Transcript International Food Safety Regulation and Processed Food

Export Strategy:
Re-thinking the Basket of Exports
Premachandra Athukorala
Arndt-Corden Department of Economics
Crawford School of Public Policy
Australian National University
[email protected]
1
Structure
1.
Analytical framework:
Determinants of export performance and
the case for product specific policy focus
2. Recent export performance: a comparative overview
3
Potential basket of exports:
lessons from the East Asian experience
2
1.
Analytical framework
(a) Determinants of export performance
 World demand versus domestic-supply factors
 Consensus view based on the export experiences of developing
countries during the post-World War era:
World demand is, of course, an important determinant of exports
in the short-run, but in the medium to long-term, supply-related
factors play the dominant role in determining a country’s relative
export performance
World demand is not an engine, but simply a handmaiden of
export growth of a given country
3
 Supply side factors
(a) Macroeconomic policy
Determine international competitiveness (profitability) of
production of exports (and import-competing goods)
Key variables: exchange inflation, wages, and interest rates (each
adjusted for inflation differential between the given country and its
trading partners)
(b) Investment climate: stable enabling environment for the operation
of the private sector
‘Good institutions’: law and order, property-right protection,
political stability, policy certainty, openness to trade etc.
Particularly important for attracting export-oriented foreign
direct investment, which plays a pivotal role in the expansion of4
manufacturing exports (discuss below)
Institutions
‘Institutions are the humanly devised constraints that structure
human interaction. They are made up of formal constraints (e.g.
rules, laws, constitutions), informal constraints (e.g. norms of
behaviour, conventions, self-imposed codes of conduct), and
their enforcement characteristics. Together they define the
incentive structure of societies and specifically economies’
Douglass C. North (1994), ‘Economic
Performance Through Time’, American
Economic Review, 84(3), 359-368.
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(b)
Product-specific policy focus
(Microeconomic policies/ incentive policies)
Not a must, private entrepreneurs know better than policy
makers.
New export lines can emerge de novo if the macroeconomic house and the domestic investment environment
are in good shape.
(Examples from Sri Lanka)
6
(Continued from the previous slide)
but
can play an important supportive role , if
• The supply-side prerequisites (discussed above) are met
and
• Policies are designed by taking into account the country's
comparative advantage in international production and
changing patterns of international production and trade
(Discuss examples from Singapore, Malaysia and Thailand)
7
2. Recent export performance

A dramatic slow down of export growth (Figure 1),

Precipitous fall in Sri Lanka’s share in exports from developing
countries
Sri Lanka has failed to share in the ‘the great transformation of
world trade’ (Krugman 2008): the dramatic shift in manufacturing
exports from developed to developing countries
 So, Sri Lanka’s export problem is fundamentally ‘home grown’.
8
Figure 1: Sri Lanka: Exports and Imports as a
percentage of GDP, 1990-2012
50
45
40
35
30
25
20
15
10
Exports
Imports
5
0
9
Figure 2: Sri Lanka’s share in exports
from developing countries, 1990-2011
3.50
3.00
Non-oil exports
Manufacturing exports
Apparel exports
2.50
2.00
1.50
1.00
0.50
0.00
10
What are the possible reasons?
• Real exchange rate appreciation (Figure 3)
- Mirrors the growing domestic macroeconomic imbalances
•
Deterioration in the investment climate
- ‘Doing Business’ (World Bank) ranking has slightly
improved, but this capture solely the perception of existing
enterprises.
- Other indicators (eg Enabling Trade Index of World Trade
Forum, Country Risk Guide Index) , which are widely used by
investors in assessing country risk, have significantly deteriorated
- Export oriented FDI inflows have declined and a large
number of export-oriented foreign projects are no longer in 11
operation
0
2012Q2
2012Q1
2011Q4
2011Q3
2011Q2
2011Q1
2010Q4
2010Q3
2010Q2
2010Q1
2009Q4
2009Q3
2009Q2
2009Q1
2008Q4
2008Q3
2008Q2
2008Q1
2007Q4
2007Q3
2007Q2
2007Q1
2006Q4
2006Q3
2006Q2
2006Q1
2005Q4
2005Q3
2005Q2
2005Q1
2004Q4
2004Q3
2004Q2
2004Q1
Index, 2004 = 100
Figure 3: Sri Lanka: Real exchange rate
and its components, 2004Q1 – 2012Q4
140
120
100
80
60
40
Nominal effective exchnage rate (NEER)
Real effective exchnage rate (REER)
20
Relative price (RP=PW/PD)
12
• Has Sri Lanka run out of surplus labour?
