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From Tirole to the WBG Twin Goals: Scaling up competition policies to reduce poverty and boost shared prosperity

Anabel Gonzalez's picture
The role of policies that ensure and promote competition in the marketplace have moved to the forefront of economics and the development agenda. The Australian G20 presidency highlighted competition as one of the four policy areas for the growth agenda. India’s prime-minister Modi has placed competition on his transformational reform agenda, and The Economist recently emphasized the lack of competition as a source of low productivity among Latin American firms. Jean Tirole, who won the latest Nobel Prize for his analysis of market power and regulation, demonstrated how competition policies can spur powerful firms to become more productive and can give smaller firms more opportunity to thrive.

To respond to client demand at this crucial moment for economic development, the World Bank Group is generating knowledge to better understand the links among competition, growth and shared prosperity, and to develop policies that promote competition. Last week, at a Bank Group event, held jointly with the Organization for Economic Cooperation and Development (OECD), experts and practitioners discussed the growing body of empirical evidence on these matters. Representatives from the WBG’s client countries, in turn, shared how WBG competition policy tools are leveraging their development impact.

Competition in the marketplace matters for economic growth and household welfare for two reasons:
 
  • First, it fosters more productive firms and industries, allowing domestic firms to become more competitive abroad and to export more. A WBG study shows that substantially increasing competition in Tunisia would boost labor productivity growth by 5 percent.
  • Second, it protects poorer households from paying too much for consumer goods, and from missing out on the benefits of trade liberalization. In Mexico, lack of competition costs the poorest households 20 percent more than richest households. In Kenya, poverty could fall by 2 percent if competition was more intense in the maize and sugar markets.


Competition is restricted by businesses practices that undermine competitive dynamics. When firms agree to fix prices, empirical evidence reveals that consumers pay on average 49 percent more, and 80 percent more when cartels are strongest. Developing economies are still frequently marked by regulations that restrict the number of firms or limit private investment; rules that increase business risks and facilitate agreements among competitors; and rules that discriminate against certain competitors or affect competitive neutrality. When new retail firms are allowed to enter the market, real household income increases by 6.2 percent.

'Fish Queens' in Africa

Jingjie Chu's picture
A woman cleans a fish while carrying her child on her back in Ghana. © Andrea Borgarello/World Bank
​​Intriguing, I thought when I first heard the phrase. In Ghana’s small-scale fisheries, the 'Fish Mommy' or 'Fish Queen' is the matriarch of the fish landings. She also doubles as the local authority on all post-harvest operations, exercising a great deal of control over the local market by setting the prevailing price of that day’s fresh catch every morning on the docks of coastal communities in Ghana.

Obrigado, Brasil!

Clive Harris's picture
Paving a highway in Brazil. In 2014, Brazil's
 infrastructure investment commitments
​drove an overall global increase.
In March we released the update from the Private Participation in Infrastructure (PPI) Database for the first six months of 2014, covering investment activity in energy, transport, and water and sanitation. The good news of a rebound of investment commitment from a decline in 2013 was noteworthy, alongside the heavy concentration of activity in Brazil.
 
The PPI Database’s 2014 full year update for these sectors has just been released, and it confirms the trends we began tracking for the first six months. Total investment in infrastructure commitments for projects with private participation in the energy, transport, and water and sanitation sectors increased six percent to $107.5 billion in 2014 from levels in the previous year. The total for 2014 is 91 percent of the five-year average for the period 2009-13, which is the fourth-highest level of investment commitment recorded – exceeded only by levels seen from 2010 through 2012. 
 
This increase over 2013 was driven largely by activity in Brazil. Without Brazil, total investment commitments would have fallen by 18 percent, from $77.2 billion in 2013 to $63.4 billion in 2014.  Although this is lower than H1 2014 (57%), Brazil’s large stake is a continuation of a recent trend.
 
The Latin America and the Caribbean (LAC) region saw $69 billion of investment commitments, or nearly 70 percent of the total for 2014. Three of the top five countries by investment commitments in 2014 were from LAC.  The top five, in order, were Brazil, Turkey, Peru, Colombia, and India. 

Flexibility, opportunity and inclusion through online outsourcing jobs

Cecilia Paradi-Guilford's picture
What is online outsourcing, and how could countries leverage it to create new jobs for youth and women? Those are questions we will help answer as part of an upcoming report and toolkit.

