PSD Blog - World Bank Group

Building competitive trade logistics

Global trade could increase by trillions of dollars if transactions costs in developing countries are reduced to OECD levels. But what’s the most effective ways to achieve such reductions?

A group of high-level policy makers, academics, and World Bank Group staff met in Washington last week to strategize as part of a conference organized by the FIAS' Trade Logistics Advisory Program. Presenters discussed case studies from twelve developing and industrialized economies and state-of–the-art approaches to building efficient trade logistics services. Some governments are making progress in simplifying their trade-related regulatory procedures. Pakistan, for example, managed to reduce the number of trade transactions from 26 clearance steps, 34 signatures, and 64 verifications to one declaration form. And it increased the proportion of cargo that is cleared from in less than one day from 4% to 70%.

Aids in Asia: alarming numbers

A new United Nations report, Redefining Aids in Asia: Crafting an Effective Response, was just released and makes an astonishing prediction: 500,000 peaple could die each year people due to AIDS-related illnesses by 2020.

The report released Wednesday also contends that the number of infected people could potentially double to 10 million by 2020 if prevention work is not undertaken. The cost of such an increase in infected people would be great in all levels, including economic cost, since Aids is one of the major causes of death among working-age adults in Asia. According to the chairman of the Commission on AIDS in Asia, Dr Chakravarthi Rangarajan, the cost could be up to $2 billion annually until 2020.

Calm waters for offshore outsourcing

Despite some evidence that offshoring did little or nothing to help U.S. original equipment manufacturers (OEMs), the practice across industries has doubled since 2004 according to a survey recently published by CFO magazine.

Not only have the numbers grown, but also the spectrum of services using offshore outsourcing. These services range from the traditional information technology services, to legal research, and analysis of medical test results.

Also, favorite offshoring destination is still India with China as a big competitor. On a lighter note, CIO magazine ran a fun head-to-head comparison between these two countries showcasing their respective comparative advantages when it comes to IT outsourcing.

Privatization in 2006 - the year of Chinese IPOs

Our privatization database – listing transactions of at least $1 million from 2000 to 2006 - has been updated again.  In 2006, 48 developing countries carried out 249 privatizations for a total value of $105 billion – a figure comparable to the record year 1997.

The graph below depicts the value of privatization transactions in developing countries between 1990 and 2006. The figure excludes the two IPOs of the Industrial and Commercial Bank of China and the Bank of China, which combined accounted for $35 billion - one-third of all proceeds in 2006:

Russia and Turkey followed China into the second and third place, while Poland bucked the general trend toward privatization that year.

Our interactive map has the full picture.

Doing Business in China

The Economist reviews 5 books on doing business in China.  We supplement it with 10 indicators that measure the ease of running one.

Outsourcing too expensive

A new study by the Boston Consulting Group finds that outsourcing to China and India did little or nothing to save costs for many of the original equipment manufacturers (OEMs).

About two-thirds of the manufacturers in the survey reported unit costs in China equal to or higher than those in their home countries. The authors point to diseconomies of scale and higher quality control costs as main causes.

An Acehnese Biker Chick

When most people think about Sabang, they think about diving. For good reason – the diving spots here are among the best in the world. But there’s more to Sabang than diving, as I discovered by chance. It also has biker chicks.

After yet another fabulous weekend of diving, I took the minibus to Balohan, where the ferry port is. But for the first time ever, I could not get a ticket. Normally you can get on the boat by slipping some cash to the crew. But this time it was impossible. When the boat pulled away from the dock, there were people literally hanging off the railings. Definitely a game for younger people than myself.

Luckily, my Indonesian is now good enough to get me through situations like this. I found a little hotel nearby for only 60,000 Rp, leaving just enough for the return ticket and a few meals. Then I decided to go for a good long walk. I was quite a sight – a foreigner huffing along on foot, gushing with sweat. My biggest problem was turning down offers for rides. Saya jalan-jalan saja, I explained. I'm just going for a walk.

Unusual champions of global sustainability

It is often assumed that the greatest potential for improving business environmental practice in developing countries lies with foreign multinationals and not with the countries' own businesses.

These case studies reject this common assumption and point to the crucial role of developing-country firms as they serve the world's most populous and fastest growing markets

Says Simone Pulver the guest editor of "Greening Development: The Role of the Developing-Country Private Sector" published in the "Studies in Comparative International Development" [subscription required]. The recent issue is based on case studies of selected firms in China, India and Latin America.

Does poverty kill?

The relationship between poverty and infant mortality is well known. But does it also hold for adults?

Abhijit Banerjee and Esther Duflo from the MIT Poverty Action Lab studied the data from 15 countries to find out if "the poor die more in developing countries."

See also their earlier study on how the very poor spend their money.

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:

Flashbacks at Bali

Walking into the Bali Convention Center, you know that you have become a fixture in the world of international sustainable development when the UN security guard welcomes you with a broad smile and a "how have you been." You swore as a younger woman and an activist you would never become one of those grey haired incrementalists around the negotiating halls.

