The Investment Climate Department: who we are and what we do Marialisa Motta Mierta Capaul Luis Aldo Sanchez-Ortega 7 June 2010.

The Investment Climate Department: who we are and what we do

Marialisa MottaMierta Capaul

Luis Aldo Sanchez-Ortega

7 June 2010

1. The WBG investment climate work

2. The Investment Climate Department: an overview

3. Programs and reforms

4. Impact

The Investment Climate Department: who we are and what we do

WBG work to support investment climate reforms

DB Reform Advisory

Subnational Doing Business

Diagnostic

Doing Business Global Report

Investing

Across Borders Indicators

Funding

Trade Logistics

Entry &Business Operation

Tax Administration

First response:

Long term support – product market regulation:

Access to Finance and Debt Resolution

Long term support: industry lens

Agribusiness and Tourism

Industries

Special Economic Zones

Health

IFC Investment & MIGA Guarantees

World

Bank Loans

Enterprise surveys & Investment Climate Studies

Advisory

Investment Climate Department’s mission and reference framework Our mission“To work with governments and private sector to facilitate reforms fostering open and competitive markets in developing countries through diagnostic, public-private dialogue and implementation support.”

Investment climate reforms

Fostering open and competitive

Product markets Capital markets Labor markets

Higher investment, productivity & jobs Economic growth

Strategic prioritiesLow-income countries (IDA), post-conflict countries, frontier regions

Offices: DC (global hub), Istanbul, Nairobi and Dakar (regional hubs), Vienna (small presence) – new hub in Asia (yet to be determined)

Staff:

around 240 staff, of which 106 in the Investment Climate Department

Budget:

last year budget: around $50 m, of which $37 for the Investment Climate Department

Number of countries:

more than 100

The Investment Climate Department & Business Line: key figures

The Investment Climate Department & Business Line

Department Business Line Total

Offices DC, Istanbul Nairobi, Dakar, Vienna, Asia

Staff appr. 110 apr. 130 appr. 240

Budget appr. $37 million appr. $13million appr. $50million

Countries

- - appr. 100

Key figures

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Source: Doing Business 2010 and CIC note to Lars Thunell, October 2009.

Focus on implementation of reforms

287

Doing Business reforms supported by the WBG

Reforms not supported by the WBG

Last year, the Investment Climate Department with WB & IFC supported 82 reforms in 37 countries, as captured by the Doing Business global report

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We advised 8 out of the top 10 reformers in Doing Business 2010

Reforms supported by the Investment Climate Department, IFC-WB

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Colombia is the leading reformer in Latin America.RESULTS

• Ranked 37 out of 183 countries (up from 49 in 2009)

• Key impacts:

• Reduced registration time for new businesses from 36 days to 20 days

• Reduced time to obtain construction permit from 146 days to 51 days over two years

• Reduced the number of annual tax payments from 69 to 20 over two years

• Investment generation: Invest in Bogotá has facilitated $313 million in foreign investment in hotels, BPO/call centers, logistics and manufacturing

Colombia: the results of a broad reform program(making Top10 list for the fourth time in seven years)

Supported reforms:

• Starting a business: faster registration for public pension funds • Construction permits: simplification of approvals for construction permits and utility connections• Registering property: reduction of procedures and time through on line consultation• Trading Across Borders: risk management, online documentation• Paying taxes: Online electronic payment of social security contributions• Protecting investors: Strengthening director liabilities and the ability for shareholders to sue• Access to credit: Implemented new credit information law• Closing a business: Regulation of insolvency practitioners and extrajudicial reorganization agreements.

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Colombia: reforms in Dealing with Construction Permits

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Colombia introduced on-line verification of some pre-construction requirements and set time limits for approving construction permits based on a risk categorization of projects. (Decree 1272 of 2009).

2008

2009

33 days less

Eliminated 3 procedures

Source: Doing Business database.

