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TRADE & COMPETITIVENESS GLOBAL PRACTICE Message from T&C Directors Expanding Market Opportunity & Enabling Private Initiative for Dynamic Economies How We Work Our Offerings


TRADE & COMPETITIVENESS GLOBAL PRACTICE

For the past three decades, economic growth, with strong contributions from the private sector, has been the main driver of poverty reduction around the world. The experience of China, Vietnam, and other high-growth countries dramatically demonstrates how integration with global markets and enhanced competitiveness can develop dynamic and resilient economies. These economies improve the earnings of the less well-off by creating more, better-paying jobs. They also converge with advanced economies by achieving productivity gains. Achieving the World Bank Group’s Twin Goals of ending extreme poverty and boosting shared prosperity requires unprecedented efforts by developing countries to unleash private sector-led growth and job creation. Governments and the private sector around the world are actively seeking more effective ways of boosting the volume and value of trade, enhancing the investment climate, improving competitiveness in sectors, and fostering innovation and entrepreneurship— all elements of successful growth strategies. The establishment of the Trade and Competitiveness Global Practice signals the World Bank Group’s commitment to systematically strengthen its engagement on these issues. T&C brings together a joint World Bank-IFC team with world-class expertise, extensive operational experience, and an expansive global footprint. We offer our clients cutting-edge analytics and integrated delivery of advisory, financial, and convening services. Our work is supported by a culture of learning, strong partnerships within the Bank Group—IFC in particular—and with the international community and the private sector, and a focus on results. Developed through extensive consultations, the materials contained in this T&C packet reflect the contours of T&C country, regional, and global efforts going forward. It includes a prospectus that provides an overview of T&C, what we do, and why. A booklet describes the business model and instruments we use to deliver high-impact solutions for clients. And finally, a series of briefs showcases our core offerings in trade, investment climate, competitive sectors, innovation and entrepreneurship, as well as on various cross-cutting topics. Our hope is that the ideas and commitments offered in this packet will challenge our teams, clients, and partners—as do the Twin Goals—to push the boundaries of contemporary development practice. Their real value lies in innovating and animating the trade and competitiveness agenda, and thereby contributing to prosperity and poverty reduction in developing countries.

Cecile Fruman Director

Anabel Gonzalez Senior Director

Klaus Tilmes Director

The main purpose of this packet is to help inform clients and partners about the T&C Global Practice and its work. The materials herein do not constitute a formal Bank Group strategy approved by its Board of Executive Directors.


Expanding Market Opportunity & Enabling Private Initiative for Dynamic Economies TRADE & COMPETITIVENESS GLOBAL PRACTICE


Expanding Market Opportunity & Enabling Private Initiative for Dynamic Economies Why Trade and Competitiveness Matter

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Evolving Challenges, Emerging Demand

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Strengthening World Bank Group Engagement

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A Comprehensive Offer Strengthened Country and Global Engagements A Revitalized Portfolio Expanded Partnerships A Sharpened Results-Focus

Organizing to Deliver BOXES: Box 1: T&C’s Offer of Core Global Themes and Cross-Cutting Topics Box 2: Examples of Integrated Solutions

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CHARTS: Chart 1: A Rapidly Evolving T&C Portfolio of Lending and Advisory Services

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FIGURES: Figure 1: Market Opportunity & Private Initiative for Dynamic & Resilient Economies

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Figure 2: T&C’s Results Chain

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Why Trade and Competitiveness Matter Rapid, private sector-led growth is essential for ending extreme poverty and boosting shared prosperity, the World Bank Group’s Twin Goals. For the past three decades, economic growth centered on strong contributions from the private sector has been the main driver of poverty reduction around the world.1 The experience of high-growth economies such as China and Vietnam dramatically demonstrates how integration with global markets and enhanced private sector competitiveness can lead to unprecedented reductions in poverty. These economies improve earnings of the less well-off by creating more and better-paying jobs. They also make efficiency gains as workers improve what they do and as more productive jobs replace less productive ones. Over time, productivity gains help sustain growth and promote convergence with more advanced economies.

Achieving the Twin Goals will require unparalleled efforts by developing countries to expand market opportunities, enable private initiative, and develop dynamic economies. By most estimates, achieving the goal of reducing extreme poverty to no more than 3 percent by 2030 envisages national growth rates well above historical precedents. The private sectors in lower- and middle-income countries and in fragile and conflict-affected states will need to be more dynamic in identifying opportunities, competing and innovating, growing their market share, and creating jobs. They cannot do it alone. Governments will need to ensure economy-wide incentive frameworks for broad-based growth, and aggressively work to improve the business climate and human capital. This, in turn, depends on coordinated global actions to ensure an open multilateral trading system.

Growth by itself is not enough. Patterns of growth and trends in income inequality also matter if the less well-off are to benefit. In countries afflicted by slow growth and pervasive poverty, for instance, poverty declines when growth patterns become more labor intensive and when poor people’s work becomes more productive. Also critical to poverty reduction is reduced income inequality. More equal income distribution appears to be correlated with longer growth spells, and greater equality of opportunity with economic dynamism.2 Depending on the country, declining income inequality can be associated with favorable international markets and commodity prices, realignments following structural reforms, demographic changes and greater female labor force participation, shrinking wage gaps between skilled and low-skilled workers, and beneficial labor market policies for workers.

Trade and competitiveness issues are integral to economy-wide efforts to spur growth, productivity, and job creation. Macroeconomic stability, rule of law, property rights, and well-functioning input markets for land, labor, and capital are a sine qua non. Equally important are well-functioning product markets, and their policy and institutional underpinnings: open trade regimes, competitive markets, favorable investment climates, and national innovation capacities (Figure 1). These facilitate integration with global value chains (GVCs), increase investment volumes and returns, lower business costs, and encourage business formation. Innovation policies also encourage technology diffusion and product innovation, thereby enhancing firm-level productivity and employment. Industry-level regulations, standards, and support institutions can foster firm entry and growth. Provision of public and common-usage infrastructure help exploit agglomeration economies around industrial clusters, and connects lagging regions to markets.

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 ased on the World Bank’s Global Monitoring Report B 2014/2015 (see p. 36) and the Commission on Growth and Development (2008) Global Monitoring Report 2014/2015

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Firm-level interventions also affect growth prospects, especially for new entrepreneurs. Regulations, governance, as well as access to finance, services, and skills all play a role in shaping firm level incentives, for example, through input-output conditions, inter-firm linkages, access to technology and skills, or knowledge acquisition processes. So do specialized efforts to shape entrepreneurial intent and build firm capabilities. For instance, these may include early start-up financing, industrial and agricultural extension programs, support for innovative and inclusive small and medium enterprises (SMEs), business incubators and enablers, public awareness, pairing the private sector with educational institutions, and skills development. Effective interventions can enhance private returns, internalize social externalities, and promote firm survival and growth.

Figure 1: Market Opportunity & Private Initiative for Dynamic & Resilient Economies

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Francis Gagnon, September 3, 2014

EXPANDING MARKET OPPORTUNITY & ENABLING PRIVATE INITIATIVE FOR DYNAMIC ECONOMIES


Evolving Challenges, Emerging Demand For developing countries, the task of leveraging the world economy is growing ever more complex with changes in global trade patterns. Following the significant deceleration that followed the 2008-9 financial crisis, world trade is recovering, albeit still below historical levels. Achievement of substantive results in the Doha Round has been delayed, and concerns about creeping protectionism remain. Given the central importance of trade to growth and development, coordinated efforts are needed to revitalize the global trading system. Pragmatic approaches may include multilateral negotiations around sectors on the cusp of major trade expansions, as well as negotiations of bilateral, regional, and plurilateral agreements. The global climate crisis also challenges countries that seek sustainable growth paths. Climate variability, natural resource scarcity, and price volatility frequently expose developing countries to increased input costs, as well as energy and water shortages. As significant carbon emitters, industries and their supply chains face added pressure to mitigate their environmental impact. Global action and national level policies can provide incentives for energy saving and resource efficiency through clean technologies and other innovation. They also constitute significant opportunities—an estimated $1.6 trillion market over the coming decade—for SMEs and entrepreneurs in developing countries. Along with global action, effective country strategies are needed to overcome constraints to rapid, broad-based growth. The heterogeneity of these constraints—evident along a number of dimensions below—suggests the need for distinctive trade and competitiveness strategies.

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• Geographic region: After a decade of growth, several African countries are seeking to diversify their trading capabilities by leveraging natural resources, modernizing agriculture, and encouraging light manufacturing. Connectivity to markets, common standards, and favorable investment climates is key. By contrast, East Asian countries are building on their long track-record of export-led manufacturing growth by maturing regional production chains, promoting green competitiveness, and encouraging internal trade with lagging regions.

• Income level: Middle-income countries can close persistent productivity gaps with advanced economies by diversifying into higher value-added industry segments, building innovation capabilities, and fostering competitive service sectors. Lower-income countries with large informal sectors and underserved markets may need to focus more on regulatory reforms, provision of basic infrastructure, and support for inclusive SMEs and entrepreneurs.

• Internal market size: Small island states in the Caribbean and the Pacific are constrained by the size of their internal markets, limited economies of scale, and remoteness from global markets. Viable strategies include a focus on connectivity and trade agreements, regulatory reforms, and regional approaches to sector competitiveness (for instance, in agribusiness, tourism, and new service sectors). By contrast, large economies such as Brazil, China, India, and Nigeria typically need to address market fragmentation and disparities between subnational regions. Here, export diversification coupled with measures to increase internal trade can be effective.

• Fragility and ongoing transitions: Poor fragile and conflict-affected states often experience disinvestment or footloose investment, structural shifts away from manufacturing, and dislocation of labor-intensive industries. Even as they strive to establish basic market institutions, these countries need to opportunistically create private sector jobs in the short run as a means of restoring social stability. At the same time, middle-income countries facing prolonged political transitions, for example in the Middle East, can address the legacy of unequal treatment of firms, special privileges for a few,

OECD (2014)

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and low female participation through investment climate reforms and entrepreneurship policies and programs.

• Natural resources: Resource-rich countries across geographic regions—Africa, Central Asia, and Latin America—need to manage boom-and-bust commodity cycles and the risks of Dutch Disease, when, for example, natural resource price increases lead to large foreign currency inflows and exchange rate appreciations, thereby rendering other exports more expensive and manufacturing less competitive. Part of the solution is to maximize skills and technology spillovers, and to promote innovation and productivity growth in competing sectors.

Taken together, these global and diverse country challenges point to growing demand for policy, financial, and implementation support on trade and competitiveness issues. Indicative of these new opportunities, recent growth in the World Bank Group’s T&C portfolio reflects an expansive and increasingly differentiated client base. Over FY2011-15, IBRD and IDA commitments averaged approximately $870 million a year, with annual commitments

of $1 billion in FY14 and $1.5 billion in FY2015. Growth in lending volumes has been driven by consistently high client demand in Africa, and also to varying degrees by strong growth in Latin America and the Caribbean, and Europe and Central Asia. Knowledge work on T&C issues— combining World Bank Analytic and Advisory Activities, Bank Executed Trust Fund work, and IFC Advisory Services—has grown from 91 projects, totaling $65 million, in FY2011 to 429 projects, totaling $156 million, in FY2014 (Chart 1). T&C’s Reimbursable Advisory Services (RAS) portfolio comprises 50 activities across 24 countries with an estimated value of approximately $35 million. Growth in RAS reflects strong demand for just-intime expertise and the Bank Group involvement as a knowledge broker, particularly in Europe and Central Asia, Middle East and North Africa, and Latin America and the Caribbean. More generally, new windows of opportunity are opening for engagement in East and South Asia, the Western Balkans, and the Caribbean, and for global advocacy in partnership with international organizations.

Chart 1: A Rapidly Evolving T&C Portfolio of Lending and Advisory Services T&C Lending Approvals $m 1600 1400 1200

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EXPANDING MARKET OPPORTUNITY & ENABLING PRIVATE INITIATIVE FOR DYNAMIC ECONOMIES

FY14


Strengthening World Bank Group Engagement The World Bank Group is renewing its commitment to systematically strengthen its engagement on trade and competitiveness issues in pursuit of the Twin Goals. A newly constituted Trade and Competitiveness Global Practice (T&C) brings together diverse World Bank and IFC Advisory units around a common vision: sustained economic growth, productivity gains, job creation, and rising incomes for developing countries to eradicate poverty and boost shared prosperity. T&C’s mission is to serve as a trusted partner for countries that seek to develop dynamic and resilient economies, expand market opportunities, and enable private initiative. To this end, T&C supports global and country efforts to boost the volume and value of trade, enhance the investment climate, improve competitiveness in sectors, and foster innovation and entrepreneurship. T&C has the breadth and depth to deliver. It boasts a global footprint with over 500 World Bank and IFC Advisory staff working in over 80 locations around the world. T&C’s current portfolio comprises 161 World Bank active and pipeline lending operations, totaling $5.5 billion in commitments; over $610 million in grants; over $300 million in active IFC Advisory Services projects; and nearly 350 knowledge and advisory activities in over 100 countries. It relies on diverse funding sources: $46 million in World Bank budgetary resources; $18.5 million in IFC budgetary and related internal resources; and an array of donor funds. These external resources include nearly $84 million in Bank-administered and $79 million in IFC-administered trust funds, along with client funding for a rapidly growing portfolio of Reimbursable Advisory Services. T&C draws on over three decades of Bank Group experience. A number of evaluations of World Bank Group support point to a long and relatively effective track-record on trade and

investment climate. The Bank Group has been particularly effective in fighting poverty when it also supports complementary efforts on diversification, agglomeration, trade finance, and social inclusion. In the areas of innovation and entrepreneurship, the Bank Group can build on the strong performance of competitive research grants in agriculture and technology transfer projects. Alternative forms of risk financing— early-stage support for innovative start-ups and targeted support for small and medium-sized enterprises—can be effective when channeled toward frontier states and regions, and underserved segments. T&C represents a departure from ‘business as usual.’ It is strengthening its approach to country and global engagement with a comprehensive menu of updated offerings. T&C is also revitalizing its operational portfolio and launching an ambitious global knowledge and advocacy agenda. Success will depend upon deeper partnerships with the private sector, international agencies, and other development partners. T&C’s commitment to strengthening these partnerships and an unwavering focus on results will ensure positive impact.

A Comprehensive Offer To ensure that the Bank Group is at the forefront of knowledge and development practice, T&C has enriched its offerings and organized them under four global themes (Box 1). Trade, investment climate, competitive sectors, and innovation and entrepreneurship form the core competencies of T&C. Under trade, the Global Practice supports trade policy and cooperation, trade facilitation and logistics, trade performance, and competition policies. T&C’s offering under investment climate covers business environment reform as well as investment poli-

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cies. Competitive sectors work focuses on sector or industry-specific policies and growth, as well as spatial growth and investment strategies. Under innovation and entrepreneurship, T&C helps strengthen innovation and technology policies, strategies, and financing, and it promotes entrepreneurship and SME development. T&C is also creating space for Bank-wide collaboration on five cross-cutting topics. Also listed in Box 1, these are global value chains, connecting to markets and opportunities, catalyzing firm productivity, private sector development in FCS, and promoting green competitiveness. This work will push the operational and knowledge frontiers.

Strengthened Country and Global Engagements T&C supports selective and demand-responsive engagements across a diverse roster of client countries. In some countries, T&C may need to broaden the focus beyond trade and investment climate to innovation and entrepreneurship. In others, government and business may benefit more if T&C complements its advisory activities in key industries with programmatic investments and capacity building. In still others, cross-cutting themes such as GVC integration will serve as the best entry point for policy dialogue. To be relevant and effective, T&C engagements are calibrated to country capacities and trackrecords. Its operational business model rests on three pillars: • Strategic investments in data and dialogue. The mission of expanding market opportunity, enabling private initiative, and developing dynamic economies—all working toward the Bank Group’s Twin Goals—cannot be realized without a ground-level perspective on the risks, costs, and barriers that entrepreneurs and firms face. T&C, in collaboration with other units of the Bank Group, is well-placed to champion the development of the next generation of enterprise-level data by investing in country statistical capacity and modernizing cross-country databases. It also plays a key role in ensuring that Bank Group country dialogue systematically includes the perspective of private sector actors, for example, through inclusive public-private dialogue mecha-

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nisms. Such investments in data and dialogue ensure a demand-driven T&C stance across countries.

• Robust cross-practice analytics. Existing diagnostic tools and methods, for example in the areas of trade, sector competitiveness, investment climate, and entrepreneurship, have evolved organically with client demand and knowledge of good practice. T&C is integrating—and where appropriate, consolidating—these diverse methods into truly interdisciplinary cross-practice analytics. As a key input to Bank Group Systematic Country Diagnostics (SCDs) and Country Partnership Frameworks (CPFs), T&C analytics aim to go beyond identifying gaps in specific areas, such as inadequacies of trade and competition policy, or weaknesses in business regulations to identify viable solutions based on evidence-based technical assessments and a nuanced reading of political economy realities.

• Integrated, customized solutions. As with the analytical agenda, T&C’s country engagements will feature operational solutions—where relevant—that combine the best of its core IFC and World Bank competencies across its global themes of trade, investment climate, competitive sectors, and innovation and entrepreneurship. These integrated solutions respond to the multi-dimensional growth challenges that countries face.

