PSD Blog - The World Bank Group

Labor laws and Mexican spam

How hard is it to fire someone in Mexico? It is apparently sufficiently hard that they offer courses on how to do it.

I spent seven years in Mexico, and I still receive some Mexican spam. Here is my translation of an email I received which was advertising a one day course on how to fire employees:

Firing a person is a delicate process filled with legal “mines.” It doesn’t matter how prepared you feel or how correct your decision is. Not doing it the right way puts you at risk for a lawsuit. No manager should begin this process without attending this seminar!!

An exceedingly simple answer

Oscar Calvo is an economist who works on economic policy for the Latin American and Caribbean region here at the World Bank. He shared with me some interesting research on the determinants of informality in Peru. Oscar and his team conducted a survey of 802 micro and small firms, both informal and formal, and came up with the following chart (below the jump) on the benefits of being registered to pay taxes. (The RUC number is the firm’s tax ID).

Should a one-time entry cost matter?

As I mentioned in my previous post, some critics have argued that too much attention is paid to the costs of starting a business. One way of stating the critique is that a cost that has to be paid only once ought not to have a big effect on a firm’s decisions. Arvind Panagariya of Columbia University makes this argument in his opinion piece for the Economic Times. He states:

…even within the narrow confines of regulatory regime, some policy dimensions emphasised by the index are of questionable value. For instance, the index attaches great importance to the costs incurred and time taken in starting a business. But when firms are entering a market with a horizon of several decades, does it matter whether it costs $500 rather than $5,000 and takes 20 rather than 200 days to start the business?

Who will be the next president of the World Bank?

It looks like the speculation game has already begun. An article in the Guardian suggests it could be the current president of Brazil, Luiz Inácio Lula da Silva. This would break with the long-standing tradition of appointing an American to the helm.

Evaluating the OLPC pilots

Michael Trucano of the World Bank's EduTech blog has posted a valuable round-up of various evaluations of One Laptop Per Child (OLPC) pilots around the world. Michael warns that many of the evaluations are of short-term and small-scale pilots, which limits our ability to extrapolate.

However, the Inter-American Development Bank and others have started evaluations of much larger OLPC implementations, most notably in Peru. But here's another question for the evaluators out there (and one that Michael asks, albeit very nicely, in his post) - can you really get an accurate evaluation of a high-profile project when so many parties have a vested interest in seeing it succeed? Not that there's anything wrong with wanting a project to succeed, but what happens when the next development fad comes around, and the OLPC is no longer the cool new kid on the block? The same question would seem to apply to a whole range of interventions (the Millennium Villages immediately come to mind).    

Formal firms with informal workers

In my last post, I claimed that “it is common for formal firms to have many informal workers.” How do I know that?

Joyce Sadka and I have been doing some work using data from a labor court in Cuautitlán, which is located just outside of Mexico City. Each data point represents an individual who claimed to have been fired from a formal-sector firm without cause.

As of now we have data on about 2,000 such cases filed in 2002. Most cases settle or are dropped, but 245 cases went all the way to a judge’s ruling. A judge’s ruling hopefully gives us an unbiased look at the facts of the case.

What does an inefficient court look like?

I wanted to follow up on Mohammad Amin’s excellent post on the enforcement of laws. One of the papers mentioned in the post is Safavian and Sharma (2007), which finds that laws protecting the rights of creditors are more effective when they can be enforced by efficient courts.

What does it mean to be an inefficient court? Kaplan and Sadka (2008) study this question using data gathered from a labor court in Mexico. In particular, they study cases in which a judge has decided that a worker is entitled to compensation from the firm, typically because the worker was fired without cause.

Reformers Club 2009: Stimulating growth in difficult times

For the third year running, the Doing Business team has celebrated the top Doing Business reformers from around the world. The Reformers Club this year includes the following countries: Azerbaijan, Albania, Kyrgyz Republic, Belarus, Senegal, Burkina Faso, Botswana, Colombia, Dominican Republic, and Egypt. Representatives of each country received awards at a ceremony held this Wednesday in Vienna.

