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Investment Climate Impact Program

Investment Climate Impact Program. Marialisa Motta Director, FPD Latin America & Caribbean Region Investment Climate Practice Paris, November 12, 2012. Agenda. Investment Climate Space Joint Donor/WBG Impact Program Workshop Objectives. Investment Climate – Strategic Areas.

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Investment Climate Impact Program

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  1. Investment Climate Impact Program Marialisa Motta Director, FPD Latin America & Caribbean Region Investment Climate Practice Paris, November 12, 2012

  2. Agenda • Investment Climate Space • Joint Donor/WBG Impact Program • Workshop Objectives

  3. Investment Climate – Strategic Areas • OPERATING PRINCIPLES: • Manage for Impact • Benchmarks to Spur Reform • Innovation/ Incubation • Partnerships and Knowledge • Crisis Response Capability Economy-wide • CROSS-CUTTING THEMES: • Inclusion/ Gender • Economic Governance • Competition • Green Growth • ICT Industry-specific

  4. Why are we increasing our focus on impact? Main drivers • Internal drive: to decide what we should more and less of, we need to understand the impact of IC work (on investment, jobs, growth, poverty) • Client and donor demand for impact measurements: where should we allocate our funds? • WBG management and board • IFC Impact Development Goals and WB Scorecard Goal • Better understand how to maximize the impact of our work, better manage what we do, make strategic choices and tell meaningful stories. Answer key questions for evidence-based policy making: what works, what doesn’t, where, why and for how long? 4

  5. Key Partners • Internal Partners • World Bank Development Impact Evaluation (DIME) unit • World Bank Research Department (DECRG) • FPD Global Practices, FPD Chief Economist office • IFC & FPD Regional Teams • The IFC Development Impact Department (CDI) • Donor community including USAID, DFID and DCED

  6. The Investment Climate Impact Framework: Six Key Areas of Work 1. Core results indicators • Identify measurable indicators (Outputs, Outcomes and Impacts). 2. Literature reviews • Summarize existing research findings on the impact that investment climate reforms have on key economic variables such as firm creation, exports, investment and employment. • Assess the changes that can be attributed to a particular reform (or to a specific mix of reforms) and seek to answer cause-and-effect questions. 3. Target setting • Estimate Outputs, Outcomes and Impacts at project inception. 4. Impact evaluations • Conduct impact evaluations on topics for which we do not have sufficient evidence in the existing literature (cross country or country-specific). • Focus on sustainability and inclusion. 5. Value for money: Measure internal effectiveness and efficiency 6. Communication • Communicate achievements to all stakeholders. • Build a community of practice for implementers in Government and private sector.

  7. (1) Definition of Core Results Indicators Outcomes Reach indicators IC Strategic Priorities Impacts Outputs • Direct compliance cost savings US$ • Private sector savings for trade logistics • Investment Generated • Returns to creditors • Renewable energy expected to be produced (MWh/year) Fostering Enterprise Creation and Growth Facilitating International Trade and Investment Unlocking Sustainable Investment in Key Sectors Facilitating Private Participation in Infrastructure and Social Sectors*

  8. (2) Key Findings from the Literature: Business Entry Liberia example Reduce time and cost of business start up by introducing standard articles of incorporation, eliminating the minimum capital requirement, introducing electronic registration. 5 procedures 20 days US$ 88 12 procedures 99 days US$ 630 • Examples of improvements: • India: 6% increase in registered firms due to reduction of entry procedures1 • Colombia: 5.8% in newly registered firms due to One-Stop Shop2 • Mexico: 5% new registered firms and 2.8% jobs created due to a One-Stop Shop3 • Improvements are higher when complementing entry reforms with other reforms (eg, labor) To have a significant impact, we need to reduce time by at least 40% • Source: 1. Aghion et al. (2008), 2. Cárdenas and Rozo (2007), 3. Bruhn (2008). Graph source: Doing Business 2008, 2009, and 2010. Knowledge Gaps: Effects on new firms in low income countries; effects on employment, informality and firm survival.

  9. (2) Key Findings from the Literature: Insolvency Improvement to the insolvency legal framework, introduction of out of court workouts and capacity building for insolvency administrators.. • Increase timely repayments and reduce the cost of debt: • India: Increase probability of timely repayments by 28% • Brazil, India: Reduce cost of debt • Brazil: Increase aggregate level of credit by 39% • Improved insolvency regimes • Reduce SME failure and reorganization duration: • Belgium: Reduce failure rates of SMEs by 8.4% • Colombia: Reduce duration of reorganizations from 12 to 34 months New mechanisms for debt restructuring and reorganization • Reforms to individual bankruptcy laws in high income countries • Increase household credit: • US: Increase credit supply up to 5.3% per household Knowledge Gaps:Effect of legal reforms versus introduction of out of court mechanisms or strengthening capacity of insolvency administrators; impact of communication of reforms to banks and firms, impact of insolvency reforms on specific sectors (tourism, construction).

