Restoring Public Confidence: Industrialising Delivery of Pension and Retirement Solutions

Over the past century, governments, as well as public and private sector pension and retirement providers, focused on expanding existing and introducing new systems with a core focus on payment of benefits. Strong investment performance limited the perceived need to focus on delivery and operational excellence prior to the global financial crisis (GFC). Governance solutions that are not fully aligned with the critical nature of pensions and the associated size of the system are more common than rare. And thus, Josef Pilger gives a strong plea for industrialisation of delivery of pensions and retirement solutions consequently restoring public trust. Josef works in EY’s Financial Services practice and has 20 years of strategic and operational experience in Asia-Pacific, Europe and the US. He is without a doubt a man with a mission.

Josef Pilger will be addressing pension experts from around the world at the 5th WorldPensionSummit in The Hague on 5 and 6 November 2014. This Summit is the only worldwide platform for and by pension professionals.

Industrialising delivery of pension and retirement solutions

Q: What do you mean by industrialising delivery?

Industrialising delivery means that pension and retirement solutions are closing the gap to other financial services sub-sectors, taking a customer focus, enhancing governance and taking operational excellence to the next level. A customer-centric culture, systems and solutions, as well as effective engagement and communication, are the key pillars of industrialisation. With this industrialisation should come a focus on efficiency and effectiveness.

Q: Can you give me a few examples?

The interactions with employers, members and beneficiaries are mostly focused on payments and information exchange. In an era of bitcoin ATMs and the ability to do most things via your smartphone, the most prominent forms of exchange for pensions are too often still cheque and paper. Fit for purpose end-to-end process automation, electronic payments, electronic rollovers or employer self-serving are only a few examples that would make a fundamental contribution to industrialisation. I sat on an Australian Government working group to design such solutions, and the benefits are substantial. Empowering members with self-servicing platforms or integration into online banking are also good examples of the customer being put in the centre, which should, ultimately, reduce costs. I have been involved in designing and implementing a few of those solutions. They drive the “retailisation” and industrialisation of pension and retirement systems. Unfortunately, pensions and retirement have been seen by many as special or too complicated, limiting the impact of delivery innovation and industrialisation, which transformed many other industries.

Q: Why is this important now?

The GFC highlighted many pension and retirement challenges. Those challenges included sustainability as well as investment losses which generated widespread attention. It also raised public debate about member decision-making, governance and fee levels in many countries. This debate challenged confidence in pension and retirement systems. Confidence is critical in any long-form saving vehicle. Addressing sustainability challenges may take time to deliver tangible results, but fundamental improvements on these key dimensions of delivery will enhance the member experience. Existing delivery practices of using paper and manual payments in many countries offer significant opportunities, e.g., cost and fee reductions or member empowerment. Acting on these aspects now may support restoring public confidence. But, this is only half of the story.

Q: What is the other side of the story?

"Many pension and retirement systems are focused on restoring public confidence. Industrialisation helps in this process."

Post-GFC, we see a fast-increasing popularity of solutions that depend on employer and member interest, decision and actions. The success of the introduction of member choices in existing mandatory systems, new voluntary systems or major changes to existing solutions and portability of existing assets depend on member and employer action. Recent examples include the introduction of choice of fund in Australia, partial portability in Hong Kong, and private pension products (PRS) in Malaysia. If members – and employers – do not feel adequately informed and empowered, their lack to act will limit take-up and retention. Limited take-up and retention impact providers, members and policymakers. Industrialisation is very important for this process, as much depends on members and employers.

Q: What benefits does industrialisation generate for members and employers?

We have seen quantitative and qualitative benefits for all key stakeholders: members, employers, providers and policymakers. Enabling better decision-making for members and employers increases confidence. For members, this means making better decisions and selecting options that are better aligned to their personal situation and risk profile. This is expected to lead to better investment performance and improved long-term retirement outcomes. For employers, this means less effort to fulfil their obligations, processing regular contributions – thus reducing “noise” in the system.

Q: What benefits does industrialisation generate for private and public providers?

"For providers, industrialisation means more satisfied and better informed members. Employers join or remain with that provider."

A customer-centric approach puts members and employers in the centre. Information, products, services and solutions are designed “outside-in” to suit members and employers rather than providers. Reduced delivery costs means that providers have more flexibility to reduce fees to drive competitive advantage or add more service options. Short term, this comes at a cost; but long term, this investment pays off through higher satisfaction, retention and growth.

Q: What is your recommendation for policymakers and providers?

Leading policymakers and providers realise that good policy and strategy are not enough to inform, win and retain members and employers. Technology progress and the need to proactively respond to confidence challenges post-GFC made industry executives realise that the business issues and challenges for pensions and retirement are not unique to other industries or government social services.

Leading policymakers and providers add the dimension of “delivery” to their systematic rebalance of adequacy, sustainability and investment performance. They take a leading “delivery vision 2020” from innovative consumer or financial services organisations and apply this to pension and retirement delivery. This means adjusting culture, capabilities and infrastructure. Post-GFC pressure and the shifting balance of power and reliance on member actions makes industrialisation a priority to act now.

Q: Do you see parallels in the industrialisation of delivery in different international zones?

The focus on industrialisation generally grows as systems mature. It is more common in defined contribution systems, as they more often focus on improving efficiency and effectiveness rather than simply reducing cost. When pension and retirement assets per customer grow, three aspects often occur: a) customers pay more attention and become more demanding, such as in Australia; b) competition increases, and providers become more innovative, such as in the UK or US; and c) the industry becomes more transparent, and the public pays more attention to fees and charges which creates pressure to differentiate, such as in Hong Kong. Currently, there is no one leader that gets all aspects right, but we see many good examples around the world. Two aspects we can learn from these examples.

Defined contribution systems in many emerging or fast-developing countries without existing pension and retirement legacies appear much better prepared and focused on industrialisation than mature markets or defined benefits systems. The more paternalistic nature of the “traditional” employee benefits and defined benefits may be one reason. The second point is focus and listening to customers. Customers have little patience with traditional pension and retirement processes in a world where most things become digital and put them in the centre.

Q: What is the influence of globalisation and ageing on this process?

We are seeing a fast-increasing globalisation of pension and retirement beyond investments. Industry and policy executives are increasingly demanding insights and experience from other markets and systems. They take these insights and incorporate them in their domestic systems and solutions. Automatic enrolment or employer-centric contribution collection platforms are only two examples that currently conquer the defined contribution world.

Two aspects of the demographic transformation and ageing will accelerate this process.

"Older people with more pension and retirement assets in their account prefer more control. The strong growth of the self-managed superannuation sector in Australia is a vivid example."

Most of the younger generation has little experience with the luxury of defined benefits autopilot. Instead, they prefer control and informed decisions from the palm of their hand. To better engage them to act, particularly in voluntary systems, we need to “industrialise” like most other industries.

Q: What would you say is your lifetime achievement so far, what makes you most proud?

My two boys make me proud. The fact that my wife taught them to put money away for later is hopefully a lifetime achievement. For my youngest, this is still work in progress. His savings horizon generally is the next big trip to the ice-cream shop, but we all started with small steps.

Q: What drives you? What is your absolute passion for life?

I like to make an impact to people’s lives. Working at EY allows me to combine my personal drive with commercial interests. As an organization, we are committed to building a better working world. For our global pension and retirement team, we adjusted that to building a better retirement world. In my role, I help governments, as well as public and private sector pension funds and providers, to build, improve, expand and innovate their pension and retirement systems and businesses. This will build a better retirement world for many people globally. My contribution hopefully helps these people with better financial well-being during their retirement.

Q: What is your ambition for the next 10 years?

In many countries, we cannot necessarily agree on the best solution, but I believe we debated pension and retirement policy for long enough. I think we need to rebalance our focus between policy and delivery. I’d like to spend the next decade on helping policymakers, as well as public and private sector providers, with this rebalancing process. This will build a better retirement world for all stakeholders.

About Josef Pilger, Asia-Pacific Pension Practice Leader, EY

Josef works in EY’s financial services practice and has 20 years of strategic and operational experience in Asia-Pacific, Europe and the US. He has worked in several strategic and operational industry and advisory roles, servicing governments and leading organisations in the public and private sectors and in the life insurance, asset management, wealth management and pensions and retirement industries in Asia-Pacific, Europe and the US.

Analysing, designing and refining pensions, retirement and broad social insurance policy and policy options are Josef’s main focus, working closely with governments and regulators across Asia-Pacific.

He works with many leading public and private sector pension and retirement providers along the value chain, including pension funds, life insurers, retail banks, asset managers and wealth managers, across Asia-Pacific to protect, improve and grow their business. He provides strategic and operational advice in areas such as strategic direction, funding, growth, performance improvement, distribution and business transformation programs.

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.

