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Transcript of 1 Market access, export diversification & industrial upgrading in LATAM The Mercosur Chair Annual...
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Market access, export Market access, export diversification & industrial diversification & industrial upgrading in LATAMupgrading in LATAM
The Mercosur Chair
Annual Seminar
Paris March 6 2006
Javier SantisoChief Development Economist & Deputy Director
OECD Development Centre
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11 Latin America: the challenge of diversificationLatin America: the challenge of diversification
Suspects: who’s to blame? Suspects: who’s to blame? 22
Country narratives: building new areas of CACountry narratives: building new areas of CA33
ConclusionsConclusions44
3
Latin America
0
10
20
30
40
50
60
70
80
90
100Ecu
ad
or
Para
gu
ay
Boliv
ia
Ven
ezu
ela
Ch
ile
Arg
en
tin
a
Uru
gu
ay
Colo
mb
ia
Peru
Ind
on
esi
a
Bra
zil
Can
ad
a
Neth
erl
an
ds
Ind
ia
Th
aila
nd
Sp
ain
Mala
ysi
a
Mexic
o
Belg
ium
UK
Fran
ce
US
Sin
gap
ore
Italy
Ch
ina
Germ
an
y
Sou
th K
ore
a
Taiw
an
Hon
g K
on
g
Jap
an
Source: WTO
Exports of agricultural, energy and mineral productsExports of agricultural, energy and mineral products((% of the total) (2003% of the total) (2003))
Export structure in comparisonExport structure in comparison
4
The challenge of diversification …The challenge of diversification …Share of processed exports then (1970) and now (2000)Share of processed exports then (1970) and now (2000)
BAH
CUBUGY
CHL
PER
TTBSUR
ARG
BRB
DOMMEXHAI
BOL
CRI
ECU
COL
GUY
BRZ
JAM
HNDELS
NICGTM
VEN
BLZ PGY
0
10
20
30
40
50
60
70
80
90
100
0 10 20 30 40 50 60 70 80 90 100
Share of Processed X in Total (average 1966-1970)
Sh
are
of
Pro
cess
ed X
in
To
tal
(ave
rag
e 19
96-2
000)
Increased processing
Decreased process
Source: Bonaglia and Fukasaku (2003) “Export Diversification in low Income countries,” OECD Development Centre WP 209
A important role played by GSP, NAFTA & CBI… with some qualifications
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What’s wrong with natural What’s wrong with natural resources? resources? A boon or a curse?A boon or a curse?
Sachs and Warner: countries rich in natural resources grow more slowly …
… because of limited linkages and spillovers, lower skill content and incentives to rent seeking and corruption.
More recent evidence is less negative, e.g. World Bank (2002) From natural resources to the knowledge economy - trade and job quality Source: Sachs and Warner (2001), “The Curse of Natural Resources,” European Economic Review
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It’s not (only) what you have, it’s It’s not (only) what you have, it’s how you use it …how you use it …
These are countries that built – in different historical periods – their growth on natural resources (mineral, wood, agro, etc) …
… managed to increase the technological and scientific content of resource-based clusters …
… and developed new ones as well as new areas of competitive advantage (e.g. services).
