PSD Blog - The World Bank Group

Uzbekistan’s struggling private sector

Exactly one year ago, the Financial Times gave a positive gloss on Uzbekistan’s economic prospects. One of the sources for the FT’s take on Uzbekistan was Alisher Ali Djumanov, a managing partner at Eurasia Capital Management and (as the article points out) the only alumnus of Insead in the country. He had this to say:

Recent supercharged high-flyers Russia, Ukraine and Kazakhstan have now found themselves at the epicentre of the ongoing crisis in the region…Uzbekistan, the fourth largest economy in the CIS, is in better shape because of government policies which at the time were considered to be too rigid and less pro-market. There is still a question of whether this policy will be better for the economy in the long term but, in the current environment, the conservative approach will benefit Uzbekistan. We believe the long-term investment story for Uzbekistan is intact.

While Djumanov may be correct that certain sectors in Uzbekistan have good prospects, there is another side to this story. Hard data on the private sector suggest that most firms in Uzbekistan face pretty substantial hurdles. The latest results from Enterprise Surveys paint a sad picture:

Doing Business in Kenya 2010

The Doing Business in Kenya 2010 report is out today, just on the heels of the annual Doing Business 2010 report. Globally, Kenya ranked 95 out of 183 economies. Doing Business in Kenya 2010, the first subnational report on Kenya, suggests Kenya could improve its ranking by 17 positions simply by adopting best practices already in place in the 11 Kenyan localities covered in the report:

If a hypothetical city, "Kenyana", were to adopt the best practices already in place in Kenya, its ranking would improve in all four areas of regulation that are the focus of this study, putting "Kenyana" in 78th place among the 183 economies measured in the global Doing Business report. That is 17 positions better than Kenya’s current global rank (represented by Nairobi).

Here is the full report, plus the press release and a Powerpoint presentation. 

Mobile Banking: The banks are asleep at the wheel

Last week saw an all-day event at the World Bank on Mobile Innovations for Social and Economic Transformation. The sessions covered the use of mobile phones in everything from governance to education. I attended a morning session on mobile innovations in financial services in which speakers covered issues on payments for ex-combatants in the DRC, Government-to-Person (G2P) payments, and pre-paid value card solutions.

However, the most interesting remark in this session came not from one of the speakers but the invited commentary. Why is it that we see network-centric players dominating this field in some cases (e.g. M-Pesa) or independent firms (e.g., Celpay, the provider of payment solutions for ex-combatants in DRC)? Andi Dervishi, the Global Practice Lead for Investments in Payments at IFC, put it very simply: "The banks are asleep at the wheel."

Examples of Chile’s innovative approach to PPPs

As I discussed in my previous post, Patricio Mansilla of Chemonics International has explained to me that Chile has been at the forefront of innovation in the design of PPPs. The government has experimented with a bidding mechanism for PPPs based on the Least Present Value of Revenues (LPVR). The innovative feature of  the LPVR approach is that contracts always have a variable term date, in contrast to normal PPPs, which have an end date set in advance. Considering the number of comments generated by the previous post, I thought I would provide a bit more detail on the benefits of this approach, plus a few examples of how LPVR PPPs work in practice.

First, the advantages of this approach over fixed term bidding concessions, as I see them:

• The LPVR is concessionaire friendly, which allows for many bidders on each deal. Lack of bidders is a problem on some PPP deals in Latin America.
• Another advantage of the LPVR approach is that it is easy to enforce compared to normal fixed-term contracts, which are exposed to renegotiation risks that sometimes can threaten the solvency of the consortium and thus the project as a whole.
• The government’s only burden to enforce the concession is to closely monitor the concessionaire’s operational cash-flow revenue. There is still a need to verify solvency and overall performance and maintenance of the project itself, but those can be achieved under much less pressure. After all, these burdens are mitigated by the concessionaire’s interest in recovering its investment. There is no chance for extra profit, and delays only postpone revenue recognition.

Despite crisis, positive outlook for PPPs in Russia

Editor's Note: The following is a joint submission by Filip Drapak and Natalia Reznichenko.

Many countries are experiencing a big infrastructure gap, and Russia is no exception. The Russian government is well aware of the problem, and it has announced that it will invest about US$1 trillion over the next 10 years in improving infrastructure. But how can the government raise that kind of capital? The expectation is that the private sector will contribute most of the financing though a Public Private Partnership (PPP).

