Practical Solutions to Client Needs: An Industry-Specific Investment Climate Angle to Integrated Country Programs

1. Practical Solutions to Client Needs: An Industry-Specific Investment Climate Angle to Integrated Country Programs Alberto Criscuolo, IC Industry-Specific Global Team, IFC Istanbul June 15, 2011

2. What is Industry Specific Investment Climate? Objective: Generate reforms and impacts at the industry level through the application of our economy-wide expertise to the circumstances and challenges within specific sectors. This work aims to improve the way markets function with a view to increasing efficiency (cost savings & anti-monopoly), investments, exports, and jobs. What we do: • Agribusiness: Address regulatory and competition constraints to growth and the means to increase both the volume and value-added of investments and/or exports and sector output in agribusiness. Core areas: • Streamlining the regulatory environment for agribusiness competitiveness • Facilitating investment for agribusiness growth and diversification • Establishing the framework for accessing finance through warehouse receipts • Fostering competition for growth and investment • Improving tax administration and fiscal incentive policies for agribusiness • Tourism: Contribute to tourism sector growth and competitiveness by attracting and realizing catalytic private sector investments in the accommodation sector while enhancing the policy, legal and regulatory framework to improve public sector performance and private sector profitability. Core areas: • Streamlining Business Operations – Improving competitiveness • Investment Generation Solutions – Triggering growth • ‘Investment Opportunity Creation’ • ‘Investment Procurement’ • ‘Private Sector Participation in Protected Areas’ • Other Sectors: While the initial focus is on agribusiness and tourism additional sectors are being covered, particularly in IDA or FCACs. (ie. Mining in Yemen, BPO in Kenya)

3. Why Focus on Agribusiness & Tourism?

4. What is the current portfolio of the IC Agribusiness Product? Belarus Armenia Ukraine Tajikistan Central Asia Morocco Moldova India (Bihar III) & Raj Mali Georgia Burkina Faso Sierra Leone Philippines Liberia Kenya Cambodia Cameroun Rwanda Indonesia Brazil Projects in design stage

5. Streamline the regulatory environment for agribusiness competitiveness: Agricultural Input Markets Regulation Regulation of Aggregation Models Food Safety Regulation Food Products Standards Facilitate investment for agribusiness growth and diversification Establish the framework for accessing finance through warehouse receipts Foster competition for growth and investment Inputs to agricultural production Agricultural logistics (i.e. transportation and warehousing) Commercialization of agriculture products Improve tax administration and fiscal incentive policies for agribusiness What are the Building Blocs of the IC Agribusiness Product? • Regulatory Reform • Investment Facilitation • Warehouse Receipts • Competition Policy • Tax Simplification

6. How to deliver? Applying Industry Lens to Existing IC Products

7. Why bother about IC integrated Industry Programs?…because it improves Development Results!!! At all product stages For all results indicators Especially for IC interventions and consistently for IFC investments

8. Integrated Industry Country Programs in Practice… Driving for impact on agribusiness in Ukraine! Policy Context Access to inputs Primary Agriculture Food processing & retail Infra- Structure IC:Industry-level regulatory streamlining, Inspections & permits, food safety, food product standards A2F: Agrifinance & agro-insurance FM/MAS: Loans to banks, risk-sharing facilities, supplier finance, WC SBA:EST (Food safety); FAST (farmer prod-ivity) MAS: Primary export commodities, meat, dairy SBA: EST Stds (food safety), FAST (farm prod.), &Res. Efficiency (cleaner prod.) MAS: Food processing & retail Infra AS: PPPs Infra/MAS: Cold storage, logistics, ports, inland silos Maximizing Ukraine’s agribusiness potential by addressing key challenges across the value chain SOURCE: IFC EMENA Strategy Presentation FY12-14