As a Global Practice, T&C is able to calibrate its responses to individual country demands with well-organized support for corporate priorities across countries. For example, in keeping with IDA17 commitments, T&C is able to exploit its global footprint to deploy implementation support in FCS to generate rapid results. Similarly, where there are region-wide priorities, T&C is able to mobilize a critical mass of support—comprising multidisciplinary teams of global experts and operational staff—from across the practice. By virtue of its focus on economic integration issues, T&C also has a strong interest in influencing the global economic agenda. One of its main priorities is to systematically analyze and give voice to developing country concerns on trade and competitiveness issues, for instance by better understanding the relationship between trade and the Twin Goals. Furthermore, T&C can play a useful advocacy role for open markets and a revitalized multilateral trading system. Analyses

EXPANDING MARKET OPPORTUNITY & ENABLING PRIVATE INITIATIVE FOR DYNAMIC ECONOMIES


CORE GLOBAL THEMES

Box 1: T&C’s Offer Under Core Global Themes and Cross-Cutting Topics

TRADE Trade Policies & Integration: Streamlining non-tariff measures | Modernizing services regulations & trade | Addressing poverty and labor impacts of trade policies and shocks | Supporting global and regional integration, including free trade agreement negotiations and World Trade Organization accession. Trade Facilitation & Logistics: Strengthening trade corridors, supply chains, and trade logistics | Modernizing border management | Enhancing connectivity between firms, markets, and consumers Trade Performance: Promoting trade expansion and diversification Competition Policies: Eliminating anti-competitive market regulations | Strengthening antitrust rules | Promoting pro-competition sector policies | State-owned enterprises

INVESTMENT CLIMATE Business Environment Reforms: Reforming business regulations | Strengthening regulatory governance & compliance | Assessing the investment climate | Fostering indicator-based reforms | Streamlining business taxation Investment Policies: Reducing investment restrictions and procedures | Attracting private investment and facilitating investment | Strengthening investor protection | Promoting linkages to local economy | Benchmarking and implementing investment agreements

COMPETITIVE SECTORS Sector Policies & Growth: Facilitating growth in agribusiness, manufacturing, tourism, & other services Spatial Growth & Investment Strategies: Supporting development & management of special economic zones | Fostering growth poles, clusters, linkages from anchor investments | Supporting city competitiveness strategies

INNOVATION & ENTREPRENEURSHIP

CROSS-CUTTING TOPICS

Innovation & Technology: Strengthening science, technology, & innovation policies | Promoting firm capabilities for innovation & productivity | Supporting technology transfer & commercialization | Fostering science–industry collaboration |Supporting innovation financing Entrepreneurship & SME Development: Fostering high-growth potential firms | Developing entrepreneurial ecosystems | Supporting business incubators, accelerators, early stage funding, mentorship | Facilitating skills development & technology extension | Enhancing entrepreneurship awareness | Promoting women’s entrepreneurship

Connecting to markets and opportunities Global value chains Catalyzing firm productivity Promoting green competitiveness Private sector development in fragile and conflict-affected states

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of multilateral arrangements, preferential trade deals, and their links to the changing patterns of world trade should serve as important T&C contributions to G20 meetings and other multilateral fora. To be a credible advocate, T&C aspires to be a center of excellence for policy analysis and research, and the analytical reference of choice for client countries. Emerging issues confronting client countries and partners include the risks and rewards of sector-specific and green competitiveness efforts, the ‘basics’ of private sector development in FCS, integration into global value chains, and the effectiveness of spatial investment initiatives such as growth poles and SEZs. Even as it seeks to generate new knowledge, T&C will leverage established knowledge mainstays, in particular, cross-country indices and actionable indicators such as Doing Business at the national and subnational levels, the Logistics Performance Index, the International Trade Costs Database, the World Integrated Solution platform, as well as enterprise surveys, non-tariff measure inventories, competitiveness outcomes, and productivity measures. Success on the global knowledge front requires forging strong networks with academia, other development partners, and the private sector. T&C is expanding its global networks of researchers and thought leaders as well as its linkages to practitioners, the Bank Group’s operational teams, and its Development Economics Research Group (DEC). Where appropriate, it also aims to regularly draw on the perspectives of global industry leaders in the conduct of research and analysis (for example, on GVCs). These networks and links will be sustained by the effective use of the Bank Group’s convening power and, more importantly, by the quality and reputation of T&C knowledge products. Rigorous training for staff in cutting-edge analytical methods, therefore, is an ongoing commitment.

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A Revitalized Portfolio Continuously improving how the Bank Group delivers is as important as expanding what it delivers. T&C plans to systematically support integrated solutions. For instance, a trade liberalization agenda is relevant for a lowerincome country saddled with non-competitive exports, high trade costs, and low private investment. Its impact and sustainability depends on complementary efforts on diversification, trade facilitation and logistics, business environment improvements, investment promotion, and sector competitiveness. Middle-income countries with a legacy of low productivity growth could benefit from a focus on open and competitive markets, innovation systems, business incubation, as well as start-up support. Cities around the world are increasingly embarking on their own competitiveness efforts. In many cases they are combining business environment reforms with sector specialization, special economic zones, and innovation ecosystems as a way to attract investment and create jobs. Specific examples in Box 2 show that integrated solutions are essential to T&C’s demand-responsiveness and its new ways of doing business. As a joint World Bank-IFC practice, T&C has at its disposal the full array of Bank Group instruments, from data to advice to financing. These instruments comprise diagnostics and analytics, advisory services (including reimbursable advisory services), convening services, non-lending technical assistance, capability building, as well as World Bank policy-based and investment lending (for instance, development policy financing, investment project financing, programfor-results, adaptable program lending, and technical assistance loans) and various guarantees. Where relevant, these instruments can be bundled in the context of a single operation or be arrayed across operations to enhance financial and operational efficiency and effectiveness. For instance, the performance of policy-based operations can be enhanced by embedding advisory services, non-lending technical assistance, and capacity building. Bank Group-executed advisory services can help drive implementation

EXPANDING MARKET OPPORTUNITY & ENABLING PRIVATE INITIATIVE FOR DYNAMIC ECONOMIES


of high risk-high reward operations in fragile and low capacity settings. Also, T&C trust funds and advisory services offer a unique rapid response capability, as well as the ability to reach firms and entrepreneurs. Based on current and emerging demand, T&C’s portfolio pipeline should reflect greater substantive integration across core themes, bundling of financial and advisory instruments, and innovation of “signature offers” around cross-cutting topics. Operational business is expected to evolve along four axes in the next three years: • Policy-based financing with implementation support for growth strategies. Enhanced policy-based financing headlines T&C’s engagement in countries with broad ownership of policy and institutional reforms for growth. For instance, “competitiveness” Development Policy Operations (DPOs) combine rapidly-disbursing non-earmarked budget financing with real-time implementation support for economy-wide trade and investment climate reforms, along with sector-specific competitiveness and innovation efforts. Similarly, “connectivity” DPOs support policies and regulations governing key networks—those relating to trade, transport, energy security, urbanization, and rural supply chains—and implementation of their linkages to market opportunities. This blending of policy-based and advisory instruments helps deepen reforms, particularly at the industry and firm levels. Use of regional, multicountry DPOs is also envisaged to support regional integration efforts.

• Programmatic investments for spatial and sector competitiveness. From sector policies and public investments to firm level capacities to real private investments, programmatic support to high potential sectors will likely drive T&C lending commitments. A new generation of multi-donor support for agribusiness, tourism, manufacturing, or other sectors is emerging. Where relevant, they will reflect cross-cutting topics such as connectivity to markets and opportunities, and green competitiveness. These programs can be financed as needed through investment project financing, program-for-results, or adaptable program lending, and pooled with contributions from other development partners. Risk management instruments and advisory services (for instance, to support investment promotion) can help leverage private finance. Also, building on its

existing portfolio, T&C is expanding programmatic investments that support spatial solutions such as SEZs, growth poles, innovation clusters, as well as subnational and city competitiveness strategies.

• Focused investment and advisory support for individual core thematic areas. Not all countries have the strategic capacity to sustain multiyear and multisectoral reforms. By the same token, such comprehensive efforts may not be needed in more advanced, middle income countries. In both these types of settings, T&C will continue to support focused investment, technical assistance, or advisory service projects around individual core themes such as trade or investment climate. In middle income countries, engagements increasingly involve Reimbursable Advisory Services that reflect demand for just-in-time global expertise.

• Catalytic support for firms and entrepreneurs. A distinguishing feature of T&C is its ability to engage firms and entrepreneurs. Targeted start-up and SME support already constitutes a major line of business for the Bank Group. This kind of catalytic support to firms and entrepreneurs—in particular, women entrepreneurs—can be scaled up through a more coordinated package of sovereign lending and risk management measures, embedded advisory services, and direct grant support. Particular emphasis will be given to leveraging real investments from the private sector and IFC.

Expanded Partnerships Success can only be achieved through partnership and joint work. Nowhere is this more important than in T&C’s unique relationship with IFC. As a fully joint IFC-World Bank Global Practice, T&C combines the traditional public policy focus of the Bank with the private sector investment focus of the IFC in all of its operational and knowledge work. This structure strengthens efforts to help countries coordinate interventions across economy-wide, sectoral, and firm-levels. This unique relationship enables T&C to leverage IFC’s knowledge of industry and country constraints, and engage IFC investees as part of its dialogue with local private sectors. In turn, and by virtue of its country and global efforts, T&C can help IFC deliver on its mandate and support its investments.

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Box 2: Examples of Integrated Solutions

T&C is responding in a number of client countries with integrated solutions that feature joint work across its core global themes; coordination across economy-wide, sectoral, and firm-level interventions; bundling of Bank lending and IFC Advisory Services; and partnerships with other Global Practices (GPs) and Cross-Cutting Solution Areas (CCSAs), as well as IFC and MIGA. • Accelerating private sector competitiveness in Georgia. This T&C-wide flagship combines policy-based financing with analytical and advisory services to support Georgia’s fast-moving competitiveness agenda, with the help of several GPs. To help improve the investment climate, this T&C series leverages the expertise of the Macro-Fiscal and Governance GPs to support greater private sector involvement in economic policymaking, stronger competition policies, and greater access of SMEs to public procurement. The series then partners with the Finance and Markets GP to support reforms around financial deepening, financial sector transparency, and expanded access to collateralized finance. In collaboration with the Transport and ICT GP, the DPO helps build a dynamic innovation ecosystem, promote ICT development, and lower transactions costs to exporting firms. • Encouraging competition, strategic investments, and SME development in Jamaica. After confronting longstanding challenges of high public indebtedness and vulnerability to external shocks, Jamaica has launched a number of far-reaching initiatives to identify and exploit new sources of growth. With a recently-approved $50 million IBRD project as a platform, T&C is involved in a highly collaborative Bank Group effort that support investment climate reforms and SEZs (with the support for the Transport and ICT GP); strategic investments in competitive industries such as agribusiness, ICT, and logistics (with the Transport and ICT GP, the Public Private Partnerships CCSA, and importantly, the IFC and MIGA); and SME development and lines of credit totaling $16.2 million (with the Finance and Markets GP). As part of this effort, IFC is investing and MIGA is guaranteeing projects identified under the Logistics Hub Initiative, and IFC is also putting in place a $500 million local currency facility to support infrastructure investments and a €3 million grant to support innovative SMEs. • Promoting investments and value addition in Côte d’Ivoire’s cashew sector. The world’s second largest producer and top exporter of cashews, Côte d’Ivoire sees most of its production exported to Asia and Latin America without meaningful value addition. T&C and the Agriculture GP are jointly leveraging a suite of advisory and convening services as well as grant funding and IDA lending to strengthen the cashew supply chain. Initiatives include public-private dialogue, investment promotion, and support for the legal and regulatory warehouse receipts framework to expand access to credit. Targets include $5 million in credit released to the sector, benefiting at least 10,000 users; $20 million in investments generated; and 5,000 jobs created in cashew processing. • Promoting investment in Nepal’s tourism sector. In response to demand from the Nepal Tourism Board and the Nepal Investment Board, T&C is working with the Social, Urban, Rural, and Resilience GP to help streamline the licensing and regulatory processes in the sector and to develop 4-5 catalytic investments identified in an extensive pre-implementation phase. The program has already been credited with identifying and linking a potential investment to IFC Investment Services of $42 million, which is at the appraisal stage.

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EXPANDING MARKET OPPORTUNITY & ENABLING PRIVATE INITIATIVE FOR DYNAMIC ECONOMIES


Equally important is collaboration with other units of the Bank Group. Joint work is already proceeding on a number of fronts: agribusiness (with the Agriculture GP); tourism as well as competitive cities (with the Social, Urban, Rural, and Resilience GP); business taxation (with the Macro-Fiscal and Governance GPs, and the IMF); trade facilitation and logistics, and resource corridors (with the Transport and ICT and Extractives GPs); and skills and productivity (with the Education and Social Protection GPs). Joint work with the CCSAs relating to Jobs; Fragility, Conflict, and Violence; and Gender are high priorities. As T&C focuses on its own core offerings, it is following the lead of other units with comparative advantage in areas such as PPPs as well as debt resolution and insolvency. Partnerships with other development institutions are critical for T&C’s country operations and global advocacy agendas. In-country, working with development partners will help T&C improve the quality, size, and effectiveness of its project portfolios and its policy dialogue. For their part, development partners regularly convey their interest in leveraging the Bank’s country-based business model, its deep knowledge base, and its risk management capacities. Collaboration will be scaled up as T&C expands its portfolio through harmonized DPOs and programmatic investments. The depth and breadth of donor-funded programs are a testament to T&C’s reputation as a development partner and world-class trustee. Donor partners continue to enrich the substance and extend the reach of T&C operational and knowledge work at the global, regional, country, and subnational levels. Among the global programmatic trust funds administered by T&C are the $70 million Facility for Investment Climate Advisory Services, which focuses on investment climate issues; the $109 million InfoDev on entrepreneurship, the $36 million Competitive Industries and Innovation Program on sector and spatial growth strategies, and $122 million in various trade policy and trade facilitation and logistics

programs. Several other trust funds support operational work in regions. Among the largest donor partners of T&C are the United Kingdom, the European Union, Canada, Sweden, Denmark, and Switzerland. The core global themes as well as cross-cutting topics offer an even stronger platform for building on these existing donor relationships, and forging new ones. As a connector and facilitator of learning, T&C also places high priority on knowledge partnerships and knowledge exchanges. Joint research and evaluation with development partners and with leading academic institutions is an important starting point. Such work can help achieve consensus on good practice in areas where results have been mixed (for example, SME support and SEZs) or where track-records are still emerging (for example, innovation). It can also help T&C deepen global and local commitment to important post-2015 priorities such as women’s entrepreneurship. T&C’s advocacy on the global stage depends on robust relations with international organizations such as World Trade Organization, United Nations Conference on Trade and Development, the Organization for Economic Co-operation and Development, World Customs Organization, International Trade Center, World Economic Forum, and others. The credibility and relevance of T&C’s operational and knowledge work will be enhanced by investing in ongoing dialogue with the private sector, both international and domestic. Central to its engagements in countries is T&C’s outreach to private sector actors. In addition to accessing IFC investees where relevant, T&C will more systematically support broad and inclusive dialogue with the organized private sector across countries and regions. Dialogue and experience-sharing with industry leaders in global value chains are also envisaged. In recent years, private actors have also emerged as funding partners of the Bank Group. Charitable organizations and foundations—through their grant funding—are helping to broaden the base of support for T&C’s economy-wide and industryspecific efforts in countries.

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A Sharpened Results-Focus T&C is committed to demonstrating tangible, time-bound results. Figure 2 presents a T&Cwide results chain. It is based on the following theory of change: customized and sequenced efforts to boost trade, enhance the investment climate, improve sector competitiveness, and foster innovation and entrepreneurship provide incentives for expanding market opportunities and enabling private initiative. As a result, economies become more dynamic and resilient, thereby adjusting efficiently in ways that increase firmlevel productivity, private investment, and trade performance, and enhance innovation. These outcomes—T&C’s ‘bottom-lines’—in turn foster

overall productivity improvements, growth, job creation, and rising incomes, all of which contribute to boosting shared prosperity and ending extreme poverty. As a first step, T&C is elaborating a results framework that identifies input, output, intermediate outcome, outcome, and impact indicators, and in some cases, establishes targets. More generally, T&C’s results management system ensures systematic M&E of operational and knowledge work and encourages learning across the practice. It also promotes operational quality and encourages mid-course corrections. Mixed methods including impact evaluation techniques are used to fill knowledge gaps and promote effectiveness.

Figure 2: T&C’s Results Chain

Core Global Themes

TRADE

INVESTMENT CLIMATE

COMPETITIVE SECTORS

INNOVATION & ENTREPRENEURSHIP

Trade policies & integration

Business environment reforms

Sector policies & growth

Innovation & technology

Spatial growth & investment strategies

Entrepreneurship & SME development

Trade facilitation & logistics Trade performance

Investment policies

Competition Policies

Country Operations | Knowledge | Global Voice

Illustrative Intermediate Outcomes

Outcomes Impacts Twin Goals

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Reduced Investment Restrictions

Improved G2b Service (e.g., infra)

Effective Competition Policies

Strengthened Public Sector Institutional Capacities

Enhanced Public-Private Reduced Dialogue Business, Investment, and Trading Costs

More Integrated Economies

More Competitive Sectors & Spillovers from Agglomeration

Increased Value Addition of Local Suppliers Improved Support Services for Innovative SMEs & Entrepreneurship

Enhanced Innovation Policies & Systems

Improved Skills Match

Improved Firm Productivity | Increase Investment | Improved Trade Performance | Enhanced Innovation

Growth | Aggregate Productivity | Jobs | Rising Incomes Ending extreme poverty | Boosting shared prosperity

EXPANDING MARKET OPPORTUNITY & ENABLING PRIVATE INITIATIVE FOR DYNAMIC ECONOMIES


Organizing to Deliver T&C has strengthened its internal organization to reflect new strategic directions. Its unit structure offers a balanced approach covering core global themes, global partnerships and engagements, and country operations in geographic regions. It also provides incentives for cross-practice collaboration on knowledge, trust funds, portfolio management, and results. To ensure effective functioning of this joint World Bank-IFC practice, T&C is consolidating its skills base around global themes while also developing new competencies, for example, through the appointment of Global Solutions Leads. The GP is supported by a sustainable resource framework that deploys budgetary and donor resources in line with country and global demand, while also tapping new revenue sources.

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How We Work TRADE & COMPETITIVENESS GLOBAL PRACTICE


How We Work

The World Bank Group is meeting growing demand for high-impact trade and competitiveness solutions that foster growth and reduce poverty. The Trade and Competitiveness Global Practice applies cutting-edge analytics and delivers integrated advisory, financial, and convening services to help countries integrate with global markets and enhance their competitiveness. Partnerships, a robust results system, and a culture of innovation support T&C’s work with governments and the private sector.


