The debate on whether the state should play an active role in broadening access to finance or not is one that has lingered for decades. A recent book (de la Torre, Gozzi, and Schmukler, 2017) argues that a new a view has gained traction and is worth considering.
The elusive quest to scale
Some 15 years ago, I was in a small town in Hoshangabad district (India) attending a workshop with government schoolteachers, where we were examining student test scores. Instructors from Eklavya, a non-profit supporting the government, were skillfully leading teachers through an intensely engaging session on why a child might have written a particular answer, what was right and what was wrong with the answer, how to grade it, and how a teacher could help the child improve. Everyone was sharing lessons and learning.
The Latin America and the Caribbean region is moving quickly to introduce market incentives as a component of their climate change mitigation policy, for example, 24 countries have identified fiscal measures as a tool to implement their Nationally Determined Contributions (NDCs). However, without a doubt, the Pacific Alliance countries are leading the region.
In a world divided over how to deal with such serious problems as terrorism, immigration, free trade, and climate change, governments agree on the urgency of solving what is arguably the biggest problem of all: supplying safe, well-located, and affordable housing for the billions of people who need it.
There is even agreement on the basic steps to that goal: improving land management and adopting more tenure-neutral policies.
There is also consensus on the fact that government alone cannot afford to pay the bill. According to McKinsey & Co., the annual price tag for filling the “global housing gap” ($1.6 trillion) is twice the cost of the global investments needed in public infrastructure to keep pace with GDP growth.
As we approach the 70th anniversary in 2018 of the declaration of housing as a “universal human right,” it’s time for governments to turn to an obvious solution for closing the housing gap that they continue to ignore only at their peril: long-term market finance. , and so will the odds of social discontent.
Earlier this month, development banks from around the world took stock of where they stand and where they see their efforts having the greatest impact at a meeting organized by the World Bank and Brazil’s development bank, BNDES.
As the world struggles in narrowing that gap. They can help to crowd-in the private sector and anchor private-public sector partnerships, particularly for infrastructure financing.
However, misusing development banks can lead to fiscal risks and credit market distortions. To avoid these potential pitfalls, , operate without political influence, focus on addressing significant market failures, concentrate on areas where the private sector is not present, monitor and evaluate interventions and adjust as necessary to ensure impact, and, finally, be transparent and accountable.
Two themes characterized the discussion at the meeting: . To support Small and Medium Enterprises (SME) finance, development banks use partial credit guarantees while letting private lenders originate, fund, and collect on credit. In markets with limited competition, development banks support the creation of an ecosystem of specialized Micro, Small, and Medium Enterprises (MSME) lenders to which they provide a stable funding source.
The region is also not homogenous. There is a large disparity in the levels of treatment per country: we see countries like Chile, which treats 90% of its wastewater, and countries like Costa Rica, which treats approximately 4% of its wastewater.
Between 2010 and 2017, Chile was struck by 10 major natural hazard events. These disasters affected as many as 340,583 houses and cost $3.6 billion in reconstruction (Ministry of Housing and Urbanism of Chile). Post-disaster assessments point to housing as one of the most affected sectors in the wake of climate-related and other natural hazards—most commonly floods, earthquakes, landslides, and fires. In a 22-year period between 1990 and 2011, minimum losses in the housing sector for 16 countries in Latin America and the Caribbean (LAC) amounted to $53 billion.
In the LAC region, one quarter of the population lives in slums, characterized by the prevalence of substandard housing quality as well as incremental and self-construction of homes. Families living in these informal settlements are at greatest risk to natural hazard impacts. Programs providing new housing do not always reach families in the lowest quintiles; and without access to affordable and well-located housing alternatives, households have no other option than to build informally, and in areas most prone to natural disasters.
When I visited Peru for the first time last month for a business development trip, I met with the heads of some leading private education institutions. At the end of my visit, I decided to book a cultural tour of Lima. During the tour, I asked our guide Marcos where he learned English as I found him very articulate, knowledgeable and with a good sense of humor. To my pleasant surprise and astonishment, he told me that he learned it by himself, mainly online. He then started practicing with visiting tourists until he became more comfortable leading tours himself.
The global economy is stagnating, and uncertainty about its future is rising. These trends weigh heavily on countries that depend on the production and export of a small range of products, or that sell products in only a few overseas markets. Prices of the minerals and other basic commodities that dominate the exports of many poor countries have also declined sharply. All of this points up the need for diversification strategies that can deliver sustained, job intensive and inclusive growth.
The World Bank Group’s Trade & Competitiveness Global Practice (T&C), a joint practice of the World Bank and International Finance Corporation (IFC), is working with a growing roster of client countries eager to achieve greater economic diversification. This is a worthy goal regardless of economic conditions, but especially so now, as developing countries with sector-dependent economies face mounting pressures.
Chile is an example of a diversified economy, exporting more than 2,800 distinct products to more than 120 different countries. Zambia, a country similarly endowed with copper resources, exports just over 700 products — one-fourth of Chile’s export basket — and these go to just 80 countries. Other low-income countries have similarly limited diversified economies. The Lao People’s Democratic Republic and Malawi, for example, export around 550 and 310 products, respectively. Larger countries that export oil, such as Nigeria (780 products) and Kazakhstan (540 products), have failed to substantially expand the range of products they produce and export.
AJG Simoes, CA Hidalgo. The Economic Complexity Observatory: An Analytical Tool for Understanding the Dynamics of Economic Development. Workshops at the Twenty-Fifth AAAI Conference on Artificial Intelligence. (2011)
While the sluggish global economy is creating economic problems for traditional exports, other economic trends offer new routes and opportunities for poor countries to diversify. The trend toward the spatial splitting up of production across wide geographic areas, and the emergence and growth of regional and global value chains, offer new ways for developing countries to export tasks, services and other activities. Value chains offer developing countries a path out of the trap of having to specialize in whole industries, with all of the cost and risk that such a strategy entails.