International CompetitivenessInternational Competitiveness--Where Pakistan Stands?Where Pakistan Stands?

Presented by Uzma ZiaPresented by Uzma Zia

Main objectivesMain objectives

To understand the concept of To understand the concept of competitivenesscompetitivenessTo analyze PakistanTo analyze Pakistan’’s position in world s position in world marketmarketTo see what lessons Pakistan can learn To see what lessons Pakistan can learn from newly emerging economiesfrom newly emerging economies

What is Competitiveness?What is Competitiveness?

““A countryA country’’s share of world markets for its s share of world markets for its productsproducts””

(source: World Economic Forum (source: World Economic Forum -- GCR(2005))GCR(2005))

““A collection of factors, policies and A collection of factors, policies and institutions which determine the level of institutions which determine the level of productivity of a country and that, productivity of a country and that, therefore determine the level of prosperity therefore determine the level of prosperity that can be attained by an economythat can be attained by an economy””

(source: World Economic Forum (source: World Economic Forum -- GCR(2006))GCR(2006))

Concept of CompetitivenessConcept of Competitiveness

A controversial conceptA controversial conceptIntensely debatedIntensely debatedFirst developed by Porter in ninetiesFirst developed by Porter in ninetiesOften equated with Macro Economic or Often equated with Macro Economic or Micro Economic issuesMicro Economic issuesTo some extent, the debate on the To some extent, the debate on the concept is simply revisiting traditional concept is simply revisiting traditional issues under new namesissues under new names

DebateDebate

Issue of competitiveness has been taken to Issue of competitiveness has been taken to two extremestwo extremesArgument that competitiveness is a firm Argument that competitiveness is a firm level issue (level issue (i.ei.e firms compete ,not nations)firms compete ,not nations)

((KrugmanKrugman 1994)1994)

Comprehensive definitions and measuring Comprehensive definitions and measuring through indexthrough index

(World Economic Forum or UNIDO)(World Economic Forum or UNIDO)

PorterPorter’’s view (1990)s view (1990)How a country could play a strategic game and How a country could play a strategic game and succeed in extracting high levels of gains from succeed in extracting high levels of gains from trade based on new trade theories.trade based on new trade theories.Stressed on development of innovative or Stressed on development of innovative or comparative advantage and upgrading to comparative advantage and upgrading to maintain higher market shares.maintain higher market shares.Productivity is the most useful concept of Productivity is the most useful concept of international competitiveness.international competitiveness.TFP index measures growth and efficiencyTFP index measures growth and efficiency--Industry could be competitive under technical Industry could be competitive under technical and scale efficiency, but not when using unit and scale efficiency, but not when using unit labor cost.labor cost.

PorterPorter’’s view (contd.)s view (contd.)Four conditions incorporate both internal and external Four conditions incorporate both internal and external

factors allow firms to compete successfullyfactors allow firms to compete successfullyFactor conditionsFactor conditions--availability of skilled labor, availability of skilled labor, infrastructureinfrastructureDemand conditions for the products of the Demand conditions for the products of the industryindustrySupporting industriesSupporting industriesFirm strategy, structure and rivalryFirm strategy, structure and rivalry

Together these four factors create the context in Together these four factors create the context in which firms are born and compete(Porter1990)which firms are born and compete(Porter1990)

KrugmanKrugman’’s, Paul view s, Paul view (1994,1996 a, 1996b)(1994,1996 a, 1996b)

Defining competitiveness in context of trade is Defining competitiveness in context of trade is futile exercise, and is dangerous because it futile exercise, and is dangerous because it leads to misunderstand the theory of leads to misunderstand the theory of comparative advantage &benefits of free tradecomparative advantage &benefits of free tradeFirms compete for export not the nationsFirms compete for export not the nations““Dangerous ObsessionDangerous Obsession””

Lall, Sanjaya (2000)Lall, Sanjaya (2000)

National competitiveness is a real issue that can National competitiveness is a real issue that can be defined and measuredbe defined and measuredConcept is not dictated by comparative Concept is not dictated by comparative advantage, which is determined by tastes, advantage, which is determined by tastes, resources and technologyresources and technologyMoving from low tech to high tech is a difficult Moving from low tech to high tech is a difficult process involving many policy interventionsprocess involving many policy interventions

Measuring CompetitivenessMeasuring CompetitivenessFew recent indices areFew recent indices are