Achieving the World Bank Group’s Twin Goals of ending extreme poverty and boosting shared prosperity depends on rapid, broad-based economic growth producing more and better jobs. Economic integration through trade and improved competitiveness is central to any effective development strategy. Governments, private firms, and international partners seek T&C’s help in finding solutions that deliver impact. T&C is responding with strengthened global, regional, and country engagements centered on private sector-led growth and jobs. The revamped Bank Group business model provides: • Cutting-edge knowledge and analytics. • Integrated delivery of advisory, financial, and convening services. • Partnerships with multilateral, regional, and bilateral institutions, and with the private sector.

• A rigorous results management system. A joint World Bank-IFC team of over 500 staff with expertise in trade, investment climate, sector competitiveness, and innovation and entrepreneurship, forms the backbone of T&C business. T&C’s expansive footprint— staff located in over 80 offices, including its Istanbul, Singapore, and Vienna hubs—ensures proximity to clients and a unique rapid-response capability. Day-to-day business in T&C is characterized by a high degree of knowledge flow, intensive learning, and a culture of innovation. T&C teams regularly engage in joint work with other Global Practices, for example, on supporting sustainable tourism, connectivity, and competitive cities. We participate in project design clinics and experience-sharing activities across regions. Knowledge exchanges with international organizations as well as multilateral and bilateral partners are an important source of new ideas and approaches, as are ongoing operations in client countries. Equally important are the perspectives of investors in emerging markets, in particular those identified by the IFC—the largest private sector investor in developing markets. T&C sustains its existing business by leveraging primarily World Bank and IFC budgetary and internal resources, as well as donor funds and Reimbursable Advisory Services (RASs). These resources help push the frontier by enabling the Bank Group to fund innovative pilot projects in such areas as climate technology, digital trade, women’s entrepreneurship, and regulatory transparency.


Knowledge and Analytics The T&C Global Practice serves as an important analytical reference for client countries and international partners. It currently manages over 350 knowledge activities on trade, competitiveness, connectivity, and private sector development issues across 100 countries. As part of its forward-looking knowledge agenda, T&C is integrating diverse methods and tools relating to trade, investment climate, competitive sectors, and innovation and entrepreneurship under a common framework. It is also systematically contributing to the Bank Group’s knowledge work at country, regional, and global levels. For country engagements, T&C analytics are a key input to the Bank Group’s systematic country diagnostics and country partnership frameworks. T&C country diagnostics help identify economy-wide, sectoral, and firm-level constraints to growth and shared prosperity, and opportunities for productivity gains, private investments, and greater market access. These diagnostics are further supported by specialized tools that support in-depth analyses in discrete areas—from connectivity to investment incentives, and from industry competitiveness to firm dynamics and productivity-led growth. For regional and global engagements, T&C analytics support thought lead-

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ership, strategy formulation, and evidence-based advocacy. Regional flagships assess emerging T&C issues in geographic regions such as industry competitiveness in South Asia. Similarly, global thematic studies offer lessons on good practice approaches on issues such as trade in fragile and conflict-affected states, and light manufacturing in Africa. We also provide a vehicle for global engagements and advocacy with international partners, for instance, on trade and the Twin Goals, and on integrating with global value chains (see Box 1). Rigorous analytics require quality data. Data development and dissemination is a global public good that benefits governments, the private sector, and the development community at large. To this end, T&C actively supports and leverages Bank Group data resources such as Doing Business at the national and subnational levels, the Logistics Performance Index, the International Trade Costs Database, the World Integrated Solution platform, the Product Market Regulation Data Tool, as well as enterprise surveys, non-tariff measure inventories, competitiveness outcomes, and productivity measures. As a complement, the Bank Group supports statistical capacity building in countries to develop a data foundation on trade and investment.


Box 1: Examples of T&C Country, Regional, and Global Analytics

Country Diagnostics in Montenegro. For the Montenegro Systematic Country Diagnostic, the T&C team assessed whether improvements in the business environment and the allocation of resources to more productive sectors and firms alleviated binding constraints to export-oriented and private sector-led growth. Inputs included analyses of goods and services, trade competitiveness, the labor content of exports, as well as the 2013 and 2008 enterprise-level surveys. Regional Flagship Report in South Asia. The flagship goes beyond the standard analysis of trade policy and business environment constraints to explore the roles of cities, clusters, and value chains in shaping the productivity distribution of firms and the costs of market entry. For its analysis, the report uses the South Asia Spatial Database and comparative case studies of the labor-intensive and high-skill sectors. The work involves collaboration across T&C and other Global Practices. Global Thematic Study on Trade in Fragile and Conflict-Affected Situations. Understanding the factors that can reduce the risk of conflict is paramount for the prosperity of fragile countries and their citizens. The report, Trading Away from Conflict, analyzes the extent to which trade affects the risk of conflict by mapping and empirically testing the channels through which trade may affect conflict and political stability, using data from more than 120 developing countries and indepth case studies. It recommends policies for fragile and conflict-affected states.

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An Integrated Delivery Platform T&C delivers through an integrated platform that draws on the full array of World Bank Group instruments: advisory services and non-lending technical assistance, Bank financial instruments (that is, lending and guarantees), and convening services. Working with T&C offers a number of benefits. T&C engagements often combine broad policy reforms with deep implementation support. They encourage the design of solutions that integrate complementary interventions (for example, at the economy-wide and firm levels) to address complex growth challenges. The Global Practice combines World Bank strengths in sustaining medium-term policy dialogue with IFC capability to rapidly respond to the needs of government and private sector clients.

Advisory Services and Technical Assistance T&C’s advisory services—IFC Advisory Services (AS), Bank technical assistance and RASs—play a critical role in helping national and local governments improve their investment climate. Just-in-time advice and implementation support foster policies and institutions for private sector development. Outcomes include

facilitating private investment, including by IFC, reducing business costs and risks, expanding business opportunities and creating jobs. Advisory services, a mainstay of T&C country and regional engagements, account for a growing portfolio of $300 million in active IFC AS projects, $80 million in Bank knowledge and advisory services,1 and $35 million in RASs. Even as the Global Practice grows this business, it plans to more systematically embed its advisory work in Bank lending operations with a view to enhancing impact. 

Financing and Financial Solutions Financing and financial solutions are a major component of T&C engagements in developing countries. T&C teams have at their disposal the full range of Bank, IFC, and MIGA instruments to support their clients: Bank policy-based financing, investment project financing, program-for-results, recipient-executed grants, as well as various guarantee instruments. Currently, T&C’s lending portfolio comprises over $5.5 billion in commitments covering 85 active and pipeline IDA and IBRD operations. 1

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$80 million as of the first quarter of FY15


Box 2: Examples of T&C Advisory Services

The $9.5 million East African Community (EAC) Investment Climate program, under implementation over 2012–2016, facilitates regional trade and investment by improving legal and regulatory frameworks for doing business and by strengthening capacity to implement the EAC Common Market Protocol. A recent signal achievement was the design and launch of an EAC Common Market Scorecard to track progress of Partner States in implementing agreed commitments. The first of its kind on the continent, the Scorecard is being replicated in West Africa (ECOWAS) and Southern Africa (COMESA). Inspection reform in Jordan has historically faced a number of obstacles that undermine private sector competitiveness. T&C’s $5.6 million advisory project over the 2012–2017 period is helping develop efficient and effective inspection functions by contributing to inspection strategies, policies and plans, risk-based inspection targeting, and coordination across different public inspectorates. The Ease of Doing Business Program in India is a $4.3 million engagement that supports the government’s ambitious program of reducing regulatory burdens on business and increasing transparency to enhance manufacturing competitiveness and increase investment. Based on T&C’s 2014 Doing Business Reform Memorandum, the 2015–18 program seeks to reduce excessive bureaucracy and rent-seeking opportunities, increase transparency and predictability of government interactions with the private sector, and strengthen regulations such as insolvency proceedings to preserve greater economic value. RASs in Middle Income Countries: The growth of Reimbursable Advisory Services reflects demand for T&C’s global expertise. Examples include RASs on the development of Malaysia’s small and medium enterprise (SME) sector, Ecuador’s services industry, and Kuwait’s special economic zones, as well as diversification in Botswana beyond extractives. RASs on global value chains integration are under consideration in a number of countries. Productivity for Shared Prosperity in Brazil aims to build government capacity to foster sustainable shared prosperity through productivity growth. This threeyear program involves analytical and implementation support work identifying individual, firm-level, and economy-wide initiatives that can unlock productivity growth. These can involve skills upgrading, entrepreneurship and innovation, as well as improving the broader business environment and enhancing logistics services in global value chains.

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Bundling of financial instruments with advisory services can help generate added efficiencies and better solutions for country clients. So can T&C efforts to support the design and supervision of operations managed by other Global Practices. As an example, the T&C team regularly supports policy-based lending by the Macroeconomics and Fiscal Management Global Practice, and investment lending by the Transport and ICT Global Practice and the Agriculture Global Practice.

Policy Based Financing for Private Sector-Led Growth Development policy operations (DPOs) led by T&C engage client countries on broad policy reforms to stimulate private sector-led growth. T&C is able to enhance traditional policy-based financing with embedded implementation and advisory support. “Competitiveness DPOs” in Georgia, Macedonia, Morocco, and Tanzania are supporting economy-wide trade and investment climate reforms along with sector competitiveness and innovation efforts. “Connectivity DPOs,” for instance, in Indonesia, support policies and regulations governing key networks (for example, those relating to trade, transport, energy security, urbanization, and rural supply chains), and strengthen their linkages to market opportunities (see Box 3). Multi-country DPOs also support regional integration.

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Investments in Sector and Spatial Competitiveness Programmatic investment in competitive sectors is a growing business—linking policy advice, public infrastructure investments, innovation capacity building, and private investment. In a number of countries, programmatic support for agribusiness, tourism, and manufacturing is a key entry point for T&C work, which leverages considerable donor funds. Sector competitiveness efforts can also require spatial solutions—for instance, growth poles in Madagascar, Mozambique, and Burkina Faso; special economic zones in Bangladesh, Ethiopia, and Russia; and city competitiveness strategies in South Africa (see Box 4). Spatial solutions are typically financed through investment project financing, program-for-results, and pooled donor funds.

Catalytic Support for Firms and Enterpreneurs Specialized, catalytic efforts can spur entrepreneurship and build firm capabilities. Such measures can include early start-up financing, industrial and agricultural extension programs, support for innovative and inclusive SMEs, business incubators and enablers, public awareness, pairing the private sector with educational institutions, and


Box 3: Development Policy Operations for Competitiveness and Connectivity

Macedonia Competitiveness DPO Series supports competitiveness efforts in multiple industries such as high value-added manufacturing and agribusiness, as well as skills development and innovation. The first and second DPOs in the series—amounting to $50 million each—were approved in 2012 and 2014, respectively, and a third operation is being prepared. The series is bolstered by advisory support and donor funds under the Competitive Industries and Innovation Program. Achievements include private sector involvement in technological industrial development zones, strengthening the accountability framework for state aid, ensuring a predictable environment for investors, and effectively monitoring associated fiscal costs. The series also supports adoption of a strategy and institutional framework for export promotion, implementation of first generation exporter support programs, and capacity building for exporters to increase quality and reach of their products. Indonesia Connectivity DPO Series supported economic integration through connectivity across different islands of the archipelago and connectivity to global markets. The first and second DPOs, totaling $400 million and implemented over 2012–14, strengthened various economic corridors while boosting cost competitiveness of businesses, and attractiveness to investment. Measures included establishing regulatory and institutional frameworks to drive the connectivity agenda; strengthening intra-island connectivity between growth poles through the island transport network; improving ICT connectivity through greater competition in broadband services and domestic shipping; and enhancing trade facilitation. Tanzania Business Environment and Competitiveness for Jobs DPO Series, currently under preparation, aims to improve the overall business environment and establish enabling conditions for the development of selective industries with high job creation potential. Co-financed by Japan, the series supports streamlining procedures relating to business regulations, trade facilitation, and taxation; modernizing the labor market and skills development institutions, and land administration processes; and investment climate reforms in sectors such as agribusiness and tourism.

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skills development (see Box 5). Effective interventions can enhance private returns, internalize social externalities, and promote firm survival and growth. These and other firm-level interventions rely on lending and also risk management, advisory services, and direct grant support. Leveraging real investments, including from IFC, is a priority.

Convening Services In its country engagements, the Bank Group helps convene public and private sector stakeholders seeking the benefit of T&C policies and programs. Examples include national- and industry-level public-private dialogues (PPDs) to drive

Box 4: Programmatic Investments in Sector and Spatial Competitiveness & Regional Integration

Ethiopia’s Competitiveness and Job Creation Project is focused on attracting investments in light manufacturing through industrial zones in order to boost exports, spur job creation, and promote the development of SMEs. This $270 million IDA investment operation, approved in May 2014, leverages private and public financing for industrial infrastructure. It also takes an ecosystem approach to zones by forging linkages to the domestic economy through a Business-to-Business Linkages Fund; matching grants for local firms; a skills-development center; and a day-care facility. Co-financed by DFID, USAID, and the European Union, the project has helped establish the framework for zones development, leasing of developed land and buildings, and outsourcing zone management. The Great Lakes Trade Facilitation Project, currently under preparation, is a $140 million, multi-country investment operation that aims to tackle constraints to cross-border trade between the Democratic Republic of the Congo and its five neighbors, Burundi, Rwanda, Tanzania, Uganda, and Zambia. Investments in cross-border infrastructure, policies relating to border operations, and strengthened cross-border administration will help lower trade costs, improve trading capability, reduce time to cross borders, and help integrate conflict-affected communities.

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competitiveness strategies in Tanzania and Tunisia, and dialogue with the private sector to build support for Afghanistan’s trade licensing reforms. PPDs and outreach to the private sector are also part of the Practice’s regional and global engagements. For instance, the Bank Group is actively participating in the Ca-

ribbean Growth Forum to help countries in the region identify competitiveness strategies and reforms. Global engagements, such as a global knowledge sharing platform around competition policy and the B20/G20, aim to facilitate dialogue between government, the private sector, and policy practitioners.

Box 5: Enabling Clean Tech Entrepreneurs in Kenya

With $5 million in grant funding from infoDev, and another $12 million in co-financing, the Kenya Climate Innovation Center (KCIC), a public-private partnership, supports local entrepreneurs in providing innovative, profitable solutions to the clean tech sector. It provides business advisory services to SMEs, proof-ofconcept grants to entrepreneurs, technical facilities and office space, policy advice and advocacy to government, and market information and intelligence. After two years in operation, the KCIC has supported 83 client enterprises. These entrepreneurs have in turn expanded access to safer and cleaner water to about 8,300 people, and encouraged the use of low carbon energy sources among 49,000 people.

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Partnerships for Knowledge and Results Major development partners are strongly committed to T&C efforts that spur broad-based growth in developing countries. Their contributions to Bank Group-administered trust funds are pivotal in enriching the substance and extending the reach of global and country engagements on T&C issues. The growth of these funds is a testament to the Bank Group’s reputation both as a valued partner on T&C issues and as a world-class trustee. Among the largest Bank Group partners on T&C issues are Austria, Canada, Denmark, the European Union, Sweden, the United Kingdom, and the United States.

priorities (see Box 6). These multiyear programs enable the Bank Group to venture into new areas, for example through knowledge work on competitive cities as well as firm growth and dynamics. By financing country programs, T&C also helps innovate and mainstream development practice, for instance, through infoDev’s financing of clean technology centers in Kenya. Moreover, programmatic funds such as the Facility for Investment Climate Advisory Services (FIAS) remain critical to scaling up and sustaining T&C advisory and implementation support work across regions.

Donor funds support T&C engagements through two main channels: global programmatic trust funds and country-based trust funds. Both are critical to advancing the T&C agenda and therefore the Bank Group’s ability to support the Twin Goals.

Country-based trust funds also help support specific operational engagements, for instance by augmenting funding for Bank teams or by co-financing of lending projects. Often, well-designed T&C engagements—for instance ongoing projects in Ethiopia and Tanzania, as well as high quality analytical work—are able to leverage considerable joint financing from partners in client countries.

Programmatic trust funds centered around global themes allocate Bankand recipient-executed resources across countries and cross-cutting knowledge

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Box 6: Programmatic Trust Funds Support Global T&C Themes

Under trade, the Bank Group supports trust funded programs totaling $122 million: the Multi-Donor Trust Fund for Trade and Development; the Trade Facilitation Facility, and the Trade Facilitation Support Program. In addition, the Bank Group is exploring the possibility of establishing new global trust funds in the areas of global value chains, competition policy, and capacity for trade and services. T&C offerings under investment climate are supported in part by the $70 million FIAS Trust Fund, a platform comprising several global trust funds. It also includes IFC’s Investment Climate regional work funded through IFC regional trust funds.

Programmatic trust funds that support the Bank Group’s work in competitive sectors include the industry-specific window of FIAS, as well as the $36 million Competitive Industry and Innovation Program (CIIP). Regional IFC programs feature projects relating to sector competitiveness, particularly in Africa and South Asia.

Work on innovation and entrepreneurship is supported by CIIP and the $109 million infoDev fund. Efforts are underway to establish a new Global Innovation Trust Fund.

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A Strengthened Results Agenda To help achieve the Twin Goals, it is essential that T&C demonstrate tangible, time-bound results. As a first step, T&C has adopted a comprehensive results chain that links progress on trade, investment climate, competitive sectors, and innovation and entrepreneurship to the Twin Goals. The key links in the causal chain are the achievement of economic growth, job creation, aggregate productivity gains, and rising incomes. The results framework is supported by a robust monitoring and evaluation (M&E) function that seeks to build on the best of World Bank and IFC approaches: • At the Global Practice level, M&E aims to assess the Bank Group’s overall efficiency and effectiveness in T&C country and global engagements. For these purposes, project-level data on inputs, outputs, and outcomes are aggregated using the overall results framework. Periodic program evaluations, in turn, rely on both quantitative and qualitative fieldbased assessments to test causal links, assess relevance of program objectives and design, and review achievement of discrete objectives. From time to time,

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T&C evaluates emerging operational topics, for instance, the sustainability of economic zones, or the efficacy of investment climate reforms.

