This paper discusses the constraints for private equity financing of small and medium enterprises in developing economies. In addition to capital, private equity investors bring knowledge and expertise to the companies in which they invest.
... Voir la suite Through active participation on the board of directors or in partnership with management, private equity investors equip companies with critical improvements in governance, financial accounting, access to markets, technology, and other drivers of business success. Although private equity investors could help to create, deepen, and expand growth of small and medium enterprises in developing economies, the vast majority of private equity in such markets targets larger or more established enterprises. Technical assistance, when partnered with private equity, can unlock more investor commitments and considerably enhance the ability of small and medium enterprises in emerging markets to raise private equity capital. Technical assistance provides funding that allows private equity funds to extend their reach to smaller companies. Technical assistance can mitigate some level of risk and increase the probability of successful investments by funding targeted operational improvements of investee companies. Dedicated technical assistance facilities financed by third parties, such as development finance institutions, governments, or other parties, have emerged to fill this critical need. The paper discusses the provision of investment capital twinned with technical assistance, which is now more accepted by limited partners and general partners or fund managers and is becoming more of a market model for private equity finance focused on small and medium enterprises.
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Document de travail de recherche sur les politiques WPS6827 APR 01, 2014
Divakaran, Shanthi; McGinnis, Patrick J.; Shariff, Masood
IFC is working to develop solutions to close the micro, small, and medium enterprise (MSME) financing gap, collaborating with 129 financial institutions (FIs) across 39 International Development Association (IDA) countries.
... Voir la suite As of June 2013, IFC committed a total of $3.97 billion to MSME finance in IDA countries, $3.18 billion for long term finance (including $381 million for funds supporting MSMEs), and $792 million for trade finance. In fiscal year (FY) 2013 alone, IFC MSME commitments in IDA countries were $2.53 billion (down 3 percent from $2.6 billion), $596 million of which was attributed to long-term financing. By the end of calendar year (CY) 2012 IFCs MSME clients had $4.54 million micro loans outstanding in IDA Countries (down from $8.23 million in CY2011), totaling $6.96 billion (up 22 percent from $5.72 billion in CY2011). Similarly, IFC's MSME clients had 953 thousand small and medium loans outstanding by the end of CY2012 (up 4 percent from 913 thousand in CY2011), totaling $34.67 billion in IDA countries (up 5 percent from $33.09 billion in CY2011).
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Financial constraints are widespread in developing countries, where even short-term credit is limited. Finance held by firms as working capital is a substantial proportion of sales revenue, yet the role of working capital is largely neglected by existing models of financial constraints.
... Voir la suite This paper presents a dynamic model of the firm that incorporates working capital by introducing a delay between factor payments and the receipt of revenue. In contrast with previous models, the working capital model predicts that firms under binding constraints will substitute between labor and capital in response to demand shocks, causing investment to be countercyclical. For firms near the margin of being constrained, constraints bind when positive production opportunities arise. Output growth is therefore constrained in response to positive shocks but not to negative shocks. Simulations suggest that models without working capital may understate the predicted effects of financial constraints on production efficiency, firm profit and growth over time. The predictions are tested with the Bangladesh Panel Survey data for manufacturing firms. Consistent with the theory, there is evidence that constraints bind when output price increases, that investment by constrained firms is countercyclical, and that output response to positive shocks is dampened for firms that are sometimes constrained. The results also are important for policy. In order to maximize growth, efforts to relieve credit constraints should be focused on periods when demand shocks are high.
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Document de travail de recherche sur les politiques WPS6797 MAR 01, 2014
The key messages in this brief are as follows: 1) Foreign direct investment (FDI) remains one of the most important forms of cross-border capital flow into developing countries.
... Voir la suite In Sub-Saharan Africa, where countries tend to have liberal policies favouring inward flows, FDI has grown nearly sixfold over the past decade. 2) However, just 15 countries accounted for over 80 percent of total FDI flows into Africa in 2012. Further, the largest inflows are either in sectors in which the region has a comparative advantage (such as natural resources and agriculture) or where there is need for investment and returns are high, such as construction. 3) Five emerging countries, Brazil, China, India, South Africa and, conspicuously, Malaysia, are becoming an important source of FDI into Africa, particularly as traditional OECD sources of FDI are shrinking, and South-South transfer of technology tends to be lower cost and more adaptable. 4) There is a positive correlation between FDI and Human Development Indicator (non-income HDI); quality human capital can better help absorb the benefits of FDI. But FDI data by origin, destination and sector is not readily available; this constrains policy coordination across economic and social ministries.
