Investment – International World Of Business

Evaluating the impact of transportation investment

Press Room Team — Mon, 13 Mar 2023 01:13:55 +0000

The primary purpose of transportation investments is to accelerate economic growth. But research shows that although investment in roads contributes to growth in income, the benefits are uneven across locations. Existing studies focus on the impacts of large economic corridors and rural connectivity programs in dense, rapidly growing countries in Asia (India and China), but the impacts of transport investments in lower-density contexts are less studied.

Studying the impacts of transportation programs is important because many low- and middle-income countries (LMICs) and donors are investing in roads to foster economic development. Between 1995 and 2015, the World Bank supported $161 billion in transport investments. Given these large investments, it is important to examine their impact by asking: Do roads promote economic development? And do all areas experience benefits of improved roads, or are benefits highly concentrated in certain areas?

In a working paper, we evaluate the impact of a Road Sector Development Program (RSDP) in Ethiopia. Since 1997, the country has invested over 266,209 million ETB, or over $5 billion, to improve approximately 130,000 kilometers of its road network and accelerate economic growth. Since the end of the 1990s, most areas of the country were not well connected to economic centers, isolating much of the population from markets and social services. To study the economic impact, we built a dataset of annual road upgrades on economic development, urbanization, and cropland area. Figure 1 illustrates the geographic spread of RSDP (Figure 1a) and the growth in the road network over time (Figure 1b). Given the large scope of RSDO, we relied on satellite imagery to provide measures of outcomes of interest. We rely on nighttime lights as a proxy for local economic development and an annual land cover dataset from the European Space Agency to capture urban land and cropland patterns. While outcomes from satellite imagery might be noisier than survey-based measures, they have the advantage of being available across the entire country, at relatively fine spatial resolution, and at regular intervals for the last 30 years.

Figure 1. Improvement in road network

Image

Figure 2 shows the changes in the outcome variables over time: nighttime lights and urban land—while relatively sparse at baseline—expanded significantly over the study period, while cropland—which covers much of the country—saw smaller changes. But did the roads improvements cause the changes? Assessments of economic potential were among the main criteria RSDP used to prioritize locations for road investments. By design, areas that benefited from RSDP are different from those that did not. Consequently, it is not sufficient to only compare areas that received new roads to those that did not. To address these issues, we rely on three complementary empirical approaches to triangulate the impacts of the program:

Comparing areas that benefited earlier from RSDP to areas that benefited later. (A similar differences-in-differences approach was used to evaluate corridors in China, West Bank and Gaza, and Haiti)
Comparing areas “incidentally connected” to RSDP, such as locations connected because they happened to be between cities targeted by RSDP, to areas not connected as in the previously cited papers on China.
Comparing changes in “market access”—a composite measure of travel time from a location to other markets, scaled by market size—to changes in outcome variables. (Leveraging changes in market access is a common approach to evaluate infrastructure and corridor projects, and has also been used in the United States, India, Mexico, and Sub-Saharan Africa.)

Figure 2. Changes in nighttime lights and land cover

Image

Across all empirical approaches, we find that road upgrades contributed to an increase in economic activity and urban land, which in turn led to a reduction in cropland. However, impacts varied significantly depending on the location. Locations with higher initial levels of economic activity—proxied by nighttime lights—experienced larger growth in economic activity and urban land expansion, and a larger reduction in cropland (see Figure 3). These findings are consistent with work in other contexts, such as the West Bank and Gaza, China, and Haiti. We also find a direct link between increased urbanization and less cropland; about half the area that transitioned to urban land was previously cropland.

Figure 3. Impact of RSDP relying on differences-in-differences approach

Image

The table shows point estimates and 95% confidence intervals of the association of locations within 5km of an RSDP road with outcome variables in the years preceding and after an RSDP road was built. We use the inverse hyperbolic sine transformation on all outcome variables, which has a similar interpretation as logs.

Different impacts by initial levels of development are consistent with new migration trends, which are experiencing increased intra-region rural-to-urban migration and decreased rural-to-rural migration, leading to the growing importance of regional markets. The improved connectivity of regional markets could have facilitated migration and made these regions more attractive destinations for migrants. While our results cannot confirm that RSDP primarily benefited larger markets, other studies have shown that better roads encourage migration in other contexts, such as in Brazil.

Overall, the findings emphasize that although ambitious road infrastructure programs can help accelerating economic growth, important distributional implications need to be considered when planning infrastructure programs.

Preserving Public Investment During Fiscal Adjustments

Press Room Team — Sun, 13 Mar 2022 18:49:04 +0000

As COVID-19 struck in early 2020, governments across Latin America and the Caribbean moved decisively through transfers, credits and other means to shore up their economies and support families and firms. That swift governmental action did much to alleviate suffering. But in the midst of falling revenues, fiscal deficits increased substantially, rising on average from 3.4% of GDP immediately before the pandemic to 7.5% of GDP in 2020 and 5.8% in 2021. As a result, debt-to-GDP ratios also gained altitude, climbing from 58% to 72% of GDP during the 2019-to-2021 period, raising concerns about the sustainability of debt and the possibility of fiscal crisis.

