Session 3: Investment Climate: Leveraging the World Bank Group for Greater Impact

1. Session 3:Investment Climate: Leveraging the World Bank Group for Greater Impact Marialisa Motta Director, Financial and Private Sector Development, Latin America Investment Climate Global Practice FIAS Consultative Committee of Donors Meeting November 14-15, 2012

2. Outline • Investment Climate (IC): a Joint World Bank Group (WBG) Space to Better Serve Our Clients • Examples of Joint Work: Haiti, Tunisia, Rwanda, Impact • Questions for Discussion

3. Investment Climate WBG: An IFC Advisory Business Line and a WB Practice IFC FPD

4. The institutional structure reflects our mission & it is a unique opportunity to scale up the impact of our work • Managing for impact. “FIAS’ mission for the FY12-16 strategy period is to facilitate reforms in developing countries to foster open, productive and competitive markets and to unlock sustainable private investments in sectors that contribute to growth and poverty reduction” (FIAS FY12-16 Strategy) • Across the WBG. • CIC/FIAS should work hand in glove with other parts of the WBG and government counterparts in each country to develop concrete plans based on a systematic analysis of the critical constraints of private sector development. (FIAS Independent Evaluation, FY08-11). • “FIAS will co-finance advisory activities across the Bank Group that have the potential to deliver tangible results to clients. The Investment Climate Department will track, measure and report on the outcomes and the impact of all projects co-financed via FIAS. For this purpose, FIAS projects include projects implemented directly by CIC with funding from FIAS, as well as projects managed by IFC’s Investment Climate Business Line or World Bank regional units for which FIAS funding represents at least 10 percent of the respective project budget.” (FIAS FY12-16 Strategy).

5. Integrated services to provide solutions to our public and private sector clients • FPD • IC Global Practice Through close collaboration between different units in WB, IFC, and MIGA we can • Anchor for IFC IC Business Line and FPD IC Global Practice, MIGA TA implementer • Provide one client interface • Access a larger pool of financial and human resources • Exploit complementary knowledge and instruments • Offer a broad range of integrated services • Research and analytical work (WB) • Advisory work (IFC, WB & MIGA) • Policy and investment lending to governments (WB) • Investment lending to the private sector (IFC) • Give voice to the public & the private sector • Systematically involve the private and public sector to diagnose challenges and identify solutions • Other • WB & IFC units & • MIGA • IC Anchor • 100 Staff IFC Advisory Regions 140 staff World Bank FPD Regions 235 staff, of which less than 100 are affiliated with the IC practice. • IFC IC Business Line

6. Haiti: A fragile country on the brink after the earthquake • Even before the earthquake on January 12, 2010 • More than half the population (> 5 million people) living on less than US$1 a day • Overall unemployment estimated at 40.6% in 2010 • Economy highly centralized in Port-au-Prince • Chronically poor business environment, inadequate infrastructure, lack of skills • After the earthquake on January 12, 2010 • Damages and losses to productive sectors: US$1.2 billion • Mainly private industrial and commercial sectors • Focused attention • Need for decentralization • e.g., the North region • Sectors with growth potential • Agriculture • Textiles • Tourism • Housing & urban

7. Integrated interventions to address a wide range of challenges: improving the business environment • Problem: Businesses find it difficult to start and grow • Haiti Ranked 141 of 142 in 2011-2012 WEF Global Competitiveness Report and 174 out of 185 economies in DB 2013 • 105 days to start a business, 301 days to register a property • Solution: Improvements to the regulatory environment • Joint CIC, IFC&WB advisory work on doing business reform and secured transactions • WB to finance implementation of reforms through the US$65 million “Jobs and Growth Project” • Doing Business Reform: “Haiti is open for business”: regulatory and procedural changes • Example: Secured transactions collateral framework • IFC advisory reviewing the law • WB project to finance the movable collateral registry • Expected to increase access to finance by securing loans worth US$20 million to 500 SMEs

8. Keep jobs and attract investment in industrial economic zones (IEZ) • Problem: Loss of jobs and investment due to earthquake • Solution: Investment retention and investment generation in IEZs • CIC & IFC Investment Generation Advisory • Convinced a number of companies operating in existing IEZs not to close, saving many jobs • Performed regulatory, market & site assessments to guide the Government of Haiti in developing an IEZ strategy for Haiti • Review different laws on investment generation • CIC & World Bank advisory • Review of the regulatory framework for a level playing field for IEZs • Some IEZs have subsidies that others don’t; distorted market • World Bank Jobs and Growth Project: possible financing of new IEZs • Results to date: 1,644 jobs created; 7 new FDIs totaling US$106 million • Expected results: 12,000 jobs created; new framework in place

9. Bring tourists back to a UNESCO site in the North of the country to create a growth pole outside of Port Au Prince • Problem: No management of the park, very few tourists, no hotels or other tourism-related businesses around the area, no structural public-private dialogue • Solution: Use various WBG instruments to tackle constraints and give tourists a chance to get out of the boat and off of Labadie beach.

