New work: Agricultural Transformation

Poverty reduction remains a major challenge. The story being told by many governments and donors is that the solution to this challenge is economic growth, fuelled by economic transformation (the movement of labour and capital away from less productive agricultural activities to the more productive manufacturing and services sectors of the economy). Economic history in some way endorses this view: structural change in the economy is the only known permeant route out of poverty.

But the picture isn’t always so rosy.

Jobs and Livelihoods: What should we be focussing on?

Towards the end of March, the International Development Committee [1] report on ‘Jobs and Livelihoods’ was released. This inquiry looked at DFID‘s economic development strategic framework (EDSF) to determine what impacts it could make on increasing jobs.

The report noted the importance of ‘improving livelihoods’ rather than just focussing on formal sector jobs which, (even where there is success in creating these) may not be accessible to many women and men living in poverty. Most encouragingly, the IDC also focussed on the informal economy

DFID’s approach to economic development: answering David Kennedy’s call to engage

On Monday I was the lucky recipient of a last-minute ticket to the PWC International Development Conference when a colleague wasn’t able to attend any more. David Kennedy, the newly appointed Economic Development Director General, gave an impressive-20-minute-no-notes opening address focussing on DFIDs approach to economic development.

David Kennedy speaking at the PWC International Development Conference, 24 November 2014. Source: twitter

He emphasised throughout that DFID are still developing much of their thinking and that they would welcome discussion on this. He ended by saying, “if you have any other questions or thoughts, send me an email, I’d love to engage” – and so, taking this offer at face value, here are my three points:

What’s so inclusive about growth?

Franklin Roosevelt once said “We are trying to construct a more inclusive society…. We are going to make a country in which no one is left out”.

Fast-forward to 2014 and it would seem that an ‘inclusive society’ is harder to achieve than hoped with US inequality levels soaring.

So back to the question – What’s so inclusive about growth?

Historically? Well as the case of the US shows(along with many other experiences from around the world) nothing really. As the OECD highlights, there are three problems that even the record levels of growth of the 1990s and decade of 2000s failed to tackle: poverty, unemployment and inequality.

What would ‘thinking small’ look like in global value chains?

The challenges I face are obviously affected by being a small business. Middlemen buy my product and sell it to the big company. They impose their price. (Jose Luis, Nicaragua)

Big business only rarely listen to our needs because they don’t need us (Abdul, Afghanistan)

Whilst it is never as simple as “big” versus “small”, small businesses do describe a view that they are often exploited in their supply chains. The above two views were expressed by small business owners that we talked to in our (second) Think Small research that’s currently underway (see our first Think Small research here). The question is, can Global Value Chains (GVC) ever be beneficial?

The promotion of GVCs has become a hugely popular approach to enterprise development and one which is becoming a bigger focus for donors. The argument for inserting small businesses into GVCs is that this will help them to develop as businesses and thus provide jobs and benefit the economy overall; and ultimately, be good for poverty eradication.

But, given the views of small and micro enterprise (MSE) owners, we think this enthusiasm needs some tempering. It is clear, that the lived experiences of small businesses in GVCs are not automatically positive. Fairtrade research, for example highlights how value does not reach the ‘bottom’, stating;

“…there is clear desire among some to get more value out of their product. From experience, this desire comes from producers’ experience of long-term declining farm gate prices, their sense of powerless in the face of this decline, and, for those with access to the information, a painful knowledge of how their income represents an ever smaller fraction of the final retail price.”

So the question should be how can GVCs be made to benefit MSEs (who generate most of the jobs and a significant proportion of the GDP of developing countries)? Our research has highlighted 3 things that are important to consider towards this end;

1) POWER

The relative power in GVCs can determine whether these will be a negative or positive experience for MSEs. All too often, small business’s lack of voice and power leads to market marginalisation or unfavourable terms on which to do business.

In Zambia small businesses often found that they had to do business on poor terms because they needed customers and had limited options. They were also in a precarious position when things went wrong as they lacked resources, (especially financial) skills and expertise to enforce contracts when agreements were broken. Ultimately, their lack of political, social and economic power kept them trapped in this weaker position.

It’s essential to consider voice and power when inserting MSEs into GVCs to avoid exploitative relationships. Initiatives which seek to improve the bargaining position of MSE suppliers, to reinforce their rights to land and water or to tackle social and political exclusion rather than simply ‘integrating’ them into supply chains have lead to greater benefits for those participating in these GVCs.

