PSD Blog - The World Bank Group

No jobs, no peace?

Last week the Jordan Times reported that the government has put in place a task force to simplify business regulations, to help stimulate entrepreneurship and jobs. The IFC is supporting this effort, as well as similar exercises in Lebanon - although I guess that one will be on hold for a while. When the fighting has faded from the headlines and diplomacy has taken over - which we hope will be soon - the battle to provide an enabling environment for small businesses to enter the formal sector needs to be engaged in full. See a post last week on how these businesses can aid peacebuilding.

The Doing Business report shows that many Middle East countries rank relatively poorly in the league tables. Although improving the prospects for people to find jobs and start businesses may not be enough to secure lasting peace in the Middle East, it is unlikely that it can be achieved without some improvement in economic opportunities. When the immediate humanitarian needs of dealing with the current crisis are past, the work of improving the business environment will require working closely with local officials and private firms to make lots of little changes which will simplify prospects for legal, formal sector economic activity.

This is the important work of implementing the Doing Business agenda. It doesn't take lots of money or aid; mostly it requires political and administrative commitment by government and local officials, and good dialogue between the private and public sectors. And it makes a huge difference: in the first few months of 2006 the number of businesses newly registered in Lima rose by 7 times compared with the same period last year, after similar reforms.

St Helena musings: about flax

St Helena was always as aid-dependent as it is today. Between the early 1900s and the mid-1960s the island's major industry was growing flax, or hemp, which was used to make ropes. Although there were ups and downs in the industry as world prices changed, it was the island's largest employer, apart from the government. In 1966 the whole industry suddenly closed down. Legend has it that an official in the British Post Office - which was a major buyer - decided to use synthetic string and thus St Helena's flax industry was killed. The truth is more interesting.

In the mid-1960s some of the flax mills were government-owned and others were private. In 1965, after a government review of wages, a decision was made to nearly double the wages in the government mills. Wages were felt to be too low for workers to live on adequately. The private mills were not able to match these wage increases and closed. Meanwhile, world prices for hemp continued to fall, so the higher production costs of the government-owned mills meant that they were operating at a large loss. Within a few months they too closed. The St Helena Government applied to the British government - its colonial master - for emergency help, to provide employment for all of the former flax workers. The number of "development aid" projects expanded dramatically.

Lesson: government involvement in industries which are price takers on world markets is risky, especially for the private sector. Another lesson: investigating "received facts" can be worthwhile.

A randomized experiment with cash transfers

One of the debates surrounding cash transfers is the importance of “conditionality” clauses. For example, see this new paper by Norbert Schady and Maria Caridad Araujo on “Cash Transfers, Conditions, School Enrollment, and Child Work: Evidence from a Randomized Experiment in Ecuador.”

This paper uses a randomized study design to analyze the impact of the Bono de Desarrollo Humano (BDH), a cash transfer program, on enrollment and child work among poor children in Ecuador. There are two main results. First, the BDH program had a large, positive impact on school enrollment, about 10 percentage points, and a large, negative impact on child work, about 17 percentage points. Second, the fact that some households believed that there was a school enrollment requirement attached to the transfers, even though such a requirement was never enforced or monitored in Ecuador, helps explain the magnitude of program effects.

For more on the Bono de Desarollo program see the IDB or ECLAC - both resources are in Spanish.

Weekend reading

Passing these links along before they get stale…

• Global village shelters makes $550 prefab housing, pictured here
• Plans launched to mitigate African brain drain, via SciDev.Net
• Contracting for the delivery of education services (PDF, 1.3MB), a new paper from Norman LaRocque

• Book review of the Triple Bottom Line

• Public-private partnerships in the fight against malaria (See also this Emerging Markets blog post)

Afghanistan’s banking laws lack teeth

Afghanistan’s banking laws are investor-friendly as long as contracts are followed, but there are scant provisions for enforcement in case of any default. Afghanistan lacks special courts for banking matters, and there is no recognition of foreign judgments. That was the main message at a presentation here Monday from attorney Mehmood Mandviwalla, whose Pakistani law firm has an office in Kabul.

The banking sector remains primitive. There is virtually no lending taking place locally, and banking is primarily limited to deposit-taking. US dollars remain the primary currency in Afghanistan’s cash-only economy.

