Author: Andrew Beath

Publisher:

Published: 2006

Total Pages:

ISBN-13:

This analysis demonstrates that Brazil, India, and South Africa are far from reaching their full economic potential. In all three countries, aspects of the investment climate which could be improved through reform constrain firms, resulting in lower levels of investment, misallocation of factor inputs, and disincentives to engage in innovation and employee training. In Brazil and India, in particular, changes to tax policy and regulation and improvements in physical infrastructure and public administration will, with a good probability, result in heightened firm-level productivity, increased investment, and higher levels of economic growth. South Africa, meanwhile, has achieved mostly favorable tax and regulatory policies. Firms nevertheless continue to face constraints due to the high cost of skilled labor, the high level of criminal activity, and uncertainty concerning the value of the exchange rate. The nature of the investment climate in Brazil, India, and South Africa is significantly different in each case and, as such, there is substantial scope for learning between the three countries. Taxation in Brazil, for instance, is extremely burdensome, both in administrative and financial terms, a fact that has stemmed from the rigid revenue needs of central and state government. South Africa's experience, where tax revenue was dramatically increased even as tax rates were reduced, is instructive for Brazil. The experience of Brazil in reforming bankruptcy procedures could be instructive to India. Similarly, Brazil and India have much to learn from South Africa in areas of public administration, in improving access to finance and upgrading the quality of physical infrastructure, and in reducing the burden of regulation governing market entry, exit, and the employment of labor. In a number of areas, India has much to impart to Brazil and South Africa. Skilled labor in India is both readily available, which it isn't in Brazil, and relatively inexpensive, which it certainly isn't in South Africa. The stability of India's exchange rate contrasts sharply with the volatility of those of Brazil and South Africa, which again provides another area for mutual learning and assistance. While there is scope for learning from each other, all three countries can also learn from themselves. In Brazil and India, in particular, substantial differences exist between regions in different aspects of the investment climate. In a large share of cases, substantial improvements in the overall investment climate would be observed if all of the states within a country mimicked the policies and performance of the best domestic performer in each category. Thus, while it is important for countries to benchmark themselves against regional and global competitors and set targets accordingly, it is important for them to also look inward and to encourage state and municipal authorities to adopt reforms that have worked particularly well in specific parts of the country.