SA Newsletter

This is the second quarterly brief of our Country Office, that provides information on recently published reports, seminars andevents. We also invite you to please access other similar information on our South African Country website at www.worldbank.org/southafrica.

This survey was jointly conducted by the Department of Trade and Industry and the World Bank The Investment Climate Survey shows that South Africa’s investment climate is favorable when compared to the investment climates of other countries in Sub-Saharan Africa and other middle-income countries throughout the world. The 2004 survey of 800 enterprises carried out by Cape Town-based Citizen Surveys examines the location specific factors that shape opportunities and incentives for firms to invest productively, create jobs, and grow.

According to the survey, most firms believe that the courts are able to protect their property rights and court cases are resolved quickly. Losses due to power outages were relatively modest in 2004 and the cost of power is low by international standards. Tax rates are low and have been declining over time. Although the burden of regulation is not particularly low, it is comparable to the burden in most middle-income countries. Few firms report paying bribes to obtain government services or win government contracts. Finally, most of the large formal firms in the Investment Climate Survey did not see access to finance as a serious concern and few reported that they were credit constrained.

Consistent with this view, large South African firms are more productive than firms in other countries where Investment Climate Surveys have been conducted. Labor productivity is far higher in South Africa than in the most productive low income countries in Sub-Saharan Africa such as Senegal and Kenya. Further South Africa compares favorably with other middle-income countries such as Lithuania, Brazil, Poland, and Malaysia—all of which, other than Brazil, have higher per capita income than South Africa. Productivity is also over three times higher than in China, although it is slightly lower than in the most productive cities in that country.

For more information about the South African Investment Climate Survey, please visit:http://www1.worldbank.org/rped/

World Bank Launches New Plan to Fight HIV/AIDS GloballyLaunched on the eve of World AIDS Day, the World Bank’s new global plan will strengthen the Bank’s response to the HIV/AIDS epidemic at country, regional, and global levels, through no-interest lending, grants, analysis, technical support and policy dialogue. The Global Program of Action, which reflects the advice of developing and middle-income countries, international agencies, NGOs, and other groups within the worldwide AIDS community, will help to spur more effective action in several key areas:

The global fight against HIV/AIDS has been boosted in recent years by considerably more political commitment on the part of countries and donors, with the worldwide level of HIV/AIDS funding having surged form US$300 million in 1996, to approximately US$ 8 billion in 2005. According to the Bank’s new plan, the Bank will remain one of the major financers of AIDS work in developing and middle-income countries, ensuring that key funding decisions are based on reliable evidence of risk vulnerability, epidemiology, impact evaluation, as well as making sure that HIV/AIDS programs reach out effectively to women, young people, minority, and high-risk groups.http://www.worldbank.org/aids

This year�s regional Annual Bank Conference on Development Economics (ABCDE) will be held in St. Petersburg, Russia from January 18-19, 2006. The 18th ABCDE will be able to draw on experience of over a decade--the deepest change in economic systems yet undertaken in East Europe and the Former Soviet Union. Many other regions have seen substantial changes in economic systems, in some cases major (China); in others very important even if less fundamental (India, Latin America, Africa). While the topics proposed are of special interest for East Europe and the FSU, the aim is to select themes that will also resonate with other regions, and to center these themes around continuing challenges relating to the transition process. The overall theme of the conference is Beyond Transition.

The World Bank has invited project ideas for providing clean water, sanitation and energy to local communities in developing countries with a $4 million prize for winners. Entitled, "Innovation in Water, Sanitation, and Energy Services for Poor People," this year�s "Development Marketplace" competition seeks proposals for local, small-scale projects with the potential to be scaled up. The program has awarded nearly $34m to roughly 800 small-scale projects over the last seven years. The competition is open to all civil society groups, social entrepreneurs, youth organizations, private foundations, academia, private sector corporations with unique ideas that may not attract funding from traditional sources of finance. The maximum award will be $200,000 per proposal.

International migration can generate substantial welfare gains for migrants and their families, as well as their origin and destination countries, if policies to better manage the flow of migrants and facilitate the transfer of remittances are pursued, says the World Bank�s annual Global Economic Prospects (GEP) report for 2006, published mid-November 2005.For more information about the report, and to download the full text, please visit the GEP 2006 website.