What is intended as a safeguard against expropriation of business assets may actually come back to haunt the law’s framers. The Investment Law, Telecommunications Law, etc., state that assets will not be expropriated, but in the event that they are, “fair market value” will be paid. Mandviwalla advocates a complete ban on expropriation or nationalization, as these “fair market value” provisions have caused problems in South Asia.

The good news? The Afghanistan Investment Support Agency (AISA) and Da Afghanistan Bank are both high-quality regulators that have proven easy to work with.

The impact of crime on small entrepreneurs

A new EBRD working paper by Libor Krkoska and Katrin Robeck on ‘The impact of crime on the enterprise sector: Transition versus non-transition countries’:

This paper identifies the factors explaining why some enterprises are more likely to be targeted by crime than others, and analyses the impact of crime on enterprise performance and behaviour in a simple modelling framework. The results of enterprise surveys conducted in 34 countries in Europe and Asia during 2002 and 2005 show that higher rates of crime are particularly associated with the weak development of micro enterprises in the services sector, operating in large countries with high unemployment. The paper also highlights the deterrent effect of crime on FDI inflows and job creation, especially in less advanced transition countries, providing empirical evidence to substantiate the importance of the fight against crime for economic development.

Public-private dialogue on African diamonds

Astronomers, perhaps inspired by the Beatles, have actually found a diamond in the sky - with plenty of bling at 10 billion trillion trillion carats. Here on Earth, you probably know that most diamonds are produced in Africa, and that the sector does not have a great track record in corporate social responsibility. This may be about to change, as we learn from PublicPrivateDialogue.org that the New Partnership for African Development (NEPAD) just launched a trans-national public-private dialogue initiative focused on the diamond sector.

The NEPAD Diamond Producers of Africa Initiative will involve the private sector and the governments of Angola, Botswana, Central African Republic, Democratic Republic of the Congo, Ghana, Guinea, Ivory Coast, Lesotho, Liberia, Namibia, Sierra Leone, South Africa, and Tanzania. A joint code of conduct has already been drafted, which will have implications for how mining companies perform on corporate social responsibility. The Charter of Good Practice in Public Private Dialogue had identified these types of cross-border and sectoral focus as very efficient ways to promote competitiveness at the regional level.

$100,000 award for ICT and youth

Nominations for the third annual Development Gateway Award are due August 11. This year's $100,000 award recognizes outstanding achievement in the use of information and communication technologies (ICT) to improve the lives of people in developing countries.

There are about 1 billion young people, aged 15-24, in the world today and eighty-five percent of them live in developing countries. Young people play a central role in the information society as first adoptors of information and communication technologies. The $100,000 award will help the winning organization expand upon its success and mentor other prospective leaders in the field of ICT for development.

Past winners were eCoupal and Grameen Bank's Village Phone.

Doing Business in 13 Brazilian cities

My colleagues down the hall inform me that Doing Business in Brazil was released today. Like last year's Mexico report, the Brazil report uses the Doing Business methodology to compare the ease of doing business in different parts of the country. The capital city of Brasilia takes top honors, while Fortaleza from the state of Ceara ranks last.

Brazil ranks 119 out of the 155 countries on the Doing Business list. Yet like everything in Brazil, the ease of doing business varies widely from place to place. It takes 18 months to enforce a contract in Sao Paolo, but over four years in Campo Grande. The report also finds that Rio's business community faces one of the heaviest tax burdens in the world.

Available for download: the full report (426KB) or a press release in English or Portuguese.

An invasion by multinationals from the South?

Business Week's cover story details the penetration of US markets by emerging economy firms, like Embraer, Haier and Orascom.  

What makes these upstarts global contenders? Their key advantages are access to some of the world's most dynamic growth markets and immense pools of low-cost resources, be they production workers, engineers, land, petroleum, or iron ore. But these aspiring giants are about much more than low cost. The best of the pack are proving as innovative and expertly run as any in the business, astutely absorbing global consumer trends and technologies and getting new products to market faster than their rivals.

While the article casts the trend as some sort of generalized invasion from the South, it's really only the well-known handful of populous countries whose firms are threatening established players from the West. Of BCG's list of 100 emerging market companies with the most potential to become global powerhouses, only 10 do not hail from Mexico, Brazil, Russia, India or China.