The Investment Climate Department: who we are and what we do Marialisa Motta Mierta 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 S u b n a ti o n a l D o i n g B u s i n e s s Diagnostic DoingBusinessGlobalReportDoingBusinessGlobalReport I n v e s ti n g A c r o s s B o r d e r s I n d i c a t o r s 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 IF C In ve st m en t & MI G A Gu ar an te es W orl d Ba nk Lo an s E n t e r p r i s e s u r v e y s & I n v e s t m e n t C li m a t e S t u d i e s Advisory

Investment Climate Departments 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 priorities Low-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 DepartmentBusiness LineTotal OfficesDC, IstanbulNairobi, Dakar, Vienna, Asia Staffappr. 110apr. 130appr. 240 Budgetappr. $37 millionappr. $13millionappr. $50million Countrie s --appr. 100 Key figures

Cliccate per modificare il formato del testo della struttura Secondo livello struttura Terzo livello struttura Quarto livello struttura Quinto livello struttura Sesto livello struttura Settimo livello struttura Ottavo livello struttura Nono livello strutturaClick to edit Master text styles Second level Third level Fourth level Fifth level Cliccate per modificare il formato del testo della struttura Secondo livello struttura Terzo livello struttura Quarto livello struttura Quinto livello struttura Sesto livello struttura Settimo livello struttura Ottavo livello struttura Nono livello strutturaClick to edit Master text styles Cliccate per modificare il formato del testo della struttura Secondo livello struttura Terzo livello struttura Quarto livello struttura Quinto livello struttura Sesto livello struttura Settimo livello struttura Ottavo livello struttura Nono livello strutturaClick to edit Master text styles Second level Third level Fourth level Fifth level Source: Doing Business 2010 and CIC note to Lars Thunell, October 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

Cliccate per modificare il formato del testo della struttura Secondo livello struttura Terzo livello struttura Quarto livello struttura Quinto livello struttura Sesto livello struttura Settimo livello struttura Ottavo livello struttura Nono livello strutturaClick to edit Master text styles Second level Third level Fourth level Fifth level We advised 8 out of the top 10 reformers in Doing Business 2010 Reforms supported by the Investment Climate Department, IFC-WB

Cliccate per modificare il formato del testo della struttura Secondo livello struttura Terzo livello struttura Quarto livello struttura Quinto livello struttura Sesto livello struttura Settimo livello struttura Ottavo livello struttura Nono livello strutturaClick to edit Master text styles 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.

Cliccate per modificare il formato del testo della struttura Secondo livello struttura Terzo livello struttura Quarto livello struttura Quinto livello struttura Sesto livello struttura Settimo livello struttura Ottavo livello struttura Nono livello strutturaClick to edit Master text styles Second level Third level Fourth level Fifth level Colombia: reforms in Dealing with Construction Permits Colombia introduced on-line verification of some pre-construction requirements and set time limits for approving construction permits based on a risk categorization of projects. (Decree 1272 of 2009) days less Eliminated 3 procedures Source: Doing Business database.

LAW (2007) REGISTRY ( ) 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. LAW 2. REGISTRY 3. TRAINING OVER 140,000 SECURITY INTERESTS REGISTERED US$ 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 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 states with more flexible labor regulations Higher impact when entry reforms are combined with other IC reforms 17.8% increase in real output gains larger than 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) Firms187,68310,323 (5%) Employment2,707,51675,810 (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 61–87 % of firms that enter the market still operate after two years 27–66 % of the initial firms are still operating at age seven Source: Bartelsman et al. (2004) and authors recalculation in 2009 based on original dataset.

The ones that survive grow Mexico: 27 % of new firms survived 7 years after entering the market, and the surviving firms employed 105 % of the workers originally employed by all new entrants Source: Bartelsman et al. (2004)

Productivity increases with higher entry and exit rates New firms increase competition, forcing incumbents to become more efficient or to exit the market and increasing overall productivity