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The key messages in this brief are as follows: 1) Foreign direct investment (FDI) remains one of the most important forms of cross-border capital flow into developing countries.
... Voir la suite In Sub-Saharan Africa, where countries tend to have liberal policies favouring inward flows, FDI has grown nearly sixfold over the past decade. 2) However, just 15 countries accounted for over 80 percent of total FDI flows into Africa in 2012. Further, the largest inflows are either in sectors in which the region has a comparative advantage (such as natural resources and agriculture) or where there is need for investment and returns are high, such as construction. 3) Five emerging countries, Brazil, China, India, South Africa and, conspicuously, Malaysia, are becoming an important source of FDI into Africa, particularly as traditional OECD sources of FDI are shrinking, and South-South transfer of technology tends to be lower cost and more adaptable. 4) There is a positive correlation between FDI and Human Development Indicator (non-income HDI); quality human capital can better help absorb the benefits of FDI. But FDI data by origin, destination and sector is not readily available; this constrains policy coordination across economic and social ministries.
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This paper offers an assessment of the methodologies employed to estimate the economic opportunity cost of capital for public sector projects, relying on the Mexican case for an applied empirical exercise.
... Voir la suite The traditional weighted cost of capital (top-down) approach used in the estimation of Mexico's economic opportunity cost of capital is reviewed and compared to the supply price (bottom-up) approach. With respect to previous studies using the top-down approach, this paper explores the contribution of domestic savings and expands the analysis to include a more detailed examination of the available macroeconomic, labor, financial, and tax information. The re-estimated top-down economic opportunity cost of capital for Mexico comes to 10.4 percent. To confirm these results and provide additional insights regarding the alternative bottom-up approach, the economic opportunity cost of capital is estimated using the supply price plus externalities method. For the case of Mexico, this paper recommends using a combination of estimation models (both the top-down and bottom-up approaches) to check the consistency of results and re-estimating the economic opportunity cost of capital every five years to accommodate for macroeconomic and fiscal changes. More broadly, the paper acknowledges the complexities involved in the estimation of the economic opportunity cost of capital for public investment projects and underlines the relevance of additional considerations, such as changes in global economic trends and country risk ratings, tax distortions, financial sector improvements, the impact of reforms, and data availability.
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Document de travail de recherche sur les politiques WPS6816 MAR 01, 2014
Coppola, Andrea; Fernholz, Fernando; Glenday, Graham
This paper examines the relationship between regulation and the business interests of President Ben Ali and his family, using firm-level data from Tunisia for 1994-2010.
... Voir la suite Data on investment regulations are merged with balance sheet and firm-level census data in which 220 firms owned by the Ben Ali family are identified. These connected firms outperform their competitors in terms of employment, output, market share, profits, and growth and sectors in which they are active are disproportionately subject to authorization requirements and restriction on foreign direct investment. Consistent with theories of capture, performance differences between connected firms and their peers are significantly larger in highly regulated sectors. In addition, the introduction of new foreign direct investment restrictions and authorization requirements in narrowly defined five-digit sectors is correlated with the presence of connected firms and with their startup, suggesting that regulation is endogenous to state capture. The evidence implies that Tunisia's industrial policy was used as a vehicle for rent creation for the president and his family.
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Document de travail de recherche sur les politiques WPS6810 MAR 01, 2014
Using detailed survey data on management practices, this paper uses recent advances in unconditional quantile analysis to study the changes in the within country distribution of management quality associated with country convergence to the managerial frontier.
... Voir la suite It then decomposes the contribution of potential explanatory factors to the distributional changes. The United States emerges as the frontier country, not because of better management on average, but because its best firms are far better than those of its close competitors. Part of the process of convergence to the frontier across the development process represents a trimming of the left tail, much is movement of the central mass and, for rich countries, it is actually the best firms that lag the frontier benchmark. Among potential explanatory variables that may drive convergence, ownership and human capital appear critical, the former especially for poorer countries and that latter for richer countries suggesting that the mechanics of convergence change across the process. These variables lose their explanatory power as firm and average country management quality rises. Hence, once in the advanced country range, the factors that improve management quality are less easy to document and hence influence.
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Document de travail de recherche sur les politiques WPS6822 MAR 01, 2014
This report contains the World Bank Group Boards' calendar for the period February - April 2014, specifying the Boards' engagements, such as meetings and briefings, for the aforementioned time period.
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The objectives of the Investment Promotion and Competitiveness Project for Gabon are to contribute to the improvement of the investment climate and to foster enterprise development in the Borrower's territory.