The World Bank, in collaboration with our partners at the Rockefeller Foundation, recently met with government agencies and other key stakeholders, as well as the online work community in Kenya and Nigeria, to discuss these issues. Online workers from these countries also presented their stories, including the highly inspirational story of Elizabeth, a retiree who was able to take in an orphan and provide for her schooling, as well as afford a lifestyle upgrade because of her online outsourcing work.
 
Elizabeth supports her
family through online work.

Elizabeth, 55, originally worked as a stenographer. Her husband died in 2003, and she is the sole breadwinner for three of her own children and one other orphan who she has informally adopted. She works online on writing platforms, and is currently being on- boarded to start work with CloudFactory. At the moment, she earns between US$50–80 per week working online; this is her the sole source of income, from which she pays her family’s rent, living expenses and short-term loans.

“I lost my husband in 2003, so I am the mother and the father," Elizabeth says. "I am self-sufficient. Online work does not confine me to an 8-5 time frame. I can work at my convenience, and I can manage my own home while I work.”

Online outsourcing (OO) is providing this kind of flexibilty and earning potential to millions of people around the world. OO generally refers to the contracting of third-party workers and providers (often overseas) to supply services or perform tasks via Internet-based marketplaces or platforms. Popular platforms include Elance-oDesk (now known as Upwork), Freelancer.com, CrowdFlower and Amazon Mechnical Turk. The industry’s global market size is projected to grow to US$15-25 billion by the year 2020, and could employ at least 30 million active workers from all over the world.

Closing thoughts on the "Harnessing Digital Trade for Competitiveness and Development" conference

Rosanna Chan's picture

Fiber optic light bokeh. Source - x_tineDigital entrepreneurs have the potential to connect to global markets like never before. Whether selling physical goods on internet platforms, or providing digital goods and services that can be downloaded and streamed, an entirely new ecosystem of innovative micro and small businesses has emerged in the developing world.
 
The World Bank Group hosted some of the pioneers in this space for a full-day conference on Harnessing Digital Trade for Competitiveness and Development on May 19. Here, we heard entrepreneurial success stories—an online platform for jewelry in Kenya, a provider of software solutions in Nepal, an online platform for livestock trade in Serbia—and dove into the constraints and challenges of running a digital business in an emerging economy.
 
The scope of these challenges made these success stories, and the broader potential they represent, even more inspiring. From internet connectivity to logistics, from financial payments to trade regulations, from bankruptcy laws to entrepreneurial and consumer digital literacy-- clearly, more needs to be done to fully harness the potential of digital trade for competitiveness and development and to foster an enabling environment to digital trade.

Justice in Kenya: measuring what counts

Nicholas Menzies's picture
Chief Justice Willy Mutunga and Chief Registrar of the Judiciary Anne Amadi sign the Understandings after the launch of the Performance Management and Measurement report in Nairobi, Kenya.


“You cannot solve a problem you haven’t fully understood.” – Chief Justice Mutunga, April 15, 2015
 
It’s difficult to know whether you’re succeeding in any institution – public or private – if you don’t set targets and collect data to measure progress against them. Courts are no different.
 
The Kenyan Judiciary has been making great strides in performance management. A ceremony at the Supreme Court in Nairobi last month was the latest step. Chief Justice Willy Mutunga signed “Performance Measurement and Monitoring Understandings” with the heads of Kenya’s courts.

These commit each court to targets such as hearing a case within 360 days, delivering judgments within 60 days of the end of a trial, and delivering a minimum number of 20 rulings a month. 

How does accessibility re-frame our projects?

Tatiana Peralta Quiros's picture
The increasing availability of standardized transport data and computing power is allowing us to understand the spatial and network impacts of different transportation projects or policies. In January, we officially introduced the OpenTripPlannerAnalyst (OTPA) Accessibility Tool. This open-source web-based tool allows us to combine the spatial distribution of the city (for example, jobs or schools), the transportation network and an individual’s travel behavior to calculate the ease with which an individual can access opportunities.

Using the OTPA Accessibility tool, we are unlocking the potential of these data sets and analysis techniques for modeling block-level accessibility. This tool allows anyone to model the interplay of transportation and land use in a city, and the ability to design transportation services that more accurately address citizens’ needs – for instance, tailored services connecting the poor or the bottom 40 percent to strategic places of interest.

In just a couple of months, we have begun to explore the different uses of the tool, and how it can be utilized in an operational context to inform our projects.
 
