Private Sector Development
‘Over-generous tax exemptions awarded to multinational enterprises often deprive fragile states of potential revenues that could be used to fund their most pressing needs.’ Another broadside from rent-a-mob? Nope, it’s the ultra respectable OECD in its Fragile States 2014 report.
After years of growth, aid to fragile states started to fall in 2011, so the report centres around an urgent call for OECD member states to help their more fragile cousins find a post-aid arrangement that funds essential state functions and builds the ‘social contract’ with citizens.
The key is a shift from aid dependence to ‘domestic resource mobilization’ (taxes and natural resource royalties), currently averaging a feeble 14% of GDP across fragile states and far too dependent on royalties from oil, gas and mineral extraction. Foreign direct investment (factories, farms etc) is generally low in volume and volatile.
What is it about oceans? Ocean events seem to be getting bigger and broader in their participation. No matter whether the people in the room are representing government, seafood companies, private foundations, or conservation groups, they are unified by one thing: the need for serious action and soon.
Pick any country in the developing world.
Where are the women entrepreneurs in Pakistan?
They start and manage digital-content creation firms serving international clients. They are sole proprietors of construction businesses bidding for government projects. They supervise tailors and embroiderers in windowless storage rooms that double as stitching units. They export high-end gems and jewelry around the world.
Women entrepreneurs in Pakistan lead cutting-edge, innovative businesses – but there are far too few of them. The recent Global Entrepreneurship Monitor report finds that only 1 percent of Pakistani women are engaged in entrepreneurship – the lowest proportion in the world.
Pakistan is not alone in its dismal ratio of growth-oriented (or indeed any kind of) women entrepreneurs. Even in the developed Asian economies of Korea and Japan, only about 2 percent of women are entrepreneurs. Sub-Saharan Africa does much better in this regard, with 27 percent of women, on average, engaged in entrepreneurship -- but they are mostly involved in low-productivity sectors of the economy.
Women entrepreneurs, in Pakistan and globally, have narrow networks of friends and family who provide them with some initial capital to start their small businesses, with little expectation of further financial support. Their export customers are located wherever they have extended family. And they rarely feature in local chambers of commerce activities.
Banks are often reluctant to extend lines of credit to, provide working capital to or lend to women-led enterprises. This makes it difficult for these enterprises to pursue growth. Perhaps this is why the average growth projections for women-led enterprises are seven to nine percentage points below those for their male counterparts.
In terms of the World Bank’s twin goals of eliminating extreme poverty and boosting shared prosperity, the Middle East and North Africa Region was making steady progress. The percentage of people living on less than $1.25 a day was 2.4% and declining. And the incomes of the bottom 40% have been growing at higher rates than average incomes in almost all MENA countries for which we have information.
Yet, there were revolutions in several countries and widespread discontent. Why?
Between 1990 and 2010, Vietnam grew at an average annual rate of 7.4 percent—one of the world’s top five growth performance records, anywhere, over the same 20-year period. In the process, the incidence of poverty has declined dramatically, from 58 percent in 1993 to about 10 percent today. Nowadays Vietnam is no longer considered a low-income country: it has attained lower-middle income status.
Yet this successful economic transition has also generated a number of challenges. Chief among them is that of sustaining economic growth going forward.
- ending poverty
- South Asia
- Urban Development
- Social Development
- Private Sector Development
- Migration and Remittances
- Information and Communication Technologies
- Global Economy
- Climate Change
- Agriculture and Rural Development
- South Asia
- Sri Lanka
Governments (and donors alike) don’t like dealing with informality. It’s messy, dirty, essentially unmeasurable, and its character varies dramatically. From one industry to the next. From one city to the next. It’s also beset with fiendishly difficult problems – informal firms are often household enterprises (employing mainly family labour, and not hired labour). Thus, they have to make impossible trade-offs between production and consumption.
And yet – the size and the importance of the informal sector in most countries shows no signs of abating. On average the informal share of employment ranges from 24 per cent in transition economies, to 50 per cent in Latin America and over 70 per cent in sub-Saharan Africa. In India, employment within the informal sector is growing, while that in the formal sector remains stagnant. Yet - very little is known about the relationship, whether symbiotic or competitive, between the two sectors.
In a new paper, I notice that in India formal firms tend to cluster with informal firms – especially in industries like apparel, furniture and meal-making. The firms coagglomerate not only so that they can buy from and sell to one another – but importantly, also because formal firms tend to share equipment with and transfer technical knowledge to their informal counterparts. Such technical and production spillovers are found in clusters of domestic-foreign, exporter-non-exporter and high-tech-low-tech firms. It is no surprise then that formal and informal activity could be complementary. Informal can also be an outlet for entrepreneurial activity, especially in places with high levels of corruption, or where formal firms are often mired in complex regulations.
In a previous blog we discussed the factors that have pushed issues of corruption to the centre of policy debates about sound economic management. A related question deals with the sources of corruption: where does it come from, what are the factors that have nourished it and turned it into such a powerful impediment to sustainable economic development? Economists seem to agree that an important source of corruption stems from the distributional attributes of the state. For better or for worse, the role of the state in the economy has expanded in a major way over the past century. In 1913 the 13 largest economies in the world, accounting for the bulk of global economic output, had an average expenditure ratio in relation to GDP of around 12%. This ratio had risen to 43% by 1990, with many countries’ ratios well in excess of 50%. This rise was associated with the proliferation of benefits under state control and also in the various ways in which the state imposes costs on society. While a larger state need not necessarily be associated with higher levels of corruption—the Nordic countries illustrate this—it is the case that the larger the number of interactions between officials and private citizens, the larger the number of opportunities in which the latter may wish to illegally pay for benefits to which they are not entitled, or avoid responsibilities or costs for which they bear an obligation.