Fiscal consolidation—the process by which deficits and debts are reduced—is now urgently needed to protect the long-term health of the region’s economies. But the means by which that is achieved makes all the difference. It is crucial to determining whether deficit reduction leads to reduced output and worsening inequality or whether those effects can be mitigated or even reversed. In that respect, the form of that consolidation may be more important than the amount of deficit reduction.

The Temptation to Cut Public Investment

When they slash budget deficits, governments attune to political sensitivities typically find it easier to cut public investment—like that in infrastructure—more dramatically than public consumption, like public sector wages. But evidence shows that the multiplier effect of capital expenditure is typically larger than that for public consumption. This implies that, on average, for example, a peso that is cut from a productive investment project has a larger negative rippling effect on the economy than a peso that is cut from the purchase of government goods and services. Of course, not all public investments are equally productive, and not all public consumption is wasteful. There is a lot of variation across countries and time on these and other relevant dimensions. So, it is worth scrutinizing the evidence carefully.

In a recent IDB study, we evaluated the implications of different forms of consolidation on economic growth. Specifically, we looked at a sample of 26 advanced and 44 developing countries from 1980 to 2019 to examine diverse fiscal consolidations and their short- and medium-term effects on economic activity. We found that when the share of public investment declines relative to public consumption, deep and prolonged economic contractions can result. Indeed, a consolidation of 1% of GDP reduces output by about 0.5% during the fiscal consolidation. That rises through accumulation to 0.7% within three years of the consolidation’s onset. By contrast, protecting public investment from budget cuts can mitigate contractions in the short run. It can even lead to economic expansion in the medium term, as capital spending stimulates private investment.

Public Investment and Higher Growth

Why might protecting public investment during fiscal consolidations result in higher growth? Results from our paper suggest that protecting public investment during fiscal consolidations creates incentives for expanding private investment. When public investment is protected, and thus its share in public expenditures increases, a consolidation of 1% of GDP leads to an increase in private investment of 3.6% within three years, on average, instead of a 1.8% decrease when the share of public investment in total spending declines. There are various reasons why this may be so. Productive public investment directly improves the productive capacity of the economy by increasing the productivity of capital and labor. This generates a crowding-in effect on private investment. Moreover, to the extent that the increase in the share of public investment reflects a relatively larger contribution of public consumption items to total adjustment, the credibility of fiscal adjustment can be greater. That, in turn, could translate into higher private investment levels.

A Broad Research Agenda

We have documented in the past how reductions in fiscal deficits that hurt investment in roads, energy systems, and water and sanitation hurt growth while enhanced public investment in those areas can boost private investment and contribute to prosperity in high productivity sectors like manufacturing. We have also examined, among many other issues, how spending composition affects fiscal multipliers, and the role of fiscal rules in protecting productive public investments during fiscal consolidations.

Our findings in the current study fit into that wider research agenda on public investment, an area of great concern given its low levels in many developing economies. They show how essential productive capital spending is to private investment, to growth, and to medium- and long-term economic health. They also underscore the importance of establishing institutional mechanisms, for example, well-designed fiscal rules, to ensure predictable and consistent capital spending over time.

InvestmentMap: a technology giving transparency to public resources

Press Room Team — Mon, 13 Dec 2021 04:17:16 +0000

Pertinax was the Roman emperor who lasted the shortest in office, only 86 days. His problem was wanting to fight corruption without the support of his subjects, who did not support the measures he adopted. The lasting lesson is that to fight and eliminate corruption is an effort that requires the participation of the State and all segments of society.

In Latin America and the Caribbean, for example, much remains to be done to eliminate corruption in public procurement systems. According to a study published by the Inter-American Development Bank (IDB), the region loses 4.4% of GDP per year because of waste. This amount reaches a total of $220 billion, equivalent to the resources needed to eradicate extreme poverty in the entire region.

Fortunately, there are more tools today than those available for Pertinax in his time. The first of them are institutional reforms to promote greater transparency and integrity. The second is digitization. Both tools are considered key pillars within the IDB’s Vision 2025 to promote development and economic recovery in the region.

«Advancing the transparency and integrity agenda in Latin America and the Caribbean will be vital to promote sustainable recovery in the post-pandemic era,» said Roberto de Michele, principal specialist in transparency and integrity in the Institutions for Development sector at the IDB. “Greater transparency can increase investor confidence in our region and improve the efficiency of public spending. The good news is that there are technologies and institutions like the IDB to support the countries with the necessary reforms.”

To combat, prevent and control corruption, IDB studies have identified that it is necessary to combine regulatory reforms with digital technologies. This allows governments to achieve better levels of transparency and integrity while companies can invest and generate jobs more efficiently, and citizens can empower themselves and trust their governments.

Therefore, part of the solution involves helping governments make public spending transparent through laws and mechanisms that ensure access to information, combined with digital platforms that make transparency effective. InvestmentMap, or ‘MapaInversiones‘ is a digital tool developed by the IDB, with the support of Microsoft, and the Transparency Fund, that is helping achieve this objective.https://player.vimeo.com/video/489059096

This tool aims to systematize and disseminate information on investment projects and public spending in one place, through channels that facilitate control, analysis, and decision-making. The information on public investment projects in InvestmentMap is georeferenced, allowing citizens to participate through comments, images, suggestions, and complaints.