9. IC Industry Contribution to Ukraine’s Integrated Agribusiness Program Objective: Piloting an IC Integrated Industry Approach: • Focus on harmonization of product standards, certification, and food safety regulation with intl. and EU best practice. • IC BL led policy dialogue with GoU & SBA BL engaged with agro-processors on FS standards • Leveraged World Bank “carrot & stick” to advance policy reform (DPL IV loan) • Solid industry-level regulatory diagnostics as the basis of policy dialogue with GoU and direct TA to FS agencies In consideration of Ukraine’s export potential in agribusiness and ability to play a global role in food security, the IC BL launched in 2009 an industry-specific intervention to address the micro-level regulatory and policy constraints to agribusiness development. Policy Results: The Cabinet of Ministers of Ukraine abolished the mandatory certification of food products in December 2009 (CABMIN Order 1689 of 12/23/09) !!! This enabled the GoU to unlock USD 20.7 million annually for the food processing sector in terms of reduced compliance costs. Jointly developed with FS Agencies of 8 industry checklists on HACCP in the dairy, poultry, meat, and eggs sectors, endorsed by the EU (DG SANCO mission) in May 2010 and are expected to open up new export opportunities to EU. FS reform included as priority of the deregulation agenda of the Committee for Economic Reforms under the President of Ukraine established in the spring of 2010.

10. …scaling up Integrated IC Agribusiness Country Programs in ECA Improving Tax Transparency for Real Sector Investments in Central Asia Objective: To address tax transparency & sector specific regulatory issues that constrain IFC & other investors in CA Focus: Agribusiness and real sector constraints that emerged from IFC IS work in the region (Survey of IOs, 3 country diagnostic, IS portfolio review). Streamlining Cross-Border Agribusiness Trade in Tajikistan (IDA) Objective: help farmers in Tajikistan access better seeds varieties, pay less for fertilizers, and ultimately increase crop yields. Focus: streamlining regulation on certification, registration, and import-export of agricultural inputs and products. Expected Results: increase competitiveness of Tajik agribusiness sector by easing dekhan farms registration, access to agricultural inputs, simplifying import-export regulation; FacilitatingAgbiz Investments in Moldova (IDA) Objective: improve competitiveness and export performance of the high value agricultural products Focus: 1) reduction of regulatory distortions in input and downstream phases of the HVA value chain (logistics, processing, marketing); 2) improved regulatory framework for investment in post-harvest handling infrastructure in HVA, including harmonization of standards with EU. 3) streamlined export regulation for HVA; Expected Results: Increased FDI and Investment in agribusiness; increased compliance with EU product quality standards and greater efficiency of HVA supply chains resulting in higher final prices (currently 29% lower than world prices); Unleashing Ukraine’s Global Food Security Potential (Phase 2) Objective: unleash Ukraine’s agricultural and export potential through better industry-level regulation, beyond food safety. Focus: 1) streamlining import-export regulation for agricultural inputs and products; 2) improve regulatory framework for storage , quality standards, and and post-harvest logistics for grains and other export crops; 3) continue harmonization of food safety and product quality standards with EU Expected Results: lower costs and greater access to agri inputs (eg. current market for crop protecting agents is USD $120 million annually, 95% imported); increased investments in grains post harvest logistics facilities and potential mobilization of additional USD 3.2 bln in trade finance through WHR system; increased agricultural exports to EU;

11. Input prod+distr Traders Primary Producers Process-ors Distribu-tors Retailers IC Agribusiness Core Themes by VC Phase, Products, and Priority Countries in ECA

12. Summing Up Key Drivers of IC Agribusiness in ECA! • Growing client demand and IC agbiz portfolio in ECA (Active projects with agbiz component: Ukraine, Tajikistan (with A2F), Belarus, Tax and Agribusiness IC in Central Asia (ER); Pipeline: Ukraine (next phase), Moldova (ER); Pre-pipeline: Georgia, Tajikistan (next phase), Armenia (next phase), Bosnia (next phase), Balkans Regional Food Safety (with SBA); • Focus on Ukraine as global player on food security. Integrated agbiz country strategy with IS and all AS BLs. Strong results track records on IC reforms and priority focus on IC agbiz for next 3-year project cycle; • Core IC Agribusiness Global Product Themes in ECA: • Main focus on Theme 1: Streamlining the reg environment for agbiz competitiveness • Increasing work on Theme 2: Facilitating Investment for agbiz growth (Moldova, Georgia) • Piloting work on Theme 3: Improving tax admin and fiscal incentive policies for agbiz (IS-AS in Central Asia project) • Strong Partnership with the World Bank on agbiz: full integration and excellent collaboration with the World Bank on agriculture/agribusiness policy reform (joint DPO operations, CPS Moldova, Tajikistan, Ukraine) and on analytical work (Ukraine Ag investment Note); • Successful IC – AS integration pilot on Food Safety Reform: Joint IC-SBA policy and TA platforms in Ukraine, Belarus, Georgia, Armenia, Balkans Regional Food Safety Study; • EU Integration as a key driver for IC engagement on agbiz regulation harmonization in South East Europe • New CIC Industry Hub in Istanbul supports Global-Regional IC alignment with IS on Agbiz