Global Competitiveness ReportGlobal Competitiveness Report-- World World Economic ForumEconomic ForumWorld Competitiveness year bookWorld Competitiveness year book--International International Institute for Management DevelopmentInstitute for Management DevelopmentWorld Industrial Development Report UNIDOWorld Industrial Development Report UNIDOWignaraja and Taylor Wignaraja and Taylor HarbisonHarbison--Myers Myers

Three Index by World Economic ForumThree Index by World Economic Forum

• The Growth Competitiveness Index (GCI)• Business Competitiveness Index (BCI)• The Global Competitiveness Index (The

latest index)

Global Competitiveness IndexGlobal Competitiveness Index

Index based onthree principles

Pillars ofcompetitiveness

Stages of Development Transition

Principle 1Principle 1--Nine PillarsNine PillarsThe new index (2005-2006) is based on nine pillars

1. Institutions2. Infrastructure3. Macro economy4. Health and primary education5. Higher education and training6. Market efficiency7. Technological readiness8. Business sophistication9. Innovation

Principle 2Principle 2--Stages of DevelopmentStages of Development

11--Factor Factor –– Driven stageDriven stageFirms compete in prices ,taking advantage of cheep Firms compete in prices ,taking advantage of cheep factors e.g Pakistan, Indiafactors e.g Pakistan, India

22--EfficiencyEfficiency--Driven stageDriven stageFirms carry on efficient production practices to Firms carry on efficient production practices to increase productivity e.g Poland, Brazil, increase productivity e.g Poland, Brazil, MaxicoMaxico

33--InnovationInnovation--Driven stageDriven stageFirms produce innovative products using sophisticated Firms produce innovative products using sophisticated production methods e.g Finland, Germany, Japanproduction methods e.g Finland, Germany, Japan

Principle3Principle3--TransitionTransition

Weights are given to each sub indexWeights are given to each sub indexEconomies develop and move from one Economies develop and move from one stage to the next.stage to the next.

Global Competitive Index Top 10Global Competitive Index Top 10

991010United KingdomUnited Kingdom111199NetherlandsNetherlands6688GermanyGermany101077JapanJapan1166United StatesUnited States5555SingaporeSingapore3344DenmarkDenmark7733SwedenSweden2222FinlandFinland4411SwitzerlandSwitzerland2005 ranks2005 ranks2006 ranks2006 ranksCountryCountry

Few Selected EconomiesFew Selected Economies

--110110NepalNepal98989999BangladeshBangladesh94949191Pakistan Pakistan 80807979Sri LankaSri Lanka45454343IndiaIndia27272727ChileChile19192424Korea, Rep.Korea, Rep.21212121IrelandIreland881313TaiwanTaiwan14141111Hong Kong SARHong Kong SAR2005 ranking2005 ranking2006 ranking2006 rankingcountrycountry

World Market TrendsWorld Market Trends

•Technological progress•Technology Intensive Activities•Shift- From simple to complex Technological progress •FDI- That offer enormous export policies

Technological Groups Technological Groups

Technological groups are generally Technological groups are generally classified in terms of products as:classified in terms of products as:

PrimaryPrimaryLow TechnologyLow TechnologyMedium TechnologyMedium TechnologyHigh TechnologyHigh Technology

PakistanPakistan’’s Competitiveness s Competitiveness --Where Country stands?Where Country stands?

Discouraging facts•Competitive position of Pakistani firms appear weak•In comparison to newly emerged economies Pakistan’s competitive situation has emerged stagnant•The country’s exports are mainly related to low technology products

PakistanPakistan’’s Competitiveness s Competitiveness --Where Country stands?Where Country stands?

Encouraging facts•A recovery in economy due to current economic reforms, debt restructuring & concessional financing•Stabilization measures and structural reforms have created foundation for increased per capita GDP growth •Pursuing policies to stimulate private investment & higher productivity, Pakistan could see real per capita GDP increase over next decade by over 5% on average

PakistanPakistan’’s Growth Performance 1960 and s Growth Performance 1960 and OnwardsOnwards

PoliticalPolitical unrest, nuclear unrest, nuclear explosion and sanctions, explosion and sanctions, Macro economic instability Macro economic instability

1990s1990sWeakWeak

Reform efforts, Economic Reform efforts, Economic and political stability and political stability

