June 15, 2011 Practical Solutions to Client Needs: An Industry-Specific Investment Climate Angle to...

June 15, 2011

Practical Solutions to Client Needs: An Industry-Specific Investment Climate Angle to Integrated Country Programs

Alberto Criscuolo, IC Industry-Specific Global Team, IFC Istanbul

What is Industry Specific Investment Climate?Objective:

Generate reforms and impacts at the industry level through the application of our economy-wide expertise to the circumstances and challenges within specific sectors. This work aims to improve the way markets function with a view to increasing efficiency (cost savings & anti-monopoly), investments, exports, and jobs.

What we do:

Agribusiness: Address regulatory and competition constraints to growth and the means to increase both the volume and value-added of investments and/or exports and sector output in agribusiness. Core areas:

▪ Streamlining the regulatory environment for agribusiness competitiveness▪ Facilitating investment for agribusiness growth and diversification▪ Establishing the framework for accessing finance through warehouse receipts ▪ Fostering competition for growth and investment▪ Improving tax administration and fiscal incentive policies for agribusiness

Tourism: Contribute to tourism sector growth and competitiveness by attracting and realizing catalytic private sector investments in the accommodation sector while enhancing the policy, legal and regulatory framework to improve public sector performance and private sector profitability. Core areas:

▪ Streamlining Business Operations – Improving competitiveness ▪ Investment Generation Solutions – Triggering growth

–‘Investment Opportunity Creation’ –‘Investment Procurement’ –‘Private Sector Participation in Protected Areas’

Other Sectors: While the initial focus is on agribusiness and tourism additional sectors are being covered, particularly in IDA or FCACs. (ie. Mining in Yemen, BPO in Kenya)

Why Focus on Agribusiness & Tourism?

Agriculture and tourism are top two sectors in most IDA countries for

employment generation per unit of investmentAgriculture

Food securityGDP Growth MultiplierDeclining Public Sector

RolePotential for increased

value addedIncreased investor

interest

TourismGlobalizing effectForeign Exchange

earningsDemonstration &

Catalytic EffectPublic Sector Divestiture

Youth Employment

Brazil

Belarus

Rwanda

Mali

Burkina Faso

Sierra Leone

Liberia

Ukraine

Moldova

Kenya

India(Bihar III) &

Raj

Indonesia

Cambodia

Philippines

Armenia

Central Asia

Cameroun

Projects in design stage

MoroccoTajikistan

What is the current portfolio of the IC Agribusiness Product?

Georgia

What are the Building Blocs of the IC Agribusiness Product?

5

Streamline the regulatory environment for agribusiness competitiveness: Agricultural Input Markets Regulation Regulation of Aggregation Models Food Safety Regulation Food Products Standards

Facilitate investment for agribusiness growth and diversification

Establish the framework for accessing finance through warehouse receipts

Foster competition for growth and investment Inputs to agricultural production Agricultural logistics (i.e. transportation and

warehousing) Commercialization of agriculture products

Improve tax administration and fiscal incentive policies for agribusiness

Regulatory

Reform

Warehouse

Receipts

Tax Simplificati

on

Competition Policy

Investment

Facilitation

How to deliver? Applying Industry Lens to Existing IC Products Inv

estment

•Investment policy

● Taxation

•Investment facilitation

● PPD

•Licensing

● Competition Policy

Inputs

•Secured lending

● PPD

•Competition policy

● Trade logistics

Production

•Standards (food safety/quality/certification)

•Inspections

● PPD


● Taxation

Marketing & Distrib

.

•Trade logistics

● PPD


● Standards (food safety)

Wholesale & Retail

•Competition Policy

•Taxation

•Licensing

6

7

Why bother about IC integrated Industry Programs?

…because it improves Development Results!!!

53%

67%60%

88%

28%

65%

74%70%

58%

85%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

In Development

Entry Developed Exit Special initiative

Not Linked Linked

57%49%

67%65%

84%

100%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Firm specific Enabling Environment Enabling Environment & Firm specific

Not Linked Linked

46 51 49 19 18 6

55%59%

73%

53%

34%

70%64%

76%69%

38%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

DE Relevance Output Outcome Impact

% R

ated

Pos

itive

Not Linked Linked

124

124 108 124 108 124 108 123 103 74 69

69%

57%62%

67%

77%82%

61%65%

74%81%

420 417 415 409 41173 71 72 73 700%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

DO Fin Econ E&S PSD

Not Linked Linked

At a

ll pr

oduc

t sta

ges

For a

ll re

sults

in

dica

tors

Especially for IC interventions

and consistently for IFC investm

ents

8

SOURCE: IFC EMENA Strategy Presentation FY12-14

Integrated Industry Country Programs in Practice…

Driving for impact on agribusiness in Ukraine!