2) RISK & VULNERABILITY 

Being included in global markets and supply chains can result in higher risks for MSEs (as the example from Zambia highlights). MSEs are often the most risk sensitive and vulnerable and short term risks can have long term impacts for them. Unfortunately, in some cases, buyers are able to pass risk down the chain, so that the MSE can bear the majority of risk in the bad times, whilst reaping a smaller portion of the gains in the good times. (Vorley & Fox write an interesting, if slightly dated, paper on this).

Initiatives which consider risk and vulnerability, on the other hand, can mean that GVCs can have a much more positive impact on MSEs. There are various activities which could help people cope with risk and so mitigate their vulnerability, for example;

• Social protection schemes can provide a safety-net when times are difficult.
• Macro-economic policies can reduce risk and decrease vulnerability of small-scale traders and businesses. Small scale producers and traders in our research talked about the importance of price stability as a tool to help in managing and planning their finances.

3) SUPPLY and DEMAND
Demand is a key consideration which is often neglected in livelihood development programmes but which our research found is a major issue for many MSEs. GVCs can potentially be a really good mechanism in addressing this demand challenge by providing stable and good buyers for MSEs (provided issues of risk and power have been addressed!).

However, GVCs are not the only solution and other, often more appropriate options, should not be neglected.

Focussing on local and regional markets can bring more widespread benefits. MSEs often produce goods and services that are more locally appropriate and are better able to compete at a local than global level. Inserting small businesses into global markets requires intense efforts to meet standards and other demands, and only benefits a small proportion of MSEs. Improving access to and conditions in local and regional markets is more likely to have more widespread benefits more easily. A critical problem in many of these is a lack of demand – quite simply it is harder to sell when most of your customers are poor. Again, social protection can be a way of injecting cash and boosting demand in these local markets. [See footnote: 1] 

Another useful tool in this regard would be encouraging countries to use public procurement to support local businesses or encouraging countries or localities to develop trade and investment strategies that support MSEs and have a local and regional focus and which prevent enclave development.

Supply issues are also a major concern for small businesses. The supply constraints that most MSEs face can make it difficult for them to be inserted into GVC as they can’t provide the goods or services in sufficient quality or quantity to meet the demands of the buyer. Helping MSEs to meet these supply constraints requires comprehensive and proactive support, based on local needs and context. This is often inadequate or neglected in favour of size-blind policy reforms.

These three considerations are essential to making sure that the effects of GVC are positive for small businesses.

With these three considerations in mind, the role of Government can’t be ignored; government needs to play a proactive role if we’re going to see GVCs being more positive for MSEs. They need to play an important role in guiding national development and trade and investment strategies so that MSEs are able to benefit. They also need to play a role in supporting MSEs and facilitating discussions between big and small business to ensure that MSEs are not marginalised.

And so we come back to the voice of a small scale entrepreneur…

Those representing small-scale fishing to the government are the big companies, not us fishermen… and that’s when the fisherman loses. (Edmundo, Nicaragua)

For GVCs to work for small businesses there needs to be change around the three issues raised here. The role and contribution of MSEs in these systems needs to be valued and rewarded fairly. Power, risk and vulnerability need to be addressed and strategies to include them fairly need to consider issues of supply and demand. The benefits of GVCs may not be automatic; but with some work and careful consideration the benefits can be there.

——

[1] These can be beneficial because that injection of money into local markets is likely to stay within that local economy – through people buying local goods and services.  These transfers can stimulate and support the local economy during difficult times and also have significant multiplier effects – the cited Malawian study for example, found that for every $1 transferred; at least an extra $2 was generated within that community. (Davies, S & Davey, J. 2008. “A regional approach to estimating the importance of cash transfers on the market: the case of CTs in Malawi.”)

Bold Rethink of ‘Doing Business’ at the World Bank Too Important to Leave to Politics

For decades CAFOD has helped poor men and women set up micro and small enterprises. We know that helping people start and run a business is only half the job. Without the right business environment, the odds are stacked against their success and they can easily end up back at square one, or never getting off the ground in the first place.

This is why we have been so interested in the World Bank’s Doing Business project and congratulated President Jim Yong Kim for taking the decision to commission a comprehensive review of this flagship publication.

The Doing Business project ranks countries’ business regulations and laws across ten key indicators, but the group of experts led by Former South African Minister of Planning and Finance, Trevor Manuel, who reviewed the project, found that many of these indicators were a poor tool for policy-makers.

We would tend to agree. For a long time CAFOD has been asking why the Bank is using indicators that drive down labour standards and corporate tax rates; questioning the usefulness of indicators on “getting credit” which place Zambia sixth in the world rankings while 90% of small businesses in the country cite this issue as a major problem. And why the project doesn’t cover corruption – a major hurdle to business success in many countries.

