BCDS A Toolkit for Developing the Business Climate Steering Group Meeting MENA-OECD Investment Programme 3 March 2010, Paris OECD Private Sector Development Division
Business Climate Development Strategies (BCDS) with expanded policy scope The Business Climate Development Strategy (BCDS) supports governments to develop a strategy where and how to improve business climate and country competitiveness and provides targeted assistance in design and implementation of reform. It is a collaborative process which involves governments, private sector representatives and other stakeholders. Define Baseline Synthesis of existing evaluations including main accomplishments and remaining challenges. Stock-taking of business climate reform projects. The BCDS follows a systematic three-step approach: Develop Strategy Define with government leaders strategy on where and how to improve the business climate and country competitiveness. Two Chapters Support Implementation Provide targeted assistance in the design and implementation of reform, mobilising relevant expertise and resources form the OECD and the World Bank. A. Horizontal Policy Approach B. Sector Competitiveness Approach 2
A. Horizontal Policy Approach: BCDS I. Business Operational Environment 1. Investment Policy and Promotion 2. Privatisation Policy and Public Private Partnerships 3. Tax Policy and Administration 4. Trade Policy and Facilitation 5. Better Business Regulation 6. SME Policy and Promotion II. Rule of Law 1. Anti-corruption 2. Corporate Governance 3. Business Law and Commercial Courts III. Factor Markets 1. Infrastructure Policy 2. Human Capital Development Policy 3. Access to Finance Covering all policy areas that can support investment and business climate reforms 3
A. BCDS Analysis is based on 242 policy indicators BCDS Dimension 1.1 Non-discrimination I-1 FDI Policy 1.1 Non-discrimination 1.2 Protection of property 1.3 Investor protection BCDS Indicator 1.1.1 Restrictions to national treatment 1.1.2 Review of restrictions to national treatment 1.1.3 Approval procedures 1.1.4 Admittance of business personnel in support of FDI 1.1.5 Transfer of FDI-related capital 1.1 Non-discrimination Level 1 Level 2 Level 3 Level 4 Level 5 1.1.2 Review of restrictions to national treatment The government does not undertake any reviews of its restrictions to national treatment. The government has committed to designing a process to review restrictions to national treatment. The review process consists of benchmarking the scope of restrictions to national treatment in its laws and practices with other similar economies. Level 3 plus the process involves periodically reviewing the list of restrictions based on an analysis of their costs and benefits and a regulatory impact analysis. Level 4 plus the review process includes the canvassing of views and observations of national and international investors and other relevant stakeholders. Each indicator is broken down into 5 levels of reform progress 4
A. BCDS Example of Results Egypt Weighted Dimension Scores 1 IPP 3.73 Trade Policy and Facilitation 3.52 Better Business Regulation 3.28 Privatization Policy and Public Private Partnerships 3.03 Business Law and Commercial Courts 2.71 SME Policy and Promotion 2.70 Access to Finance 2.54 Infrastructure 2.39 Anti-Corruption 2.12 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 5
A. BCDS Example of Results Morocco Weighted Dimension Scores 1 Privatization Policy and Public Private Partnerships 3.80 SME Policy and Promotion 3.25 Trade Policy and Facilitation 3.25 IPP 3.17 Business Law and Commercial Courts 2.96 Infrastructure 2.82 Access to Finance 2.59 Better Business Regulation 2.42 Anti-Corruption 2.10 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 6
B. Sector Competitiveness Approach OECD Sector Prioritization Framework Approach: An investor demand driven approach Step 1 Step 2 Step 3 Stakeholder consultation & Research Modeling Stakeholder review Output Analysis of quantity of FDI Analysis of quality of FDI Country stated priorities Feedback in country (policymakers, private sector) Feedback from OECD business associations Capability analysis Matrix highlighting high level sectors priorities Focus on specific subsectors Initial list of sectors to discuss Input Surveyed ministries and business intermediaries Surveyed foreign investor associations and companies Interviews with employer associations of the OECD Reviewed country past & current related studies & priorities Gather data to support the model including: Country benefits and fit criteria like FDI, employment, innovation, moving up the value chain Sector Attractiveness criteria like value added, export capabilities, industry concentration Quantification and summary of all input gathered