LAW (2007)

REGISTRY (2007-2008)

TRAINING

China: the results of a targeted reform program

Provided input to the law to:- Allow accounts receivable to be used as collateral- Grant equal treatment for individual lenders and legal entities- Allow use of future property as collateral

Designed and implemented an electronic registry for accounts receivables 5000 government officials and bankers trained

Reforms

1. LAW2. REGISTRY3. TRAINING

OVER 140,000 SECURITY INTERESTS REGISTEREDUS$ 340 BILLION IN NEW FINANCING TO 50,000 SMEs

MORE THAN 5,000 PEOPLE TRAINEDUS$ 900 BILLION FINANCING FACILITATED

Thinking about the best metrics to measure the impact of reforms

• Taking into account that “attribution” is complex when moving from administrative savings to other impact measures

Current measure

Administrative savings

New firms created

Investment Jobs Other (eg, export, government revenues)

Business entry

Business operations (licenses, inspections)Trade logisticsSecured transactions & Collateral registriesInsolvency

Resolution of commercial disputesTax

Industry and Special Economic Zones

Best proxies of impact

Source: CIC & IC-BL impact note prepared for the IFC IDG Committee. May 2010.

We have good evidence on the impact of entry reforms

Source: Doing Business 2010, Cardenas & Rozo (2007), Aghion et al. (2008), Bruhn (2008), Fisman & Sarria-Allende (2004), Klapper et al. (2006).

One stop shop in Mexico

One stop shop in Colombia

Reduction of entry procedures in India

Reduction of entry cost from 24.5% to 0.7% of income per capita (e.g. Peru to Singapore)

10-11% increase in firms registered

5% increase new firms registered, 2.8% employment

5.2% increase in new firms registered

6% increase in new firms registered

Quasi-experimental evaluations of registration simplification

Cross-country studies on the average effects of entry regulation

Entry reforms in Indian stateswith more flexible labor regulations

Higher impact when entry reforms are combined with other IC reforms17.8% increase in real output gains largerthan in states with less flexible labor regulations

Impact of business entry reforms on investment, 12 countries

Timeline: Impact of all IC-BL business entry projects approved between FY10 and FY13

Countries: Bangladesh, Burkina Faso, Burundi, Cameroon, Colombia, Congo Dem. Rep., Malawi, Mali, Morocco, Peru, Philippines, and Yemen

Basic assumptions: - Reduction of time and cost of entry by more than 60% (proxy: one stop shop)- 5% attribution on new firms created and investment generated (from existing literature)- 65% of savings reinvested

A simulation reducing time and cost of entry by 60% or more in 12 countries would generate US$ 1.8 billion investment

Source: CIC & IC-BL. Model on the impact of entry reforms developed for the IFC IDG Committee. May 2010.

Pre-reform:

(Baseline,

2003)

After reform: impact due to CAE

(% of pre-reform)

Firms 187,683 10,323 (5%)

Employment 2,707,516 75,810 (2.8%)

Bogotá (6.3 million inhabitants)

Results in Colombia

Source: Doing Business 2010, Cardenas & Rozo (2007), Aghion et al. (2008), Bruhn (2008), Fisman & Sarria-Allende (2004), Klapper et al. (2006).Source for example of Guadalajara: Authors’ calculations based on data from DANE (Departamento Administrativo Nacional de Estadistica, Colombia), Chamber of Commerce of Bogotá, and estimates from Bruhn (2008), Cardenas et al. (2007) and Bartelsman et al. (2004). Note: Employment data for Bogotá do not include the public sector. (The estimate of the public sector share of employment was obtained from the Labor Statistics Database of ILO - International Labor Organization.)Source for example of Bogota: Bruhn (2008), administrative data from the municipality of Guadalajara, authors’ calculations. Note: Employment refers to firm owners and workers.

Final considerations on national reforms

The power of standard benchmarking. DB Global and Subnational reports motivate reforms. More than 60 requests to support DB-related reforms in 2 years. Mexican cities implemented 56 reforms after DB in Mexico.

The power of jealousy. Reforming neighboring countries motivate reforms. Client involvement

High-level counterpart directly involved in the process Inter-agency technical working group for broad reforms and technical

working groups on specific topics Private sector involvement is key

WBG advisory: from diagnostic to implementation Focus on results Communication and capacity building Field presence Peer to peer learning

Background slides

What happens next? Some firms survive, some die

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61–87 % of firms that enter the market still operate after two years

27–66 % of the initial firms are still operating at age seven

Source: Bartelsman et al. (2004) and authors’ recalculation in 2009 based on original dataset.

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The ones that survive grow

Mexico: 27 % of new firms survived 7 years after entering the market, and the surviving firms employed 105 % of the workers originally employed by all new entrants

Source: Bartelsman et al. (2004)

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Net Entry Productivity Growth

Incumbents' Productivity Growth

Productivity increases with higher entry and exit rates

New firms increase competition, forcing incumbents to become more efficient or to exit the market and increasing overall productivity