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Doing Business Indicators and Country Reforms (Approach Paper)
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Doing Business is recognized as highly influential in business regulatory reform worldwide, and it is the most used set of indicators on business regulation. Its indicators are widely used and analyzed in the academic literature. They are a component of many other influential indexes, including the World Economic Forum’s Global Competitiveness Index, the Heritage Foundation Index of Economic Show MoreDoing Business is recognized as highly influential in business regulatory reform worldwide, and it is the most used set of indicators on business regulation. Its indicators are widely used and analyzed in the academic literature. They are a component of many other influential indexes, including the World Economic Forum’s Global Competitiveness Index, the Heritage Foundation Index of Economic Freedom, and the Fraser Institute Economic Freedom Index. It is cited by many countries in their reform plans and in many World Bank Group project documents and country strategies. Although popular, the DB indicators have also been the subject of controversy regarding their methodology, accuracy, and potential biases and the way they are used in shaping and assessing country policy reforms. The Bank Group and the Independent Evaluation Group (IEG) have been called on several times to review DB, largely to respond to such criticisms.
In this report, IEG has committed to examine the relevance and effectiveness of the use of DB indicators in guiding client country business environment reforms—both those supported by the Bank Group and those undertaken without its support. This includes an initial stocktaking of literature and existing evaluative evidence to inform an Issues Paper, which will be followed by a Focused Evaluation to assess the DB’s strategic relevance to countries’ reform priorities and to the Bank Group’s strategic agenda. This request came just before the late-August 2020 suspension of the DB report to probe alleged irregularities in the underlying data.
After the Pandemic: evidence for building back better
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Charting a path to recovery will require evidence on what is working, why, and for whom.Charting a path to recovery will require evidence on what is working, why, and for whom.
Covid-19 has exposed the fragilities of aging countries
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A forthcoming report focuses on much needed areas of attention.A forthcoming report focuses on much needed areas of attention.
From the Great Wall of Trees to Sustainable Management of Landscapes
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Lessons from Watershed Management Programs in Africa
Lessons from Watershed Management Programs in Africa
Argentina: Basic Protection Project (PPAR)
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The Basic Protection Project was prepared in the aftermath of the 2008 financial crisis, in the context of increased pressure to expand coverage and accessibility of Argentina’s social protection policies. The social protection system had historically been linked to the formal labor market through contributory schemes (pension benefits, unemployment insurance, family allowances, health and Show MoreThe Basic Protection Project was prepared in the aftermath of the 2008 financial crisis, in the context of increased pressure to expand coverage and accessibility of Argentina’s social protection policies. The social protection system had historically been linked to the formal labor market through contributory schemes (pension benefits, unemployment insurance, family allowances, health and housing insurance coverage). Noncontributory programs—for children, the unemployed, and informal workers—were limited. The project aimed at strengthening and expanding Argentina’s social protection system by supporting expansion of coverage and improving the design of two income transfer programs for the unemployed and families with children.
Ratings for this project are as follows: Outcome was moderately satisfactory, Risk to development outcome was low or negligible, Bank performance was satisfactory, and Borrower performance was moderately satisfactory. This assessment offers the following lessons: (i) The choice of indicators is critical for incentives to be effective, especially when a short implementation time is expected; but the definition of some of the DLIs and the information used to determine their targets were not discussed in detail at appraisal. (ii) This PPAR had to clarify the understanding of “effectiveness,” as it was not made explicit in project documents. (iii) Institutional strengthening of the MTESS statistics area was an important additional aspect of the World Bank’s support, given the peculiar context in which this project was implemented.
The Results Agenda Needs a Steer—What Could Be its New Course?
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Is it time to rethink Results Based Management in international development? We imagine a system that favors learning over compliance.Is it time to rethink Results Based Management in international development? We imagine a system that favors learning over compliance.
Scaling up private capital mobilization for development: Lessons from World Bank Group experience
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Meeting the Sustainable Development Goals (SDGs) requires raising trillions of dollars on an annual basis. Public resources and Official Development Assistance (ADA) will not be enough to finance the SDG agenda. Now there is the additional challenge of finding the resources to cope with the multiple consequences of the Covid-19 pandemic. Mobilizing private capital has a critical role to play in Show MoreMeeting the Sustainable Development Goals (SDGs) requires raising trillions of dollars on an annual basis. Public resources and Official Development Assistance (ADA) will not be enough to finance the SDG agenda. Now there is the additional challenge of finding the resources to cope with the multiple consequences of the Covid-19 pandemic. Mobilizing private capital has a critical role to play in filling the investment gap.
