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Economic Growth,
Productivity &
Competitiveness in
Suriname
What is to be Done?
Suriname is leaving its comparators behind
and has stronger policy buffers.
 Moving away from low growth/low income towards higher
growth/higher income.
 Coming out of the “most severe recession since the Great
Depression”, Suriname is better prepared to face external
shocks and has improved policy buffers:
– Lowered public debt and obtained prudent fiscal balance
– Increased foreign reserves and a stable exchange rate
– Decreased inflation
 Economic growth is high.
 Could things be better?
Economic growth is high but a worrying
history and falling behind ROSE
(rest of small economies i.e.
population less than 3 million).
Forward to the past
Falling behind ROSE
(in 2010 GDP pc is the same as in 1977)
Nominal GDP per capita (relative to Small Econ.)
Real GDP per capita
1.80
160
1.60
150
1.40
140
1.20
130
1.00
120
0.80
110
0.60
100
0.40
90
0.20
80
0.00
70
Old GDP series
2009
2005
2007
2001
2003
1997
1999
1993
1995
1989
1991
1985
1987
1981
1983
1977
1979
1973
1975
1971
60
CCB and OECS
Bahamas
Barbados
Jamaica
T&T
Suriname
Guyana
High growth but does the source of growth
matter?
 Economic growth equals inputs (investment & labour) plus
total factor productivity
 Total factor productivity, TFP, is a means of getting something
for nothing, i.e. economic growth over and beyond inputs
(labour and capital).
 Empirical cross-country evidence suggests that sustained high
growth is more based on TFP growth than input growth.
 Suriname’s recent economic growth is due more to inputs than
to total factor productivity.
Investment is not a problem relative to
ROSE
(ratios of gross capital formation to GDP)
3.5
ratio
3
CCB+OECS/ROSE
2.5
2
Suriname/rose
ROSE/ROSE
1.5
1
0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
0.5
Relative population growth, maybe?
1.20
ratio
CCB+OECS/ROSE
SUR/ROSE
ROSE
1.00
0.80
0.60
0.40
0.20
0.00
198219841986198819901992199419961998200020022004200620082010
But total factor productivity is a problem.
TFP has again begun to fall
Source: Kamau 2012
Relative TFP is increasingly lower
than comparators (less than unity)
Total factor productivity at the firm level is
low (negative).
Suriname’s firms
are
the
least
productive
(but
have a higher
dispersion) in the
Caribbean.
Source: Kamau 2012
. . . and labour productivity is lower than
ROSE.
Relative to ROSE at enterprise
level (sales per worker)
Country level (output per
employee per hour)
Small Econ.
WORLD
GRD
BH
BA
JA
Unknown/data
GY
CCB
TT
The Caribbean
CCB COMMODITY
KNA
LCA
OECS
VCT
DMA
Suriname
ATG
-0.2
0
0.2
0.4
Source: Enterprise survey 2010
0.6
0.8
1
1.2
Why is there low productivity?
Is competitiveness the problem?
A country’s international competitiveness is
typically measured by:

The Real Exchange Rate which in combination with domestic economic
policies achieve internal and external balance. An appreciation of the real
exchange rate is a loss while a depreciation an improvement in international
competitiveness.

Business Strategist approach is based on four interrelated factors: firm
strategy, structure and rivalry, demand conditions, related supporting
industries and factor conditions (e.g. skilled labour, capital and infrastructure).
The government is a facilitator encouraging firms to become competitive and
creating the environment that enables firms to increase productivity and
become competitive. Typically measured by the World Economic Forum Index
& Doing Business.

Technology and Innovation approach that is the introduction of new
products and technologies through joint ventures, new licencing agreements,
intra-firm organizational changes, and opening new plants, that is new-to-firm
innovation.
Competitiveness as measured by the real
exchange rate: not a problem.
The 20 percent devaluation in January
2011 is likely to have placed the current
exchange rate within the equilibrium
band.