13. Thank You!

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15. Facilitating Investment For Agribusiness in Africa Rwanda • Helping accelerate investment and growth in the horticulture and tea sector • Removing obstacles to investments in the sector • Helping the Ministry of Agriculture and the Rwanda Development Board to identify and reach out to reputable investors in horticulture and tea • Identifying land to be utilized on a leasehold basis by investors to help broker faster transactions between lessors and lessees for registered land. • Introducing new technologies, farming skills and also better labor standards Sierra Leone • Launching investor outreach strategies in sugar and palm oil • Building institutional capacity of investment promotion agency (SLIEPA). • Developing sugar sector strategy : • a detailed sector presentation for investors • list of target investors for proactive outreach, with context and contact strategy for each; • A list of top priority policy interventions to the target investors; • Advice to government to improve focus on “quality” investments - most economically and socially beneficial deals – by better regulatory checks and balances and legal advice on negotiations with investors.

16. Integrated IC Agribusiness Approach in Morocco… Opportunity Constraints • Agriculture represents 15% of GDP and 40% of the labor force -> Growth driver • Greatest socio-economic potential impact: 80% of rural population have agriculture-based livelihoods. • Morocco benefits from a strategic location and bilateral FTAs (EU, US, MENA countries) & Advanced Status with EU. • Agribusiness remains below its full potential (4% of GDP), only 16% of the production is exported each year, worth of US$ 1.7 bn. • High value-added processed food represent only 27% of exports (78% for Tunisia ; 51% in Turkey). • Shortfall in investment: only US$400 mn. on average • Value chain & distribution inefficiencies -> Inputs do not meet processors’ quality, volume and cost requirements. • Fragmented sector, small players with weak capacities • -> limited compliance with food safety standards. • Distortive regulatory and tax structure • -> creates informality. • Outdated regulatory framework for domestic markets -> reduces the efficiency and cost-competitiveness of agribusiness. • 30% and 50% of F&V traded informally -> deter value chain upgrading to meet requirements. • Plan MarocVert –PMV aims at generating 1-1.5m jobs, increasing GDP by US$9-13bn, and doubling/ tripling income for 2-3 mn farmers, through 1300-1500 projects. • PMV aims to: a) develop high value-added F&V sub-sectors through aggregated projects; • b) support the modernization of poor farmers in remote areas. • National strategy for industrial emergence – MoI - promotes agribusiness (agri zones, training). • Strategy for modernization of the distribution sector (MoI). • World Bank DPL signed in 2011, in support of PMV. Government Efforts

17. Addressing Systemic Market Failures in Morocco Low investment levels: sector is performing below its potential in terms of investment generation and FDI attraction Low trade/export volumes : sector is performing below its potential in terms of contribution to exports Low Job Creation : sector is performing below its potential in terms of contribution to job creation LOW INVESTMENT ATTRACTIVNESS: Firms unable to attract investment into the sector LOW COMPETETIVNESS: Firms unable to compete in high value export markets and with foreign imports in domestic market Reduced efficiency and cost-competitiveness , low producer incomes and high consumer prices, low quality, encouraging informality Causality Small firms with weak capacities and poor corporate governance structures Producers and processors unable to comply with stringent international food safety/quality standards Dysfunctional domestic marketing and distribution systems for F&V with high transaction costs Outdated regulatory and tax systems for wholesale markets Limited financing and poor service capacities Lack of investment policy framework Food safety regulatory framework still evolving

18. Morocco IC Agribusiness Project’s Objectives: Support Increase growth and competitiveness of high value, export-oriented agribusiness supply chains by : • Increasing harmonization of quality and food safety standards with international best practices • and supporting firm-level upgrading to comply with international food safety standards • Reforming the outdated regulatory framework governing the operations of wholesale markets in Morocco (IBRD DPL policy matrix); • Addressing FDI-related IC sectoral constraints and implementing a targeted sectoral FDI attraction strategy. Timeframe and targets will be developed during the pre-implementation phase.