While Doing Business reforms are a key part of the development agenda in normal times, the tough global macroeconomic environment has made them all that much more important. Colombian Vice Minister Ricardo Duarte explains why after accepting Colombia's award in the video below. Money quote: "In these difficult times, we are convinced that firms are the engine of our economy. They are the ones that create wealth, that create growth."

Crime, security and firms in Latin America: How do firm characteristics matter?

In response to a comment on my previous post on this topic, the table below the jump shows how the incidence and burden of crime, security and bribery (as points of comparison) vary by selected firm characteristics. (Differences that are significant at the 5% level are marked with an asterisk.)

Expenses on security do not show any significant variation along the listed dimensions. Losses due to crime as a percentage of annual sales (averaged over all firms, victims and non-victims) are higher for non-exporters relative to exporters, those who maintain a below-median vs. an above-median level of inventory and for firms operating in the local vs. national market. At first glance, it is difficult to weave together these findings into a coherent and sensible prediction of the underlying forces that drive them.

Wikipedia, the anti-cholesterol medication for knowledge management

Trying to find a document through the World Bank search engine (either externally or internally)? Good luck! You might want to pencil in an afternoon...

Instead, you could turn to Wikipedia, which has an excellent search engine. Some innovative staff in the Latin America region of the World Bank have decided to start posting comprehensive articles on topics like energy and water. The benefits? Easy to find, even years after the item is published, not subject to excessive review processes before publication, and free to the public. It's like an anti-cholesterol medication for knowledge management at the World Bank.

For an example, check out this article on the electricity sector in Argentina.

How much of a problem is crime for firms in Latin America?

Editor's Note: Mohammad Amin is a PSD specialist in the Enterprise Analysis Unit of the World Bank.

Could crime be a worse problem for businesses in Latin America than either bribery or power outages? Data from Enterprise Surveys (ES) – a routine World Bank survey of firms around the globe on various issues related to the business climate and firm performance – show that a third of the firms in 14 Latin American countries experienced at least one incident of crime during 2005. 72.8% of all firms lost money either due to crime or expenses on security, which together average 2.7% of annual sales for a typical firm. As the figure below shows, these losses are more than the reported amounts paid in bribery or losses due to power outages, and about 40% of what firms spend on infrastructure (electricity, water, telecom and transport). In short, crime prevention can lead to significant cost savings for firms.

PPI projects in the crisis

A new note on Private Participation in Infrastructure indicates that PPI projects have been hit by the crisis but have rebounded somewhat:

Throughout the financial crisis, new private activity has continued to take place in developing countries with projects being tendered and brought to financial closure. In the first months of the full-scale of the financial crisis (Aug—Nov 2008), the rate of project closure was 26% lower than in the same period in 2007. However, since then private activity recovered and the project closure rate in Aug—Dec 2008 was just 15% lower than in the same period in the previous year.

What might explain this modest recovery? At least in two cases, governments and public sector banks have stepped in with additional financing. Brazil's government provided $US 42.6 billion for the national development bank BNDES to finance infrastructure projects, and India has likwise upped public support for infrastructure through IIFCL, a public infrastructure finance company.

Blogging and the financial crisis

I've run across two stories of bloggers being arrested (or threatened with arrest) in relation to the financial crisis. One blogger was arrested in Korea in January and was charged with "spreading false rumors that led to a drop in the country's currency." And now a blogger in Guyana is threatened with arrest  because of "a false report that a commercial bank in the South American nation had requested a $5 million bailout to avert a collapse." I expect that as the second-round effects of the financial crisis continue to spread around the world, more bloggers will face similar situations. 
  

Smackdown of the OLPC smackdown

Last month I wrote a post called OLPC smackdown, for which I received a number of critical comments. The item pointed to an article by Jon Evans in The Walrus Magazine criticizing the One Laptop Per Child program. Commentor Osimod thought the article wasn't even worth discussing: "I was never really convinced by OLPC, but that article is so *superficial* that I don't think it's worth publicizing it." I'll grant that the article was a superficial analysis, although I still think it brought up some valid points. (And I just pointed to the article - you should see the reaction that Jon Evans got!)

