PSD Blog - World Bank Group

Gates opens market doors for farmers

The Bill and Melinda Gates Foundation recently announced that it will increase its budget for farming projects by 50 percent this year as food prices soar around the globe.  According to its website the foundation will inject  the additional funds into existing projects designed to help farmers cultivate more resilient crops, and helping producers gain better access to markets for their products. The Foundation, created in 1994, focused initially on health and education. In May 2006 it launched a call for a "Green Revolution" in Africa.

To export or not to export?

A recent paper looks at possible reasons why farmers in parts of the developing world insist in growing crops for local markets when crops for export markets are considered to be more profitable. The authors suggest that this could be explained by:

"[M]issing information about the profitability of these crops, lack of access to the necessary capital to make the switch possible, lack of infrastructure necessary to bring the crops to export outlets, high risk of the export markets, lack of human capital necessary to adopt successfully a new agricultural technology, and misperception by researchers and policymakers about the true profit opportunities and risk of crops grown for export markets."

The paper also takes a look at the work of DrumNet, a social enterprise in Africa, to analyze whether a package of services could help farmers switch to export crops and market them. The researchers found a slightly positive impact from DrumNet’s package of services, but nothing overwhelming.

Telecoms talk at the WTO

Daniel Annerose, CEO of Manobi, an African mobile data services company, and José Alfredo Rizek, executive director of Indotel, the Dominican Republic's telecoms regulator, joined in a telecommunications services debate hosted by the WTO (video available).

They discussed the 10th anniversary of the Basic Telecommunications services deal and its implications for governments, consumers, businesses, and for development.

Private sector in Latin America

Former heads of state from Mexico, Peru, and Spain, along with international business leaders, will discuss the role that private sector plays in adding to the competitiveness of the region.

The event will take place on November 27, 2007 in Washington, DC at Georgetown University. RSVP is required.

Better times for Africa in 2008

The IMF's World Economic Outlook forecasts a 6.8 percent growth for the continent in 2008. Up from 6.1 percent in 2007, it's a performance not seen in the region since the 1970s. Notably, not all growth was attributed to rising commodity prices:

The combination of more open economies in a benign external environment, together with improved and more consistent policy reforms to strengthen the business environment and official actions to reduce debt burdens has allowed African countries to attract rising private capital inflows as well as benefit from "some step-up" in aid inflows and remittances.

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.

The most transformative development technology

Currently there are around 3 billion mobile phone subscribers. By 2015 this number which is expected to reach 5 billion when, according to Nokia, two out of three people in the world will have a cell phone.

Through a combination of a growing coverage with a cheaper technology, mobile telephony is slowly bypassing many obstacles that poor infrastructure has put in the way of economic development:

To the astonishment of the industry, people living on a few dollars a day have proven avid phone users, and in many parts of the world cellular airtime has become a de facto currency. The reason is simple: a mobile phone can dramatically improve living standards by saving wasted trips, providing information about crop prices, summoning medical help, and even serving as the conduit to banking services.

This trend will continue as cell-phone makers and service providers are one-by-one discovering the top dollar at the bottom of the pyramid. More in the BusinessWeek article.

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.

Easy vs. effective aid part II

Should we get rid of TRIPs? Arvind Subramanian clarifies his view after Dani Rodrik and Nancy Birdsdall respond to his last post.

Doing e-business

The Doing Business database shows how to start a business from scratch in 175 countries around the world. When it's time to open an online store safeselling.org has the information.

From obtaining and protecting a domain name to selling internationally, this guide is designed for SMEs looking to sell their goods and services online.

Why we like mobile telephony so much

Quoting Robert Jensen's most recent research, Manoj Kohli, the President and CEO of Bharti Airtel – a telecom company – in a WSJ editorial [subscription required] aptly puts in words the development potential of cell phones:

Mobile phones are making conventional economic transactions more cost- and time efficient, as they often make up for poor infrastructure by substituting for travel. They allow price data to be distributed and enable traders to engage with wider markets.

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.

Decentralization ≠ ease of doing business

Hoping to improve government accountability and assuage ethnic tensions, Spain has handed over the power to regulate transportation, commerce and the environment to regional governments. The devolution has backfired. From the Wall Street Journal [subscription required]:

'The proliferation of regional legislation means that, in some cases, companies have to abide by 17 different regulatory frameworks in their domestic market . . . posing obstacles and higher costs for private enterprise,' said Gerardo Diaz Ferran, head of Spain's employer's association, Confederacion Espanola de Organizaciones Empresariales.

