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©2016 The World Bank Group1818 H Street NWWashington, DC 20433Telephone: 202-473-1000Internet: www.worldbank.org

All rights reserved.This volume is a product of the staff of the World Bank Group. The World Bank Group refers to the member institutions of the World Bank Group: The World Bank (International Bank for Reconstruction and Development); International Finance Corporation (IFC); and Multilateral Investment Guarantee Agency (MIGA), which are separate and distinct legal entities each organized under its respective Articles of Agreement. We encourage use for educational and non-commercial purposes.

The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Directors or Executive Directors of the respective institutions of the World Bank Group or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work.

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About the Facility for Investment Climate Advisory Services (FIAS)

Through the FIAS program, the World Bank Group and donor partners facilitate investment climate reforms in developing countries to foster open, productive, and competitive markets and to unlock sustainable private investments in sectors that contribute to growth and poverty reduction. The FIAS program is managed by the Trade & Competitiveness Global Practice of the World Bank Group. For more information, visit www.wbginvestmentclimate.org, www.worldbank.org/trade and www.worldbank.org/competitiveness.

This report was written by the staff of the World Bank Group’s Trade & Competitiveness Global Practice and edited by John Diamond, with editing and design support provided by Lorenzo Nelli-Feroci and Boyan Stanoev.

Cover and interior photo credits, inside back cover.

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Message from the Senior Director 2

Main Achievements and Milestones 4

Special Topic: Investment Policy & Promotion 12

Operational Highlights 18

Core Thematic Areas in Investment Climate Interventions 36

Collaboration, Knowledge, and Learning 48

Financial Results and Resource Use 58

Annexes 66

Annex 1: FIAS Reform Totals and Descriptions 68

Annex 2: Portfolio of FIAS-Supported Projects in FY15 76

Annex 3: Abbreviations 79

Contents

achieved in 75 client countries FY12–15, exceeding target for cycle with one year to go

265reforms

$1.36bFY 12–16, in new investment through FIAS-supported projects that created thousands of jobs in underdeveloped regions

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FIAS Focus on FCS StatesCountries emerging from years of conflict need help to get their economies up and running, which in turn promotes stability and reduces the chances of conflict flaring up again. FIAS remains committed to helping states in fragile and conflict-affected situations (FCS) emerge from conflict and turn their focus to sustainable growth and inclusive economic development. In FY15, 23 of the 68 reforms, or 34 percent, achieved with the help of FIAS-supported projects occurred in 9 countries on the FY15 Harmonized List of Fragile Situations (in FY14, 23 out of 76 reforms, or 30 percent, in 12 countries).

In FY15, FIAS supported active country-specific or regional projects benefiting 21 out of the world’s 33 FCS states: Bosnia and Herzegovina; Burundi, Central African Republic, Chad, the Comoros, Democratic Republic of Congo, Côte d’Ivoire,Eritrea,Guinea-Bissau,Haiti,Kosovo,Madagascar,Mali,Myanmar,SierraLeone,SolomonIslands,Somalia,Sudan, Timor-Leste, Togo, and Zimbabwe. (In FY14, FIAS supported projects in 19 out of 36 FCS states.)

ProjectexpendituresinFCScountriestotaled$3.06million, or 31 percent of client-facing project spending ($3.3million,or31percentofclient-facingprojectspending in FY14).

Starting Businesses and Fostering their GrowthIn FY15, FIAS support under the strategic theme of fostering enterprise creation and growth made crucial and measurable impact on client countries in the areas of promoting the formation and growth of domestic businesses, lowering the cost of business start-up and operations, fostering competition, and increasing productivity. An analysis of investment climate work in Sub-Saharan Africa (see box below) found that FIAS-supported work in the area of starting a business provides one of the clearest means of measuring investment promotion and job creation as a result of investment climate work.

Targeted Advice on Key Investment Climate IndicatorsAs developing countries work to improve their ranking in the World Bank Group’s annual Doing Business report, the FIAS-supported Indicator-Based Reform Advisory (IBRA) provides an effective and proven entry point for improving the economic climate for domestic and foreign investment, sustainable growth, and job creation. IBRA can deliver technical assistance on a rapid-response basis to client countries working on one or more of nine investment climate areas: business start-up, construction permitting, property registration, access to credit, investor protections, tax administration, trade logistics, contract enforcement, and resolution of insolvency. Technical assistance includes legislative reviews, process mappings, review of reform proposals, communications support, and advice for investment that would help implement the country’s reform agenda, for example, the creation of one-stop shops for business registration, establishment or re-organization of property and collateral registries.

Since 2007 the team has worked with more than 60 countries as a joint World Bank-IFC global product, implementedbeginninginFY15byT&C.Morethan170 national reforms have been supported in over 50 countries and 6 regions. IBRA also helps develop more comprehensive reform programs that go beyond the areas measured in the indicators. Since FY09, over 10 investment climate programs have developed out of

these interventions. These country-specific programs are fulfilling a FIAS priority to transition client country Doing Business programs into broader and deeper investment climate reform programs.