Employment Accessibility Changes in Lima,
Metro Line 2. TTL: Georges Darido

Comparing transportation scenarios
The most obvious use of the tool is to compare the accessibility impacts of different transportation networks. The tool allows users to upload different transportation scenarios, and compare how the access to jobs changes in the different parts of the city. In Lima, Peru, we were able to compare the employment accessibility changes that were produced by adding a new metro line. It also helped us understand the network and connectivity impacts of the projects, rather than relying on only travel times.

Understanding spatial form
However, the tool’s uses are not limited to comparing transport scenarios. Combining the tool with earth observation data to identify the location of slums and social housing, we are to explore the spatial form of a city and the accessibility opportunities that are provided to a city’s most vulnerable population.  We did so in Buenos Aires, Argentina, were we combined LandScan data and outputs from the tool to understand the employment accessibility options available to the city’s poorest population groups.

Private sector and youth employment: the experience in Kenya

Ehud Gachugu's picture
To tackle Kenya’s youth employment challenges, successive governments have put in place a range of different interventions. But to date none have effectively engaged the private sector. The turning point came after the post-election violence experienced in 2007.  The private sector, under the umbrella of Kenya Private Sector Alliance (KEPSA), made a conscious decision to tackle youth unemployment - a project specifically aimed at giving the youth the skills they need to succeed. Now eight out of every 10 youth participating in the program end up engaging in gainful economic activities either as an employee or starting their own business.

Pushing the frontier of e-government procurement in Africa with the open contracting standard

Lindsey Marchessault's picture

Public procurement is a linchpin for good governance and effective public service delivery, both of which are critical to the sustainable development of Africa. In many countries throughout the region, strengthening procurement to address weaknesses in public sector governance has become a priority. 
 

An investment ecosystem: Piecing together the interventions needed for a dynamic textile and apparel cluster in Kenya

Aref Adamali's picture
For businesses and policymakers involved in Africa’s textile and apparel sector, 2001 is often seen as a watershed year, when new export opportunities opened up for African firms after the United States’ enactment of the Africa Growth and Opportunity Act (AGOA). That new law gave African firms duty-free, quota-free access to the U.S. market.
 
An initial boom for Kenya – which experienced 44% growth per year up to 2005 – was followed by stagnation, exposing dangerous weaknesses in the sector’s pattern of growth. Too much of it was based on the largesse of U.S. policymakers, as opposed to the competitiveness of Kenya’s economy and the firms within it.
 
Competitiveness challenges
 
Where do some of the ruptures in Kenya’s textile and apparel competitive framework occur? Our survey of the sector revealed some interesting data on the challenges faced in both the investment climate and at the firm level: the two dimensions – the public/macro and private/micro – that together form the building blocks of sector competitiveness.
 
Power is clearly an issue across Sub-Saharan Africa – where investors quip that investing in Africa is a “bring your own infrastructure” invitation. Kenya is no exception to that pattern. The government is actively addressing this issue, and the cost of power is coming down from levels of about 22 cents per kilowatt hour. However, it will take a while to come down to the level that China new enjoys, of between 5 and 7 cents per kwh. This is a problem for both textile and apparel firms, but textile firms feel the impact most acutely: Power accounts for about 25 percent of their operating costs. Part of the issue is that some firms in the sector are running on machines that are as much as 38 years old, so they consume a great deal of electricity by comparison to more up-to-date equipment.
 
Wages are higher in Kenya than in many competing countries. The ratio of the minimum wage to value added per worker is .92 in Kenya, compared to .53 in Lesotho and .36 in Bangladesh.  “A race to the bottom” on wages is not a competition that Kenya wants to enter, yet the issue of productivity remains a major issue In a world where “fast fashion” buyers like Inditex of Spain, which has an army of more than 300 designers in its headquarters, are capable of delivering a new design to its thousands of stores in under two weeks, supplier productivity is all-important. Kenyan firms sometimes grapple with changeover times of just two weeks.
 
This all boils down to product-level cost competitiveness issues. Consider a pair of women’s jeans, comparing Kenya to Cambodia. The two countries have about the same cost for fabric – but, beyond that factor, Cambodia begins notching up cost advantages along each step of the production process: Its costs are 16 cents less on trim, 5 cents on cut and make, 15 cents on local transport, and so on. So by the time the two countries’ products arrive in the United States, the Kenyan pair of jeans is almost 50 cents more expensive than the Cambodian pair. It is only able to compete in the marketplace because of the $1.21 tariff on the Cambodian good.

Source: Kenya's National AGOA Strategy blog: http://agoastrategy.blogspot.com/


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