But if you're looking for rigorous analysis, I'm glad to oblige. A new working paper on The Use and Misuse of Computers in Education looks at the results of a randomized evaluation of the use of computers in classrooms in Colombia. (I should note that the computers in this particular evaluation were not provided by OLPC, but the evaluation should still tell us something about the utility of computers in the classroom.) The results were underwhelming, to say the least:

Evaluating Doing Business

Theory and much empirical evidence have suggested that Doing Business reforms are good for the business environment, and, consequently, good for employment and poverty reduction. But Doing Business reforms had never been subjected to the strictest kind of empirical test - until now. Recent evidence from Mexico based on a matched difference-in-difference evaluation - not too different from a randomized evaluation - has found that reducing the number of days to register a business does make a significant difference in the business environment. The second in the FPD Impact series of newsletters has the details:

The private sector meets randomized evaluations

For nearly a decade now, the gold standard in international development in the public sector has been the randomized evalution. There are numerous examples, perhaps the most famous being that of Mexico's PROGRESA program. Until recently financial and private sector development were more or less ignored or assumed unfit for this type of evaluation - I suspect the (mistaken) assumption was that survival in the marketplace was enough of an evaluation.

However, a new newsletter called FPD Impact promises to rectify this oversight. And it looks like new evaluation work on private sector development is bringing to light some very provocative findings. The first edition looks at Which Microenterprises have High Returns to Capital?. David McKenzie, the author, examines experiments where microenterprises in Sri Lanka and Mexico were randomly selected to receive grants of between US$100 to $200:

How much does a vote cost?

At least in Uruguay, a vote costs about US$2,000. This is according to a new paper that looks at the political economy of conditional cash transfer programs. In 2004 Uruguay implemented a conditional cash transfer program called PANES not unlike Mexico's well-known Progresa program. According to Government Transfers and Political Support:

...PANES beneficiaries were 21 to 28 percentage points more likely than non-beneficiaries to favor the current government (relative to the previous one)...Back-of-the envelope calculations suggest that securing one extra supporter costs the government on the order of US$2,000 per year, or one third of national GDP per capita (though this estimate is an upper bound cost if political impacts persist after the program has ended). This implies that a government seeking to increase its vote share by 1 percentage point would need to increase spending by around 0.9% of total annual government social expenditures. Uruguay has highly developed democratic political institutions for a middle-income country, suggesting that some of the political findings could also be relevant for wealthier countries.

Financial wizardry has its uses

Financial wizardry has gotten a bad name lately - some in the U.S. have even called for a Financial Product Safety Commission. Innovation in financial products clearly has its uses, though. One case in point is the Caribbean Catastrophe Risk Insurance Facility. Established in 2007, the facility provides insurance against natural catastrophes for 16 Caribbean nations. And it just recently won two industry awards in quick succession.   

The financial crisis and migration

With a slowdown in the rich economies (particularly in the housing sector in some countries), might we see large numbers of migrants returning to their home countries? It looks like Poland, at least, is making plans. According to the Polski blog, Poland's government is trying to help:

Polish PM Donald Tusk was in London yesterday. He was supposed to try and convince Poles living here to come back to Poland, by asking “Do you have a return PLan?’ (PL stands for Poland, of course). All that because the Polish government has launched a special site, where Poles living in the UK can get advice regarding moving their lives back to Poland.

Of course, the financial crisis might have the opposite effect in some cases. Trinidadian blogger Coffeewallah remembers the 1980s:

I well remember the eighties and the recession where people dropped their house keys off at banks and fled the country to escape loans.

(Hat tips to Nicholas Laughlin and Veronica Khokhlova of Global Voices.)