WorldPensionSummit 2014, 5–6 November, The Hague

WorldPensionSummit is the only global platform for and by pension professionals.
Meet your peers and share the latest innovative ideas for a sustainable pension provision. The 2014 theme is: Financing Pensions | new roles – new responsibilities. The WorldPensionSummit 2014 offers key analysis, insights and ample room for discussion amongst peers. Meet top experts and key authorities in the field of retirement management, pension fund strategy, social security and employee benefits. Learn from key questions and actual best practices in Pensions. The best global networking opportunity with over 300 pension professionals from 45 countries! Register at: www.worldpensionsummit.com. Use special conference code for 20% discount:  MEDIA2014WPS20


John Maynard Keynes - Keynesianism to the Rescue: It Still Works Wonders

When Steve Forbes rallies against someone, as he often does, the world takes (some) note: Libertarians and conservatives are apt to make noises of approval while all others suspect the object of Mr Forbes’ ire to be a person of interest, if not outright admiration. The man who expertly directed the decline of his family’s vast fortune thoroughly enjoys shouting from rooftops.

Mr Forbes latest rant was directed at none other than John Maynard Keynes (1883-1946), the British economist who almost singlehandedly invented and shaped modern macroeconomics. Mr Keynes’ insight was that money controls the production of goods and services. Thus it is not merely a tool for commerce, but in fact reigns supreme.

Mr Forbes regularly calls John Maynard Keynes “a quack” for pointing out that injecting money into a recessionary economy will cause a resumption of growth. The stimuli packages unveiled in both the US and Europe following the financial crisis of 2008, are shining examples of Keynesianism at work.

The forces of monetary orthodoxy severely dislike the thought of governments and their central banks fiddling around with money. They argue that currencies should be kept stable at all times and that the market will eventually find a way out of any quagmire it may have ventured into.

To see how this works, just look at the countries of the euro area. Here stimuli monies were released rather late in the downturn. They were also much more modest in scope and ended up benefitting the banks more than the overall economy. As a result, Europe is taking much longer to crawl out of the crisis. The euro economies are now at risk of becoming stuck in stagflation. Compare this to the UK which had the foresight to appoint an unashamedly Keynesian banker to head the Bank of England. That was a smart move: The British economy is now thundering ahead.

Mr Keynes is hailed as one of the 20th century’s most influential thinkers not least because the analysis he posited were generally proved right after the fact. So it was in 1944 when Mr Keynes led the British delegation of the World Bank commission that was to result in the Bretton Woods System of global monetary management. Though during the negotiations most of his ideas were overruled by the Americans, Keynes’ ideas and suggestions were vindicated by later events.

John Maynard Keynes was also one of the last exponents of the idea that government and its civil service are powers that promote the common good by adhering to common sense. As such, the body of thought that is Mr Keynes’ legacy stands diametrically, and most refreshingly, opposed to the much more cynical game theory of ulterior egocentricity that has guided later macroeconomic thought and brought the world much sorrow.

Mr Keynes ideas are now in dire need of revaluation. The likes of Margaret Thatcher, Ronald Reagan and their many heirs have held sway far too long without producing anything near the results promised.


The World Bank: Local Currency Bonds Catch On as Countries Aim to Catch Up

[caption id="attachment_7349" align="alignright" width="259"] Dominican Republic: Santo Domingo[/caption]

Two years ago, the World Bank Group’s International Finance Corporation tried something that had never been done in the Dominican Republic. In a bid to increase access to finance to entrepreneurs and home-buyers, the Bank Group’s private sector arm became the first international agency to issue a bond in the country’s local currency aimed at raising money from Dominican pension funds for the local private sector.

The IFC “Taino Bond,” as it is known, raised 390 million pesos (about $10 million) that IFC invested in two local institutions. By 2015, FONDESA and Asociación La Nacional expect to provide $76 million in loans to people in rural areas and 10,000 fixed-term mortgages for low- and moderate-income home buyers, respectively.

Because the institutions received loans in pesos rather than a foreign currency, their clients do not have to worry that payments will go up because of currency fluctuations. And because the loans were longer-term than what was available in the markets, their borrowers also do not have to worry about rising interest rates.

But perhaps the greater benefit was the bond issue’s impact on the country’s financial infrastructure — the “capital markets” that help move money from where it is available to where it is needed.

“For the Dominican Republic to sustain its economic growth — and for this growth to be inclusive and create jobs — it is essential to develop the domestic capital markets.”

- Jingdong Hua, IFC Treasurer

The three years IFC spent preparing for the bond issue — working with the government, with regulators, capital market players, investors, and the two local financial institutions — paved the way for others to follow suit. Already, more financial institutions are offering fixed-rate mortgages and “creating new opportunities for people to purchase homes,” said IFC Treasurer Jingdong Hua.

“For the Dominican Republic to sustain its economic growth — and for this growth to be inclusive and create jobs — it is essential to develop the domestic capital markets,” he said.

It’s a concept that is becoming better understood as countries seek ways to finance infrastructure and boost housing and other sectors of the economy needed for growth. In the wake of the 2008 financial crisis and the sudden, swift withdrawal of international financing that occurred, development of domestic capital markets has become a priority for the Group of 20 nations.

[caption id="attachment_7352" align="aligncenter" width="520"] Source: Organization for Economic Cooperation and Development[/caption]

The size of domestic capital markets is seen as a barometer of the health of the private sector and the  ability of companies to obtain financing, grow, and create jobs. The Dominican Republic’s market amounted to 0.1% of GDP before the Taino Bond was issued, and many developing countries’ capital markets are as tiny. Ten years ago, China’s market was only about 3% of GDP. Today, it’s closer to 25%.

The World Bank and IFC are working to build capital markets in emerging countries. One way is through “offshore” bond sales in local currencies aimed at international as well as domestic investors.  The World Bank has issued about $8.5 billion worth of bonds in 19 currencies since 2011–including for the first time in Ugandan shilling, Thai baht, and Chinese renminbi.

IFC also is working closely with local governments, regulators, and others, to enable bonds to be issued within countries – and so build their financial infrastructure. Since 2002, IFC has issued bonds in 14 emerging market currencies around the world, and has frequently been the first international issuer in a domestic bond market, laying the groundwork — including pricing — for future bond issues.

"Local currency bond issues by prominent organizations such as the World Bank and IFC focus attention, spur activity and develop nascent markets to the benefit of local governments and companies. This issuance is one way that supranational Treasuries can directly contribute to our organizations' overall development mandate," said George Richardson, head of capital markets funding at the World Bank Treasury.

Now the pace of such local currency bond issues has accelerated amid growing interest in Africa and elsewhere.

IFC is ramping up its local currency bond program. In fiscal 2013 IFC issued a record $500 million in local-currency bonds; this fiscal year IFC has already issued more than twice that amount, including $1 billion in offshore rupees and over $300 million in offshore renminbi.

IFC issued local currency bonds in Rwanda on May 16 and is also in discussions with other countries in Africa, Asia, emerging Europe and Latin America.

Monish Mahurkar, director of Treasury Client Solutions for IFC, said interest in the bonds and in capital markets development is up “tremendously” because on a “continent like Africa there is a great desire to catch up. Some countries are impatient enough they want to leapfrog — they don’t want to wait another 20 years to develop the market.”

[caption id="attachment_7356" align="aligncenter" width="617"] IFC Local Currency Bond Issuances as of March 2014
Source: International Finance Corporation[/caption]

Much of the impetus is the need for infrastructure. Globally, about 1.4 billion people lack access to energy; 2.6 billion don’t have sanitation. India’s infrastructure needs alone are estimated at about $1 trillion over the next five years. These infrastructure gaps require far more resources than the World Bank Group, or other global international development banks can provide.

But “huge amounts” of capital potentially can be raised to finance these needs, said Mahurkar.

“The global pool of institutional savings is at least $30 trillion. We know that money is there. And we know demand is there. The question is how do you establish a bridge between the two? And capital markets are it — that’s the bridge.”

But many countries have very small capital markets that may only be developed enough for equities or government bonds, “neither of which help invest in the financial infrastructure so private companies can borrow, grow, and create jobs,” said Andrew Cross, of IFC Treasury’s client relations in Africa.

Local currency bonds issued by IFC, a triple A-rated, supranational institution, help build capital markets by attracting investors such as pension funds that want to put their money into low-risk investments.  Such issuances are typically oversubscribed.

Preparing a local currency bond issue in a country with a nascent bond market can take several years, but IFC is hoping to cut the time in African countries by standardizing the process, said Cross.

“We don’t see them as a silver bullet,” he said. “We see them as a contribution that we can make. But the bonds have these positive consequences well outside the size of the bond.”

Added Mahurkar:  “At the end of the day, our contribution is impactful but finite. But by developing the markets themselves, we’re providing a stable mechanism for resources to flow from savings pools towards the right allocations for projects. To us, that’s a potentially much larger impact.”