PolicyContext

IC: Industry-level regulatory

streamlining, Inspections & permits, food safety, food

product standards

Access to inputs

A2F: Agrifinance &

agro-insurance

FM/MAS: Loans to banks, risk-

sharing facilities, supplier

finance, WC

PrimaryAgriculture

SBA: EST (Food safety); FAST (farmer prod-

ivity)

MAS: Primary export

commodities, meat, dairy

Food processing &

retail

SBA: EST Stds (food safety), FAST (farm

prod.), &Res. Efficiency

(cleaner prod.)MAS: Food

processing & retail

Infra-Structure

Infra AS: PPPs

Infra/MAS: Cold storage,

logistics, ports, inland silos

Maximizing Ukraine’s agribusiness potential by addressing key challenges across the value chain

9

Objective:

In consideration of Ukraine’s export potential in agribusiness and ability to play a global role in food security, the IC BL launched in 2009 an industry-specific intervention to address the micro-level regulatory and policy constraints to

agribusiness development.

Piloting an IC Integrated Industry Approach:

Policy Results:

1. The Cabinet of Ministers of Ukraine abolished the mandatory certification of food products in December 2009 (CABMIN Order 1689 of 12/23/09) !!!

This enabled the GoU to unlock USD 20.7 million annually for the food processing sector in terms of reduced compliance costs.

2. Jointly developed with FS Agencies of 8 industry checklists on HACCP in the dairy, poultry, meat, and eggs sectors, endorsed by the EU (DG SANCO mission) in May 2010 and are expected to open up new export opportunities to EU.

3. FS reform included as priority of the deregulation agenda of the Committee for Economic Reforms under the President of Ukraine established in the spring of 2010.

Focus on harmonization of product standards, certification, and food safety regulation with intl. and EU best practice.IC BL led policy dialogue with GoU & SBA BL engaged with agro-processors on FS standards Leveraged World Bank “carrot & stick” to advance policy reform (DPL IV loan)Solid industry-level regulatory diagnostics as the basis of policy dialogue with GoU and direct TA to FS agencies

IC Industry Contribution to Ukraine’s Integrated Agribusiness Program

10

Unleashing Ukraine’s Global Food Security Potential (Phase 2)

Objective: unleash Ukraine’s agricultural and export potential through better industry-level regulation, beyond food safety.

Focus: 1) streamlining import-export regulation for agricultural inputs and products; 2) improve regulatory framework for storage , quality standards, and and post-harvest logistics for grains and other export crops; 3) continue harmonization of food safety and product quality standards with EU

Expected Results: lower costs and greater access to agri inputs (eg. current market for crop protecting agents is USD $120 million annually, 95% imported); increased investments in grains post harvest logistics facilities and potential mobilization of additional USD 3.2 bln in trade finance through WHR system; increased agricultural exports to EU;

Facilitating Agbiz Investments in Moldova (IDA)

Objective: improve competitiveness and export performance of the high value agricultural products

Focus: 1) reduction of regulatory distortions in input and downstream phases of the HVA value chain (logistics, processing, marketing); 2) improved regulatory framework for investment in post-harvest handling infrastructure in HVA, including harmonization of standards with EU. 3) streamlined export regulation for HVA;

Expected Results: Increased FDI and Investment in agribusiness; increased compliance with EU product quality standards and greater efficiency of HVA supply chains resulting in higher final prices (currently 29% lower than world prices);

Streamlining Cross-Border Agribusiness Trade in Tajikistan (IDA)

Objective: help farmers in Tajikistan access better seeds varieties, pay less for fertilizers, and ultimately increase crop yields.

Focus: streamlining regulation on certification, registration, and import-export of agricultural inputs and products.

Expected Results: increase competitiveness of Tajik agribusiness sector by easing dekhan farms registration, access to agricultural inputs, simplifying import-export regulation;

Improving Tax Transparency for Real Sector Investments in Central Asia

Objective: To address tax transparency & sector specific regulatory issues that constrain IFC & other investors in CA

Focus: Agribusiness and real sector constraints that emerged from IFC IS work in the region (Survey of IOs, 3 country diagnostic, IS portfolio review).