The hidden side of globalization

In debates over globalization, much attention is given to so-called 'North-South' relationships. Often, data on 'South-South' exchanges it too limited to say much. A new paper on Global Migration of the Highly Skilled by Theo Dunnewijk of United Nations University helps shed some new light on 'South-South' brain drain/brain strain/brain circulation (Hat tip: Giulio Quaggiotto). Previous datasets had overlooked diasporas of highly skilled workers in these countries:

• South Africa originating in Zimbabwe, Botswana, Namibia and Lesotho;
• Russia from Kazakhstan, Ukraine and Belarus;
• Ukraine, from Brunei Darussalam;
• Czechoslovakia (former) from Iran;
• Malaysia from China and India;
• Latvia from Israel;
• Romania from Moldova;
• Jordan from Palestine Autonomous Region;
• Tajikistan from Uzbekistan;
• Bulgaria from Greece

Is this brain drain, brain strain, or brain circulation? Dunnewijk doesn't tell us - a topic for another paper, perhaps.

Crunch time for microfinance - final thoughts

CGAP ran a virtual conference last week on microfinance and the financial crisis. (See their website for details and an earlier post on the first round of emails from the conference.) There was a ton of interest in this topic, reflected in the extraordinary volume of communication from all over the globe. To make things easy for you, I pored over the emails to bring you more highlights from the first half of the conference, which focused on MFIs and their clients:

Daniel Mensah from Ghana:

I am a member of the credit union movement in Ghana, West Africa. At a recent meeting of some of the credit union executives, it was reported that the number of members taking loans or withdrawing their savings is going up. Among the many reasons given was that the financial crisis has reduced the inflow of remittances from citizens/relations abroad and so many members now have to fall on their savings or take loans.

What Argentina can learn from Argentina

Just a few weeks ago, Argentina nationalized its private pension system. This kind of action is not without precedent - Argentina froze bank deposits in 2001. The result? According to a paper from the World Bank on The Unfolding Crisis: Implications for Financial Systems and Their Oversight:

...the freezing of deposits in Argentina in 2001 was one of the factors contributing to the poor deposit mobilization in the following years (as indicated by the declining ratio of bank deposits to GDP).

The chart below shows Bank deposits as a % of GDP; the difference between Argentina and the average of middle-income countries is quite substantial. Good luck to any effort at rebuilding private pensions after the current financial crisis has passed! 

Update: The Economist this week reports on the nationalization of pensions. They don't seem too convinced of the wisdom of the move (although one must admit Argentina faces difficult choices):

Crunch time for microfinance

Get ready for the next victim of the global credit crunch - microfinance. (Pascal Lamy's warning yesterday about a squeeze on trade finance is already old news in the quickly moving financial crisis.) For-profit microfinance institutions will find it harder and harder to find financing. MFIs will have to rely more heavily on donor support to continue their operations. It will be interesting to see how the contentious issue of commercialization plays out during the squeeze. And to top it all off, MFIs will have to decide whether to ration scare capital to fewer borrowers or charge higher rates (or some combination of both).

To find out more about how MFIs will deal with the credit crunch, there's no better place to turn than CGAP. They are putting on a three-day virtual conference November 18-20. I definitely plan on catching at least part of this conference. Questions to be considered include:

• What will be the main funding options for MFIs in the mid-term? Who will be the lenders of last resort for MFIs?
• What markets and types of institutions do investors consider the most risky? What are the characteristics of these markets and types of institutions? Has the revision of risk affected pricing?
• Is the crisis affecting some types of funders more than others? How have private, commercial funders reacted?      

Banking on Mobiles: The Good, the Bad, and the Ugly

While mobile banking has recently been getting some high end exposure (see the recent posts on the Clinton Global Initiative), a recent conference sponsored by CGAP provided a welcome counterpoint by getting into the nitty gritty of actually implementing the m-banking model on the ground. Titled Banking on Mobiles: Why, How, for Whom?, the conference really should have been called The Good, the Bad, and the Ugly (per the subtitle of the Powerpoint presentation). Why? Because a number of obstacles still remain to widespread adoption of this technology, even though presenters Kabir Kumar and Ignacio Mas are enthusiastic about our ability to overcome those obstacles.