Nicholas Brady: Soccer Finance and the Pragmatist Who Fixed a Debt Crisis

Back in the days when a top-scoring soccer player could be enticed for a few million, Brazilian attacker Romario set a record when PSV put down all of six million dollars to have him play for the club in Eindhoven, The Netherlands. It was an unheard of sum except that the Dutch paid but a fraction of the contracted amount.

Smart thinking on the part of the club’s bankers meant that PSV got its star player for barely $1.5m. They came up with a cunning plan. Since Brazil couldn’t meet its debt obligations and was technically still in default, the countries bonds could be had for a song and a dance from bankers all too happy to pass on the proverbial buck.

In order to pay Romario’s Brazilian club, ING bought up Brazilian bonds for pennies on the dollar. Next, the bank offered the Brazilian Central Bank an opportunity to buy back its own securities at a whopping 75% discount. The Brazilians – fairly amazed at the simplicity of the deal – readily agreed. Thus money was created out of nothing and Romario went on to score many a goal for PSV while the ING debt buyback scheme got hijacked by the Americans. No harm done.

Nicholas Brady served as Secretary of the US Treasury from 1988 to 1993 and as such had to deal with the significant fallout from the Latin American debt crisis which erupted with Mexico’s 1982 default. Mr Brady took the debt swap idea first developed by the Dutch ING Bank a step further and to its logical conclusion. Under the Brady Plan, indebted countries would be able to issue new bonds with which to redeem old, devalued ones.

The standardisation of emerging market sovereign debt that followed facilitated both risk-spreading and securities trading. This secondary debt market is still fully functional today and operates on the same principles first formulated by Mr Brady.

The Brady Plan fixed the debt crisis of the 1980s imposing a “haircut” before that term had been invented. Brady Bonds were the main component of debt restructuring schemes and benefited tens of struggling countries. Most have now bought back all their outstanding Brady Bonds. The only country to ever default on its Brady Bonds was Ecuador. It did so in 1999.


UN Labour Report Shows Solid Return for National Investments in Quality Jobs

[caption id="attachment_7364" align="alignright" width="239"] Photo: World Bank/Alex Baluyut[/caption]

Developing countries that invested in quality jobs from the early 2000s grew nearly one percentage point faster every year since 2007 and were better able to weather the economic crisis than comparable economies, according to a new report by the United Nations labour agency.

The annual report of the International Labour Organization (ILO), The World of Work 2014, focuses this year on the relationship between good jobs and national development through analysis of 140 developing and emerging nations.

“Decent work opportunities for women and men help trigger development and reduce poverty,” Guy Ryder, Director-General of the ILO,” said in a news release on the launch of the report, subtitled Developing with Jobs.

“Development doesn’t happen through such things as exports, open trade and foreign direct investment on their own,” Mr. Ryder said.

“Social protection, respect for core labour standards and policies that promote formal employment are also crucial for creating quality jobs that raise living standards, increase domestic consumption and drive overall growth,” he added.

The report cites Senegal, where wage and salaried workers increased from around 12 per cent in 1991 to 26 per cent in 2013, as a case in point, showing that productivity increased there by an average of 0.5 per cent per year.

“Development doesn’t happen through such things as exports, open trade and foreign direct investment on their own.”

In Peru, it says, wage and salaried workers increased by an estimated 15 percentage points, and productivity grew by an average of 1.8 per cent per year. In both countries, inequality was also reduced as the percentage of working poor declined, it says.

“In view of the evidence, it is essential to make decent work a central goal in the post-2015 development agenda,” stressed Raymond Torres, Director of the ILO Research Department.

“Over the next decade, developing countries will need to create around 40 million new jobs every year in order to keep up with the growing working age population,” he said.

The report, which also covers global unemployment figures, social protection measures and economic migration flows, shows a smaller increase in unemployment than previous projections, with some 200 million out of work in 2013, predicted to rise by 3.2 million through 2014.


Paul Krugman: A Plea for a Return to Basics in Finance

Author of no less than twenty books, over 200 scholarly essays in peer-reviewed academic journals and more than 750 articles as a columnist, Nobel laureate Paul Krugman is not one to hide his mostly liberal opinions. As an economist, Mr Krugman repeatedly draws attention to the dangers of tinkering with established financial practices. He argues quite tirelessly against the exotic and highly complex financial instruments that entice investors and aim to create paper wealth.

Mr Krugman is a saltwater economist pur sang and vehemently defends a rather prominent role for the state in the conduct of macroeconomic affairs considering that it alone is able to avoid frightful booms and even more terrible busts. Still, Mr Krugman is no exponent of Keynesianism in economics. He has been heard to say that sweatshops are preferable to unemployment and has likened the opposition to unfettered free trade to denying the theory of evolution through natural selection.

In a word, Paul Krugman finds his own way. He has been particularly vociferous in his opposition to the untold billions spent in the US and Europe to bail out faltering banks. Mr Krugman thinks that money would have been better spent stimulating the wider economy. In fact, Mr Krugman finds that monetary conservatism by central bankers is apt to needlessly prolong economic crises. The continued focus on reducing budget deficits may even lead to a third depression that would leave “millions of lives blighted by the absence of jobs”.

Needless to say, Mr Krugman is not impressed by the US Federal Reserve’s drawing down its stimulus spending. In his Manifesto for Economic Sense, co-written by British labour economist Richard Layard, Mr Krugman argues that the major industrial economies of the world are mired in a liquidity trap since interest rates cannot be lowered any further in an attempt to jumpstart growth. Krugman and Layard propose deepening counter-cyclical government spending as an obvious way out of this trap.

What Mr Krugman mostly advocates though is a return to common sense economics and finance, considering that most deregulatory experiments have either failed or produced unforeseen, and often painful, side-effects. In today’s world, it’s rather innovative to plead for an end to financial innovation.


World Bank Group President Jim Yong Kim to Visit Saudi Arabia, Lebanon and Jordan

World Bank Group President Jim Yong Kim, will visit Saudi Arabia, Lebanon, and Jordan from June 1-4, to focus on the challenges and opportunities facing the Middle East and North Africa (MENA) region and underscore the Bank’s commitment and support. This will be Kim’s first visit to the three countries since taking over as president of the World Bank Group in July 2012.

“The Middle East today is at a crossroads,” Kim said. “In one scenario, the political crises, violent conflict and deteriorating economic conditions of the last three years could deepen and possibly spread to neighboring countries.  But we must commit to another more optimistic scenario for the region to realize its potential for sustained growth."

Kim continued, "The World Bank’s strategy in this region is to work with its partners to build on the foundation of co-existence, good governance, and inclusive economic growth."

During his four-day visit Kim will meet with heads of state, government leaders as well as private sector and civil society representatives to discuss how the World Bank Group can best continue supporting countries in the MENA region to promote sustainable growth and shared prosperity. Discussions will also revolve around fragility, building regional resilience and cementing partnerships to address cross border political and economic shocks through strengthening the capacity of cities, towns and local communities.

“In one scenario, the political crises, violent conflict and deteriorating economic conditions of the last three years could deepen and possibly spread to neighboring countries.  But we must commit to another more optimistic scenario for the region to realize its potential for sustained growth.”

In Saudi Arabia, Kim will discuss the key role partnerships play in the region. The meetings with government officials and the Islamic Development Bank will focus on economic cooperation for development in the region and the importance of cooperation between the World Bank Group and Arab bilateral and multilateral partners.

In Lebanon and Jordan, Kim will reiterate the Bank’s commitment to support both countries in mitigating the impact of Syrian refugees on the economy, education and basic services. Discussions will also address long term development agenda and the Bank’s sustained engagement through various instruments to promote reforms for growth and fiscal sustainability. The World Bank President is scheduled to make field visits and hold meetings with the political leadership of the two countries, as well as with representatives from the United Nations, civil society organizations, the private sector, and the media.

Kim will deliver a regional keynote address in Beirut targeting MENA youth. The speech will be carried live on www.live.worldbank.org and a live signal will be available for regional broadcasters.

Kim will be accompanied on the trip by Inger Andersen, World Bank Regional Vice President for MENA and Mouayed Makhlouf, International Finance Corporation’s Regional Director for MENA.

The World Bank Group’s (IBRD, IDA, IFC, MIGA) active portfolio in the MENA region, currently at US$16 billion, has been growing steadily over the last few years.  New World Bank Group commitments for fiscal year 2014 are close to US$5 billion.

About the World Bank Group

The World Bank Group plays a key role in the global effort to end extreme poverty and boost shared prosperity. It consists of five institutions: the World Bank, including the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA); the International Finance Corporation (IFC); the Multilateral Investment Guarantee Agency (MIGA); and the International Centre for Settlement of Investment Disputes (ICSID). Working together in more than 100 countries, these institutions provide financing, advice, and other solutions that enable countries to address the most urgent challenges of development. For more information, please visit www.worldbank.org, www.miga.org, and www.ifc.org.


