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Tools for Export Competitiveness:
Policies and Institutions for Overcoming Government and Market Failures
http://competitiveness
Mallika ShakyaEconomist
International Trade Department
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Incentive FrameworkThe necessary macro and trade policy
Conditions for trade growth
Hard and Soft InfrastructureImproving the business enabling
environment and Infrastructure for exports
Overcoming market/govt failuresTo achieve: Innovation, technology, quality, standards
Global value chain and linkagesIndustrial zones and clusters
Export and Investment promotion
A Conceptual Framework on Export Competitiveness
• About 40 DTIS completed so far• Focus on impediments to export growth in LICs• Main findings:
– trade policy reforms important, but not sufficient– trade logistics, infrastructure, backbone services– proactive policies and measures to overcome the government and market failures
DTISs - Precursor Work on Export Competitiveness
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WHY do government/market failures arise?
• costs of discovery
• asymmetric information
• coordination externalities
• lack of supporting services for industry
• missing public inputsNote: these will vary for low-, middle-, and high-income countries
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Different types of institutions for a collaborative process
Public sector Private sector
industrial zones
innovation and technology foundations
business registrar
standards and certificationinvestment promotion
export promotion
business service providers
arbitrators
lawyersbusiness associationsline ministries
market research agencies
training institutes
universities
R&DIPRs
EXAMPLES
Fundacion Chile
Chinese special economic zones
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Role of government:• Set policies• Internalize the externalities
associated with cost-discovery process
• Provide public inputs (infrastructure and backbone services, property rights, harmonization of standards)
Role of private sector:• Assess actual risks and take
action• Provide relevant info about
obstacles and opportunities• Lubricate machineries on the
ground to deal with the informal constraints
Institutional incrementalism
formal institutionsbusiness assoc.,
parastatals, researchinstitutions
informal institutions trust, traditional know-how,
social capital
search engineslittle is known ex-ante
about instruments; emphasize more on current
successes (large buyers, diaspora ventures) to
develop broader corrective measures
1. industry-specific approach for identifying constraints
2. micro-foundations or clusters approach
Overcoming barriers to export competitiveness:Methodologies are diverse but complementary
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1. INDUSTRY-SPECIFIC ANALYSES TO IDENTIFY CONSTRAINTS
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‘Picking Winners’ vs. working from revealed comparative advantage
Source: UN Comtrade Database and FIAS analysis
INDUSTRY-SPECIFIC ANALYSES TO IDENTIFY CONSTRAINTS - 1
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Key findings from MGI’s sector-specific analyses
Source: MGI India Study
INDUSTRY-SPECIFIC ANALYSES TO IDENTIFY CONSTRAINTS - 2
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Methodology and information sources for industry-specific analysis
Source: Palmade (2005)
INDUSTRY-SPECIFIC ANALYSES TO IDENTIFY CONSTRAINTS - 3
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Big differences in relative sector differences in India Productivity, U.S. = 100
INDUSTRY-SPECIFIC ANALYSES TO IDENTIFY CONSTRAINTS - 4
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Mozambique Case Study: Policy and institutional measures
ApparelIndustry
• Labor law reform• Education/workforce trg
• Specialized infrastructure• Licensing reform• Specialized business services
• Develop a critical mass of firms for the changes to take place
• Tax simplifications• Investment/export promotion
INDUSTRY-SPECIFIC ANALYSES TO IDENTIFY CONSTRAINTS - 5
Figure 2.1: Hourly wages in apparel assembly
(US cents)
179.4
125
72
46
35
33
31
30
27
26
26
25
21
18
14
S Africa
Mauritius
EPZ China
Lesotho
Sri Lanka
Swaziland
Nepal
Kenya
India
Madagascar
Pakistan
Mozambique++
Bangladesh
Ghana
Ethiopia
Table 2.1: Factory-floor productivity and labor costs in apparel assembly
Men’s casual Shirts/machine
operator/day
Labor cost per shirt
(US cents)
Mozambique 10-11 16
Ghana 12 12
Ethiopia+ 10-12 12
Kenya 12-15 18
Madagascar 14-15 16
Lesotho 18 19
South Africa 15 65
India 16 17
EPZ China 18-22 29
Source: Labor productivity and costs from Eifert, Gelb and Ramachandran (2005), p. 19)+ Ethiopia data calculated from GDS LLC powerpoint for the World Bank (2007) Hourly wages collected from various sources, most of them the government labor policies. ++ Mozambique wage indicates the minimum industry wage specified under the national labor law.
