PSD Blog - World Bank Group

Going green as an strategic risk

A new report by Ernst & Yong ranks a growing "greening" concern as one of the top 10 strategic risks businesses face. The top three risks are: regulatory and compliance risk, global financial shocks, and aging consumers and workforce.

The report calls this increasing concern about the enviroment "radical greening" and states that going green is expensive at first, but it could be worthwhile if consumer tastes and the regulatory enviroment start to demand it; ok, perhaps that wasn't a jaw-dropping discovery, but the entire report still makes for a good reading.

Cooking at the bottom of the pyramid

The World Health Organization estimates that 1.6 million people die each year from toxic indoor air. The main culprit is carbon monoxide released with smoke as a byproduct of incomplete combustion, when using traditional stoves.

Given that nearly half of the world population and 80 percent of rural households cook with traditional stoves, Environfit - a Colorado-based organization - saw a commercial opportunity and created a line of clean-burning ceramic stoves. Their first target demographics are Indian women. Prices will range from $10 to $200.

The missing extinguisher

Imagine yourself shopping for a simple product such as a fire-extinguisher. Would you check, before buying it, whether it is certified? Most people I polled said "no"; if it is on the shelf, it means that it satisfies the (sophisticated) rules and regulations set for its production.

Well, this assumption has been challenged during our recent work with the Tajikistan Fire Fighting Service.

While drafting together fire safety checklists to be used during inspections of small and medium enterprises, we came across this requirement: "the fire extinguisher needs to be certified."

No problem, at first we agreed with the need to provide consumers with the highest possible safety standards. But after digging a bit more into the issue, we discovered a couple of interesting facts:

• Unfortunately no existing company in Tajikistan produces or sells "certified" extinguishers; and
• None of those on the market have the required certificate.

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.

Depression babies

Does the personal experience of economic and financial fluctuations shape individuals' risk choices? A recent paper, using U.S. consumer survey data suggests it does.

Take these examples: the average stock market participation rate for the generation that experienced the Great Depression as teenagers or adults is less than half that of all other age groups. The 1931-40 age group, on the other hand, that experienced the post-war boom years as young adults has a stock market participation rate almost twice the average.

Both recent and past experience counts.  Young households in the early 1980s - having experienced the dismal stock returns of the 1970s - had lower rates of stock market participation than older households for whom the negative experience of the 1970s was moderated by the high-return experience of the 1950s and 1960s.

Microinsurance

Less than 2 percent of Indonesians are insured. 120 million, nearly half of the population, survive on less than $2 per day.

A short, promotional video shows how some poor Indonesians are warming up to the idea of insurance priced at $0.40.

Youth and prosperity in the Middle East

At the time when European societies are rapidly aging, 30 percent of the population in the Middle East is between ages 15 and 29 – the largest proportion of youth in the region's history.

On January 7, 2008 at the Brookings Institution, experts will discuss whether this 100 million of young men and women are a demographic gift or a potential for social and economic problems.

A public/private partnership to the moon

The technologies are available, the savings obvious, yet consumers are slow in adopting energy efficient products. Speaking at the Bali Global Business day on the margins of the UN Climate Change conference, a Philips official wondered why two thirds of the world still uses old lighting technologies when switching to existing modern technology would represent a 40% saving in total lighting energy consumption.

The private sector is asking for a public/private partnership where governments implement stronger energy efficiency standards, including labeling, adopt greener public procurement requirements, and grant financial incentives.

In developing countries, investors' appetite for clean technology investment is also growing but private companies are facing additional obstacles: the risk perception, the lack of market research, the need to adapt technologies to the requirements of these markets. Again, a public/private partnership makes sense.

GEF and IFC launched today the Earth Fund which aims to give those businesses keen to invest in environmental technologies in developing countries that extra support they need to take the leap. The most exciting feature of the fund: a prize! The very same company that stimulated with a prize the launch of the first private rocketship in outer space, will manage the Earth Fund's prizes for innovative environmental technology.

Windstorm bonds breeze through markets

Following a successful placement of flood and earthquake cat bonds in April, a new tranche, this time covering windstorm risks in seven European countries, is launched. By transferring the risks from insurance companies to willing market investors, these bonds provide an additional instrument for risk management.

The parametric index trigger in those bonds is linked to objective measurements of wind speed at various locations rather than an estimate of losses, which helps speed up disbursement and lower costs of damage assessment.

AIDS day 2007

Two days before December 1, the World Bank observes the World Aids Day – this year Magic Johnson will give the keynote address. 

Earlier last week, in a new report the UN revised down, by 6.3 million, the number of people that the agency estimates are infected worldwide from 39.5 to 33.2 million.  This 16 percent decline has more to do an improvement of the quality of data - previously high-risk groups in India and five Sub-Saharan African countires (Angola, Kenya, Mozambique, Nigeria, and Zimbabwe) were overrepresented - than in overall health.