Luther George Simjian: ATM Inventor Misses Out on Fame and Fortune

Born in 1905 in Turkey when that country was still known as the Ottoman Empire, Luther George Simjian became separated from his family in the chaotic aftermath of the Great War and fled to the United States via Beirut and Marseille. He arrived in New York age 15 with a bundle of optimism and a knack for anything technical.

It wasn’t long before young Mr Simjian started inventing gadgets. The self-focusing camera, the teleprompter, the flight simulator, and the ubiquitous automated teller machine which made him famous.

Few devices shaped retail banking into its present form as the ATM – aka hole in the wall – did. However, in 1939 when Mr Simjian had cobbled together his first fully functional Bankmatic few banks saw any use for the device. After much prodding, he found the City Bank of New York – the forerunner of today’s Citibank – willing to give the machine a chance.

The Bankmatic worked as advertised but the bank was not impressed and after six month pulled the plug. The machine was used almost exclusively by ladies of the night, gamblers and other assorted outsiders who preferred not to deal with human tellers face-to-face.

For Mr Simjian, his invention, though revolutionary, was not to bear any fruit. Commercial success did come eventually but in the form of the Optical Range Estimation Trainer – an early flight simulator – of which Mr Simjian sold over 2,000 to the US Army Air Corps.
After languishing in oblivion, the ATM was at long last made feasible by Scottish inventor John Shepherd-Barron who developed the first fully electronic teller machine. This device was first installed at the Barclays Bank Enfield branch in North London.

Mr Shepherd-Barron’s used special cheques impregnated with trace amounts of radioactive carbon-14 that could be matched against a personal identification number (PIN) entered on a keypad. At first this PIN number was to have six digits. The number was reduced to four after it was found that Mrs Shepherd-Barron could not readily manage to memorize a longer string of digits. She is owed a debt of immense gratitude.


Turkey’s Public Finances: Time for a Fiscal Policy Pivot?

[caption id="attachment_7385" align="alignright" width="208"] Ankara, Turkey[/caption]

New World Bank report recommends shift to more sustainable growth model.

The World Bank today launched a new report, Turkey in Transition: Time for a Fiscal Policy Pivot?, at a conference held in Ankara in partnership with the Ministry of Finance and the Ministry of Development.

The report documents the central role played by fiscal policy over the last decade in supporting initial macroeconomic adjustment and creating the space for rapid economic progress and improved social outcomes. However, it argues that fiscal policy needs to adjust to support the increase in national savings, reduce the reliance on cyclically volatile consumption-based taxes, and, in turn, lay the foundation for sustained growth in the coming period.

According to the report, over the past decade, Turkey’s prudent fiscal policy was supported by structural changes in the economy. In the aftermath of the 2001 banking crisis, expenditure restraint helped contain fiscal deficits. Revenue growth was supported by a compositional change in revenues from direct to indirect – or consumption-based – taxation. With declining informal employment as agricultural labor shedding gathered pace, increases in social contributions also boosted revenues.

"In the aftermath of the 2001 banking crisis, expenditure restraint helped contain fiscal deficits."

The report notes that rising government revenues and the dramatic reduction in interest payments made room to increase social expenditures – by about 5 percentage points of GDP. Health and pension expenditures dominated the rise in government spending and help explain better the social outcomes observed over the period.

The consolidation of public finances also helped the country attract greater international capital flows, reinforcing the decline in interest rates and fuelling private sector growth. However, the report says that the access to cheap global liquidity also precipitated a trend decline in domestic savings and a corresponding increase in external imbalances.

According to the report, the dynamics of fiscal outcomes and private investment and savings in Turkey raise a series of tradeoffs for policy going forward. The recommendations in the report include: (i) shifting spending towards public investment, and restraining growth in current spending to establish a growth model less dependent on debt-financed consumption; (ii) shifting from consumption-based taxes to higher effective capital taxation, which will enable Turkey to grow faster with higher domestic savings and continued fiscal prudence; (iii) finding alternative sources of revenues, such as broadening of the tax base and taking structural measures to boost employment creation, perhaps combined with expenditure cuts, to offset the diminishing incremental revenues from structural change; and (iv) increasing the female labor force participation rate to continue to support general government revenues as more women come into the formal labor market.


World Bank Supports SME Development with Focus on Financial Reporting in Europe and Central Asia

[caption id="attachment_7390" align="alignright" width="188"] Vienna[/caption]

Ministers of Finance, business leaders, accounting professionals, and academics from Europe and Central Asia, together with representatives of the World Bank and key EU and international institutions in financial reporting and auditing, met today in Vienna for the 5th Ministerial Conference of the World Bank Centre for Financial Reporting Reform (CFRR).

Harald Waiglein, Director General in the Austrian Finance Ministry, welcomed the conference and its theme, telling delegates of the importance Austria attaches to helping countries develop systems that strengthen private and financial sector development in Europe and beyond. “As a long-term partner of the CFRR, the Austrian Government is delighted to see the level of interest and commitment from the countries represented today to achieving reform in their financial reporting systems.”

In her keynote address, Laura Tuck, World Bank Vice President for Europe and Central Asia, underscored the importance of a strong small- and medium-enterprise (SME) sector for boosting growth and competitiveness, creating jobs, and enabling people in all social groups to increase their incomes. “Creating environments in which business, especially SMEs, can flourish, is an important element in achieving shared prosperity. Governments need to find the right balance between effective, but not unduly burdensome or restrictive, regulation of business activities. Events like this conference are an excellent way to share ideas and experience, and to discuss the way forward. Then, we all need to go back to doing the hard work to turn these ideas into practice.” She encouraged conference participants to continue to work with the World Bank Group to further improve the quality of corporate financial reporting.

“As a long-term partner of the CFRR, the Austrian Government is delighted to see the level of interest and commitment from the countries represented today to achieving reform in their financial reporting systems.”

The focus of the conference on developing sustainable financial reporting frameworks for SMEs was welcomed by Christian Weinberger, Senior Advisor within the European Commission. “SMEs are drivers of economic growth and innovation, which is why the EU had introduced its ‘Think Small First’ principle,” he explained.

Speaking about his country's recent experience in reforming the legal framework in this area,Lazar Krstic, Serbian Minister of Finance, explained how Serbia had overhauled its legal framework relating to accountancy and auditing, including introducing International Financial Reporting Standards (IFRS) for SMEs, which sought to reduce the reporting burden on smaller companies, and developing simplified requirements for the smallest, micro-enterprises.

“SMEs are the main engine of the Albanian economy. Simplifying reporting requirements, while seeking to introduce EU and other international good practice, is a priority for us,” said Shkelqim Cani, Albanian Minister of Finance.

Anatol Arapu, Minister of Finance of Republic of Moldova, said: “Moldova is registering increased progress. SMEs’ role in the economy of our small country is very important. We are strongly committed to ‘Think Small First’ by developing and implementing appropriate incentives for small business in line with EU requirements.”

Speakers welcomed the assistance provided by the CFRR in support of their reform efforts.

The CFRR has been in operation since 2007 and the scale and scope of its remit continues to grow. Samia Msadek, Director of Operational Services in the World Bank’s Europe and Central Asia region, told the conference: “Demand for CFRR’s tailored advice and technical assistance in support of financial reporting and auditing reform is increasing, and, going forward, there will be an even greater emphasis on encouraging partners to define and address SMEs’ specific needs. This event is held as the World Bank is reaffirming its commitment to improving public and private sector governance – it is essential to instill trust through transparency and increase accountability at all levels of society.”

Martin Ledolter, Managing Director of the Austrian Development Agency, said: “CFRR’s innovative methods to foster both intra- and inter-regional economic cooperation were a showcase example for private sector development.”

Conference sessions included exchanges among representatives of the accountancy profession and the business community in Central, Southeast, and Eastern Europe on how accountants can contribute to SME development. There was recognition that smaller businesses need accountants with a broad skill set for sound financial management and to help guide growth. Global standard-setters showcased their contributions to developing standards adapted to the SME environment. However, there was acknowledgement that more needs to be done to promote awareness of new standards and guidance developed for SMEs.

For more information about the CFRR, please visit: cfrr.worldbank.org

For more information about the World Bank’s work in Europe and Central Asia, please visit: www.worldbank.org/eca


World Bank Continues Support to Improve Vietnam’s Competitiveness with US$250 Million Credit

[caption id="attachment_7397" align="alignright" width="259"] Hanoi, Vietnam[/caption]

The World Bank’s Board of Executive Directors today approved a US$250 million credit to the Government of Vietnam for the Second Economic Management and Competitiveness development policy operation (EMCC-2) to support the Government’s economic management reforms to enhance the country’s competitiveness.