10. Tunisia: the revolution unveiled a distorted playing field that required an ambitious, multi-dimensional response World Bank Development Policy Loan ($1.5 billion over 3 years) created a shared set of objectives: (i) competition and private sector initiative, (ii) financial sector stability, (iii) quality and accountability in social sectors and (iv) transparency, accountability and public participation in policy making.

11. Integrated WBG response to support implementation of complex reforms IFC Advisory Services • Shared Objectives: • Lower cost of compliance with red-tape • More level playing field • More rapid recovery from NPLs • Reduced cost of g international telecoms • Increase in solvency of banking system Tunisia Investment Climate Project Tunisia Debt Resolution Project (in prep)

12. Joint approach leverages expertise from differentparts of World Bank Group

13. Rwanda – Going beyond the Doing Business reform agenda (2008-2012) • Problem (2008): Poor business environment, ranked 150 in Doing Business, poor results in investor surveys. • Solution: establishment of the DB reform unit at the Rwanda Development Board. CIC, IFC and FPD advisory work to support legal, regulatory and institutional reforms. • Results: • 13 legal texts were amended and 25+ DB reforms achieved by 2012 • Rwanda’s overall business environment ranking top 50 globally and top 4 in SSA. • An estimated 15,000 jobs were created, $50 million investment generated, 5,000 new businesses established, and $5 million in private sector cost savings. • Problem (2012): Increases in investment are deemed insufficient in view of significant improvements in the business environment. Untapped potential to increase investment in tea and export horticulture sectors. • Solution: WBG support to accelerate investment and export in agribusiness and deepen business environment reforms (e.g., trade logistics).

14. Through sector specific reforms and by deepening trade reforms • Accelerate investment and export in agribusiness. • Step 1: Sector Strategy. 2-day retreat including GoR, MIGA, CIC, WB and IFC staff. Listing of key priority sectors in agribusiness. • Step 2: Investor Outreach. Organization of an agribusiness investor conference in Kigali. IFC&CIC advisory to identify target investors and define value proposition. • Step 3: Policy reform and Investment Facilitation. Professional investor facilitation and removal of constraints to investment (e.g. tea sector green leaf price reform). The fundamental problem was one of inter-agency coordination with respect to investments in this strategic industry. • Support a planned 18,000 ha / $200 million (PPP based) expansion of the tea sector through privatization of a series of old tea factories • Results: • 3 investors / $2.5 million in horticulture investments secured. Green leaf price reform (required to level the playing field for E&S reasons) expected to improve net income of 65,000 tea farmers, while paving the way for implementation of the planned $200 million expansion project . • CIC led the development of the logistics and distribution services strategy • Establishing Rwanda as a logistics hub bro break-bulk to serve Burundi, Eastern DRC and other neighbors • 8 projects of $100 million public, public-private, private investments being planned by FPD, C3P, TMEA and private investors

15. Impact. Sometimeswe get a bit “lost in translation”, but we eventually find our way by engaging with all We cannot possibly measure the impact of our projects in a rigorous way. There are measurement issues, attribution issues, identification issues, endogeneity issues etc, etc, etc. We need to show the IMPACT of our work to CLIENTS and DONORS! Of course we know how to measure impact! We did an experiment in the South East of Katmandu. Here are the results: ln(Y) = β0 + β1 ln(Xi) + β2 ln(Xj) + β3 ln(Xz) + εijz Clear enough? Yes! In fact, we need to know how many farmers, women and micro businesses we touched last year. 1,234,003? 1,456,040? 456,982? IFC advisory We need to come up with an INVESTMENT CLIMATE IMPACT FRAMEWORK for the WBG! World Bank ? World Bank Research Department ? ? IFC Impact Development Team Investment Climate

16. Questions for discussion • Do you believe that increased WBG integration will increase the impact of our work? Will the benefits be higher than the (transaction) costs? • Do you think that we have increased our effectiveness since we have been increasing our collaboration within the WBG? Do you see unexploited potential in our engagement within the WBG or with other partners? • How can we improve coordination of investment climate work with the donor community? • How can the WBG work better with you at the country level? • What are the areas of work that you think complement Investment Climate work more closely? (e.g., Innovation & Technology Adoption, Access to Finance, Skills, Financial Literacy, Capital Markets, Infrastructure).