PSD Blog - The World Bank Group

The theory of industrial policy meets reality

The idea of industrial policy has been seeing a bit of a resurgence since the financial crisis. It's good to be reminded of the reality of what these policies end up looking like in practice. It seems that Ethiopia's private sector coffee exporters are not too sympathetic to the idea. (H/t African Agriculture)  

Resources 101

The World Bank's East Asia blog links to a fantastic graphic of the world's resources by country. There is a clear correlation between size and supply: the United States, Canada, Russia, China and Brazil dominate the list. In many categories, such as soy, uranium, rice, natural gas, cotton, and corn, over half of the world's supply is controlled by three countries or fewer.

Another interesting observation is that Brazil has almost 20 percent of the world's water resources (roughly on par with Saudi Arabia's share of oil reserves). Perhaps another reason to study Portuguese? 

Agricultural FDI: Global land grab or good business?

Editor's Note: Kusi Hornberger is an Investment Policy & Promotion Specialist with the Investment Climate Advisory Services of the World Bank Group.

Despite the recent downturn in global FDI flows and predictions of gloomier times to come for cross border investment flows, there has been a recent increase in FDI by wealthy investors from resource poor countries. These investors have been snapping up large plots of land in developing countries for the development of agriculture exports. For the most part the deals have come from wealthy investors or state development funds in resource-poor countries into poor resource-rich countries, such as the lease of 30,000 hectares by the Abu Dhabi Fund for Development in Sudan.

Non-habit forming development aid

Does too much aid lead countries to become aid dependent? Clearly this is a possibility, and one that some aid critics believe is an inevitability. But I wouldn't say that aid is necessarily habit forming. The key issue is whether the aid is sustainable—in other words, whether the recipient country is taking the necessary steps to wean itself off aid over the longer term. And that means private sector development, without which governments will never have a tax base to replace development aid.

Mongolian Cashmere: Softer than a baby’s bottom

Before I came to Mongolia, I thought the softest thing in the world was the rear end of a baby. But that was before I visited the Gobi Cashmere factory, where I saw the production process from smelly goat hair to high-quality clothes. It’s hard to believe that the scraggy goats you see in the countryside are the source of Mongolia’s fabulous cashmere products, but it’s true. Somehow, the tough conditions of Mongolia lead to incredible, wearable softness.

Mongolia is the second largest producer of raw cashmere, after China. Estimates vary, but Mongolia produces about 20 percent of global supply. China produces about 70 percent. The rest comes from Afghanistan, Iran, India, Pakistan and Central Asia. In spite of this, Mongolia hasn’t succeeded—at least not yet—in branding its top-quality cashmere.

Serving the poor through markets

I just ran across a useful compendium of market-based solutions to poverty. Not too long ago an organization called the Monitor Group put out a publication called Emerging Markets, Emerging Models. It's filled with instructive examples - here is one of them:

The Byrraju Foundation provides a good example of a promising pay-per-use operation in water purification. In India, one typical low-cost business model is to provide individual activated carbon water filter units to low-income families at costs ranging from Rs. 900 to 1,500 ($18-$30), with replacement filter cartridges needed every three to six months at the cost of Rs. 400 ($8). With a monthly cost of Rs. 60-90 at normal usage rates, this is often too much for families living on Rs. 3,000 or less.

Weather insurance via SMS

And now for a more positive example of Dev 2.0 in action. Giulio Quaggiotto pointed me to a very cool use of technology in the service of private sector development - weather insurance via SMS. According to Eric Seuret of 3S Mobile, SMS technology has sufficiently brought down the cost of providing insurance for farmers in Kenya against droughts to make it a viable business model. (Apologies for the cheesy intro music - you can safely skip over the first 20 seconds.)

Update: For some unknown reason, the video interview with Eric Seuret was taken down. But you can check out plenty of other interesting Dev 2.0-ish videos on Jonathan Mark's vimeo page (the source of the Seuret video). 

CSR++ for agribusiness

Participants from the length of the agribusiness value chain are gathered at the Bank this week for the World Bank Institute’s new Executive Program on Inclusive Agribusiness: Fighting Poverty, Hunger and Malnutrition. Chris Delgado and John Lamb from the Bank’s Agriculture and Rural Development team set the scene on Tuesday morning by laying out the scale and complexity of the challenge facing the food sector. It was not a pretty picture.

Yet as Professor Ray Goldberg of Harvard noted, people sign up for a program like this as they want to do something, and the food crisis offers an opportunity to push for change – “we are in the middle of a revolution” in the food system. Large-scale agribusiness has a lot to gain and to lose, so the incentive is there for companies to engage even when many of the topics from access to land to ensuring affordable food supplies are inherently political. Collective action is needed and the challenge was issued for firms to envision what enhanced corporate responsibility "CSR ++" might look like in the sector. Will they get there? We will see where they stand at the end of the course.

Credit and growth: Which drives which?

This is a question that is stalking financial policymakers: Does credit growth drive economic growth, or does growth in the real sector drive credit growth? If the latter, then policymakers in emerging markets might do well to repress the financial system - the likelihood of crises will probably be reduced, while growth will not be harmed. But a new paper provides a bit of evidence that points in the opposite direction. From Does Access to External Finance Improve Productivity:

How to defeat witchcraft ctd.

I finally found the time to pick up a copy of Economic Gangsters and find out exactly how coauthors Raymond Fisman and Edward Miguel propose to defeat witchcraft. (See my earlier post on Fisman's presentation at the World Bank for background):

[W]e think more foreign aid should explicitly play an insurance role for poor countries. We call this new type of aid Rapid Conflict Prevention Support (RCPS). RCPS aid would kick in for countries experiencing temporary income drops, in much the same way that it's better to see a doctor when you start getting sick rather than waiting for the infection to spread. By the time you've got pneumonia, it's already too late...

...Since sharp and unexpected income drops are the symptoms of conflict vulnerability, donors should time foreign aid to provide relief when these circumstances arise. And this is when RCPS aid would kick in. When underlying economic factors return to normal—for example, when the rains improve the following year, or world coffee prices rebound—RCPS aid could quickly be scaled back as the state's own revenues pick up...