THE COMPETITIVENESS AND ENTERPRISE CITIES PROJECTBABSON CONNECT, CARTAGENA, COLOMBIA, APRIL 26, 2015

POVERTY IN THE WORLD

Poverty Facts

More than 3 billion people live on less than $2.50 per day

5.6 billion people live on less than $10 per day

2.6 billion have no access to basic sanitation

45% of the world’s 2.2 billion children live in poverty, 29% have no shelter

25% of people live without access to electricity

600 million people lifted out of poverty in China in the past 20 years

The poverty rate in China fell from 85% to 15.9%

785 million people are illiterate; 2/3rd of these are women

CONTEXT OF E-CITIES

Sources: http://www.globalissues.org/http://elibrary.worldbank.org/doi/book/10.1596/1813-9450-3915 http://www.mckinsey.com/insights/engineering_construction/infrastructure_productivityhttp://www.milkeninstitute.org/events/conferences/global-conference/2013/panel-detail/4062

Poverty Urban Migration Infrastructure Cost

• Two billion people live on less than $2/day

• 22,000 children die each day due to poverty

• Massive migration of people from rural to urban areas

• Particularly relevant in developing countries as a result of innovation, entrepreneurship opportunities, etc.

• An estimated $57 trillion in infrastructure investment needed between now and 2030

• But, lack of investor-trust

With approximately $30 trillion of capital on the sidelines and rapid migration causing greenfield sites to urbanize, the opportunity exists to

combine the two

THE PROBLEMS OF NATIONWIDE REFORM

90% of capital flows go to 12 countries, despite better returns in developing countries

Returns in developing countries are lowered by economic distortions

National-level reform is difficult to achieve

Beneficiaries from distortions tend to block reforms

Their power prevents the creation of a level playing field for competition and promotes “crony capitalism”

BUT GROWTH ENGINES DO EXIST

HONG KONG

SINGAPORE

DUBAI

LONDON

THEY ARE LIVING E-CITY LABS

• All characterized by explosive growth driven by entrepreneurial energy

• Governed by regulatory regimes that favor:

• Open trade• Property rights protection• Merit-based competition

• Level playing field for new entrants and established firms

• Inviting environment for both entrepreneurs and capital providers

WHAT IS THE PURPOSE OF THE PROJECT?

Connect governments with developer groups, and other stakeholders such as foundations or international development agencies who wish to alleviate global poverty and create opportunity for socially inclusive growth for people in developing countries and emerging markets:

By identifying the constraints to economic activity in these countries

By advising the elimination of these constraints

By facilitating the creation of merit-based competition systems

THE CECP WORKS WITH:

TIMELINE OF A FULL E-CITY PROJECT

Launch: LOI/MOU with government showing

intent

Apply Competitiveness Diagnostic, e-City

Simulator: what are the constraints on growth? What could the gains

be?

Write feasibility study and negotiate RFA:

consult with government to

determine

Conclude RFA and create investor

proposition

Launch 4-6 weeks 6-8 months

CREATING A GROWTH MODEL

1. Sign Letter of Intent to launch a feasibility study (Launch)

i. Outline the broad scope of the project

ii. Identify comparative advantages for site (i.e., air hub, maritime hub, tourism, etc.)

iii. Specify the type of regulatory changes needed and possible

iv. Negotiate the city governance structure and government revenue share to embed the project in the country

i. Spins off direct, tangible benefits to Host Government and People

2. Apply Competitiveness Diagnostic (4-6 weeks)

i. Identify regulatory barriers that deter entrepreneurial activity

ii. Use e-City Simulator to determine the economic activity unleashed by removing anti-competitive market distortions (ACMDs)

3. Write feasibility study and negotiate Regulatory Framework Agreement (6-8 months)

i. Government/Developer or Agency agree on the extent of the regulatory framework

ii. Government/Developer or Agency agree on the governance structure and Government involvement

E-CITY SCENARIOS

Control: the status quo

e-City 1: primarily Ease of Doing Business Indicators reforms

e-City 2: e-City designation with some regulatory and legal autonomy, improved insolvency rules, and limited opening to foreign investment

e-City 3: full e-City with a merit based competition, open trade, and property rights protection

PRODUCTIVITY/E-CITY SIMULATOR

This tool enables us to estimate the result (in terms of economic activity) of solving for constraints across threedimensions: property rights, domestic competition, and international competition depending on which version of e-City is developed

This simulator is much more accurate than existing databases and indices, ie World Bank Doing Business, WEF GCI, etc.

