[World Bank] Better governance is way out of poverty

from Reuters

Developing countries must improve business conditions and run their public and private sectors in a transparent way if they want to attract investors and fight poverty, World Bank president Paul Wolfowitz said on Thursday.

"This is absolutely vital for harnessing the entrepreneurial energy of the private sector. Today, the private sector accounts for 90 percent of jobs in the developing world and ultimately, it will be these jobs that offer the most promising path out of poverty," he told the International Corporate Governance Network in a speech.

One World Bank study showed that U.S. mutual funds are more likely to invest in emerging markets with strong shareholder rights, legal frameworks and accounting policies, he added.

While small in comparison, foreign investment between developing countries is growing five times faster than developed-to-developing investments, and nearly tripled to $47 billion in 2003 from $14 billion in 1995, Wolfowitz said.

He commended Malaysia, South Africa and Mauritius for ranking among the top 10 countries in the world in terms of investor protections.

Thailand requires both directors and shareholders without personal interest in a business deal to approve a related party transaction, while in Turkey companies are required to post information on ownership, board minutes and transactions on their web site, he said.

Pakistan introduced penalties against self-dealings with unlimited fines and up to 14 years in jail.

The World Bank's private sector arm, the International Finance Corp., operates special corporate governance funds in Brazil and Korea which invest in companies to strengthen their governance and attract investment.

The IFC also runs a private enterprise partnership with large corporate governance operations in countries from China, Egypt, Georgia, Pakistan, Russia to Ukraine, he said.

"Looking forward, the increasing number of smaller, hybrid enterprises, such as public-private partnerships and social entrepreneurships, as well as NGOs will likely generate greater demand for corporate governance expertise," he said.

Citing Bangladeshi non-profit Grameen Bank, which was one of the early pioneers of microcredit, he said entities such as those have thousands of stakeholders and Grameen generated over $15 million in profits in 2005.

"It is an area we cannot ignore, because so many of the corporate governance principles apply to these non profits too," Wolfowitz added.