1980s1980sAbove averageAbove average

First oil crisis, Restrictive First oil crisis, Restrictive economic policies, economic policies, Bangladesh emerged as a Bangladesh emerged as a new state new state

1970s1970sWeakWeak

Reform efforts, Economic Reform efforts, Economic and political stability and political stability

1960s1960sAbove average Above average

CausesCausesEconomic GrowthEconomic Growth

Value Chain Analysis (VCA)Value Chain Analysis (VCA)--World BankWorld Bank

(VCA identifies particular areas where policy/institutional (VCA identifies particular areas where policy/institutional actions may have greatest positive impact on the actions may have greatest positive impact on the productivity)productivity)

Findings of this analysis identified constraintsFindings of this analysis identified constraintsInadequate infrastructureInadequate infrastructureWeak legal & enforcement frameworkWeak legal & enforcement frameworkInadequate coordination among govt. agenciesInadequate coordination among govt. agenciesFood quality & safety standardsFood quality & safety standardsInadequate access to financeInadequate access to finance

Constraints discourage private investment & make Constraints discourage private investment & make domestic production less competitive in Pakistandomestic production less competitive in Pakistan

Manufacturing Value Added Analysis (MVA)Manufacturing Value Added Analysis (MVA)--ADBADB

(MVA shows export performance of countries by assessing (MVA shows export performance of countries by assessing performance in manufacturing activity)performance in manufacturing activity)

MVA in Pakistan grew at compound real annual rate MVA in Pakistan grew at compound real annual rate of 5.5% between 1980of 5.5% between 1980--20002000PakistanPakistan’’s MVA growth was higher than Bangladesh s MVA growth was higher than Bangladesh but lower than other economiesbut lower than other economies

Results show Results show Manufacturing activity in Pakistan is not technology Manufacturing activity in Pakistan is not technology intensiveintensive--export performance is not satisfactory.export performance is not satisfactory.

Falling Stars/Achievers in Adversity

Cotton & Textile fabricsGarmentsWomen fabricClothing accessories of fabricCarved and modeled goodsCarboxylic acids

Retreats/Declining Sectors

Textile yarnFloor coveringsRefined petroleum productsSports goodsKnitted or crocheted fabricsOther garments, not knitted or

crochetedFresh Fruits

Rising Stars/Champions

Household linensCurtains and other furnishingsEquine leatherT-shirts, vestsPoly carboxylic acidsBlankets and travel rugs

Lost Opportunities / Underachievers

Leather accessoriesBaby CarriagesFoot wear with metal toe-capWomen garmentsDried fruitsMedical instruments

Source: Pakistan International Competitiveness: Issues 2004 (ADB Sponsored)Industrial Competitiveness: The Challenge for Pakistan 2004(ADB Institute)

PakistanPakistan’’s Exportss Exports--Market Positioning MatrixMarket Positioning Matrix

Improving Competitiveness Improving Competitiveness -- What Pakistan What Pakistan Needs to Compete?Needs to Compete?

Good GovernanceGood GovernanceFiscal DisciplinesFiscal DisciplinesMonetary DisciplinesMonetary DisciplinesInvestment in Human ResourcesInvestment in Human ResourcesUpgrading TechnologyUpgrading TechnologyInvestment Friendly Business EnvironmentInvestment Friendly Business EnvironmentCluster DevelopmentCluster Development

Steps taken by Government of Pakistan to Steps taken by Government of Pakistan to improve competitivenessimprove competitiveness

Creation of Competitive Support fundCreation of Competitive Support fund--A joint initiative A joint initiative of Ministry of Finance & USAIDof Ministry of Finance & USAIDTrade policies have been liberalizedTrade policies have been liberalizedTwo Export zones established (Karachi & industrial Two Export zones established (Karachi & industrial city of Punjab)city of Punjab)Policies for inward FDI have been liberalized in 1997Policies for inward FDI have been liberalized in 1997Technical and vocational Institutes are establishedTechnical and vocational Institutes are establishedPlanning CommissionPlanning Commission’’s Medium Term Development s Medium Term Development Framework(2005Framework(2005--10) will increase allocation for 10) will increase allocation for higher Education, R & D, etc. in countryhigher Education, R & D, etc. in country

Newly Emerged EconomiesNewly Emerged Economies

19701970--80s80sRepublic of KoreaRepublic of KoreaHong Kong Hong Kong SingaporeSingaporeTaiwanTaiwan