And then you look around and you see your old friends, all with traces of grey at the temples, reporting, representing UN agencies, working the trade agenda, running think tanks, hanging out on the west coast of the US with other ageing activists and having fun being still irreverent, or slightly proud that Michael Crichton may have based his caricature of the evilly powerful NGO on you.

Looking around you see a remarkable repository of knowledge, not just of the substance of the negotiations, but of the social anthropology of summitry. Of the personal that makes up the political and the history of institutions, a history that often impedes collaboration and undermines trust.

Straight from the Climate Change Conference in Bali

Our own code-breakers in Bali, Lucie Giraud and Rachel Kyte, kindly agreed to keep us abreast of the developments on the ground throughout the second half of the United Nations Climate Change Conference.

In the meantime see the World Bank's official conference site and the list of delegates.

We'll keep the track of their dispatches below.  Comments are encouraged.

• Lucie - Money on trees
• Lucie - A public/private partnership to the moon
• Rachel - Flashbacks at Bali
• Rachel - Disciplined financial mechanisms
• Lucie - A low hanging fruit?
• Rachel - A roadmap for international financial institutions

Emerging markets' top challengers

In a new study the Boston Consulting Group warns established industry leaders against the competition from emerging markets. Since 2004 the 100 New Global Challengers grew their revenues three times faster than the S&P 500 and now, says David Michael, the report's co-author, they will become potential acquirers:

Never before have so many potential competitors and customers arisen so quickly on a global scale. Moreover, the challengers have completely different approaches to competition, taking advantage of their bases in emerging markets. Many established industry leaders are frankly unprepared for these new types of competitors

The challengers brought over $1.2 trillion in total revenues in 2006. The report predicts that their combined revenues will reach $3.3 trillion by 2010 and $11.8 trillion by 2015.

Islamic car

Islamic banking is centered on the concept of sharing risk and one of its major distinguishing features is a ban on interest payments and speculation.

Exploring the differences beyond finance, The Economist has a story on Proton, the Malaysian carmaker, who toys with the idea of manufacturing an "Islamic" car:

As planned, [Proton's] "Islamic" car will feature a compass to indicate the direction of Mecca, a box in which to store a copy of the Koran and a compartment for a headscarf.

Waste: don't just take it away

Born out of a failed methane experiment comes a water-treatment system that uses 90 percent less energy than conventional sewage system and cost 50 percent less to operate. Dean Cameron – the creator of the Biolytix Water – harnessed worms, beetles and billions of microscopic organisms to turn human waste into water suitable for irrigation.

The low cost (a small version for four people could cost $175) and its minimal energy use hold a promise for 2.5 billion people around the world who can't afford proper sanitation. So far there are 3000 biotanks installed in homes and businesses across the Pacific.

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.

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.

Poverty and its discontents

While nearly 1 billion people still live on less than $1 a day, according to World Bank estimates the incidence of poverty shrunk from 29 percent of global population to 18 percent between 1990 and 2004.

Naturally, there is more than one way to measure poverty, keeping the numbers debate alive. The newest challenge comes from Sanjay Reddy and Camelia Minoiu who ask if the world poverty has really fallen (hat tip to New Economist).

See also the new poverty maps - an effort to understand local conditions in cities, towns and villages normally hidden behind aggregate national indicators.

Land, the single greatest asset for the poor

In 2006, the income of Chinese urban residents was 3.28 times that of the rural ones, where 700 million farmers or 56 percent of total population live.

The new survey from the Cato Institute shows how secure land rights can reinvigorate China's rural economy. The graph (below) displays a correlation between issuance of contracts and certificates and farmers' mid and long-term investment in land.

The report also contains an analysis of a Property Law aimed at creating greater land-tenure rights, passed in March of 2007.

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.

Who's going to lend to rural Chinese?

Seven hundred and fifty million Chinese live in rural areas and most have a limited access to finance. The Enterprise Surveys found that in 2003 nearly 30 percent of firms named access to and cost of financing a "major or severe" obstacle. To address the situation, banking regulators in China began to loosen the restrictions on establishing of small rural financial institutions.

A new Wharton article analyzes the difficulties that for profit microfinance programs encounter. According to World Bank's Jun Wang:

There are still many people who hold the view that rural and microfinance cannot be commercially sustainable. They believe that farmers are a vulnerable group of society, they have limited means of production and opportunities, and deserve government support. Most of these people demand subsidized interest rates, which is problematic.

World Bank's Internal Evaluation Report is out now

Since the mid-1990s, 86 middle-income countries (MICs), defined as having GDP per capital ranging from $1000 to $6000, have borrowed the total of $163 billion and their average real incomes grew by 4 percent a year. Given their new wealth should the bank continue lending to them or focus exclusively on low-income countries?

The Internal Evaluation Group's new report evaluates the effectiveness of bank's programs to MICs from 1995 to 2006 and recommends the way forward. The two key recommendations are: continue lending but depart from business as usual.

See also what The Economist wrote about the group of countries that despite the impressive growth are still home to over one-third of the world's poor.

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.

Milking the global economy

Rising incomes tend to go hand in hand with growing appetites. In China the average milk consumption per capita has grown from two to six gallons a year since 2000. Unsurprisingly, the prices of food staples, which now have to compete with biofuels for inputs, have soared.