There are some encouraging examples in LATAM as well …
… but
Resource-Rich champions
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… … Many Many resource-rich underachievers
Source: Manzano, 2006
Development Level of natural resource clusters in the Andean region (0=low, 10=high)
Country Cluster
Exploitation and Export, minimum processing
Processing and export, import substitutions and public goods delivery
Export of some of the goods and services that are substituted
Export of processed refined products, inputs, machines and services associated to the cluster. The firms of the country associated to the cluster start to invest
abroad Bolivia Gas 10 0 0 0 Wood 10 7 2 2 Minerals 10 4 4 0 Soy 10 8 4 2 Colombia Coffee 10 8 8 4 Flowers 10 10 10 5 Fruits 10 10 8 1 Ecuador Bananas 10 10 2 2 Shrimp 10 9 2 2 Flowers 10 5 2 2 Oil 6 3 2 2 Peru Asparagus 10 9 1 8 Fish Flower 10 5 3 2 Minerals 10 2 1 7 Venezuela Aluminum 10 0 0 0 Iron 10 5 4 1 Oil 10 8 5 5
8
… … Gas, the unexploited potentialGas, the unexploited potential
Source: The Economist, “The explosive nature of gas”, Feb 9th 2006
Where demand and supply don’t meet
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In fact export sophistication In fact export sophistication remains below benchmarks …remains below benchmarks …
Source: Hausmann, Hwang and Rodrik (2005), “What You Export Matters,” mimeo
10
Even when looking at other Even when looking at other resource-rich countries resource-rich countries
Source: Hausmann, Hwang and Rodrik (2005), “What You Export Matters,” minmeo
11
11 Latin America: the challenge of diversificationLatin America: the challenge of diversification
Suspects: who’s to blame? 22
Country narratives: building new areas of CACountry narratives: building new areas of CA33
ConclusionsConclusions44
12
Venezuela 83.1%
Peru 70.7%
Chile 59.1%
Colombia 46.3%
Argentina 38.0%
Brazil 29.6%
Mexico 14.6%
Latam 31.2%
Source: BBVA
over total exports (2004)
Exports of commodities
60
70
80
90
100
110
120
130
140
150
160
170
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
Source: BBVA
BBVA-MAP Index of Latin America commodity prices
(100 =jan03)
TOTAL
Without oil
Good News: The commodity boom Good News: The commodity boom has been a bonanzahas been a bonanza
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Sad News: Capitalising on previous Sad News: Capitalising on previous bonanzas was not easybonanzas was not easy
The debt overhang:
Resource-rich countries that performed poorly went through SAPs
During the 1970s, high commodity prices might have induced resource-abundant countries to use them as collateral
Then, the 1980s saw a fall in commodity prices, leading to a debt crisis faced by most of these countries.
Source: Manzano and Rigobon (2001), “Natural Resources or Debt Overhang?” NEBR Working Papers
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Market access and supply capacityMarket access and supply capacity
UNCTAD (2004)*: market access is key, but domestic supply capacity appears to have been a more limiting element of export performance in African, Middle Eastern and Latin American countries
OECD (2004) ABC Study**: important policy changes but a need to address the competitiveness agenda– Gains from economic integration could be higher if domestic
conditions improved
Apparel manufacturing: The unintended effects of preferential market access (textile rules of origin -> specialisation at the bottom end of the value chain)***
*M. Fugazza (2004), “Export Performance And Its Determinants: Supply And Demand Constraints,” Policy Issues In International Trade And Commodities Study Series No. 26
** A. Goldstein, The Dynamics of Foreign Direct Investment and A-B-C Competitiveness, chapter 3 in Trade and Competitiveness in Argentina, Brazil and Chile: Not as Easy as ABC
*** Bair and Dussel Peters(2005), “Global Commodity Chians and Endogenous Growth: Export Dynamism and Development in Mexico and Honduras,” World Development
15
11 Latin America: the challenge of diversificationLatin America: the challenge of diversification
Suspects: who’s to blame? Suspects: who’s to blame? 22
Country narratives: building new areas of CACountry narratives: building new areas of CA33
ConclusionsConclusions44
16
Brazil: Trade openness and the Brazil: Trade openness and the catching-up processcatching-up process
Successful Asian emerging countries were able to simultaneously combine growth with trade opening.
Brazil has recently started to open up its economy.
In 2005 the trade surplus reached a record USD 45 billion, an increase of 33% yoy (in spite of a 13% appreciation of the Real).
-1,0
-0,8
-0,6
-0,4
-0,2
0,0
0,2
0,4
0,6
0,8
1,0
0,0 0,2 0,4 0,6 0,8 1,0 1,2
Thailand Taiwan South Korea Japan India China
2001-04
1951-55
2001-04
1951-55
Trade openness and development
Real tradeopenness(as a % of GDP)
Dev
iation
ofRea
l GDP pe
rcap
ita with
resp
ectt
owor
ldav
erag
e(in
loga
rith
ms)
Source: BBVA using Penn World Tables and IMF data
1951-55
2001-04
0%
5%
10%
15%
20%
25%
30%
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Brazilian Real Trade Openness(as a % of GDP)
Source: BBVA
17
Within the 50 LATAM companies that had greater profits in 2004, 19 are Brazilian, with an average utility over sales of 18%. The average ratio of exports over total sales was 32%.