19. An IC Industry Integrated Intervention for Morocco… • Implement targeted sectoral investment promotion / FDI attraction strategy (IC) – with ADA (MoAg) • Address investment/ FDI-related IC sectoral constraints (IC) – with ADA (MoAg) Outcome 1: Investment generation increased Investments, exports, jobs, supply-chain-efficiency, and higher value addition in selected strategic agribusiness value chains increased. • Pilot upgrading of fresh fruits and vegetables wholesale markets (IC) – with MoI • Monitor impact on trade for the pilot sites and provide evidence to support further reforms. • Promote phased approach to the reform of the outdated regulatory framework governing wholesale markets (IC) - with MoI Outcome 2: quality and price competitiveness increased Outcome 3 : Export-competitiveness of the agricultural/agribusiness sector increased Harmonize food safety & quality standards with international best practices (IC) – with ONSSA/ MoAg Support firm-level upgrading to comply with international food safety standards (SBA) – with firms If If Outcome Then Then IFC AS Activity Impact <---------------------------- Logic Flow ------------

20. Moldova: An Integrated IC Country Program with Strong Industry Focus linked to World Bank Policy Lending to address client’s Top Reform PrioritiesKey Investment Climate Policy Options to date:

21. ISSUE: Business in Moldova faces increasing admin costs and declining profitability Profitability of Enterprises in Moldova (2003-09) Proposal(s): Address regulatory constraints targeted to priority export and investment sectors, especially Agribusiness. 20

22. ISSUE: Past IC reform efforts, but regulatory constraints and high costs remain Doing Business 2011 Rank Doing Business Construction Permit Ranking • Duplicate inspections: More than 8 agencies undertake duplicative inspections in • (MoE & IFC Inspections Inventory 2011): • Quality and conformity of goods and services • Ecological security • Financial and Economic Inspections Proposal(s): Complete legal reform covering all Construction Permits processes; Implement Construction Permits One-Stop Shop fully in Chisinau as pilot location; Eliminate duplicate inspections and implement risk-based Inspections and an Inspection coordination system. 21

23. ISSUE: FDI weakening and high potential Agribusiness sector not attracting significant FDI FDI in Moldova by Sector Source: Min of Economy (2009) Source: FDI Markets Database Proposals: Develop and apply resources to Investment promotion in Agribusiness; Address regulatory constraints – esp those distorting agricultural input markets for agri-business; Reduce administrative burden of agri export and food safety regulations and food safety; GoM prioritize Agribusiness and coordinate Ministries and Agencies.

24. ISSUE: Moldova’s Food Safety and Quality Assurance Systems are Unable to Provide the Services Expected in Modern Sophisticated Food Markets • Apples: Export Price (US$ per Ton) • Proposals : • Implement Comprehensive Institutional and Regulatory Reforms for Food Safety and Quality by: • In the short-term: Formulate, adopt and implement a “single integrated multi-annual national feed and food control plan” to increase effectiveness and efficiency of the food control functions currently assigned to various government agencies such as MOA, MOH and MOE. • In the medium-term: Seek further harmonization with EU/international standards and regulations.

25. ISSUE: Lack of Access to Modern Inputs Hampers Innovation and Competitiveness • Apples Yield (Hg per Ha) Apples: Producers Prices (US$ per Ton) • Proposals: • Further reduce testing requirements for varieties registered in neighboring countries (EU and/or CIS) • Harmonize government seed regulations and regulatory practices with EU practices. • Revise procedures for certifying inputs that are already certified in line with standards of other countries with which Moldova has mutual acknowledgement certificates. • Adopt the EU common catalogue for fertilizers and pesticides.

26. ISSUE: Export Restrictions (and the risk of their re-introduction) Create Major Disincentives for Critical Agricultural Investments • Evolution of Producer Prices of Wheat (US$ per Ton) Proposal: Refrain from (re-) introducing export restrictions for agricultural commodities and produce