B. Two dimensions, 13 economic indicators Sector Attractiveness Country benefits and fit Variable Value-added Exports Industry concentration Cost of Labor Measure Share of value added of the sector in total value added Compound Average Growth Rate (CAGR) of value added of the sector over 5 years Share of the sector in total exports Evolution of the Relative Comparative Advantage of the sector over 5 years Share of the sector in total number of firms CAGR of number of firms of the sector over a number of years Labor cost advantage or disadvantage in the sector (benchmark: a cluster of emerging countries) Variable FDI stocks in country Employment level Innovation Domestic demand Level of complexity Measure CAGR of FDI stocks of each sector as a percentage of GDP over a number of years Share of the sector in total employment CAGR of employment of the sector over a number of years Sector Innovation Performance Index built on 12 OECD countries CAGR of domestic consumption over a number of years Value added created per employee of the sector (excepted for mining and quarrying) World FDIs trends Foreign investor presence Share of world FDIs inflows of the sector CAGR of world FDIs inflows over a number of years Share of FDI stocks of the sector / Share of added value of the sector Energy intensiveness (Costs) Sensitivity to distances Degree of energy consumption of the sector index Degree of influence (costs, risks) of long distances on the sector index
B. Sector Prioritisation Framework Country benefits Index SPF model: Sector attractiveness, country benefits and share of FDI stocks of each sector 76 72 68 Defend Median = 20 The size of the bubble reflects the relative share of FDI stocks Finance Sustain 64 60 56 52 48 44 40 36 32 28 24 20 16 12 Motor vehicles & transport equipment Coke, petroleum products, nuclear fuels manufacturing Wood Machinery Food, beverages & tobaccos Hotels & restaurants Fishing, Leather and leather products Re-evaluate Very low score Textile and textile products Papers Rubber & Plastic products Communication Non-metallic mineral products Chemicals Transport & storage Electrical & electronic equipment Agriculture, hunting and forestry Electricity, gas & water supply Low score Note (1): Sector definition based on NACE classification Basic metals and fabricated metal products Construction Business & IT services Real estate Average score Trade & repairs High score Geological services Mining & quarrying Median = 34 Very High score Leverage 4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 Sector attractiveness Index In shaded boxes: sectors which needed to be analysed further
BCDS Five points of Value Added 1. 1 Provide a single comprehensive document defining a business climate reform strategy based on best practice in OECD countries 2. 2 Leverage existing evaluations of the business climate including those by the OECD, The World Bank and the European Commission 3. 3 Support leadership in the government to ensure coordination and consensus on priorities for reform throughout a broad range of policy areas affecting the business climate 4. 4 Involve national government and private sector throughout the process to increase buy-in for business climate reform 5. 5 Leverage established regional frameworks such as the MENA-OECD Investment Programme to address reforms 10
Contacts Anthony O Sullivan Head of Division Private Sector Development Division Organisation for Economic Co-operation and Development (OECD) Anthony.OSullivan@oecd.org Alexander Böhmer Head of Unit MENA-OECD Investment Programme Private Sector Development Division OECD Alexander.Boehmer@oecd.org 11
BCDS Example of Results 1 Egypt - Weighted Subdimension Scores IPP 2 - Promotion and Facilitation IPP 3 - Transparency BBR 2 - Cheaper and Faster Start-up Trade 3 - Non-Tariff Barriers PP-PPP 1 - Privatization Policy Trade 4 - Pro-active Trade Policy SME 2 - Targeted policiy tools Access to Finance 5 - Guarantee Schemes Infrastructure 1 - Telecommunications Infrastructure 2 - Transport Access to Finance 2 - Access to bank finance BL-CC 2 - Fundamental Business Law SME 1 - Instiutional Framework for SME Policy Anti-Corruption 4 - People and Public Institutions Involved in the Fight Anti-Corruption 5 - Private Sector Actions to Stem Corruption BL-CC 1 - Business Law Reform Infrastructure 4 - Water and Sanitation 3.93 3.85 3.71 3.54 3.52 3.50 3.43 3.43 3.38 3.31 3.30 3.25 3.17 3.04 3.00 2.96 2.92 2.83 2.83 2.69 2.67 2.63 2.45 2.43 2.39 2.13 1.97 1.93 1.80 1.80 1.75 1.60 1.40 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 12
BCDS Example of Results Morocco Weighted Subdimension Scores PP-PPP 1 - Privatization Policy IPP 1 - FDI Policy 1 BL-CC 5 - Enforcement Capacities/Arbitration System Trade 2 - Trade Liberalization and Trade Openness Trade 3 - Non-Tariff Barriers SME 1 - Instiutional Framework for SME Policy Access to Finance 4 - Early-Stage Finance Trade 1 - Trade Policy Strategy and Evaluation Access to Finance 5 - Guarantee Schemes BL-CC 4 - New Generation Business Law Infrastructure 2 - Transport SME 2 - Targeted policiy tools PP-PPP 2 - Trade Liberalization and Trade Openess Access to Finance 3 - Access to Capital Markets Infrastructure 4 - Water and Sanitation BL-CC 3 - Traditional Business Law Infrastructure 1 - Telecommunications IPP 2 - Promotion and Facilitation Access to Finance 2 - Access to bank finance BL-CC 2 - Fundamental Business Law Trade 4 - Pro-active Trade Policy Anti-Corruption 2 - Criminalisation of Corruption BBR 2 - Cheaper and Faster Start-up BL-CC 1 - Business Law Reform Anti-Corruption 1 - Anti-Corruption Strategy Anti-Corruption 4 - People and Public Institutions Involved in the Fight BBR 1 - Better legislation and administrative simplification Infrastructure 3 - Power Access to Finance 1 - Effective Institutional and Regulatory Framework Anti-Corruption 5 - Private Sector Actions to Stem Corruption Anti-Corruption 3 - Enforcement of Domestic Anti-corruption Provisions Access to Finance 6 - Improving Skills 1.75 1.60 1.50 1.40 3.56 3.50 3.45 3.39 3.36 3.31 3.29 3.25 3.17 3.13 3.08 3.04 3.00 3.00 3.00 2.88 2.78 2.78 2.70 2.70 2.54 2.52 2.50 2.43 2.38 2.31 2.29 4.56 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 13