OECD ranked Spanish retail regulations behind Greece and Belgium as the third-most rigid among its member countries.

'We cannot coordinate marketing campaigns or logistics on a national scale, which translates into higher costs,' [says Javier Millan Astray from Anged, a Spanish association of 16 large retailers]. Anged estimates that 3 billion euros, or more than $4 billion, in investment, which could create more than 10,000 jobs, is on hold as a result of these bans.

Do your own analysis

"If you want something done right, do it yourself" says an old adage. The team responsible for Enterprise Surveys has taken this concept deep to its heart when it created the new custom query tool.

Do Your Own Analysis lets you slice and dice firm-level, microeconomic data across 172 indicators from over 100 developing and developed countries. Best of all, each query produces a custom graph that's ready for cut and paste.

Clearly, doing homework will never be the same. Do Your Own Analysis, where were you two years ago?!

Protectionism for development

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

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

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

Asia & Africa do trade

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

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

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

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

Old commodity, new application

Coffee is full of surprises. This popular stimulant and diuretic, which, according to research can hold back baldness and lower the risk of Parkinson's disease, now enters the world of beauty.

Hopefully, the forecast 9 percent fall in the world production of coffee for 2007/08, paired with a growing demand for caffeinated skin-firming lotions and soaps, will leave enough beans to fight the post lunch dip.

Update: better coffee for a better world.

Business environment in Tajikistan: what's new?

Our second IFC report "Business Environment in Tajikistan as seen by Small and Medium Enterprises, 2006" spurred a new law designed to simplify licensing and registration requirements and promote the SME lending market.

So, is everything going well for Tajik SMEs? Unfortunately not. The positive changes highlighted above need to be strengthened and institutionalized. The inspection and licensing law need to be carefully implemented. Despite the reform, many laws exist only on paper. An example: most individual entrepreneurs need to register their business at start-up. Legally this is all they are required to do. Yet in practice, the registration bodies issue certificates with a limited one-year validity, forcing entrepreneurs to reregister every year and pay.

On the SME financing side, although the situation is improving with respect to 2002, there are still huge gaps to fill: only about one third of the SMEs needing funding obtain it from a bank or a microfinance organization. This is, to a great extent, due to unfavorable lending conditions such as an average real interest rate above 30%, loan duration of less than 1 year, and a collateral requirement of more than 100% of the principal amount.

There still are three problematic areas.

Aid vs. trade, alias "Bono vs. Mwenda"

It seems that William Easterly might have found a brother in arms in the person of Andrew Rugasira, chairman of Good African Coffee. Mr. Rugasira writes in FT:

Has any nation ever developed by way of handouts? The British industrial revolution for example, was fuelled by home grown technological breakthroughs that defined Britain as a truly modern society.

Pro-aid campaigners argue that providing aid to accountable governments is a means of stimulating their economies. This is nonsense. Giving aid to poor countries and working exclusively through their government agencies makes accountability worse rather than better.

Africa's only viable and sustainable strategy for economic growth is one based on trade and not aid.

The article also describes an outburst of the Irish rock star and aid protagonist Bono toward a fervent aid-critic Andrew Mwenda at the recent Technology, Entertainment and Design conference. For an even better recount of Bono vs. Mwenda exchange read Ethan Zuckerman.

Who's keeping Africa down: politicians or unfair trade structures?

Listen to four experts spar on what presents the biggest impediment to African development: poor governance or trade barriers.

Richard Cockett, the Economist's Africa Editor, quoting the Nigerian experience, said that political reform, not aid nor trade, is key to growth in the continent that is more deeply corrupt than any other part of the world.

Mike Gidney, from Fairtrade Foundation disagrees. He argues that corruption is not limited to Africa and pointing fingers at politicians has limited effectiveness: "politicians can't possibly generate the development impact that could be achieved through an increase in trade."

The debate, which included Kenyan filmmaker and activist June Arunga and professor Tunde Zack-Williams, took place on June 2 and was a part of the Hay Festival dubbed the 'Woodstock of the mind.'

