measuring impact of trade logistics reforms! washington dc, april 6, 2011 uma subramanian ( global...

Measuring Impact of Trade Logistics Reforms!

Washington DC, April 6, 2011

Uma Subramanian ( Global Product Leader, Trade Logistics)Investment Climate Advisory Services

World Bank Group

THE WORLD BANKWorld Bank Group Multilateral Investment Guarantee Agency

Clients’ and donors’ request for impact measures• How should we prioritize our interventions?• What is the impact of our work on investment and growth? • Where should we focus our efforts and funds?

IFC Strategy and Institutional Development Goals (IDGs) being tested (we are working with IFC Development Impact dept; M& E teams, etc)

M&E framework focused on tracking results and more recently reforms. No systematic measure of impact.

A new methodology for aggregating results into reforms has been developed in FY09 and is being piloted in FY10. Some products are using compliance cost savings measures (e.g. entry and tax) but the methodology does not work for Trade Logistics.

We are developing a methodology that measures impact of trade logistics reforms in a practical and relevant manner!

New Mantra: Managing for Impact

THE WORLD BANKWorld Bank Group Multilateral Investment Guarantee Agency3

A total of 17 reforms since 2008! Reform examples include:

Implementation of automatic cancellation and validation procedures for inward and outward transit bonds.

What does it mean? Frees up working capital for traders.

Creation of risk management and intelligence unit, and implementation of risk based inspections and clearance regime.

What does it mean? Compliant low risk traders get speedy border clearance saving time and money.

Launch of a one bank counter for Majerwa (dry port) and Customs.

What does it mean? Simplifies the trade payment system for firms.

Removal of the import and export license.What does it mean? One less document and less red tape.

Rwanda: Measuring reforms for the private sector

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Practical reforms that have significant implications for increase in efficiency and productivity for the private sector. Question: how do we measure the benefits?


What do we know?

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Subramanian, Anderson and Lee (forthcoming 2011)

1% reduction in export time could increase bilateral trade by a range between 0.18% (OECD countries) and 0.6% (Sub-Saharan Africa).

Djankov et al (2007): One percent reduction in time to export increases exports by 0.4 percent. One additional day in transit time is equivalent to a 70km increase in distance between trading partners.

USAID (2007): One extra day in transit for vegetables and fruit is equivalent to lowering price of produce by 0.9%.


What do we know?

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David Hummels (2001): One day saved in shipping time is equivalent to a 0.8% reduction in ad-valorem tax for manufactured goods.

Subramanian, Anderson and Lee (2005)

Using China ES data, reducing customs clearance time by 1 day will generate: ,

2.1% increase In total factor productivity for Textile/Apparel Industry

7.4% increase in total factor productivity for consumer goods


How to measure impact projections?

Estimating cost savings to private firms due to trade logistics reforms

Projections of increase in exports due to reduced time to trade

Module 1

Module 2

Two Modules




Module 1

Module 2



Reducing Trade Transactions Time Has a Direct Impact on Trade

A 10% reduction

export time

Increases Export of … by …Sub Saharan Africa 6.1%South Asia 5.8%East Europe & Central Asia 5.0%Middle East & N. Africa 4.1%East Asia and Pacific Islands 4.1%Latin America and Caribbean 3.5%OECD 1.7%

For Colombia this is equivalent to US $740 million

Source: Forthcoming research paper (Subramanian, Anderson and Lee (2011)

Direct implications for growth, private investmentand poverty reduction

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Reducing time to trade by 10% has higher impact on countries with “creaky” regulations and procedures

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CountryTime to Export

(DB 2011) Elasticity Increase in trade

(US $ Million)

Bangladesh 25 0.464 677

Bolivia 19 0.352 216

Cambodia 22 0.408 169

Colombia 14 0.260 928

Congo, Dem. Rep. 44 0.816 310

Croatia 20 0.371 497

Kenya 26 0.482 229

Moldova 32 0.594 90

Montenegro 14 0.260 19

Nepal 41 0.761 68

Peru 12 0.223 667

Rwanda 35 0.649 16

Tanzania 24 0.445 128




Module 1

Module 2



Decreased Capital Carrying Charge

Reduced Cargo Loss and Damage

Lower User Fees and Charges

Inventory Cost Savings

Building blocks to measuring Cost Savings … for Trade Logistics Projects

Cost savings to private sector due to trade logistics reforms


How would you compute these cost savings?


