing-room-only throng flocked to a Monday-morning Brookings Institution seminar this week featuring a relative newcomer to the think-tank communityBen S. Bernanke, the former chairman of the U.S. Federal Reserve System. His wide-ranging and nuanced analysis – with all the gravitas that he once brought to his graduate economics seminars at Princeton – explored not just Brookings’ main topic of the day (“The Defense Economy and American Prosperity”) but also such subjects as macroeconomic management, the gradual recovery from the Great Recession, and lawmakers’ need to avoid hasty budget-cutting that would damage vital investment in long-term priorities. Offering some of the wit of his new blog for Brookings, Bernanke’s whirlwind analysis whetted Washingtonians’ appetite for the October 4 publication of his latest book, “The Courage To Act.”

The economic impact of U.S. military spending was the focus of Monday’s seminar, chaired by Brookings defense-policy scholar Michael O’Hanlon – but an additional, broader theme was unmistakable throughout the discussion. The competitiveness of every economy is shaped by its ability to make sustained investments in productivity-enhancing technologies – and, as the panelists explored within the context of the U.S. economy, R&D-intensive industries (whether military or civilian) have been on the leading edge of innovation, patenting, productivity growth and job creation.

Competitiveness is the holy grail of economic policymakers everywhere – and activist strategies can help every economy hone its competitive edge. For both theorists and practitioners in development, working with economies large or small, the Brookings panel’s focus on pursuing far-sighted and pro-active investment strategies holds implications for every country’s competitive positioning.

Tourism ecosystems: A way to think about challenges and solutions to tourism development

Shaun Mann's picture

Ecosystem: A complex of living organisms, their physical environment, and all their interrelationships in a particular unit of space.
Tourism: A social, cultural and economic phenomenon that entails the movement of people to countries or places outside their usual environment for personal, business or professional purposes.

I was part of a tourism ecosystem, once, when I built and operated a small lodge on the banks of the Nile in Uganda. While I was living in a tent in the bush building the lodge, life was simple: My little ecosystem was the land around the lodge and the tribulations of fending off monkeys and snakes by day and leopards, hippos, elephants and mosquitoes at night. The sun and rain beat down hard, and tools and workers broke down regularly. The generator was a particular pain in the neck.

Apart from supplies coming in, I was not really connected to the outside world. Money ran out for awhile and I had to rush to Kampala and persuade the bank give me a bigger overdraft (at 26 percent interest – thieves!).
 
Once the lodge was finished, I had to join another ecosystem: the world of registering the company, getting licenses, drawing up employment contracts, getting a bank overdraft, getting a tax ID number – all the elements of the enabling environment for me to do business. Then I had to join another one: I needed bums on beds, and I had to link my wonderful product to local markets; I had to develop promotional materials and packages; I had to interact and contract with tour operators and local travel agents to supply me business; I needed market access. 



Nile Safari Camp: home for two years

Then, guess what? My business plan wasn’t panning out. I didn’t get the occupancies or the rates that I projected from the local market. I had to step into yet another ecosystem: the world of international long-haul travel. I needed more and better-paying customers. I had to understand how the big international tour operators sold their product, what they were looking for in new product and how they contracted. I had to join another ecosystem to make that happen. Turns out my little product wasn’t enough to attract international customers on its own, I had to team up with other lodges and offer a fuller package; we had to cluster our products. I had to diversify and innovate and find ways to add value to my accommodation offer – birdwatching, fishing, guided walks, weddings and honeymoons, meetings and workshops. . . . Well, there are whole ecosystems around each of those market segments. You need to understand them before you can do business with them.        

Cecil the lion: Is there a golden lining?

Hermione Nevill's picture



Cecil the Lion at Hwange National Park in Zimbabwe.

We all know about the story that broke the Internet: the story of Cecil the lion and the Minnesota dentist who killed him. What you may not know is that you can now buy a gold-plated iPhone case with Cecil etched on the back for about US$1,000.

The world has reacted in different ways to the news of this black-maned martyr. For various reasons, the media has gone into overdrive, the public has been outraged, and enterprising phone-case companies have gotten creative. So what does it mean for us in the field of tourism, conservation and development?

The global spotlight has been a good thing.  First of all, it has raised the temperature of the debate around conservation. People have flooded the dentist’s business page with negative online reviews (“murderer!”), called for his extradition to Zimbabwe, signed petitions, made donations, retweeted celebrities and forced three US airlines to ban wildlife trophy transport.

Publicity like this can have a lasting effect on consumer demand by stimulating more responsible behavior. For example, media exposs on sex tourism and child abuse in Thailand and Madagascar caused the tourism industry (more than 1,000 travel and hospitality companies) to adopt a global code of ethics. Public backlash against the negative impacts of orphanage tourism (volunteering) in Cambodia – following a 2012 investigation by Al Jazeera – meant that most large travel agents removed the product from their books, not only in Cambodia but globally. There is an opportunity here for all tourists, hunters and operators to reflect on and improve the way they behave and interact with wildlife.

More crucially, Cecil’s publicity has revealed the divisiveness of the issue. While everyone condemns the illegality of what happened, conservationists, columnists, academics and others cannot definitively agree on bigger questions. Does trophy hunting really contribute to conservation? Or should it be banned? Is photographic tourism a better alternative? Do we actually know?