Unemployment rate has decline: from 15.2% to 4.0% in 2012.
But, this is a deceptive indicator of labour market tightening, for two
reasons:
(a) Massive increase in public sector employment: from 900
thousand in 2005 to 1279 thousand (14% of the total labour
force!) in 2012
(b) Rapid increase in overseas employment
Total number of contract workers leaving the country
increased from 1078 thousand during 2003-07 to 1307 during 20082012.
The current stock of overseas migrant workers amounts to
over 14% of the total working age population .
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3.
Identification of the export basket:
lessons from the East Asian experience
Sri Lankan has performed relatively poorly in most (if not all
major product categories; so first we need to think about how
to regain growth dynamism of existing products (Table 1).
As regards expanding the export basket, the East Asia
experience suggests two vital addition:
(a)
(b)
Fitting into ‘global production sharing’ within
vertically integrated global industries (mostly in
machinery and transport equipment)
Processed food
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Table 1: Sri Lanka’s export composition (%)
Product
SITC code
1990-91
2000-01
2010-11
PRIMARY PRODUCTS
Food and live animal
Beverages and tobacco
Crude material except fuel
1-5 + 68
0
1
2
39.5
30.6
0.5
6.7
22.5
19.3
0.8
1.9
31.0
25.3
0.8
4.5
Mineral fuel, lubricants etc.
3
1.4
0.5
0.3
Animal and vegetable oils, facts and waxes 4
MANUFACTURING
5-8
0.2
57.0
0.1
76.2
0.1
68.3
Chemicals and related products
5
1.0
0.6
1.3
Manufacturing classified by material
Machinery and transport equipment
6-68
7
1.7
3.0
4.9
5.7
2.0
5.3
Miscellaneous manufactured articles
8
39.4
57.6
46.6
Apparel
84
36.5
51.9
42.1
Unclassified product
9
3.5
1.3
0.7
100
100
100
1950
5031
9158
US$ million
Source: Compiled from UN Comtrade database
15
Global production sharing
Tables 2 and Figure 3
Machinery and transport equipment (SITC 7) figure prominently
in world exports, and exports from East Asian countries.
The expansion of machinery and transport exports has been
driven by ‘global production sharing’
16
Table 2: Sri Lanka’s export composition in global context, 2010-11
(%) Manufacturing
Primary
products
Sri Lanka
2.0
5.3
Apparel
42.1
Misc. products
(excl. apparel) Total
68.3
1.3
17.6
78.0
12.8
32.3
17.2
6.0
9.6 100
China
3.8
96.1
5.9
16.6
49.2
8.3
16.1 100
Korea, Rep. of
2.7
96.7
11.7
14.7
60.3
0.4
9.7 100
Taiwan, China
3.1
101.7
9.9
18.6
59.5
4.3
3.4 100
Indonesia
51.0
47.8
6.8
16.3
14.2
5.1
5.4 100
Malaysia
19.6
79.6
7.8
11.0
49.5
2.4
8.9 100
Philippines
12.6
76.1
3.5
8.1
57.5
3.3
3.7 100
Singapore
3.3
86.7
14.6
4.7
58.9
0.4
8.1 100
Thailand
21.2
75.7
9.9
13.1
41.9
2.2
8.6 100
Vietnam
Developing
countries
28.0
71.3
3.1
12.5
19.8
15.3
20.6 100
11.9
86.3
7.7
15.4
46.6
5.1
World
14.3
80.3
12.9
15.3
39.5
2.8
11.0 100
17
9.8 100
India
31.0
Chemical
Products Machinery and
and related classified by
transport
Total
products
material
equipment
4.5
Global production sharing:
‘The break-up of the production process into geographically
separated stages’
It opens up opportunities for countries to specialise in different
slices (tasks) of the production process in line with their relative
cost advantage.