This second in a series of three such operations is focused specifically on three elements of competitiveness:

(i)    strengthening financial sector governance and fiscal management for macroeconomic stability;
(ii)    strengthening public administration, SOE management, and public investment management for more transparency, efficiency and accountability in the public sector; and
(iii)    strengthening tax and procurement policies and reducing administrative burdens to create a more enabling business environment.

“This program supports reforms that should help address some of the binding constraints to private sector investment.  Promoting a stronger role for the private sector in the economy is critical for Vietnam’s future growth.” says Victoria Kwakwa, the World Bank Country Director for Vietnam.

The first EMCC supported a number of pieces of legislation and government decisions to promote reforms including Prime Ministerial decisions to restructure General Corporations and State Economic Groups; strengthen supervision in the banking sector; and strengthen the institutional framework for debt management. The Laws on Tax Administration and Anti-Corruption were amended to introduce new provisions aimed at improving public administration.

The EMCC-2 builds on these to promote increased foreign participation in the banking sector and adopt a plan to address NPLs; strengthen medium-term debt management and improve the efficiency of public financial management; promote restructuring of State Economic Groups and improve SOE transparency; and strengthen the legal framework for public procurement, value-added tax and corporate income tax.


China’s Growth Moderates with Continued Economic Transformation

[caption id="attachment_7405" align="alignright" width="199"] Beijing[/caption]

China’s growth will moderate over the medium term as the economy continues to rebalance gradually. Growth is expected to slow to 7.6 percent in 2014, and 7.5 percent in 2015, from 7.7 percent in 2013, according to the World Bank’s China Economic Update released today.

“The rebalancing will be uneven reflecting tensions between structural trends and near term demand management measures,” says Chorching Goh, Lead Economist for China.

The slowdown in the first quarter reflected a combination of dissipating effects of earlier measures to support growth, a weak external environment, and tighter credit, especially for real estate. However, economic activity, including industrial production, has shown signs of a pick-up in recent weeks. The recent acceleration, which is likely to continue into the next two quarters, reflects robust consumption, a recovery of external demand, and new growth supporting measures, including infrastructure investments and tax incentives for small and medium-sized enterprises.

The China Economic Update, a regular assessment of China’s economy, identifies several risks to this gradual adjustment. First, a disorderly deleveraging of local government debt could trigger a sharp slowdown in investment growth. Second, an abrupt change in the cost of, or access to, capital for such sectors as real estate could significantly reduce economic activity. Finally, the recovery in exports may not materialize if growth in advanced countries weakens.

“The rebalancing will be uneven reflecting tensions between structural trends and near term demand management measures.”

The Update notes that the policy responses to these medium-term risks should center on fiscal and financial sector reforms, which were part of the government’s reform agenda outlined in November 2013. These include effectively managing and supervising rapid credit growth, especially in the shadow banking system, and gradually reducing the local government debt that has been accumulated through off-budget and quasi-fiscal activities.

“The proposed reform measures are structural in nature,” observes Karlis Smits, Senior Economist and main author of the Update. “In the medium term, these policy measures will improve the quality of China’s growth – making it more balanced, inclusive and sustainable and lay the foundation for sound economic development.”

While these reforms may reduce growth in the short run, policies that promote competition, lower entry barriers to protected sectors and reduce administrative burden on businesses will help dampen the impact, and create a more market-oriented economy.


Marketable Skills Set Young Women on Path to Prosperity in Nepal

Vocational training programs for young women, 16-24, in Nepal are giving them gainful employment, economic independence and bringing trust in their ability to create their own paths in life.

Through the programs, women have found jobs in lucrative, non-traditional fields for women such as gadget repair and aluminum working, earning more than a typical Bachelor’s graduate in Nepal.

The success of these programs has resulted in a new initiative implemented by the Government of Nepal, with support from the World Bank - the Enhanced Vocational Education and Training Project.

[caption id="attachment_7411" align="alignright" width="183"] Janaki Mandir Temple, Nepal[/caption]

Twenty three-year-old Ek Maya Rai is busy working at a mobile repair shop in Mahendra Pul, a busy area in Pokhara, Western Nepal. Ek Maya’s formal education ended at fifth grade, when her parents lost interest in sending her to school. After that, she stayed at home and helped her family with housework, with no prospects of a future to look forward to.

A year ago, she heard about a three-month long training on repairing mobile phones at the nearby Panchakanya Technical Institute. In this course, she saw potential for her to do something productive with her life, and enrolled. The training is part of the World Bank’s Adolescent Girls’ Employment Initiative (AGEI), which equips young girls aged 16-24 with the skills required to find employment and become independent adults.

“It was very difficult at first, because I had to take notes, but I hadn’t read or written anything for 10 years,” says Ek Maya. “Other trainees in the program helped me overcome this hurdle.”

Immediately after the training, Ek Maya’s job in a mobile repair shop was secured through the job placement program.

[caption id="attachment_7413" align="aligncenter" width="621"] Ek Maya Rai (L) took a mobile phone repair training last year. Babita Nepali (R) sections aluminum blocks to fashion door and window frames and received aluminum work training through the Adolescent Girls’Employment Initiative as well. Umesh Basnet / World Bank[/caption]

For women working in traditionally male fields like gadget repair, or aluminum work, gender stereotypes can get in the way of job placement. The program works with private sector partners to help graduates secure employment.

“Mobile repair shops don't think women can repair mobiles, many times we have to vouch for their ability ourselves,” says Madan Ranjit, who runs the mobile repair training at Panchakanya.

Today, Ek Maya earns Rs. 7,000 per month, a higher entry-level salary than is received by most Bachelors’ graduates in Nepal.

Ek Maya’s success is not atypical. In a nearby workshop in Pokhara, 20-year-old Babita Nepali is cutting sections out of aluminum blocks to construct window frames.

A school dropout like Ek Maya, Babita could not see any avenues open to her either, until she heard of the AGEI. After her training in aluminum work, she was placed in her job which pays her Rs. 8,000 per month.

Graduates of AGEI also have to go through skills testing. The rigorous process ends in a certificate issued through the government’s vocational certification program, CTEVT, which qualify graduates for employment anywhere in the world.

“It was very difficult at first, because I had to take notes, but I hadn’t read or written anything for 10 years,” says Ek Maya. “Other trainees in the program helped me overcome this hurdle.”

While the young girls trained as part of the AGEI formed a pilot group, the success of these vocational training programs have resulted in a new initiative implemented by the Government of Nepal, with support from the World Bank.

The Enhanced Vocational Education and Training Project (EVENT) offers training in skills that are highly demanded in the market, and women as well as men are eligible to receive training, with an emphasis on reaching the poorest and rural areas.

In addition to mobile phone repair, aluminum work, and arc welding, training programs offered include carpentry, electrical wiring, and radio and TV repair. Graduates of these programs are not only ensured higher paying jobs in the country, but will be able to earn more even if they leave to work abroad.

As for AGEI, the program in Nepal started outreach initiatives to attract more women to these non-typical, lucrative fields. The scaled-up program has also benefitted from outreach to women carried out under AGEI. Even without targeting women, EVENT has seen a 30% enrollment of women in the program, encouraging by all standards.

Some of the young girls who were part of AGEI were also enrolled in traditional fields that have potential for job opportunities. Through Janahit Training Center in Pokhara, young girls have received beautician training, hand embroidery, and tailoring, all skills that are highly demanded in the market.

Twenty four-year-old Bishnu Gurung and 19-year-old Amrita Thapa are both graduates in beautician training from the Janahit Training Center. After their training, the duo partnered to open a beauty parlor. Three months since opening, word of their business is already spreading, and they are looking forward to growing it into a successful enterprise.

[caption id="attachment_7418" align="aligncenter" width="520"] Tejaswee Beauty Parlor in Pokhara is a joint venture of Bishnu Gurung, 24, and Amrita Thapa, 19, both AGEI graduates. The training gave them the confidence to start their own business, otherwise, “we would just have been watching the days go by at home,” say the women. Umesh Basnet / World Bank[/caption]

In Nepal, AGEI works through private sector training providers that are incentivized to impart market-relevant skills to their trainees, and place them in jobs. The curriculum is based on a skills-plus model. In addition to technical skills, the girls are also provided life skills training which helps them become more confident young women, fully in charge of their lives.

Through training and job placement support, AGEI has positively impacted the lives of 4,375 young women throughout Nepal. Young girls without much to look forward to in their lives are now gainfully employed, making them economically independent, and bringing a trust in their ability to create their own paths in life.

“When a young woman gets an opportunity, you see amazing results,” says Jasmine Rajbhandary of the World Bank. “They have skills that will last a lifetime, together with more confidence in themselves, and higher satisfaction in their lives.”

As a school dropout, Ek Maya could not chart out her own future. Now with gainful employment, and a taste of financial independence, she is a proud and active member of her family and society.