  10. (3) Target Setting The objective is to develop methodologies that estimate the impact of investment climate projects to: • Compare upfront the impact of different interventions. • Better target and prioritize reforms, policy changes and resource allocation. Approach • Project outcomes, reach and impact of our projects. • We use trend lines based on past data or the findings of literature reviews to estimate future targets. • Collect yearly data points to monitor project achievements. • Conduct impact evaluations on few selected projects to verify targets. • Our approach is aligned with IFC’s Development Goals (IDGs).

  11. (3) Examples of Targets for Investment Climate Impact projections for the new Investment Climate FY12-18 strategy include: • Private sector savings of over $600 million, which include $350 million in compliance cost savings and $250 million of savings from streamlined trade logistics services. • $3 billion in investment generation: $1 billion from FDI facilitation in priority sectors and $2 billion from new firms created from business entry reforms. • Increase in trade flows by $2.5 billion following trade logistics reforms. • Increased returns to stakeholders by $1.5 billion resulting from 11,000 firms continuing as going concern after debt resolution reforms. • A 10 percent increase in the number of enterprises complying with tax requirement within three years of supported tax reforms.

  12. (4) Ongoing Impact Evaluation: Out-of-court Workout Guidelines in Romania Reform • In November 2010, Romania introduced new out-of-court corporate debt restructuring guidelines. Hypothesis • Out-of-court debt restructuring increases: a) Loan repayment rates. b) New borrower requests. Methodology • Encouragement design: borrowers do not know about the existence of out-of-court debt restructuring guidelines. • Intervention: Trainings (e-learning course of the out-of-court guidelines) • Sample:1,000 ‘struggling’ SMEs that have defaulted on their loans, but have not yet been delinquent on repayment (over 60 days). a) Treatment group - 500 SMEs will receive trainings on the guidelines. b) The control group - 500 SMEs will not receive trainings. • Compare the two groups and determine effects of trainings on borrowers’ behavior following the intervention.

  13. (5) Value for money: Central America remittances database • Results of Enviacentroamerica database • Estimate: 1% decline in remittance costs amounts to approximately $600 million directly received by Central American remittance recipients and the local economy by 2016. • Cost: $150K World Bank and $160K IADB; in kind support from CEMLA Value for money (donor perspective): $1,870 received by Central American remittance recipients and the local economy for each $1 spent by the Bank & the IADB. 1Using the IFC Impact Development Goal methodology to calculate impact of remittances work - to be confirmed after we hear from Massimo and Marco

  14. (6) Communications • Impact framework • Promote knowledge spillovers for practitioners and researchers across WBG and Global Practices • Build a community of practice for implementers in Government and private sector. The operations-learning feedback loop promotes a ripple effect beyond Bank operations.

  15. (6) Investment Climate Impact Website

  16. Objectives of the this week’s Impact Evaluation Workshop • SET THE STAGE for new impact evaluations. • ADDRESS knowledge gaps… • TRAIN on evaluation methods… • DEVELOP implementation plans... • BUILD a CIC impact evaluation community of practice Objectives • To develop a high-quality impact evaluation design and implementation plan through clinics by bringing together a country/project delegation with impact evaluation experts • To enhance the country/project delegation’s technical capacity to design and implement impact evaluation of IC reforms through hands-on training on methods and policies • To create an IC impact evaluation community of practice with donors, practitioners, country representatives, and WBG partners Participants • Delegations of client representatives, experts and facilitators to agree on the IE building blocks and implementation plans • Countries represented: Albania, Bangladesh, Benin, Bosnia and Herzegovina, Kenya, Kosovo, Malawi, Moldova, Nepal, Romania, Serbia, Tajikistan

  17. Investment Climate Impact Program Marialisa Motta THANK YOU Paris, November 12, 2012

  18. Back up slides

  19. Investment Climate – A Joint World Bank Group Space A unique WBG partnership: includes mandates of the World Bank (IBRD/IDA), MIGA and IFC Ultimate objective: better service and value to clients CIC / FIAS Consolidated Investment Climate program

  20. (4) Ongoing Impact Evaluation: New Tax Code for SMEs in Georgia Reform • In September 2010, Georgia introduced a new tax simplification regime for MSMEs, expected to significantly reduce compliance cost: • SMEs with turnover below GEL 30,000 (approx. USD 18,000) are exempted from income taxation. • SMEs with turnover below GEL 100,000 (approx. USD 61,000) are taxed based on turnover (3 or 5%). Hypothesis • Tax reform increases tax compliance. • Tax reform increases firm formalization. Methodology • Only firms with turnover below GEL 100,000 (approx. USD 61,000) are eligible. • Compare firms just below and above the cutoffs and observe the difference in outcomes (tax compliance and formalization) after the reform. • The regression between declared turnovers in 2008 and 2010 should be smooth if no effect is achieved. Otherwise, any changes can be attributed to the reform.

