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Public Sector and Governance

Encouraging investment policy and promotion reform in times of uncertainty

Amira Karim's picture

Foreign direct investment (FDI) is often considered by economists and policymakers as integral to economic growth – a cornerstone of modernization, income growth and employment.

Yet for many countries, FDI can be elusive, and chasing it can lead policymakers to frustration.

Even economies built by FDI – for example, Singapore – are on this continuous chase, aware that attracting and retaining FDI is not an easy task. They also know that the benefits of FDI do not accrue automatically and evenly across all countries, sectors and local communities.

But first, there must be a realization of the importance of FDI. Singapore – a country once called a “political, economic and geographic absurdity” by its first Prime Minister, Lee Kuan Yew – never doubted the centrality of FDI, promoting it from the outset of its independence. Singapore saw in FDI an opportunity to develop a substantial industrial base, to create new jobs for its then-poor and low-skilled workforce, and to generate crucial tax revenues for its nascent government to spend on education and infrastructure.

Two decades after that initial strategic acceptance of FDI, Singapore emerged as a newly industrialized economy.

It is little surprise, then, that Singapore’s experience was highlighted at a recent World Bank Group peer-to-peer learning event here in the city-state. Responding to strong demand from client countries, two teams from the Trade & Competitiveness Global Practice – the Investment Policy and Promotion (IPP) team and the Singapore Hub team – co-hosted the learning forum entitled "Promoting Investment Policy and Promotion Reform in Times of Uncertainty."

Supported by SPIRA – the Support Program on Investment Policy and Related Areas – the forum enabled some 80 government officials from East Asia, South Asia and Africa to share their experiences in economic and export diversification; to discuss the role of international trade and investment agreements as leverage toward domestic reforms; and to discuss how to translate investment policy and promotion strategies into measurable results. SPIRA, implemented by the IPP team, supports client countries across all regions in attracting, facilitating and retaining different types of FDI.

Nepal: Modest beginnings, big rewards

Taneem Ahad's picture
In recent years, Nepal has made the headlines for the wrong reasons. In April 2015, it was shaken by a huge earthquake that claimed thousands of lives and caused country-wide destruction.  In previous decades, it suffered political violence and chronic instability.

Yet despite these difficulties, the country rebounded strongly with growth at 7.5 percent in Fiscal Year 2017 and was able to achieve significant progress in business through a series of seemingly modest yet important steps.

Over the course of four years, Nepal’s Ministry of Industry, the country's Office of the Company Registrar (OCR) and IFC’s Investment Climate Team implemented a series of reforms to encourage business registration online. In 2013, a new mandatory online registration service was launched. Help desks in the Kathmandu OCR office, extensive training for business owners, a media campaign, and an enabling legal directive eased the speed and efficiency of the registration process for businesses.

Within a short period of time, almost 100 percent of companies – as opposed to 10 percent during the initial phase of launch – were registered online. Registration became simpler, saving money for both businesses and the government. Online registration also addressed the challenges of the government's limited capacity and poor technology readiness through extensive training and peer-to-peer learning. The processes became more transparent with online file tracking.

In the year following the launch of the online registration system, Nepal’s ranking for "Starting a Business" in the World Bank Group’s 2014 Doing Business Report rose by 6 places. The number of days it took to start a business dropped by 45 percent and led to a 24-percent increase in the number of new companies registered annually.



In Nepal, an employee of the Trade and Export Promotion Centre works on the Nepal Trade Information Portal. The portal, financed under the Nepal-India Regional Trade and Transport Project, provides information that traders need to import and export goods, including information on permits, laws and taxes. Photo Credit: Peter Kapuscinski / The World Bank

These successes produced broader lessons for Nepal and others facing similar challenges. These include:
  • Make change compulsory, easy and durable. People adapt to new circumstances only if they feel compelled to do so, and only if they fel that the change is not going to disrupt their businesses.
  • Ensure coordination between government offices in supporting initiatives. There must be "buy-in" from all government agencies involved at all levels. ICT changes must be fully coordinated with business staff. 
  • Nurture trust and cooperation between the WBG and government teams.  Study and learn about previous experiences, communicate how the current project will be carried out, and keep talking to partners in government. 

