PSD Blog - World Bank Group

A (LED) light at the end of the tunnel

Close to 75 percent of Sub-Saharan Africans, about 550 million people, do not have access to electricity. Lighting Africa, a conference in Ghana that ended today, is tackling how to mobilize the private sector to supply modern off-grid lighting such as Light Emitting Diodes (LEDs) to over more 250 million people living in Sub-Saharan Africa by 2030. This is a timely effort given surging oil prices and the fact that Africa spends about $17 billion on inefficient lighting fuels such as kerosene lamps and paraffin yearly.

Gates opens market doors for farmers

The Bill and Melinda Gates Foundation recently announced that it will increase its budget for farming projects by 50 percent this year as food prices soar around the globe.  According to its website the foundation will inject  the additional funds into existing projects designed to help farmers cultivate more resilient crops, and helping producers gain better access to markets for their products. The Foundation, created in 1994, focused initially on health and education. In May 2006 it launched a call for a "Green Revolution" in Africa.

No nets, no soccer

Today is World Malaria Day, a few articles have caught my eye lately on the subject. The disease is one of the most deadly in the world, claiming the lives of over one million people annually. In Africa, a child dies every 30 seconds from malaria.

The American professional soccer league, MLS, has partnered with “Nothing But Nets,” a UN Foundation campaign to fight malaria. MLS followed the path of the NBA and other organizations that have joined the campaign. Anyone can donate and with each $10 Nothing But Nets is able to provided one anti-malarial insecticide-treated net.

In another piece of news, Novartis decided cut the price of its anti-malarial drug Coartem by 20 percent starting today. The company said the price reduction was made possible through efficiency gains after expanding its operations - makes one wonder how long Novartis has been waiting for Malaria Day.

To learn more about the disease and even to take quiz on the subject you can visit the World Bank’s Web site on malaria.

Sustainable banking awards: who's winning what?

The Financial Times and IFC announced shortlists of potential winners for the 2008 Sustainable Banking Awards. The awards recognize financial institutions that have led the way in integating their policies with social, environmental, and corporate governance objectives. Below is a sample the categories and the shortlisted candidates, the full list is available here.

Sustainable Bank of the Year

• Banco Real, Brazil
• Citi, US
• HSBC, UK
• Rabobank, Netherlands
• Standard Chartered, UK

Sustainable Deal of the Year

• BlueOrchard Finance, Switzerland/Morgan Stanley, US (microfinance loans)
• Calyon, France (solar thermal power plants)
• Citi, US (financing for rural housing)
• Glitnir Bank, Iceland (geothermal power generation)
• Merrill Lynch, US (carbon finance to reduce deforestation)

Banking at the Bottom of the Pyramid

• ASA, Bangladesh
• Banco Bradesco, Brazil
• ICICI Group, India
• Opportunity International, UK
• Wizzit, South Africa

To export or not to export?

A recent paper looks at possible reasons why farmers in parts of the developing world insist in growing crops for local markets when crops for export markets are considered to be more profitable. The authors suggest that this could be explained by:

"[M]issing information about the profitability of these crops, lack of access to the necessary capital to make the switch possible, lack of infrastructure necessary to bring the crops to export outlets, high risk of the export markets, lack of human capital necessary to adopt successfully a new agricultural technology, and misperception by researchers and policymakers about the true profit opportunities and risk of crops grown for export markets."

The paper also takes a look at the work of DrumNet, a social enterprise in Africa, to analyze whether a package of services could help farmers switch to export crops and market them. The researchers found a slightly positive impact from DrumNet’s package of services, but nothing overwhelming.

From growing cassava to funding a university

Beatrice Ayuru introduces herself as a teacher and businesswoman. She is from northern Uganda, a war-ravaged area with much poverty and few schools.

A few years ago, with no business training and no money, Beatrice decided that she would build her own school. "No girl should endure what I had to go through myself," says Beatrice. "Education is the best way to help reduce poverty in my region […] and giving girl children education empowers them. In my village, women are over-dependent on men."

Beatrice started with a small garden of cassava. That earned her a little money which she used to buy wheelbarrows that she subsequently rented out. With that income, she managed to open a canteen. Soon, she had enough savings to start a school. Getting the land was a struggle.