... Voir la suite There are three components to the project, the first component being institutional development to improve business climate. The second component is the support enterprise development. This component aims to facilitate the operationalization of Gabonese companies and foster small and medium enterprise (SME) development. Operationalization encompasses all activities companies need to undertake throughout their daily operations in order to be sustainable and lucrative; these include HR, finance, accounting, exports, IT, logistics, accreditations, production, business development, marketing, and Research and Development (R&D), among others. The third component is the project management and public private dialogue. This component aims to deliver project targets in a timely manner, and to monitor and evaluate activities. A dedicated Project Coordination Unit (PCU) is currently being staffed and will report to the Project Technical Committee (PSC). A Presidential Investment Council will also be established to lead public private dialogue and conduct key policy reforms. All the activities have started under the financing of the Project Preparation Advance (PPA) during the project preparation phase.
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Document d’évaluation du projet PAD716 FEB 12, 2014
While debt-financed productive public investment raises a countrys debt ratios in the short run, it can also generate higher growth, revenues, and exports, leading over time to lower debt ratios.
... Voir la suite This paper develops a framework to assess whether countries meet the conditions for realizing the net benefits over the costs of public investment debt financing. While it is possible to achieve debt sustainability with an appropriate mix of concessional and non-concessional financing, this is a necessary but not sufficient condition. It is also important to ensure the operational viability of public investment projects by having in place adequate project management: (i) project screening and appraisal, (ii) a clear connection between capital and recurrent expenditures once the projects are launched, and (iii) safeguards for appropriate project implementation and facilities operations. To illustrate the strength of these results, the paper carries out three measurement exercises: (a) a simulation of the degree to which the ratio of optimal public investment responds to changes in key parameters related to project management in a general equilibrium model; (b) application of the public investment management (PIMa) index to benchmark a country's public investment management capacity; and (c) presentation of the results of the Investment, Savings, and Macroeconomic Vulnerabilities tool aimed at tracking country choices in public finance and the impact of public projects on private investments.
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Document de travail de recherche sur les politiques WPS6766 FEB 01, 2014
Cavalcanti, Carlos B.; Marrero, Gustavo A.; Le, Tuan Minh
Sovereign wealth funds represent a large and growing pool of savings. An increasing number of these funds are owned by natural resourceexporting countries and have a variety of objectives, including intergenerational equity and macroeconomic stabilization.
... Voir la suite Traditionally, these funds have invested in external assets, especially securities traded in major markets. But the persistent infrastructure financing gap in developing countries has motivated some governments to encourage their sovereign wealth funds to invest domestically. This paper proposes some basic elements of a conceptual framework to create a system of checks and balances to help ensure that the sovereign wealth funds do not undermine macroeconomic management or become a vehicle for politically driven "investments." First, the risks and opportunities of domestic investment by sovereign wealth funds are analyzed. Central issues are the relationship of sovereign wealth fund financing to the budget process and to the procurement systems of sector ministries, as well as the establishment of appropriate benchmarks and safeguards to ensure the integrity of investment decisions. The paper argues that a well-governed sovereign wealth fund, with a sound mandate and professional management and staffing, can possibly improve the quality of the public investment program. But its mandate should not duplicate that of other government institutions with investment mandates, such as the budget, the national development bank, the investment authority, and state-owned enterprises. Establishing rules on the type of investment (for example, commercial and/or quasi-commercial) and its modalities (for example, no controlling stakes, leveraging private investment) is one way to ensure separation between the activities of the sovereign wealth fund and those of other institutions. The critical issue remains that of limiting the sovereign wealth fund's investment scope to that appropriate for a wealth fund. If investments that generate quasi-market returns are permitted, the size of the home bias should be clearly stipulated and these investments should be reported separately.
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Document de travail de recherche sur les politiques WPS6776 FEB 01, 2014
This paper estimates the effect of government investment on private investment in a sample of 39 low-income countries. Fluctuations in a predetermined component of disbursements on loans from official creditors to developing country governments are used as an instrument for fluctuations in public investment.
... Voir la suite The analysis finds evidence of "crowding in": an extra dollar of government investment raises private investment by roughly two dollars, and output by 1.5 dollars. To understand the implications for the return to public investment, a CES production function with public and private capital as inputs is calibrated. For most countries in the sample, the returns to government investment exceed the world interest rate. However, for some countries that already have high government investment rates, the return to further investment is below the world interest rate.
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Document de travail de recherche sur les politiques WPS6781 FEB 01, 2014