Opium & alternatives in Afghanistan

Afghanistan produces almost all of the world's illegal opium, and the drug accounts for 1/3 of the country's total economic activity. On Tuesday the World Bank and the United Nations Office on Drugs and Crime (UNODC) released a report on Afghanistan’s drug industry. Among the findings:

• Opium policy in Afghanistan is failing
• Counter-narcotics efforts have deepened corruption, as wealthier opium producers pay bribes to avoid having their crops eradicated
• Opium production in Afghanistan increased by 49% this year

What alternatives exist for the 13% of Afghans who work in opium poppy cultivation? I saw a presentation today from the OTF Group's Rob Henning on the Afghanistan Competitiveness Project. Its goal is to develop clusters of businesses around particular Afghan products. He talked about carpets, but they're also working on marble and dried fruits & nuts.

The challenge is to encourage Afghan entrepreneurs to trade directly with wholesalers in the States, Germany, and elsewhere. Right now, a huge volume of Afghan-produced goods flow through Pakistan, where customs processing is more predictable and business networks better established. See this prior post for more information about Afghan traders, and links to several other PSD Blog posts on Afghanistan.

Export promotion agencies do increase exports

Many thanks to Pablo for pointing me to an excellent note (PDF) from the World Bank on export promotion agencies (EPAs). It's the first cross-country statistical analysis of the impact of these agencies on exports, and it covers 119 countries. The main message (via Jonathan Dingel):

For each $1 of export promotion, we estimate a $300 increase in exports for the median EPA. However, there is heterogeneity across regions, levels of development and types of instruments. Furthermore, there are strong diminishing returns, suggesting that as far as EPAs are concerned small is beautiful.

After a brief summary of the economic debates to date around these agencies, the authors give specific recommendations based on the data:

The true environmental cost

The concept of ecotaxes on imported products resurfaced at the UN Climate Change Conference in Nairobi. Nelly Olin, French Minister for Environment, announced that France would apply a carbon tax on industrial products imported from non-signatory countries to the Kyoto Protocol… after 2012.

This could have been an exciting proposal: ecotaxes are one mechanism to prize and internalize a product's environmental cost. Ecotaxes on imported goods are also highly controversial, seen by many as a disguised barrier to trade. I could just picture the United States taking the dispute to the WTO - or the European Commission, cringing at this infringement of its trade mandate.

Unfortunately for those of us eager to see an international ecotax system blossom, this will not be the first step towards it. The proposal is for 2012. So, dare I say, a mere political move, possibly another one of France's little nudges against the US?

Beijing gussies up for South-South trade

All eyes are on China today as dozens of African heads of state descend on Beijing for the China-Africa summit. As always, the BBC has excellent coverage, including a photo spread of Beijing rolling out the red carpet. Podcast fans will enjoy NPR's Morning Report on the conference.

It's clear that China wins from Africa's substantial natural resource exports. The big question, of course, is how much this trade pattern helps Africa. For a deeper look at Chinese businesses in Africa, see Africa's Silk Road. This recent World Bank book takes an in-depth look at Chinese and Indian companies operating in Africa. From a summary:

While growing Asian trade and investment is cause for optimism, [the study’s author Harry Broadman] cautions that there are major asymmetries in the economic relations between the two regions. China and India's comparatively high tariffs on Africa's leading—and highest value—exports prevent Africa from fully tapping into these markets. Africa's exports account for only 1.6 percent of what Asia receives from the rest of the world…

But the study indicates that the conventional remedy of reduced trade barriers will not be enough. More important are "behind-the-border" reforms to encourage competition, strengthen market institutions and improve governance in African nations, and "between-the-border" reforms in both regions, to reduce international transactions costs.

Hopefully the dozens of deals likely to be signed over the weekend will lead to badly needed upgrading of African infrastructure. In turn, infrastructure will enable tourism and other economic diversification strategies to finally take off across the continent. (What can I say, I'm an optimist.)

Be good to all the losers

Globalization, or trade liberalization more specifically, walks a fine line between improving our overall quality of life and costing large groups of people their jobs. Just ask the automakers in Detroit. We know that people who lose their jobs to trade pay a higher economic penalty than those who lose them for non-trade reasons. A new OECD Observer article makes an excellent case for a compensation/adjustment program that doesn't distinguish between the two groups. Now to convince politicians to stop beating up on the outsourcing boogeyman and start providing meaningful support to job losers.

Rwanda's miracle coffee beans

Visit Christian Science Monitor for a thoughtful profile of a Rwandan coffee cooperative that bridges the Hutu-Tutsi divide. Cooperatives like it are helping absorb the tens of thousands of prisoners being freed after serving time for acts of genocide, while contributing to Rwanda's 7% annual growth in GDP.