Alternative terms: International production fragmentation; vertical
specialization, Slicing the value chain , Offshoring (international
outsourcing
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Example: Apple iPhone
The entire world iPhone exports is recorded as exports from
China
and
iPhone imports to any country show up its trade data as imports
from China
but
in reality, iPhone is ‘assembled’ in China: it is a global, rather than
a Chinese, product
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China’s direct value added
3.6%
The bulk of parts and components come from:
Japan
35.1%
Korea
13.3%
Germany
17.5%
USA
6.3%
Other countries
24.2%
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Three phases in the global spread of
production networks
(1) two-way exchange between home and host country: parts and
component assembly/testing in the host country to be
incorporated in final assembly in the home country
(2) component assembly networks encompassing many host
countries (R&D, final assembly and head-quarter functions still
in the home country)
(3) Full-fledged production networks involving component
production/assembly/tenting and final assembly encompassing
host countries
( R&D and head-quarter functions are still predominantly in the
home country
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Product Coverage
First in electronics
and
then, spread into many other industries:
consumer electronics
electrical goods
machine tool
automobile
cameras and watches
pharmaceuticals,
bio-medical equipment
sola panels
light emitting diodes
22
Products within the category of machinery and transport
equipment are generally capital and technology intensive
(‘high-tech’ products)
But, under global production sharing, a given country specialises in a
slice (task) of the production value chain that suits its relative cost
advantages.
In a labour abundant economy, assembly activities within global
production networks tend to be relatively more labour intensive (and
hence ‘pro poor’) compared to conventional manufacturing (that is,
production of a good from start to finish in just one country).
The statisticians (economist!) who compile the export sophistication data
used in World Bank and IMF reports have missed this important point
23
(This error comes from the Harvard's Kennedy School)
• Global production sharing has been the prime mover of the
‘great transformation in world trade’ (mentioned before)
(Figure 3)
• ‘Network products’ (parts and components, and final
assembly figure prominently in the export strictures of East
Asian countries (Table 3).
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Figure 3: Developing countries’ share
in world manufacturing exports
50.0
45.0
40.0
Total manufacturing
Netwrok products
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
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Table 3: Share of network products in manufacturing
exports, 2009-10 (%)
Parts & components Final assembly
Total
Sri Lanka
Developing East Asia
China
Taiwan
3.5
38.5
20.5
44.7
0
24.7
36.8
20.9
3.5
63.2
57.3
65.6
Republic of Korea
43.2
25.5
68.7
ASEAN
59.2
10.1
69.2
Indonesia
Malaysia
The Philippines
Singapore
Thailand
Viet Nam
South Asia
India
Developed countries
Developing countries
World
19.5
65.5
71.2
49.5
44.5
12.03
8.1
10.4
25.2
35.2
28.2
18
13.2
16.3
18
21.4
7.5
4.2
3.7
23.6
18.4
23
37.5
78.7
87.5
67.5
65.9
19.5
12.3
14.1
48.8
53.6
51.2
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Global production sharing and export-led
industrialization
Global production sharing opens up new opportunities for countries
participation in a finer international division of labour, to
specialize in different slices (tasks) of the production process.
It defeats the fallacy of composition argument against export-led
industrialisation.
But, a country’s success in joining global production networks and
industrial advancement does not depend on the availability of
labour at relatively low wages alone.
(As already discussed, only a handful of developing countries
have gained significantly from global production sharing)
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To complement labour cost advantage, countries need to focus on:
•
Availability of middle-level (supervisory) technical manpower
• Lowering the cost of ‘service links’
Service link cost: cost involved in coordinating production blocks
located in various countries
28
Lowering the cost of ‘service links’
Service link cost in a given country depends on a whole
range of factors impacting on the overall investment environment:
(i)
Infrastructure and trade-related logistic
In addition to improved land connectivity, facilities for
speedy air transportation is vital for electronics and other
‘high value-to-weight’ products)
(ii)
political stability and policy certainty
29
(iii) Property right protection, including enforcement of contracts
(particularly important for entry into producer-drive production
networks)
(iv)
Concurrent liberalisation of trade and investment policy
regimes
MNEs are the key players in global production sharing (discussed)
-- the bulk of global production sharing takes place through intrafirm linkages rather than in an arms-length manner.
FDI and trade polices are co-determinants of the location choice of
MNEs within production networks.
30
Penang Case Study
Penang (Malaysia), a classic example of achieving export success
trough ‘plugging into’ global production networks
Athukorala, P. (2011), Growing by Global Production Sharing: The
Tale of Penang Export Hub, Geneva: International Trade
Centre/World Trade Organization.
http://crawford.anu.edu.au/acde/publications/publish/papers/wp2
011/wp_econ_2011_13.pdf]
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Evolution of the export hub
• 1971-1975
The arrival of ‘Eight Samurai’ (National Semiconductor (NS),
Intel, AMD, Osrum, Hewlett Packard, Bosch, Hitachi, Clarion) to
set up plants for component assembly
• Emergence of ancillary (supporting) industries
initially foreign vendors (mostly from Taiwan and Singapore)
Then, local vendors (Box 4: Eng Teknologi, Box 5: LKT
Industries (Athukorala 2011)
By the mid-1980s, an export cluster with a sizeable number of branch
plants of electronics and electrical MNEs and a network of
supporting firms was well established (‘silicon Island’)
• From the late 1980s: Production base
diversified with the entry of MNEs in consumer
electronics and consumer peripheral industries
• From about the mid-1990s: Further diversification of
product composition and structural changes in the last
decade or so
- some contraction of final assembly of consumer
electronics and electrical goods in face of competitive
pressure from China
- relocation in other low-cost countries of relatively more
labour intensive segments in hard disk drive, and
electronics parts and components production/assembly
industries
• a number of large electronics MNEs has shifted
regional head-quarter functions and some R&D
activities to Penang.
• MNEs in a number of new electronics–related
dynamic product lines have set up
production/assembly plants in Penang:
medical services and equipment
light emitting diodes (LED)
photovoltaic design and development
Outcomes
Penang now accounts for nearly 40% of total
manufactured goods exported from Malaysia
Export growth in recent years have largely been driven by
price increases rather than volume expansion
(Figure 4)
Figure 4: Manufactured Exports from Penang:
Vale (US$ million) (left scale) and share in Malaysian exports
50
45
45
40
40
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0
0
1995
1996
1997
1998
1999
2000
2001
Exports,US$ bns (left scale)
2002
2003
2004
2005
2006
2007
2008
2009
Share (%) (right scale)
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• Faster economic growth in Penang compared to the other states :
– Penang per capital income compared to the national average:
10% lower in the early 1970s
– 57% higher in 2010
Unemployment rate and Poverty rate have been much lower than
the national average over the past three decades
What explains Penang success?
• Focused investment promotion
• Effective personal involvement from the top level of
government
• Post-investment care (FDI promotion did not end at the
point of binging the investor into the country)
• Infrastructure development (an innovative ‘land bank)
• Vocational training and skill development (Penang Skill
Development centre)
• Fostering MNE-local firm links
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Processed Food
Importance of processed food as a dynamic export product line
for developing countries
Share of Processed Food in Total Food Exports
1990-81
2000/01
2010-01
Developed countries
42.5
63.5
70.3
Developing countries
40.5
55.7
62.5
Low-income countries
27.2
33.5
43.5
Middle-income countries
38.5
54.0
59.0
High-income countries
54.8
59.9
64.1
49.1
60.9
65.1
World
39
• Powerful forces on both demand and supply sides have
underpinned this development ( it is a structural change):
- ‘internationalisation’ of food habits
- advances in food technology, transport and refrigeration
facilities
40
Share of processed food (2010-11)
In Total food
exports
Thailand 75%
Vietnam 45%
Sri Lanka 17%
Total non-oil
merchandise
export
23%
27%
5%
41
The new export opportunities are important for growth and
poverty implications of agricultural trade in agricultural
resource-rich and labour abundant developing countries
Why?
(1) Terms of trade gains (high price and income elasticity of
demand)
(2) Employment generation
production
compared
manufacturing)
(greater labour intensity of
to
other
resource-based
(3) Balance of payments impact, or net addition to national
income (GNP) (high domestic input content)
42
(4) Spread effects on the rural economy
• Export success depends crucially on the ability to meet
sanitary and phyto-sanitary standards (SPS) standards.
• Foreign direct investment is vital for forging market links and
in meeting SPS standards
43