|
The quality of a country's investment climate is determined by the risks
and transaction costs of investing in and operating a business, which
in turn are determined by the legal and regulatory framework, barriers
to entry and exit, and conditions in markets for labor, finance, information,
infrastructure services, and other productive inputs. The WBG supports
improvements in investment climates by working with both the public
and private sectors. Through its lending and non-lending services, the
Bank (IBRD/IDA) supports the broad policy environment (macroeconomic
stability and openness) as well as microeconomic policies and institutions.
IFC influences the investment climate through its Technical Assistance
and Advisory Services (TAAS) to both the public and private sectors,
and through its investment operations - directly by increasing the quantity
and quality of infrastructure and financial and social sector services,
and indirectly through the demonstration effects of investment projects
in all sectors. MIGA influences the investment climate through political
risk guarantees, technical assistance to investment promotion intermediaries
for capacity building, information dissemination tools, and mediation
services.
The investment climates of developing and transition economies have
improved modestly in recent years. The largest improvements were in
transition economies, including those that aspired to EU accession.
Ratings of the quality of policies and institutions are higher for macroeconomic
conditions (macroeconomic management, financial stability, and revenue
stability) than for many institutional areas (property rights, public
administration, transparency, and rules-based governance), suggesting
that these latter areas are the appropriate focus of WBG assistance.
A review of Country Assistance Strategies over the past ten years documents
the Bank's shift in emphasis from first-generation macroeconomic reforms
to second-generation micro-level reforms.
The joint IEG /OEG/OEU evaluation finds four main challenges for the
WBG as the organization attempts to achieve better outcomes of its investment
climate activities:
- Focus
on reforms at the institutional level more than at the policy level.
Institutions – the “rules of the game” – are
key to the quality of the investment climate. Yet more is known –
and more has been accomplished to date – in macroeconomic, financial
sector, and trade reform than in institutional areas. The institutional
agenda is on the frontier of the WBG’s knowledge of the development
process. While the basic principles of good institutions are well
recognized (such as market access and competition, protection of property
rights, and contract enforcement), the institutional arrangements
for carrying out reform seem to be country-specific to some degree.
In other words, appropriate institutional designs are not completely
exportable from one country to another. Moreover, unorthodox arrangements
sometimes work. Strategies for improving the investment climate have
suffered from a lack of knowledge about what types of institutional
arrangements will work in different environments, and about the dynamic
process of change that is needed. To date, the WBG’s research
and economic and sector work have provided insufficient guidance to
client governments and WBG staff.
- Customize
interventions to country needs. The quality of the investment
climate varies significantly across countries, and even within countries,
across regions and industries. This diversity results from different
macroeconomic circumstances, the progress made in earlier reform efforts,
and the diversity among firms themselves. Thus there is no single
set of priorities within the broad set of characteristics that determine
the investment climate – the priority issues are country-specific.
When establishing strategies for improving the investment climate,
the WBG needs to understand country-specific constraints and opportunities
as well as country-specific institutional designs. It is critical
for the WBG to build this understanding using local knowledge and
expertise.
- Political
economy and the sequencing of reforms. The feasibility of reform
depends on the political economy of the reform process, and the sustainability
of reform hinges on broad stakeholder support. The WBG needs to assess
the capacity and incentives facing public sector organizations to
implement reforms, and be aware of the likely winners and losers and
the political strength of key groups.
- Organizational
challenges within the WBG. The broad nature of the investment
climate as a topic and the need to work with both the public and private
sectors creates internal organizational challenges for the WBG. Better
use of the comparative advantages of the Bank, IFC, and MIGA would
help the WBG deliver on its investment climate agenda more effectively.
Corporate strategies need to be consistent with each other, and strategies
and practice should be harmonized. At the country level, investment
climate strategies need to be integrated across the World Bank Group
as well as within the Bank across sector units. In the IFC, the rapidly
expanding TAAS activity needs to be provided on a strategic basis
rather than an ad hoc basis. Similarly, MIGA’s delivery of technical
assistance needs to follow a clear and coherent strategy for client
selection to ensure high effectiveness and development impact. And
all three parts of the organization need to do a better job of monitoring
the impact of their activities on measurable improvements in the investment
climate.
To increase
the effectiveness of WBG assistance to improve investment climates,
the evaluation concludes with the following recommendations:
- The
WBG should clarify the roles of the Bank, IFC, and MIGA on investment
climate activities, bringing corporate strategy and practice into
consistency. At the country level, coordination and consistency across
the WBG on investment climate diagnosis, priorities, results focus,
strategy, and assistance needs to be improved.
- The
Bank should do a better job of setting priorities and packaging investment
climate reforms in lending operations, paying more attention to institutions
and the political economy of reform.
- IFC
should raise the profile of investment climate work and develop operating
guidelines for technical assistance and advisory work related to the
investment climate.
- MIGA
should improve the focus and effectiveness of technical assistance
by implementing a clear strategy for client selection, exercising
greater selectivity, and align its work program closer with WBG priorities
and lending.
|
