Financial and Private Sector Development in SSA -- Are we contributing to jobs and growth?

1. Financial and Private Sector Development in SSA --Are we contributing to jobs and growth? DIME Workshop Dakar, Senegal February 2008

2. Summary of Africa FPD strategy • 1. Developing 4 complementary pillars for jobs and growth: • Investment Climate • Financial Sector Development • Public Enterprise Reforms and PPPs • Industry Competitiveness • 2. Adapting to 4 special types of countries: • Middle income and/or high capacity • Resource rich • Conflict affected • Regional solutions • 3. Increasing quality and efficiency of delivery: • Support for public-private dialogue, reform teams and engagement with private sector • More Policy-based instruments and support for growth poles • More and effective partnerships, including on knowledge sharing • Stronger teams, improved quality assurance and monitoring for results (M&E) • 4. Responding to new and pressing needs: • Work w/ others on food crises, SOEs/PPPs on energy, unemployment (esp. among youth), mining boom

3. We are now engaged across 40 SSA countries Lending Diagnostic TA & investor councils RED – 9 or more interventions ORANGE– 5-8 interventions YELLOW– 2-4 interventions BLUE– 1 intervention

4. ... achieving a wide range of results Sudan 6 laws promulgated through provisional orders; business registration was restarted and an increase by 10% in start-ups this FY Kenya Removal/simplification of more than 1000 licenses (with FIAS) Cape Verde Privatization of 24 (out of 30) public enterprises, e-government Zambia 92% of non mining companies privatized Mauritius Payment system successfully installed Comoros Liberalized air transport Ghana Reduction in water and power subsidy rates Mozambique Successful industrial zone DRC Commercial courts established Madagascar Successful of liberalization of telecom, petroleum and air transport Simplification of business registration and licensing

5. Opportunities Increasing growth opportunities Macro-stability Commodity boom/business linkages Rising labor costs in China/India Regional integration Technology leapfrogging Highly liquid financial systems Competition, better governance push demand for reforms More interest from investors, new partners (e.g., China, India) Challenges Need higher growth to have big impact on poor and jobs High fuel prices, food prices Demographics – youth unemployment Many still not competitive outside commodities, little FDI Many constraints but limited capacity Many small markets Context for FPD

6. Jobs, the top priority for Africans “What Is vs. What Should Be Our Government’s Top Priority?” … and opportunities need to reach the poor, women and the youth. Prompted Priority Areas; Globescan survey of 10,000 Africans in 10 Countries, 2006

7. Growth Competitive Investment Climate and Industries Productive investments and exports Higher- Value JOBS FPD’s value chain Low risks of doing business Low costs of doing business Intense and fair competition Poverty Reduction Finance for growth and for all Skills Infrastructure

8. Competitiveness PPP/PPI Public Enterprise Reform Financial Sector Investment Climate 1. Four complementary focus areas • A good investment climate as foundation • Access to finance constrains investment • Good framework for PPI may induce private finance • Public enterprise reform or privatization can improve competitiveness

9. 1A. Investment Climate Africa’s investment climate is still inadequate

10. Some open questions …. • Simplification of regulatory environment • What is the effect of establishing a one-stop-shop? • Which type of companies benefit more? • What are the effects of formalization on performance of SMEs? • Reforming the legal environment • What are the effects of improving enforceability of contracts and which companies do benefit the most? • How important are labor regulations? • Trade facilitation • What interventions will lead to high export growth? • What interventions will lead to greater exports diversification?

11. 1B. Financial Sector Development • Strengthening financial sector policies and governance • Supporting sound macro-governance (crowding-in), with IMF and PREM • More market based solutions though privatization and more competition • Strengthening DFI governance • Pursuing fraudulent transactions/AML/StAR • Leveraging private finance to Africa • Lowering cost/leveraging remittance flows • Structured finance to support infrastructure investments • Harnessing finance for growth • Strengthening financial sector infrastructure, e.g., payments systems, creditor rights) • Strengthening financial institutions regulatory/supervisory capacity • Restructuring institutions (banks, insurance, pensions) • Deepening capital markets -- reform of pensions, insurance, housing and securities markets • Stimulating finance for all • Rural/SME finance, microfinance, mobile banking • Enhancing financial literacy • Public-private risk sharing mechanisms, e.g., weather-based, cat. risk insurance

12. Some questions … • Strengthening financial sector policies and governance • Are the policies fostering greater stability? • Are policies promoting access to finance? • Is there sufficient competition to stimulate efficiency? • Harnessing finance for growth? • What regulatory interventions are needed to develop long term finance? • What will support the development of financial instruments to support mortgages, insurance, and infrastructure finance? • Stimulate finance for all • To what extent and in what context does financial literacy expands access to finance? • What will increase access to finance of poor households?

13. 1C. Public enterprise reforms/PPPs • PPP models applied to infrastructure, key industries and institutions • Agro-business • Power • Investment and export promotion agencies • Credit bureaus • Healthcare • Will help address the unfinished privatization agenda A large proportion of assets and companies remain poorly managed by the public sector, are a fiscal drain and create contingent fiscal liabilities. • Our core skill is to support integrated solutions • Regulatory and institutional frameworks • Governance and financing (e.g. structured finance) • Social adjustment • Support PPP units working across sectors to leverage scarce capacity

14. Some open questions • Are there mechanisms for effective service delivery without privatization? • What are the most effective way to catalyse private finance of infrastructure? • New areas for PPPs such as education and health • What type of incentives and schemes to put in place to establish successful PPPs?

15. 1D. Industry Competitiveness • Support export-led growth and greater productivity • Value added from exports dwarf ODA • Benefits from global innovation, scale of export markets • Economy wide spillover effects • Focus efforts to removing obstacles to growth • Identify key potential sources of growth and turn them into reality • Key constraints are often industry/location specific • In-depth value chains complement broad investment climate instruments • Some key areas – agro-business, light manufacturing, tourism, construction, ICT • Solutions may involve potential growth poles or clusters • Supporting institutions • Promotion of exports and domestic/foreign investment • PPP units for infrastructure and mega projects • Special economic zones as catalysts, minimum integrated trade platforms • Regulatory agencies

16. Some open questions …. • Are proactive policies adding value beyond simply deregulating the investment climate? • Are our industry specific value chain work effective? • Should we tailor more of our interventions within growth poles and cluster development approaches? • Special economic zones • Corridor development • Are business development services effective to enabling and sustaining access to markets? • Matching grants • Incubators • Training programs • Export promotion and linkages with markets • Technology and standards

17. 3. Increasing quality & efficiency of delivery …and to conclude with some big questions • How do our interventions contribute to jobs and growth? Do we understand the mechanisms through which our projects yield results? • Are we achieving the objectives we had set out to do? • Do we adjust project design to be more effective, and do we abandon ineffective ones in a timely way? • What will be the benchmarks for deciding to scale up? • How do we look at our broader impact within a country setting, and not simply on project specific results?