“By combining access to information with technology, InvestmentMap unlocks the potential of transparency and accountability to identify irregularities and prevent the inappropriate use of public resources,” says Juan Cruz Vieyra, senior specialist in the Innovation division. to Serve the IDB Citizen.

The tool is flexible and allows each country to adapt its functionalities to its specific needs. Currently, eleven countries in the region have adopted the solution to make more than US $ 140 billion in resources transparent since 2013. Below you will learn how some of the countries are using the solution.

Argentina: A Knowledge Map for Public Works

InvestmentMap Argentina was launched in October 2020. This platform helped reorganize internal systems, standardized the way infrastructure investment data was collected, and even promoted the development of new tools to capture information.

Despite having been in operation for just a year, the platform already monitors more than three thousand works and projects, reached one million users that contributed with more than 230 comments. This platform was strengthened by the recommendations of the Public Works Observatory (made up of actors from the public and private sectors) and aims to expand gradually, including new functionalities that allow, for example, decision-making to reduce the gender gap and diversity within the construction sector.

In October 2021, a new version of In Argentina was launched, which includes new functionalities and more information on works, projects and even satellite images.

Colombia: An Image is Worth a Thousand Royalties

In Colombia, the challenge was to monitor the expenditure of resources from royalties (mining and oil taxes) at a lower cost and to reduce the possibility that these were assigned arbitrarily. The solution was MapaRegalías, today known as InvestmentMap Colombia.

In this country, the platform improved efficiency in resource execution by almost eight percentage points after its launch in 2014. The photographs available to the public jumped nine-fold in three years, allowing the government to identify abnormalities and abuses in different projects thanks to the social control of citizens.

Costa Rica: Public Investment Supervisors

In Costa Rica, citizens asked for more transparency in the management of public resources to know how their tax money was being used. To respond to this need, the government launched InvestmentMap Costa Rica, in March 2018 with support from the IDB, where they urged citizens to help supervise public investment.https://www.youtube.com/embed/2RE_nAnx3_I?version=3&rel=1&showsearch=0&showinfo=1&iv_load_policy=1&fs=1&hl=es-ES&autohide=2&wmode=transparent

“The tool has multiple benefits, since – in addition to allowing the government to inform citizens about the investments through a unified and easy-to-understand format – it allows the administration to include citizens in the discussion of public policies, use the data provided by the platform to improve decision-making on projects and take advantage of the use of such massive data to prevent and control corruption,» said Mario Durán Fernández, former Vice Minister of Reforms and Projects of the Ministry of Public Works and Transport, during the launch of the platform in 2018.

An IDB pilot study showed that projects published on the platform performed better than unpublished ones. In just three months of operating InvestmentMap, the financial progress of the projects uploaded to the platform increased by 18 percentage points and their physical progress by eight percentage points, compared to those not published. To take advantage of the positive impact of the platform, today known as Accountability, in December 2020 the government launched its COVID-19 module. A new update is expected in mid-2022.

Paraguay: Artificial Intelligence to Prevent Corruption

In Paraguay, citizens actively demand greater transparency in the management of resources associated with the pandemic.

For this reason, the country decided to implement Accountability (Rindiendo Cuentas), and later the Paraguay in Results Module, which provides data on planning, budgeting and execution of projects financed with public resources. In addition to allowing citizen oversight, it facilitates a clear alignment between resource management, the National Development Plan, and the Sustainable Development Goals.

Moreover, in September 2021, Paraguay’s government and the IDB deepened their collaboration to implement an early warning system on corruption associated with public procurement in the country. The system aims to monitor the value chain of contractual processes, generate alerts and block contracting processes that present irregularities according to the existing legal and regulatory framework, using machine learning algorithms and artificial intelligence.

Peru: Extracting Corruption with the Help of All

In Peru, the mining sector represents almost 10% of the national GDP, contributes between 15% and 20% of public income, and generates more than 200,000 well-paid direct formal jobs.

However, the communities closest to the mining activity have historically not perceived the benefits of this industry, both due to the low enforcement capacity of the authorities and the lack of information on public investments. This has generated repeated social protests that paralyze works and limit investment.

To make the impact of the sector visible, and at the same time ensure correct management of resources, the country launched InvestmentMap Perú País Minero in 2020. It is possible to see in the platform the more than 50,000 public projects financed totally or partially with transfers generated by mining, together with their level of financial and physical execution. The platform also makes it possible to determine the number of mining jobs held by women.

The Transparency Map

Today in Latin America and the Caribbean, more and more people are joining the transparency and anti-corruption cause. InvestmentMap has more than one million unique users in the different countries of the region.

In addition to these efforts, since 2007 the IDB has granted more than $23 million in technical cooperations to improve transparency and integrity in the public and private sectors of the region, and member countries have initiated loan programs for more than $2 billion for advance their transparency, integrity, and corruption control agenda. As a result, the governments of Latin America and the Caribbean will be able to continue improving the management of public resources in a united way.