For those of us concerned with such development goals as natural-resource management, job creation or local community empowerment, this lack of a global consensus poses a policy challenge. Indeed, the last few days have highlighted that indeed both consumptive (hunting) and non-consumptive (safari) tourism can demonstrate positive impacts.

So perhaps the question is not “Which is the better alternative” but “How can we better capture the value and benefits of each?” One way is to look at the policy framework and its role in regulating the supply side of the equation.

For success and sustainability, seek broad social ‘well-being’; Good governance promotes a ‘virtuous cycle’ of growth

Christopher Colford's picture

Beyond the cold calculus of GDP and TFP and FDI, development is about promoting strong societies as well as propelling powerful economies. But how can we measure societies’ progress toward success? Some may try to calculate “Gross National Happiness” as a yardstick, and some may envision “getting to Denmark” as the ideal end-of-history destiny of development – but are there patterns that reveal how societies can flourish?

Two recent Washington seminars suggest that – by pursuing innovation and inclusion, and by focusing on broad-scale social “well-being” – policymakers can define realistic paths toward development success.

The methodologies used by Harvard economist Philippe Aghion at an International Monetary Fund forum and by former World Bank strategist Enrique Rueda-Sabater at a Center for Global Development discussion may have been different, but their conclusions were in harmony: Societies thrive – in a sustainable way – when inclusion and innovation help expand the circle of opportunity, and when strong governance standards lead to sound civic decision-making.

Taken together, the two seminars’ insights should help inform policymakers’ debate about the Sustainable Development Goals, which are due to be approved in September at the opening of the United Nations General Assembly.

Aghion, at an IMF seminar (sponsored by its Low-Income Countries Strategy Unit) on June 30, approached the topic of “Making Growth Inclusive” by imagining “how to enhance productivity growth while promoting social mobility.” Presenting data from a recent paper on “Innovation and Top-Income Inequality,” which he recently co-authored with an all-star team of economists, Aghion outlined the way that income and wealth inequality have drastically soared in developed countries since the mid-1970s – analyzing trends that by now are sadly familiar to the squeezed middle class, as calculated in the esteemed work of Thomas Piketty, “Capital in the Twenty-First Century.”

Building on that data, Aghion took the inequality-and-inclusion logic several steps further. He lamented the way that “skill-biased technological change” has (in the absence of policy safeguards) provoked societies to stratify along the lines of wealth, income, education and connections. Yet “creative destruction” is inevitable in “a Schumpeterian world,” reasoned Aghion: A significant factor expanding the wealth gap is the same process of continuous economic renewal that helps economies advance. “There is a big [economic] premium to being a superstar innovator,” he asserted, noting that “you can become rich by innovating” – and thus “innovation is a big part of top-1-percent income inequality.”



Philippe Aghion

“Creative destruction is good for social mobility” and broader inclusion, in the long run, because it causes a steady procession of “new innovators to replace old incumbents.” The effect of each wave of innovation is fleeting, especially in a hyperspeed economy: “You get temporary ‘rents’ when you innovate. You don’t get them forever,” because the relentless Schumpeterian process will eventually cause yesterday’s innovators to become, in turn, tomorrow’s has-beens.

The darker danger of entrenched inequality occurs, said Aghion, when incumbent interests use their political power to lobby for the protection of their advantages – whether by pleading for tax-code favors, seeking government-imposed barriers to the entry of new competitors, or purchasing influence with pliant politicians through campaign donations. (In an aside on U.S. politics, Aghion pointed to his paper’s data linking a state’s representation on the congressional Appropriations Committees with its amount of federal favors – a shrewd quantification of the pork-barrel compulsions of Capitol Hill.)

Because innovation promotes social mobility and thus greater inclusiveness, Aghion contended that “innovation is a good guy; lobbying is a bad guy.” So “if you’re for inclusive growth, then you will be against lobbying and [the creation of] entry barriers.”

Focusing simply on present-day inequality is less informative than focusing on social mobility, he asserted. There’s nothing wrong with an economy that bestows ample financial rewards upon genuine innovators who create new products and processes. There is, however, something deeply wrong – and economically growth-inhibiting – with governments that allow no-longer-innovative incumbents to use their political connections to suppress potential competitors.

The IMF panel’s respondents amplified Aghion’s analysis. World Bank economist Daniel Lederman noted that it would be wise to use “the lexicon of ‘inequality of opportunity’,” because some degree of wealth inequality is inevitable (and perhaps even desirable) when individuals’ talent and effort are rewarded with rising incomes. IMF economist Benedict Clements – deploring the “great degree of disparity in ‘equality of opportunity’ ” that now prevails in advanced economies, including the United States – noted that there need be “no conflict between equity and efficiency if you design your policies right.”

Getting policies right – by upholding strong standards of governance – was also one of the underlying themes at a July 21 seminar at the Center for Global Development led by Rueda-Sabater, who is now a senior advisor to the Boston Consulting Group and a visiting fellow among CGD’s strong lineup of scholars. Rueda-Sabater is well remembered at the World Bank for leading a research team’s detailed “scenario planninganalyses that, in 2009, discerned the contours of three possible scenarios for the world in the year 2020.

Presenting a recent BCG report, “Why Well-Being Should Drive Growth Strategies,” Rueda-Sabater outlined an imaginative BCG diagnostic tool: the “Sustainable Economic Development Assessment” (SEDA), which measures the relative well-being of 149 countries by gauging their success in converting wealth into well-being – that is to say, in effectively translating their potential into tangible progress.


 

Pages