“I don’t have to ask anyone for money. In fact, I can even help my family out with expenses,” says a proud Ek Maya.

She is also making plans for a brighter future.

“I want to open my own mobile phone repair shop. One day,” she says.


Achieving Growth and Development in Tajikistan

[caption id="attachment_7423" align="alignright" width="213"] Dushanbe: Presidential Palace[/caption]

A new Country Partnership Strategy (CPS) for Tajikistan outlines a World Bank Group program of support for the country over the period 2015-2018. The joint World Bank-IFC strategy sets out priority goals in the framework of cooperation between the World Bank Group and the Government of Tajikistan, which will further support efforts to reduce poverty and promote shared prosperity in the country.

The new CPS aims to increase the well-being of the people of Tajikistan by expanding economic opportunities for the private sector and for poor and vulnerable groups in society. The CPS prioritizes three main areas: 1) promote private sector led growth by improving the investment climate and strengthening competitiveness in key sectors to attract investment and create jobs; 2) promote social inclusion by increasing access to improved social and public services; and 3) enhance regional connectivity to increase the country’s access to regional markets and to global information and knowledge.

Mainstreaming climate change, governance and narrowing the gender gap will remain important measures across all sectors of the CPS.

In fiscal years 2015-2018, the World Bank will provide its support to Tajikistan through the existing portfolio of projects along with new investments in education, water and sanitation, irrigation, transport, and public financial management. Through analytical work and development policy lending, the Bank will also support structural reforms in the energy and financial sectors to help stimulate stronger growth.

"The joint World Bank-IFC strategy sets out priority goals in the framework of cooperation between the World Bank Group and the Government of Tajikistan, which will further support efforts to reduce poverty and promote shared prosperity in the country."

Building upon its existing advisory and investment services portfolio, IFC will continue to prioritize activities that contribute to increased access to finance for small and medium-sized enterprises, particularly in rural areas, promote investment climate improvements, reduce costs of doing business, and support development of agribusiness, hydropower and mining. IFC will also seek investment opportunities in other growth-enhancing sectors and develop related advisory services.

Tajikistan joined the World Bank in 1993 and the International Development Association (IDA) in 1994. Since 1996, the World Bank has provided US$ 955 million in IDA credits, grants, and trust funds to improve people’s lives in Tajikistan.

IFC, a member of the World Bank Group, is the largest global development institution focused exclusively on the private sector in developing countries. Since 1997, IFC has invested US$ 81 million to support 32 private sector projects in the financial, hydropower, retail, tourism, and manufacturing sectors. IFC’s program includes annual advisory services of approximately US$3 million in: improving the investment climate, promoting corporate governance, reforming tax administration, supporting the development of credit bureaus, supporting the microfinance transformation processes and improving the business environment for agribusiness.

The World Bank Group is committed to further support Tajikistan as it strives to improve the lives of people and meet the aspirations of its young and growing population.

Copyright © World Bank


World Bank Group: A Promising New Resource for Development - The Potential of Sovereign Wealth Funds

[caption id="attachment_7448" align="alignright" width="176"] Norway: Storting building[/caption]

Mobilizing finance for long-term, large-scale direct investment in development is a daunting global challenge. However, a growing and potentially vast source of capital seems poised to transform the process of financing development, reducing poverty and building shared prosperity in some of the world’s lowest-income countries. The wealth controlled by Sovereign Wealth Funds (SWFs), which now command almost $5 trillion in assets, seems destined to become a vital new force in the global financial architecture.

Already deploying more than twice the sum controlled by the world’s private-equity industry, SWFs – if wisely managed and well governed – could emerge as a key driver of global development as their capital is put to work in far-sighted investment opportunities.

SWFs are government investment agencies, usually established with balance-of-payments or fiscal surpluses – which are frequently created by an influx of revenue from commodity exports. Since SWFs are often motivated by an implicit promise to serve the long-term welfare of their countries’ citizens, their ideals coincide with those of the global development community, which seeks to allow capital to be put to work in ways that will optimize human development, social welfare and sustainable growth. Given their potential for providing substantial South-to-South flows of Foreign Direct Investment (FDI), SWFs could be a vehicle that delivers “win-win” outcomes – earning substantial returns for their countries, while channelling savings in surplus-earning countries toward productive investments that benefit the poorest people.

“Many governments are encouraging their SWFs to increasingly invest in domestic industries and infrastructure projects.”

The long-established SWFs of resource-rich countries of the North Sea and Persian Gulf, and of fast-developing financial centres like Singapore, may be today’s best-known investment vehicles, but the SWF landscape goes far beyond the likes of the Government Pension Fund Global of Norway (with more than $700 billion in assets) or Temasek (with about $175 billion). A wave of new SWFs has been set up in recent years – with more than 20 founded since 2005 – thanks to booming prices for commodities exported by developing countries, largely due to new resource discoveries and increasing consuming-country demand for imports. As SWFs become ever more influential, a new array of financial decision-makers is assuming a prominent position on the global stage.

New Funds

Papua New Guinea, for instance, established a SWF in 2012 to invest funds from that island nation’s mineral, oil and gas exports. Nigeria, the largest producer of oil in Sub-Saharan Africa, in 2011 set up a sovereign wealth fund – managed by the Nigeria Sovereign Investment Authority – that has three priorities and thus deploys its assets in three separate compartments: a Stabilization Fund, a Future Generations Fund, and a Nigerian Infrastructure Fund. Nigeria is part of an SWF movement that is increasingly prominent throughout Africa: In the Sub-Saharan region, 31 countries are already dependent on hydrocarbons or mineral resources for more than 25 percent of their merchandise exports – and thus they, along with other countries that continue to discover resource riches, seem likely to deploy their funds through SWFs.

The investment choices of SWFs can have far-reaching impact. SWFs in developed countries optimize their portfolios based on their own objectives and risk/return and investment-horizon profiles. These characteristics may lead to investments in long-term development projects in Emerging Markets and Developing Economies (EMDEs).

SWFs in resource-rich EMDEs also optimize their portfolios using similar criteria, which may lead to investments in long-term development projects in host countries themselves or in other EMDEs. For many resource-rich developing countries that do not yet have access to global capital markets or are only now emerging onto the global economic stage, revenues from natural resources can provide an important means to finance investments in such public goods as education and infrastructure.

[caption id="attachment_7452" align="aligncenter" width="492"] Chart 1: Sovereign Wealth Funds[/caption]

Domestic Industry and Infrastructure

Many governments are encouraging their SWFs to increasingly invest in domestic industries and infrastructure projects. Recent examples include the infrastructure fund compartment managed by the Nigeria Sovereign Investment Authority as well as the Angolan SWF, the Fundo Soberano de Angola. This is an understandable course, so long as the investments themselves are directed to projects with positive financial and economic returns and so long as the macro-fiscal and governance risks inherent in making domestic investments is adequately mitigated.

However, SWFs in resource-rich low-income countries face challenges of governance and transparency that can inhibit their ability to contribute to and realize returns on investments in long-term development projects. Resource-rich developing countries that face high levels of poverty and privation will surely need to manage their wealth carefully, recognizing that their natural resources are likely to be exhaustible. Moreover, upholding strong standards of governance and designing responsible investment policies will be critical to maximizing their long-term investment opportunities and thus supporting sustained prosperity.

Looking toward their long-term needs, stewards of SWFs would be wise to seek far-sighted counsel from a range of trusted sources that can provide strategic support beyond the advice available from investment banks, consulting and law firms, and asset-management firms.

One such resource to which developing country SWFs can turn for support is the World Bank Group, whose long-term priorities for poverty reduction and sustainable development are in harmony with developing countries’ hopes to soundly manage their resource wealth. Taking a holistic view of each country’s development needs, and focusing on positive long-term outcomes, is essential to making the most of each SWF’s potential.

Since the World Bank Group carries on a sustained policy dialogue with the government institutions that typically own, manage or oversee SWFs – usually a country’s Ministry of Finance or Central Bank – it is well-positioned to offer strategic counsel, providing expertise in the political-economy implications of SWF-related decisions and detailed knowledge of global best practices.

Management and Oversight

At every stage of SWF management and oversight – from weighing whether an SWF is an appropriate vehicle within the context of each country’s local conditions, to drawing up governance rules and investment policies that uphold strong international standards – the World Bank Group can be a partner with governments in working through the many challenges that accompany SWF decision-making. Such issues can include judging the macroeconomic context within which an SWF is formed; weighing an SWF’s strategic objectives and realistic goals; aligning the institutional and governance arrangements of the fund; and considering domestic investment strategies.

“In addition, the World Bank Group in 2012 established a secretariat and advisory group to assist SWF leaders worldwide, assembling experts and mobilizing knowledge resources from across the Bank.”