• At the project level, M&E builds on the mainstream of development practice as well as existing World Bank Group results measurement systems. It will be important to support project teams in designing and monitoring their lending operations and advisory activities. Examples of early engagement on M&E are the advisory program in Bangladesh, the Georgia Private Sector Competitiveness DPO, and Benin Cross-Border Sources of Growth.

T&C expects to standardize indicators with its operational baselines and targets, and support the use of M&E instruments to measure and verify them over the life of a project. Also, it intends to integrate impact evaluation (IE) into the design of operations. IEs assess and attribute impacts of T&C policy interventions, or combinations of interventions, on outcomes such as firm investment, productivity, and performance; the type, frequency, and volume of trade; business formalization; and job creation (see Box 7).


Box 7: Examples of Impact Evaluation Influencing in T&C Engagements in Africa

There are 39 IE studies across the T&C portfolio on topics such as trade facilitation, business registration support, matching grants, growth poles, and managerial training. Most of this work is in Africa: • In Benin, IE compares whether support on business banking and tax filing impact business formalization and firm performance. Findings are informing the design of the national “entreprenant” program, which is linked to a regional initiative to simplify business registration in West Africa. • IE was used in the context of IDA’s $18.7 million Business Environment Strengthening Technical Assistance Project, implemented over 2007–12, in Malawi. A randomized controlled trial estimated the impact of costless business registration, tax registration, and the added effect of bank information sessions on informal micro and small enterprises. It found that formalization assistance in conjunction with bank information sessions resulted in more enterprises setting up and saving in business bank accounts, accessing modern financial practices, and using complementary financial products. As part of the Global Practice’s knowledge function, IE generates valuable lessons on the design of T&C interventions that can be applied across countries. For example, IE findings on significant positive impacts on job creation of a Business Plan Competition in Nigeria led to scaling up of these programs in West Africa. Alternatively, attempts to conduct IEs of matching grants underscore implementation challenges associated with such schemes, and the need for caution.

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Our Offerings TRADE & COMPETITIVENESS GLOBAL PRACTICE


Trade

Trade Competitiveness The World Bank Group helps governments design and implement policies to maximize their trade competitiveness in both goods and services. The approach encompasses the full set of policies that shape individual firms’ capacities and incentives to import and export. The work aims to help governments reap the gains from openness to trade, regional integration, and to manage both adjustment costs and external shocks.

Context Trade policies can have critical impacts on the international competitiveness of developing countries. Trade has taken on a central role in the development strategies of many countries. As countries become increasingly integrated into the global economy through open trade policies, this openness needs to be complemented by a range of other policies to ensure sustained export growth and diversification. Growing recognition of this reality has resulted in a broader “trade competitiveness” agenda aimed at addressing supply-side constraints to investment and trade expansion in an integrated manner, while at the same time ensuring an open trade regime. In this context, goods and services are increasingly seen as two interdependent dimensions of a country’s trade competitiveness. There is a growing recognition that services inputs are critical in determining a country’s capacity to compete in international trade in goods. As well as focusing on exploiting global opportunities, many governments see regional integration as a central element of trade competitiveness. Non-tariff measures (NTMs) have also become a central focus of the international trade agenda. Trade policy has increasingly moved from a focus on barriers at the border (traditional obstacles such as tariffs and quotas), to behind the border (NTMs), and increasingly to “borderless” issues (including proliferation of private regulations and standards or distortion of competition). Many governments are interested in understanding the nature and

potential impact of NTMs, other regulatory barriers, and borderless barriers on trade, competitiveness, consumer welfare, economic growth, and the poor.

What we offer We provide a suite of diagnostic tools, policy advice, and capacity building to help governments build a framework for improving their trade competitiveness. This includes: • Trade competitiveness diagnostics in goods, services and GVCs. • Trade policy diagnostics. • NTM identification and assessment. • Assessments of regional trade integration. • Actionable policy recommendations for trade reform. • Regulatory assessments on services trade and investment. • Support to international and regional trade negotiations that aim to create larger, integrated markets for goods and services trade. This work often paves the way for further support from the World Bank Group or other development partners to address a country’s key constraints to trade competitiveness with lending and other financial interventions, technical assistance, or advisory work in more focused areas.

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The diagnostic tools used have been developed and applied through extensive experience engaging with developing country governments. They are based on quantitative analysis at the country, sector, and firm levels, and complemented with qualitative field-assessments. Options available to client governments not only combine micro- and macroeconomic tools, but also incorporate service sector performance both directly and indirectly to provide a comprehensive treatment of trade competitiveness. The methodological approaches utilize both publicly available data and non-public data, for example, firm-level balance sheets and customs data. The tools are complemented by other analytical products to address current account, labor, poverty, and connectivity issues. Policy recommendations are prioritized and based on an understanding of the unique circumstances each developing country faces.

Relevant publications Diagnostic Trade Integration Studies Trade Competitiveness Diagnostic Toolkit Valuing Services in Trade: A Toolkit for Competitiveness Diagnostics Regulatory Assessment on Services Trade and Investment Services linkages and the value added content of trade Streamlining Non-Tariff Measures: A Toolkit for Policymakers Preferential Trade Agreement Policies for Development: A Handbook Let Workers Move: Using Bilateral Labor Agreements to Increase Trade in Services The Internal Geography of Trade: Lagging Regions and Global Markets Trade Policy and Food Security

Our work in action An assessment of trade competitiveness in Pakistan informed World Bank Group-supported import tariff reform. This led to ongoing reforms to streamline the import tariff schedule and eliminate key distortionary exceptions. An assessment for FYR Macedonia addressed aggregate trade performance and firm-level developments and determinants. Testing of the effectiveness of innovation, access to finance, quality standards, and human capital in driving firm trade paved the way for a $50 million World Bank Development Policy Loan on competitiveness. In Belarus, a services trade performance analysis illustrated the potential role of services as a generator of new export opportunities, as a source of valueadded input into other economic activities, and as a key determinant of competitiveness for the overall economy. An Accelerated Program of Economic Integration (APEI) is backing up regional financing to assist Malawi, Mauritius, Mozambique, Seychelles, and Zambia in implementing their commitments to liberalize regional trade and improve the business climate for trade and investment. The Association of Southeast Asian Nations (ASEAN) countries used the World Bank Group NTM toolkit as the cornerstone of a work program to streamline NTMs in the region, supporting closer regional integration. In partnership with the European Commission we evaluated the European Union’s customs union with Turkey in light of the EU-US Transatlantic Trade and Investment Partnership negotiations, and made proposals to make the EU-Turkey customs union work better.

For further information Sebastian Saez, Acting Practice Manager ssaez@worldbank.org Ian Gillson, Senior Trade Economist igillson@worldbank.org

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Trade

Trade Facilitation and Logistics The World Bank Group supports client governments in enabling efficient and sustainable supply chains through modernization and reform of border management and clearance processes as well as logistics infrastructure and services.

Context Trade facilitation and efficient logistics support the movement of goods and services between producers and consumers. This in turn makes supply chains more efficient and reduces costs, red tape, and bottlenecks faced by the trading community. To compete in the global economy, traders require seamless supply chains, including efficient border management and clearance processes, as well as logistics infrastructure and services. These demands make the removal of supply chain bottlenecks critical to improving the competitiveness of low- and middle-income countries. Research by the World Bank Group suggests that inadequate traderelated infrastructure and supply chain bottlenecks are the primary determinants of trade costs; reducing them by half would raise global trade by an estimated 15 percent and global production by 5 percent.

What we offer The World Bank Group has implemented more than 120 customs, border management and trade facilitation projects over the past 20 years that have resulted in major improvements in terms of reduced time to import and export, as well as better transparency, predictability, and reduced transaction costs for traders. Our support focuses on both the ‘software’ and ‘hardware’ of trade facilitation and logistics. Software, in this context, refers to the reengineering of systems and procedures, reduction of red tape, improvements in the competitiveness of transport

and logistics markets, institutional development and coordination of trade-related agencies, and increasing the professionalism of logistics service providers. Hardware refers to trade-supporting infrastructure investments such as roads, ports, cargo handling facilities, and ICT systems. Aligning these hardware and software projects helps maximize their economic impact, for example by complementing cross-border road projects with reforms to streamline border clearance processes. In addition to directly cutting trade costs, our projects facilitate trade by improving cooperation across border management agencies, harmonizing procedures, and fostering smoother and more cost-effective logistics. Across both hardware and software issues, the World Bank Group applies cutting-edge diagnostic tools and brings extensive global experience to help client governments understand the key constraints and identify where reforms and investments will have the greatest impact. A range of recent publications have been developed to help client countries and development practitioners diagnose and address challenges related to logistics and trade facilitation. For example, the Logistics Performance Index provides data on the connectivity and logistics performance of 160 countries. The World Bank Group works in close partnership with key international and regional organizations and has established a number of multi-donor-financed programs to support trade facilitation. A priority is to help countries reform their trade facilitation practices in alignment with the WTO Trade Facilitation Agreement (TFA). In particular, a new Trade Facilitation Support Program allows us to respond

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rapidly to requests for assistance to help countries plan for implementation of the TFA; and secure the necessary assistance from the World Bank Group or other sources to implement reforms in line with the TFA. Our support for trade facilitation and logistics draws upon expertise found across the Bank Group, including the Trade and Competitiveness Global Practice and the Transport and ICT Global Practice.

Relevant publications Logistics Performance Index Trade and Transport Corridor Management Toolkit Border Management Modernization Developing a Trade Information Portal

For further information Sebastian Saez, Acting Practice Manager ssaez@worldbank.org Gerard McLinden, Lead Trade Facilitation Specialist gmclinden@worldbank.org Jean-Francois Arvis, Global Solutions Lead jarvis1@worldbank.org

Our work in action In Lao PDR the Bank Group helped to develop a national trade facilitation strategy, implement an automated trade information portal and an automated processing system covering all key checkpoints and 90 percent of all import and export transactions. The projects also helped develop a blueprint for a national single window, and supported WTO accession, with membership achieved in 2013. The Great Lakes Region Trade Facilitation Project will facilitate cross-border trade by reducing costs, wasted time, and harassment. This will improve the operating environment at the border for traders. The project targets the constraints faced by small-scale traders, especially women, in cross-border trade and seeks to improve border infrastructure, procedures, and systems to better connect farmers to regional markets. In Colombia, a Bank Group project improved the single window for foreign trade (VUCE) and designed a national cargo risk management policy for Colombian ports. Additionally, in two of Colombia’s major ports of entry, the project established a successful risk management program. A new risk-based approach to health clearances reduced average time at berth for ships by 50 percent. Colombia’s reforms have helped cut time to export from 20 to 14 days and time to import from 24 to 13 days since 2008. In Honduras we helped link three government agencies—Customs, the National Agriculture and Livestock Health Service, and the Center for Exports— and their systems to streamline trade procedures for agribusiness products. This resulted in a reduction in time needed to obtain technical control documents for the export of food products from three days to one. We worked with Greece to undertake a detailed review of its logistics environment, working with many agencies and the private sector to improve institutions and regulations. This led to a new law to help Greek companies better connect to Europe, and a new National Logistics Strategy for Greece.

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Trade

Making Markets Work for Development through Effective Competition Policies Competition fosters economic welfare and makes markets work for development. The World Bank Group supports clients in promoting and implementing pro-competition rules in key sectors, deterring anticompetitive business practices, and minimizing distortive government interventions in markets.

Context Even though many countries have opened to trade, markets in developing countries often underperform due to entry barriers, restrictive regulatory frameworks, and anticompetitive behavior by a few dominant players. A large number of developing countries have included pro-competition provisions in trade agreements but failed to implement them. Although more than 100 countries have enacted competition laws, anticompetitive practices continue, especially in developing countries. State-owned enterprises (SOEs) also tend to be more significant market participants in developing countries. Restrictions are more prevalent in non-tradable services with significant spillover effects. Anticompetitive business practices have been detected in various markets that are important for a country’s overall competitiveness and poverty alleviation. Cartels, which increase prices in affected goods and services by at least 20 percent, have been found in input markets such as fertilizer, cement, and transportation services. Staple consumer products such as bread and sugar, and critical financial services ranging from electronic payment systems to insurance, cost consumers more due to cartels and abuse of dominance. Bid rigging in public procurement is prevalent in construction, transportation, and health sectors. Competition in domestic markets translates into increased competitiveness in international markets. Competition has positive effects on innovation, productivity, and market growth, and makes exporters

more competitive. Competition in input markets reduces the cost of domestic inputs and enhances the competitiveness of value chains. Uncompetitive consumer product markets harm families, especially the poorest, while restrictive product market regulations hamper job creation. Poorer households are especially hurt by the lack of competition. Studies suggest that poverty could decline by at least 2 percent if anticompetitive regulations and practices were eliminated in a market for staples. Restrictive regulations curb employment rates significantly in countries where markets remained protected.

What we offer The World Bank Group advises client governments in two key competition-related areas: pro-competition sector regulations and effective competition enforcement. In lower-income countries, the work often focuses on opening specific markets to competition and reducing anticompetitive regulation that may protect less efficient incumbents. In middle-income countries, advisory services focus on increasing the effectiveness of clients’ competition frameworks. Clients can access competition policy support through several mechanisms: technical advice on policy implementation; analytical and diagnostic products to assess competition policy constraints; and advocacy and convening work. We offer clients the following analytical and diagnostic products to

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support implementation and advocate for competition reforms: • Competition Policy Assessments, including evaluation of product market regulations; sectoral competition assessment; antitrust and state aid frameworks assessment; assessment of anticompetitive subnational regulations; estimations of the effects of lack of competition on key variables (e.g. productivity, poverty, and consumer welfare). • Competition Policy Notes, including a focus on specific topics (e.g. competitive neutrality, anticompetitive regulations); review of competition law framework and by-laws; policy notes with priorities for new governments. • Institutional Effectiveness Review, involving functional review of the competition agency and its institutional effectiveness; evaluation of implementation policies and guidelines. • Impact and Advocacy Reports: monitoring and evaluation for competition interventions; literature reviews, cases, and technical papers to build analytical evidence on the need for competition policy reforms and convey results to policy makers and civil society. Policy implementation work focuses on key areas, including: (i) antitrust rules and enforcement, (ii) market regulation and sectoral policies, (iii) state aid, SOEs and competitive neutrality, and (iv) competition advocacy.

Our work in action In Kenya, the World Bank Group is advising the government on competition regulations that will break up cartels in key economic sectors. With the enactment of these regulations, anticompetitive agreements will be prohibited and removed, generating private savings for firms and households. Estimates indicate savings of about $18 million annually in insurance markets alone. In addition, sector-specific work in agribusiness has helped unlock key markets that were closed to private investment because of statutory state monopolies. We helping stakeholders draft bylaws that will allow private participation in previously monopolized markets. In the Philippines, the World Bank Group has helped implement reform that dramatically cuts the time needed to register new vessels. One result is that incumbent operators are no longer able to prevent new companies from serving certain routes. This translates into a potential 5 percent savings in transport logistics costs. By promoting equal treatment for firms seeking to register for agriculture inputs, the World Bank Group helped Honduras more than triple the amount of products registered per year and decreased the prices of some pesticides by as much as 9 percent.

For further information Sebastian Saez, Acting Practice Manager ssaez@worldbank.org Martha Martinez Licetti, Senior Economist mlicetti@worldbank.org

Relevent publications Competition policy: encouraging thriving markets for development Changing Mindsets to Transform Markets: Lessons Learned from the First Annual Awards in Competition Policy Advocacy Combating Cartels in Developing Countries: Implementation Challenges on the Ground Cartel Exemptions in Developing Countries Identifying and tackling anticompetitive regulations Institutional Functional Review on Competition Opening Markets: Creating an Environment for Investment and Jobs Creation in Tunisia

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Investment Climate

Improving the Business Climate through Effective Regulatory Reform The private sector is the main driver of development but governments establish the climate in which businesses operate. The World Bank Group is a global expert in reforms to improve the business climate in developing countries. Our work focuses on reforms to address factors underlying client performance in global benchmarking products like Doing Business and on improving overall regulatory quality and effectiveness.

Context

A number of approaches to improving the investment climate in client countries are available.

Private sector firms can more easily thrive in a regulatory environment that creates a level playing field for businesses while providing strong property and investor protections. Global benchmarking products, such as the Doing Business project, have put business regulatory reform at the forefront of policymaker agendas and created strong demand for Bank Group support. Governments often have a narrow window of opportunity for regulatory reform and look to the Bank Group to engage quickly, often within weeks. They also request support with structuring reform programs that span multiple areas of business regulation overseen by different government agencies. Business regulation reform can have maximum impact when reform is undertaken in a coordinated manner. For example, encouraging new firm formation depends on business entry regulations and related factors, including land regulation, taxation, and labor regulations. Government regulations play a decisive role in creating a predictable, safe enabling framework for firms while efficiently protecting consumers, public health, and safety.

Addressing factors influencing performance in global benchmarking products like Doing Business We can respond rapidly to client government requests for assistance in improving aspects of the business environment in the topics covered by global benchmarking tools. The focus of our indicator-based advisory support is on the topics contained in Doing Business, although other benchmarking products may be considered as a basis for supporting reform. We help governments interpret and respond swiftly to the findings of initial assessments, develop strategies, and implement solutions that deliver results in specific areas, helping generate momentum for wider reform. Key deliverables for client governments include: • Reform memorandum covering the Doing Business topics that identifies short-, medium-, and longterm recommendations and needs for further technical assistance. • Action plans to implement priority reforms with clear deadlines and assigned responsibilities.

What we offer The Bank Group draws on a set of tools and activities that help determine what to regulate, identify the targets of regulation, and establish the best means of overseeing their economic activities in a cost-efficient yet effective manner.