Cost of malaria in India

Seeking a causal link between health and development, a new paper compares literacy and primary school completion rates for those born before and after the nationwide malaria eradication program in the 1950s in India.

The authors estimate that the disease reduces income by nearly 10 percent.

World Bank at annual meetings

At the boards of governors of the World Bank and the IMF meet between October 20th and 22nd in Washington to discuss the work of both institutions, it is a good time to reflect on the evolution of the World Bank Group.

Ray Suarez, from the Public Radio International, looks at the lessons learned from the past 60 years and the bank's work today. The 50-minute program features Francois Bourguignon, the bank's chief economist, and William Easterly, its chief critic. And speaking of the direction for the future, don't miss the article describing Robert Zoellick's efforts to extend financial risk management services to poor countries.

ATM: the latest in money laundering

Smurfing is a money laundering method where individuals make multiple, under $10,000, bank deposits and withdrawals in cash hoping to avoid the detection by authorities. According to the IMF, every year between 2 to 5 percent of the world's GDP or $962 billion to $2.4 trillion is laundered.

In 1986 the U.S. Congress outlawed this practice. Also known as microstructuring, the routine is hard to distinguish from ordinary ATM transactions.

The Wall Street Journal [subscription required] reports on the latest scheme involving $2 million a month "smurfed" to Columbia. "To evade suspicion by banks, [the suspects] always made small deposits. In Colombia, getting at that money was as easy as pushing buttons on an ATM."

Credit growth in emerging Europe: a cause for stability concern?

Asked about the location of the next financial crisis, many economists and analysts point to emerging Europe, i.e. the countries east of Germany that have experienced rapid credit growth and increasing macroeconomic imbalances.

A recent paper suggests that risks are more likely to arise from macroeconomic imbalances rather than from bank fragility. But supervisors, do not relax and better be ready!

The U.S. subprime mortgage market - do we need more restrictions?

It is certainly too early to assess the extent of the mortgage crisis in the U.S., but perhaps we can turn to history to see which policies have worked to protect subprime borrowers from loan sharks.

A recent paper compares states and counties with different anti-predatory lending laws. While a more generous definition of what constitutes a sub-prime borrower seems to help, more restrictions on lending terms appear to have an opposite effect. Bottom line, the devil is in the details. Food for thought for today's policy makers.

Partial credit guarantee schemes - experiences and lessons

The answer to all SME Financing problems or risky schemes with large contingent fiscal liabilities?

The World Bank, jointly with the Journal of Financial Stability and the Rensselaer Polytechnic Institute, is organizing a conference on this topic on March 13 and 14, 2008 here in Washington, D.C. to take a closer look. Researchers are invited to submit papers by October 15.

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.

More Wall Street-like World Bank

From moving meetings with top managers to 8:30am, expanding the trading floor – which manages $65 billion portfolio - to providing risk-reducing derivative products, such as swaps, President Zoellick wants the bank to adopt more private sector practices.

Does malaria cause poverty?

A new paper links low-income levels with incidence of malaria – an illness that claims over one million lives annually, 90 percent of which occur in sub-Saharan Africa.

Though not in itself revolutionary, the paper quantifies why – the moral imperative aside – the outlays on control and prevention of malaria ought to be an obvious economic choice.  Every year the disease accounts for an estimated $12 billion in lost GDP.

Extra: Kenya cuts by nearly half the death rate among children - read the WHO's first global guidance on mosquito nets. Test your knowledge: take a five-question malaria quiz.

Google Earth for risk management

Allianz, a global insurance company, will use Google Earth to more effectively manage risk. This is just one of many examples where mixing-and-mashing of available data creates new useful information.

By looking at the broad picture (literally), Allianz and other insurers can recognize overexposure to risk and through reinsurance, for example, avoid excessive losses in a case of a catastrophe.

Causes and consequences of migration

Currently, 180 million people, or three percent of the world population, live outside the country of their birth.

A new World Bank publication presents the most extensive international migration database to date, including new data on South-South migration and another crucial development issue - return migration.

Does migration spur investment in origin communities? What are the effects on the host country? A sample of the book is here.

Conservation gets a second life

If, like most of us, you didn't have a chance to see a panda in the wild, you might want to try this: WWF's Conservation Island - a virtual presence in Second Life. It doesn't quite beat the real thing, but it's fun to walk around the island surrounded by pandas and an (seemingly oversized?) orangutan.

WWF hopes that "Second Life residents will become a community that helps [them] build and develop the island and at the same time learn about conservation in a fun, engaging and interactive way." It's yet another example of the development world adopting web 2.0 technologies.