The exchange rate is broadly in line
with medium-term macroeconomic
fundamentals
IMF Article IV 2012
International Competitiveness:
A Business Strategist approach
Not so competitive: large gaps relative to
ROSE (less than unity=worse)
Suriname & CCB vs Small Econ.: Competitiveness Indicators
Competitiveness (20112012)
1.00
Innovation &
sophistication
0.95
0.90
Basic requirements
0.85
0.80
0.75
Efficiency enhancers
0.70
Health & primary educ
Small Econ.
CCB
Suriname
Institutions
Infrastructure
Macroeconomic Env.
Shortfalls
in
practically all of the
competitiveness
dimensions except
health and primary
education.
Worse institutions relative to ROSE
opinions of business executives (less than unity=worse)
Diversion of public funds
Transparency of
government
policymaking
1.00
0.90
Public trust in politicians
0.80
Efficiency of legal
framework in challenging
regulations
Irregular payments and
bribes
0.70
0.60
0.50
Efficiency of legal
framework in settling
disputes
Judicial independence
Burden of government
regulation
Favoritism in decisions of
government officials
Wastefulness of
government spending
Small Econ.
The Caribbean
Suriname
Source: World Economic Forum 2012
Lower trust
and higher
unproductive
rent seeking
activities
relative to
ROSE.
Government services could be better for
business (relative to ROSE)
Ease of Doing Business (Costs)
Ease of Doing Business (Time)
Starting a Business Cost (ypc) ^
1.50
Starting a Business **
1.50
Resolving Insolvency
(y) *
Resolving Insolvency
(cpd)
Dealing with
Construction Permits *
1.25
1.00
0.50
Getting Electricity
0.25
Resolving Insolvency (%estate) ^
0.00
Registering Property*
* Suriname values exceeded axis (above 2.5)
** Suriname and Small economies had larger values
(22 and 2, respectively)
hpy = hours per year
y = years
0.50
Registering Property Cost (%pv)
0.25
0.00
Trading Across Borders
- Import
Trading Across Borders
- Export
1.00
Getting Electricity - Cost
(ypc)
0.75
0.75
Enforcing Contracts *
1.25
Paying Taxes (hpy)
Small Econ.
The Caribbean
Enforcing Contracts (%claim)
Trading Across Borders Import (US$pc)
Suriname
Source: Doing Business 2012, WB
^ Suriname values are 4.2 for the cost of
starting a business and and 1.96 for the
recovery rate
ypc = income per capita
Paying Taxes - (%profit)
Trading Across Borders Export (US$pc)
Small Econ.
The Caribbean
Complaints by formal sector businesses
(relative to ROSE)
Which are the obstacles to firms' operations?
Inadequately
educated
workforce
Labor
regulations
Suriname businessmen
complain more about:
Electricity
2.50
Telecommunica
tions
2.00
Transport
1.50
Customs and
trade
regulations*
1.00
Access to
finance
0.50
0.00
Practices of
competitors in
the informal…
Corruption
Political
instability
Access to land
Business
licensing and
permits**
Crime , theft
and disorder
Tax
administration
* Value for Suriname is 2.98
** Value for Suriname is 3.88
Quality of workforce
Small Econ.
Customs and trade
regulation,
Competition from informal
firms
Access to land
Crime and theft
Tax rates
The Caribbean
Suriname
Licensing and permits
Corruption
Access to finance
Source: Enterprise Survey 2010, formal firms
Example: no crime and theft: productivity
almost doubles
Obs
Mean
Std. Dev.
Skewness
Kurtosis
Productivity growth (original)
150
0.012
0.169
2.283
12.569
Productivity growth (Simulated)
150
0.020
0.167
2.240
12.507
Enterprise Survey 2010, formal firms
Macroeconomic Environment
Recently, Suriname had good luck, thanks
to gold.
Source: Kamau 2012
Luck could disappear, as in the past.
External shocks were worse (level & volatility) than ROSE.
25.0
20.0
Suriname
15.0
ROSE
10.0
5.0
-5.0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0.0
-10.0
-15.0
-20.0
External shocks. The combined effects of contemporaneous
external shocks include shocks to trade , remittances (remit),
direct foreign investment and service exports (xs)
What happens if luck runs out?