Microfinance: so good it's fit for children's bedtime story

A recently published children's book titled, One Hen: How One Small Loan Made a Big Difference, tells the tale of a young Ghanaian boy, who with the help of a small loan is able to dramatically improve his living conditions with his widowed mother. Kojo, the protagonist boy, buys one hen after receiving a loan from his mother and then sells eggs to his community. After saving and soundly investing he is able to expand his operations and eventually can afford to attend college.

Kojo’s story is based on the life of Kwabena Darko, who created in 1994 Sinapi Aba Trust, which engages in microfinancing in Ghana. The only hope is that if Cinderella doesn't spark development ideas, perhaps Kojo will. 

Recession intervention: more Valentine's Days

Arguably more efficient than the U.S. government's stimulus package, Valentine's Day will inject $17 billion into the economy. However, Cupid is not so economically powerful everywhere lovebirds celebrate the holiday.

Can you hear me now?

The importance of cell phones for isolated communities and different applications of mobile technology have been the subjects of much debate.

A new paper suggests that an increase in competition policy in sub-Saharan Africa, to at least the same level as that of the best-performing countries in the region, could almost double overall cell phone coverage. However, the authors highlight that more targeted work would need to be done to eliminate the digital divided between rural and relatively dense areas.

Africa: (self-powered) light at the end of the tunnel

Actor Tom Hanks is better known for his role in Forrest Gump than for his work with self-powered energy. But that might soon change, at least for some people in sub-Saharan Africa, where Hanks is funding a project that will create assorted lights and lanterns to serve an area where less than 15 percent of the population has proper lighting.

These devices work by transforming winding-up motion into electricity and in some cases one minute of winding can generate two hours of lighting. The company making the products cites several applications for its devices including enabling businesses to stay open later and increasing night-time studying hours. They can also power radios, and other devices such as the "One Laptop per Child" laptops.

Maybe with oil prices breaking $100/barrel and having much of our electricity generated from oil, these devices will become commercially viable in the west as well.

More cell phones, better grain prices

We already know that cell phone technology has enabled lots of people in remote areas to access bank accounts and government services. But here is a new one: a recent paper creates a model that predicts that cell phones in Niger will lead to a reduction in price dispersion. This would be true since cell phones enable grain traders to perform searches for better prices in areas where it would otherwise be too costly to search.

Interested? Register online for a discussion with the author held by the Center for Global Development in Washington, D.C.

Sachs on private sector development in poor areas

In an interview with the Ivey Business Journal, Jeffrey Sachs talks about "clinical economics," corruption, business environment, social responsibility and natural resources in Africa:

[…] there are lessons about operations in very low-income settings. These things are typically very standardized. They depend often on mass production according to relatively straightforward technologies.

[…] Countries have learned, especially in the Asian experience, how to economize on infrastructure, for example, by concentrating industrial activities in industrial parks or export zones where basic infrastructure is guaranteed even when, at a country scale, it's far from adequate. So there are methods that have been developed very successfully to economize on the lack of economy-wide skills or economy-wide management or economy-wide infrastructure and those same lessons will surely apply in the African context

Smart farming in Africa

[…] telling farmers to grow more is not enough; even giving them the freedom to sell to whomever they wish is not enough. Farmers need cash buyers. Without willing customers, paradoxically, growing more food can grievously hurt farmers—it raises costs and saddles them with worthless surpluses

G. Pascal Zachary has written an excellent piece in the Wilson Quarterly recounting the evolution of farming on the continent since the 1960s.

Experiments in malaria prevention

Does raising the price of long lasting anti-malarial insecticide-treated nets (ITNs) from $0 to a $0.75 kill the demand? At least in theory, cost sharing can help reduce wastefulness and save money without serious adverse effects of healthcare of most people.

Based on a field experiment in Kenya, a new paper explores the effects that cost sharing of the price of ITNs charged to pregnant women had on infant mortality.

Africa and the oil price

From the FT:

Surveying 13 non-oil-producing African countries, including South Africa, Ghana, Tanzania, Ethiopia and Senegal, the [International Energy Agency] found that the increase in the cost of oil bought by the countries since 2004 was equivalent to 3 per cent of combined GDP.

This was more than the sum of debt relief and aid received over the past three years by the countries, which have a combined population of 270m, of whom 104m live on less than $1 a day.