In 2015, Multilateral Development Banks (MDBs) committed to adopting a financing framework capable of unlocking, leveraging, and catalyzing more public and private financial flows. A framework where financing from private sources, including capital markets, institutional investors and businesses, has become paramount to mobilize the trillions in investments needed.
In 2017, the World Bank Group (WBG) adopted a definition of private capital mobilization (PCM), jointly agreed with other MDBs and Development Finance Institutions (DFIs).
The WBG’s Independent Evaluation Group (IEG) released its first systematic assessment on how relevant and effective the Bank Group has been at channeling private capital for development, the factors that have driven results, and opportunities for the future.
IEG’s evaluation finds that the WBG has deployed efforts across its institutions (IBRD, IFC and MIGA) to mobilize private capital either through project level co-financing and/or through pioneering mobilization instruments and platforms. Bank Group PCM approaches have proven to be relevant and have delivered results. In fact, the WBG remains one of the largest contributors to PCM, with about $32 billion mobilized in low- and middle-income countries in 2018.
What factors have been driving results?
Several WBG instruments and platforms have been effective in achieving development objectives through PCM.
For example, World Bank Guarantees have achieved positive outcomes by reducing risks and improving projects’ bankability at the commitment stage. Creating the right conditions to attract private investments has led to increased financing for key infrastructure and services, benefitting people around the world when these projects reach maturity.
IFC syndicated loans have increased client firms’ access to finance and debt, and bond mobilization platforms have been effective in meeting client and investor expectations. MIGA has also been successful and has positioned itself well among MDBs in addressing PCM thanks to its new products (e.g. Credit enhancement) and the share of its exposure that gets reinsured allowing MIGA to offer more guarantees. These new products and guarantees have successfully mobilized private investments for projects ranging from power generation in Sub-Saharan Africa to capital optimization projects in Latin America and the Caribbean.
Bank Group client countries have large untapped potential to crowd in private capital. IEG modeled estimates suggest most Bank Group client countries are attracting only 50-80 percent as much private capital as they could. Unlocking this potential will be especially important to fund the recovery from the pandemic and get back on track to the SDGs.
Evidence shows that projects with domestic investor participation, MDB involvement, and World Bank–IFC–MIGA collaboration have better PCM project outcomes.
Domestic investors boost project success by engaging actively in the design and implementation stages and by bringing knowledge of the local market and regulations. Projects with domestic investor participation had greater success (80 percent) than those with overseas investors only (60 percent).
When other MDB’s are involved, more resources become available and there are shared environmental, social, and governance compliance requirements and monitoring systems to ensure greater quality of outputs and outcomes.
Evidence from energy sector projects indicates that concomitant World Bank, IFC, and MIGA interventions have a positive effect on PCM outcomes. These joint interventions involve either working sequentially as a project’s de-risking needs and financing needs evolve.
IFC and MIGA PCM approaches have created a demonstration effect, attracting repeat clients and increasing PCM levels. However, it is not easy to sustain private investment flows in the long term.
This demonstration effect of IFC and MIGA PCM approaches happens when IFC or MIGA support the expansion of an ongoing project or the involvement of an existing client in a new project. Investors’ repeat engagement indicates that they trust the Bank Group’s PCM approaches and believe that projects developed through the Bank Group will be sustainable.
It takes time and sustained investment, however, to generate sufficient levels of PCM to trigger a demonstrable increase in countries’ overall private capital flows. It is also essential for governments and the Bank Group to continue to support business environment reforms post-PCM and to address constraints that may limit private investments in the long term.
What opportunities lie ahead for PCM in the future?
Bank Group client countries have large untapped potential to crowd in private capital. IEG modeled estimates suggest most Bank Group client countries are attracting only 50-80 percent as much private capital as they could.
Unlocking this potential will be especially important to fund the recovery from the pandemic and get back on track to the SDGs. Both traditional Bank Group PCM solutions (for example, World Bank and Multilateral Investment Guarantee Agency guarantees, trade finance, and short-term liquidity facilities) and countercyclical approaches (for example, the Distressed Assets Recovery Program) can continue to play important roles in mobilizing private capital in light of the ongoing pandemic.