• Support to implement reforms. • Review of reform proposals prepared by client governments based on Doing Business or other benchmarking products.

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Targeting reforms to reduce the burden of starting, licensing, and business taxation processes, including: • Diagnostic assessments and development of reform recommendations, such as inventories of business regulations and procedures, stakeholder consultations, legal review, and mapping of business processes. • Institutional reform, for example, the establishment of clear and transparent legal mandates for regulatory agencies, and improved coordination across regulatory agencies. • Deployment of risk assessment and risk classification tools to focus regulatory oversight. • Provision of regulatory information that is accessible, reliable, and timely. • Promotion of regulatory compliance through incentives, guidance, and strategic communications campaigns. • Development of e-registries and transactional portals for regulatory service delivery. Establishing good regulatory practice Increasingly, governments ask for support to implement “Good Regulatory Practice.” This focuses on the systematic application of tools, institutions and procedures which governments can mobilize to ensure that regulatory outcomes are effective, transparent, and inclusive. The most common features include: • Easy access to laws and regulations in force. • Timely notification of new and proposed regulatory measures; and open and inclusive consultation on new regulatory measures. • Appropriate assessment of the impact of proposed regulations. • Efficient coordination and coherence in the delivery of reform (“Reform Delivery Units”). • Systematic review and monitoring of regulatory performance and quality, and reduction of implementation gaps.

Our work in action Costa Rica was a top 10 reformer in Doing Business 2013, with reforms delivered through partnership with the World Bank Group including the launch of an online one-stop shop for starting a business and electronic platform for construction, and establishment of a new secured transactions law to facilitate access to credit. Côte d’Ivoire has been ranked as a top 10 reformer in Doing Business for two consecutive years. Working with the World Bank Group, the government has implemented 16 reforms in business start-up, registering property, enforcing contracts, and other areas. It also has adopted regulations to reduce explicit or implicit discrimination against female entrepreneurs. The World Bank Group has worked with the state of Rajasthan, India, to streamline business regulations and simplify regulatory requirements for businesses in the region. On the basis of recommendations presented to the government, new regulations were adopted providing for self-certification for annual inspections, extending the expiration of business licenses from five to ten years, and eliminating mandatory annual license renewals.

Relevant publications Reforming Business Registration: A toolkit for Practitioners How to Reform Business Inspections Good Practices for Construction Regulation and Enforcement Reform – Guidelines for Reformers Policy Framework Paper on Business Licensing Reform & Simplification

For further information Christine Zhenwei Qiang, Practice Manager Cqiang@worldbank.org S. Akhtar Mahmood, Lead Investment Policy Officer (Good Regulatory Practice and Business Regulation) smahmood@ifc.org Sylvia Solf, Senior Private Sector Development Specialist (Indicator-Based Reform Advisory) ssolf@worldbank.org

• Efficient mechanism for grievances and complaints.

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Investment Climate

Investment Policy and Promotion: Attracting Foreign Investment and Maximizing Impact for the Local Economy

The World Bank Group supports client countries in attracting, facilitating, and retaining different types of foreign direct investment, as well maximizing the positive spillovers of FDI for the local economy.

Context Productive private sector investment is an important component of competitiveness and growth strategies for developing countries. Attracting foreign direct investment, in particular, helps to link a country’s domestic economy to global value chains in key sectors. FDI brings not only investment and jobs, but also increased exports, supply chain spillovers, and new technologies and business practices. Realizing these benefits requires clear and effective implementation of investment strategies and policies that respond to the realities and aspirations of a particular country. As a critical part of this, countries need to define their value proposition as an attractive investment location and to proactively market investment opportunities to investors in sectors and subsectors, highlighting their comparative advantages relative to other locations. Clear strategies and effective marketing are particularly important for countries with little track record of attracting FDI, or a reputation as difficult places to invest.

What we offer Support to client governments focuses on improving their investment policy framework, and maximizing the effectiveness of investment promotion efforts. This includes: Developing an FDI Strategy and Investment Reform Map: • Providing a logical framework enabling clients to visualize the different types of FDI flowing into their economies and the different policy mixes and

regulatory approaches required to maximize the potential benefits of each kind of investment. • Setting priorities to design coherent and concrete investment policy and promotion reform agendas at both economy-wide and sector levels; helping attract, facilitate, retain, and maximize positive spillovers of FDI into the domestic economy. Improving the effectiveness of policies and efforts aimed at attracting and facilitating FDI, including: • Establishing enhanced investor entry regimes by helping countries adopt and implement nondiscriminatory treatment of foreign and domestic investors, and reducing sectoral restrictions and performance requirements. • Streamlining investment procedures. • Enhancing investment promotion capacity, including the competitive proposition for facilitating investment in priority sectors and capacity building to undertake effective investor outreach and facilitation. Promoting good practices in improving the effectiveness of investment incentives including helping clients to identify whether and how incentives contribute to FDI inflows and policy objectives such as employment generation, export promotion and sustainable development. Strengthening investor confidence to help clients retain and expand FDI through: • Upgrading and improving legal and regulatory frameworks to reduce investment risks by putting in

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place measures addressing unlawful expropriation, protection against internationally recognized arbitrary actions or payment transfers, and currency convertibility. • Increasing investment protection by promoting best practices in tracking and resolving key regulatory implementation issues as well as in investment grievance management. • Designing and implementing investor aftercare programs that help clients build strong relationships with investors and facilitate company retention, expansion, and diversification while deepening links with local suppliers. Promoting good policies and practices in maximizing linkages and positive spillover effects of FDI for the local economy to maximize impact and promote inclusive growth. Implementing good practices to help clients participate in wider regional markets for investment through regional integration processes that promote greater FDI flows within and into a region.

Relevant publications Investment Policy Toolkit FDI Investment Generation Toolkit Promoting Foreign Investment in Fragile and Conflict-Affected Situations

Our work in action In Turkey, reform of FDI policy and legislation led to the removal of minimum investment requirements and elimination of screening for FDI approvals. A simple registration system was established instead. Three years after the reform FDI inflows increased by a factor of 10. In Mongolia, development of a new investment law entailed the elimination of screening for FDI approvals. The introduction of good practices in investor protection boosted investor confidence by protecting more than $10 billion of existing FDI stock from being subject to expropriation. In the East African Community (EAC), a scorecard assessing compliance with regional obligations boosted national reform efforts. For example, in Tanzania the scorecard triggered the liberalization of regulations that had restricted the movement of capital. In Brazil, the World Bank Group helped build the capacity of APEX (Brazil’s investment promotion intermediary) and two state investment promotion intermediaries in Para and Pernambuco, northern frontier states, to undertake targeted investor outreach. This led to the attraction of over $1.3 billion of new investment, of which some 70 percent went to the two frontier states. In India, the World Bank Group helped define Rajasthan’s competitive proposition in the automotive, solar power manufacturing and IT-enabled services sectors, reforming the investment environment to make each sector more attractive, and undertaking targeted sector outreach. This helped create a pipeline of approximately $2 billion in investment in these sectors.

East African Common Market Scorecard 2014 Providing Incentives for Investment: Advice for Policy Makers in Developing Countries Investment Incentives: An introduction to the main concepts and challenges Investment Regulation and Promotion: Can They Coexist in One Body? Global Investment Promotion Best Practices (GIPB) reports and support resources Investment Promotion: Winning Tourism Investment Guide

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For further information Christine Zhenwei Qiang, Practice Manager cqiang@worldbank.org Roberto Echandi, Senior Private Sector Development Specialist (Investment Policy) rechandi@ifc.org Robert Whyte, Senior Investment Promotion Officer rwhyte@worldbank.org

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Competitive Sectors

Expanding Market Opportunities and Inclusive Private Sector Engagement in Agribusiness The World Bank Group works in the area of trade and competitiveness to expand market opportunities in agriculture and enable a country’s private sector to develop these opportunities all along the value chain for inclusive economic growth.

Context

What we offer

Fully 63 percent of the world’s poor work in agriculture and almost 80 percent live in rural areas. Despite the predicted movement of some 200 million poor people from rural to urban spaces over the next 15 years, projected population growth implies that the absolute numbers of rural poor will not change dramatically. As efforts by countries to raise agricultural productivity gain momentum, opportunities are emerging to increase off-the-farm employment in agribusiness. It is increasingly important that developing countries seize these opportunities.

We assist governments and the private sector in exploring and enabling market opportunities in agribusiness. The World Bank Group helps clients establish or increase access to profitable product markets and provides clients with growth-enhancing know-how that both leads to and flows from greater integration into global value chains. This includes:

Rising urbanization is increasing demand for food, while rising incomes are increasing demand for processed food. Demand for food will grow by an estimated 70 percent from 2010 to 2050, and 83 percent of that growth is expected to be in the urban markets of the developing world. Net investments of more than $80 billion per year are needed if food production is to keep pace with rising demand. For Sub-Saharan Africa alone, the U.N. Food and Agriculture Organization estimates that additional annual investments of at least $21 billion are needed for agriculture to both meet demand and play a key role in reducing poverty. Most of this growth must come from the private sector. And with farmers accounting for the majority of current investment in agriculture, other parts of the domestic private and public sectors must triple their levels of investment and expand its scope. Current investment is directed at on-farm opportunities. Closing this clear investment gap requires stepped-up commitments all along the agribusiness value chain by domestic firms of all sizes and by foreign direct investment alike.

Diagnostics to help map the constraints to competitiveness and private sector investment and integration along agribusiness value chains. The resulting information enables the design of solutions that link assistance for competitiveness and market access to public investments supported by government and development partners. These investments can focus on agricultural productivity or wider policy reforms, whether at the sub-national, national or regional level. Advisory and financing support to help governments expand market opportunities and enable private initiatives in agribusiness through improved competitiveness and market integration. Support to access market opportunity through: • Investment promotion in agribusiness. • Food safety and national quality infrastructure reform to reduce barriers to market access. • Developing market linkages between locally based food suppliers and growth in other sectors, industries, and productive zones.

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• Trade and investment policy reform for agricultural product markets at the country, regional, and global levels. Enabling private sector initiatives by supporting value chain competitiveness focused on reducing the costs of doing business through: • Streamlining of trade logistics. • Diagnosis and reform of distortive trade policies in input markets. • Reducing food safety compliance costs by streamlining redundant systems and implementing risk-based reforms. • Simplifying registration procedures for agribusinesses and for trade in inputs. • Resolving competition constraints that distort prices in input and output markets. • Undertaking legislative and regulatory reform for regional harmonization and mutual recognition of standards and protocols, thus lowering regional trading costs. • Lowering the cost of financing and storage for the agricultural sector through warehouse receipt financing reform. • Linking farmers and value chain actors to markets and to policy discussions through public private dialogue (PPD) platforms and exploring opportunities for contract farming through the joint engagement of the Bank Group’s Trade and Competitiveness and Agriculture Global Practices. • Supporting the growth of small and medium enterprises, from serving local markets to competing for business on the national or international level by building marketing competence, facilitating market linkages, extending access to early-stage finance and appropriate technologies, and building managerial capacity. Our work draws on expertise available across the World Bank Group in agribusiness, including in the Trade and Competitiveness Global Practice and the Agriculture Global Practice.

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Our work in action A food safety and regulatory reform advisory project in Ukraine supported the government’s reform of inspections and registration requirements across the agribusiness sector, resulting in estimated private sector savings of $15 million annually. Similar support to the grains value chain through certification reform yielded an estimated $63.3 million in annual cost savings and leaner, more competitive value chains. Advisory support for reform of the food safety law supported greater access of Ukrainian products to the European Union. Additional support to veterinary agencies helped Ukrainian poultry producers gain access to previously closed EU markets. In Rwanda, the World Bank Group has supported the government’s reforms and development plans for the tea sector. We compiled an evidence basis and identified the reforms critical to realizing the government targets for growth in exports, farm incomes, and employment for the sector. The project provided strategic advice about privatizing two remaining government-owned tea factories and developed proposals for the reform of the green leaf pricing mechanism. The pricing reform was critical to aligning farmer incentives with the desired growth in the sector, as well as improving farmer incomes and livelihoods. In the first 12 months of the reform, Rwanda’s 65,000 tea farmers saw an average increase in income of 35 percent. Building on this success, the World Bank Group is working to provide a supply chain solution to the nation’s ambitious plans for the sector.

Relevant publications Food Safety Standards: Economic and Market Impacts in Developing Countries The Food Safety Toolkit: Guiding Principles of Food Safety Reform Public-Private Dialogue for Specific Sectors: Agribusiness A Guide to Investor Targeting in Agribusiness (print only)

For further information Cecilia Sager, Practice Manager csager@worldbank.org Loraine Ronchi, Senior Economist lronchi@worldbank.org

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Competitive Sectors

Driving Growth by Building Competitive, Sustainable Tourism Destinations The World Bank Group assists client countries in building competitive, sustainable tourism sectors to drive growth and strengthen linkages between the industry and communities. The objective of this work is to transform tourism assets into reliable sources of income, create sustainable jobs by unlocking investment opportunities, and address market failures that restrict tourism growth, inclusion, and investment.

Context

• Detailed industry diagnostics and rapid assessment.

Tourism has evolved into a diverse and sophisticated sector recognized as one of the most economically significant in the world. Tourism accounts for 9 percent of global GDP, 5 percent of total investment, and 1 out of every 11 jobs. As a mechanism for growth and wealth distribution, tourism has undeniable potential. In less developed countries, tourism is often identified as one of the key economic drivers of growth and one of the primary employers. Job creation through tourism can be particularly significant, as it is a laborintensive industry employing a high share of youth and women. Tourism often occurs in remote locations with limited employment opportunities in other fields, magnifying its impact on the poor and marginalized. For tourism strategies to succeed, destinations first need to adopt policies based on sound knowledge of how tourism contributes to growth and prosperity. Implementing those policies then requires government commitment, diligent planning, wide stakeholder engagement, and an approach consistent with responsible tourism practices.

What we offer The Bank Group works in partnership with governments and the private sector to assist at critical stages along the tourism development process, including:

• Developing integrated solutions that build competitiveness. • Providing financing and technical advice to implement those solutions. In the area of trade and competitiveness, the World Bank Group’s tourism program is designed to: Define Market Position and Opportunities for Growth: We provide diagnostic research and analysis to help client governments understand and define their competitive position, strengthen their product offering, and identify new opportunities for growth. We help develop targeted strategies to realize these opportunities and provide tools to build a shared vision for sustainable tourism development through effective partnerships between the public and private sector. Build Market Improvement: We work to improve destination attractiveness for visitors and investors by removing regulatory constraints to access and growth. These constraints include costly licensing, registration and investment approval processes, inappropriate taxes, ineffective aviation policies, and restrictive visa regimes. We also work to build skills and capacity. Foster Market Development: We mobilize investment, both public and private, and work with clients to unlock investment opportunities and commercialize key assets. This includes appraisal of investment opportunities to ensure they are

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well-prepared to be taken to market. We assist governments in defining public investment programs necessary to support the industry and to ensure communities benefit from tourism. We also help prepare concession frameworks for public assets that are commercially attractive and which provide appropriate protection for vulnerable environmental and cultural attractions. We then design and implement investment mobilization strategies and work with governments and private investors to realize sustainable investments. Through this work, the World Bank Group seeks to positively affect growth and opportunities in client countries through new investment and jobs, sector reforms and compliance cost savings, improved institutional capacity, more efficient operation of markets, lower barriers to entry, increased competition, improved quality and safety, and improved infrastructure and destination services. This work is a combination of rapid-response support and longer-term engagement, drawing on a wide range of expertise from across the World Bank Group, including the Trade and Competitiveness Global Practice; the Social, Urban, Rural, and Resilience Global Practice; the Environment and Natural Resources Global Practice, and the Transport and ICT Global Practice.

Relevant publications Tourism in Africa – Harnessing Tourism for Growth and Improved Livelihoods Global Investment Promotion Best Practices: Winning Tourism Investment

Our work in action A partnership with the Tourism and Investment Boards in Nepal is streamlining the licensing and regulatory process for tourism and developing four to five catalytic investments that have been identified in an extensive pre-implementation process. This has included investment from the Bank Group’s International Finance Corporation (IFC). In Madagascar, a project aims to help develop the Atsimo-Andrefana and Diana regions as competitive tourism destinations through airport public-private partnerships with IFC. Strategies include air transport liberalization, concession systems for protected areas, capacity building in marketing and destination management at national and regional levels, and a substantial public sector investment program in roads, water, and sanitation. In India, the World Bank Group is working with state and central governments to transform the popular “Buddhist Circuit” from a series of disconnected sites to a holistic tourism experience that appeals to various traveler segments. Increased revenue and jobs will contribute significantly to improving the quality of host communities around these sites. The partners are implementing a focused investment strategy and reform action plan for facilitating public and private investment and streamlining investment-related procedures for tourism businesses.

For further information Cecilia Sager, Practice Manager csager@worldbank.org

Handshake – Tourism PPPs - Tourism Investment Climate Section ODI – Investing in Hotels and Demonstrating Development Impact

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Competitive Sectors

Manufacturing The World Bank Group helps clients identify sustainable growth opportunities in the manufacturing sector, address bottlenecks obstructing growth, and increase industry and firm level competitiveness to deliver increased investments, job growth, and improved inclusion within the sector.

Context Over the last 65 years, of the 13 countries that sustained high sustained growth for 25 years or more, 10 did so through manufacturing-led growth. The principles that motivated their policy push and success include many that remain valid for Bank Group client countries today: • Developing countries show a high correlation between manufacturing growth and growth of per capita income. An increase in manufacturing as a percent of GDP accelerates growth at a faster rate than a similar increase in other sectors. • Manufacturing contributes twice as much to productivity growth relative to its share of overall employment compared to other sectors. • Manufacturing lends itself to spatial concentration, creates opportunities for capital accumulation and economies of scale, and leverages the trend toward increased urbanization around the world. Over the next 10 years, global demand for manufactured goods is expected to grow, with demand from developing countries as a significant driver. This trend offers opportunities for developing economies to develop their manufacturing base, serve international markets, and satisfy domestic demand.