Perhaps not as engaging, though very useful, is the recently launched World Water tool from the WBCSD. Based on Google Earth, it allows companies to mash water use in their operations and supply chains with datasets of water-stressed areas to estimate their "water risk." It's a useful reminder that water scarcity is an important risk factor for private sector investments.

DDT scores a new victory as a malaria fighter

Brand new research shifts the jury in favor of dichloro-diphenyl-trichloroethane (DDT) spraying:

There has been no failure in understanding that DDT is by far the most cost-effective chemical yet discovered for sustained use in malaria control programs.

Given that spatial repellent action is the first order action of DDT residues, resistance to a toxic action may not signify that DDT will no longer exert control over malaria transmission.

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."

It's a robbery - SMEs and crime

Crime against businesses disproportionately impacts SMEs. Nearly 80 percent of firms affected by a major accident and without a proper contingency plan cease to exist within two years.

In the UK alone, where break-ins and burglaries are the two most common crimes, the economy loses an estimated £19 billion - approximately £5000 per business.

Using Do Your Own Analysis, find security costs such as payments to mafia, for example, that firms in over 100 countries have reported. The graph below shows losses to theft and robbery as a percentage of sales in Burundi, DRC, Guinea-Bissau and India.

SOX shows unique governance benefits

The critics of the Sarbanes-Oxley Act (SOX) say that the regulation has made the U.S. less competitive, causing an exodus of companies to less-regulated stock exchanges in London and Hong Kong. The authors of a new paper defy this common wisdom. They find that when firms' characteristics such as size and type are factored in, the listing gap disappears.

"Before you jump to the conclusion that this is evidence of New York losing market share, remember most of those firms wouldn't qualify for the listing in New York. It's apples and oranges" says George Karolyi, one of the co-authors.

In general, whether they list on the NYSE or NASDAQ, firms are subject to SEC oversight, they are exposed to class action lawsuits, and face additional monitoring by market participants, such as analysts and institutional investors.

Although there is a common belief that listing in London provides a certain level of good governance, firms […] in London generally need only comply with the governance rules of their home country [and] are subject to a "light touch" approach to regulation.

Got game?

Can video and computer games help people manage their health? The Changemakers at the Ashoka Foundation think so. "Why Games Matter: A Prescription to Improve Health and Health Care" seeks innovation, along with a potential for social impact, and sustainability.

The rules are simple and the deadline is on September 26, 2007, coinciding with the release of the 2008 Doing Business report which will focus on gender.

Dirty business on the rise

Money-laundering flows exceed $1 trillion per year, finds a new KPMG survey. Forty-one banks, out of 224, said they were unable to track cross-border transactions.

The report estimates that the cost of compliance with anti-money-laundering (AML) requirements has risen by nearly 60 percent since 2004 – that's 20 percent more than banks had expected. As the expansion into emerging markets and transnational mergers continue, these costs are likely to grow.

Ted Truman estimates that the probability of conviction for money-laundering in the U.S. is at 6.5 percent. The AML veteran adds that even at 10 percent conviction rate, the returns to money launderers are high relative to the risk.

Microinsurance in Mumbai

Between November 13 and 15, 2007 in Mumbai, India, CGAP and Munich Re will sponsor the third international Microinsurance Conference.

Traditionally, large, commercial insurers have been deterred by high costs and small premiums leaving the poor to rely on informal or mutual schemes for risk management. Responding to the challenge, the conference will focus on new, cost-effective products for low-income groups.

See also last year's report focusing on social vulnerability.

New Europe is growing old

A new World Bank study warns about severe economic consequences of aging in countries in Eastern Europe and the former Soviet Union. According to the co-author Arup Banerji:

No aging country anywhere is as poor as Georgia. With a per capital gross national income of just over $1000, it is set to lose almost a fifth of its population over the next two decades. […] It is this interaction of the three transitions – demographic, economic, and political – that makes the region, and its challenges, unique.

With a poignant title "From Red to Grey," the report paints a dark picture. Between 2000 and 2025 Ukraine’s population will shrink by a quarter; in the same period the number of people aged over 65 will double in Bosnia and, except in Tajikistan, the number of school-age population will decline.

There is hope, but the prescription is unequivocal: more flexible labor laws, lower rates of labor taxation, and an increase of labor participation rates.

Hedging climate change bets

The recent G8 summit failed to reach agreement on proposals for even a voluntary code of conduct for the world's 9000 "locust" hedge funds with an estimated value of $16 billion as reported on Spiegel Online. However, while there may remain disagreement over transparency issues, it seems G8 leaders might applaud hedge funds for taking the initiative on another key G8 theme - climate change.

Hedge funds are jumping on the green investment bandwagon. As reported in the UK's Observer, Schroders are launching a climate change fund, adding to a number of green investment products already on the market. Even Man Group, the largest listed hedge fund worldwide, has announced plans to get in on the act. As reported on thisismoney, Man's Chairman Harvey McGrath sees "significant further developments" around carbon trading and the "green space."