The Bank Group has the potential to help create a more attractive environment for private capital by supporting public policy changes, addressing the lack of a pipeline of bankable projects, and increasing collaboration with other MDBs and DFIs on PCM efforts. This requires the Bank Group to expand existing PCM platforms and approaches, to support policy reforms and disaster risk financing and to continue to innovate and develop new products aligned with the needs of new investor groups and partners.
Read the Evaluation: The World Bank Group’s Approach to the Mobilization of Private Capital for Development
Image credit: adapted from VectorMine/shutterstock
Scaling the Great Green Wall?
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As the recent One Planet Summit pivoted international attention to issues around climate and the protection of ecosystems, global leaders were eager to point to examples of successful efforts to protect and restore nature. While many efforts to stem environmental destruction have failed – and failed spectacularly – one effort, the project to plant trees across the Sahel known as the Great Green Show MoreAs the recent One Planet Summit pivoted international attention to issues around climate and the protection of ecosystems, global leaders were eager to point to examples of successful efforts to protect and restore nature. While many efforts to stem environmental destruction have failed – and failed spectacularly – one effort, the project to plant trees across the Sahel known as the Great Green Wall, has achieved many of its envisioned technical and environmental goals. But while there is much talk of taking this successful ecosystem protection effort to scale, backed by announcements at the summit of new investments totaling US$14 billion, there is a need to learn much more about the science behind the initiative, its differentiated impacts and their costs; including the social impacts on the resource-dependent poor. Along with the achievements, there are valuable lessons to be learned about what is working and for whom that can help guide the planned scale-up.
The Great Green Wall and the World Bank
Decades ago, several African Heads of State envisioned, and eventually lent their support to, the development of a Great Green Wall: a large belt of trees that stretches across twelve states of the Sahel. The concept of the Great Green Wall was developed to combat land degradation and desertification of the Sahel, a concept that has grown in importance as the threats posed by climate change intensify. Twenty-one African countries have signed on to the initiative, along with at least 11 international partners; including the African Union, European Union, and the World Bank. The World Bank has played a contributing role over the past two decades through the Sahel and West Africa Program in Support of the Great Green Wall Initiative (SAWAP), a programmatic approach using $1.2 billion from World Bank projects and $106 million of Global Environment Facility financing “to expand sustainable land and water management in targeted landscapes and in climate vulnerable areas in twelve West African and Sahelian countries”.
The Independent Evaluation Group has evaluated a number of the projects under the SAWAP umbrella, including in Benin, Burkina Faso, Chad, Ethiopia, Mali, Niger and Togo. Some of these evaluations included site visits and extensive discussions with government counterparts and local community members to deepen understanding of the overall impact of the Great Green Wall project and Bank support for it. Our findings point to some important issues to consider when designing future projects.
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The World Bank’s support for the Great Green Wall has been successful from a technical perspective. Earth observations (satellite imagery, drone footage) combined with site observations support this view. Vegetation has been successfully established, land has been rehabilitated through large commitments of labor for soil works, and the density of trees and shrubs have increased dramatically at rehabilitation sites (although observations at older rehabilitation sites suggest that these technical successes may be short-lived, due to limited funds for upkeep and necessary maintenance). Most notable amongst these positive effects is the large swaths of degraded land that have been reclaimed in critical watersheds in Ethiopia. However, a precise understanding of the change in vegetation cover across the Sahel, attributable to donor investments in the Great Green Wall, has been limited because of an underinvestment in measurement (e.g. a normalized difference vegetative index to measure the change in vegetation, recommended through a regional project by the World Bank at the beginning of the SAWAP, was never implemented). And, importantly, none of the World Bank projects estimated the effect of changing rainfall patterns on the greening effects. The misestimation of the role of rainfall variability as the key parameter affecting vegetative cover and agronomic productivity has a long history in the African drylands. Many unqualified statements have and continue to attribute Sahelian greening entirely to the actions of farmers.
But in a region grappling with food insecurity, persistent violent conflict, and rural poverty, environmental gains supported by investments in the Great Green Wall must also benefit the poor. Just prior to the coronavirus pandemic, there were 30 million food insecure people in the Sahel, and that number continues to grow. This large cohort consists of farmers, agro-pastoral, and nomadic populations – all of whom engage in traditional land-use arrangements that provide mutual food and livelihood benefits. In these settings, even the most degraded land has value: these are important areas of passage and grazing for livestock, particularly during the rainy season, and are sources of wild plants and wood gathered by women. But the use of area enclosures – a land management practice that seeks to restore degraded land by excluding livestock and humans from openly accessing it in the short to medium term – runs the risk of exacerbating vulnerability; and in the absence of good land governance, possibly causing harm. Some policymakers point to the possibility of benefits “trickling down”, but given the very moderate economic benefits of many of the SAWAP projects, that is unlikely to play out.
