BRIEF

Investment Climate

May 11, 2017

Woman shop owner in Mombasa, Kenya receives cash payment from a customer

Photo Credit: Kaori Niina, World Bank Group. Woman shop owner in Mombasa, Kenya receives cash payment from a customer.


A vibrant private sector serves as the main driver of sustainable economic growth and employment. It is an important pathway out of poverty and towards shared prosperity. The Investment Climate (IC) team of the World Bank Group’s Trade & Competitiveness Global Practice provides evidence-based advisory services and support to help countries foster an “investment-grade” business environment, maximize the benefits of private investment, and secure a share in global value chains.

Context | Strategy | Results |

Context

For the past three decades, the private sector has been at the forefront of leading economic growth and poverty reduction around the world. Integration with global markets and enhanced private sector competitiveness has contributed to the unprecedented growth of many economies, such as China, Vietnam and Costa Rica. Nevertheless, a large number of developing countries – particularly poor and conflict-affected states – have yet to fully harness their economic potential. Recognizing the need for technical assistance, governments have been turning to the WBG’s Investment Climate practice for advice on policies to enable and link foreign and domestic private initiatives with the dynamism generated by cross-border trade and investment patterns. 

Strategy

By leveraging a comprehensive approach that addresses the legal, regulatory, procedural and institutional barriers affecting all phases of the investment and business lifecycle, the Bank Group helps countries establish a competitive investment climate that is favorable for attracting, retaining and leveraging investment for business-led growth. Capable of mobilizing a wide range of Bank Group instruments – including advisory services and analytics (ASAs), reimbursable advisory services (RASs), and diverse lending products – to help developing countries, our experts on Indicator Based Reform (IBR), Business Environment (BE), and Investment Policy & Promotion (IPP) deliver integrated IC solutions founded on three pillars:

  1. Driving Evidence-Based Reform: Global benchmarking knowledge products, such as the Doing Business project, have put business regulation reforms at the forefront of policy-makers’ agendas and created strong demand for support in this area. Underpinning all our IC interventions are a well-developed set of diagnostic instruments, applied research and strong knowledge of good practices and reform experiences. This knowledge set allows our teams to mobilize expertise on a wide-range of policy and regulatory issues, and create integrated, multi-instrument solutions that are tailored to the needs and demands of clients. 

  2. Encouraging Business: Unlocking private sector-led growth is contingent on a country’s ability to establish a regulatory and institutional framework that enables local and foreign firms to invest, form and grow, both domestically and internationally. In fact, government policies and regulations play a decisive role in stimulating business activity.  With this aim, IC solutions are designed to improve the regulatory environment for firms along all phases of the investment and business lifecycle. By supporting the implementation of transparent, inclusive and efficient policies and regulatory practices, the IC team helps governments unlock opportunities for developing the private sector, reducing the uncertainties of day-to-day business activities, which in turn incentivize firms to invest, compete and grow.

  3. Expanding Market Opportunities: To ensure sustainable local development, the challenge for countries lies in linking private investment, especially foreign direct investment (FDI), with locally-owned and managed businesses. In the hopes of fostering these linkages, many countries resort to implementing distortive policies – such as local content performance requirements – that foreign companies must comply with as conditions for investing and doing business in a particular location. These policies, however, can be counterproductive to the goal of leveraging FDI to drive employment and growth. Helping countries ensure that their IC frameworks are attuned to maximizing the domestic economic and social benefits resulting from private investments, our policy interventions are designed to enhance the participation of high-potential domestic firms in global value chains, which dominate the production of goods and services consumed worldwide.

Recognizing that governments often have a small window of opportunity for reform, the WBG offers a unique response platform which allows our IC team to respond swiftly to client demands, leveraging expertise from across the Bank Group to deliver integrated, multi-instrument solutions. Given that the successful implementation of IC reforms requires the coordinated effort of many different line ministries and agencies, our team works hand-in-hand with governments to design IC reform programs in the context of a broader competitiveness agenda; determine priority areas for reform in the short, medium and long term; set clear targets with measurable results; and strengthen the institutional capacity of public-private dialogue mechanisms and inter-ministerial reform committees.

Results

  • Guinea: Against the backdrop of political instability and the Ebola crisis, with the help of the WBG, the Government of Guinea was able to implement an ambitions IC reform program aimed at improving the country’s business environment, encouraging domestic linkages with its $30 billion mining sector, and diversifying its sources of Foreign Direct Investment (FDI) and growth. Buttressed by our IC interventions, Guinea was able to attract more than $710 million in non-mining investment, register more than 13,000 new firms, and create more than 16,000 jobs during the life of the project.

  • Haiti: With the dedicated support of the WBG, the Government of Haiti was able to attract $217 million in actual investments and create 13,700 new direct jobs in the country’s garments sector. This was made possible through the WBG’s Haiti Investment Generation Program that worked closely with public officials, private sector and foreign investors on investment promotion strategies and special economic zones. Despite the challenging local environment weighed down by social unrest, political instability and natural disasters, the program succeeded in providing hands-on technical assistance to identify and attract new investors to the garment sector.

  • Bosnia & Herzegovina: Until recently, Bosnia and Herzegovina's (BiH) investment climate posed many challenges for investors, from the difficulty of accessing land to the process of obtaining construction or foreign employee work permits. Taking energetic steps to institute IC reforms in categories covered by Doing Business, with the support of the WBG’s IC team, the Government of BiH successfully eliminated the fee for obtaining work permits for foreign workers in Sarajevo Canton. The annual fee amounted to $590 per request and had to be paid each year if work permits were to be renewed. This reform has the potential to save businesses a combined half million dollars per year. Furthermore, an amendment to the country’s company law cut the initial capital requirement for establishing a limited liability corporation (LLC) by half, and court fees for registering an LLC were cut by 80 percent. Annual savings for the private sector are estimated at $277,150 per year. The fees for obtaining land and building registry were also cut by half. Overall, it is estimated that BiH’s private sector is saving $1.6 million in compliance costs annually as a result of IC reforms in the country

 








Experts

Christine Qiang

Practice Manager, Investment Climate