The Investment Climate Department: who we are and what we do Marialisa Motta Mierta Capaul Luis Aldo Sanchez-Ortega 7 June 2010 The Investment Climate Department: who we are and what we do 1. The WBG investment climate work 2. The Investment Climate Department: an overview 3. Programs and reforms 4. Impact v i D e s o S s e i u ti s nDiagnostic b n u g n g r B a A v u ti c e s o r y i n o s n a s & e l s I s D B n s o o v G i r e l n d s o g e t b B r m a u s e l s I n R i n t e n d C p e i li o s c m r s a a WBG work to support investment climate reforms Advisory Funding First response: DB Reform Advisory Long term support – product market regulation: Entry &Business Operation Tax Administration Trade Logistics Access to Finance and Debt Resolution Long term support: industry lens Special Economic Zones Agribusiness and Tourism Industries Health W orl d Ba nk Lo an s IF C In ve st m en t & MI G A Gu ar an te es Investment Climate Department’s mission and reference framework Our mission “To work with governments and private sector to facilitate reforms fostering open and competitive markets in developing countries through diagnostic, publicprivate dialogue and implementation support.” Investment climate reforms Fostering open and competitive Product markets Capital markets Labor markets Higher investment, productivity & jobs Economic growth Strategic priorities Low-income countries (IDA), post-conflict countries, frontier regions The Investment Climate Department & Business Line: key figures Offices: DC (global hub), Istanbul, Nairobi and Dakar (regional hubs), Vienna (small presence) – new hub in Asia (yet to be determined) Staff: around 240 staff, of which 106 in the Investment Climate Department Budget: last year budget: around $50 m, of which $37 for the Investment Climate Department Number of countries: The Investment Climate Department & Business Line Key figures Offices Staff Budget Countrie s Department Business Line Total DC, Istanbul Nairobi, Dakar, Vienna, Asia appr. 110 apr. 130 appr. 240 appr. $37 million appr. $13million appr. $50million - - appr. 100 Focus on implementation of reforms livello struttura Ottavo livello struttura Doing Business reforms supported by the WBG Nono livello strutturaClick to 287 Reforms not supported by the WBG edit Master text styles Cliccate per modificare il formato del testo della struttura Secondo livello struttura Cliccate per modificare il formato del testo della struttura Terzo livello struttura Secondo livello struttura Terzo livello struttura Quarto livello Quarto livello Last year, the Investment Climate Department with WB & IFC supported 82 struttura struttura reforms in 37 countries, as captured by the Doing Business global report Quinto livello Quinto livello struttura struttura Source: Doing Business 2010 and CIC note to Lars Thunell, October 2009. We advised 8 out of the top 10 reformers in Doing Business 2010 Reforms Cliccate per modificare il formato deltesto della struttura Secondo livello struttura Terzo livello struttura Quarto livello supported by the Investment Climate Department, IFC-WB struttura Quinto livello Colombia: the results of a broad reform program (making Top10 list for the fourth time in seven years) Colombia is the leading reformer RESULTS in Latin America. Supported reforms: Cliccate per modificare il formato del testo della struttura Starting a business: faster registration for public pension fundslivello struttura Secondo • Construction permits: simplification of Terzo livello struttura approvals for construction permits and utility Quarto livello connections struttura • Registering property: reduction of procedures Quinto and time through on line consultation livello • Trading Across Borders: risk management, struttura online documentation Sesto • Paying taxes: Online electronic payment of livello social security contributionsstruttura • Protecting investors: Strengthening director Settimo liabilities and the ability for shareholders to sue livello • Access to credit: Implemented new credit struttura information law Ottavo • Closing a business: Regulation of insolvency livello struttura practitioners and extrajudicial reorganization agreements. Nono livello strutturaClick to edit • Master text styles • Ranked 37 out of 183 countries (up from 49 in 2009) Colombia: reforms in Dealing with Construction Permits Colombia introduced on-line verification of some pre-construction requirements and set time limits for approving construction permits based on a risk categorization of projects. (Decree 1272 of 2009). Cliccate per modificare 85 80 75 70 2008 il formato del testo della struttura 33 days less 65 60 55 50 45 40 35 30 25 20 15 10 5 Source: Doing Business database. 