Foreign Direct Investment in Latin America and the new global outlook

Press Room Team — Mon, 18 Oct 2021 11:47:39 +0000

Attracting foreign direct investment (FDI) for nearshoring will play a key role in Latin America and the Caribbean’s economic recovery and sustainable growth after the COVID-19 crisis.

However, countries in the region need to design targeted investment attraction strategies if they are to attract production activities currently based in other areas of the world, such as Asia. This is one of the conclusions reached in a new IDB study, Foreign Direct Investment: Definitions, Determining Factors, Impacts, and Public Policies, which seeks to explain the nature and dynamics of FDI and to identify the factors that determine it and its potential impact on host countries.

FDI is a transaction involving a long-term relationship in which an individual or a legal entity that is resident in one economy (a direct investor) seeks to obtain an abiding interest in and significant influence over an enterprise that is resident in another economy. This contrasts with portfolio investment, which tends to be short-term and does not entail any intention of control on the part of the investor. Companies that engage in FDI are usually referred to as transnational corporations (TNCs) or multinational corporations (MNCs).

What motivates Foreign Direct Investment

Understanding why companies decide to expand their operations and set up in a third country and what the deciding factors are when it comes to choosing a new location are both keys for host countries designing investment attraction policies, for which they receive support from Investment Promotion Agencies.

There are four types of FDI: natural resource-seeking, market-seeking, efficiency-seeking, and strategic asset-seeking. Each of these types responds to different host-country localization advantages, although there are also broader-reaching determining factors such as the regulatory and macroeconomic environments of destination markets.

RESOURCE-SEEKING INVESTMENTS: these aim to exploit natural resources, the availability of which is the main location advantage offered by the host country. In the past, these kinds of investments often created enclaves within host countries, generating reduced linkages and spillovers for its economy. This is no longer necessarily the case now that technology and specialized services are increasingly being incorporated into primary activities.

MARKET-SEEKING INVESTMENTS: these aim to leverage the domestic market of the host country (and, eventually, that of other nearby countries). Some of the factors that influence this type of FDI include the target market’s size and growth rate, the aim of building a presence in major markets or following clients and/or suppliers engaging in FDI operations, the existence of physical barriers and/or high transportation costs, the need to adapt goods and services to local tastes and requirements, and the host country’s public policies.

EFFICIENCY-SEEKING INVESTMENTS: these seek to rationalize the multinationals’ production to make the most of economies of specialization and scope while diversifying risk. MNCs pursuing such strategies take advantage of differences in factor endowments, local capabilities, public policies, demand patterns, and cultural norms to concentrate different production lines in other locations.

These strategies are favored by liberalization and integration processes, reductions in transportation costs, and advances in information and communication technologies (ICTs). They frequently emerge as a result of complementation and articulation schemes for both commercial and production-related operations within the MNCs’ different subsidiaries. These strategies are closely linked to the dynamics of global value chains (GVCs).

STRATEGIC ASSET-SEEKING INVESTMENTS: the main objective is to acquire resources and capacities that allow the investment firm to maintain or increase its global or regional competitiveness. The strategic assets sought by multinationals may range from innovation capacities and organizational structures to distribution channels or better understandings of consumers’ needs in new markets. Mergers and acquisitions are often associated with this type of strategy.

Finally, recent empirical research suggests that considerable diversity exists in MNCs’ strategies: internationalization processes are influenced by firm type, sector and markets, trade activities, FDI, outsourcing, and strategic partnerships. For many firms, investments to increase capacities, complementary assets, and/or productive diversification (conglomerate FDI) play an increasingly important role within their portfolios.

The macroeconomic and microeconomic impacts of Foreign Direct Investment

The impacts of FDI can be divided into two categories: the macroeconomic and the microeconomic.

When it comes to macroeconomic impacts, FDI represents a flow of foreign currency that provides a source of financing that is theoretically less volatile than that of other channels, such as portfolio investment. FDI can also lead to a direct increase in the host economy’s capital stock in greenfield investments or capacity expansions. In the latter case, FDI can be expected to impact economic growth and job creation positively.

From the microeconomic perspective, FDI can generate a set of positive externalities associated with transfers of knowledge and know-how between investor firms and recipient firms. Productivity gains for host economies occur through direct technology transfers, the spread of technological and organizational best practices, and employee mobility, among other channels. FDI can also contribute to increasing and diversifying exports and transforming the productive structure of the countries where the subsidiaries are located.

However, empirical evidence shows that positive impacts like these are far from automatic. Indeed, there are even cases of negative productivity spillovers for local firms (e.g., firms competing in the same market).

Therefore, the sign and magnitude of the impact of FDI depend on a set of circumstances that have to do with factors that are specific to host economies. For example, human capital levels, local firms’ skills and capabilities, infrastructure, the depth of the financial system, and the type of FDI in question and the motivations behind it. In this sense, attracting investment in high value-added sectors that demand highly skilled human resources (such as the automotive and aerospace industries) is a very different undertaking to attracting investment in extractive sectors with limited local linkages.

