The Investment Climate Department

The Investment Climate Department:
who we are and what we do
Marialisa Motta
Mierta Capaul
Luis Aldo Sanchez-Ortega
7 June 2010
The Investment Climate Department: who we are and
what we do
1.
The WBG investment climate work
2.
The Investment Climate Department: an
overview
3.
Programs and reforms
4.
Impact
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WBG work to support investment climate reforms
Advisory
Funding
First response:
DB Reform Advisory
Long term support – product market regulation:
Entry &Business
Operation
Tax
Administration
Trade
Logistics
Access to Finance and Debt Resolution
Long term support: industry lens
Special Economic
Zones
Agribusiness
and Tourism
Industries
Health
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Ba
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IF
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In
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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, publicprivate dialogue and implementation support.”
Investment climate reforms
Fostering open and competitive
Product markets
Capital markets
Labor markets
Higher investment,
productivity & jobs
Economic growth
Strategic priorities
Low-income countries (IDA), post-conflict countries, frontier regions
The Investment Climate Department & Business
Line: key figures

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:
The Investment Climate Department & Business
Line
Key figures
Offices
Staff
Budget
Countrie
s
Department
Business Line
Total
DC, Istanbul
Nairobi, Dakar,
Vienna, Asia
appr. 110
apr. 130
appr. 240
appr. $37 million
appr. $13million
appr. $50million
-
-
appr. 100
Focus on implementation of reforms
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Doing Business reforms supported by the WBG
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Reforms not supported by the WBG
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Last year, the Investment
Climate Department with WB & IFC
supported 82
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reforms in 37 countries, as captured by the Doing Business global report
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Source: Doing Business 2010 and CIC note to Lars Thunell, October 2009.
We advised 8 out of the top 10 reformers in
Doing Business 2010
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supported by the Investment Climate Department,
IFC-WB
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Colombia: the results of a broad reform program
(making Top10 list for the fourth time in seven years)
Colombia is the leading reformer
RESULTS
in Latin America.
Supported
reforms:
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Starting a business: faster registration for
public pension
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• Construction permits: simplification of
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approvals for construction permits and utility
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connections
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• Registering property: reduction of procedures
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and time through on line consultation
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• Trading Across Borders: risk management,
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online documentation
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• Paying taxes: Online electronic payment of
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social security contributionsstruttura
• Protecting investors: Strengthening director
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liabilities and the ability for shareholders
to sue
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• Access to credit: Implemented
new credit
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information law
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• Closing a business: Regulation
of insolvency
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practitioners and extrajudicial
reorganization
agreements.
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Ranked 37 out
of 183 countries
(up from 49 in
2009)
Colombia: reforms in Dealing with Construction Permits
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).
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2008
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Doing Business database.
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Eliminated 3
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China: the results of a targeted reform program
Reforms
LAW
(2007)
MORE
US$
900
THAN
BILLION
5,000 PEOPLE
FINANCING
TRAINED
FACILITATED
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
1. LAW
2. REGIST
3. TRAININ
REGISTRY Designed and implemented an
(2007-2008) electronic registry for accounts
receivables
TRAINING
5000 government officials and
bankers trained
OVER
140,0
US$
340
Thinking about the best metrics to measure the impact of
reforms
Current measure
Administrative
savings
Best proxies of impact
New firms
created
Investment
Jobs
Other (eg, export,
government revenues)
Business entry
Business operations
(licenses, inspections)
Trade logistics
Secured transactions &
Collateral registries
Insolvency
Resolution of commercial
disputes
Tax
Industry and Special
Economic Zones
•
Taking into account that “attribution” is complex when moving from administrative
savings to other impact measures
Source: CIC & IC-BL impact note prepared for the IFC IDG Committee. May 2010.
We have good evidence on the impact of entry reforms
Quasi-experimental evaluations of registration simplification
One stop shop in Mexico
One stop shop in Colombia
5% increase new firms registered, 2.8% employment
5.2% increase in new firms registered
6% increase in new firms registered
Reduction of entry procedures in India
Cross-country studies on the average effects of entry regulation
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
Higher impact when entry reforms are combined with other IC reforms
Entry reforms in Indian states
with more flexible labor regulations
17.8% increase in real output gains larger
than in states with less flexible labor regulations
Source: Doing Business 2010, Cardenas & Rozo (2007), Aghion et al. (2008), Bruhn (2008), Fisman & Sarria-Allende (2004), Klapper et al. (2006).
A simulation reducing time and cost of entry by 60% or more in 12 countries
would generate US$ 1.8 billion investment
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
Source: CIC & IC-BL. Model on the impact of entry reforms developed for the IFC IDG Committee. May 2010.
Results in Colombia
Bogotá (6.3 million inhabitants)
Pre-reform:
(Baseline,
2003)
Firms
Employment
After reform: impact due to CAE
(% of pre-reform)
187,683
10,323 (5%)
2,707,516
75,810 (2.8%)
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
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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.
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The power of jealousy. Reforming neighboring countries motivate reforms.
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Client involvement
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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
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Focus on results
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Communication and capacity building
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Field presence
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Peer to peer learning
Background slides
What happens next? Some firms survive, some die
12
10
8
6
4
2
0
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61–87 % of firms that enter the market still operate after two years
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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.
The ones that survive grow
1,6
1,4
1,2
1
0,8
0,6
0,4
0,2
0
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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)
Productivity increases with higher entry and exit
rates
1,5
1
Incumbents' Productivity Growth
0,5
0
-0,5
-1
-0,5
0
0,5
1
1,5
Net Entry Productivity Growth
New firms increase competition, forcing incumbents to become more
efficient or to exit the market and increasing overall productivity
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