Helping Somalia attract private investment will require realism, rigor and reforms

Klaus Tilmes's picture



The president of the Somali Chamber of Commerce, Mohamoud Abdi Ali, joins with the country's Minister of Commerce and Industry, Khadra Ahmed Dualle, at the IFC-sponsored Public-Private Dialogue at the Somalia Conference, which was convened in London in May 2017. The need to increase revenue, growth and trust led to the creation of the Public-Private Dialogue. Photo credit: MPF. 

Stabilizing countries that have long been afflicted by fragility, conflict and violence (FCV) – and helping them shape effective reforms to strengthen the investment climate – is one of the most difficult challenges in international development. The task is all the more severe when, as in Somalia, a large proportion of the population has been displaced by violence and natural disaster and when the economy is overly concentrated on a few sectors. Such factors make rebuilding investor confidence a daunting challenge for the newly elected government.
 
However, despite these challenges, Somalia represents a rare example of private-sector resilience. The major sectors of the economy survived the tumultuous period after the collapse of the state in 1991. Entrepreneurs in Somalia and abroad continue to innovate and adapt in a country void of regulatory frameworks or government oversight. Domestic mobile-money transfers average $1.2 billion in monthly transactions, and mobile money usage is above 70 percent.
 
Nonetheless, economic growth in Somalia has stagnated and has not resulted in a peace dividend for the population. Government revenue is low – around 2.5 percent of GDP – in an economy driven by consumption, as identified in the World Bank Group’s Somali Economic Update (SEU) from 2016.  According to the SEU, two of the biggest obstacles to equitable growth are access to finance and lack of regulations. Moreover, investment in priority sectors is low, held back by protectionism, conflict and instability.
 
Somalia was the focus of an international conference in May 2017 in London that brought together some of Somalia’s top private-sector firms, development institutions and government leaders to discuss how to jump-start private-sector-led growth and achieve long-term peace and development. Among the distinguished attendees were the newly elected president of Somalia, Mohamed Abdullahi Mohamed “Farmaajo”; Prime Minister Teresa May of the United Kingdom; United Nations Secretary-General Antonio Guterres; and the European Union’s foreign-policy chief, Federica Mogherini. The World Bank Group delegation was led by Jan Walliser, the Vice President for Equitable Growth, Finance and Institutions.

Economic marginalization of minorities: Do laws provide the needed protections?

Elaine R.E. Panter's picture

Never in recent history has anti-minorities rhetoric — anti-immigrants, anti-religious-minorities, anti-LGBTI — been so pronounced in so many countries around the world. Those groups, we are told, are the cause of our current economic crisis because they steal our jobs, fuel criminality and threaten our traditional way of living. And yet, the causes of our economic crisis are probably more nuanced, and initial research seems to suggest that more and not less social inclusion will help us overcome the instability of our times.

The exclusion of minorities from the labor force is becoming politically and economically unsustainable for many states that are struggling to retain their legitimacy and strengthen their competitive potential in an increasingly global marketplace. As a consequence, governments, international development agencies and academic institutions are now looking seriously at ways to develop policies that guarantee a more equal and sustainable form of economic development — development that addresses both short- and  long-term economic goals.

The World Bank’s Equality Project attempts to address this problem. The idea driving the project is that institutional measures that hamper the access of ethnic, religious and sexual minorities to the labor market and financial systems (such as legal and policy restrictions, or the absence of appropriate, positive nondiscrimination actions) directly affect their economic performance and, as a consequence, represent a cost for the economy: If a sizeable percentage of the population is not given the opportunity to acquire a high-quality education, a good job, secure housing, access to services, equal representation in decision-making institutions and protection from violence, human capital will be wasted, income inequality will grow and social unrest will ensue. The World Bank’s widely cited Inclusion Matters report puts it succinctly: “Social inclusion matters because exclusion is too costly. These costs are social, economic and political, and are often interrelated.”

The project collected and validated data on the legal framework of six pilot countries: Bulgaria, Mexico, Morocco, the Netherlands, Tanzania and Vietnam. The methodological approach of collecting cross-country comparable data according to key indicators yielded some general but interesting results, published in a research working paper in March 2017.