Kumar and Mas placed m-banking in its appropriate context - it is part of the wider world of branchless banking, which requires networks of retail agents to handle transactions. And despite the hype, the numbers of people with access to branchless banking are still not that impressive. The only country that has really achieved the vision of 'banking in every village' is Brazil.

 

Measuring human opportunity

The World Bank yesterday released its new Human Opportunity Index report. This first round focused on Latin America because of the extremes of inequality presented by the region; however, future rounds will be extended to other parts of the world. According to the press release:

The study also finds that between one fourth (Colombia) and one half (Guatemala) of income inequality among Latin American adults is due to circumstances outside of their control, faced in the beginning of their lives. Race is a key factor to explain income differentials, especially for the most disadvantaged groups.

As longitudinal data develops over the next few years, it will be interesting to see how inequality of opportunity and attitudes to the private sector relate. My guess? High levels of inequality will be highly correlated with negative attitudes, regardless of the role that the private sector can play in expanding opportunity. 

Combating corruption in Paraguay

Transparency International hosted an interesting interview with the new president of Paraguay, Fernando Lugo.

Transparency Watch: How do you plan to institutionalise the fight against corruption?

Fernando Lugo: First, as a basis, by auditing and establishing permanent controls by and within each of the government’s departments. Additionally, through the creation – which will be finalised at the appropriate time – of a National Anti-corruption Ministry, which will set the political and technical norms to elevate such a battle to the most institutionalised level possible.

Perhaps they should take a page from Kenya's book and work on creating a system of e-government to help combat corruption. Although Paraguay has only 4.3 internet users per 100 people compared to Kenya's 7.6, Paraguay ranks higher in terms of the e-government readiness index of the World Development Indicators.

A new export niche for Jamaica?

Much of the lament following the latest failed talks of the Doha Round centered on liberalization of trade in agriculture. The hope, at least in part, was that a reduction in subsidies in the developed world could provide a stimulus to farmers in the developing world (never mind that the global rise in food prices would have been exacerbated in the short run by a reduction in subsidies). Coupled with the failed talks is a slowdown in the OECD economies, reducing overall demand for exports from the developing world. What's a developing country to do?

Doing Business 2009 - Five years of reforms

Doing Business 2009 is here! The sixth in the World Bank Group's annual series on business regulations, DB 2009 allows us to take a look at five years of reforms since DB 2004. But before I get to that, let me hit the highlights of DB 2009:

• This year's top reformer is...drum roll please...Azerbaijan! Azerbaijan improved on 7 out of 10 of the indicators tracked by DB and moved up 64 slots in the overall rankings.
• Two regions - Eastern Europe and Central Asia and Sub-Saharan Africa - accounted for 7 of the top 10 reformers: Azerbaijan, Albania, Kyrgyz Republic, Belarus, Senegal, Burkina Faso, and Botswana. The other top 10 were Columbia, Egypt, and Dominican Republic.
• Once again, Singapore tops the rankings, followed by New Zealand, the United States, and Hong Kong, China. 

Are remittances good for growth? It depends...

I've just run across two papers examining the impact of remittances on growth, and they both point to a similar conclusion. The first, entitled Remittances and Growth in Latin America, concludes:

Another interesting result reported in this study is that the economic impact of remittances is higher in the upper income group than in the lower income group...The differential impact of remittances might be due to the fact that most of the remittances are spent on consumption in lower income countries, while the households in the upper income countries have more opportunities to invest them profitably.

A second paper, entitled Remittances and Financial Development: Substitutes or Complement in Economic Growth, came to this conclusion:

What Mexico can teach New York

Recently, the Financial Times picked up on the success of Mexico's conditional cash transfer program. Hailed as a genuine development success story, Mexico in 1997 instituted a program in which mothers from poor families received cash payments conditional on obligations such as their children's school attendance. A randomized evaluation was incorporated into the program from the beginning, and the results of it suggest the program - originally called Progresa, later rebranded as Oportunidades - has been quite effective at achieving its goals. (A summary evaluation of Progresa can be found here.)