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Mozambique: Apparel Labor Wages and Productivity(Competitiveness = productivity/costs)
INDUSTRY-SPECIFIC ANALYSES TO IDENTIFY CONSTRAINTS - 6
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Area Best-in-class features Best practice Mozambique
Best practice South Africa
Best practice Lesotho
economies of scale • Manager-worker ratio above 1:500 • Multiple factory plants specializing on different products and jobs • Bulk import of production inputs through a bonded warehouse
system • Standardized coordination upstream and downstream
use of specialized technology
• Electronic copies of layouts are sent to computer-controlled cutting machines
• Computers determine optimum details for washing, dyeing and ironing of pattern pieces
• Automatic body press where garments are pressed in one shot • System of compressed air, steam and solvents
labor costs, productivity and skills
• Productivity-based piece-rate-wage system vs monthly wages • Unskilled workers receive training on machine-operating,
productivity and factory floor culture • Supervisors receive training on productivity and management • Technicians receive periodic training on machine maintenance
and repair
production planning • Correct workspace design with single-layer working environment and ideal entries/exits and temperature controls
• Effective material purchasing planning ensuring no stopover • Planning around supplier lead times and consistent on-time
deliveries
performance tracking
• Tracking of productivity by activity time-keeping • Computerized monitoring of individual labor productivity • Adjustment of the production plan every four hours for
irregularities • Managers rewarded as per productivity
all conditions undeveloped all conditions developed Source: Mozambique CEM
Regional Competitiveness of the Mozambican Apparels
INDUSTRY-SPECIFIC ANALYSES TO IDENTIFY CONSTRAINTS - 7
LABOR INFRASTRUCTUREAND LAND
DEVELOP A CRITICAL MASS
• Give producers the possibility of productivity-based piece-rate-wage system to set up the right incentive framework on factory floors. • Reduce minimum wages so it reflects the market situation. • Labor training at three key levels: (i) short-term in-factory training for machinists; (ii) supervisory training for junior managers; and (iii) heavy machine operating and maintenance training for technicians.
• Develop appropriate public- private-partnership required for delivery of such training.
• Identify suitable land for industrial zones and provide basic services such as water, electricity and sewage systems.
• Simplify the licensing requirements for construction of simple factory shells and establish standards and enforcement systems so factory shells meet international safety and environmental standards.
• First option: Auction the serviced land to private builders on a cost-plus basis.
• Second option: Form a public-private-partnership which will construct factory shells, develop industry-specific services such as effluent treatment plants and chemical disposal.
• Attract South African investors who are severely affected from the failure of EU-SA trade agreements as well as the intensifying impacts of labor unionism within factories.
• Clarify Mozambican trade policy to target South African high-end market.
• Opportunistically engage with US, Asian and European investors for the AGOA-generated US/EU markets.
• Act as a facilitator in developing clusters that would provide specialized business services, e.g., packaging, finishing, laundry, embroidery, screen-printing, trucking and warehouse facilities, expo events, etc.
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Mozambique: Policy Implications for Apparels
INDUSTRY-SPECIFIC ANALYSES TO IDENTIFY CONSTRAINTS - 8
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2. MICRO-FOUNDATIONS OR CLUSTERS APPROACH
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MICRO-FOUNDATIONS OR CLUSTERS APPROACH - 1
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MICRO-FOUNDATIONS OR CLUSTERS APPROACH - 2
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MICRO-FOUNDATIONS OR CLUSTERS APPROACH - 3
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MICRO-FOUNDATIONS OR CLUSTERS APPROACH - 4
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MICRO-FOUNDATIONS OR CLUSTERS APPROACH - 5
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MICRO-FOUNDATIONS OR CLUSTERS APPROACH - 6
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MICRO-FOUNDATIONS OR CLUSTERS APPROACH - 7
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MICRO-FOUNDATIONS OR CLUSTERS APPROACH - 8
HotelsHotelsGuest HousesHomestaysVillages
WatsMuseumsCavesWaterfallActivities
Airlines, Domestic
AirlinesAirportBusesRiver Cruises
Tour Guides / Interpreters
Tour OperatorsLuang PrabangVientianeAbroad
Restaurants
PropertyServices
Souvenirs, Duty Free
ShoppingRetail StoresNight marketsHandicraft ShopsDuty Free
Banks,Foreign
Exchange
Financial ServicesBanksForeign ExchangeATMs
Local Transportation
Local TransportationTaxies / Tuk-tuksLocal busesCharter ServicesRiver Boats
MaintenanceServices
InfrastructureMaintenanceUtilities
Government agenciesNTATourism PoliceLocal Tourism OfficeImmigration ServicesCustoms
e.g. Universities,EducationNational University (Vientn)Lng Prbg Tourism School
Industry Groupse.g. Tourism
Industry GroupsLATAHotel and Restaurant AssocHeritage Committee
FoodSuppliers
Specialty Food
Suppliers
Public Relations & Market Research
Services
Media / Information Travel PressTelevision, RadioInternet
Local retail, health care, andother services
Local HealthcareLao Traditional MassageSpa ServicesHospitals
CommunicationsProvidersInternetPhone
International AgenciesAsian Development Bank, SNV, UNESCOWorld Bank
Tourists
Luang Prabang Tourism Cluster
Source: Lao PDR Export Competitiveness Report, World Bank, 2005. JAA Analysis.
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MICRO-FOUNDATIONS OR CLUSTERS APPROACH - 9
Source: Lao PDR Export Competitiveness Report, World Bank, 2005. JAA Analysis.
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