0 Secondo livello 2009 struttura Eliminated 3 procedures Terzo livello struttura Quarto livello struttura Quinto livello China: the results of a targeted reform program Reforms LAW (2007) MORE US$ 900 THAN BILLION 5,000 PEOPLE FINANCING TRAINED FACILITATED Provided input to the law to: - Allow accounts receivable to be used as collateral - Grant equal treatment for individual lenders and legal entities - Allow use of future property as collateral 1. LAW 2. REGIST 3. TRAININ REGISTRY Designed and implemented an (2007-2008) electronic registry for accounts receivables TRAINING 5000 government officials and bankers trained OVER 140,0 US$ 340 Thinking about the best metrics to measure the impact of reforms Current measure Administrative savings Best proxies of impact New firms created Investment Jobs Other (eg, export, government revenues) Business entry Business operations (licenses, inspections) Trade logistics Secured transactions & Collateral registries Insolvency Resolution of commercial disputes Tax Industry and Special Economic Zones • Taking into account that “attribution” is complex when moving from administrative savings to other impact measures Source: CIC & IC-BL impact note prepared for the IFC IDG Committee. May 2010. We have good evidence on the impact of entry reforms Quasi-experimental evaluations of registration simplification One stop shop in Mexico One stop shop in Colombia 5% increase new firms registered, 2.8% employment 5.2% increase in new firms registered 6% increase in new firms registered Reduction of entry procedures in India Cross-country studies on the average effects of entry regulation Reduction of entry cost from 24.5% to 0.7% of income per capita (e.g. Peru to Singapore) 10-11% increase in firms registered Higher impact when entry reforms are combined with other IC reforms Entry reforms in Indian states with more flexible labor regulations 17.8% increase in real output gains larger than in states with less flexible labor regulations Source: Doing Business 2010, Cardenas & Rozo (2007), Aghion et al. (2008), Bruhn (2008), Fisman & Sarria-Allende (2004), Klapper et al. (2006). A simulation reducing time and cost of entry by 60% or more in 12 countries would generate US$ 1.8 billion investment Impact of business entry reforms on investment, 12 countries Timeline: Impact of all IC-BL business entry projects approved between FY10 and FY13 Countries: Bangladesh, Burkina Faso, Burundi, Cameroon, Colombia, Congo Dem. Rep., Malawi, Mali, Morocco, Peru, Philippines, and Yemen Basic assumptions: - Reduction of time and cost of entry by more than 60% (proxy: one stop shop) - 5% attribution on new firms created and investment generated (from existing literature) - 65% of savings reinvested Source: CIC & IC-BL. Model on the impact of entry reforms developed for the IFC IDG Committee. May 2010. Results in Colombia Bogotá (6.3 million inhabitants) Pre-reform: (Baseline, 2003) Firms Employment After reform: impact due to CAE (% of pre-reform) 187,683 10,323 (5%) 2,707,516 75,810 (2.8%) Source: Doing Business 2010, Cardenas & Rozo (2007), Aghion et al. (2008), Bruhn (2008), Fisman & Sarria-Allende (2004), Klapper et al. (2006). Source for example of Guadalajara: Authors’ calculations based on data from DANE (Departamento Administrativo Nacional de Estadistica, Colombia), Chamber of Commerce of Bogotá, and estimates from Bruhn (2008), Cardenas et al. (2007) and Bartelsman et al. (2004). Note: Employment data for Bogotá do not include the public sector. (The estimate of the public sector share of employment was obtained from the Labor Statistics Database of ILO - International Labor Organization.) Source for example of Bogota: Bruhn (2008), administrative data from the municipality of Guadalajara, authors’ calculations. Note: Employment refers to firm owners and workers. Final considerations on national reforms The power of standard benchmarking. DB Global and Subnational reports motivate reforms. More than 60 requests to support DB-related reforms in 2 years. Mexican cities implemented 56 reforms after DB in Mexico. The power of jealousy. Reforming neighboring countries motivate reforms. Client involvement High-level counterpart directly involved in the process Inter-agency technical working group for broad reforms and technical working groups on specific topics Private sector involvement is key WBG advisory: from diagnostic to implementation Focus on results Communication and capacity building Field presence Peer to peer learning Background slides What happens next? Some firms survive, some die 12 10 8 6 4 2 0 61–87 % of firms that enter the market still operate after two years 27–66 % of the initial firms are still operating at age seven Source: Bartelsman et al. (2004) and authors’ recalculation in 2009 based on original dataset. The ones that survive grow 1,6 1,4 1,2 1 0,8 0,6 0,4 0,2 0 Mexico: 27 % of new firms survived 7 years after entering the market, and the surviving firms employed 105 % of the workers originally employed by all new entrants Source: Bartelsman et al. (2004) Productivity increases with higher entry and exit rates 1,5 1 Incumbents' Productivity Growth 0,5 0 -0,5 -1 -0,5 0 0,5 1 1,5 Net Entry Productivity Growth New firms increase competition, forcing incumbents to become more efficient or to exit the market and increasing overall productivity