FDI, vital for Latin America and the Caribbean’s post–pandemic future

FDI will play a decisive role in LAC’s growth and development after the COVID-19 pandemic, especially if there is a widespread nearshoring of GVCs. This supply chain realignment calls for a rethinking of both the forms and objectives of investment promotion policies in a context of intense competition to attract and retain global investment.

Although, in historical terms, the weight of FDI as measured against global GDP remains high, international investment flows have slowed in recent years (the ratio of FDI flows to GDP fell from 2.3% in 2000 to 2% between 2010 and 2018). This has happened in tandem with the slowed growth of globalization brought on by the global systemic crisis. The COVID-19 crisis is likely to reinforce this trend, given the protectionist pressure and trade tensions between the major global economies and a move toward reshoring and nearshoring, making value chains more regional than global.

Latin America and the Caribbean has maintained a relatively high and stable share of global FDI flows, averaging between 8% and 9% in recent five-year periods. However, except for Mexico, its role in GVCs has been limited and is usually far from the most complex stages in these chains.

The post-COVID-19 scenario is an opportunity for the region to reverse these trends by designing targeted investment attraction strategies that seek to attract FDI associated with the nearshoring of activities that are currently based in other parts of the world.

One lesson that emerges after analyzing other successful experiences is that FDI promotion policies should be complemented by instruments that seek to improve local capabilities and assets and stimulate direct linkages between MNCs and domestic enterprises. This is the challenge facing Latin America and the Caribbean in the coming years.

Joins Mark Cuban Decentralized Climate Data Marketplace dClimate As An Investor and Strategic Advisor

Press Room Team — Wed, 16 Jun 2021 17:05:18 +0000

NEW YORK, N.Y. June 16, 2021 – dClimate, the first decentralized network for climate data, today announced that entrepreneur Mark Cuban has joined dClimate as an investor and strategic advisor. The investment was made through Cuban’s venture capital group, Radical Investments.

“From insurance products that payout based on rainfall data to tools that allow ESG programs to measure carbon footprint, dClimate can be the go-to platform for every organization that uses or builds with climate data,” said Cuban. “I’m excited to be working with a team that is using blockchain and smart contracts to solve a pressing, real-world problem and that is building a platform to help organizations around the world build climate resilience.”

“Climate and weather datasets are crucial to the planning and product infrastructure of so many businesses, governments, and other entities exposed to weather throughout the world, yet this space is highly fragmented and lacks standardization and transparency in many key areas,” said Sid Jha, a founding partner of dClimate. “With damages from weather disasters increasing each year and 70 percent of businesses globally estimated to be impacted by weather, the need for a standardized, user-friendly marketplace that incentivizes greater openness and innovation in the climate data ecosystem has never been greater. We are privileged that an investor and entrepreneur of Mark’s caliber and stature understands the need for dClimate and is committed to help build and grow this network to benefit the many stakeholders who use and rely on this critical information about our planet.”

dClimate was conceived of by the founding team of Arbol Inc., an InsurTech platform for parametric weather insurance/derivatives products that will also be an anchor client for the network. dClimate aims to be the premier platform where businesses and entities can go to retrieve the climate data and forecasts they need to build new products and plan for future weather disasters and where publishers can go to house and monetize their work product. The network previously announced a $3.5 million seed financing round in April led by CoinFund, with participation from Multicoin Capital and Republic Labs to finance network development and user acquisition. The dClimate data marketplace will launch this summer.

About dClimate:

dClimate is the world’s first transparent, decentralized marketplace where climate data, forecasts, and models are standardized, monetized, and distributed. The marketplace connects data publishers directly with data consumers, making climate data more accessible and reliable. When data providers share data and forecasts with the market it is automatically scored for reliability, which helps consumers to shop for information. In exchange, dClimate creates a simple, direct-to-consumer distribution mechanism to monetize their work. Visit the dClimate website or read the introductory blog post to learn more.

Microsoft to invest in autonomous car subsidiary of General Motors

Press Room Team — Wed, 20 Jan 2021 00:55:44 +0000

US computer giant Microsoft, along with other large groups, will invest more than $ 2 billion in General Motors (GM) autonomous vehicle subsidiary, called Cruise, valued at more than $ 30 billion for the operation.

“Microsoft and GM launch a” long-term strategic partnership “aimed at” accelerating the commercialization of autonomous vehicles “, thanks to collaborations in the field of engineering or computer science of different products,” said a statement. altogether disclosed this Tuesday.

In addition to Microsoft, Honda is also part of the investors.

Cruise, based in San Francisco, in the State of California, plans to use Microsoft’s computing platform called Azure to help deploy its fleet of autonomous vehicles, while Microsoft will be the cloud computing provider of both GM and Cruise, in addition, they will collaborate in the fields of hardware and software engineering.

“Our mission, which is to offer safer, better and cheaper transportation for all, is not just a technology race, it is also a race for trust,” said Dan Ammann, CEO of Cruise, in the statement.