Partnership to Enhance Agriculture in Rwanda through Linkages (PEARL), which helped get the cooperative off the ground, claims that 85% of the coffee profits go to farmers. If you're in the UK, you can buy coffee from this particular cooperative online or look for Maraba Bourbon Coffee at Sainsbury's.

I love this story, because the Rwandans are competing on product quality and taking advantage of online media for brand awareness. PEARL is also quite clever at marketing, as you can see from Maraba Coffee's extensive Wikipedia entry. Score one point for fair trade.

The CSM piece is part of a series (with slideshows) on Paths to Forgiveness in African countries recovering from war. See a previous post for another Rwandan coffee article.

Chinese knives and Moroccan couscous

The flow of markets has beautiful potential, maybe especially in the dusty streets and vast stretches of Chad. Today I am assisting in a meeting with a potential Chadian supplier to ExxonMobil. The man in front of us is a trader. He is over two meters tall, he wears a light blue boubou, and he jokes with us throughout the meeting. He almost manages to keep his terror just below the surface: to him this contract means his future.

I love working with Chadian traders, I find them beautifully adept, masterfully linked to networks throughout Africa, Europe, the US and China. I watch as they command the flow of goods, brining everything to this country landlocked in the Sahara. One day I decide to jump into the action and help a man get the price on a cleaning cart from France. I say, "it's easy - let's go online, pretend to buy it, and right before we check out, just look at the price." A few clicks later I am running frantically into my colleague Cheick's office waving the confirmation email in the air, "Cheick, call this number in France right away. Tell them not to ship!" Apparently I am not cut out to be a trader.

Two weeks to go...

The Nobel Prize for Economics will be announced on October 9. Greg Mankiw prompted a lively discussion on possible winners when he linked to Thomson Scientific's predictions:

• Jagdish Bhagwati / Avinash Dixit / Paul Krugman
• Dale Jorgenson
• Oliver Hart / Bengt Holmstrom / Oliver Williamson

The Thomson Scientific readers' poll puts the first group ahead with 40% of the vote. Any armchair economists care to hazard a guess?

Update: And Ned Phelps is the winner!

Bhagwati: trade agreements as termites

Jagdish Bhagwati held a Q&A on Daniel Altman's blog on globalization at International Herald Tribune. Altman has an impressive calendar ahead - look for opportunities to ask questions of Joseph Stiglitz and Jeffrey Sachs in coming months. To a question about the proliferation of regional trade agreements at the expense of multilateral improvements, Bhagwati writes:

I am actually halfway through writing a small book titled Termites in the Trading System: How Preferential Trade Agreements are Undermining Multilateral Free Trade.

On a question about global pressures exerted on local suppliers regarding environmental and labor standards:

My view therefore is that, if you feel strongly about something, go for labeling (which itself can be expensive) rather than for de facto exclusion or boycotts. Typically, however, these NGOs, including campus groups, want monopoly for their own favored products. Instead of carrying the so-called “fair trade” coffee as an added item on the menu, they would like to throw all the other coffees off the shelf. Similarly, the anti-sweatshop students want contracts for sportswear to be given only to those they approve of, with no quarter for other makes. This is self-righteousness and arrogance; it is also a violation of our democratic rights and a blow against diversity and competition among different conceptions of virtue and of CSR. It must be objected to.

His criticism of fair trade products is strengthened by the FT's disappointing findings from a fair trade coffee investigation in Peru.

Which rich countries help poor ones?

On Monday the Center for Global Development released its updated Commitment to Development Index, ranking 21 rich countries' policies on aid, trade, migration and more.

This year, the Netherlands moved into first, mainly because a conservative government in the formerly number-one Denmark has cut aid spending. Japan remains in last place as the country whose government is least engaged with developing countries. As in the past, the G-7 "leading industrial nations" have not led on the CDI; Germany, top among them, is in 9th place overall.

While we're talking about brave attempts to use indicators to describe complex phenomena...check out Citigroup's Geo-Political Risk Index.

The global redistribution of income

The actual distribution of world income across countries is extremely unequal, much higher than the within country inequality faced by most countries. The question studied in this paper is: How do international policies on aid, trade, and factor movements affect the international distribution of income?… In brief, there is a contradiction in international policies where aid's equality-enhancing effect is somewhat offset by protectionism.