Recognizing the growing potential of SWFs in influencing the contours of development, the World Bank Group has structured a series of mechanisms to help serve the needs of SWFs with assets available for development investing. Within the International Finance Corporation – the private-sector investment arm of the World Bank Group – the IFC’s Asset Management Company now controls about $6.5 billion in assets, with six funds that can co-invest with SWFs and pension funds. For example, the African, Latin American and Caribbean (ALAC) Fund, was set up in 2010 to provide SWFs and pension funds with an opportunity to co-invest with IFC in growth equity investments in developing countries. The portfolio of the $1-billion, 10-year ALAC Fund is now about 40-percent focused on sub-Saharan Africa, with investments in several countries, including Nigeria, Kenya and Uganda.

In addition, the World Bank Group in 2012 established a secretariat and advisory group to assist SWF leaders worldwide, assembling experts and mobilizing knowledge resources from across the Bank. By coordinating its engagement with SWFs, the advisory group aims to provide an integrated value proposition for the World Bank Group’s clients and to encourage knowledge-sharing. The group reviews draft SWF laws; helps design SWF-related engagements; and facilitates knowledge-exchange about SWFs. With a cross-sector perspective, the secretariat taps into a broad set of experts and considers cross-cutting issues related to SWF design and implementation.

Knowledge and Needs

Pursuing a vigorous knowledge programme, the group has generated case studies on SWFs and has set up an online platform that will be accessible to SWFs, academic hubs and external practitioners by June 2014. A series of workshops, led by experts who have set up or managed SWFs, has begun helping practitioners build their capacity. Those workshops are expected to be available to SWF leaders who will attend the World Bank and International Monetary Fund (IMF) spring meetings in April and annual meetings in October.

In prioritizing the needs of SWFs, the World Bank Group joins other international organizations that have been stepping up their work on SWF-related issues in the context of global development. The IMF also has a longstanding advisory role with the SWF community, having spearheaded the development of the Santiago Principles – voluntary guidelines on SWF best practices – in 2008. An UNCTAD panel on SWFs at the Doha Roundtable in April 2012 sought to explore the potential for SWF investments to promote sustainable development. A Global Sovereign Funds Roundtable in May 2012 focused on development investing and Environment, Social and Governance (ESG) principles.

With optimism running high about the prospects for global development, governments and international institutions are focused on the post-2015 agenda, beyond the fulfilment of the Millennium Development Goals process. As new actors and new investment vehicles seek to drive development forward, well-managed and well-governed sovereign wealth funds seem likely to be an ever-more-important resource in promoting transformational projects that will help fulfil the global goals of eliminating extreme poverty and promoting shared prosperity.

About the Authors

[caption id="attachment_7453" align="aligncenter" width="223"] Shanthi Divakaran[/caption]

Shanthi Divakaran is a senior financial sector specialist in the World Bank’s Financial and Private Sector Development Network. She currently manages the World Bank’s Sovereign Wealth Fund secretariat.

[caption id="attachment_5165" align="aligncenter" width="225"] Christopher Colford[/caption]

Christopher Colford is a communications officer at the World Bank’s Financial and Private Sector Development Network. Mr Colford was previously a consultant at Hill & Knowlton Public Affairs Worldwide and a senior editor at McKinsey & Company.


Shift to Solar Power Raises Incomes for Salt-mining Families in India

Example of sustainable energy future moves delegates at UN Forum.

Sustainable Energy for All leaders outline financing plan to achieve goals by 2030.

"We are on our way to realize ambitious energy agenda," says World Bank President Jim Yong Kim

Every year, whole families in the rural Kutch region of the Indian state of Gujarat await the end of the rainy season, when they make their trek to the salt-rich Thar desert. Tens of thousands of men, women and children migrate there for eight months a year during which they dig wells that fill with groundwater brackish enough to produce tons of salt. They pump the water into flat pans spread out in the hot sun, where it evaporates, leaving behind heaps of salt crystals.  It's a livelihood of hard labor and low returns.

But for Divuben Rathod and her family, their labor was eased and their income increased after they borrowed $2,600 from India's Self-Employed Women's Association Bank in 2012 to buy a solar water pump.

Shifting to a solar-powered pump was a leap of faith for them, as the diesel pump it replaced costs only $340. But the gamble paid off, as the solar pump uses no fuel. They use the diesel pump only after dusk, now, thereby reducing their fuel costs by 70%. Meantime, their salt production rose by 40%, from 500 to 700 tons over the eight months.

"Never in our lives have we earned so much," said Ms. Rathod, who invested some of her earnings in a flight ticket to New York City, where she told her story to a roomful of diplomats, financiers and development bank officials gathered at a Sustainable Energy for All (SE4ALL) Forum, co-sponsored by the World Bank Group and the United Nations. "I used the money I saved to bring the voice of 30,000 of the poorest women of Gujarat here to the policy makers of New York," she said.

"The World Bank Group is firmly committed to working with you in this action phase of SE4ALL. We are taking action to help countries create incentives for energy investment, taking action on financing instruments, such as green bonds, on tapping new sources of capital, and on preparing energy projects that are bankable. It is an ambitious agenda, but we are on our way."

- Jim Yong Kim, President, World Bank Group

Chad Holliday, Chairman of Bank of America Merrill Lynch and also Chairman of SE4ALL's executive committee was moderating the session at which Ms. Rathod spoke.  He said hers was "the most moving speech I have heard at this forum." Her example shows that investments in renewable energy can pay, he said, not just by reducing greenhouse gases, but also by creating economic opportunities that transform people's lives.

Ms. Rathod's intervention came during a three-day gathering of over 20 energy ministers, who joined over 30 members of the SE4ALL Advisory Board and nearly a thousand delegates, including energy company executives, entrepreneurs, leaders of civil society organizations and officials from governments and international agencies. The meeting's focus was to consider recommendations for action from working groups that focused on each of the three SE4ALL goals to be achieved by 2030, respectively:

Achieve universal access to electricity and modern cooking and heating solutions

Double the rate of improvement in energy efficiency

Double the share of renewable energy in the global energy mix

A fourth working group concentrated on strategies to mobilize an estimated $755 billion a year in new energy financing to achieve the three goals---the amount identified by the SE4ALL Global Tracking Framework launched last year.

Its chairman, Luciano Coutinho, President of BNDES, Brazil's national development bank, reported the working group's conclusion that to deliver energy solutions for low-income countries ---and communities like Ms. Rathod's---subsidies, grants and concessional financing will be required. SE4ALL Advisory Board member Reema Nanavaty, who also heads the Self-Employed Women's Association that provided the loan to Ms. Rathod, said access to credit is essential to help women in poor communities get access to energy for their families and their businesses.

Expanding access to modern energy services, that is providing electricity to the world's 1.2 billion people without it and the 2.8 billion who still use wood and other biomass to cook and heat their homes, is the goal with the lowest price tag, $45 billion a year, according to SE4ALL's Global Tracking Report. The same study found that $390 billion will be needed to achieve the energy efficiency goal, and up to $320 billion to finance new investment in renewable energy to double its share of the global energy mix from the current 18% to 36%.

For all three goals, Coutinho reported, the SE4ALL working group on finance recommends that the World Bank Group and other international financial institutions:

support early-stage project preparation

develop and deliver financial instruments that reduce risk

provide policy and regulatory tools to make renewable energy more competitive with fossil fuel sources, and to boost investment in energy efficiency

"The World Bank Group is firmly committed to working with you in this action phase of SE4ALL," said Jim Yong Kim, the Bank Group President, in a video message to delegates. "We are taking action to help countries create incentives for energy investment, taking action on financing instruments, such as green bonds, on tapping new sources of capital, and on preparing energy projects that are bankable. It is an ambitious agenda, but we are on our way."

Original

Copyright © World Bank


Myanmar’s Opportunity to Double Rice Export and Reduce Poverty

New Report Advises Myanmar to Rethink its Rice Export Strategy to Expand Rice Production and Help Farmers Improve their Livelihoods.

Myanmar has the potential to more than double its rice exports by diversifying and increasing rice production, opening its rice milling sector to direct foreign investments, and reducing export procedure costs, and thereby helping many rural poor to escape poverty, according to a new report, Myanmar: Capitalizing on Rice Export Opportunities, produced by the World Bank and the Livelihoods and Food Security Trust Fund (LIFT) of Myanmar.

Improving agricultural productivity and promoting rice exports are top priorities for the Government of Myanmar. Despite its plan to export four million tons of rice by 2020, the actual annual rice export has reached only 1.3 million tons over the past years.

The current rice export strategy favors the production of low quality rice, which is largely sold to Africa and China. Consequently, farmers have earned minimal profits and agribusinesses have skipped necessary investments. The situation is worsening as the global demand for low quality broken rice is shrinking.