For her part, Mary Barra, CEO of GM, said that the commercialization of electric and autonomous cars of Cruise will help the company to learn and obtain more benefits from cloud computing.

The move caused GM shares to skyrocket more than 7% in the early Wall Street exchanges.

GM plans to invest about $ 27 billion in electric vehicles by 2025, with plans to launch 30 new electric vehicles globally.

The investment in Cruise is Microsoft’s first major foray into the driverless car segment. Alphabet, parent of Google, has been in this industry for some time through Waymo.

For its part, Apple is working on a project for an autonomous car that could be a commercial reality within five years. Cruise has been testing driverless cars in San Francisco for years, but the company still doesn’t allow non-employees to ride in them. The company had plans to launch a commercial taxi service in 2019, but the project has been delayed and has no launch date yet.

GM acquired Cruise in 2016 for just over $ 1 billion.

IDB Invest increases COVID-19 response from $5 billion to $7 billion as crisis worsens

Press Room Team — Fri, 28 Aug 2020 14:43:42 +0000

Commitment to clients and trade finance underscores largest development finance response in Latin America and the Caribbean

Today IDB Invest, a member of the IDB Group, received approval from its Board of Directors to increase its COVID-19 response to $7 billion in financing, which includes an additional $500 million in long-term investments and $1.5 billion in trade finance operations. In addition to the $7 billion, IDB Invest plans to mobilize capital from third-party investors.

Given the deepening crisis, IDB Invest’s Board of Directors increased its lending capacity to support new and existing clients who experience short-term financial or operational issues as a result of the health pandemic and economic downturn. The goal is to finance interventions that alleviate healthcare constraints, maintain jobs, restore supply chains and sustain sources of income, especially for micro, small and medium enterprises (MSMEs).

IDB Invest’s long-term support will come in the form of liquidity and working capital lines for corporates in sectors such tourism, agribusiness, manufacturing and technology; bank, non-bank, trade and supply chain financing focused on underlying MSMEs; and infrastructure projects for ongoing developmental impact. IDB Invest is especially ambitious in Caribbean and Central American countries, which will likely be hardest hit by the crisis.

As liquidity declines, exacerbated by capital flight from emerging markets, demand to support trade finance for the region’s MSME importers and exporters is expected to grow. In March of 2020, the Trade Finance Facilitation Program (TFFP) saw demand increase 245% year-on-year in terms of volume. To support clients and the underlying MSMEs that often benefit from trade finance in times of credit shocks, IDB Invest will increase its guarantee and lending program by $1.5 billion for a total of $3 billion under the TFFP.

To manage the high levels of demand for financing, IDB Invest is prioritizing clients based on their sound credit fundamentals; their environmental, social and financial sustainability; their contribution to the UN Sustainable Development Goals and their ability to have a demonstration effect in local economies.

This is part of a Group-wide effort that complements existing commitments by IDB and IDB Lab to support countries and entrepreneurs responding to the health crisis and its consequences.

About IDB Invest
IDB Invest, a member of the IDB Group, is a multilateral development bank committed to promoting the economic development of its member countries in Latin America and the Caribbean through the private sector. IDB Invest finances sustainable companies and projects to achieve financial results and maximize economic, social and environmental development in the region. With a portfolio of $12.1 billion in asset management and 333 clients in 24 countries, IDB Invest provides innovative financial solutions and advisory services that meet the needs of its clients in a variety of industries.

Investing in refugees and their hosts: A development approach

Press Room Team — Mon, 06 Jan 2020 20:00:36 +0000

Today, there are more refugees in the world than directly after World War II. That is almost 26 million people who have been forcibly displaced from their homes and fled across borders from situations of fragility, conflict and violence (FCV).

This week, the Global Refugee Forum has highlighted what the global headlines often miss: that 85 percent of all refugees are hosted by developing countries, and three quarters of refugees are still displaced after five years. Such long displacements can be devastating.

All refugees, especially women, are exposed to higher levels of violence and exploitation. Those seeking work often find few opportunities and may be forced to work illegally or in dangerous conditions. A ‘lost generation’ of refugee children may miss out on good health, education and a stable childhood, and are left with few productive skills or job prospects.

Access to jobs, opportunities and long-term health and education for refugees are among the reasons our shareholders are asking the World Bank to get more closely involved in addressing forced displacement. They recognize that development investments can take a long-term approach and complement the immediate humanitarian responses to crises, helping reduce the damaging impact of prolonged displacement. Moreover, this approach is aligned with the needs of host communities in developing countries, many of whom are calling for comprehensive approaches that consider their needs along with those of refugees.

The World Bank has therefore been scaling up its support to refugees and host communities for several years, in response to the growing global crisis of forced displacement. At the Global Refugee Forum this week, I announced that the IDA19 replenishment includes a dedicated window for host-communities and refugees (WHR) of $2.2 billion over the next three years, a further increase compared to the $2 billion allocated under the previous IDA cycle.

While the WHR is the principal source of financing for refugees and host communities in IDA, it is complemented by up to $1 billion from other IDA resources like the dedicated FCV allocation, which was doubled to $14 billion under IDA18. Looking ahead, the new IDA19 package increases this allocation to $18.7 billion in support for countries affected by fragility, conflict, and violence. These countries are also expected to receive a large part of a new $2.5 billion funding window to boost the private sector and create jobs.