Few takers for bank accounts at $700 apiece

It takes over $700 to open a checking account in Cameroon - more than the country's per capita GDP. In 10 percent of countries surveyed in a World Bank report, a person must have an equivalent of at least 50 percent of per capita GDP to open an account.

The result: only 20 percent of families in Africa have bank accounts. The graphic below shows the share of the population that can't afford checking account fees:

But more stable and predictable monetary policies, privatization of many state-owned banks and improvements in regulation are encouraging more banks, such as Barclays or Standard Bank of South Africa, to compete for new customers.

World's largest untapped consumer segment

With a monthly income varing from $63 and $700, many of them use "branded shampoos and detergents regularly, and they sometimes indulge in a bar of chocolate or bottle of perfume.  A good number own televisions, refrigerators, and DVD players." 

Known as the "next billion," these consumers - who spend over $1 trillion a year - can't "afford to make mistakes" and will "carefully compare [products] functional, technical, and emotional benefits."

BCG has five tips for companies on how to reach this group:

Will Africa miss all MDGs?

It seems more and more likely each year that Sub-Saharan Africa will fail to reach any of the MDGs by 2015.  But it won't be the region's fault, says Bill Easterly in his new paper, but rather of those who set these goals.

Privatization in Africa

Privatizing your largest bank to foreigners certainly invites scrutiny if not criticism especially in Sub-Saharan Africa. A recent study asseses the sale of government-owned Uganda Commercial Bank to the South African Stanbic and suggests that the privatization has been relatively successful.

The portfolio of the privatized bank, which was cleaned prior to sale, remains fairly strong and profitability and credit growth are now on par with other Ugandan banks. Though market segmentation still is a concern, since Stanbic faces little or no direct competition in many remote areas, early results suggest that access to credit has improved for some hard-to-serve groups.

New breed of NGOs

Africa has been experiencing a period of strong growth, but problems such as AIDS, corruption or insufficient infrastructure still undermine development.

A panel at Wharton discusses the way new high-profile NGOs are filling the gap between inadequate government programs and the shortcomings of traditional aid.

PWC and World Bank did it again

The World Bank – IFC and the global accountancy firm PriceWaterhouseCoopers jointly published Paying Taxes 2008, their second report. The study, which compares tax systems of 178 countries, uses the total tax rate indicator (TTR) as a measure of the amount of all taxes and mandatory contributions borne by the business in the second year of operation, and expressed as a percentage of firms' profits.

Overall, while 31 countries have improved their business tax systems, 7 of the bottom 10 countries still force their businesses to pay taxes at least once a week and to spend at least 65 days per year in the process. Burundi and Gambia require businesses to pay respectively 278 and 286 percent of their profits, according to the report.

High interest rates still better than no access

Charge 80% per year on a loan in the U.S. and you're called a usurer. Charge 80% per year on a loan in Latin America or Africa and you can be a poverty-alleviation charity.

Dean Karlan, president of Innovations for Poverty Action, and Jonathan Zinman from Dartmouth College set out to find out if consumers can be made better off even when borrowing at "excessive" rates from regulated financial institutions:

[We] tested this proposition. We worked with a successful finance company in South Africa to randomly choose some just-below-the-normal-approval-bar applicants to receive a four-month installment loan. The lender charged its normal rate: 200% APR. The remaining, just-below-the-normal-approval-bar applicants (the "control group") were rejected in line with the lender's normal credit policy.

Déjà vu from the East?

ICBC's $5.5 billion deal with South Africa's Standard Bank is China's biggest investment to date in any foreign market.  It adds to over nine-hundred Chinese companies already present on the continent. From the International Herald Tribune:

The fact that a top Chinese banker brackets Africa with Asia is one more sign that the Asians themselves see what is happening in Africa as a repeat of what happened to them 20 and 30 years ago.

Jeffrey Sachs wants another Green Revolution

This past year, food prices have […] skyrocketed, causing hardships among the poor and large shifts in income between countries and between rural and urban areas.

The most basic reason for the rise in natural resource prices is strong growth, especially in China and India, which is hitting against the physical limits of land, timber, oil and gas reserves, and water supplies.

There is an urgent imperative to raise food productivity in poor countries, especially in Africa, which needs its own "Green Revolution" to double or tipple its food production in the coming few years. Otherwise, the world's extreme poor will be hardest hit by the combination of rising world food prices and long-term climate change.