“This is now a government call to capitalize on rice export opportunities and secure sufficient incomes to smallholder farmers,” said Kanthan Shankar, the World Bank’s Country Manager for Myanmar. “Rice production is a source of livelihoods for about 70% of the population. Higher and more profitable rice export improves farm incomes and food security of the rural poor. Increasing rice exports will spur momentum for inclusive growth and poverty reduction in Myanmar for the next decade.”

"Improving infrastructure and reducing export procedure costs would also boost Myanmar’s export competitiveness."

There are good market prospects to accommodate more diversified rice exports from Myanmar over the next 10-15 years, particularly in the European Union and Asian countries, earn higher incomes, and diversify risks along different markets. The obstacles in hitting these marks are low productivity and poor rice quality at the farm level, undercapitalized and inefficient rice mills, and costly export infrastructure and procedures.

Opening the rice mills to direct foreign investments is, according to the report, a vital step to take to increase quality and volumes of rice export.

Improving infrastructure and reducing export procedure costs would also boost Myanmar’s export competitiveness.

More efficient mills and lower exporting/trading costs would trigger changes at farm level, helping to raise agricultural productivity and change farm practices, including the choice of rice varieties, required to match the evolving demands of importers

Conducive agricultural policy is also important to modernize Myanmar rice value chain.

“A policy environment conducive to supporting this refocus of the rice export sector is essential if anything is to change,” said Andrew Kirkwood, LIFT’s Fund Director. “Much of the policy change can be introduced without cost to public finances. In short, consistent economic policies without anti-export bias, alongside the current Government effort to improve farmer access to finance, will offer high rates of return for Myanmar rice exports, for its farmers and for the rural poor”.

Copyright © World Bank


African Leaders, Business Community Push for Financing of Priority Regional Infrastructure Projects

Across Sub-Saharan Africa, poor infrastructure is a major bottleneck for sustainable development

Signaling a new push and renewed commitment, the Dakar Financing Summit is focusing on regional infrastructure with a view to boosting investment and catalyzing greater cooperation

By tackling Sub-Saharan Africa’s infrastructure deficit, African countries will be able to lay the foundations for sustained economic growth and productivity improvements needed to end poverty and boost shared prosperity on the continent

It is well-known that the poor state of infrastructure in Sub-Saharan Africa cuts economic growth by up to two percentage points and stifles business productivity by as much as 40 percent, putting a brake on growth and creation of jobs and wealth.

Less well-known are the concerted steps that the African Union Commission, New Partnership for Africa’s Development (NEPAD) and the Programme for Infrastructure Development in Africa (PIDA) are taking to improve infrastructure and meet the huge financing needs estimated at $93 billion annually.  Adopting regional approaches and mobilizing the strengths of the private sector are essential for generating shared solutions.

In the latest bid to galvanize action, H.E. President Macky Sall of Senegal and current Chairperson of the NEPAD Heads of State and Government Orientation Committee is convening a Financing Summit in Dakar from June 14-15.

The Summit’s goals are to mobilize stakeholders around ongoing efforts and accelerate implementation of priority regional infrastructure projects. The Summit responds directly to the expressed demand for a pipeline of well-packaged infrastructure projects.

The World Bank delegation led by Makhtar Diop, Vice President for the Africa Region, will join African Heads of State, leaders from the AUC,  African Development Bank, NEPAD, and others including potential financiers of infrastructure projects in Africa, government agencies, business leaders, development finance institutions, private equity investors, commercial banks, pension funds, bond market operators, and insurance companies.  Their collective goal is to build a new consensus on the way forward.

As delegates gather in Dakar, showcasing the benefits of regional cooperation and public-private partnership for sustainable development of infrastructure in Sub-Saharan Africa is important, both to demonstrate successes and draw lessons that can benefit and guide the next generation of poverty-fighting infrastructure projects.

Taking a Regional Approach to Develop Shared Energy Solutions

Western Africa is in the grip of a chronic and sustained energy crisis that leaves only one in five Mauritanian citizens with access to electricity.  In Mali, only one in three people has energy access.  Senegal, host of the Dakar Financing Summit, fares slightly better, but only half of the population has power.

Against this backdrop, as this video shows, new gas finds in Mauritania are a potential game changer.

The recently-approved 300 megawatt Banda Gas to Power Project will enable production and harnessing of natural gas for generating electricity.  It will provide affordable, reliable, sustainable power to Mauritania’s grid for homes, businesses and mines and for export to Mali and Senegal.  Overall, 1.4 million households or 7 million people stand to benefit in the three countries.

The Banda gas-to-power project presents a new approach to developing energy resources on a regional basis. Combining power demands from multiple countries provides the scale at which gas field development becomes commercially viable at an acceptable cost for power consumers.  The project’s first-of-its-kind combination of guarantees is helping to mobilize $950 million of private investment in gas extraction and energy generation by facilitating power trade among Mauritania, Senegal, and Mali.

Public-Private Partnerships for Roads

Capital cities are very special places and Dakar with its vantage location on the shores of the Atlantic, distinctive architecture and vibrant tapestry of people, culture and music is no exception.

Yet, this densely-populated capital city is prone to gridlock, suffers from traffic congestion that slows economic activity, trade and the movement of people and goods, exacerbates pollution and lowers the quality of life of residents.  It also increases the cost of doing business.

The Dakar-Diamniadio Toll Highway project marks a major effort to improve transport in the crowded Dakar metropolitan area and restore the city’s luster as a driver of Senegal’s development.

Developed as a public-private partnership, the project is delivering dividends to the more than 100,000 cars and trucks that enter and exit Dakar.  Transit times have been cut significantly, 20 minutes or so, down from a high of two to four hours previously. Most importantly, the resettlement of people, frequently the bane of infrastructure projects, was handled sensitively, and over 30,000 people living in a low-income, flood-prone area were successfully relocated.

As Africa’s urbanization takes root at an unprecedented pace with over 450 million new urban dwellers expected between 2010 and 2040, developing innovative solutions in the energy and transport sectors is a key priority.  Mauritania’s Banda gas-to-power project and Senegal’s Dakar-Diamniadio Toll Highway project are good examples of the benefits of regional cooperation and public-private partnership geared toward improving infrastructure in Africa.


Central Asian Countries Pledge Action on Climate Change

Central Asia faces climate change related issues such as warmer temperatures, glacier melt, increased variability in water resources, and frequent and costly weather-related hazards.

Central Asia climate change forum aims for Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan to work together on mitigating the effects of climate change.

Proposed program includes plans to foster regional collaboration and prepare innovative pilot investments to enhance climate resilience.

Climate change poses an undisputable challenge to Central Asian countries now, more than ever. At a time when an annual temperature increase of even 1 or 1.5 degrees can have a significant impact on a country’s economy, it has become imperative for the countries in the region to work together on mitigating the effects of climate change.

A recent regional conference sought to do just that in Almaty.

The Second Central Asia Climate Knowledge Forum brought together civil society organizations (CSOs), and government officials from Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan, along with regional educational institutions, universities, and development partner representatives to prepare a forward-looking regional strategy for climate change mitigation and adaptation in Central Asia.

The proposed Climate Adaptation and Mitigation Program for Central Asia (CAMP4CA), to be financed by the World Bank and other bilateral and multilateral agencies, aims to strengthen cross-country planning, prepare innovative pilot investments, and increase the implementation of regional collaboration in the long-term. By maximizing synergies across sectors and countries, CAMP4CA will help improve the effectiveness of the response in each country, enhancing climate resilience at both national and regional scales, and setting the stage for future opportunities for green growth.

The event stressed the importance of open dialogue among all parties to reflect diverse perspectives, providing an opportunity for civil society to share its own experiences at the community level. The participating non-governmental organizations announced the formation of the “Central Asia CSO Climate Association,” which will be a coalition of environment and climate CSOs from all five countries. The organizations expressed a strong interest in the national Technical Working Groups (TWG) with representatives across ministries, who will work to develop the Regional Climate Resilience Project.

The event, which took place for the second year in a row, also promoted knowledge sharing and dialogue on climate change among Central Asian stakeholders. Cooperative solutions to mobilize climate finance for green and inclusive growth and low-carbon climate-resilient development were defined, and experiences in incorporating disaster risk reduction and climate change adaptation and mitigation policies and programs into sustainable development planning and implementation were shared. The discussions captured experiences in reaching out to the private sector and local institutions and engaging them on climate resilience by understanding the market for climate-resilient interventions, improving enabling environments, and developing financing instruments for resilience.

Participants also pledged to work on developing proposals to strengthen the capacity and raise awareness on the risks of climate change, assessing the vulnerability of key sectors of the Central Asian economies towards the impact of climate change, planning and taking actions aimed at improving the resilience to climate change in targeted sectors at the national and regional levels, and establishing a regional coordinating body for the program.

The forum also set the stage for a high-level dialogue in the near future on moving from national to regional climate resilience.