The 50 most profitable firms19
16
7
3
1 1 1 1 1
0
5
10
15
20
Brazil Mexico Chile Argentina Colombia Ecuador Panama Peru VenezuelaSource: America Economia 2005
Rk Firm Sector Exports04 (US$ Mill) % of sales % of sales
3 Petrobras Petroleum 6.728,7 16,5 11,212 Vale do Rio Doce Mining 2.433,5 23,5 30,632 Grupo Votorantim Holding 1.544,6 26,6 18,948 Usiminas Steel 1.137,3 24,7 9,121 Gerdau Steel 1.066,7 14,4 11,663 Gerdau Açominas Steel 935,6 24,5 22,440 Telesp Telecom 821,7 16,4 -66 CSN Steel 746,6 20,2 20,2
144 CST Steel 611,9 31,9 53,594 Cemig Electricity 521,7 19,4 -20 Electrobras Electricity 487,2 6,5 -62 Embraer Aerospace 473,1 12,3 86,952 Ambev-CBB Drinks 437,6 9,7 -
208 Aracruz Celulose Paper 402,5 31,3 61,8102 Balgo Mineira Steel 391,6 15,5 -143 Cosipa Steel 363,2 18,8 33,531 Telemar Norte Leste Telecom 345,5 5,9 -16 Odebrecht Holding 320,2 3,9 -
Utility
Source: America Economia 2005
Brazilian firms are beginning to increase activities overseas
18
Brazil: Embraer & tBrazil: Embraer & the aircraft cluster
Crucial role of public policy directed towards the lead firms
Location in a privileged FDI area attracting additional investments and 2nd-tier suppliers.
However, the local aeronautic SME remains weak
A. Goldstein (2005), “Lead Firms and Clusters in the North and in the South: A Comparison of the Aerospace Industry in Montreal and São José dos Campos” in E. Giuliani et al (eds) Clusters Facing Competition: The Importance of External Linkages, Editions Ashgate.
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Chile: Salmon, wine and copper – Chile: Salmon, wine and copper – more than commoditiesmore than commodities
Exports have changed to include more technology and added value in sectors linked to natural resources that utilize technology in novel ways
Government’s changing role in developing a world class export industry: from facilitator to regulator
Wine: in 1984, only 2 per cent of the total production volume was exported, 7 per cent in 1989, and in 63 per cent 2002.
Salmon: With $1.2 billion exported, Chile qualified as the world’s top exporter of farmed salmon in 2003. Chilean salmon farming only began in 1979 and salmon is not a species native to this country
Copper: from basic mining to a hi-tech cluster
20
Costa Rica: hi-tech success or new-Costa Rica: hi-tech success or new-economy enclave?economy enclave?
Considered as the most successful example of trade-FDI-led growth, thanks to a well managed development strategy to promote non-traditional exports (e.g. INTEL 1998)
Recently, some skepticism on the ability to create stronger linkages to the domestic economy and promote upgrading of domestic suppliers (enclave)
Challenges remain in improving firm-level capabilities and favouring linkage-formation
New opportunities emerging in the service sector (e.g. tourism)
Ciravegna and Giuliani (2005), “MNC-dominated clusters and the upgrading of domestic suppliers: the case of Costa Rican Electronics and Medical Device industries,”mimeo
21
11 Latin America: the challenge of diversificationLatin America: the challenge of diversification
Suspects: who’s to blame?Suspects: who’s to blame? 22
Country narratives: building new areas of CACountry narratives: building new areas of CA33
ConclusionsConclusions44
22
Some of the main challenges facing LATAM are to push forward the competitiveness agenda to boost productivity, diminish transaction costs and overcome inefficiencies.
Conclusions
Domestic reforms, coupled with market access in OECD and regionally have been fundamental for the emergence of new industries, often building on the natural resource wealth
Export sophistication remains low and the emergence of CHINDIA, pushing commodity prices up, could be a double-edged sword
Market niches are a moving target: a need to constantly adapt and improve/create new areas of competitive advantageSlow advancement in multilateral liberalisation would be detrimental for LATAM and, in any case, cannot be an excuse for delaying much-needed domestic reforms.
23
Thank youThank youfor your attention!for your attention!