From the Daily Star [subscription required].

Bad news for the poorest of the poor

The authors of a new report at the International Food Policy Research Institute estimate that the world will reach the first MDG (halving the proportion of people living on less than $1 a day and suffering from hunger) by 2015. The bad news is that the ultrapoor – those surviving on less than $0.54 a day - are the most likely to remain among at least 800 million people still in poverty by 2015.

The report points to the three main poverty traps: inability to invest in education; limited access to credit for those with few assets; and reduced productivity due to malnutrition. 

Three-quarters out of 162 million untrapoor today live in Sub-Saharan Africa.

MDGs: a new picture

With the countdown half-way through, the data on the Millennium Development Goals are finally available via interactive maps. The timeline feature (step 3 on the map) tracks progress on any of the eight goals, throughout 189 countries.

Why Africa won't be the new Norway

Norway, the world's third largest oil exporter, passively invests a large portion of proceeds into a national pension fund.  "The future-generations fund," which is now worth $300 billion, invests into foreign assets only as a way to remove the temptation for politicians to spend money on pork-barrel projects. Can oil-rich African countries follow the Scandinavian path or are they destined to suffer under the resource course?

John Ghazvinian, the author of "Untapped: The Scramble for Africa's Oil," is pessimistic: "Between 1970 and 1993, countries without oil saw their economies grow four times faster than those of countries with oil."

Better times for Africa in 2008

The IMF's World Economic Outlook forecasts a 6.8 percent growth for the continent in 2008. Up from 6.1 percent in 2007, it's a performance not seen in the region since the 1970s. Notably, not all growth was attributed to rising commodity prices:

The combination of more open economies in a benign external environment, together with improved and more consistent policy reforms to strengthen the business environment and official actions to reduce debt burdens has allowed African countries to attract rising private capital inflows as well as benefit from "some step-up" in aid inflows and remittances.

Connecting the unconnected

The total bottom of the pyramid household market for information and communication technologies (ICT) is estimated at $51.4 billion and includes 3.96 billion people with annual incomes below $3000. The Economist writes about poverty penalty in Africa, where only four out of every 100 people have internet access:

Of its 48 countries, the 28 in central and eastern Africa are connected to the web by only the flimsiest of satellite technology. Apart from the occasional internet hook-up at a diamond mine or UN camp, whole regions of Congo and Sudan, sub-Saharan Africa's two largest countries, have no connection at all. Even countries like Uganda, which are go-ahead about the internet, start from a very low base. Research by Microsoft found only one in 200 Ugandans regularly uses e-mail.

The organizers of the "Connect Africa" summit held today in Rwanda hope to encourage a new "Marshall Plan" for ICT on the continent.

Malaria digest

There are three reasons to be optimistic: a new, more effective drug and two vaccine prototypes - one of which made using mosquitoes' saliva glands. Stefan Kappe, the researcher, says:

We've made vaccines from pus and poop, we make them now using eggs—so why not make them in live mosquitoes?

Low-cost cell phones pay off

Amidst research on the transformative effects of mobile phones on developing communities, companies in emerging markets are adding hundreds of millions of customers a year. From Nokia's third quarter earnings report:

Sales of [cell phones] rose 45.1 percent, to 19.3 million devices, in Africa and the Middle East, while rising 37 percent in China, to 18.9 million, and 41.1 percent in the rest of the Asia-Pacific region, to 29.5 million.

Can Africa surpass Japan?

If a single African country were to incorporate the best practices that are already in place across the sub-Sahara region, it would rank eighth worldwide. This was one of the observations that business leaders made last Friday at an award ceremony for the top two African reformers – Ghana and Kenya.

World Bank, DFID, Business Action for Africa and Unilever sponsored the presentation. Click here for the full list of the Doing Business 2008 top reformers.

Switch off your TV and go read a book

Alexis Sampson, Kathrin Frauscher and Michael Jarvis report on the IBF:

"Switch off your TV and go read a book" this was the simple message displayed on screen for 15 minutes each afternoon as part of an MTV Brazil social awareness campaign. It was also the closing clip of a montage of social messages played for IBF participants. In explaining his motivation in running such campaigns, MTV Brazil's CEO, Andre Mantovani, emphasized the crucial educational role that companies have, particularly in the media sector. He called for more business leaders to be brave enough to support social actions in spite of profit pressures and occasional employee skepticism.