It is more accurate because of its non-reliance on survey data and its precise sorting and weighting of categories and subcategories of data

DISTORTIONS INDEX

We have an index that measures distortions in countries and evaluates how much more productive those countries could be if their legal, economic, and regulatory environments were optimized across property rights, domestic competition, and international competition

Property Rights

DomesticCompetition

InternationalCompetition

E-CITY CURVE

0

1000

2000

3000

4000

5000

6000

7000

8000

Control e1 e2 e3

E-City Curve

Economic Activity Column1 Column2

GAINS FROM E-CITIES

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Control Control + Revenue Enhancements Special City Designation + RegulatoryAutonomy

e-City

MIL

LIO

NS

USD

Revenue Benefit to Host Government

Government Share 10% Government Share 10% Government Share 12.5% Government Share 20%

MOROCCO ENTERPRISE CITY – CONTRIBUTION OF KEY SECTORS (IN $BNVOLUMES)

Control E-City 1 E-City 2 E-City 3

Financial 0.05 0.06 0.20 1.69

Air Hub 0.02 0.02 0.20 1.22

Maritime Hub 0.07 0.07 0.18 1.09

Entrepreneurial Activity 0.09 0.10 0.27 1.02

High Tech 0.04 0.04 0.21 1.66

Industrial Production 0.08 0.09 0.22 0.69

Energy Production 0.11 0.12 0.24 0.62

Logistics 0.03 0.04 0.23 1.510

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

Financial Air Hub Maritime Hub EntrepreneurialActivity

High Tech Industrial Prouction Energy Production Logistics

Components of e-City ($bn)

Current E-City 1 E-City 2 E-City 3

WHAT ARE OUR PRODUCTS?

Product

Existing City Government/Foundation/Developer

Governments for National Reform

New CityDeveloper City Mayor

Industrial Zonesand Science Parks

Letter of Intent/MOU ✓Regulatory Diagnostic ✓ ✓ ✓ ✓

E-City Simulator ✓ ✓ ✓ ✓ ✓FeasibilityStudy/Exercise ✓ ✓ ✓Regulatory Framework Agreement

✓

E-City Indicator ✓ ✓ ✓ ✓

HOW DOES HOST COUNTRY BENEFIT?E-CITIES ARE AN ECONOMIC ENGINE FOR THE COUNTRY

Revenue Share with Government

Creates a trust fund for healthcare and education for the rest of the country

Embeds e-City prosperity into national economy, unlike free trade zones (FTZs) or special economic zones (SEZs)

Jumpstarts poverty alleviation and job creation in and outside of the e-City

Social Funds in e-City for healthcare and education

Puts 1% of revenue from the economic activity into an internal trust fund for healthcare and education expenses of the e-City

Increases human capital

Morocco Feasibility Study suggests e-City will produce

3.14% GDP injection

100,000 jobs

600,000 people lifted out of poverty per annum

ENTERPRISE CITIES DEVELOPMENT COUNCIL

ENTERPRISE CITIES ACADEMIC ADVISORY COUNCIL

Martin Anderson, Babson College

Philip Dover, Babson College

Beth Goldstein, Babson College

Christopher Hennessey, Babson College

James Hoopes, Babson College

Bala Iyer, Babson College

Kent Jones, Babson College

Donna Kelley, Babson College

Michael Mozill, Babson College

Srinivasa Rangan, Babson College

George Recck, Babson College

Alden Abbott, The Heritage Foundation

Eduardo Gamarra, Florida International University

John Macomber, Harvard Business School

Aaditya Mattoo, World Bank

Richard Miller, Olin College

Nikhil Rao, Wellesley College

S.P. Kothari, MIT