Enabling Environments for Agribusiness and Agroindustrial Development

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Enabling Environments for Agribusiness and
Agroindustrial Development

• Carlos Arthur B. da Silva, Ph.D.
• FAO
• Agricultural Management, Marketing and Finance
  Service
• Rural Infrastructure and Agro-Industries Division

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Contents

• Enabling environments the concept
• Major EE assessment frameworks
• Adequacy to the agrifood sector
• FAOs work on EE
• Towards a targeted approach
• Conclusions

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Enabling environments the concept

• The set of policies, institutions and support
  services that create the conditions for
  enterprises to be started and grow
• the environment, or climate for business
• Arguably the major driver of competitiveness of
  any given economic sector
• e.g. series of agrifood chain studies in Brazil
  consistently revealed EE issues as the most
  critical barriers to chain performance
• What are the critical elements of an EE?

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Assessment frameworks

• Focus of increased attention in the recent past
• perception of high potential impact from
  interventions on EE reforms
• Evaluation of business climates performed by
  several international organizations and private
  institutions
• guidance to investors guidance to policy reform
  rankings of competitiveness, ease of doing
  business, FDI confidence indexes, etc.
• not only for FDI also relevant for local
  entrepreneurs
• Two approaches stand-out
• The World Banks Doing Business Survey
• OECDs Policy Framework for Investments

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The World Banks Doing Business Survey

• The Doing Business database provides objective
  measures of business regulations and their
  enforcement. The Doing Business indicators are
  comparable across 175 economies. They indicate
  the regulatory costs of business and can be used
  to analyze specific regulations that enhance or
  constrain investment, productivity, and growth
• Benchmarks (annual survey)
• Cross country comparison
• Monitoring of progresses in reforms
• Considers 10 items that form the regulatory
  costs of business

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Doing business indicators (www.doingbusiness.org)

• Starting a Business
• Identifies the bureaucratic and legal hurdles an
  entrepreneur must overcome to incorporate and
  register a new firm.
• Dealing with Licenses
• Tracks the procedures, time, and costs to build a
  warehouse, including obtaining necessary licenses
  and permits, completing required notifications
  and inspections, and obtaining utility
  connections.
• Employing Workers
• Measures the flexibility of labour regulations.
  It examines the difficulty of hiring a new
  worker, rigidity of rules on expanding or
  contracting working hours, the non-salary costs
  of hiring a worker, and the difficulties and
  costs involved in dismissing a redundant worker.
   

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Doing business indicators
(www.doingbusiness.org)

• Registering Property
• Examines the steps, time, and cost involved in
  registering property, assuming a standardized
  case of an entrepreneur who wants to purchase
  land and a building in the largest business
  cityalready registered and free of title dispute
  
• Getting Credit
• considers credit information registries and the
  effectiveness of collateral and bankruptcy laws
  in facilitating lending

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Doing business indicators
(www.doingbusiness.org)

• Protecting Investors
• Measures the strength of minority shareholder
  protections against misuse of corporate assets by
  directors for their personal gain.
• Paying Taxes
• Addresses the taxes and mandatory contributions
  that a medium-size company must pay or withhold
  in a given year, as well as measures of
  administrative burden in paying taxes.
• Trading Across Borders
• Looks at the procedural requirements for
  exporting and importing a standardized cargo of
  goods. Every official procedure is counted --
  from the contractual agreement between the 2
  parties to the delivery of goods -- along with
  the time necessary for completion.

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Doing business indicators
(www.doingbusiness.org)

• Enforcing Contracts
• Considers the efficiency of contract enforcement
  by following the evolution of a sale of goods
  dispute and tracking the time, cost, and number
  of procedures involved from the moment the
  plaintiff files the lawsuit until actual payment.
  
• Closing a Business
• Identifies weaknesses in existing bankruptcy law
  and the main procedural and administrative
  bottlenecks in the bankruptcy process.

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Some sample results best performers and top
reformers
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OECDs Policy Framework for Investments

• The PFI was developed as a non-prescriptive
  checklist of issues for consideration by any
  interested governments engaged in domestic
  reform, regional co-operation or international
  policy dialogue aimed at creating an environment
  that is attractive to domestic and foreign
  investors and that enhances the benefits of
  investment to society
• Framework established in ample international
  consultation process
• 10 major elements singled out

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OECDs Policy Framework for Investments

• Investment policy
• Principles transparency, property protection and
  non-discrimination
• Investment promotion and facilitation
• Principles should aim to correct market
  failures should leverage strong points of EE
• Trade policy
• Considers measures to facilitate trade, trade
  agreements, customs and other regulatory costs,
  preferential treatments, etc.