…scaling up Integrated IC Agribusiness Country Programs in ECA

IC Agribusiness Core Themes by VC Phase, Products, and Priority Countries in ECA

Core Agbiz Theme

Regulation – Licensing/ Permits

Ukraine All

Moldova HVA ‘fresh fruits&vegs”

Tajikistan fresh fruits & vegs – ag inputs reg

Ukraine Grains, fresh fruits&vegs – post-harvest logistics

Moldova HVA ‘fresh fruits&vegs” – Post-Harvest Logistics

Ukraine All – Ag cleaner production reg

Armenia All – food Safety Reg (with SBA)

Bosnia All – EU harmonization


Tajikistan fresh fruits & vegs – ag exports reg





Regulation - Inspections

Ukraine Food Safety Controls – All/dairy & meat



Georgia All – food safety reg (with SBA)







Regulation - Standards Moldova HVA ‘fresh

fruits&vegs”

Georgia All


Georgia All


Georgia All



Georgia All


Regulation - Tax

Central Asia Tax (with IS) Central Asia Tax (with IS)

Central Asia Tax (with IS) Central Asia Tax (with IS)

Regulation - Trade

Moldova HVA ‘fresh fruits&vegs – import duty protection of packaging


Moldova HVA ‘fresh fruits&vegs” exporters


Ukraine Grains Export Quotas

Moldova HVA exporters

Tajikistan F&V

Investment Promotion

Ukraine Grains, fresh fruits&vegs – post-harvest

Moldova HVA – Post-Harvest Logistics

Georgia HVA

Ukraine All – Ag cleaner production reg

Georgia HVA

Bosnia All

Moldova HVA Post-Harvest Logistics

Georgia HVA

Bosnia All

Moldova HVA – Post-Harvest Logistics

Georgia HVA

Bosnia All

Competition Policy/Monopolies



Ukraine Grains – post-harvest logistics

Moldova HVA ‘fresh fruits&vegs – transport/logistics

Ukraine Grains – post-harvest logistics

Moldova HVA ‘fresh fruits&vegs – transport/logistics

Ukraine Grains Export Quotas 11

TradersInput

prod+distr

Process-ors

Distribu-tors

Retailers

PrimaryProduce

rs

12

Summing Up Key Drivers of IC Agribusiness in ECA!• Growing client demand and IC agbiz portfolio in ECA (Active projects with agbiz

component: Ukraine, Tajikistan (with A2F), Belarus, Tax and Agribusiness IC in Central Asia (ER); Pipeline: Ukraine (next phase), Moldova (ER); Pre-pipeline: Georgia, Tajikistan (next phase), Armenia (next phase), Bosnia (next phase), Balkans Regional Food Safety (with SBA);

• Focus on Ukraine as global player on food security. Integrated agbiz country strategy with IS and all AS BLs. Strong results track records on IC reforms and priority focus on IC agbiz for next 3-year project cycle;

• Core IC Agribusiness Global Product Themes in ECA:• Main focus on Theme 1: Streamlining the reg environment for agbiz competitiveness• Increasing work on Theme 2: Facilitating Investment for agbiz growth (Moldova,

Georgia)• Piloting work on Theme 3: Improving tax admin and fiscal incentive policies for agbiz

(IS-AS in Central Asia project)

• Strong Partnership with the World Bank on agbiz: full integration and excellent collaboration with the World Bank on agriculture/agribusiness policy reform (joint DPO operations, CPS Moldova, Tajikistan, Ukraine) and on analytical work (Ukraine Ag investment Note);

• Successful IC – AS integration pilot on Food Safety Reform: Joint IC-SBA policy and TA platforms in Ukraine, Belarus, Georgia, Armenia, Balkans Regional Food Safety Study;

• EU Integration as a key driver for IC engagement on agbiz regulation harmonization in South East Europe

• New CIC Industry Hub in Istanbul supports Global-Regional IC alignment with IS on Agbiz

13

Thank You!

Additional slides with country examples as a back up

not to be shown

14

Facilitating Investment For Agribusiness in Africa

RwandaHelping accelerate

investment and growth in the horticulture and tea sector

Removing obstacles to investments in the sector

Helping the Ministry of Agriculture and the Rwanda Development Board to identify and reach out to reputable investors in horticulture and tea

Identifying land to be utilized on a leasehold basis by investors to help broker faster transactions between lessors and lessees for registered land.

Introducing new technologies, farming skills and also better labor standards

Sierra LeoneLaunching investor outreach strategies

in sugar and palm oilBuilding institutional capacity of

investment promotion agency (SLIEPA).