From a new working paper by World Bank chief economist Francois Bourguignon, Victoria Levin, and David Rosenlatt.

Also, the most recent issue of the Journal of World Systems Research is out. It includes papers on global income disparities since 1800 and a review of the economics literature on the world distribution of income and income inequality.

The morality of tourism?

Tourists have never been accorded much moral standing but it seems they are just as necessary as aid workers and might be of more long-term benefit for the world's poorest countries.

A recent report by the Australian Co-operative Research Centre for Sustainable Tourism noted that tourism accounts for 36 per cent of trade in commercial services in advanced economies but 66 per cent of such trade in developing countries. Tourism is the only service industry where the Third World as a whole has a positive balance of trade with the First World: a $6 billion surplus in 1980 rising to nearly $9 billion in 1998. In addition, international tourism in developing countries is increasing by 9.5 per cent a year compared to 4.6 per cent worldwide… Tourism, it concludes, "appears to be one of the few economic sectors able to guide a number of developing countries to higher levels of prosperity and for some to leave behind their least-developed country status".

From an op-ed by Tony Abbott, member of Australia’s federal cabinet. Also see Laurence’s post from earlier in the week on opportunities for small hotels in developing countries, or previous posts on the impact of tourism in Africa and other developing countries. The current issue of Forbes also has a piece on Relief Riders International, a strange cavalry of tourists traveling with a development mission.

Global fairtrade sales jump

Global sales of Fairtrade certified products have reached € 1.1 billion mark in 2005, according to new figures released by Fairtrade Labelling Organizations International. This represents an increase of more than a third over 2004 and a sign of growing adherence to the Fairtrade mark. Says Luuk Zonneveld, Managing Director of FLO International:

“The certification system behind the cheering person in the Certification Mark is absolutely independent from any interest, and this is what people trust.”

The new findings from FLO Internationall highlight the importance that one producer or retailer can make in this growing but still small market segment. In 2005, the Marks & Spencer’s stores in the UK switched all their coffee and tea products to Fairtrade. This alone is estimated to have increased the value of all Fairtrade instant and ground coffee sold in UK supermarkets by 18%, and increased the value of Fairtrade tea by approximately 30%.

Want to know the market share for fair trade bananas or coffee? Check the FLO Annual Report.

Understanding Afghan markets

Going to Market: Trade and Traders in Six Afghan Sectors is an enjoyable must-read for those interested in the Afghan economy.

There is a persisting misconception that the conflict and Taliban period left the Afghan economy as a “blank slate”…The private sector is expected to help fill the gap left by the opium sector by delivering sustained high levels of growth in an extremely difficult investment environment, and, moreover, this growth should be “pro-poor”.

Slow going for trade liberalization

Jagdish Bhagwati and the Cato Institute’s Dan Ikenson discussed the (slim) chance of unilateral trade liberalization at a Cato event last week. Podcast and video available. From a summary by Jonathan Dingel:

Both speakers pressed the case for unilateral liberalization, but neither claimed that such an approach was likely or politically feasible this summer. Bhagwati conceded that the US won't "go alone," but argued that we ought to "convey the lessons of unilateral liberalization" so as to educate people about the benefits of free trade and increase the likelihood of success at Doha.

Via Ben Muse. See Tim's earlier post on trade negotiations and the poor, plus other Doha posts here, here and here. It seems that even if the development-themed Doha round concludes by the end of the year, calling it a “success” may require some holiday generosity.

The Access Index

FedEx and SRI International have produced The Power of Access report:

Applying the world’s first econometric ranking of 75 countries according to their level of Access, the study lays out the positive impacts of increased Access on people, businesses and nations. It provides a diagnostic perspective that can be used to guide future decision making by businesses and nations.

Here are the country rankings.

Pascal Lamy is guest blogging

No, unfortunately not with us. The WTO director general will be blogging through Daniel Altman on IHT’s Managing Globalization blog. Send in your questions - he starts this Friday. Ben Muse has more.

The mistakes of export promotion agencies

Last week the World Bank hosted a two-day seminar on “Policies to Promote Export Growth and Diversification,” including a particularly interesting session on export and FDI promotion institutions moderated by guru Andrew Singer. The overarching theme: Be realistic about what these types of institutions can accomplish, and avoid creating big institutions that are just “window-dressing”.

According to Singer, the historical focus of export promotion organizations (XPOs) on market entry was mistaken and helps explain the