Private sector engagement is key to success on gender equity

Anabel Gonzalez's picture

Photo: Visual News Associates / The World Bank

As we celebrate International Women’s Day, if there is one concept to keep in mind above all others, it’s that gender equity is vital 24-7-365, and not just as a once-a-year observance.

You have heard the argument before and you will hear it again: Economies cannot reach their full potential if half the population is systematically blocked from full participation. This fundamental idea motivates the World Bank Group as it redoubles its efforts to address gaps in gender equality.

Our deepening work to close key gender gaps shows that the issues go far beyond economic inequity. Barriers to women’s full economic participation also impose moral, emotional and at times even physical costs.

We see this in the laws that prevent wives from making autonomous decisions about their careers. We see it in instances of violence against women in the workplace. We see this when harassment occurs at rural border crossings where women traders can encounter threats, and worse, from border guards.

In developing and developed countries alike, women face obstacles to starting and managing a business, to accessing finance, to earning equal pay for equal work, and to owning land or other assets. Many countries maintain laws and regulations that advantage men while discriminating against women, often relegating them to the status of a legal minor.

As Emeritus Professor Linda Scott of Oxford University’s Saïd Business School told us recently, “Women are economically disadvantaged in every country on the planet” and “women’s economic exclusion imposes a significant drag on world economies and societies.”

A key part of the Bank Group’s gender effort revolves around the importance of leveraging the private sector to ensure that reform goes beyond policy statements and creates real economic benefits for women and men. The Bank Group’s Trade & Competitiveness Global Practice (T&C) has developed an approach to gender equity that focuses on expanding market opportunities, enabling private initiative, and developing dynamic economies.

The work we are doing recognizes the entrenched nature of the obstacles to fuller economic empowerment for women. Achieving results at scale will require sustained commitment. But we also understand the importance of realizing near-term progress to catalyze change, and we recognize how interventions in particular countries can show the way forward elsewhere.

The concept is simple: Good results generate more good results.

Spatial Growth Solutions, Multi-Stakeholder Engagement, and Fish: Innovative Public-Private Dialogue in Mauritania’s Nouadhibou Free Zone

Steve Utterwulghe's picture

Nouadhibou’s artisanal fishing port (Photo by Steve Utterwulghe)


In the Northern tip of Mauritania lies the Nouadhibou Free Zone. Created in 2013 with financial and technical support from the World Bank, the first international partner to do so, it benefits from a 110-kilometer coastline on the Atlantic Ocean and an exclusive economic zone of 230,000 square kilometers. Its waters are among the most seafood-rich in the world, with a capacity of 1,500,000 tons per year.

The free zone offers investment opportunities in industries, logistics, tourism, retail business and tertiary sectors. However, creating a competitiveness hub in the fishing sector is one of the paramount objectives of the zone, given the importance of the sector for the Mauritanian economy. It represents 5.8 percent of the GNP, accounts for 18 percent of the total exports, and contributes to an estimated 40,000 jobs.

In March 2016, the World Bank approved the Nouadhibou Eco-Seafood Cluster Project (Projet Eco-Pôle Halieutique) with an International Development Association (IDA) grant of $7.75 million out of a total project amount of $9.25 million.

The objective of the project is to support the development of a fishing-sector hub in the Nouadhibou Free Zone aimed at promoting the sustainable management of fisheries and creating prosperity for the local communities.
 

A worker at the Free Zone certified Star Fish factory (Photo by Steve Utterwulghe)
 



While the Free Zone has already achieved critical results — such as the attraction of a few international investors in food processing and fish exports, the completion of commercial viability studies of the deep-seawater port and the airport, and the elaboration of a draft law on public-private partnerships (PPPs) — some constraints affecting more specifically the fishing sector remain. They include, among other things, the lack of productive diversification, an integrated value-chain, know-how about certification and international standards, and the octopus fishing quota system.

In addition, the lack of structured dialogue among the various public and private stakeholders in the fishing sector had been identified as a fundamental impediment to the development of the hub’s competitiveness.

Louise Cord, the World Bank Country Director, who recently visited Nouadhibou to officially launch the project with the President of the Free Zone, commended the Free Zone Authority for creating a Public-Private Dialogue (PPD) Task Force in 2015.