It's interesting to see how far this program has spread beyond Mexico's borders. I suspect part of the appeal is not only its demonstrated success, but also the fact that conditional cash transfers appear 'post-partisan'. This concept incorporates elements both of state support but also of incentives, thus making it appealing to a pretty wide spectrum. Even New York city has decided to imitate the program. According to the article in the FT:

Pollution in Beijing after the Olympics

I knew that Beijing has been cracking down on pollution, but I didn't know how they were going about it. It looks like authorities have banned vehicles on alternate days based on the last number of the vehicle's license plate. However, a representative of the Beijing Municipal Committee of Communications has said they will not extend the law after the end of the Olympic games.

I had heard about bans like this before in Mexico City. I've been told that wealthier families would often buy two cars and drive them on alternate days. As far as I have been able to find out, it looks like this idea started in 1986 with a program called Proconve in Sao Paolo. Apparently, local authorities have attributed large reductions in gaseous pollutants to the program. I'd love to know how many families have opted to buy multiple vehicles to get around restrictions like these. How much more pollution is created by this additional demand for vehicles?

Universities and development

Every year around this time, the Shanghai Jiao Tong University makes waves with its Academic Ranking of World Universities. As always, North America dominates in the short list of top 100 universities, with the Ivy League universities occupying most of the top slots. And as always, aggrieved parties produce howls of pain along with numerous complaints about methodological flaws - see a few examples here and here.

While there are certainly flaws, part of the problem lies in the inherent impossibility of ranking universities. These institutions devote themselves to many different tasks, while the Jiao Tong rankings examine only one task - research. (For an excellent discussion of the debate around rankings, see this commentary from Alex Usher of the Educational Policy Institute.) Jiao Tong ranks research output by aggregating a bunch of data on things like the number of Nobel prizes awarded to faculty and the number of articles cited in Nature and Science. (A full description of the methodology can be found here.) Given that these rankings tell us about the distribution of research output around the world, what might we be able to glean about the prospects for development?

The war on obesity - in Brazil

Brazilians have earned a reputation around the world for their beauty, boosted by fashion icons like Gisele Bündchen. But a recent article from the Science and Development Network sounded an alarm about the state of things in Brazil. Jonathan Wells, a reader in childhood nutrition at the UCL Institute of Child Health in London, commented on the alarming growth of obesity in Bündchen's homeland:

In Brazil, between 1973 and 1996, obesity increased from 2.4 to 6.9 per cent in men and from 7.0 to 12.5 per cent in women. In simple terms, obesity arises when people consume more energy than they expend, either by eating too much or exercising too little.

It may seem strange to sound an alarm about obesity while so much attention is being directed at rising food prices. (See, for example, this piece by Martin Wolf.) Obesity, however, is a serious problem in many middle-income countries, perhaps outstripping the number of undernourished individuals. A slightly dated article in Foreign Policy suggests that China, Mexico, Brazil, and Togo all have higher rates of obesity than undernourishment.

While higher food prices may put a dent in this trend, that's not entirely clear in advance. It will depend on how individuals at risk for obesity respond to price changes - and they may opt for cheaper, less healthier food if that's what is available. So what should be done about this serious health threat?

The future of social enterprise

Attempts to square the circle between business efficiency and social needs have been getting ever greater attention. The conversation over at Creative Capitalism is but one example among many. Harvard Business School has been working on these issues since at least 1993 through its Social Enterprise Initiative. Its most recent working paper, The Future of Social Enterprise, adds a new angle to the dialogue. 

This new working paper lays out possible future scenarios for the development of the social enterprise sector. The paper lays out four possibilities depending on the future flow of funding and the ability of the sector to demonstrate results. In a high octane version of the future, the social sector would demonstrate high performance and receive large inflows of funding from inherited wealth and technology entrepreneurs. The devil is in the details, however. How often is it possible for the social sector to measure and demonstrate results when it doesn't have a financial bottom line?