Increasing the value of degraded land, as was done by the Great Green Wall initiative, changes the decision-making calculation of land users – with enhanced farm value, these lands can be predated upon by elites, and can lead to encroachment by non-traditional farmers which risks displacing the local population. Such was the case in sites visited by IEG in Niger, where land was effectively restored, but where parcels were also sold outside of the community, in areas that lacked good land governance. Predation also occurs as a result of decisions to support crop agriculture alongside tree planting. While land restoration activities took place on communal land, the introduction of “inter cropping” facilitated individualized claims on community land. A lesson learned is that such projects should be designed with an understanding of customary, flexible tenure arrangements and the coping strategies of vulnerable resource users who access degraded lands as a social safety net. And, importantly, that emphasis should be placed on ensuring that clear, enforceable land-use agreements are in place prior to land restoration activities, to protect the land-use rights of the most vulnerable.
Because land restoration mainly benefits those that have access to land, some women and youth are especially disadvantaged in the Sahel. In Niger, a very large number of women are forced to fend for themselves and their families because their husbands and sons have migrated to other West African countries, such as Nigeria, Côte d’Ivoire and Senegal, to look for work. This migration is often associated with a lack of access to arable land, especially for male youth. Projects that support land and resource restoration can ensure that women and youth benefit by addressing participation barriers, linked to social and cultural norms. For example, since in some conservative areas, some women’s participation in cash for work programs is prohibited, programs must propose alternative income generating options to ensure equity.
The Great Green Wall has proved to be an effective approach to reclaiming land in a region coping with disproportionate impacts of climate change. Yet rather than delivering social benefits, the planned scale up could run the risk of increasing communal tensions without careful attention paid to unintended consequences. Evidence on the impacts of the investments on both the land and communities needs to be studied carefully as a first step to ensuring the Great Green Wall leads to equitable, inclusive and sustainable development.
Stakeholder interviews in Niger were conducted in collaboration with DAWNING.
Pictured at top: View of the Fada GGW site, showing millet farms in the middle of acacia plantations.
Credit: Nick Parisse, Dawning
The World Bank Group’s Approach to the Mobilization of Private Capital for Development
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This evaluation offers IEG’s first systematic assessment of the Bank Group’s approaches with Private Capital Mobilization (PCM) and the achievements of development outcomes in engaging with investors and project sponsors.
This evaluation offers IEG’s first systematic assessment of the Bank Group’s approaches with Private Capital Mobilization (PCM) and the achievements of development outcomes in engaging with investors and project sponsors.
What works in public utility reform: Lessons from evaluations in the energy and water sectors
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Utility reform has never been more important. The COVID-19 pandemic has badly impacted utilities across the world. Many utilities are now under intensified financial stress due to budget reductions and a loss of revenue, resulting from a sudden drop in collection rates, suspension of billing, and tariff adjustment in some countries. This, in turn, has made it more challenging to ensure continued Show MoreUtility reform has never been more important. The COVID-19 pandemic has badly impacted utilities across the world. Many utilities are now under intensified financial stress due to budget reductions and a loss of revenue, resulting from a sudden drop in collection rates, suspension of billing, and tariff adjustment in some countries. This, in turn, has made it more challenging to ensure continued service delivery.
IEG recently published the synthesis Public Utility Reform: What lessons can we learn from IEG evaluations in the energy and water sectors?, a compilation of evidence of what worked and what did not work, and why, in World Bank support of public utility reforms in the energy and water sectors in its client countries. Its findings are even more relevant in the context of uncertainty about medium-to long-term outlook for recovery from the challenges imposed by COVID-19.
Well before COVID-19, financial viability and institutional accountability were the two main challenges faced by public utilities in improving service outcomes in the energy and water sectors. Now, the effectiveness of utilities in these two fundamental areas remain critical for ensuring the quality and sustainability of these vital basic services during a post-pandemic recovery.
Financial Viability
IEG analysis reveals a range of World Bank interventions geared to support financial viability in both the energy and water sectors.