While Russia does have some experience with PPPs, the track record so far has been spotty. We might mention in this regard one project that is sometimes considered to be the first PPP in Russia—the South-West Wastewater Treatment plant of St. Petersburg. The project was agreed upon by the Russian, Finnish and Swedish governments all the way back in 1986, but due to a lack of public financing the project was stopped. It was resurrected as a PPP in 2002 and formally procured as a 12-year BLT (Build-Lease-Transfer) contract.

The next casualty of the financial crisis: public universities

Roger Goodman of Moody's credit rating agency has a prediction:

With policies of limiting enrollment places and tuition fees, market pressure to add capacity, and government funding unlikely to increase, Moody’s expects unprecedented pressure on the current financial model of public universities.

While universities in the rich world have been early casualities of the crisis (Harvard and Yale have earned the moniker of Big Losers from the Wall Street Journal because of the performance of their endowments), public universities in emerging markets have been shielded by the longer cycle of public budgeting and the stimulus spending of some governments. But that won't last forever.

When the squeeze on their finances arrives, public universities will basically have two choices. They can either ration education by limiting the number of people gaining admission, or they can figure out ways to reduce the high (and often implicit) subsidies to middle and upper income students. (Actually, they have a third choice of providing lower quality education to the same number of students, but I see this as unlikely in most cases.) Goodman provides arguments for reducing subsidies:

Twittering the launch of Doing Business 2010

As I posted on the blog last week, the Doing Business 2010 report launched on September 9th. While the report itself always contains useful information, what is often equally interesting is the response in the countries and economies concerned. As part of the launch every year, members of the Doing Business team travel around the world to discuss the results, appearing at very well attended events like Poland's Economic Forum.

Up until now, there was no convenient place to share all the interesting feedback, questions, and commentary from these events. This year, we decided to get a few of the Doing Business team members to let us know what's going on during their travels via Twitter. We're capturing all of their Tweets @WorldBankPSD, so follow us if you'd like to hear what the world is saying about the record results from DB2010.

Here's our line-up of Twitter correspondents:

• @nfgregory: Neil Gregory, Senior Adviser to the Vice President of Financial and Private Sector Development
• @SuzanneSmith7: Suzanne Smith, Lead Knowledge Management Officer
• @sbagaudinova: Svetlana Bagaudinova, Senior Private Sector Development Specialist
• @KarimBelayachi: Karim Belayachi, Operations Analyst working on the Starting a Business indicator

Social media Friday

Is social media going to change the world? The makers of this video seem pretty convinced:

One needle in a haystack, or many?

As I suspected, the event earlier this week on Industrial Policy and the Role of the State in Promoting Growth attracted a standing-room only crowd. Although the event was billed as a "panel discussion", the structure ended up being much more of a friendly debate, with Justin Lin and Ann Harrison sitting on one side of the table and Bill Easterly on the other. The topic, as I discussed before, was the question of whether there is a role for industrial policy in the developing world.

Easterly, Harrison, and Lin each had a chance to give a 15 minute presentation, which was then followed by a round of questions combined with closing arguments. Although the whole thing was entertaining, I didn't get the feeling that the proceedings changed the minds of anyone who was already leaning in one direction or another.

Easterly gave a presentation that covered many of the points you would be familiar with if you've read any of his previous work on development. He hews closely to the Socratic motto: "I know that I do not know." Experts should be well aware of the limits of their own knowledge, and instead trust in the wisdom of a decentralized search process whereby entrepreneurs discover new, more efficient ways of doing things. Simply put, industrial policy=bad idea.

Experimenting with labor reforms in India

In a previous post I discussed how the current global financial crisis seems to have forced policy makers in India to take another look at existing labor laws in the country. The Economic Survey (2008-09) of India released by the Ministry of Finance in early July this year clearly noted the imperative need to facilitate the growth of labor intensive industries, "especially by reviewing labor laws and labor market regulations."

Labor market reform is a contentious and politically sensitive issue in India and its mere mention in the Economic Survey suggests that we might see some action this time around. A few weeks ago, the government exempted the IT and software establishments from the Industrial Employment (Standing Orders) Act 1946 (Central Act 20 of 1946). These laws are strict in the way they classify workers, their working hours and shifts, and the wages payable, besides other archaic rules on leave and attendance.