PSD Blog - World Bank Group

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.

Tsunami insurance for the poor

A new health insurance plan will enable the poor in India to buy health insurance for less than 10 cents a month, and it will cover natural disasters including Tsunamis.

The new program is a partnership between and aid group, CARE International, and a private insurer, Allianz. It is expected that over 200,000 customers will buy insurance within a year. According to Allianz, the communities have been involved in designing the new policies, which will cover death, medical treatment for injuries in accidents, help with funeral and hospital expenses, as well as paying wages during illness.

"Microinsurance provides a comprehensive measure of social security in an area which desperately needs this sort of protection against accidents and shocks that can push poor communities right to the limit," said Wolfgang Jamman, national director of CARE Germany.

But don't be so quick in calling this charity work. With an estimated market of 250 million policy holders in India, there sure is a buck or two to be made.

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.

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.

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.

Microfinance regulation according to Yunus

The Nobel Peace Prize laureate and the father of Grameen Bank, Mohammad Yunus, on microlending regulation:

The existing regulations are designed with commercial banking in mind, but microfinance requires a dedicated regulator and a relevant set of rules. Commercial banking is like a super tanker whereas microfinance is like a dinghy boat with which you can reach small corners. If you design a dinghy boat with the architecture of a supertanker, it is sure to fail

Locomotion for $2500

Though above $2000, at $2,500 the Tata Group found a way to build the cheapest car in the world.

Tomorrow, India's biggest company will show what taking out one windshield wiper, radio, moving the engine to the back, and putting in a cheaper, hollowed out steering-wheel shaft can do to a price of an automobile.

Its impact on the environment? It is predicted to be either very positive or negative.

Update: Tata Nano a.k.a the "people's car" is out now.

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.

China and Pakistan do business

Last month, China announced it would increase by 2012 investment in Pakistan from $1 billion to $15 billion and hoped to triple the trade volume between the two countries to $15billion by that date.

Pakistan, in turn, will create industrial zones across Punjab province in an effort to make doing business easier for Chinese investors.

Though over 100 Chinese companies operate in Pakistan, the safety of nearly 3,000 Chinese workers currently in Pakistan remains a constraint for a future investment.

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.

IPOs anyone?

What role, if any, have public equity markets for small, young firms in emerging markets? A recent study shows that firms going public, after the liberalization of the Indian IPO market in 1992, are smaller, younger and are less likely to be affiliated with a business group than other private firms.

These same firms, however, also suffered after the market collapse in 1997.  Profitability and sales growth fell and bankruptcy rates went up, most likely due to a lack of continued financing. These results might not hold for other developing countries with small and illiquid stock markets, but they will certainly foster debate.

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.

Rickshaw bank - a vehicle for access to finance

Today's Wall Street Journal has a story of Pradip Kumar Sarmah, an entrepreneur, who created a credit program that helps some of India's eight million rickshaw drivers own their vehicles.

Jeffrey Sachs wants another Green Revolution

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

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

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

From the Daily Star [subscription required].

Picking your favorite FDI

China's National Development and Reform Commission (NDRC) and the Commerce Ministry released on Wednesday a new set of prescriptions for desirable foreign direct investment. The recommendations will take effect in December 1:

Foreign firms will now be banned from building or managing golf courses; in the past, they fell into the restricted category. The [NDRC] set out a very specific shopping list for investment in a range of sectors, from automobiles to printing machinery to electronics. For example, only investment in high-performance digital cameras with a resolution of 6 megapixels or above will be encouraged.

Predicting energy use in China and India

The International Energy Agency (IEA) released its World Energy Outlook 2007. The report predicts that the world's demand for energy will increase by over 50 percent by 2030.

Burning of coal, as the cheapest and most secure energy substitute, will see a return – rising over 70 percent in the 25 year period. The IEA projects that China and India will account for 80 percent of coal consumption.

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.

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.

New lessons from India

Offshore tutors and personal assistants are the latest development in outsourcing. Not surprisingly, India is a leader in this person-to-person offshoring, estimated to reach $2 billion by 2015.

Online career network for India's poor

Anirudh Krishna found that the lack of connections, rather than a shortage of better jobs, is what keeps poor Indians from escaping poverty.

Inspired by this research, Sean Blagsvedt co-founded babajob.com, an online marketplace for low-skilled workers. The company managed to overcome the main barrier to online networking – the lack of computer access by the poor – with a simple incentive. Babajob pays people to help others find jobs.

Low-cost cell phones pay off

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

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

Rice à la Kyoto

Agriculture contributes nearly a quarter of global greenhouse-gas emissions. Eric Rey, president and CEO of Arcadia Biosciences, proposes to turn genetically engineered rice into carbon credits:

The seed, still in development, will cut their need for nitrogen fertilizer, which is among their biggest costs -- and a huge source of greenhouse gases. He then aims to sell the resulting carbon credits on a growing global exchange

The market for carbon credits is estimated at $30 billion but despite the size of the market, some foreign giants, like Monsanto, were frustrated with their experiences and subsequently pulled out of China. Mr. Rey's idea will take at least five year to be implemented, but he remains hopeful:

Rather than charging farmers a premium for genetically modified seeds -- the traditional business model -- farmers would pay for the price of regular seed, plus about half of the carbon credits generated by their reduced fertilizer use.