Recovering the cost of service is at the core of sector reform. Across both water and energy sectors, inadequate cost recovery is a key driver of financial underperformance. Poor bill collection and operational inefficiencies (including excessive network losses) also have a significant role. IEG finds that, while tariff reform is fundamental, improving operational efficiency of service providers is crucial for financial sustainability. The cumulative evidence indicates that when inefficiencies result in high-cost service provision, improving utilities’ operational efficiency should precede or go hand-in-hand with tariff increases. Additionally, the gains from reductions in technical and commercial losses, improvements in payment collection, financial management, and demand side management proved easier to sustain once implemented.
Evidence points to the importance of strengthening utilities’ commercial orientation, which is vital for the provision of adequate and reliable services, regardless of whether the service delivery agents are under public or private ownership. Utilities that emphasize cost control, customer orientation, and responsiveness to incentives are more likely to make meaningful progress. For example, World Bank operations in Vietnam and Turkey helped improve financial sustainability of electric power utilities through technical support and policy reforms, incrementally implementing tariff and market regulations in the electricity sector.
Utilities may need more financial support as they weather the economic crisis triggered by the pandemic. However, as the recently published IEG evaluation State your Business! An evaluation of World Bank Group support to the Reform of State-Owned Enterprises cautions, temporary subsidies introduced at the time of COVID-19 can pose “policy traps” supported by powerful vested interests, which can be hard to reverse once the crisis is over.
Institutional Accountability
Creating the right accountability and incentives is essential for effective service delivery. In both energy and water sectors, institutional accountability is critically tied to performance. Sustaining reforms requires competent institutions and strong administrative capacity. Improved performance can be a first step towards attracting private sector investment.
Strengthening sector planning, utility management, capacity and skills, can improve sector outcomes. A solid sectoral fiscal, financial, and regulatory framework also defines and sets the context for leveraging markets and the private sector to support service delivery.
There are multiple institutional pathways that could lay the foundation for improved and sustained service delivery. There is no single model but there are certain principles that work.
In energy, improved accountability and regulatory performance drive sector outcomes. Good practices on corporate governance and regulation enable the sector environment to leverage markets and the private sector. In Rwanda, for example, the World Bank (through budget support operations), the International Finance Corporation (through advisory services), and Public-Private Infrastructure Advisory Facility (PPIAF) helped the government develop sector regulatory structures and separate water and electricity utilities to improve governance, accountability and transparency. Institutional and policy reforms transformed the Rwanda Energy Group into a commercially operated state-owned enterprise and helped attract private finance.
In water, improved capacity, incentives, and transparent rules on accessing funds can ensure good sector outcomes. Good financial and operational data systems are also important. In Peru, the utility Sedapal radically changed its corporate management approach and work culture, including adopting a new performance-based compensation and incentive system driven by reaching results targets. IEG’s field-based assessment confirmed a steady improvement in access coverage, basic service parameters, and operational and financial performance.
Political and social challenges
In both sectors, utilities' operations and management are closely linked to the political economy in which they operate. Political economy considerations can inform specific design elements, including choices of programmatic instruments vs. standalone operations, or front-loading vs. back-loading of important reform actions in a programmatic series. Experience shows that support to operations needs to match the time frame in which effective government action can reasonably take place. The World Bank’s experience shows that complementary interventions and sustained support contribute positively to favorable and enduring results.
Regarding tariff reform, the institutional, political, and social challenges are considerable. Public opposition to tariff reforms reflects a lack of confidence in public service improvements and that vulnerable groups will be protected. At the same time, it is important to address potentially negative distributional consequences of reforms through such measures as differentiated tariffs and targeted assistance programs. Their success depends on the government’s ability to reach vulnerable households through fiscally sustainable programs.
Read the report | Public Utility Reform: What lessons can we learn from IEG evaluations in the energy and water sectors?
Pictured at top, clockwise from left:
The main drinking water pipeline for 750 households in Alapars and Karenis communities (Kotayk region) being fully rehabilitated. Armenia. Photo credit: Armine Grigoryan / World Bank
The control room at the thermal power station at Takoradi, Ghana, June 21, 2006. Photo credit: Jonathan Ernst/World Bank
Electrical Substation in Kenya. Photo credit: Andrew Stone
Windmill, Nicaragua photo credit: Ihsan Kaler Hurcan
Wegala Community Water Supply and Sanitation Project. Sri Lanka. Photo credit: Simone D. McCourtie / World Bank
Girl gathers drinking water from a community water pipe. Photo credit: Dominic Sansoni / World Bank