Moreover, the World Bank’s Global Concessional Financing Facility (GCFF) that provides concessional financing to middle income countries hosting large numbers of refugees has also ramped up its financing. Grants made to middle income countries have doubled over the same period from $160 million to $320 million.

As well as helping refugees and host communities directly, by addressing the underlying drivers of fragility and conflict the World Bank aims to reduce the factors that can cause people to flee their homes. The IDA19 package will address several areas that are most critical for long-term focus, including:

Education – because over half of refugees are children, we want to do all we can to prevent a lost generation;
Jobs – because they are key to self-reliance and dignity, for both host communities and refugees who often live in lagging regions;
Gender – because of the terrible ordeal many women and girl refugees are going through;
Prevention and preparedness – because we ought to reduce these crises and better manage them; and
Data and evidence – because this helps ensure our interventions reach the right people and have the desired outcome. For example, to measure better the impact of refugee inflows on their hosts and inform our responses we have established the Joint Data Center on Forced Displacement with UNHCR.
This expanded focus reflects our commitment to shared responsibility, ensuring that that we are doing our part to support the longer-term needs of refugees. It also reflects a broader recognition at the World Bank that our mission of ending extreme poverty will lead us to implement more operations in situations of fragility, conflict and violence – by 2030, almost half of the extreme poor worldwide are likely to live in these places, and our financing will follow.

The World Bank is already more actively engaged in support of refugees and host communities as part of its development mission. We have already evolved to address conflict and fragility before, during and after crises, and to ensure support and inclusion for the poorest and most vulnerable. Moreover, our support is designed to complement humanitarian efforts and tackle the medium-term economic and social dimensions of the crisis.

Early next year, we expect to finalize our draft World Bank Group strategy for Fragility Conflict and Violence. This will systematize our institutional commitment on FCV through financing, policy dialogue, analytics, operational shifts and partnerships. Our focus on refugees, host communities and vulnerable people in fragile countries is here to stay.

How Better Global Insurance Standards Can Lower Cost, Improve Product Availability, and Drive Investment

Press Room Team — Sun, 15 Dec 2019 22:57:03 +0000

Most people don’t spend much time thinking about insurance, but it’s fundamental to the smooth working of society. At its most fundamental, insurers provide consumers and businesses the ability to pool and share risk. This helps reduce the cost of many mundane, but vital, activities like driving a car, buying a house, or planning for retirement. With the right oversight, policyholders get the protection they want, insurance companies turn a profit, and society benefits by having more people own cars, buy homes, and enjoy their retirement. Additionally, the insurance industry invests about $6 trillion into the U.S. economy, vital for financing growth, according to a recent report from the U.S. Chamber of Commerce.

After the financial crisis, regulators intensified their scrutiny of capital requirements for financial institutions, including insurance companies. The International Association of Insurance Supervisors (IAIS) began taking a closer look at the funds insurers need to have on hand to ensure that they can keep paying premiums and avoid default in the face of market stress or unpredicted disasters.

It is critical that the rules governing insurance are efficient, provide for growth, and allow flexibility. That’s true whether these are standards at the state, federal, or international levels.

The IAIS has been developing a new global insurance capital standard, known as the Insurance Capital Standard (ICS), which could determine capital requirements for insurance companies if adopted by regulators. The IAIS expects insurance firms to be in compliance with the standard by 2024. The U.S. Chamber has raised concerns that the flawed design of the ICS could unnecessarily increase costs for insurance firms, reduce the availability of many insurance products, and make it more difficult for the insurance industry to invest back into the economy.

Last week, the IAIS made two important announcements about the future of the ICS. First, they advanced the ICS for a five-year monitoring period beginning in January 2020 (during which insurance firms may confidentially report information about the workability of the draft standard to the IAIS). Crucially, the IAIS agreed to conduct an economic impact analysis and provide additional opportunities for stakeholder input to inform changes to the draft standard. Second, the IAIS released more details about how an alternative to the ICS, known as the Aggregation Method, could be deemed suitable (“outcome comparable”) for use by insurance firms to be in compliance with the global standard.

The ICS simply isn’t the efficient, pro-growth, flexible standard we need to ensure that the insurance industry provides the right coverage and allocates resources effectively—while having enough cash on hand to meet adverse conditions. Instead, a better way to reach these goals would be adoption of the Aggregation Method (AM) now under development by policymakers in the U.S. and being field tested by the IAIS.

Earlier this year, the U.S. Chamber released a report analyzing the merits of the AM. Perhaps the best feature of the AM is its flexibility. The AM is not one-size-fit-all, instead it relies on existing standards for insurance firms. It is a “bottom-up” approach meaning it would not supplant existing regulation, therefore implementation costs would be relatively low. Crucially, it would not disrupt insurance markets – it would allow policyholders to continue to access the same automobile insurance, home insurance, and retirement products like annuities that are available to them today.