And though the growing profitability of dairy products may one day render farm subsidies obsolete, it is responsible for reports of cows being stolen from some dairy farms.

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:

Improving aid: consensus or competition?

The aid community has undergone sweeping changes since the 1960s when the number of donors per recipient country averaged at 12. Today this figure is 33 and the number of organizations exceeds 230.

The multitude of donor-driven initiatives spurred efforts to streamline aid, such as Poverty Reduction Strategies (PRS), but with little success. Most middle-income countries, home to 80 percent of the developing world's population, opted out of PRS and new emerging donors China and India, with $2 and $1 billion contributions respectively, change the nature of global aid.

It's now easier than ever to borrow from capital markets – 90 percent of the world's developing countries accessed the syndicated loan market and 40 percent issued sovereign bonds. As a result, the World Bank revised its lending policies cutting fees and raising lending limits striving to compete with other development banks.

For the "road ahead" read a very good short study by Joseph O'Keefe, the former head of corporate relations at IFC, and now a scholar at Brookings.

Environmental poverty penalty

People in poor countries will suffer disproportionately more from climate change. The Rockefeller Foundation's new initiative hopes to turn World Bank's development projects "climateproof."

Lenovo targets Chinese farmers

The world's third largest computer producer will release a $199 PC to rural China. In the countryside, where nearly 800 million people live, incomes average at $560 a year and have been growing at an annual rate of 10 percent.

Additionally, later this year, Lenovo will start furbishing its computers with Linux instead of Windows operating system – a move that may potentially further lower the price, and undercut Dell.

So far the tactic has paid off. Last quarter Lenovo shipments to China increased by 30 percent accounting for $1.53 billion.

China builds Africa

Over 800 Chinese companies operate in 49 African countries. They bring capital but many bring also labor. The Economist ponders the impact the importation of Chinese workers may have on development in Africa.

Protectionism for development

Economic development requires tariffs, regulation of foreign investment, permissive intellectual property laws, and other policies that help […] producers accumulate productive capabilities

Says Ha-Joon Chang, a Cambridge economist and the author of "Bad Samaritans: Rich Nations, Poor Policies and the Threat to the Developing World." He argues that rich countries should not deny the poor ones the very same route they had once themselves taken to develop.

[The] truth of the matter is that [developing] countries have grown significantly more slowly in the "brave new world" of new-liberal policies, compared with the "bad old days" of protectionism and regulation in the 1960s and the 1970s.

Asia & Africa do trade

Dani Rodrik compares the relationship between currency undervaluation and growth of economies in Asia and Africa:

In Asia, growth is typically engineered by increasing the profitability in manufacturing and other tradables. But in Africa the typical growth spurt is preceded by aid inflows and other transfers, which appreciate the exchange rate, and render future growth less sustainable. This is the so-called Dutch disease.

An IMF magazine advices Africa on how to seize the opportunity for long-term economic growth through a continuing rise in the South-South exports. To grow sustainably, Africa will need to engage in greater value-added production and move away from the short-term benefits of a boom in exports of natural resources.

Currently, manufactured products account for only 20 percent of Africa's total exports, while 80 percent of sub-Saharan Africa imports from Asia are manufactured goods.

Little book, lots of data

Whether it's a county's GDP, its total tax rate or the cost of a three-minute telephone call to U.S. – this pocket-sized reference book has it all.

It's a must have for all development wonks.

Carbon-neutral banking for the rural poor

ANZ is not only expanding access to financial services in rural areas of Solomon Island, but it does so in an environmentally friendly way. Having won a tender from the government to provide banking to the rural population, the financial mogul will open six new solar-powered ATMs, link up with Solomon Island Postal Corporation in seven new locations and add five mobile branches. Interesting contribution of access to finance to the goal of a cleaner world!

First Global Peace Index - the texture of peace

The Economist Intelligence Unit launched today a study ranking 121 nations by their 'absence of violence.' The 24 indicators include internal and external factors such as levels of violence within a country, organized crime, the number of people in prison, and military expenditure.

A number of Nobel laureates, including Joseph Stiglitz, backed the study which named Norway and New Zealand as most peaceful and Iraq and Sudan as the least. For a complete ranking click here.

Emerging Markets – the bubble again?

The appetite for a piece of pie from emerging markets seems insatiable. Only this year, initial public offerings in the region reached more than $50 billion doubling last year's $25 billion. The soaring demand for assets and a constant capital inflow from overseas have lowered the spreads on developing countries' bonds over U.S. Treasuries to a low of 1.50 percentage points – the lowest since 1997.

What's fuelling this trend? The Herald Tribune writes:

The strongest global expansion in a generation and the ability to borrow at low interest rates in markets like Japan and Switzerland. Those forces are drawing money into economies whose low labor costs and increasingly valuable commodities offer opportunities for higher returns.

Concerns extend well beyond China, which will account for roughly a fifth of the private capital flowing into emerging markets this year. The governor of the central bank, Zhou Xiaochuan, expressed concern on May 6 that a bubble was building in the nation’s stock market, which has already risen more than 80 percent this year.

Sound familiar?