In its Outlook section, the report forecasts that economic growth in developing countries will slow to 5.9 percent this year, and to 5.7 percent in 2006, down from 6.8 percent in 2004. Developing economies will continue to grow at historically very high rates, and more than twice as fast as high-income economies. Economic growth in the latter is also expected to slow from 3.1 percent growth in 2004 to around 2.5 percent in 2005 and 2006.

For full text and interactive charts and graphs (also available in Spanish and French), please visit http://www.worldbank.org/globaloutlook

This is the third in a series of annual reports investigating regulations that ease doing business and those that constrain it. This edition focuses on job creation. New quantitative indicators on business regulations and their enforcement can be compared across 150 countries - from Albania to Zimbabwe - and over time. Doing Business in 2006 updates the indicators presented in previous reports: starting a business, hiring and firing workers, getting credit, protecting investors, enforcing contracts, and closing a business. Three new sets of measures are added: paying taxes, getting licenses, and trading across borders. The indicators are used to analyze economic and social outcomes, such as productivity, investment, informality, corruption, unemployment and poverty, and identify what reforms have worked, where and why.

Abolition of tariffs, subsidies and domestic support programs would boost global welfare by nearly $300 billion per year by 2015, says a new World Bank research study, Agricultural Trade Reform and the Doha Development Agenda, published November 2005. Close to two-thirds of these gains would come from agricultural trade reform, because agriculture is so much more distorted than other sectors. "Making agricultural markets more accessible is the most fundamental reform that needs to emerge from the Doha round of WTO negotiations," said Will Martin, lead economist in the Bank’s trade research group, and co-editor of the book with Kym Anderson. Download the book or read the press release.

To find out more about the World Bank�s thinking on trade and activities/events related to the World Trade Organization�s Doha Development Agenda, please visit the Bank�s Hong Kong Ministerial website.

An "ambitious" agreement in the WTO’s Doha Development Round of trade talks would reduce poverty, says a new World Bank research study, but some countries such as Brazil and China would make immediate gains, while others, such as Bangladesh, would need help to achieve the projected long-term poverty reduction a trade deal offers them. "Poverty is reduced under an ambitious Doha Development Agreement, and this reduction is more pronounced in the longer run," said L. Alan Winters, Director of the World Bank’s Research Group, and co-editor, with Thomas Hertel, Professor of Economics at Purdue University of Poverty and the WTO – Impacts of the Doha Development Agenda. "To fully realize their potential to stimulate growth and thereby reduce poverty, trade reforms need to be far-reaching, addressing barriers to services trade and investment in addition to merchandise tariffs."

Download the Overview or read the press release.

Young People from Around the World Comment on Themes of Upcoming 2007 World Development ReportComments from young people around the world on the themes of the 2007 World Development Report on Development and the Next Generation are posted on the World Bank�s Youthink! website. Read what they think about the major transitions that young people undertake on Youthink!

The report�s outline and more information about the report are available on the WDR 2007 website.

World Bank Annual Report 2005

In this paper, the South African and Bank authors describe South Africa�s value added tax (VAT), showing that (1) the VAT is mildly regressive, and (2) it is an effective source of government revenue, compared with other tax instruments in South Africa. They evaluate the VAT in the context of other distortions in the economy by computing the marginal cost of funds-the effect of raising government revenue by increasing the VAT rates on household welfare. Then they evaluate alternative, revenue-neutral tax systems in which they reduce the VAT and raise income taxes. For the analysis, the authors use a computable general equilibrium (CGE) model with detailed specification of South Africa�s tax system. Households are disaggregated into income deciles. They demonstrate that alternative tax structures can benefit low-income households without placing excess burdens on high-income households

This paper takes stock of recent privatization trends, examines the extent to which government ownership is still prevalent in developing countries, and summarizes emerging issues for state enterprise reform going forward. Between 1990 and 2003, 120 developing countries carried out nearly 8,000 privatization transactions and raised $410 billion in privatization revenues. Privatization activity peaked in 1997 and dropped off in the late 1990s and, while still at overall low levels, is slowly creeping back. While there are a large number of studies assessing the impact of privatization on enterprise performance and overall welfare, there are no systematic data on the extent to which privatization has changed the role of state enterprises in the economy.