By contrast, the ICS would create a number of issues if adopted instead of the AM, including:

The ICS Could Decrease Insurance Product Availability
The insurance industry in the EU has already experienced product availability impacts from the implementation of Solvency II, which uses a similar liability valuation approach as the ICS known as a Market Adjusted Valuation (MAV). In a survey of insurers from across Europe, 58% of insurers offering long-term saving products with guarantees noted a negative effect of Solvency II on their products. Important long-duration products like whole life insurance, fixed annuity products, and long-duration P&C products (such as long-dated worker’s compensation) could be more difficult for insurance companies to provide if the ICS is adopted.

The ICS Could Hamper Investment Where It Is Needed Most
The ICS could also hamper investment in infrastructure and housing. This is because the MAV could incentivize insurers to shift out of some products, especially those with long time horizons like life insurance and annuities. This change could make insurance firms less likely to invest in assets with long time horizons like infrastructure and housing, according to a report the U.S. Chamber released in March on The Role of Insurance Investments in the U.S. Economy.

The ICS Would Be Costly to Implement
Insurance companies are already under some stress given the historically low interest rate environment. Implementation of the ICS would add new stress by introducing new compliance expenses that distract insurance companies from serving their policyholders including the development of new products to meet their needs in our modern economy. The Association of British Insurers estimated that implementation of Solvency II (a large, regulatory framework and a reasonable comparison to the ICS) cost £3 billion (about $3.9 billion).

Policymakers in the U.S. Recognize the Benefits of the AM
The National Association of Insurance Commissioners (NAIC), a group of U.S. state insurance regulators, and the Federal Reserve Board are already moving towards implementing new standards that would be a realization of the AM. The Federal Reserve Board recently proposed new requirements for banks significantly engaged in insurance, the “Building Blocks Approach,” which builds on existing state-based insurance standards and federal bank capital requirements. Meanwhile, the NAIC is working on a Group Capital Calculation that is expected to be debuted early next year.

The U.S. Chamber is eager to weigh in on changes to the ICS and determining “outcome comparability” during the upcoming monitoring period. In response to the IAIS announcement last week, Executive Vice President of the U.S. Chamber Center for Capital Markets Competitiveness, Thomas Quaadman released a statement underlining the benefits of the AM:

“We are pleased to see the IAIS reaffirm its commitment for considering alternative approaches to the ICS. The IAIS made the right decision by not closing the door on the state-based regulatory system that has an established record of benefitting consumers in the United States.

We believe the Aggregation Method is a superior approach that reflects local social and economic needs, and could be implemented easily given it is built on existing jurisdictional frameworks. We look forward to reviewing the IAIS work plan for determining outcome comparability and hope there will be transparent opportunities for stakeholder engagement.”

Insurance firms need certainty as soon as possible that they can use the AM, instead of the ICS, for determining capital requirements. But at this time, they don’t know if the AM will be an acceptable way to comply and the 2024 deadline is fast approaching. This uncertainty if making it more difficult for insurance companies to plan how they will continue to fulfill their crucial role in society.

EDA Invests $346 Million in 239 Projects Across the U.S in or Near Opportunity Zones

Press Room Team — Fri, 13 Dec 2019 05:31:06 +0000

The 2017 Tax Cuts and Jobs Act is two years old this week. A key element of the bipartisan bill is the Opportunity Zones initiative. Since January 2018, EDA has invested $346 million in 239 projects in or near Opportunity Zones.

An Opportunity Zone is an economically-distressed community where private investments, under certain conditions, may be eligible for capital gain tax incentives.

Opportunity Zones were created under the 2017 Tax Cuts and Jobs Act, signed into law by President Donald J. Trump on December 22, 2017, to stimulate economic development and job creation, by incentivizing long- term investments in low-income neighborhoods.

There are more than 8,760 designated Qualified Opportunity Zones (PDF) located in all 50 States, the District of Columbia, and five United States territories. Investors can defer tax on any prior gains invested in a Qualified Opportunity Fund (QOF) until the earlier of the date on which the investment in a QOF is sold or exchanged or until December 31, 2026.

EDA AND OPPORTUNITY ZONES

The Economic Development Administration (EDA) provides strategic investments through competitive grants that foster job creation and attract private investment to support development in economically distressed areas of the United States.

EDA is encouraging our economic development partners to think of Opportunity Zone investment as a new arrow in their quiver to not only enhance ROI for business interests, but also to encourage the public/private partnerships needed to drive private investment to distressed areas. Steps EDA has taken to prioritize Opportunity Zones, include:

In FY18, EDA issued a Notice of Funding Opportunity that made Opportunity Zones eligible for funding from EDA, through its special needs category, even if the area would not meet EDA’s economic distress criteria.
In June 2019, EDA added Opportunity Zones as one of its five Investment Priorities to help significantly increase the number of catalytic Opportunity Zone-related projects we can fund.
As part of the White House Opportunity and Revitalization Council (WHORC), Assistant Secretary Fleming is providing overviews of EDA’s role in the initiative at Opportunity Zone roundtables that are bringing together local elected officials, business leaders, community groups, and others across the country.