The Panel’s report will not be comfortable reading for the lobby groups who have defended Doing Business in corridors of power and in the media, who have even claimed the review process itself was a “tragedy”. But a tool that gives guidance to policy makers in developing countries on how to manage their private sector regulation matters too much not to be open to scrutiny and reform.

But the project should not be abandoned. The Panel is absolutely right to call on the Bank to keep Doing Business, but to do it better and make it fit-for-purpose.

They have recommended some far-reaching changes including:
• renaming the report (because it does not actually tell you that much about what “Doing Business” is like in any country);
• re-homing it in the research department (so that it is more aligned with the Bank’s broader development thinking and clearly promoted as a “knowledge” document); and finally
• removing the controversial ranking of countries (as it suggests that the indicators show the “right” reform under any circumstances).

But whether or not the Panel’s report is adopted and what happens next is far from a done deal. The Panel raises many questions it does not fully answer and its report does not contain comprehensive ideas for reform. This is not the first time that far-reaching changes to Doing Business have been proposed. In 2008 the World Bank’s independent evaluator reached similar conclusions, but little changed and the same problems persist. The Panel does recommend ongoing processes and further examination in order to reach the best results for Doing Business.

Those key decisions now lie with the Bank’s leadership – specifically President Kim and the Executive Directors, representing different countries and regions that make up its board. This will not be an easy consensus as, although countries are almost unanimous in the view that something needs to change, they do not yet agree on what that change should be.

The debate has become polarised and politicised. Whilst US officials have heavily supported the project, China has often been portrayed as its sole critic. But criticisms of Doing Business come from a wide-range of governments and a wide range of groups – labour unions, small business groups, civil society and academics have all voiced concerns. Refusing to listen to critics or refusing to change the project as result of evidence from the ground is no way to defend it. The only real way forward is an open consultation with a broad range of groups.

This project is too important and the stakes too high to leave to politics. The 2008 financial crisis has shown very clearly that everyone is affected by what kind of regulatory regime is in place. This publication should be an important guide for policy-makers in the developing countries wishing to provide jobs and a route out of poverty for the poorest men and women.

The World Bank’s Doing Business report is its highest profile publication and an incredibly influential project. To ignore these calls for reform and to let this become an increasingly irrelevant and criticised project will be doing the World Bank and the small businesses we work with a real disservice.

 

Originally on Huffington Post

Will women always be a bit on the side for the World Bank?

At the London launch of the World Bank’s latest report on gender today, one of its contributors praised the report as being a departure from previous “just add women and stir” approaches to gender in development policy and practice.

 There is much to be welcomed in the new report, in particular recognising the importance of the economic empowerment of women and tackling the barriers in formal, informal, economic and social institutions that can prevent it.

But the report is short on action – a challenge that needs to be picked up by Bank staff, member countries and civil society to make sure that the good analysis gets put into practice.

As the title of this blog suggests, this doesn’t mean just doing a few extra things to help women, but instead truly shifting thinking, policy, practice and the incentives, measurements and targets that guide policies and reforms.

A good example of a case for reform are the Doing Business rankings of the World Bank. Back in 2008, these were criticized as being gender-blind. A lack of data and methodological limitations of constructing the rankings have meant that three years on, they remain that way – although we now have a side report on business women and the law. It doesn’t receive a fraction of the marketing support, media attention or policy influence that the main rankings do. Despite making up a significant majority of small-scale entrepreneurs in poor countries, women remain a bit on the side.

Does it matter if we are doing both sets of things – the ones for women and the ones for the “mainstream” business community? The answer lies in opportunity costs, an issue raised by one of the commentators at today’s launch.

This year’s gender report lays out a raft of things that should be done to help women become more successful in their economic life – they are only marginally touched upon by the Doing Business rankings. If the profile of these essential reforms is sidelined by gender-blind, conventional economic policy tools like the doing business rankings, governments simply cannot do their best – either for women or the economy at large – with the limited financial and human resources at their disposal.

OECD Better Life Index: Counting what’s measured or measuring what counts?

Today the OECD launched its better life index – a big leap forward in measuring progress and a move on from GDP for those fortunate enough to live in OECD countries. OECD citizens can use it to  focus their governments on improving their well-being, not just inflating growth figures.

And to its credit, the OECD is taking its index on the road. But one of the biggest problems for GDP in developing countries is who is left out. The economic activities of most poor people – subsistence farmers and small informal enterprises do not count towards GDP. This has led to them being marginalised in economic development and private sector strategies – their contribution to these quite simply did not count.