Developing sugar sector strategy :▪ a detailed sector presentation for

investors ▪ list of target investors for proactive

outreach, with context and contact strategy for each;

▪A list of top priority policy interventions to the target investors;

Advice to government to improve focus on “quality” investments - most economically and socially beneficial deals – by better regulatory checks and balances and legal advice on negotiations with investors.

Integrated IC Agribusiness Approach in Morocco…

16

• Agriculture represents 15% of GDP and 40% of

the labor force -> Growth driver

• Greatest socio-economic potential impact: 80%

of rural population have agriculture-based

livelihoods.

• Morocco benefits from a strategic location and

bilateral FTAs (EU, US, MENA countries) &

Advanced Status with EU.

• Agribusiness remains below its full potential (4%

of GDP), only 16% of the production is

exported each year, worth of US$ 1.7 bn.

• High value-added processed food represent

only 27% of exports (78% for Tunisia ; 51% in

Turkey).

• Shortfall in investment: only US$400 mn. on

average

• Plan Maroc Vert –PMV aims at generating 1-1.5m jobs, increasing GDP by US$9-

13bn, and doubling/ tripling income for 2-3 mn farmers, through 1300-1500

projects.

• PMV aims to: a) develop high value-added F&V sub-sectors through aggregated projects;

b) support the modernization of poor farmers in remote areas.

• National strategy for industrial emergence – MoI - promotes agribusiness (agri zones,

training).

• Strategy for modernization of the distribution sector (MoI).

• World Bank DPL signed in 2011, in support of PMV.

ConstraintsOpportunity

Government Efforts

• Value chain & distribution inefficiencies -> Inputs

do not meet processors’ quality, volume and cost

requirements.

• Fragmented sector, small players with weak

capacities

-> limited compliance with food safety standards.

• Distortive regulatory and tax structure

-> creates informality.

• Outdated regulatory framework for domestic

markets -> reduces the efficiency and cost-

competitiveness of agribusiness.

• 30% and 50% of F&V traded informally ->

deter value chain upgrading to meet

requirements.

Outdated regulatory and tax systems

for wholesale markets

Low investment levels: sector is performing below its potential in terms of investment generation and FDI attraction

Low trade/export volumes : sector is performing below its potential in terms of contribution to exports

Low Job Creation : sector is performing below its potential in terms of contribution to job creation

Producers and processors unable to comply with stringent

international food safety/quality standards

Dysfunctional domestic marketing and distribution

systems for F&Vwith high transaction costs

Cau

sality

Lack of investment

policy framework

Limited financing and poor

service capacities

Small firms with weak capacities and poor

corporate governance structures

Food safety regulatory

framework still evolving

LOW COMPETETIVNESS: Firms unable to compete in high value export markets and with foreign imports in

domestic market

Reduced efficiency and cost-competitiveness , low producer incomes and high consumer

prices, low quality, encouraging informality

LOW INVESTMENT ATTRACTIVNESS: Firms unable to attract investment into the sector

Addressing Systemic Market Failures in Morocco

Morocco IC Agribusiness Project’s Objectives:

Support Increase growth and competitiveness of high value, export-oriented agribusiness supply chains by :

• Increasing harmonization of quality and food safety standards with international best practices

• and supporting firm-level upgrading to comply with international food safety standards

• Reforming the outdated regulatory framework governing the operations of wholesale markets in Morocco (IBRD DPL policy matrix);

• Addressing FDI-related IC sectoral constraints and implementing a targeted sectoral FDI attraction strategy.

18

Timeframe and targets will be developed during the pre-implementation phase.

An IC Industry Integrated Intervention for Morocco…

19

IFC AS Activity Outcome ImpactIf

Then

If

Then

• Pilot upgrading of fresh fruits and vegetables wholesale markets (IC) – with MoI

• Monitor impact on trade for the pilot sites and provide evidence to support further reforms.

• Promote phased approach to the reform of the outdated regulatory framework governing wholesale markets (IC) - with MoI

Harmonize food safety & quality standards with international best practices (IC) – with ONSSA/ MoAg

• Implement targeted sectoral investment promotion / FDI attraction strategy (IC) – with ADA (MoAg)

• Address investment/ FDI-related IC sectoral constraints (IC) – with ADA (MoAg)

Outcome 2: quality and price competitiveness increased

Outcome 3 : Export-competitiveness of the agricultural/agribusiness sector increased

Investments, exports, jobs, supply-chain-efficiency, and higher value addition in selected strategic agribusiness value chains increased.