IntheEastEuropeandCentralAsiaregion(ECA),theregional IBRA project implemented by T&C has made a significant contribution to delivering investment climate reforms in client countries. The project has delivered rapid-response technical assistance enabled by a flexible platform that responds to client demand and mobilizes experts from within and outside the Bank Group, laying the groundwork for other Bank Group operations. In FY15, the project has supported seven business environment reform efforts, including:

In Albania, the project has accelerated business startup by streamlining registration procedures and eliminating the requirement to obtain a company seal. The process of property transfers has been improved by shortening the deadlines for property registration. Construction permitting is now a more transparent process thanks to new regulations obliging municipalities to publish all documentation related to local plans and the process of permit-issuance—from application to final approval—in the Integrated Register of the Territory. The time required to issue a social protection and pension, or SIN, number—a key step for a startup—in Tajikistan has been reduced from 14 days to 1 day with the help of IBRA technical

Making Regulations Work for Clients—the Central Asian Way

More than a decade of experience with investment climate reform work in Central Asia has confirmed a view now applied across the Trade & Competitive Global Practice: Legal and regulatory reform to promote economic reform is important, but without effective implementation, it will not achieve the end goals of sustainable, inclusive growth and job creation.

“For years, working with the governments of Tajikistan and Kyrgyz Republic on improving business inspections, we noticed that the issues of how to make regulations work—i.e., how to enable the private sector to respond to reforms with greater levels of investment and contribute to job creation—are becoming increasingly relevant for our government clients,” said Christopher Miller, T&C program manager in Central Asia.

The traditional view that upstream reform will automatically lead to effective downstream delivery is a fallacy. Implementation is the critical missing link.

Following the launch of the Bank Group Global Practices in FY15, this awareness of the importance of implementation brought T&C together with the Governance Global Practice in a joint effort to develop this area of work.

“We initiated this cross-practice work in Central Asia hoping that it will be picked up by other regions experiencing similar issues,” Miller said.

Great laws, no matter how well worded, make no difference if they are not implemented consistently, professionally, comprehensively. The quality of implementation ultimately determines the degree of reform success.

The first step was to understand where and why implementation failures occur and what solutions each practice can bring forward. The Central Asia team performed feedback loop exercises to get a better sense of why inspection laws were not working as intended in Kyrgyz Republic and Tajikistan. The results of the exercise helped clarify weaknesses in upstream regulatory design and downstream delivery.

Measuring the Role of Reform in Africa’s Economic Growth

Africa has been growing at a rate of 5 percent per year for nearly two decades, rebounding from a similarly lengthy period during which per-capita income fell by 1.3 percent per year. In FY15 the World Bank Group and Britain’s Department for International Development (DFID) published an evaluation of investment climate reform in five countries over the course of six years.3 All five—Burkina Faso, Liberia, Rwanda, Sierra Leone, and South Sudan—have all been beneficiaries of FIAS-supported investment climate work. The study, done by the independent firm Economisti Associati, sought to measure the impact of programs in these countries on investment, jobs, and private sector cost savings.

From the outset the team understood that investment climate reform was not solely responsible for the region’s economic progress. The end of the Cold War and associated reduction of armed conflict by about a third, structural adjustment reform, and global debt forgiveness were important factors. A boom in commodity prices and demand for natural resources were significant growth drivers. Nevertheless, the study found that the reduction in costs and delays stemming from streamlining of business procedures totaled $40 million across the five countries. In Liberia alone, a single reform to reduce the pre-shipment inspection fee from 1.5 percent to 1.2 percent saved traders $4.6 million.

“The results overall, and with the Rwanda case in particular, suggest that investment climate reform is usually necessary to clear out the morass of often dated regulations—many of which even date back to the colonial period in Sub-Saharan Africa—which constrain business growth and consign too many businesses to stay in the informal sector.”

—Evaluation of the World Bank Group’s Investment Climate Programs

The challenge in the study—and going forward—lies in establishing a direct line-of-sight connection between reforms on the one hand and growth in jobs and investment on the other. The study found the clearest results in Rwanda, where business registration reform enabled an accurate measurement of number of new businesses post-reform versus pre-reform, and from that, an estimate of additional investment and job creation attributable to reform. The report found that this reform generated an additional $33 million to $88 million in investment and between 19,000 and 24,000 jobs.

The results point to the importance of pursuing investment climate reform as part of a holistic strategy across a broad spectrum of areas that can deliver cumulative benefits to an economy, improving not only regulatory procedures but private sector perception of investment prospects.

3 Economisti Associati, Evaluation of the World Bank Group’s Investment Climate Programs: Focus on Impact and Sustainability, co-funded by IFC and Britain’s Department for International Development, Nov. 30, 2014, at http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2015/05/21/090224b082eadb01/2_0/Rendered/PDF/Evaluation0of00t0and0sustainability.pdf.