  21. Key Findings from the Literature: Trade Logistics Reduction of number of documents for import and export; introduction of risk-based inspection and introduction of an electronic filing systems; and unification of custom operations at the borders. • Increases bilateral trade: • Sub-Saharan Africa-OECD: By a range between 0.6% and 0.18% 1 • Increases productivity: • China: Generates a 2% increase in productivity for apparel and leather goods industry and more than a 6% increase for consumer goods 2 Reducing time to export by 1 % Reducing time to export by 1 day • Equivalent to an ad-valorem tariff reduction of 0.6% to 2.3% 3 • Increases GDP by 0.98% 4 • 5% reduction in trade costs over 5 years Knowledge gaps:Effects on intra-regional trade, foreign direct investment and on corruption; effects of reducing number of documents versus introducing risk-based inspections or streamlining custom procedures; effects of single window solutions. Source: 1. Subramanian, Anderson and Lee (expect 2012); 2. Subramanian, et al (2005) , 3. Hummels(2012), 4. APEC (2004)

  22. Key Findings from the Literature: Alternative Dispute Resolution (ADR) Establishing a supportive legal framework for ADR, creating a pool of well trained mediators, raising awareness on the advantages of using ADR, creating financially sustainable centers. • Save cost and time: • ADR takes between 1 to 11 months less than court litigation • Evidence is mixed: some studies do not find significant reduction in case duration • Between 3% to 50% of costs of litigation or between $500 to $6,000 per case • Cases unsettled through ADR that return to courts can have higher total costs Alternative dispute resolution mechanisms.. Knowledge gaps: Findings on time and cost savings vary and need more research. Effects on investment, employment, access to finance or growth. Effect of legal reforms, versus introduction of out of court mechanisms, effects on the effectiveness of courts and trust in the legal system (many cases often revert back to courts and end up more expensive)

  23. Example of Impact Indicator: Cost Compliance Savings CCS Formula for business entry • For investment climate reforms, we piloted the calculations of direct cost savings across the portfolio. • The rollout of cost compliance savings (CCS) methodology for business regulations and taxation was conducted during fall 2010, with over 100 people trained through events in six country offices. • Between FY10 H2 and FY12 H1, 24 projects used the CCS methodology, reporting almost $170 million worth of savings for the private sector.

  24. Key Findings from the Literature: Competition Policy Applying pro-competition sectoral policies effective economy-wide, the enforcement of antitrust rules to deter anti-competitive practices such as cartel agreements, anti-competitive mergers, price controls, statutory monopolies and similar. • Increases innovation, growth and competitiveness: • More patents, product variety and quality • Higher (L, TF) productivity growth • Greater welfare benefits, esp. for poor • Greater competition (lower price-cost margins, entry of new competitors) • Lower prices and boost productivity: • Mexico: Lower costs/prices between 8% (transport) and 37% (airfares) • Ukraine - India: Increased productivity by 3.6%- 87% (LP Indian retailers) • Kenya: Increased output (98% maize in Kenya) • Liberalization of sectors (deregulation, removal of price controls and legal monopolies) • Positively impact prices, GDP and other variables: • Lower prices (10-45%) • Productivity growth (1-30 percentage points) • Consumer savings and GDP boost • Effective enforcement of competition laws Knowledge Gaps: Effects of various competition policy reforms on country competitiveness and relative effects on market competition.

  25. Next steps: FY12-15 Roadmap Programmatic approach • Implement a group of impact assessments to make collective progress and share experiences • Encourage use of mixed-methods to complement quantitative analysis • Assess sustainability and inclusion dimensions of reforms Key elements • Systematic identification and prioritization of knowledge gaps • Regular engagement with key partners • Dissemination of knowledge and incorporation of learning in future project design

  26. Impact Assessments: Closing Gaps Between Policy and Evidence • Literature reviews: tell us what we know about impact • Summarize research findings on the impact of IC reforms on key economic variables (firm creation, exports, investment and employment…) • Identify knowledge gaps • Impact assessments: strategically address knowledge gaps • Test the impact of new interventions, their combinations and sequencing • Assess the sustainability of the impacts and identify sustainability mechanisms • Practical Implications: Inputs for strategic and operational decisions on the IC portfolio • Fine-tuning current IC reforms • Prioritization of IC reforms in the next strategy cycle 26

  27. Knowledge Gaps on other IC topics • Inspections • Effects of improved inspections system (integrating a risk matrix, ICT platform and simplified inspection procedures) on business entry, accidents and injuries, revenues and the behavior of inspectors and businesses. • ICT • Effects of ICT services on business entry, compliance costs savings, government cost savings, transparency and accountability. • Agribusiness • Effects of new food safety regulations (harmonized with EU regulations) on cost compliance savings, the quality of business inspection systems and coverage, domestic and export demand. • Green Growth • Effects of green building code reforms on emissions of greenhouse gases, effects of energy efficiency reforms on investment and consumption. • Cross-cutting • The relative effect of reforms on different industries (e.g., agribusiness, tourism) on firms of different sizes, on poverty reduction. Effects of combined reforms, sequencing of reforms. Are these effects sustained over time? Do reforms affect certain groups differently? 27

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