Capital carrying charge = f {shipment value, interest rate, time to trade}

Decreased Capital Carrying Charge

Reduced Cargo Loss and Damage

Cargo Loss and Damage= f{ Annual import value, frequency of damage or loss, percent value of consignment lost or damaged in transit}


User Fees and Charges = f {documentation charges, port and terminal fees, trucking charges, time to trade}

Reduced User Fees and Charges Charge

Inventory Cost Savings

Inventory Cost= f{Inventory turnaround, interest charges for goods in storage, storage costs, inventory losses due to spoilage or damage in storage}

http://www.rate-n-term.com/Images/public-domain-clipart41.jpg


• Parsimonious selection of data points to be collected as baseline!

• Pre-determined parameters that will be refined by typology of countries going forward

Key Features of the impact model


Reform could bring 37% savings in trucking costs for a Rwandan firm!

Scenario Trip Time (Days) Mombasa-Kigali Truck Rate

Pre-Reform - Slow transit resulting in (i) frequent stoppages by police and

weighbridge inspectors in Kenya (ii) sluggish modernization of border

posts at Malaba and Gatuna9.5 $4,397

Post Reform Situation - Faster transit due to (i) reduced weighbridge inspections

and police road checks (ii) Fully operational one-stop border

post

5 $2,770

Savings Nominal 4.5 $1,627% 47% 37%


Simplification and process re-engineering reduces inventory costs for Rwandan firm

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Scenario Transactions time (Days) Inventory Costs

Pre-Reform - 2009

(i) Onerous documentation(ii) Complex procedures(iii) Poor coordination among

agencies 35 $2133

Post Reform Situation (2011)–

(i) Reduced documents within Rwanda

(ii) Streamlined processes in Majerwa

(iii) Simpler payment systems

29 $1803

Savings 24 $330


Reform YearPost-Reform

Year

IMPORT SCENARIO 0 1 2 3

2010 2011 2012 2013

Firm Level Impact

Savings in Capital Carrying Charge 21 78 70 66

Savings in Cargo Loss & Damage during Transit 36 290 249 215

Savings in User Fees and Charges 76 145 195 238

Savings in Inventory Cost 181 282 300 305

Cost Savings for a Firm 314 795 814 824

Country Level Impact

Savings in Capital Carrying Charge 243,342 887,913 811,532 776,323

Savings in Cargo Loss & Damage during Transit 408,681 3,321,336 2,880,062 2,510,212

Savings in User Fees and Charges 865,438 1,662,325 2,251,051 2,778,975

Savings in Inventory Cost 2,050,295 3,227,746 3,472,346 3,568,145

Cost Savings for Country $3.6 mill $9 mill $9.4 mill $9.6 mill

Cost savings of over $30 million from import reforms for Rwanda(ex-ante savings estimation ) (discounted)


Do not Panic!

Here’s what you will need to collect!


Here’s what you will need to collect! Baseline data (1)

Historical Data Source

2007 2008 2009 2010

CUSTOMS, PSI Companies

Total Annual Export Value

Number of export related customs declarations

Number of firms that export only

Total Annual Import Value

Number of import related customs declarations

Number of Firms that import only

Number of firms that export and import

Annual Revenue Collected by Customs (value) (Customs charges, duties, tax, excise, GST, fees)

Customs


Variables Source of data

Interest Rate (Lending)Public domain, National Bank of the country

Average value of Consignment (SME vs. medium/ large)Customs, Freight forwarder, Trader

Monthly warehouse/storage cost for inventory holdings Trader

Monthly rental per cubic foot TraderFrequency of cargo loss and damage during transit (X times annually)

Freight forwarder, Trader

Percent value of cargo lost and damaged in transit of one consignment

Freight forwarder, Trader

Frequency of material spoilage & shrinkage during inventory storage (X times annually)

Trader

Percent value of material damaged during inventory storage Trader

Here’s what you will need to collect! Baseline data (2)


Thank you!


Non-linear Econometric Model:

Dependent Variable: Proportion of total goods exported from Country i to Country j

Explanatory Variables Income of Destination country (WDI) Distance between origin-destination countries Liner Shipping Connectivity Index (UNCTAD) Cost to import of the Destination Country; DB 2009 Time to import of the Destination Country; DB

2009 Average Tariff of the Destination Country:

(UNCTAD) From the Multinomial Logit Model parameter estimates we can calculate inclusive value

=

Independent Variables• Inclusive Value• GDP of Countries i and j• Liner Shipping Connectivity Index: UNCTAD• Infrastructural Quality (Global Competitiveness Index: WEF)• Time for exports of the Destination Country• Average Tariff of the Destination Country

Stage 1: Estimated a multinomial logit model

Stage 2: Export Regression Model

Dependent Variable: Total Export of Country i to the World =

measuring impact of trade logistics reforms! washington dc, april 6, 2011 uma subramanian ( global...

Documents

bank counter

impact slide

impact measures

practical reforms

transit time

export time

customs clearance time

bilateral trade