Business reforms can spur economic dynamism in the East African Community
East Africa is famous for its breathtaking landscapes and its unique concentration of wild animals. Could it also become as famous for its dynamic economic development?
In 2009 I came to Tanzania to work on tax harmonization in the East African Community (EAC). The Common Market Protocol was about to be signed and one of the biggest goals was to tap into the economic potential of the region by facilitating (cross-border) trade and improving the business climate. A year later, the five Partner States of the East African Community ratified the Common Market Protocol in order to realize “accelerated economic growth and development through the attainment of the free movement of goods, persons, labor, the rights of establishment and residence and the free movement of services and capital”. The overarching goal of the East African Community is to achieve sustainable economic growth in order to increase employment and reduce poverty.
Private Sector Development
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Thailand is a clear leader in corporate governance among Asian and emerging economies. But the recently launched 2013 Corporate Governance Report on Standards and Codes (ROSC) finds key challenges remain.
In the face of the 1997 crisis, Thailand has undertaken significant reforms that have enhanced corporate governance. Both regulators and the private sector in Thailand embraced good corporate governance, and have remained committed ever since. The World Bank also played a role - for example in helping establish the Thailand Institute of Directors in 2002 and conducting a previous Corporate Governance ROSC in 2005, which in turn was used by the Thai Securities and Exchange Commission (SEC) to support the next wave of reform. Overall, progress in the last 15 years has been impressive.
Growth poles can help create jobs for Africa's one billion citizens (Credit: World Bank)
We were asked the other day by our senior management to be outrageously aspirational when we engage with growth poles. I have been reflecting on what this means for our work on this topic in Africa, especially in light of the findings of the Africa Competitiveness Report. I think we need to be aspirational in three broad directions: (i) developing the capacity to get things done in Africa, (ii) ensuring all stakeholders benefit from growth, and (iii) mobilizing as much capital as we can, whether it be private, philanthropic or public.
Public-private partnerships can help rebuild post-conflict countries for future generations. (Credit: EU Humanitarian Aid, Flickr Creative Commons)
According to the numbers, the prospects for post-conflict countries are dim. Half of the world’s poor live in conflict-affected countries, a percentage expected to climb over 80 by 2025. They can also look forward to lower economic growth rates—a reduction of up to three percent for every year of conflict. And sustained peace is hardly a sure thing—a United Nations-World Bank report famously says that post-conflict countries have a 50 percent chance slipping back into war within 10 years. With stats like these, it’s tempting to write off the future of any country that’s had a shooting war in recent years.
As David Francis pointed out in a recent blog, the private sector in Latin America and the Caribbean (LAC) region showed some resilience to the heavy distortions of the recent financial crisis. Latin America’s market economy is working in a way where more productive businesses are able to survive, while less productive firms are exiting the market.
But how does this fit into the larger picture of the region’s private sector?
A partial answer to this question is that the region’s private sector is adding jobs. Especially in a period where the developed world faced severe challenges on job creation, the region succeeded in creating new jobs by almost five percent in both manufacturing and service sectors. This trend is widespread: service sector firms in all countries – as we covered in a recent note on firm performance – added jobs. And in only 5 of the region’s countries did manufacturers decrease the number of employees on their books.
Broadly taken, Latin America and the Caribbean (LAC) weathered the turmoil of the global economic crisis fairly well. After the region’s GDP growth slowed notably in 2008, and fell to negative levels in 2009, growth returned to relatively robust, positive rates by 2010. What’s more, this bounce-back in GDP aligned closely with trends in the private sector.
Value added, as a percentage of GDP, in both manufacturing and services, returned quickly from negative levels in 2009 to positive growth by 2010; over the same period, government consumption remained comparatively flat.
In other words, if you want to understand LAC’s recent pattern of economic growth, look at the private sector.
Data from the World Bank Group’s Enterprise Surveys put together a wealth of information, gathered directly from private sector firms’ experiences, to create a picture of the business environment around the world. For our recent work in LAC, the project surveyed nearly 15,000 business owners and top managers in 31 countries, including interviews conducted by re-visiting thousands of businesses in 15 countries, where the surveys were also conducted in 2006.
When the words “private sector” and “education” come together, they conjure up the widening chasm between the rich and poor: elite education in private schools. An article in The New York Times, for example, describes a growing education gap as contributing to a “kind of cultural divide” in the United States. A smart kid growing up without access to good education, the argument goes, will be limited for life, regardless of how bright or motivated he or she is.
Like every other development institution, The World Bank Group's International Finance Corporation (IFC) is deeply concerned with how to create more and better jobs. There’s no question that jobs are the key issue in any discussion about ending poverty. The 60,000 poor people who participated in Deepa Narayan's Voices of the Poor study 13 years ago were right—jobs are the surest way out of poverty for people across the world.
Today, IFC publishes a report on the findings of a study about how jobs are created by the private sector. Given the private sector provides 90 per cent of jobs, the estimated 600 million that need to be created by 2020 will inevitably have to come from the private sector.
The poor cannot afford to pay money for health care so they use mainly free government-run health services. Isn't that what you were always told? So if donors want to help the poor they should give their money to governments that provide such services for the poor. I am sure you have read that in many books and articles.
Wait, let’s run that scene once more in real time. What actually happens out there in the real world? Often the government clinics described above have difficulty hiring staff, especially in poor rural areas. The majority of young health workers prefer to live in urban areas where they feel safer and can bring up their children with good schools, near family and friends. Long wait times and lack of medicines at government-run health facilities make the private health sector more attractive to consumers.
As World Bank Managing Director Caroline Anstey said in her remarks at last Thursday’s event on women in the private sector, women make up nearly 50 percent of the world’s population. Despite this, they are only 40.8 percent of the formal global labor market. This gap represents a vast economic potential that could have the power to create jobs, drive economic growth and transform the global economy as we currently know it—shaky, stagnant and according to some of the data, in recession.