THE COMPETITIVENESS AND ENTERPRISE CITIES PROJECT BABSON 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; 2/3 rd of these are women
CONTEXT OF E-CITIES Poverty Urban Migration Infrastructure Cost Two billion people live Massive migration of An estimated $57 trillion • • • on less than $2/day people from rural to in infrastructure urban areas investment needed 22,000 children die each Particularly relevant in between now and 2030 • • day due to poverty developing countries as a But, lack of investor-trust • result of innovation, entrepreneurship opportunities, etc. With approximately $30 trillion of capital on the sidelines and rapid migration causing greenfield sites to urbanize, the opportunity exists to combine the two Sources: http://www.globalissues.org/ http://elibrary.worldbank.org/doi/book/10.1596/1813-9450-3915 http://www.mckinsey.com/insights/engineering_construction/infrastructure_productivity http://www.milkeninstitute.org/events/conferences/global-conference/2013/panel-detail/4062
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 LONDON DUBAI
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 4-6 weeks 6-8 months Apply Competitiveness Write feasibility study Diagnostic, e-City Launch: LOI/MOU with and negotiate RFA: Conclude RFA and Simulator: what are the government showing consult with create investor constraints on growth? intent government to proposition What could the gains determine be?
CREATING A GROWTH MODEL Sign Letter of Intent to launch a feasibility study (Launch) 1. Outline the broad scope of the project i. Identify comparative advantages for site (i.e., air hub, maritime hub, tourism, etc.) ii. Specify the type of regulatory changes needed and possible iii. Negotiate the city governance structure and government revenue share to embed the project in the country iv. Spins off direct, tangible benefits to Host Government and People i. Apply Competitiveness Diagnostic (4-6 weeks) 2. Identify regulatory barriers that deter entrepreneurial activity i. Use e-City Simulator to determine the economic activity unleashed by removing anti-competitive market distortions (ACMDs) ii. Write feasibility study and negotiate Regulatory Framework Agreement (6-8 months) 3. Government/Developer or Agency agree on the extent of the regulatory framework i. Government/Developer or Agency agree on the governance structure and Government involvement ii.
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 three dimensions: 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 Domestic International Competition Competition Property Rights
E-CITY CURVE E-City Curve 8000 7000 6000 5000 4000 3000 2000 1000 0 Control e1 e2 e3 Economic Activity Column1 Column2
GAINS FROM E-CITIES 10000 Revenue Benefit to Host Government 9000 8000 7000 MILLIONS USD 6000 5000 4000 3000 2000 1000 0 Control Control + Revenue Enhancements Special City Designation + Regulatory e-City Autonomy Government Share 10% Government Share 10% Government Share 12.5% Government Share 20%
MOROCCO ENTERPRISE CITY – CONTRIBUTION OF KEY SECTORS (IN $BNVOLUMES) Components of e-City ($bn) Control E-City 1 E-City 2 E-City 3 1.8 Financial 0.05 0.06 0.20 1.69 1.6 Air Hub 0.02 0.02 0.20 1.22 1.4 Maritime Hub 1.2 0.07 0.07 0.18 1.09 1 Entrepreneurial Activity 0.09 0.10 0.27 1.02 0.8 High T ech 0.04 0.04 0.21 1.66 0.6 Industrial Production 0.08 0.09 0.22 0.69 0.4 Energy Production 0.11 0.12 0.24 0.62 0.2 Logistics 0.03 0.04 0.23 1.51 0 Financial Air Hub Maritime Hub Entrepreneurial High Tech Industrial Prouction Energy Production Logistics Activity Current E-City 1 E-City 2 E-City 3
WHAT ARE OUR PRODUCTS? Existing City Industrial Zones Government/ Governments for New City Product City Mayor and Foundation/ National Reform Developer Science Parks Developer Letter of ✓ Intent/MOU Regulatory ✓ ✓ ✓ ✓ Diagnostic ✓ ✓ ✓ ✓ ✓ E-City Simulator Feasibility ✓ ✓ ✓ Study/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 Alden Abbott, The Heritage Foundation Christopher Hennessey, Babson College Eduardo Gamarra, Florida International University James Hoopes, Babson College John Macomber, Harvard Business School Bala Iyer, Babson College Aaditya Mattoo, World Bank Kent Jones, Babson College Richard Miller, Olin College Donna Kelley, Babson College Nikhil Rao, Wellesley College Michael Mozill, Babson College S.P . Kothari, MIT Srinivasa Rangan, Babson College George Recck, Babson College
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