What we offer We support client governments and the private sector in increasing growth, employment opportunities, inclusiveness, and productivity in their manufacturing sectors by addressing the fundamental drivers of competitiveness. Our support to manufacturing

includes in-depth diagnostics and integrated solutions, as well as sector- and firm-level interventions delivered through technical assistance, financing, or both. Diagnostics: Bank Group support begins with diagnostic work that examines avenues and barriers to manufacturing growth. It also leverages expertise at different levels of the value chain to assess the overall environment for manufacturing, and subsequently to benchmark the sector and its participants against key country competitors externally, and firm-level success cases internally. Technical assistance and financing support address the three primary constraints facing manufacturing companies: access to production infrastructure, inputs and markets; ineffective policies, regulations and investor outreach; and ineffective frameworks for manufacturing, productivity and innovation. We improve access to production infrastructure, inputs and markets through: • Policies, laws, and development support for establishing and growing special economic zones and growth poles, creating stable, serviced platforms from which to operate. • Trade policies and supply chain logistics support to ensure timely and reliable access production inputs and end markets. • Legal and performance-based incentive frameworks to support and encourage new investment and expansions in the sector.

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We work to address ineffective policies, regulations and investor outreach through: • Improved public-private dialogue to highlight constraints to manufacturing growth and devise a common public-private strategy to deliver remedies. • Guidance on design, consultation, and drafting of streamlined regulations and procedures affecting manufacturing to reduce administrative delays and costs. • Targeted investment promotion strategies and outreach to attract new investments, expand existing operations, and encourage linkages with local producers and contract manufacturers. • Private sector-oriented resource efficiency laws, regulations, standards, and financing to lessen the impact of high resource-related production costs and meet buyer/consumer environmental standards and expectations. We deliver support for improved policies and frameworks on manufacturing, productivity, and innovation through: • Understanding relevant global value chains and support on meeting their standards and requirements to improve export opportunities, value chain finance, and sector growth and diversification. • Support on the funding, design, and oversight of programs on innovation and productivity extension services in manufacturing to improve adoption of good management practices, acquisition, and use of new technology, and implementation of buyer standards. • Design and implementation of private sector led vocational training and managerial skills programs to increase availability of skilled workers and professionalize firm management and operations.

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Our work in action Our support to Bangladesh builds on general assistance to improve the special economic zone framework for the country by adding support to improve the resource efficiency of these zones. Work included establishing guidelines and policies that encourage firms within export processing zones (EPZs) to consume less energy and reduce up to 15 percent of CO2 emissions. Zone-based firms adopted recommendations resulting in 9,178 tons of reduced CO2 emissions per year, 18,222 megawatt hours of energy savings, and $844,155 in cost savings. Efforts to increase foreign direct investment in manufacturing within the Northeast Frontier States of Brazil were accelerated by Bank Group assistance. A partnership with the national investment promotion agency, APEX, resulted in over $900 million in new investments in the states of Para & Pernambuco. Bank Group support that helped drive this new investment included identification of subsectors with high FDI potential, state-level institutional strengthening on investor outreach and support, and identification of the best locations for operations based on serviced land, access to skills, and trade logistics. In India a similar program delivered $310 million in new investments and extended support to regulatory improvements that reduced the waiting time to register non-hazardous factories by 80 percent helping approximately 450 factories get started each year.

Relevant publications Light Manufacturing in Africa: Targeted Policies to Enhance Private Investment & Create Jobs Making Global Value Chains Work for Development SEZ: Progress, Emerging Challenges, & Future Directions

For further information Cecilia Sager, Practice Manager csager@worldbank.org

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Competitive Sectors

Spatial Growth Strategies: Realizing the Benefits of Geographically-Targeted Approaches The World Bank Group helps client governments design spatial growth strategies that will lead to greater levels of investment, create jobs, and provide efficiencies to industry through shared infrastructure.

Context In recent years, a number of countries have experimented with various strategies to correct market and governance failures within and across industries. One approach is to work with spatial strategies such as growth poles, growth corridors, and special economic zones (SEZs). A spatial approach allows for better coordination and a focus on specific investments and policy reforms that will maximize private sector investment. Spatial tools enable bundling for cost-effective delivery of support to industries. This can involve shared infrastructure and services geared toward specific industries, the coordination of reforms at different levels, and readily available convening power to bring together public and private sector actors. Sector or spatial factors can also affect the incentives for firm entry and growth. Investors can see the advantages in cost and efficiency of firms working in close proximity. Access to essential public goods such as land and traditional physical and common-use infrastructure is a key part of these calculations. When implemented correctly, spatial tools can lead to increased private sector investment directed to areas of excellence and higher productivity in select industries that, with proper linkages, will result in positive spillovers to the broader economy and significant sustainable job growth.

What we offer We help countries custom-design spatial growth strategies that will lead to greater levels of sustainable investment and job creation. Our clients are usually

heads of line ministries, such as industry, commerce, and public works, SEZ authorities, and investment promotion agencies. The support we provide is structured around two core issues: identifying the spatial growth tools available; and selecting the best tool and optimizing implementation of the chosen approaches. The spatial growth tools available • Growth poles and corridors are simultaneous, coordinated investments in various sectors focusing on a particular geographic area to support selfsustaining industrialization in a country. They help exploit agglomeration economies to spread resulting prosperity from the core of the pole to the periphery. An industrial cluster, an IT park, an SEZ, a tourism zone, an agribusiness corridor, and even a city can all be viewed as growth poles. They can develop organically, such as the IT sector in Bangalore, or as a result of deliberate government actions, such as the tourism growth pole in Puerto Plata in the Dominican Republic. • SEZs are delimited geographical areas that provide enhanced “hardware” (infrastructure) and “software” (investment climate) to businesses to attract investment and energize exports. They are often part of growth poles and can allow for rapid development of priority sites for specific market opportunities. They often serve as effective pilots for wider reform while creating jobs and facilitating the monitoring and enforcement of social and environmental compliance.

TRADE & COMPETITIVENESS GLOBAL PRACTICE

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Selecting the best tool and optimizing implementation • Identification of the priority market and government failures that the spatial growth strategy will address helps unlock the greatest volume of investment. • Strategic diagnostics help determine the best spatial growth tool to tackle the constraints identified. Diagnostics include benchmarking, demand surveys, and identifying comparative advantages and market opportunities for sectors. • Decision support systems include a scenario approach examining a base case, aggressive case, and conservative case, cost-benefit analysis, feasibility, and environmental and social sustainability. • Facilitation of public-private dialogue can play a key role in formulating and implementing projects. • Institutional and regulatory assistance helps establish streamlined public and private institutional setups with minimal overlap and international best practices in a custom-built regulatory framework. • Assistance with project design and implementation incorporates accumulated lessons learned from similar projects in more than 30 countries. • Green and low-carbon zone development is advanced by developing industry guidelines and action plans on how to increase competitiveness and optimize energy and resource use.

Relevant publications

Our work in action In Bangladesh, the World Bank Group helped address the country’s scarcity of industrial land by assisting with the drafting of a complete regulatory and institutional framework enabling the formation of new, private SEZs. This framework has now been enacted, and the first two SEZs have been licensed under the EZ Act, one under a public-private partnership, the other an entirely private SEZ. Assistance was also provided in the area of social compliance and low-carbon development. As a result of the World Bank Group-funded labor counselor program, labor standard compliance among EPZ companies has risen from 30 percent in 2005 to 93 percent today. Through its Low-Carbon Zones Program, the SEZs have also been able to generate investments while lowering greenhouse gas emissions. In Madagascar, a $165 million project contributed to a ten-fold increase in the stock of formal enterprises and a near seven-fold increase in the number of formal jobs in the growth poles of Fort Dauphin and Nosy Be since the start of implementation, despite a complex political environment. The project successfully integrated a number of reforms to improve the business climate and job creation around these growth poles. Building on the first project, a second $50 million phase will expand to growth poles in three additional regions.

For further information Cecilia Sager, Practice Manager csager@worldbank.org Martin Norman, Senior Private Sector Development Specialist mnorman@worldbank.org

WEF Africa Competitiveness Report, 2013, Chapter 2.3 – Growth Poles: Raising Competitiveness and Deepening Regional Integration Special Economic Zones: Performance, Lessons Learned, and Implications for Zone Development Special Economic Zones: Progress, Emerging Challenges, and Future Directions Low-carbon Zones: Practitioner’s Handbook

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Competitive Sectors

Competitive Cities—Facilitating Economic Growth and Job Creation by City and Subnational Governments The World Bank Group sees cities as engines of private sector growth and helps clients match the needs of the private sector with the advantages cities can offer. The Bank Group helps develop trade and competitiveness policies, processes, investments, and institutions to deliver jobs and growth for cities.

Context No country has ever reached middle-income status without a significant population shift to cities. Urban areas contribute as much as 70 percent of global GDP despite representing only half the world’s population. Cities render economic activity more efficient and productive. They are crucial nodes in global value chains (GVCs), providing centers of activity where goods are traded and knowledge shared. The economic benefits of urbanization do not happen automatically. With benefits come challenges of concentrated poverty and unemployment. The urban share of poverty in the developing world has jumped from 17 percent to 28 percent in the past decade. Not every city is fully harnessing its economic potential, with the result that firms and industries fail to achieve the productivity they need to compete globally. The need for action to help cities realize their economic potential is urgent. Urbanization in today’s developing cities is occurring rapidly. The world’s urban population is increasing by approximately one billion every ten years. How will the jobs needed to support this growth be created? Cities, subnational governments, and the private sector play a defining role in city economic outcomes. In an increasing number of countries, local governments levy taxes, impose regulations, invest in roads, provide basic services, manage urban land, and pursue economic development initiatives. In other instances, it is the private sector that leads in providing some services or in driving economic

development initiatives at the local level. However, are those activities strategic? Is there a public-private growth coalition able to steer cities in the right direction? How can cities configure their interventions for the biggest payoffs for job creation and growth?

What we offer The Bank Group helps cities craft and execute successful strategies for growth and jobs. Our clients in the urban space are typically heads of city economic development or other special units in mayoral offices. In response to client needs, the Bank Group’s cities work in the area of trade and competitiveness spans a range of services, from evidence and data collection to innovation and implementation. These include: Evidence on city strategies to create jobs and growth. This includes support drawing on: • Statistical evidence on predictors of city economic outcomes across 750 cities worldwide—plus firmlevel analyses in selected countries. • Emerging evidence on what factors have the most influence on choices by firms to establish operations in a particular location. Prioritizing reforms for cities. We help clients develop strategies built upon: • Benchmarking of city competitiveness, providing a snapshot to compare the client city with comparable cities in key areas of competitiveness.

TRADE & COMPETITIVENESS GLOBAL PRACTICE

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• Strategic diagnostics to identify pathways to competitiveness and job creation via priority industries, firms, and value chains. The emphasis is on solving coordination failures and building an economic strategy. • Decision support system, including a scenario approach, which identifies initiatives with the best payoffs and examines their feasibility. • Deep-dive support to policymakers on specific intervention areas, including: • Innovation-driven growth. Innovation ecosystems work best when businesses work with and learn from other businesses, researchers, and training organizations. Cities can stimulate these systems through local entrepreneurship, support networks of angel investors, business accelerators, and industry clustering around a local economic asset. • Industry development and evolution. Economic development activities can achieve greater impact if they focus on areas of local comparative advantage. Using product and market research, benchmarking, and value chain analysis, city economic development personnel can assist firms in solving coordination failures and increasing the value of their businesses. Strategies to implement reform Our advice is based upon an understanding of what administrative powers are held at the city level. It includes assessment of opportunities to increase policy leverage, using evidence on good practice in implementation, with summary cases on: day-to-day performance management; economic development agencies; and turnaround initiatives, for example, in Bilbao, Spain; Lagos, Nigeria; and London.

Our work in action We worked with the City of Johannesburg, South Africa, to identify relevant cities as a comparison for improving Johannesburg’s competitiveness. We provided detailed analysis of the structure of Johannesburg’s economy, both in terms of overall economic activity and sub-regions of the city. Based on this analysis we identified industries with a comparative advantage and potential for future growth, detailed for each sub-region. These included research and development (R&D), special equipment manufacturing, logistics, construction, and SMEs. We also worked with authorities to develop strategies to improve competitiveness in these industries. For example, for R&D we identified the key city-level considerations for international firms in deciding where to locate R&D operations and proposed strategies to address shortfalls for Johannesburg. This has paved the way for a comprehensive economic development strategy and investment framework for Johannesburg.

This work can help prepare the ground for larger investments by the World Bank Group, other development partners, or governments. It draws on expertise available across the Bank Group, including in the Trade and Competitiveness Global Practice and the Social, Urban, Rural and Resilience Global Practice.

For further information Cecilia Sager, Practice Manager csager@worldbank.org Sameh Wahba, Practice Manager swahba@worldbank.org

We provide guidance on solving coordination failures through public-private collaboration, building a framework for division of roles, sequencing, and priorities for various levels of government and the private sector.

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Innovation & Entrepreneurship

Growing Tomorrow’s Market Leaders: Empowering Entrepreneurs to Grow Their Businesses Governments seeking to foster entrepreneurial activity can benefit from World Bank Group help in conducting diagnostics, identifying opportunities for stimulating growth, reforming policies, and building the capacity of entrepreneurs to start and grow their businesses.

Context Countries and regions characterized by higher entrepreneurial activity tend to have higher growth rates and job creation, the main pathways through which the poor can escape poverty and join the global middleclass. New research shows that young companies, in particular, contribute significantly to net employment growth and help enhance competitiveness and productivity by introducing new products, developing novel business models, and opening new markets. Investment in growth businesses thus becomes an investment in sustainable job creation, inclusive private sector development, and greater consumer choice. The growth of a business is affected by how external and internal factors affect the entrepreneur at each stage of enterprise development, from original concept to feasibility and monetization, and from there to growth, optimization, and innovation. External constraints include the business environment, characteristics of the particular industry, the firm’s access to capital, labor, technology, and other inputs, and the availability of markets to sell products and services. Internal constraints include the capabilities of the entrepreneur, the management and organization of the firm, as well as the firm’s capacity to tap into relevant networks.

What we offer We support governments in a number of ways, including: • Identifying current performance, opportunities for growth, and constraints to successful entrepreneurship.

• Developing comprehensive entrepreneurship ecosystem strategies and designing targeted solutions that promote the growth and productivity of firms. • Developing capacities within ministries and government agencies for design, delivery, monitoring, and evaluation of programs to promote entrepreneurship. These services can be framed in the context of a competitiveness and growth strategy at the national, regional, or municipal levels, or within the context of strategies to promote specific industries, such as agribusiness, tourism, and energy. World Bank Group entrepreneurship support in the area of trade and competitiveness consists of the following components: Assessing opportunities and constraints to growth by entrepreneurs, including: • The current performance and needs of entrepreneurs and small and medium enterprises (SMEs). • Market and technology trend implications for growth-oriented entrepreneurs. • The business environment, including access to key inputs such as capital, labor, infrastructure, and technology. • Access to national, regional, and international markets, including global value chains. • Organizations and capabilities in the entrepreneurship eco-system.

TRADE & COMPETITIVENESS GLOBAL PRACTICE

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Developing entrepreneurship eco-system strategies and targeted solutions, including: • Regulatory and policy reform, such as tax, labor, bankruptcy, tariffs, and standards. • Entrepreneurial and SME capacity and network builders, for example, accelerators, innovation centers, business incubators, and clusters. • Programs to support access to markets, including building SME capability to access global supply chains. • Technology extension services, such as programs for productivity or bringing standards up to date. • Risk financing for young firms, including cofinancing, seeding, and angel investment groups. Building capability within government agencies by: • Building capacity for design, delivery, monitoring and evaluation, either through new institutions or reforming existing ones. • Implementing expenditure reviews of public investment to support entrepreneurship, productivity and SMEs growth. • Cultivating multi-stakeholder ownership for the design and delivery of solutions. • Mobilizing participation of commercial financiers and large corporations, for example, as co-financiers in risk financing or partners in technology extension programs.

Our work in action In Mexico, the World Bank Group is supporting the recently created INADEM (Institute for Mexican Entrepreneurs) providing strategic advisory to set up a rigorous system of monitoring and evaluation which will allow INADEM to assimilate the results of its programs and improve its portfolio of interventions to promote entrepreneurship and productivity. Furthermore, as part of this support, the World Bank Group is supporting INADEM in evaluating specific new pilots to promote entrepreneurship. In Malaysia, the World Bank Group supported the development of the national master plan for SMEs. The plan helps analyze Malaysia’s entrepreneurial performance and its impact on growth and productivity. A stock-taking of existing initiatives was completed, along with an overarching results-based strategy which included six initiatives targeting particular gaps in the entrepreneurship eco-system.

Relevant publications Does management matter? Evidence from India Stunted Growth: Why Don’t African Firms Create More Jobs? Latin American Entrepreneurs: Many Firms but Little Innovation The Dynamics of Employment Growth: New Evidence from 18 Countries

For further information Ellen Olafsen, Program Coordinator eolafsen@worldbank.org

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Innovation & Entrepreneurship

Increasing Entrepreneurship in the Digital Economy The World Bank Group provides analysis and digital entrepreneurship programs designed to spur economic activity in knowledge industries, reduce information asymmetries, create high-value jobs, and spur high-tech innovation.

Context The digital economy contributes significantly to GDP in developed countries, but developing countries that have made strategic investments in broadband infrastructure are catching up fast. In these countries, the digital economy can play an important role in encouraging inclusion and alleviating poverty, for example, by reducing information asymmetries for poor or rural workers, and by fostering entry into the productive labor force of women and younger workers. Young people, consistently the first to embrace new digital technologies, often seek employment in high-tech sectors and can be critical to developing a skilled workforce that is internationally competitive in an increasingly interconnected world. Further, the digital economy is vital to spurring the overall innovation potential of a country in areas such as research and development (R&D), high-tech industry development, and technology patent activity. Many developing countries seek to improve the policy frameworks, technical programs, skills development programs, and financing initiatives that support entrepreneurship in the digital economy. The ultimate aim of these initiatives is to improve competitiveness, attract investment, create jobs, and grow markets.