Support firm-level upgrading to comply with international food safety standards (SBA) – with firms

Outcome 1: Investment generation increased

<---------------------------- Logic Flow ------------

Moldova:

An Integrated IC Country Program with Strong Industry Focus linked to World Bank

Policy Lending to address client’s Top Reform Priorities

Key Investment Climate Policy Options to date:

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21

ISSUE: Business in Moldova faces increasing admin costs and declining profitability

Profitability of Enterprises in Moldova (2003-09)

21

Proposal(s): Address regulatory constraints targeted to priority export and investment sectors, especially Agribusiness. 0

2

4

6

8

10

12

14

16

18

20

Percentage of Management Time Spent on Complying with Government Regulations2003 2004 2005 2006 2007 2008 2009

-20%

0%

20%

40%

60%

80%

100%

-0.01

0

0.01

0.02

0.03

0.04

0.05

0.06

ProfitOperating costAdmin CostMarketingCost SalesOverall Profit Rate

% of Sales % Profit

22

ISSUE: Past IC reform efforts, but regulatory constraints and high costs remain

Doing Business 2011 Rank Doing Business Construction Permit Ranking

22

Proposal(s): Complete legal reform covering all Construction Permits processes; Implement Construction Permits One-Stop Shop fully in Chisinau as pilot location; Eliminate duplicate inspections and implement risk-based Inspections and an Inspection coordination system.

0

10

20

30

40

50

60

70

80

90

100

82

68

51

12

38

66

90

56

89

Belarus Bulgaria GeorgiaMacedonia,

FYR Moldova Romania0

20

40

60

80

100

120

140

160

180

44

119

7

136

159

84

Duplicate inspections: More than 8 agencies undertake duplicative inspections in (MoE & IFC Inspections Inventory 2011):

• Quality and conformity of goods and services• Ecological security• Financial and Economic Inspections

23

ISSUE: FDI weakening and high potential Agribusiness sector not attracting significant FDI

Proposals: Develop and apply resources to Investment promotion in Agribusiness; Address regulatory constraints – esp those distorting agricultural input markets for agri-business; Reduce administrative burden of agri export and food safety regulations and food safety; GoM prioritize Agribusiness and coordinate Ministries and Agencies.

FDI in Moldova by Sector

Source: Min of Economy (2009)

Source: FDI Markets Database

24

ISSUE: Moldova’s Food Safety and Quality Assurance Systems are Unable to Provide the Services Expected in Modern

Sophisticated Food Markets

• Apples: Export Price (US$ per Ton)

Proposals :Implement Comprehensive Institutional and Regulatory Reforms for Food Safety and Quality by:(i) In the short-term: Formulate, adopt and implement a “single integrated multi-

annual national feed and food control plan” to increase effectiveness and efficiency of the food control functions currently assigned to various government agencies such as MOA, MOH and MOE.

(ii) In the medium-term: Seek further harmonization with EU/international standards and regulations.

2000 2001 2002 2003 2004 2005 2006 2007 20080

100

200

300

400

500

600

700

MoldovaPolandRo-maniaRussiaTurkey

25

ISSUE: Lack of Access to Modern Inputs Hampers Innovation and Competitiveness

Apples Yield (Hg per Ha) Apples: Producers Prices (US$ per Ton)

Proposals:• Further reduce testing requirements for varieties registered in neighboring countries (EU

and/or CIS)• Harmonize government seed regulations and regulatory practices with EU practices.• Revise procedures for certifying inputs that are already certified in line with standards of

other countries with which Moldova has mutual acknowledgement certificates.• Adopt the EU common catalogue for fertilizers and pesticides.

20002001

20022003

20042005

20062007

2008

0

50000

100000

150000

200000

250000

Moldova

Poland

Ro-mania

Russia

Turkey

Ukraine

20002001

20022003

20042005

20062007

2008

0

100

200

300

400

500

600

700

800

900

Moldova

Poland

Ro-mania

Russia

Turkey

26

ISSUE: Export Restrictions (and the risk of their re-introduction) Create Major Disincentives for Critical Agricultural Investments

Evolution of Producer Prices of Wheat (US$ per Ton)

Proposal: Refrain from (re-) introducing export restrictions for agricultural commodities and produce

0

50

100

150

200

250

Exports Re-strictions Removed

June 15, 2011 Practical Solutions to Client Needs: An Industry-Specific Investment Climate Angle to...

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