Smoking is bad for your... pocket

The adverse health effects of smoking are old news. Michael Lokshin and Zurab Sajaia (on page 18) examine the habit's less obvious effect on your paycheck. The data comes from the Tomsk region in Russia – a country with the fourth highest rate of smoking:

On average, non-smoking men earn more than smokers [$400 vs. $330], respectively, thus enjoying about a 19% unadjusted wage premium over smokers. The wage premium of non-smoking women was quite a bit lower at 6%, which translated into an approximately $15 'bonus'.

There is also the economic cost, which in Tomsk amounts to nearly 2 percent of the region's GDP. The loss is not remedied by revenues from cigarette consumption, where, according to the research, tobacco companies pay only 65 rubles per 1000 cigarettes and 8 percent on the sale price of cigarettes.

Russia aside, as the rest of the world is curbing the habit, private sector insurers ponder the consequences.

Lighting the bottom of the pyramid

A new solar rechargeable flashlight - backed up by three AA batteries that last up to three years (costing $0.80) - gives up to 7 hours of light. In a market where nearly 2 billion people have no affordable access to light, light is a big deal:

If you're an environmentalist you think about [the problem] in terms of discarded batteries and coal and wood burning and kerosene smoke; if you’re a feminist you think of it in terms of security for women and preventing sexual abuse and violence; if you're an educator you think about it in terms of helping children and adults study at night.

BOP households spend an average of 7% percent of this income on energy. In Africa, where 250 million poor spend an estimated $12 billion, energy ranks third in households' expenditure. In Asia, mainly due to India’s share, it ranks second.

To learn more or participate in the initiative click here.

Gates funds global health monitor

Bill & Melinda Gates donate $105 million to evaluate which public health programs have the greatest impact and hence deserve more funding.

The Institute for Health Metrics and Evaluation at the University of Washington – the recipient of the grant – promises to collect and analyze global health data that have traditionally been neglected or difficult to evaluate, such as child mortality, and turn it into a high-quality comprehensive and comparable product.

SOX in India

Not everything that works in developed countries works in developing countries, but here is an example of the reverse – while the Sarbanes–Oxley (SOX) Act might not have had the expected impact in the U.S., similar reforms have had a positive impact in India, including on the share prices of Indian companies.

These governance reforms could have net benefits in a poor-governance country, like India, but net costs for companies that are already well-governed, like the U.S.

Asian financial crisis 10 years after

Since 1997, East Asia's aggregate output doubled to $5 billion and more than 200 million people transcended the $2 a day poverty line. Looking ahead, 9 out of 10 Asians may be living in a middle income economy by the end of the decade.

Don't rest on your laurels, warns a new World Bank report. The region could fall into the 'middle income trap.' Find out more this Monday when the authors answer your questions live.

Insurance for the poor

Only 10 million out of 2 billion poor have access to insurance. Inadequate financial instruments, difficult regulatory environments for providers and the lack of information for customers are the key obstacles to reducing health, life and non-life risks for poor individuals and communities.

Together with CGAP, insurance regulators, associations and private companies, the Financial Markets and Social Safety Net group will launch a series of learning events on how microinsurance can work for poor and risk-exposed clients.

The first workshop will take place on May 7-8 in Rio de Janeiro and will focus on: improving service delivery of insurance, particularly those in the informal sector; alternative delivery channels, beyond MFIs and commercial banks; and the role for international institutions like the World Bank.

Cat bonds storm capital markets

The first ever bonds to cover flood risk, debuting in a $150 million tranche, were oversubscribed.

Unlike the traditional schemes with the payout based on estimated losses, these cat bonds have indexed-based triggers, which when linked to an objective benchmark such as, in this case, water level, eliminate the costly assessment process, increase transparency and speed up disbursement.

The 2,400 liter hamburger

Did you know that it takes 2,400 liters of water to produce a hamburger? This is revealed in a new initiative from the International Business Leaders Forum to address the emerging global water crisis. It focuses on firms' "water footprint" and claims managing water is part and parcel of managing business risks. There is reputational risk, of not being a good local partner, and the parallel risk of simply running out of water due to poor demand-side management generally.

Business should be a catalyst for adopting water-saving technologies, or processes, not only for good profit-sense but for good neighbor-sense.

Market for rain insurance

Weather-based index insurance - an insurance product with payouts linked to a verifiable, public weather-based index - has the potential to protect even the poorest farmers against income fluctuations caused by devastating weather shocks.

But how do you get farmers who have never come across this kind of shock-absorber before to use it? A conference paper being discussed today, based on experience from India's state of Andhra Pradesh, provides some answers.