This paper investigates the leading causes of nonperforming loans during the economic and banking crises that affected a large number of countries in Sub-Saharan Africa in the 1990s. Empirical analysis shows a dramatic increase in these loans and extremely high credit risk, with significant differences between the CFA and non-CFA countries, and substantially higher financial costs for the latter sub-panel of countries. The results also highlight a strong causality between these loans and economic growth, real exchange rate appreciation, the real interest rate, net interest margins, and interbank loans consistent with the causality and econometric analysis, which reveal the significance of macroeconomic and microeconomic factors. The dramatic increase in these loans is largely driven by macroeconomic volatility and reflects the vulnerability of undiversified African economies, which remain heavily exposed to external shocks.

A resurgence of recent interest in fiscal federalism has been a source of concern among macroeconomic stabilization experts. They argue that a decentralized fiscal system poses a threat to macroeconomic stability as it is incompatible with prudent monetary and fiscal management. The author addresses these concerns by taking a simple neo-institutional economics with an econometric analysis perspective. His analysis concludes that, contrary to a common misconception, fiscal decentralization is associated with improved fiscal performance and better functioning of internal common markets. Fiscal policy coordination represents an important challenge for federal systems. In this context, fiscal rules and institutions provide a useful framework but not necessarily a solution to this challenge. Fiscal rules binding on all levels can help sustain political commitment in countries having coalitions or fragmented regimes in power. Coordinating institutions help in the use of moral suasion to encourage a coordinated response. Industrial countries� experiences also show that unilaterally imposed federal controls and constraints on subnational governments typically do not work. Instead, societal norms based on fiscal conservatism such as the Swiss referenda and political activism of the electorate play important roles. Ultimately capital markets and bond-rating agencies provide more effective discipline on fiscal policy. In this context, it is important not to backstop state and local debt and not to allow ownership of the banks by any level of government.

This is an internet-based broadcasting service that streams World Bank seminars, workshops and conferences to the public on the InternetFrom Strategy to Implementation: Sharing Lessons Learned from Bank-funded e-Development ProjectsAs a knowledge center for developing countries, the World Bank is working on leveraging Information and Communication Technologies (ICT) to enable "e-governance". This videoconference between Tunisia, Sri Lanka, Ghana, Rwanda, Kazakhstan, Moldova, as well as the Bank offices in Washington DC, distills lessons learned from various e-development projects based on the experiences of team members involved in project planning and execution.

For the streaming video and the summary, please visit:http://info.worldbank.org/etools/BSPAN/PresentationView.asp?PID=1665&EID=803

At its heart, the World Bank is an economic institution, and the economic interactions between countries are essential to its success. The trend of globalization has only heightened the importance of trade for development. In this presentation of the Global Issues Seminar Series organized by the External Affairs Unit of the Bank, students from the University of Amsterdam, the American University of Beirut, University of Ghana, University of Essex, University of Paris at Sorbonne, and University of Sussex joined local graduate students at the World Bank headquarters by videoconference.

For the streaming video and the summary, please visit:http://info.worldbank.org/etools/BSPAN/PresentationView.asp?PID=1624&EID=786

"Introduction to Global Issues and Forces Shaping Them," , was sponsored by External Affairs. Students from the University of Amsterdam, Rhodes University of South Africa, University of Essex in UK, and Kent State University joined by videoconference, while George Washington University, Howard University, Virginia Tech, and Johns Hopkins SAIS students attended in person.

For the streaming video and the summary, please visit:http://info.worldbank.org/etools/BSPAN/PresentationView.asp?PID=1606&EID=786

The World Bank Institute is the capacity development arm of the World Bank, and helps countries share and apply global and local knowledge to meet development challenges. WBI�s capacity development programs are designed not only to build skills among groups of individuals involved in performing tasks, but also to strengthen the organizations in which they work, and the sociopolitical environment in which they operate.

Learning Catalogue - http://wbln0018.worldbank.org/wbi/wbicatalogue.nsf/HomePage?OpenPage