Podcasting for development

There seems to be a mania to take any new technology and apply it to the developing world, be it computers, solar panels, or, the next big thing, iPods. (Sorry, OLPC, you're no longer the cool new kid on the development block.) And the really next big thing is podcasting for the developing world. An article on scidev.net discusses one such initiative in Peru:

Practical Action has been working on podcasts for the Cajamarca region of northern Peru since 2006. A poor, rural area, most of the people there rely on agriculture for their livelihoods...Practical Action's local office in Peru surveyed local people about the type of information they needed to support their livelihoods - advice on grape cultivation or raising cattle for example. This information was then gathered from experts and recorded as digital audio files...

Xbox for the developing world - part II

I decided to follow up on an earlier posting that cast some doubts on the value of the XO laptop for students in developing countries. Two commentors pointed out that even if the XO laptop does not produce direct improvements in classroom learning, there still may be other kinds of benefits. Serena had this to say:

I personally believe that games–& interactive media–foster the 'soft' competency skills that contribute to learning development. The likes of Internet Relay Chat helped a generation of kids develop fast typing and response skills. Games that provide mental stimulation and can be scalable (to increase the level of challenge) similarly contribute to learning skills development.

I don't dispute this argument, but I also don't think it necessarily means that governments should be investing big bucks (or pesos) into these computers.

A regional investment agreement for Latin America

Nancy Lee, a visiting fellow at the Center for Global Development, calls for a regional investment agreement for Latin America in an online Q&A posted today. She argues that a regional investment agreement would work much like free trade agreements, with member countries setting common standards to reduce barriers to investment. How could you measure whether members are complying with these standards? Lee argues that comparable data on things like the costs of starting a business and the strength of creditor rights would do the trick.   

Trimming Red Tape

How difficult is it get a decent haircut in Tegucigalpa? Not nearly as difficult as it used to be, at least according to an article last month in the FT. Over the past year, the capital of Honduras has seen a drop in the number of procedures required to obtain an operating license for a business from 180 to 25 - in other words, from absurd to manageable. This reform has allowed Carlos Vañegas, a former army sergeant, to open up his own barbershop and obtain a loan to equip his establishment. In his own words:

It took a few hours to do all the paperwork...I don't think we would have opened had it been like it was.

The Ethics of the Bottom of the Pyramid

It looks like Ethical Corporation has caught on to the ethics of serving the bottom of the pyramid. An article in their most recent newsletter discusses opportunities in the vast bottom of the pyramid market in Latin America. About 360 million people in Latin America fit into this category. So far, local companies have left multinationals in the dust:

A third noteworthy trend is the leadership of national companies over their international peers. Micro-insurance firm Paralife in Mexico, Peruvian financial intermediary Cajasur and many of the other high performers in the index are local firms. With the bulk of their local market being low-income consumers, such firms have learned to search out opportunities among the “majority” by default.

Multinational companies, by contrast, often lack the experience, the local relationships, the market understanding and often the vision to trouble themselves with poor customers. Yahoo, Microsoft and PepsiCo feature among the big-brand laggards in the index.

What's it going to take for the multinationals to catch on?

Teach a Man to Fish

You probably have not yet heard of Fundación Paraguaya, but I have a hunch you'll be hearing a lot about them in the next few years. They are an impressive organization focused on alleviating poverty through the promotion of entrepreneurship. Fundación Paraguaya combines many functions under one roof. It consists of a self-sufficient agricultural high school that is combined with a microfinance facility.

Students at the school are taught basic business skills, and they apply these skills by working on farms, which in turn provide the income that funds the school. And the students don’t simply work on the farm for the sake of their labor—they have to make decisions about how best to make a profit from their labor, e.g. how many eggs must these chickens produce per day to justify my labor and their feed? To graduate, students present a viable business plan, which then merits them the opportunity to access the microcredit facility. Topping this all off is an Education for Entrepreneurship program that provides mentorships from the business community.