Lessons from Five Years of Helping Governments Foster Incentives Transparency

Harald Jedlicka's picture

Global competition to attract foreign and domestic direct investment is so high that nearly all countries offer incentives (such as tax holidays, customs duty exemptions and subsidized loans) to lure in investors. In the European Union, the 28 member states spent 93.5 billion euros on non-crisis State Aid to businesses in 2014. In the United States, local governments provided and average of US$80.4 billion in incentives each year from 2007 to 2012.

In order to better understand the prevalence of incentives worldwide, the Investment Climate team in the Trade & Competitiveness Global Practice of the World Bank Group reviewed the incentives policy of 137 countries. Results showed that all of the countries that were surveyed provide incentives, either as tax or customs-duty exemptions or in other forms. Table 1 (below) shows the rate at which these instruments are used across advanced and emerging economies. For instance, tax holidays are least common in OECD countries and are most prevalent in developing economies. In some regions they are the most-used incentive.[1]





However, despite offering incentives, few countries meet all the requirements of a fully transparent incentives policy. These include: mandating by law, and maintaining in practice, a database and inventory of incentives available to investors; listing in the inventory all aspects of key relevance to stakeholders (such as the specific incentive provided, the eligibility criteria, the awarding and administration process, the legal reference and the awarded amounts); making the inventory publicly available in a user-friendly format; requiring by law the publication of all formal references of incentives; and making the incentives easily accessible to stakeholders in practice. A T&C study now under way on incentives transparency in the Middle East and North Africa (MENA) region showed that none of the eight countries analyzed has a fully transparent incentives policy. (See Graph 1, below.)




How can Hong Kong stay smart and competitive? By driving change through a 'Public-Private-People Partnership' approach

Dr. Winnie Tang's picture

According to the World Economic Forum’s “Global Competitiveness Report 2016-2017,” Hong Kong dropped two notches to rank as No. 9 in its Global Competitiveness Index. The decline occurred mainly because the city faces challenges to “evolve from one of the world’s foremost financial hubs to become an innovative powerhouse.”

One might argue this is an unfounded worry: After all, as a developed economy with a GDP per capita of US $42,000, Hong Kong has recorded an impressive GDP growth rate, over the last five years, of about 3 percent annually. This growth rate is higher than many developed economy.

However, if we look at the economic figures more closely, some worrisome early warning signs are already emerging – especially in terms of the factors that will drive Hong Kong’s future economic growth.

Apart from finance and insurance, the majority of Hong Kong’s GDP growth nowadays is contributed by “non-tradable” sectors that have less knowledge and innovation content, such as the construction and public-administration sectors.

According to the World Bank’s latest research on “Competitive Cities for Jobs and Growth,” long-term economic success and job growth in cities are usually driven by “tradable” sectors – economic sectors whose output could be traded and competed internationally. Firms in tradable sectors are exposed to fierce competition which, in turn, exerts pressure on them to invest in research and knowledge-intensive sectors so that they become more productive and innovative in order to remain competitive internationally. Hong Kong is now lagging behind its Asian and world peers in the critical features of knowledge and innovation.

Although the urgency to act to increase the knowledge-driven content of the economy is obvious, there seems to be a limited number of actions taking place here on the ground in Hong Kong.  How can Hong Kong forge ahead and start making changes?



Staying competitive in today’s global economy is like sailing against the current: Either you keep forging ahead, or you will fall behind.


The World Bank’s Smart Cities Conference – held in Yokohama, Japan last month – presented some good examples from around the world on how to use a bottom-up approach with active citizen engagement to increase the chance of success in implementing changes. The audience was interested in learning about the successful transformation of Yokohama through the cities many initiatives, such as the development of the Minato Mirai 21 central business district.

Why gender equality in doing business makes good economic sense

Cecile Fruman's picture

Photo Credit: Stephan Bachenheimer / The World Bank

Women today represent about 50 percent of the world’s population and, for the past two decades, about 50 percent of the labor force. Yet there are stark differences in the outcomes they achieve: Women are only half as likely as men to have a full-time wage-earning job. The women who do have paid jobs earn as much as one-third less than men. Fewer women than men are involved in trade or own registered companies. And women are more likely to work in low-productivity activities or informal employment.