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OECDs Policy Framework for Investments

• Competition policy
• Competition laws and enforcement institutions
• Tax policy
• Taxes and their effects on costs and return on
  investments tax administration
• Corporate governance
• transparency accountability shareholder rights

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OECDs Policy Framework for Investments

• Policies for promoting responsible business
  conduct
• Ensuring standards of conduct on issues such as
  human rights, environment protection, labor
  relations, financial accountability, etc.
• Human resource development
• Policies to develop human resources at all
  levels labour regulation issues
• Infrastructure and financial sector development
• investment policies and processes to identify
  needs and capacities of the different sectors,
  including financing
• Public governance
• Regulatory quality and integrity of the public
  sector

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The need for an agro-specific framework

• General frameworks of WB and OECD useful, but
  general
• not designed to address particularities of any
  given sector
• there are additional issues to be considered
• there is scope for different weighting of
  factors, when considering their relative
  importance
• while a given economy can perform well if
  measured by the general indicators, it can
  plausibly be not conducive to investments in the
  agrifood sector
• We believe there is scope for expanding /
  refining the existing frameworks to better
  address the needs of agribusiness and
  agroindustrial development

What are the critical elements of an EE for
agrifood system development?
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FAOs Work on Enabling Environments

• We are examining the EE issue through our
  normative work

Two regional appraisals conducted in late 2006
Complementary studies expected to be concluded in
2007 Final results to be presented in a Global
Forum (April 2008)
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Preliminary results Latin American and Eastern
European Appraisals

• The approach
• country cases and regional overviews
• Chile, El Salvador, Argentina, Costa Rica, Peru
• Regional overview of Eastern Europe, plus
• Cases of Armenia, Uzbekistan, Ukraine, Serbia
• issues papers
• special topics, explored in greater detail
• break-out sessions
• discussions of issues and constraints regarding
  creation of EEs
• identification of main elements, critical success
  factors, lessons learned and roles for technical
  cooperation in promoting EEs

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Preliminary results

• While general frameworks were not challenged in
  the workshops, the scope for agro specific EE
  was quite clear
• Even further scope for sub-sector specific
  issues
• Despite the inter-regional differences,
  convergence of views on key issues
• Despite intra-regional differences, convergence
  of views on lessons learned

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Summary of the issues prioritized by workshop
participants

• Safety and quality standards
• Legal and regulatory frameworks
• Clear roles for public and private organizations
• Chain Coordination mechanisms
• Research and development policies for the
  agrifood sector
• Rural Infrastructure
• Information systems
• Policies to promote responsible business
  conducts (L.A.)
• Human resource development (L.A)
• Clear and stable macroeconomic policies (L.A.)
• Financing and Risk Management (E. Eur,)
• Investment support services (E.Eur)
• Public Private Partnerships (E.Eur)

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Some lessons learned from the country cases

• The central role of governments in creating EEs
• need for institutional strengthening need for
  public investments
• central, but not exclusive
• The importance of public private partnerships
• roles must be clear scope for mutual benefit
• The need for good governance and accountability
  mechanisms
• stability is key efficiency in public spending
  is key
• The need for sector specific policies
• opportunities for niche markets special needs
  prioritization of sectors with higher growth
  potential

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Conclusions

• Initial results show that agreement as to WHAT it
  takes to constitute an EE can generally be
  reached.
• ex both workshops placed governance and
  institutions on top of the priority lists
• 400 increase in income per capita for a
  governance improvement of one standard deviation
  (Kaufmann, cited by World Economic Forum, 2007)
• WEF analysis has shown a strong correlation
  between competitiveness and strength of public
  institutions
• frameworks applicable and extendable to deal with
  sector specificities
• of course, prioritization of elements depends on
  the economic and political systems of different
  countries
• Context matters

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Conclusions

• HOW to develop EEs thats the challenge
• Need for information
• Diagnosis
• The difficulties of policy processes
• Conflicting objectives in national goals
• Conflicting interests of stakeholders
• Unclear mandates of government agencies
• Unclear roles for private and public sectors
• etc.
• The equity issue
• will the promotion of EEs and attraction of FDI
  impact SMEs and small farmers negatively ?

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Thank you!

• Carlos.DaSilva_at_fao.org

FAO - UNIDO Global Forum on Competitive
Agroindustries, New Delhi, India, April 2008
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Institutions matter