the investment climate department: who we are and what we do marialisa motta mierta capaul luis aldo...
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The Investment Climate Department: who we are and what we do
Marialisa MottaMierta Capaul
Luis Aldo Sanchez-Ortega
7 June 2010
1. The WBG investment climate work
2. The Investment Climate Department: an overview
3. Programs and reforms
4. Impact
The Investment Climate Department: who we are and what we do
WBG work to support investment climate reforms
DB Reform Advisory
Subnational Doing Business
Diagnostic
Doing Business Global Report
Investing
Across Borders Indicators
Funding
Trade Logistics
Entry &Business Operation
Tax Administration
First response:
Long term support – product market regulation:
Access to Finance and Debt Resolution
Long term support: industry lens
Agribusiness and Tourism
Industries
Special Economic Zones
Health
IFC Investment & MIGA Guarantees
World
Bank Loans
Enterprise surveys & Investment Climate Studies
Advisory
Investment Climate Department’s mission and reference framework Our mission“To work with governments and private sector to facilitate reforms fostering open and competitive markets in developing countries through diagnostic, public-private dialogue and implementation support.”
Investment climate reforms
Fostering open and competitive
Product markets Capital markets Labor markets
Higher investment, productivity & jobs Economic growth
Strategic prioritiesLow-income countries (IDA), post-conflict countries, frontier regions
Offices: DC (global hub), Istanbul, Nairobi and Dakar (regional hubs), Vienna (small presence) – new hub in Asia (yet to be determined)
Staff:
around 240 staff, of which 106 in the Investment Climate Department
Budget:
last year budget: around $50 m, of which $37 for the Investment Climate Department
Number of countries:
more than 100
The Investment Climate Department & Business Line: key figures
The Investment Climate Department & Business Line
Department Business Line Total
Offices DC, Istanbul Nairobi, Dakar, Vienna, Asia
Staff appr. 110 apr. 130 appr. 240
Budget appr. $37 million appr. $13million appr. $50million
Countries
- - appr. 100
Key figures
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Source: Doing Business 2010 and CIC note to Lars Thunell, October 2009.
Focus on implementation of reforms
287
Doing Business reforms supported by the WBG
Reforms not supported by the WBG
Last year, the Investment Climate Department with WB & IFC supported 82 reforms in 37 countries, as captured by the Doing Business global report
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We advised 8 out of the top 10 reformers in Doing Business 2010
Reforms supported by the Investment Climate Department, IFC-WB
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Colombia is the leading reformer in Latin America.RESULTS
• Ranked 37 out of 183 countries (up from 49 in 2009)
• Key impacts:
• Reduced registration time for new businesses from 36 days to 20 days
• Reduced time to obtain construction permit from 146 days to 51 days over two years
• Reduced the number of annual tax payments from 69 to 20 over two years
• Investment generation: Invest in Bogotá has facilitated $313 million in foreign investment in hotels, BPO/call centers, logistics and manufacturing
Colombia: the results of a broad reform program(making Top10 list for the fourth time in seven years)
Supported reforms:
• Starting a business: faster registration for public pension funds • Construction permits: simplification of approvals for construction permits and utility connections• Registering property: reduction of procedures and time through on line consultation• Trading Across Borders: risk management, online documentation• Paying taxes: Online electronic payment of social security contributions• Protecting investors: Strengthening director liabilities and the ability for shareholders to sue• Access to credit: Implemented new credit information law• Closing a business: Regulation of insolvency practitioners and extrajudicial reorganization agreements.
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Colombia: reforms in Dealing with Construction Permits
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Colombia introduced on-line verification of some pre-construction requirements and set time limits for approving construction permits based on a risk categorization of projects. (Decree 1272 of 2009).
2008
2009
33 days less
Eliminated 3 procedures
Source: Doing Business database.
LAW (2007)
REGISTRY (2007-2008)
TRAINING
China: the results of a targeted reform program
Provided input to the law to:- Allow accounts receivable to be used as collateral- Grant equal treatment for individual lenders and legal entities- Allow use of future property as collateral
Designed and implemented an electronic registry for accounts receivables 5000 government officials and bankers trained
Reforms
1. LAW2. REGISTRY3. TRAINING
OVER 140,000 SECURITY INTERESTS REGISTEREDUS$ 340 BILLION IN NEW FINANCING TO 50,000 SMEs
MORE THAN 5,000 PEOPLE TRAINEDUS$ 900 BILLION FINANCING FACILITATED
Thinking about the best metrics to measure the impact of reforms
• Taking into account that “attribution” is complex when moving from administrative savings to other impact measures
Current measure
Administrative savings
New firms created
Investment Jobs Other (eg, export, government revenues)
Business entry
Business operations (licenses, inspections)Trade logisticsSecured transactions & Collateral registriesInsolvency
Resolution of commercial disputesTax
Industry and Special Economic Zones
Best proxies of impact
Source: CIC & IC-BL impact note prepared for the IFC IDG Committee. May 2010.
We have good evidence on the impact of entry reforms
Source: Doing Business 2010, Cardenas & Rozo (2007), Aghion et al. (2008), Bruhn (2008), Fisman & Sarria-Allende (2004), Klapper et al. (2006).
One stop shop in Mexico
One stop shop in Colombia
Reduction of entry procedures in India
Reduction of entry cost from 24.5% to 0.7% of income per capita (e.g. Peru to Singapore)
10-11% increase in firms registered
5% increase new firms registered, 2.8% employment
5.2% increase in new firms registered
6% increase in new firms registered
Quasi-experimental evaluations of registration simplification
Cross-country studies on the average effects of entry regulation
Entry reforms in Indian stateswith more flexible labor regulations
Higher impact when entry reforms are combined with other IC reforms17.8% increase in real output gains largerthan in states with less flexible labor regulations
Impact of business entry reforms on investment, 12 countries
Timeline: Impact of all IC-BL business entry projects approved between FY10 and FY13
Countries: Bangladesh, Burkina Faso, Burundi, Cameroon, Colombia, Congo Dem. Rep., Malawi, Mali, Morocco, Peru, Philippines, and Yemen
Basic assumptions: - Reduction of time and cost of entry by more than 60% (proxy: one stop shop)- 5% attribution on new firms created and investment generated (from existing literature)- 65% of savings reinvested
A simulation reducing time and cost of entry by 60% or more in 12 countries would generate US$ 1.8 billion investment
Source: CIC & IC-BL. Model on the impact of entry reforms developed for the IFC IDG Committee. May 2010.
Pre-reform:
(Baseline,
2003)
After reform: impact due to CAE
(% of pre-reform)
Firms 187,683 10,323 (5%)
Employment 2,707,516 75,810 (2.8%)
Bogotá (6.3 million inhabitants)
Results in Colombia
Source: Doing Business 2010, Cardenas & Rozo (2007), Aghion et al. (2008), Bruhn (2008), Fisman & Sarria-Allende (2004), Klapper et al. (2006).Source for example of Guadalajara: Authors’ calculations based on data from DANE (Departamento Administrativo Nacional de Estadistica, Colombia), Chamber of Commerce of Bogotá, and estimates from Bruhn (2008), Cardenas et al. (2007) and Bartelsman et al. (2004). Note: Employment data for Bogotá do not include the public sector. (The estimate of the public sector share of employment was obtained from the Labor Statistics Database of ILO - International Labor Organization.)Source for example of Bogota: Bruhn (2008), administrative data from the municipality of Guadalajara, authors’ calculations. Note: Employment refers to firm owners and workers.
Final considerations on national reforms
The power of standard benchmarking. DB Global and Subnational reports motivate reforms. More than 60 requests to support DB-related reforms in 2 years. Mexican cities implemented 56 reforms after DB in Mexico.
The power of jealousy. Reforming neighboring countries motivate reforms. Client involvement
High-level counterpart directly involved in the process Inter-agency technical working group for broad reforms and technical
working groups on specific topics Private sector involvement is key
WBG advisory: from diagnostic to implementation Focus on results Communication and capacity building Field presence Peer to peer learning
Background slides
What happens next? Some firms survive, some die
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61–87 % of firms that enter the market still operate after two years
27–66 % of the initial firms are still operating at age seven
Source: Bartelsman et al. (2004) and authors’ recalculation in 2009 based on original dataset.
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The ones that survive grow
Mexico: 27 % of new firms survived 7 years after entering the market, and the surviving firms employed 105 % of the workers originally employed by all new entrants
Source: Bartelsman et al. (2004)
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Net Entry Productivity Growth
Incumbents' Productivity Growth
Productivity increases with higher entry and exit rates
New firms increase competition, forcing incumbents to become more efficient or to exit the market and increasing overall productivity
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