What we offer The Bank Group assists clients in the design and deployment of digital entrepreneurship initiatives, building on experience and lessons learned working around the world in a wide variety of industries. Our support is tailored to the unique circumstances of our

clients, and can be provided at the level of national governments as well as subnationally, for example to city governments. Supporting the development of digital incubators, accelerators, and early-stage funding programs These are designed to support the digital entrepreneur on the path “from mind to market,� that is, from the idea-stage of a business or product line to the building of a prototype to launching a new product and to growing the business at home and abroad. Incubators provide technical training, targeted business mentoring, and opportunities to network with peers, investors, research institutes, and established firms, along with free or subsidized office space and internet connectivity. Accelerators focus on helping startups that are already earning revenues to enter a high-growth stage through intensive training and equity-based investment. These approaches can be combined with financial support during the riskiest early stages of a startup’s development. Digital Entrepreneurship Scorecard This rapid diagnostic tool is used to assess digital market opportunities and the level of competitiveness in the information and communication technology (ICT) sector. It can also help identify gaps and inform recommendations related to digital skills, evaluate appropriate financing mechanisms for digital entrepreneurs, analyze the overall entrepreneurial culture, and identify opportunities for innovative partnerships.

TRADE & COMPETITIVENESS GLOBAL PRACTICE

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Digital Entrepreneurship Opportunity Map This analytical product helps governments take advantage of emerging technological developments such as social media, mobile technologies, big data, cloud computing, the Internet of things, and smart city grids. Private sector leadership models We can advise clients on strategies to incentivize established firms to collaborate with digital startups, research institutes, and financing bodies, for instance by investing in shared R&D and technology transfer. We can also help design models for collaboration between the private sector, government, and non-governmental organizations on digital economy initiatives. Policy guidance and best practice examples These can assist digital entrepreneurs with founding, scaling, and internationalizing businesses, including issues related to intellectual property, infrastructure, investment climate, and procurement of digital products and services produced by entrepreneurs. Strategies for employing digital entrepreneurs in pursuit of broader development objectives These include improving health outcomes, strengthening government transparency, disaster response and relief efforts, and encouraging labor force participation by women and young people.

Our work in action The World Bank Group has supported mLab and NaiLab, incubators that have fostered a vibrant digital entrepreneurship ecosystem in Kenya, along with the pioneering community organization, iHub. These skills development networks have supported young, tech-savvy innovators in taking risks building products, services, and platforms for local markets. The mobile merchant service Kopo Kopo emerged from mLab to raise more than $3 million and take its product to global markets. In three years of operations, mLab has provided skills training to 5,000 developers and entrepreneurs. Its resident startups have introduced 142 mobile applications to the market and created over 100 jobs. Since 2010, through a mobile hub supported by the World Bank Group in Nepal, many skilled mobile app developers have formed a strong local community that has created a dozen successful startups focused on both local and global markets. The work of these developers has resulted in the introduction of a mobile money payment gateway, created learning partnerships with global IT corporations, and raised seed investment funds for new ventures.

Relevant publications Do mLabs Make a Difference? Mobile Apps at the Base of the Pyramid

For further information Valerie D’Costa, Program Manager, infoDev vdcosta@worldbank.org Maja Andjelkovic, Projects Officer mandjelkovic@worldbank.org

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Innovation & Entrepreneurship

Innovation Policy for Competitiveness The World Bank Group helps developing countries identify, design, and implement policies, reforms and strategic investments to foster innovation in their economies.

Context Innovation spurs economic dynamism and structural transformation. Through innovation, new and more efficient businesses drive older, less efficient firms to exit the market or raise productivity levels, improving the overall allocation of resources within the economy. As a key driver of firm growth, innovation fosters shared prosperity by boosting formal employment and wages. Robust innovation performance is important for building dynamic and resilient economies. Innovation allows firms to specialize, meet international bestpractice standards, upgrade quality, and reduce costs. Each of these areas is essential for firms to compete and thrive in the global economy. A wide range of development challenges can also be more easily achieved with the systematic support of research and innovation policies. Agricultural research and extension services, for example, have had a positive impact on agricultural productivity and worker income. Innovation is closely related to a firm’s capacity to adopt, adapt, and develop knowledge. Investments in research and development, innovation, and other types of knowledge capital increase firm capacity to learn and continuously improve product quality and reduce production costs. Prevailing market, institutional, and systemic failures undermine firm innovation performance in a number of ways: • Firms tend to underinvest in research and development (R&D), innovation, and other forms of knowledge due to high cost and the uncertainty of returns.

• Different incentives between public research organizations and firms generate failures in terms of knowledge transfer and broader collaboration between science and industry. • Different framework conditions, such as an open and competitive market place, access to innovation financing, and entrepreneurial capacity, are necessary. • Innovation is a systemic process which inevitably involves coordination challenges. Government policies can, in principle, mitigate these problems. Yet, existing policies and programs, developed by and implemented in advanced countries, are only partially applicable in developing economies.

What we offer We help countries identify, implement, and evaluate policy reforms, programs, and strategic investments that fit each country’s unique circumstances. Our work is structured around four main objectives. Strengthening governance for policy effectiveness. This includes helping governments to review public spending on science, technology and innovation (STI), design and implement policy programs for innovation, and establish an effective institutional framework for innovation policy. We also support governments in learning from previous programs and in fostering transparency and dialogue in innovation policymaking to reach a policy mix consistent with their development circumstances and trade specialization.

TRADE & COMPETITIVENESS GLOBAL PRACTICE

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Enabling firm innovation. Firm innovation may occur through a number of means, from the adoption of new machinery or organizational practices in existing firms to the startup of researchbased companies. We help stimulate innovation and the establishment of innovation-based startup companies by: • Addressing access to technology, cutting-edge management practices, training, and other non-R&D issues that also foster firm innovation. • Developing innovation financing mechanisms such as pre-seed and seed funding, including angel and venture investing. • Supporting mentoring and nurturing services, including venture accelerators. • Assisting in the design, implementation and evaluation of indirect and direct subsidies to business innovation and R&D investments. Improving the impact of public research organizations, for example by improving frameworks for more effective collaboration between academic institutions and industry and technology transfer. We also help countries address obstacles to higher excellence and productivity in the public research sector through incentive-based reforms and better management of public research organizations. Enhancing the contribution of innovation policy for shared prosperity. Our support focuses on using innovation policy to improve the prospects of the poorest in countries. This can also include using innovation policy to improve outcomes in health or the environment, for example through innovation for green technologies.

Our work in action The India Technology Centre Systems Project is helping to establish 15 new technology centers and upgrade 18 existing centers housing advanced manufacturing production technologies, training facilities, and business development services. The project is also developing a national IT platform to allow virtual access to those services provided by the centers. The Croatia Second Science & Technology Project assisted in the restructuring of key public research institutes, promoted collaboration between science and industry on technology transfer, encouraged investments by small and medium enterprises in R&D, improved the overall management of the national innovation system. By the end of the project, about $20 million in SME investments in R&D had been mobilized. Through the Colombia Innovation and Competitiveness Programmatic Project, new modalities of manufacturing extension services are being tested and evaluated in partnership with the government of Colombia. The primary objective is to support small and medium sized firms to enter and upgrade their participation in local and global value chains.

Relevant publications Agricultural R&D Investment, Poverty and Economic Growth in Sub-Saharan Africa: Prospects and Needs to 2050 Financing Business Innovation: ITE Policy Note Public Expenditure Reviews in Science, Technology and Innovation Technology Transfer from Public Research Organizations: ITE Policy Note

For further information Justin Piers William Hill, Senior Private Sector Development Specialist jhill@worldbank.org Ana Cusolito, Economist acusolito@worldbank.org

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Innovation & Entrepreneurship

Skills for Competitiveness: Boosting Firm Growth and Youth Employability To boost trade and competitiveness, the World Bank Group helps clients improve the ability of firms to access needed skills through training institutes and on the job programs with the objective of strengthening firm productivity and boosting employment, especially among youth.

Context Between now and 2030, more than a billion young people will enter the labor market; every month, more than a million will seek jobs in Africa, and another million in India. There are growing numbers of youth with high levels of education working in informal jobs or unemployed, limiting their economic potential and threatening social cohesion. The private sector, comprising both employers and training providers, has a role alongside government in addressing this challenge. Recent impact evaluations from Asia and Africa have shown that various forms of skill-building—on-the-job training, courses via training systems, entrepreneurship development—benefit firm productivity and youth employability. Functioning and competitive training markets such as in Malaysia and Brazil help firms meet their training needs. Increasingly, firms are cooperating through clusters and value chains to deliver on-the-job skills training. Examples include supplier skill development programs in the Indian automotive sector and firm-led cooperatives in Zambia’s dairy sector.

on fast-growing sectors integrated in international trade. For small and medium enterprises (SMEs), we support the acquisition of skillsets to help them work more effectively with large firms and be more competitive. • Identifying areas for the private sector to improve programs addressing ‘supply side’ skills issues like improving formal technical, vocational, and educational training systems, or strengthening teacher training. • Developing capacities for design, delivery, monitoring, and evaluation of programs to promote demand-driven skills delivery. These services can be part of a competitiveness and growth strategy at the national, regional, or municipal level, or within strategies to promote specific industries, such as tourism or agribusiness. They can also be framed in the context of wider education sector reforms. Bank Group skills support in the area of trade and competitiveness consists of the following: Assessing opportunities and constraints for firms seeking competitive skills, including:

What we offer In the area of trade and competitiveness, we focus on how firms can access skills that increase their knowledge, productivity, and competitiveness through demand-side interventions and improved matching with the supply-side. This includes:

• Understanding the dimensions of skills as a constraint to firm growth relative to other inputs, including investment climate issues.

• Identifying key factors driving skill gaps at the sector and value-chain level that constrain firm competitiveness in growing industries. We focus

• Within a sector, analyzing how firms are sourcing skills along the value chain.

• Identifying sectors with growth potential that are constrained by a lack of available skills.

TRADE & COMPETITIVENESS GLOBAL PRACTICE

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• Mapping stakeholders from across various groups including employers, training providers (public and private), government, and civil society. • Identifying existing constraints affecting the ability of post-secondary training that providers offer youth with skills relevant to the needs of the job market. Developing sector-based solutions for delivery of skills to enhance firm productivity by: • Supporting sector-specific SME development (e.g. in automotive, electronics, agribusiness etc.) by identifying skill needs, providing shared physical spaces for training, and other support. • Supporting skills for developing local supply chains in emerging markets. • Supporting development of national and local level sector skills councils. • Building capacity of local associations to help deliver skills. • Strengthening gender parity through skills-building in manufacturing and services. Providing an enabling environment to match skills delivered by post-secondary training systems with firm needs by: • Linking employers with public and private education and training providers. • Strengthening the effectiveness of quality assurance and competency frameworks. • Removing regulatory bottlenecks which constrain private sector investment in education and training. • Creating labor market information systems to enhance access to information. • Supporting private investment in post-secondary training to enhance options for quality and relevant education and training.

Our work in action In Jordan, the World Bank Group, in partnership with Int@j, the ICT business association, is working on reducing the skill gap in the ICT sector by strengthening quality assurance frameworks based on jobs profiles identified by ICT firms, working with education providers to adapt the framework into their curricula, and establishing an ICT Sector Skills Organization. In India, the World Bank Group, through the Technology Centre Systems Project, is supporting public-private partnerships to invest in hard and soft infrastructure for skills enhancement. Modernization of physical facilities, such as shared tool rooms, provides the infrastructure for skills-building collaboration with technology partners helps to diffuse technologies; and presence of cluster network managers strengthens linkages among SMEs. In Morocco, a World Bank Group project will add labor information to the existing Logistics and Tourism Labor Market Information Observatory, as well as develop a qualifications framework for the tourism sector.

Relevant publications World Development Report 2013: Jobs Competitive Industries Notes: Skills and Firm Productivity Managerial Skills Improvement in Small and Medium Enterprises: An Impact Evaluation Assessing Private Sector Contributions to Job Creation and Poverty Reduction Education for Employment: Realizing Arab Youth Potential

For further information Cecilia Sager, Practice Manager csager@worldbank.org Dahlia Khalifa, Program Leader dkhalifa@ifc.org Priyam Saraf, Specialist, Competitive Industries psaraf@worldbank.org

These approaches have been piloted since 2012 through the E4E Initiative for Arab Youth, which aims to provide youth with skills relevant to the marketplace. The Bank Group’s work in this area draws on wide-ranging expertise, including in the Trade and Competitiveness Global Practice and Education Global Practice.

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Innovation & Entrepreneurship

Supporting High Growth Potential Women Entrepreneurs The World Bank Group helps women entrepreneurs overcome the constraints they face in achieving full economic participation, and in maximizing their potential contributions to the economy and to society.

Context Eliminating extreme poverty and boosting shared prosperity can only be achieved with the full economic participation of both men and women. Nearly one billion women with the potential to contribute more fully to their economies are constrained from doing so. Of these, 812 million live in developing countries where additional contributions are most needed. In addition to issues of economic fairness, the costs of leaving women out of economic participation are unacceptable. Empowering female entrepreneurs, especially those in high-growth sectors, has the potential to create jobs, increase incomes, lift thousands of households out of poverty, and lead to greater economic and social transformation. Two factors that contribute significantly to the high cost of marginalizing women from their full economic potential can be addressed by implementing programs that target female entrepreneurs. First, there is evidence of a gender-based performance gap between female and male entrepreneurs. Women tend to enter into entrepreneurship activities at a lower economic level than men, with female entrepreneurs operating informally and concentrated in low productivity sectors with limited potential for growth. Second, while all entrepreneurs in developing countries experience significant obstacles in their businesses activities, evidence suggests that the extent of the barriers faced by women entrepreneurs is often significantly larger than those experienced by their male peers. Women-led enterprises face a number of constraints, including: • Lack of appropriate initial conditions at the startup stage. In some countries, women have less access

to education than men and their access to finance is constrained by significant obstacles to owning or inheriting assets or engaging with financial institutions. • Policies, regulations, and institutions that discriminate against women. These obstacles can range from laws barring women from obtaining bank loans without male consent to the implementation of regulations that target traditionally female-dominated sectors with the objective of obtaining bribes. • Social norms. While the social pressures placed on women vary from country to country, social norms often limit women’s economic participation by limiting their physical mobility or the time they have available to run a business. Social norms underlie the sectors of economic activity women work in, with the result that women tend to cluster in service sectors with low productivity and growth potential.

What we offer We support efforts to address the constraints faced by women entrepreneurs. The support falls into two broad categories encompassing women’s business capabilities and the reform of regulations that stand in the way of women entrepreneurs. Business capabilities, mentoring, networking support, and financing This approach combines training in business education and skills, with high quality mentoring and networking activities. Successful intervention requires designing curricula that are appropriate for the needs and

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cultural context of women entrepreneurs, the training of instructors to effectively support those needs, and the organization of mentoring and networking events that create links among women entrepreneurs while opening market opportunities in maledominated sectors. These programs seek to address constraints associated with social norms by integrating community engagement elements, such as discussions with community leaders on the positive role of female entrepreneurs, and organizing joint sessions with spouses on how to support female entrepreneurship. Where appropriate, these approaches can be combined with specific finance products tailored to female entrepreneurs. The objective is to first establish a pipeline of women entrepreneurs with better business capabilities and then link qualified candidates to specific financial products. Regulatory reform programs target legal and regulatory elements that act as barriers to women’s economic participation. The objective is to implement legal and regulatory reform that will enable the growth of female enterprises. This approach combines proven solutions with new offerings being tested as pilots, specifically: • Programs supporting the crossover of women entrepreneurs to more productive sectors and to higher-value activities within traditional sectors. • New approaches and instruments to addressing the constraints social norms impose on female entrepreneurs. • Measures that strengthen the capacity of institutions to implement and enforce regulations in a non-discriminatory way.

Our work in action In the Caribbean, the World Bank Group supported the development of the women innovators network Caribbean (winC) to connect growth-oriented women entrepreneurs and help them scale their businesses through mentoring, training, and peer-to-peer learning. Led by women in the region, the network has engaged hundreds of women online and provided a platform from which they can receive access to mentorship and participate in focus groups and workshops. The World Bank Group has also provided training programs for women entrepreneurs. In Côte d’Ivoire, through the Women, Business and the Law reform program, the World Bank Group is helping the government implement reforms to its family law to increase female participation in business. For example, amendments to the Family Code allowed both spouses a role in choosing the family domicile and pursuing their career of choice, taking into account the interests of the family. The code was also reformed to eliminate provisions providing childcare benefits only to men as head of household. In addition, married women no longer need to provide their marriage certificates to obtain passports.

Relevant publications Supporting Growth-Oriented Women Entrepreneurs: A Review of the Evidence and Key Challenges (2014) Enterprising Women: Expanding Economic Opportunities in Africa (2013)

For further information Valerie d’Costa, Program Manager, infoDev vdcosta@worldbank.org Komal Mohindra, Senior Private Sector Development Specialist kmohindra@ifc.org Xavier Cirera, Economist xcirera@worldbank.org

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Cross-Cutting Topics

Connecting People and Firms to Markets and Opportunities The World Bank Group helps client countries better connect people and firms to markets and opportunities. We support governments in maximizing expected returns on policies and investments by taking into account economic interaction within and between networks.