Best targets for bribe-seekers

Two out of five firms in Africa and Latin America report having to make unofficial payments to "get things done." One in six is expected to present "a gift" when meeting with tax inspectors. The "Graft Index of Firm Transactions" (below) shows that African firms are three times more likely to be asked for money than their Latin American counterparts.

The index relies on hard data from 10,000 firms and their encounters with corruption in 33 countries. Authors Alvaro González, Ernesto López-Córdova and Elio Valladares found that firms in Africa pay higher bribes, as a percent of sales, than firms Latin America: 2.7 and 1.4 percent, respectively.

View their new paper with a recipe on how to reduce corruption in Africa by 85 percent here.  And don't forget to do your own analysis.

Reform yourself and the equity returns will follow

How did Eastern Europe overtake East Asia? In a four-minute video interview, Michael Klein, World Bank-IFC Vice President for Financial and Private Sector Development, explains why countries that didn't make it to the top of the Doing Business 2008 report don't have to despair.

By the way, did you know that Estonia and Poland have as many registered businesses per capital as Hong Kong? The same holds for Georgia and Malaysia.

Doing Business 2008 report is out now

At 00:01 GMT, the World Bank released its annual ranking of the ease of doing business in 178 economies.

Ordered by the time and cost required to set, run and close a business, Eastern Europe and Central Asia were the fastest reforming region this year. Latin America and East Asia were the slowest, with the exception of China, who implemented new private property rights and a new bankruptcy law.

Business climate rankings matter to women. Higher scores correspond to a higher number of women entrepreneurs and employees in an economy. Forty-one percent of women in Rwanda run a small business but only 18 in the Democratic Republic of Congo, where women need their husbands' consent to start a business.

Interestingly, though Brunei, Liberia and Luxemburg joined the list, nothing has changed on the very top or the bottom. As in the year before, Singapore ranks the first and the Democratic Republic of Congo as the last of the list. Egypt became the top reformer but Georgia, with its provocative media campaign, still holds a high spot. And while almost all countries, including Belarus, registered some positive reforms, Venezuela and Zimbabwe bucked the trend.

For complete listings and to create your own rankings visit the Doing Business site.

What's wrong with Africa by Andrew Mwenda

The problem with the African continent and the problem with the aid industry is that is has distorted the structure of incentives facing the governments in Africa. The productive margin in our government search for revenue does not lie in the domestic economy. It lies with international donors. Rather than sit with Ugandan entrepreneurs, Guinean business, South African enterprising leaders, our governments find it more productive to talk to the IMF and the World Bank.

Aid increases the resources available to the governments. And that makes working in government a most profitable thing you can have as a person in Africa seeking a career.

The most enterprising people in Africa cannot find opportunities to trade and work in the private sector because the institutional and policy environment is hostile to business. So the most enterprising Africans end up going to work for the government.

There's more - 17 minutes of video to be exact - in which Mr. Mwenda shares his insights. Definitely worth the time.

Vaccines not immune from markets

The disinterest in vaccine development throughout the 1990s led many to call for government intervention.

But things seem to be changing. Since the beginning of 2007 alone, Merck, a major pharmaceutical maker, earned $2 billion on vaccines - a figure that prodded a long-awaited uptick in research outlays in the industry. Though research traditionally has been biased toward servicing of western maladies, companies are beginning to recognize the profit potential at the bottom of the pyramid. "The size of the market is incredible, both in America and around the world" says Adel Mahmoud, a former president of Merck's vaccines unit.

While individual spending on health care is low – only $183 a year for a typical rural household in Uganda, the measured BOP health market in 35 countries in Africa, Asia, Eastern Europe, Latin American and the Caribbean represents 2.1 billion people who annually spend $87.7 billion.

Though it may be too early to talk about research fever, it is starting to look like a rush.

FDI in 2011

The Economist Intelligence Unit together with the Columbia Program on International Investment released the World Investment Prospects to 2011 which forecasts FDI flows for 82 countries over the next five years. Eight out of top twenty recipient countries will be in emerging-markets.

The report focuses on political risk, and Jeffrey Sachs analyzes ways to address growing risks in the energy sector.

The graph shows predicted inflows to Asia + China: