Creating a Competitive Rwanda Files/20070627_Rwanda_5d0cc… · 2007-06-27 · botswana namibia...

1 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt

This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage of Nations (The Free Press, 1990), “Building the Microeconomic Foundations of Competitiveness,” in The Global Competitiveness Report 2006 (World Economic Forum, 2006), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998), and ongoing research on clusters and competitiveness. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without the permission of Michael E. Porter.Further information on Professor Porter’s work and the Institute for Strategy and Competitiveness is available at www.isc.hbs.edu

Creating a Competitive Rwanda

Professor Michael E. PorterHarvard Business School

Kigali, RwandaJune 2007

http://www.isc.hbs.edu/


The Changing Nature of International Competition

• Fewer barriers to trade and investment• Rapidly increasing stock and diffusion of knowledge• Competitiveness upgrading in many countries

• Globalization of markets• Globalization of capital investment• Globalization of value chains• Increasing knowledge and skill intensity of competition• Value migrating to the service component of the value chain

Drivers

Market reaction

• Improving competitiveness is increasingly essential to Rwanda’s prosperity


$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

-4% -3% -2% -1% 0% 1% 2% 3% 4% 5% 6%

Prosperity Performance Selected Countries

Real PPP-adjusted GDP per Capita, 2006

Growth of Real GDP per Capita (PPP-adjusted), CAGR, 1998-2006Source: EIU (2007)

Botswana

South Africa

Gabon Namibia

Cape VerdeSwaziland

Mauritius

Chad

Angola (6.2%)

TanzaniaNigeria

Zimbabwe (-6.3%) Cote D’Ivoire

Eritrea TogoMalawi

LesothoGuinea

BurundiMadagascarKenya Rwanda

Cameroon

Ghana

Uganda, Zambia EthiopiaMozambique


Comparative Economic Performance Real GDP Growth Rates

-15%

-10%

-5%

0%

5%

10%

15%

20%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

ANGOLAMOZAMBIQUETANZANIANIGERIAETHIOPIAUGANDABURKINA FASOGHANACAPE VERDEMALAWIBOTSWANANAMIBIARWANDACONGO (BRAZZAVILLE)ZAMBIASOUTH AFRICASENEGALSAO TOME AND PRINCIPEKENYABENINTHE GAMBIACAMEROONMAURITIUSGUINEABURUNDILESOTHOTOGOSWAZILANDMADAGASCARERITREAGABONCOTE D'IVOIREZIMBABWE

Source: EIU (2007)

Countries sorted by 2001- 2006 annual real GDP growth rate (CAGR)Annual growth rate

of real GDP


Income Inequality Selected Countries

Gini Index

0

10

20

30

40

50

60

70

Haiti

Brazil

South

Africa

Chile

Argenti

naMex

icoMad

agas

car

China

Cote d'

Ivoire

Camero

onNige

riaUga

nda

Zambia

Burkina

Faso

Ghana

Maurita

niaBen

inTan

zania

Indon

esia

Ethiop

iaRwan

da

Note: Most recent Gini index data available for each country (1999 – 2003). Rwanda’s data is from 2000. Source: World Bank, World Development Indicators, 2007.


The Rwandan Economy in 2007

• Economic growth rates have rebounded strongly since 2003• Many areas of the Rwandan business environment have improved

(e.g., communications and IT, education) • Established clusters (coffee, tea, tourism) have performed well

However

• The global economic environment has been favorable• Rwanda’s growth rates are still moderate relative to peers• Numerous areas of the business environment need further

improvement• Strengthening the private sector and increasing public-private

collaboration is essential to achieving the next level of progress

• Rwanda must dramatically improve its competitiveness

720070511 AMP – Final 20070508 Copyright © 2007 Professor Michael E. Porter

• Competitiveness is determined by the productivity (value per unit of input) with which a nation uses its human, capital, and natural resources.

What is Competitiveness?

– Productivity depends on the prices that a nation’s products and services command (e.g. uniqueness, quality), not just on efficiency

– It is not what industries a nation competes in that matters for prosperity, but how it competes in those industries

– Productivity requires a combination of domestic and foreign firms operating in the nation

– The productivity of “local” or domestic industries is fundamental to competitiveness, not just that of traded industries

– Devaluation does not make a country more competitive

• Only business can create wealth

• Nations compete in offering the most productive environment for business

• The public and private sectors play different but interrelated roles in creating a productive economy

– Productivity sets a the standard of living (wages, returns on capital, returns on natural resources) that a nation can sustain


Enablers and Indicators of Competitiveness

Productivity

Competitiveness Environment

ExportsInbound

Foreign Direct Investment

Outbound Foreign Direct

Investment

Domestic Innovation

Domestic Investment


Foreign Inward Investment Stocks and Flows Selected Countries

Source: UNCTAD (2007)

0%

10%

20%

30%

40%

50%

60%

70%

0% 5% 10% 15% 20% 25% 30% 35% 40%

FDI Stocks as % of GDP, Average 2002 - 2005

FDI Inflows as % of Gross Fixed Capital Formation, Average 2002 - 2005

Rwanda

Cameroon

Zimbabwe

Kenya

Madagascar

Ethiopia

Ghana

Zambia

Eritrea

Lesotho

SwazilandMozambique

Namibia

Uganda

South Africa

Tanzania

Botswana

Malawi

Mauritius

Nigeria

Angola (94%, 80%)

LibyaNiger

IndiaAlgeria

Congo

Sudan

Mali

Gambia

Morocco

Uganda

EgyptBrazil

Russia

Tunisia

Australia

Canada

ChinaSenegal


Inward Foreign Investment Flows Rwanda, 1990 – 2005

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

$9.0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Note: Data not available for 1994. Source: UNCTAD (2007)

Inward Foreign Direct Investment,

$M


Investment Rates Selected Countries

0

5

10

15

20

25

30

35

40

45

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

ChinaSenegalGhanaIndiaZambiaNamibiaNigeriaMadagascarThe GambiaUgandaMozambiqueEthiopiaRwandaKenyaTanzaniaBotswanaSouth AfricaRussiaCameroonBrazilZimbabweBurundiMalawi

Gross Fixed Investment as % of GDP Sorted by 2006 Share

Source: EIU, 2007.


Determinants of Competitiveness

Microeconomic CompetitivenessMicroeconomic Competitiveness

Quality of the Quality of the BusinessBusiness

EnvironmentEnvironment

SophisticationSophisticationof Companyof Company

Operations andOperations andStrategyStrategy

Macroeconomic, Political, Legal, and Social ContextMacroeconomic, Political, Legal, and Social ContextMacroeconomic, Political, Legal, and Social Context

• A sound context creates the potential for competitiveness, but is not sufficient• Competitiveness ultimately depends on improving the microeconomic capability

of the economy and the sophistication of local competition

State of Cluster State of Cluster DevelopmentDevelopment


1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

MauritiusBotswanaSouth AfricaNamibiaUgandaMadagascarBrazilKenyaSenegalGhanaZambiaMozambique TanzaniaIndiaMalawiEthiopiaCameroonLesothoChinaRussiaMaliNigerMauritaniaEgyptNigeriaAlgeriaRwandaChadZimbabweLibya

Free

Index of Economic Freedom 1996 - 2007

Source: Index of Economic Freedom (2007), author’s analysis.


Context for Firm

Strategy and Rivalry

Context for Firm


Related and Supporting Industries


Factor(Input)

Conditions

Factor(Input)

ConditionsDemand

Conditions Demand

Conditions

Improving the Business Environment: The Diamond

• Successful economic development is a process of successive upgrading, in which the business environment improves to enable increasingly sophisticated ways of competing

Local demand with improving sophisticationLocal customer needs that anticipate those elsewhereUnusual local demand in specialized segments that can be served nationally and globally

Presence of high quality, specialized inputs available to firms

–Human resources–Capital resources–Physical infrastructure–Administrative infrastructure–Information infrastructure–Scientific and technological

infrastructure–Natural resource availability

Access to capable, locally based suppliersand firms in related fields

A local context and rules that encourage investment and productivity

–e.g., Intellectual property protection

Meritocratic incentive systems in businesses and other institutionsOpen and vigorous local competition

–e.g., Anti-monopoly laws, openness to imports


0

20

40

60

80

100

120

140

160

180

DoingBusiness

Starting aBusiness

EnforcingContracts

PayingTaxes

EmployingWorkers

Dealingwith

Licenses

RegisteringProperty

Closing aBusiness

ObtainingCredit

ProtectingInvestors

TradingAcrossBorders

Ease of Doing Business Rwanda

Ranking, 2006 (of 175 countries)

Source: World Bank Doing Business (2007)

Favorable Unfavorable

Rwanda’s GNI per capita rank: 168

Median Ranking, Sub-Saharan Africa


Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden

HotelsHotels

Attractions andActivities

e.g., theme parks, casinos, sports

Attractions andActivities

e.g., theme parks, casinos, sports

Airlines, Cruise Ships

Airlines, Cruise Ships

Travel agentsTravel agents Tour operatorsTour operators

RestaurantsRestaurants

Property Services Property Services

Maintenance Services

Maintenance Services

Government agenciese.g. Australian Tourism Commission,

Great Barrier Reef Authority

Government agenciese.g. Australian Tourism Commission,

Great Barrier Reef Authority

Educational Institutionse.g. James Cook University,

Cairns College of TAFE

Educational Institutionse.g. James Cook University,

Cairns College of TAFE

Industry Groupse.g. Queensland Tourism

Industry Council

Industry Groupse.g. Queensland Tourism

Industry Council

Food Suppliers

Food Suppliers

Public Relations & Market Research

Services

Public Relations & Market Research

Services

Enhancing Cluster Development Tourism Cluster in Cairns, Australia

Local retail, health care, and other services

Local retail, health care, and other services

Souvenirs, Duty Free

Souvenirs, Duty Free

Banks,Foreign

Exchange

Banks,Foreign

Exchange

Local Transportation

Local Transportation


$0

$50,000

$100,000

$150,000

$200,000

$250,00019

90

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

ValueMarket Share

The Kenyan Cut Flower Cluster Trade Performance

Kenyan Cut Flower Exports in thousand US $

Kenyan Cut Flower World Export Market Share

Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database.


Kenya’s Cut Flower Cluster

Sources: HBS student team research (2007) - Kusi Hornberger, Nick Ndiritu, Lalo Ponce-Brito, Melesse Tashu, Tijan Watt


National Cluster Export Portfolio Rwanda, 1997-2003

Change in Rwanda’s world export market share, 1997 – 2003Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics.

Rw

anda

’s w

orld

exp

ort m

arke

t sha

re, 2

003

0.000%

0.001%

0.002%

0.003%

0.004%

0.005%

0.006%

0.007%

0.008%

-0.004% -0.003% -0.002% -0.001% 0.000% 0.001% 0.002% 0.003% 0.004%

Change In Rwanda’s Overall World Export Share: 0.00%

Rwanda’s Average World Export Share: 0.0012%

Exports of US$10 Million =

Hospitality and Tourism

Automotive

Agricultural Products

Transportation and Logistics

Metal Mining and Manufacturing

Leather and Related Products

Processed FoodTextiles

Oil and Gas Products


Achieving Superior Company Performance

Differentiation(Higher Price)

Lower Cost

CompetitiveAdvantage

CompetitiveAdvantage


• Competing in a business involves performing a set of discrete activities, in which competitive advantage resides

Competitiveness and the Value Chain

SupportActivities

Marketing& Sales

(e.g. Sales Force,

Promotion, Advertising,

Proposal Writing, Web

site)

InboundLogistics

(e.g. Incoming Material

Storage, Data Collection,

Service, Customer Access)

Operations

(e.g. Assembly, Component Fabrication,

Branch Operations)

OutboundLogistics

(e.g. Order Processing,

Warehousing, Report

Preparation)

After-Sales Service

(e.g. Installation, Customer Support,

Complaint Resolution,

Repair)

Ma

rg

in

Primary Activities

Firm Infrastructure(e.g. Financing, Planning, Investor Relations)

Procurement(e.g. Components, Machinery, Advertising, Services)

Technology Development(e.g. Product Design, Testing, Process Design, Material Research, Market Research)

Human Resource Management(e.g. Recruiting, Training, Compensation System)

Value

What buyers are willing to pay


• Low cost fast food chicken tailored to the tastes and preferences of the Central American customer

• Low cost fast food chicken tailored to the tastes and preferences of the Central American customer

• Service with a “human touch,” including some table service

• Heavy and distinctive marketing and promotion – “An affordable treat for the whole family”– Frequent gimmicks and promotions, targeting

every member of the family – Strong civic pride and social awareness

• Emphasize high productivity in the labor force through incentives, education, and training

• Engineering department studies motion to improve restaurant efficiency

• Company-owned chicken farms to ensure high quality raw materials

• Service with a “human touch,” including some table service

• Heavy and distinctive marketing and promotion – “An affordable treat for the whole family”– Frequent gimmicks and promotions, targeting

every member of the family– Strong civic pride and social awareness

• Emphasize high productivity in the labor force through incentives, education, and training

• Engineering department studies motion to improve restaurant efficiency

• Company-owned chicken farms to ensure high quality raw materials

Strategic Positioning Pollo Campero, Guatemala

Value PropositionValue PropositionValue Proposition Set of Activities

Set of Set of ActivitiesActivities

• The low cost strategy expands the market• Pollo Campero competes effectively against U.S. fast food companies in

Central America through better understanding of local customer needs • Pollo Campero is penetrating the Latino segment in the U.S. West Coast

• The low cost strategy expands the market• Pollo Campero competes effectively against U.S. fast food companies in

Central America through better understanding of local customer needs• Pollo Campero is penetrating the Latino segment in the U.S. West Coast

Source: Condo, A. “Internationalization of Firms Based in Developing Countries.” Ph.D. dissertation, Harvard Business School, Boston, 2000.


Rwanda’s Role in the Neighborhood


• Coordinate macroeconomic policies

• Eliminate trade and investment barriers within the region

• Simplify and harmonize cross-border regulations and paperwork

• Harmonize environmental standards

• Harmonize product safety standards

• Establish reciprocal consumer protection laws

• Coordinate antimonopoly and fair competition policies

• Improve regional transportation infrastructure

• Create an efficient energy network

• Interconnect regional communications

• Link financial markets

• Facilitate the movement of students to enhance higher education

• Harmonize regulatory requirements for business

• Coordinate programs to improve public safety

• Coordinate development of cross-border clusters, e.g.

– Tourism

– Agribusiness

– Transport & Logistics

– Business services

• Share best practices in government operations

• Create regional institutions

– Dispute resolution mechanisms

– Regional development bank

• Develop a regional marketing strategy

Factor (Input)

Conditions

Factor Factor (Input)(Input)

ConditionsConditionsRegional

GovernanceRegional

GovernanceContext for


Context for Context for Strategy Strategy

and Rivalryand Rivalry



Demand ConditionsDemand Demand

ConditionsConditions

Regional Economic Coordination Illustrative Policy Areas


The Process of Economic Development Shifting Roles and Responsibilities

Old ModelOld Model

• Government drives economic development through policy decisions and incentives

• Government drives economic development through policy decisions and incentives

New ModelNew Model

• Economic development is a collaborative process involving government at multiple levels, the private sector, universities, research institutions, and business associations

• Economic development is a collaborative process involving government at multiple levels, the private sector, universities, research institutions, and business associations

• Competitiveness must become a bottom-up process in which many individuals, companies, clusters, and institutions take responsibility


Clusters and Economic Policy

ClustersClusters

Specialized Physical Infrastructure

Natural Resource Protection

Environmental Stewardship

Science and Technology Investments (e.g., centers, university departments, technology transfer)

Education and Workforce TrainingBusiness Attraction

Export Promotion

• Clusters provide a framework for organizing the implementation of public policy and public investments towards economic development

Standard settingMarket Information and Disclosure


Role of the Private Sector in Economic Development

• A company’s competitive advantage depends partly on the quality of the business environment

• A company gains advantages from being part of a cluster• Companies have a strong role to play in upgrading their business

environment

• Take an active role in upgrading the local infrastructure• Nurture local suppliers and attract foreign suppliers• Work closely with local educational and research institutions, to

upgrade their quality and address the cluster’s needs• Inform government on regulatory issues and constraints bearing on

cluster development• Focus corporate philanthropy on enhancing the local business

environment

• An important role for trade associations– Collaboration, cost sharing, and increasing influence


Rwanda’s Competitiveness Agenda

Business EnvironmentBusiness Environment

• Land use• Physical infrastructure

– Roads– Airport– Economic zones

• Energy– Renewable

• Urbanization outside of Kigali• Skills development• Capacity-building across institutions• Government efficiency and cross agency

coordination

Cluster DevelopmentCluster Development

• Activate a formal cluster development program led by the private sector

• Established clusters– Tea– Coffee– Tourism– Niche mining

• Emerging clusters– Construction and real estate,

logistics, silk, ICT services, horticulture

Private SectorPrivate Sector

• Engage the private sector in economic development

• Support cooperative private investment vehicles to jumpstart the private equity market

NeighborhoodNeighborhood

• Initiate actionable economic integration initiatives with each neighboring country

• Kenya represents an important potential strategic partner


Value PropositionValue Proposition

Defining a National Economic Strategy

Developing Unique StrengthsDeveloping Unique Strengths Achieving and Maintaining Parity with Peers

Achieving and Maintaining Parity with Peers

• What elements of context and the business environment become crucial priorities?

• What existing and emerging clusters should be developed first?

• What weaknesses must be addressed to achieve parity with peer countries?

• What is the unique competitive position of the nation given its location, legacy, and existing and potential strengths?

– What roles with neighbors, the region, and the broader world?

– What unique value as a business location?– For what types of activities and clusters?

Competitiveness cannot be achieved only by reducing weaknesses, but by building on existing and potential strengths


National Value Proposition

Creating Unique Strengths

Mitigating Weaknesses

Macro/political/legal/social e.g., Absence of corruption

National Diamonde.g., Singapore’s physical infrastructure

Cluster Developmente.g., Singapore’s logistical services, financial services, petrochemical processing, tourism

Company Capabilitiese.g., large number of world-class multinationals with regional headquarters and significant operations in Singapore

Geographic Levelse.g., Growth Triangle, ASEAN

Macro/political/legal/sociale.g., Expand cultural attractions

National Diamonde.g., Upgrade Singapore’s research institutions; improve the efficiency of Singaporean domestic economy

Cluster Developmente.g., Develop more Singaporean SMEs to deepen clusters; improve the number and quality of IFCs

Company Capabilitiese.g., build the capability of Singaporean companies and encourage regional strategies

Geographic Levels e.g., Create friendly relationships with ASEAN neighbors

National Economic Strategy Singapore

• What roles in regional and world economy? e.g., Business, financial, and knowledge hub of Southeast Asia

• What unique value as a business location? e.g., Highly efficient place to do business; access to skilled and hardworking staff

• For what range of clusters, activities within clusters? e.g., clusters benefiting from a business hub but not dependent on a large home market or physical proximity to markets


Some ImplicationsWhat is Unique about Rwanda?

Toward A Rwandan Economic Strategy

• Corruption-free• Stable with social progress• Secure• Clean• Responsive• Unique climate and growing

conditions• Central location on the African

continent• Growing position in tea, coffee,

tourism• Opportunity to lead the region in ICT

and services

• Rwanda must accelerate improvement of business infrastructure, the ease of doing business, and improve Kigali

• Rwanda should seize the opportunity to transform agriculture

• Rwanda is unlikely to be competitive in exporting bulky goods with low value-to-weight

• Air freight and services exports nullify Rwanda’s logistical disadvantages

• Rwanda must create a positive image for economic and social development

“Switzerland of Africa”

Creating a Competitive Rwanda Files/20070627_Rwanda_5d0cc… · 2007-06-27 · botswana namibia...

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