1980s1980sASEANASEAN

1990s1990sChinaChinaChileChileIrelandIreland

KoreaKoreaGovernment of Korea followed flexible approach to Government of Korea followed flexible approach to develop business sectordevelop business sectorAdopted policy approaches which they borrowed from Adopted policy approaches which they borrowed from other countriesother countriesMeaningful planning between Public and private sectorMeaningful planning between Public and private sectorIndustrial promotion supported by private sectorIndustrial promotion supported by private sectorWell managed export promotion system was adoptedWell managed export promotion system was adoptedBureaucracy was involvedBureaucracy was involvedTheir President & ministries collaborated with firms to Their President & ministries collaborated with firms to identify and solve problemsidentify and solve problems

TaiwanTaiwan

Government focused on high tech industryGovernment focused on high tech industryFormed R&D consortium and this gained Formed R&D consortium and this gained power in 1990spower in 1990sBrought together firms, public sector, Brought together firms, public sector, research institutions & trade associationsresearch institutions & trade associationsAlliance was mainly in IT sector, Alliance was mainly in IT sector, telecommunication & data switching telecommunication & data switching systemsystem

ChileChile

Government introduced reforms & gradually Government introduced reforms & gradually implemented them in banking, pension, tax implemented them in banking, pension, tax system, insurance sectorssystem, insurance sectorsReforms introduced a tough regulatory and Reforms introduced a tough regulatory and supervisory framework for financial institutionssupervisory framework for financial institutionsGood corporate governance and transparencyGood corporate governance and transparencyImproved access to financial resources for small Improved access to financial resources for small firmsfirms

IrelandIreland

Government opened Ireland to foreign Government opened Ireland to foreign industrial investment in 1960sindustrial investment in 1960sBecame member of European UnionBecame member of European UnionInvested heavily in educational systemInvested heavily in educational systemAdopted digital communication technology Adopted digital communication technology in 1980sin 1980sEstablishment of international financial Establishment of international financial services centre with low corporate tax rate services centre with low corporate tax rate of 12.5%of 12.5%--It went successfulIt went successful

SingaporeSingaporeThe country strongly increased high technology exports The country strongly increased high technology exports and also maintained export growth in low technology and also maintained export growth in low technology productsproductsGovernment gave grants and incentives to firms in order Government gave grants and incentives to firms in order to attract multi national companiesto attract multi national companiesInvestment by MNCs in electronics industry was a major Investment by MNCs in electronics industry was a major opportunity for Singaporeopportunity for SingaporeSome supporting industries were promoted by Some supporting industries were promoted by governmentgovernment--Cluster development fund was establishedCluster development fund was establishedForeign firms were attracted to invest in countryForeign firms were attracted to invest in countryFDI promotion & local capability buildingFDI promotion & local capability building

What Pakistan Can Learn From What Pakistan Can Learn From Newly Emerging Economies?Newly Emerging Economies?

Breaking low technology production trapBreaking low technology production trapBreaking low level skill trapBreaking low level skill trapHigher Investment and restructuring of Higher Investment and restructuring of Industrial SectorIndustrial SectorGood governance, new incentivesGood governance, new incentivesPublic Private partnershipsPublic Private partnershipsRevising structure, Reforms and Fiscal Revising structure, Reforms and Fiscal DisciplineDiscipline

(Contd..)(Contd..)

Investing in clusters and providing suitable Investing in clusters and providing suitable export opportunities for their productsexport opportunities for their productsInvestment in Human Capital to have Investment in Human Capital to have skilled labor forceskilled labor forceFocus on FDIFocus on FDI

Further research possibilitiesFurther research possibilities--A suggested A suggested modelmodel

Exp = f (INS, INF, ME, HE, HT, M EF, TR, BS, INO)

WhereExp ExportsINS InstitutionsINF InfrastructureME Macro economyHE Health and Primary EducationHT Higher Education and TrainingM EF Market EfficiencyTR Technological ReadinessBS Business SophisticationINO Innovation

ExplanationExplanation

One equation modelOne equation modelDependent variable export performanceDependent variable export performanceTwo ideas:Two ideas:

This model can disaggregate total exports on This model can disaggregate total exports on sectoral basis e.g Textile and non textile.sectoral basis e.g Textile and non textile.To add more variables besides these scoresTo add more variables besides these scores

Suggestions Suggestions &&

Questions?Questions?

Thank YouThank You