Profitable microfinance and its spillovers

What has very low default rates, relatively high administrative costs and high interest rates? The answer is: microfinance loans.

Despite the unfavorable expense ratios relative to commercial banks – the cost of lending one dollar is below four cents for a traditional bank compared with at least 10, and in some cases over 20 cents, for microlenders - microfinance institutions (MFIs) are beginning to attract serious money.

Though not without its critics, the recent success stories strengthened the credibility of microfinance as an "investment grade" asset class in commercial capital markets. Capital from a growing number of private equity, hedge funds and big banks, including ICICI, ABN Amro and Citibank, has been helping supplement limited funding from donors and foundations.

More investment has already expanded the industry. Maria Otero, the president of ACCION International – an investor and lender to MFIs said that "it took 20 years to win [the] first million clients, but only three years to obtain [a] second million."

OECD sizes up India for the first time

OECD released its first economic survey of the world's third largest economy.

The report, which calls for a labor market and tax system reform, also recommends changes to improve infrastructure and education. The Doing Business report ranked India 120 among 178 countries on the overall ease of doing business.

According to OECD, India's target of reaching 10 percent annual GDP growth rate, from 7.5 currently, is achievable but contingent upon continued reforms.

Switch off your TV and go read a book

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

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

Muhammad Yunus challenges Compartamos bank

Is it ok to make a big profit from lending to the poor? Where does microcredit end and loan sharking begin?

Carlos Danel and Carlos Labarthe, the CEOs of Compartamos, a nonprofit-cum-commercial bank which charges an annual interest rate of nearly 100 percent, believe that only the lure of profits will motivate people to lend to the poor. Today Compartamos reaches 700,000 borrowers and 88 percent of its clients come back for more loans.  In 2006, it was rated as Mexico's most profitable bank.

Muhammad Yunus, the Nobel laureate who pioneered the movement three decades ago and has made loans to some 7 million borrowers in Bangladesh, disagrees. Poor people's willingness to pay high interest is not a justification for charging it, he says.  Compartamos is not microcredit, it's "raking in money off poor people desperate for cash."

What do you think? The comments are open. The entire program is available here.

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.

South Asia Chief Economist starts a blog

How to end poverty in South Asia? No one knows for sure, but Shanta Devarajan wants his new blog to be a free market of ideas on the subject.

See his latest post explaining the impact of GDP growth on poverty in Sri Lanka.

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.

Corruption in India

Will the continuing integration of India into the world economy diminish or exacerbate graft? Ravi Ramaurti examines the effects of growth on emerging economies:

The Paradox is that even though India's faster growth in recent years is the result of fewer government controls, most India managers would tell you that corruption has increased, not decreased […]. The explanation is that faster growth has created new choke points at which politicians and bureaucrats can extract payments […]. Faster growth has also raised the economic cost to firms of delays in public approvals, giving officials that much more 'held-up' leverage over private investors.

Winning hearts and minds of Indian workers

The days when Western corporations could rely on their reputation alone to attract top local talent are gone. In 2006 in India three out of four companies couldn't meet their recruiting needs and this shortage will reach half a million employees by 2010, predicts McKinsey.

With the demand for qualified staff growing, the best local companies are finding new ways to compete. Some promise free classes, career counseling and multiplex theaters. Others send postcards to workers' parents.

Calling out poverty with mobile phones

[..] not only can such technologies increase earnings, but those increased earnings […], in turn, can be expected to lead to improvements in health and education. In addition, because mobile phones in Kerala are a private sector initiative rather than a development project, other than through perhaps raising interest rates for capital, they do not crowd out investments in other projects. Also unlike most development projects, the service is self-sustaining; mobile phone companies provide service because it is profitable to do so, and fishermen are willing to pay for mobile phones because of the increased profits they receive.

In the Quarterly Journal of Economics Robert Jensen provides evidence for why the provision of information technology - mobile service in this case - ought to be a priority, especially for low-income countries.

Microfinance debate

The recent investment by IFC, the Netherlands Development Finance Company and Deutsche Bank in Aasishkaar Goodwell, a private equity company supporting microfinance organizations in India, will create of almost 60 greenfield microfinance institutions to serve a potential client base in India of nearly 75 million households.

But is microfinance the right tool for development? Aneel Karnani from the University of Michigan says no:

There is no developed country that has developed on the basis of microenterprises. All developed countries have larger enterprises (which, as I have emphasised, includes small and medium sized enterprises). Scale economies play a critical role in increasing productivity, which is the foundation of economic development.

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.