Remittances in the era of the subprime crisis

An article in the Financial Times today points out that there has been a dramatic reversal in the growth of the volume of remittances being sent from the United States to Mexico. According to data from the Bank of Mexico, remittances in the first four months of 2008 are down 2.4 percent from the same period last year. This decline follows a decade of double-digit increases. The author identifies two culprits: increased scrutiny of illegal immigrants and rising unemployment, particularly in the construction sector. According to the author:

Unemployment among US-based Mexicans has risen from 5.4 per cent in the first quarter of 2007 to 8.2 per cent in the same period this year.

This may be a worrisome development for poor communities in Mexico. According to a 2006 Bank report on The Development Impact of Remittances in Latin America, Mexico is the largest recipient of remittances in Latin America by volume.

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

More mobile banking, this time in the US. So what?

Word today that Western Union, the global money transfer service, is increasing its profile in the United States when it comes to selling new ways to send and receive money. This is just the latest in a series of steps Western Union has taken to get more involved in mobile services, which have grown exponentially in places like the Philippines and Kenya but have been less quick to catch on in markets where banking services are well-developed, such as the United States. The service will initially seek to reach Latino immigrants who are among the 40 million people in the US who lack access to basic banking services. How will it work? The Wall Street Journal explains:

To use the service, people go to one of RadioShack's more than 4,000 stores and sign up for a Trumpet prepaid phone, which is required under the program. Customers can then load up to $200 onto their phones for cash transfer via Western Union's network either within the U.S. or internationally.

Does tax registration increase profits?

A large number of firms in developing countries operate in the informal sector. It is often argued that informality lowers profits and growth, but is this true? A recent paper on Bolivia finds that formality leads indeed to higher profit - on average. However, distinguishing between firms of different sizes shows that it is only mid-sized firms that stand to benefit from formality, whereas both smaller and larger firms suffer.

Which one to blame: caipirinhas or red tape?

"If Bill Gates had started Microsoft in a garage in Brazil, it would still be in the garage," says Eduardo Giannetti da Fonseca in a recent article published by The Economist. The article points to the fact that Brazilian entrepreneurs are more risk-averse than the ones in Russia and China.

That's a no-brainer, for instance, according to the Doing Business 2008 (and for full disclosure, the authors are just down the hall from me) it takes an astonishing amount of effort to start a new business in Brazil: 152 days and 18 different procedures. Thus, absolving caipirinhas, soccer, or other Brazilian passions from any culpability. Whew!

Cuba's leader Fidel Castro resigns

After 49 years as a head-of-state, Fidel Castro has announced today he is officially stepping down as Cuba's president. Given that Castro has been resistant to business-friendly reforms, his resignation gives some commentators the hope that his likely successor, Raul Castro, will bring about some much needed reforms. There is particular hope in giving farmers more independence and engaging more with neighboring economies besides Venezuela.

The business of carnival

Rio de Janeiro is the home of Brazil's best 14 samba schools, some with individual budgets of up to $2.5 million.  As the floats get bigger and bigger requiring the work of more and more artists, Rio's Department of Labor recognized the business potential of the famous street party. 

Nassim Mehedff, the subsecretary of the Labor Department, explains why the city began providing free classes that teach people how to make costumes:

Now [the carnival] is becoming an industry, entertainment industry. They provide jobs and income for people during the whole year, not only a kind of two or three day festivity

Doing Business across Colombia

Based on surveys from Bogotá, Colombia took a 66th position out of 178 in the Doing Business 2008 report and became this year's top reformer. But as the subnational report (en español) released today shows, there are vast discrepancies on the ease of doing business among the county's 12 main cities.

Municipal requirements make up 7 of the 19 procedures required to start a business in Neiva, but only 1 of 13 in Villavicencio—the city with the fewest start-up procedures.

The graph below shows the time required to enforce contracts across 12 Colombian cities:

Financial liberalization can make your economy more resilient if...

A new paper compares changes in financing by international banks to domestic banks after the 1998 Russian debt crisis. The author finds that financing increased to banks with international equity holders when compared with their purely domestic counterparts.

Financial liberalization can make you more resilient to global credit shocks, but only if you invite foreigners rather than just borrow their money.

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.