Positive: A 1 percent increase in the EU’s GDP
raises Suriname’s GDP initially by 0.011
percentage points, but the impact is only
temporary, and has hardly no effect after 8 years
Positive: A 1 percent increase in gold prices
raises Suriname’s real GDP by almost 0.04
percentage points, although the effect is
gradual (after 8-10 years), it is permanent.
But Suriname has good policy buffers so
can adopt countercyclical policy.
Current account and
Foreign Reserves
Fiscal and Debt
160
St. Kitts and Nevis
Reserves in
Months of 14
Imports
12
Debt to GDP (%)
140
Jamaica
Suriname
120
Guyana
Antigua and Barbuda
10
100
Grenada
Jamaica
Dominica
St. Vincent and the
Grenadines
St. Lucia
8
80
60
Barbados
Grenada
St. Vincent and the
Grenadines
Trinidad and
Tobago
40
The Bahamas
Dominica
Guyana
St.Kitts and Nevis
St.Lucia
Suriname
20
6
Bahamas
Barbados
Haiti
2
0
-12
-10
-8
-6
-4
-2
4
Belize
Antigua and Barbuda
0
0
Primary fiscal balance (% of GDP)
2
4
6
-35
-30
-25
-20
-15
-10
-5
Current Account (% of GDP)
0
5
10
What is to be done?
Maintaining a sound macroeconomic environment
Reform towards a level playing field
Active promotion of development
A sound macroeconomic environment
Keep her steady as she goes
Level playing field vs. active development
policy
Active development policy
“Countries seldom grow
rich by producing the
same
things
more
productively. They usually
change
what
they
produce. . .new economic
activities that are more
productive and thus are
able to pay higher wages.”
Haussmann and Klinger 2009
Level playing field
A level playing field with international
competitors: improve the quality of what
already exists
 Strengthen public institutions to obtain trust and to reduce
unproductive rent seeking.
 Improve public services by reducing cost and time of doing
business.
Through:
1.
2.
e-Government
Single Window/One Stop Shops, etc. decentralised
An active development policy
 Policies to encourage new-to-firm innovation; help jump short
distances to other products-processes
–
–
–
–
–
Tax breaks
Public-Private Partnerships
Innovation Funds
Match maker between local and foreign firms
Education and skills up to par with the needs of an innovative firm (in
industry/agriculture/services)
– Expand the percentage of Surinamese ideas that are bankable
– Facilitate economies of scale through clusters
– Create competitive districts
But, in Suriname we know very little about.
 New-to-firm innovation : what are the constraints?
 Beveridge curve, i.e. the match between the profile of labour
demanded and supplied today and tomorrow: education and
training?
 Household labour supply : what are the constraints?
 Reducing crime and under-employment by encouraging youth
business start up & training (between school and work)
However, at all costs, avoid wholesale
imported recipes! But, tailor policies for
Suriname. To do so:
 Eliminate information gaps to obtain evidence-based policy and
programs.
 Systematic, comprehensive public-private dialogue to
determine priorities and action plans.
 In both tasks, IDB could support the Suriname’s agenda:
– Finance surveys (labour market assessment, new-to-firm innovation
enterprise surveys, crime, etc.).
– Compete Caribbean to finance Suriname Business Forum (through the
Caribbean Growth Forum) to set up public-private civic working groups
to develop action plans followed by a second stage of support in
implementation.
– Other possible support discussed tomorrow.
Success in increasing productivity could lead to a
leap forward (by reaching productivity levels of ROSE)
Becoming a ROSE
21,000
US$20,209
19,000
Baseline
17,000
Suriname 1/2 Rose
GDP per capita ($US)
Suriname Full Rose
US$16,415
15,000
US$13,291
13,000
11,000
9,000
7,000
5,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
That is we should keep in mind that all of this does not mean
very much. . .
“. . . until the Surinamese can feel the
difference in their pockets.”
Desi Bouterse
[paraphrased]
July 2012