Context Connectivity among individuals, firms, countries, and regions is increasingly understood as a key factor in achieving competitiveness and sustainable, inclusive economic growth. Trade, migration, information, transport and transit, energy, and financial flows interact in complex ways. A number of organizations such as the European Commission, Association of Southeast Asian Nations (ASEAN), and Asia-Pacific Economic Cooperation (APEC) have developed their own connectivity strategies in recent years. So have a number of countries, often with World Bank Group support. Connectivity has both physical and policy dimensions. It applies to regions within countries as well as countries within the global economy. At a national level, good trade connectivity to strategic nodes of global economic activity is critical for the integration of countries and firms into regional and global trade and value chains. Connectivity can be enhanced by removing barriers to trade and by reducing trade costs. Strategic positioning in global networks enables firms to trade in components supporting just-in-time assembly, and broadens the potential for trading of perishable goods. At a sub-national level, poverty is increasingly concentrated—not necessarily far from dynamic economic centers, but economically disconnected from them by choke-points (e.g. ports or borders) and poor linkages to key network services such as finance, transport, logistics, and internet technology. Network connectivity is relevant for large, complex, and multidimensional problems in economic

development. For instance, the dynamics of value chain integration across economies can be described in terms of networks of industries connected in “product space.� Connectivity entails risk. It can be a source of contagion and internal systemic vulnerability, as evident in the rapid spread of the 2008 financial crisis across trade and financial networks. The geographic extension of trade, transport, energy, and logistics networks implies an environmental and social footprint. These and other potential risks of connectivity need to be understood and managed.

What we offer We support client governments in addressing the complex challenge of improving connectivity. This includes the use of cutting edge approaches, including network analysis, the Logistics Performance Index, Air Connectivity Index, and trade costs datasets, among others. These help diagnose the key constraints to improved connectivity and the most effective means of addressing them. We provide advice to client governments to help them better understand the interactions between networks that shape their connectivity internally, and with others. These networks are varied, relating to trade, infrastructure, information, finance, employment, and industry products, among others. Using an integrated framework for connectivity allows us to help determine which combinations of policy reform and investment projects will have the most positive impact. It also helps in maximizing

TRADE & COMPETITIVENESS GLOBAL PRACTICE


the results generated by inter-related projects and policies. For example, instead of improving just one aspect of a physical network, such as improving road infrastructure, we are able to develop wider connectivity projects combining “hard” and “soft” infrastructure to create economic, financial, and physical connectedness in centers of growth. Such combined approaches generate greater impact than interventions in a single area, such as an industry cluster or a port, or in links between areas, such as a specific supply chain or a section of road corridor. Using network analysis allows the World Bank Group to provide advice and help implement reforms to improve client country positions in global networks of trade and production, as well as in networks that support those processes, such as air and maritime transport, and finance, among others. We also help clients exploit the linkages across networks by supporting programs that cover several layers of networks at the same time—such as competitive industries, physical infrastructure, finance, and trade policies. Our products and services can tackle connectivity challenges on different networks at different scales. The work can focus on domestic connectivity—for example, lagging regions, urban networks, national networks. It can also focus on global connectivity— for example, the competitive position of a country and the hub-and-spoke dynamics of networks. Such engagements require enhanced cooperation across government agencies, but need not result in overly complex projects. This relatively new line of work entails a multidisciplinary approach to develop and implement improvements in network connectivity. The World Bank Group engages partners in other international, academic, and governmental institutions to fill the gaps and make available global connectivity data, such as on trade costs, logistics performance, or air connectivity.

Our work in action The World Bank Group is working closely with Indonesia to support the country’s connectivity agenda. This includes two recent Development Policy Loans totaling $400 million to strengthen the policy framework for improved national trade logistics, transportation, ICT, and trade facilitation. It also includes advisory services focused on improving the country’s internal and external connectivity to reduce logistics costs. The work includes an assessment of maritime network connectivity and measures involving port performance, development of broadband, and liberalization of key services. The Bank Group is maximizing the benefits of connectivity in the design and prioritization of projects in Central Asia, such as the regional Central Asia Road Links Program, which aims to increase connectivity between neighboring countries along priority crossborder road links and to align policies regionally. Countries bear environmental and productivity costs of logistical and administrative congestion at critical trade hubs in ports and large cities. The Bank Group is piloting urban advisory services that help address these negative impacts of interconnectedness in several countries, for example Brazil, Morocco, and Indonesia.

Relevant publications The Eurasian Connection: The Modern Silk Route through Central Asia Global Connectivity and Export Performance Trade Costs and Development: A New Data Set How Many Dimensions Do We Trade In? Product Space Geometry and Latent Comparative Advantage

For further information Jean-Francois Arvis, Global Solutions Co-Lead jarvis1@worldbank.org Cordula Rastogi, Global Solutions Co-Lead crastogi@worldbank.org


Cross-Cutting Topics

Connecting to Global Value Chains and Maximizing the Gains Developing countries that can connect to global value chains (GVCs) produce more and better jobs, greater opportunities for domestic suppliers, increased exports, and higher productivity. The World Bank Group helps developing countries put in place the trade, investment, and complementary supply-side policies to connect to GVCs and realize the economic and development benefits.

Context Connecting to the global economy can be a powerful driver of economic growth, job creation, and rising living standards. One important way for countries to connect is via global value chains. In today’s global economy, businesses do not just trade products; they work together to make things. GVCs bring together the experience and knowledge of lead firms with suppliers of components along all stages of production in multiple companies and locations. GVCs can support economies at different levels of development and in key sectors—agriculture, manufacturing, and services—by empowering production with better technology, deeper know-how, and a richer skill-set. For an effective and sustainable strategy of GVC participation, governments must identify key binding constraints and design the necessary policy and regulatory interventions, including investing in infrastructure and capacity building. This helps achieve distinct objectives and address countryspecific challenges to: • Participate in GVCs, including attracting foreign direct investment and facilitating domestic firm entry into GVCs. • Expand and strengthen existing GVC participation, including promoting economic upgrading and densification, and strengthening domestic firms’ absorptive capacity.

• Ensure GVC sustainability and transform GVC participation into inclusive growth by ensuring economy-wide productivity spillovers, social upgrading, and welfare improvements.

What we offer The World Bank Group can help countries reach “tipping points of competitiveness” in GVCs. Many governments are willing to invest significant time and effort to adopt policies that influence the cost of GVC participation and supply chain trade, but they may be unaware of the full effects of domestic policies on GVCs. Even when they are aware, it may be difficult for them to avoid regulation that unnecessarily restricts entry into GVCs, or upgrading existing participation. We help identify and remove the key binding constraints to GVC entry and upgrading through a combination of advisory, lending, and investment support. We can help trigger a virtuous cycle of reform, GVC entry and upgrading, and development, creating incentives for the private sector to invest in the continued innovation and improvement of activities focused on the country’s comparative advantages in agriculture, industry, and services sectors. Our approach is designed to deliver an effective, solutions-oriented, client-tailored process that is participative and based on the active involvement

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of all stakeholders in GVCs. The approach consists of several key elements:

Our work in action

• The government must have a clear vision and mandate to improve coordination among government actors, and have a model of engagement that ensures active involvement of the private sector.

In Vietnam, in the framework of a high-level study on “Vietnam 2035” for the government, we are carrying out a forward-looking analysis of Vietnam’s current and potential role in GVCs. The report is intended to guide the country’s efforts to deepen integration and achieve high income status in the coming decades.

• Engagement with both local and global firms, suppliers, as well as buyers and representatives of final demand (advanced consumers)—is critical to identifying binding constraints and solutions and to designing a GVC strategy that will serve the development needs of the country. It also ensures buy-in and swift implementation of reforms and initiatives. • In its support role, the World Bank Group delivers advisory services and provides access to international and technical expertise to lead firms and consumer markets, as well as financial interventions, technical and implementation assistance, and capacity building. Our services range from developing long-term strategies for deep structural reform to targeted policy interventions on shorter-term challenges, specific issues, or challenges in particular sectors and GVCs. Other tools available through the World Bank Group include financial support to governments, direct investment in the private sector, and political risk guarantees. World Bank Group advice, expertise, and assistance are adapted to client country needs, and include:

In the Southern Africa Customs Union (SACU) countries, a combination of analytical work, technical assistance, and lending is helping promote regional integration through global value chain competitiveness. The GVC approach is informing the development of regional trade facilitation initiatives, and support for diversification and upgrading FDI in Lesotho.

• Skills upgrading. • Design of spatial solutions (special economic zones, growth poles and corridors, cities/urban centers). • Business environment challenges. We also address the relationship with complementary policies in areas including wages, jobs, education, and spillovers to the domestic economy, society and environment.

Relevant publications Making Value Chains Work for Development Global Value Chains, Economic Upgrading, and Gender: Case Studies of the Horticulture, Tourism, and Call Centre Industries

• Capacity building on GVC strategic upgrading.

World Bank Group Investment Policy Toolkit

• Trade policies; tariff and non-tariff barriers; and trade facilitation, logistics and wider connectivity issues.

For further information

• Infrastructure.

Daria Taglioni, Global Solutions Lead dtaglioni@worldbank.org

• Services regulations. • Investment regulations and incentives. • Compliance with international process and product standards. • Policies and practices to stimulate innovation, and entrepreneurship.

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Cross-Cutting Topics

Green Competitiveness: Building Climate Efficient Businesses and Supply Chains through Cost-Effective Innovation The World Bank Group helps governments and industries maximize green growth along supply chains, enhance competitiveness, and minimize negative effects on climate change by promoting innovation, enabling better use of energy and water, and supporting more efficient management of waste.

Context

What we offer

Governments face the challenge of a global environment where climate variability coupled with increased resource demand and price volatility threatens the competitiveness of economies. Industries and their supply chains are key drivers of economic development and significant contributors to climate change: they are responsible for 21 percent of direct and 11 percent of indirect greenhouse gas (GHG) emissions that cause climate change. Industries are projected to be responsible for 26 percent of the increase in GHG emissions from 2005 to 2030.

In the area of trade and competitiveness, we help developing countries increase the competitiveness of their industries and supply chains by promoting climate-efficient solutions and clean technology development.

Climate change also impairs industrial production and competitiveness. Growing resource use due to increasing consumer demand, and the long-term upward trend in commodity prices since the late 1990s expose developing countries more frequently to increased input costs for energy and other resources, and shortages of energy and water. However, with the challenges of climate change come opportunities. Investments of at least $170 billion per year could be made until 2020 toward resource efficiency improvements utilizing climate friendly technologies. A potential market of $1.6 trillion is accessible to small and medium enterprises in developing countries over the next decade in clean technology sales.

Climate-Efficient Industries and Supply Chains We help respond to market failures by providing policymakers with solutions to reduce energy, water use and waste in industrial processes. We focus on four target areas: • Industry-specific climate change and resource efficiency policy and regulation encourage private sector investment in efficiency and energy saving through policies, reforms, guidelines and initiatives that enhance equipment and processes. • Standards and labeling of equipment help trigger market transformation toward efficient equipment, clean technology, and green buildings in industry sectors. • Financing mechanisms encourage investments in efficiency at the firm level through financing and leasing, establishment of energy service companies, and through other fiscal and non-fiscal incentives.

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• Green manufacturing and clean technology support the production of efficient technologies that facilitate the uptake of efficiency measures by manufacturing industries with input from the Climate Innovation Centers (see below). Innovation and Entrepreneurship for Clean Technology We help developing countries proactively and profitably adapt, develop, and deploy climatesmart technologies and business models. The Bank Group’s infoDev program is creating a global network of climate innovation centers (CICs) that provide a country-driven approach to addressing climate change and fostering green growth. Support provided includes the following areas: • Launchpad: Design and launch next-generation of incubators for clean technology. • Insight: Provide cutting-edge analysis to fill critical knowledge gaps on accelerating the growth of clean technology ventures. • Market Connect: Facilitate global deals, investments, partnerships, and knowledge flows for clean technology ventures and related institutions. • Finance Lab: Innovative financing mechanisms for early stage climate tech ventures that have limited other financing options. • Impact: Helps CICs measure and learn from their own results, and learn from others, to improve decision-making.

Our work in action A low-carbon industry project in Bangladesh reduced the carbon footprint of the country’s export processing zones (EPZs). We assisted the government in establishing guidelines and policies that encourage firms within EPZs to consume less energy and reduce up to 15 percent of carbon dioxide equivalent, a standard unit for measuring carbon footprints. As a result, firms adopted recommendations which resulted in a 10 percent reduction in CO2 emissions per year, saving 18,222 megawatt-hours of energy. The Kenya Climate Innovation Center (KCIC), launched in Nairobi in September 2012, has become the go-to center for green growth in Kenya. Local entrepreneurs, local and foreign investors, researchers, government officials, donors, and academics look to KCIC for support, connections, and guidance when operating in Kenya’s various climate technology markets. KCIC has served 83 clients from an applicant pool of 338 small and medium enterprises (SMEs) and entrepreneurs. Of these clients, 51 are in renewable energy, 15 in agribusiness, 7 in water and sanitation, and 9 SMEs work across multiple climate technology sectors.

For further information Alexios Pantelias, Global Solutions Co-Lead apantelias@ifc.org Jonathan Coony, Global Solutions Co-Lead jcoony@worldbank.org

Relevant publications Building Competitive Green Industries Low-Carbon Zones: Practitioner’s Handbook Inclusive Green Growth

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Cross-Cutting Topics

Trade and Competitiveness in Fragile and Conflict Situations (FCS): Enabling Private Sector-Led Growth in Challenging Environments

The World Bank Group works with FCS countries in the area of trade and competitiveness to foster economic recovery, create jobs, restore production and trade, and create an enabling environment for investment.

Context FCS countries need to repair their societies and set the conditions for growth, jobs, and development to address the causes of conflict and recover from its effects. In the area of trade and competitiveness, World Bank Group support for FCS countries helps repair the foundations for opportunity and growth. A lack of economic opportunities and high unemployment in FCS has been identified as a key source of enduring fragility and conflict. The private sector accounts for 90 percent of jobs in the developing world, so providing favorable conditions for business is fundamental to restoring livelihoods. In FCS countries, helping people affected by conflict and violence means overcoming numerous additional challenges such as reintegrating combatants and rebuilding a sense of belonging in society. The obstacles confronting the private sector in FCS countries are typically more severe than those in other developing countries. In addition to unreliable power supply and inadequate access to finance, FCS countries usually have very weak investment climates: 70 percent of the economies on the Bank Group’s list of FCS countries rank in the bottom quartile of the Doing Business ranking. A regulatory environment conducive to doing business is a necessary foundation for private sector growth and expansion of employment opportunities in FCS. Firms in FCS countries tend to be smaller and less innovative and competitive than their counterparts in non-FCS countries. They need support to upgrade managerial capabilities, production skills, and market connectivity. Another characteristic of FCS economies is broken value chains, as links between producers, traders, and

consumers fray and unravel with violence, eroding trust between social groups. Investment in value chains can support job creation and reestablish links between different regional, social, and ethnic groups affected by violence. Conflict has a devastating impact on trade, with trade levels dropping by as much as 25 percent in the first year of a civil war, and up to 40 percent in the most severe cases. And the damage is long-term: the interruption in trade can persist even 25 years after the onset of conflict. Targeted trade facilitation response, including through regional integration, can help countries recover faster.

What we offer Private sector development efforts need to be part of the early response in FCS. In the area of trade and competitiveness, the Bank Group offers a range of solutions to help FCS countries boost trade and investment, improve productivity and competitiveness, and create a stronger environment for business operations and job creation. These tools are tailored to fit the country context. They focus on reducing unpredictability and increasing transparency. Experience shows that amid a risky security environment and weak institutional capacity, “best fit” interventions typically work better than “best practice.” Confidence and trust-building with the private sector are key. Our programs draw on a range of expertise: • Business regulatory reform creates an enabling, transparent, and predictable environment for small and medium enterprises by making formalization

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easier, simplifying taxation, and reforming business licensing. An early emphasis on simplification and predictability of business regulations—rather than expansion or refinement—is most effective in FCS. Using Doing Business and other indicators as a framework for reform allows FCS countries to signal to the world that they are again open for business. • Investment promotion, facilitation, and policy reform help attract the first wave of investors (pioneer, diaspora, regional) and create a demonstration effect for others. Complementing this dynamic are investment policies that both rebuild investor confidence and foster backward linkages of foreign direct investment to local economies. This work is enhanced by close engagement with IFC. • Regional trade integration supports development of trade policies and trade facilitation to increase trade flows to and from FCS, especially small and landlocked countries, to broaden access to markets and increase demand. • Sector-specific, cluster-based, and spatial development can occur with the help of analytics and diagnostics to identify sectors with underlying competitive advantages and the potential for pioneer investment, and to isolate key bottlenecks to investment in specific sectors. A starting point can be procurement by public, donor, and peacekeeping agencies active in the client country. Spatial approaches, created through foreign investment, development corridors, and economic zones, enable businesses in FCS to benefit from agglomeration and targeted reforms. • Public-private dialogue (PPD) provides a platform to help fill the gap resulting from weak institutions, reestablishes trust among stakeholders, and helps prioritize reforms and actions to improve the business environment. • Sustainable jobs and skilled labor are key priorities in economies where human capital has been depleted by conflict and high youth unemployment. In most instances, jobs are at the top of the FCS agenda. Transitioning cash for work and similar programs can help create sustainable jobs in the private sector, as can vocational training and entrepreneurship opportunities focused on youth and vulnerable groups.

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Our work in action A Bank Group project in Sierra Leone supported reforms of company registration, construction permits, property registration, tax simplification, and investment and export promotion, helping start some 2,500 new businesses, create 15,000 jobs, register 330–550 new taxpayers, and increase income tax revenue by 3.5 percent. A project in the conflict- and disaster-stricken KP-Fata region of Pakistan has provided rehabilitation and upgrading grants to 1,000 small businesses, restored and created 3,500 jobs, provided training to 374 entrepreneurial men and women, and supported the establishment of the investment facilitation agencies in the region.

Our interventions prioritize rapid response to address FCS country challenges. Sequencing is important, as FCS countries are more vulnerable to the impacts of external shocks such as natural disasters and pandemics.

Relevant publications A rough guide to investment climate reform in conflictaffected countries The Role of the Private Sector in Fragile and ConflictAffected States The Small Entrepreneur in Fragile and Conflict-Affected Situations Public-private dialogue in fragile and conflict-affected situations Promoting Foreign Investment in Fragile and ConflictAffected Situations Trading Away from Conflict

For further information Ivan Rossignol, Global Solutions Lead irossignol@worldbank.org

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Trade and Competitiveness Global Practice  

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