Sound business climates cost littleSound business climates cost little - report
WASHINGTON (Reuters) - A healthy investment climate spurs growth and reduces poverty, and costs governments very little to create, a World Bank report said on Tuesday.
In its annual World Development Report, which surveyed over 30,000 companies in 53 developing countries, the bank said more and more governments recognized the impact of stable policies and behavior for attracting business.
"Many investment climate improvements place few demands on government budgets and the growth unleashed by reforms contributes to greater tax revenues," the report said.
The World Bank pointed to China and India as compelling cases where improvements in investment climates led to high growth rates and sharply reduced poverty.
"A vibrant private sector creates jobs, provides the goods and services needed to improve living standards and contributes taxes necessary for public investment in health, education and other services," said World Bank chief economist Francois Bourguignon.
"But too often governments stunt the size of those contributions by creating unjustified risks, costs and barriers to competition," he added.
The global development institution said uncertainty about government policies was the biggest concern for companies operating in developing nations, which clouds opportunities and chills incentives to invest productively and create jobs.
It said macroeconomic instability, arbitrary regulation and weak protection of property rights were other major concerns for firms.
The survey found that 90 percent of firms in Guatemala and more than 70 percent of companies in Belarus and Zambia find the interpretation of regulations unpredictable.
Meanwhile, more than 80 percent of firms in Bangladesh and over 70 percent of companies in Ecuador and Moldova lack confidence that courts would uphold property rights.
Improving policy predictability alone can increase the likelihood of new investment by more than 30 percent, the report found.
"Over 90 percent of firms report gaps between policy and practice and the informal economy accounts for more than half of output in many development countries," commented Warrick Smith, the report's main author.
"Governments need to close these gaps and confront deeper sources of policy failure that can undermine the investment climate," he added.
The report found that tackling corruption, building credible policies, fostering public support for policy improvements, and ensuring policies were adapted to local conditions were crucial to developing sound investment climates.
It also said that unreliable electricity supply, crime and corruption created added costs for companies.
For example, costs associated with unreliable electricity supply amount to over 10 percent of a company's sales in Eritrea, India and Kenya, while the costs of crime exceed 10 percent of sales in Armenia, Azerbaijan and Peru. Bribes average more than 6 percent of sales in Algeria, Cambodia and Nicaragua.