The power of retail: Delivering development impact in emerging markets

The Marina Market in Ouagadougou, Burkina Faso, which the International Finance Corp. invested close to $1 million in as support for its operations and expansion. By supporting major retailers, the IFC hopes to end extreme poverty and boost shared prosperity in the developing world. Photo by: Jeff Attaway / CC BY

The global retail industry has undergone a dramatic transformation over the past two decades.

In the mid-1990s, retail giants began to expand internationally, building operations in several emerging markets. Today, these retailers and wholesalers are crucial links in a modern economy where people get the food, clothing and other goods they want and need for competitive prices.

That’s why we at the International Finance Corp. — as well as many of the world’s leading development institutions — have supported leading retailers in their cross-border expansion. As a member of the World Bank Group, we have two overarching goals: ending extreme poverty and boosting shared prosperity. As the largest global development institution focused on the private sector in developing countries, we believe the retail sector has a crucial role to play in achieving those goals.

The evidence is clear: People in emerging markets have benefited broadly from this trend. Several studies show that international retailers created more jobs, helped drive down the price of food and other essentials, and raised local business standards. The expansion of modern retailers has helped job seekers — especially women — as well as consumers and local suppliers.

Modern retailers invest in technologies and processes that enable them to achieve greater economies of scale and drive down costs, contributing to lower prices for consumers. They promote higher standards of quality for suppliers and invest in food safety and traceability. IFC invests in local and international retailers expanding in emerging markets because competition brings better value for consumers.

However, we also recognize the challenges of private sector development — and they are in no way unique to the retail sector. For example, the spread of modern supermarkets can lead to job losses at smaller, traditional shops. For those of us who care about development, the question must always be: Are we making life better or worse for the most economically vulnerable people?

The International Labor Organization estimates that at least 142 million people work in the retail sector in developing countries. On average, retail employment accounts for 10 to 15 percent of the job market in any given country. In Poland, Bulgaria and Romania, for example, most retail employees are women who for the first time are gaining an opportunity to work outside their home.

In those countries, the evidence is that modern retailers create more jobs than they displace — particularly when employment across the entire distribution chain is taken into account.

Upping the ante

This value is evident in the large numbers of consumers choosing to shop in modern retail outlets where they are available.

Globally, IFC has invested $2.6 billion in modern retail companies, bringing more choices to consumers in 30 countries. Recently, some have questioned the development impact of these investments in Eastern Europe. However, evidence suggests that retail development, in Eastern Europe and in other regions, has positive economic impact overall.

In Bulgaria, retail jobs increased 25 percent between 2000 and 2010, which coincided with the rise of several international chains. Modern retailers, moreover, are key sources of foreign investment. For example, in Poland, foreign investments account for about 40 percent of the money pumped into the retail sector.

Economic studies also show that the expansion of major retailers can have a profound effect on consumers as well, giving them more choices and driving down prices. One study found that in 2010, modern retailers in Poland, Bulgaria and Romania were consumers’ first choice for staple food, dairy products, meat, fruits and vegetables. Competitive prices, better variety and higher quality were identified as the most important reasons for this preference.

Modern retailers also drive the development of local industry. Most buy at least some of their products from domestic suppliers — a win-win that bolsters the local economy, while insulating retailers from fluctuating exchange rates. Modern retailers also have written contracts with suppliers, a break from tradition in many places where agreements are oral. Contracts reduce risks for suppliers — they know how much and when they’ll be paid — and give them legal recourse if something goes wrong.

These joint ventures help local suppliers gain access to financing, technology and global best practices, making them more efficient. A 2008 World Bank study from Romania showed that after modern retailers entered the country, suppliers improved their productivity by 15 percent.

Raising environmental, health and safety standards

The presence of international retailers helps raise standards for consumers. But it can also raise environmental, health and safety standards, since world-class retailers have an interest in promoting the health, productivity and safety of their workers, and conserving energy and water.

In Ukraine, IFC and French international retail group Auchan developed an advisory program to train local meat suppliers to help them comply with global standards for food safety and quality. The program resulted in a 20 percent increase in suppliers’ production efficiency through improved operational procedures. A program to train local suppliers of baked goods is underway.

In addition, a number of retailers are leading the way on embedding resource-efficient practices in their operations, thus creating a valuable demonstration effect in emerging markets. To this end, IFC can offer its retail clients advice through its green building initiative.

We believe debates such as the one about the development impact of modern retail sector are important. Every development dollar is precious and IFC is constantly striving to improve its effectiveness so that it can meet its goals of ending extreme poverty and boosting shared prosperity in the developing world.

Supporting major retailers helps us achieve those challenging goals.

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About the author

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    Tomasz Telma

    Tomasz Telma is director for Europe and Central Asia of the International Finance Corp. based in Moscow. He is responsible for managing IFC’s activities in this region, including a significant investment program and portfolio, and an advisory program consisting of about 80 projects in 20 countries. Tomasz has been with IFC since 1995 with most of his career focused on developing and executing IFC’s debt and equity investments. Prior to his current assignment, he was based in Kazakhstan as associate director for Central Asia and Azerbaijan, and earlier in Moscow as chief investment officer responsible for IFC’s new financial sector investments in the region. Before joining IFC, he worked for PlanEcon, Inc., a private U.S.-based consulting and investment advisory firm focusing on Eastern Europe and the former Soviet Union.