There are many reasons for these outcomes, including socio-cultural norms, access to high-quality jobs, the lack of transport and the lack of child-care facilities. In many countries, such differences also continue to be written in the law. 
 
For the first time since it was launched in 2002, the World Bank Group’s annual Doing Business report this year added a gender dimension to its measures, including to the annual ranking on each country's ease of doing business. This is good news, since the report attracts the attention of policymakers worldwide. Global benchmarks and indicators are a powerful tool to raise awareness, motivate policy dialogue and, above all, inspire action by policymakers.
 
Ensuring that women have the same economic opportunities by law and in practice is not only a basic human right, it makes economic sense. A recent study estimates that achieving equality in economic opportunities for women and men could spur $28 trillion in world GDP growth by 2025 – about the equivalent of the size of the Chinese and U.S. economies combined.
 
Looking at gender differences when it comes to starting a business, registering property or enforcing contracts, Doing Business shows that 23 countries impose more procedures for women than men to start a business. Sixteen countries limit women’s ability to own, use and transfer property. And in 17 economies, the civil courts do not value a woman’s testimony the same way as a man’s.

This pattern might give the impression that such legal differences are really only an issue in a selected group of countries.  But Doing Business’ sister publication – Women, Business and the Law  tells us otherwise. The report analyzes gender parity in accessing institutions, using property, getting a job, providing incentives to work, building credit, going to court and, most recently, protecting women from violence. It finds that 90 percent of the 173 countries measured have at least one law impeding women’s economic opportunities. In 30 economies, there are 10 or more legal differences between men and women, predominantly across the Middle East and North Africa.
 
To counter this, there is ample evidence that those countries that have integrated women more rapidly into the workforce have improved their international competitiveness by developing export-oriented manufacturing industries that tend to favor the employment of women. Legal gender disparities are also associated with lower female school enrollment and labor-force participation.
 
There is some good news. The Women, Business and the Law 2016 report shows that, between 2013 and 2015, 65 economies made 94 reforms increasing gender parity. The World Bank Group’s Trade & Competitiveness Global Practice (T&C) – a joint practice of the World Bank and the International Finance Corporation (IFC) – works across the world to support governments as they design gender-informed and gender-neutral policies, and in many cases implement gender-targeted interventions to improve the business environment and expand market opportunities for women.

Taking a tour of a ‘Competitive City’

Megha Mukim's picture

Do you want to take a walk through a competitive city? Since today, October 31, has been designated as World Cities Day by the United Nations, today is an especially good day to explore that idea. 

Have you ever noticed how mayors and city leaders experience life alongside their citizens? It forces them to be more focused on the local manifestations of their policy decisions. They connect with what their citizens see and experience on a day-to-day basis. Numbers are crucial, because policies need to be supported by evidence – but what if the numbers and experiences could be brought to life? What does a 5 percent annual GDP growth rate look like? For that matter, what does a “competitive city” look like?

Members of the Competitive Cities team at the World Bank Group traveled to Bucaramanga, Colombia to find out. Here, amid the city’s famously rugged topography – with no ports or railroads nearby, and almost 10 hours away from the nation’s capital, Bogota – economic development seemed to be a tough proposal. Bucaramanga, however, managed to reinvent itself and become a globally competitive city – with the fastest rates of GDP growth and job growth in Colombia, and one of the fastest growth rates in the Western Hemisphere. As part of the Competitive Cities for Jobs and Growth initiative, we had already looked at Bucaramanga’s success in numbers and had analyzed qualitatively how they managed to get things done. Now we wanted others to experience how it felt to walk through a secondary city that blossomed into a dynamic economic center.

Thanks to a donated helicopter, the use of hobbyist drone technology, a motorcycle and a hugely enthusiastic local chamber of commerce, the team captured images and videos of the places that were central to Bucaramanga’s growth story. Bucaramanga’s transformation began with the creation of a regional competitiveness commission, a public- private alliance spearheaded by the private sector. As you’ll see in the accompanying video, one single block within the city hosts the chamber, an industrial university, the enterprise center, the commerce association and important regional banks.



In Bucaramanga, Colombia, Erick Ramos Murillo (left) and Rómulo Cabeza (right) prepare to fly a 3-D camera rigged to a drone. 

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