ROLE OF NATIONAL GOVERNMENTS

BA 447 Day 5 & 6

Virgin of Guadalupe

statue made in China • Contrast three countries: what is the significance of the Virgin of Guadalupe statue being made in China – Mexico – China – Egypt • What makes one country succeed faster than another?

Chapter 10

• What are major conclusions?

• Assumptions?

• Your opinion?

Exercise

• As we go through each type of reform . . . • “wholesale” reform • “retail” reform • Let us know if your article is related . . .

– Brief description – Country – Your thoughts? questions?

Reform

• Macro-economic approach to reform – Privatization – Deregulate financial markets • Entry of foreign banks • Allow repatriation of foreign company earnings – Float currency – Encourage FDI – Shrink subsidies, force competition – Reduce tariff barriers – Flexible labor laws

IFC/WB prescription

• Simplify and deregulate, allow market forces to “manage” economy • Enhance property rights • Use ICT, including internet, to implement regulation. One benefit: reduces human interference and therefore corruption • Reduce court involvement • Continuous process • Lately, reduce corruption

Discussion

• Privatization: benefits, social issues – Example: Japan Post, Callao port (Peru) – Opportunities for global business • Shrink subsidies, reduce tariff barriers – Impact on domestic economy – Opportunities • Others?

Success stories

• Mexico to some extent, although he really forgets that 40% of the revenues of the Mexican government comes from oil • India, but is development limited to pockets?

• Reduction in poverty rates in China; however the numbers are still staggering – discuss numbers on p 315

Infrastructure issues

• Roads, bridges, electricity • Communications facilities • Access to computers and internet • Government issues: – Priorities • Availability of support industries, including educational facilities

Reforming regulatory institutions

• Sources of “rent” – Those who work within these agencies – Politicians, etc.

• Large, e.g. 11,000 employed in Philippine IRS • Person oriented rather than system • Find a way to “work” with the system

Reform “retail”

• Micro-enterprise development • Visit from Mercy Corps – Focus on facilitating enterprise in devastated areas – Reducing or removing bottlenecks, etc.

• Idea is to facilitate or encourage the formation of enterprises, which in turn creates jobs – Infrastructure – Regulatory institutions – Education – Culture

Reform “retail”

• How easy is it to start a business?

– Number of steps – Number of days, e.g. 168 days in Jakarta, 19 days in Panama, 2 days in Australia • Ability to hire and fire, e.g. more than a year in UAE, company usually lost under a particular Labor secretary in the Philippines • Enforce a contract, e.g. collection procedures, bribe sheriffs, etc.

Reform “retail”

• Get credit • Close a business

In class writing

• Would “reform wholesale and retail” have been sufficient for a country like China to be the manufacturing power house it is now?

Discussion

• Examples of how these governments actually work? – Egypt (based on student reports) – Mexico (based on student reports) – Additional notes on India – Myth of China, Inc.

– HongKong as Chinese economy evolved

Egypt

• 4.95% growth rate • Perceptions of corruption: state capture • WB/IFC ranking on ease of doing business – Hiring and firing workers: 165 th – Ease of doing business: worst among Middle east countries • Some hope: Egyptian Education Initiative, a partnership between public and private sector

Mexico

• Maquiladoras – Refers to a miller’s portion of flour as payment for grinding the wheat – Manufacturing plants along Mexico-US border • in general wholly owned by US corporations • exporting to the US • Started in the 1960s – By mid ’80s, 2 nd largest export next to oil – NAFTA (1994) accelerated this growth

Mexico

• Recession in 2000 affected growth • Attempt by Mexican government to induce relocation of these factories to south • 20% of maquiladoras closed around this period – A third relocated to china • 2006: China overtook Mexico as US second largest trading partner (next to Canada)

Mexico

• Oil remains a major export • New president wants to focus on tourism • Rules and regulations have changed at the expense of maquiladoras • Labor practices – – Child labor, long hours, hazardous conditions – Lack of regulatory protection – “a godsend to Mexico”, meaning jobs

India article

• Role of multinationals in pushing development of India outsourcing • Role of government – End regulation, e.g. satelite dishes require presence of government official – Allow foreign investment • Some evidence of overheating – Lack of infrastructure – Inflation pressures

Discussion

• Examples of how these governments actually work? – Egypt (based on student reports) – Mexico (based on student reports) – Additional notes on India – Myth of China, Inc.

– HongKong as Chinese economy evolved

Focus on China

• Prior to accession to WTO ’95 • 1970s: mechanisms to allow foreign investments - Foreign Invested Enterprises • 1980/1990s: Special Economic Zones – Shenzhen, Guangdong, Pudong • Initial request to enter GATT(WTO): 1986 • 1992: US – PROC Trade Agreement

Tank Man and Friedman

• Reconcile conclusions in Friedman with those in Tank Man – Role of the Berlin Wall? In relation to Tienamen Square and Tank Man – Reason for China opening up – Issues not raised or papered over in Friedman, for example, poverty? Freedom and justice?

• Implications for global business?

China Info

BBC News on China Reforms in China

Effect on HongKong

One of the first states to actively “export” manufacturing to China

Current HK facts and figures (I)

• Population = 7 million • Age structure: median age 39 – Under 15 (14%), 65+ (12%) • Male:female ratio = 921:1000 • Nationalities: 95% Chinese descent – Philippines 130,000; Indonesia 114,000; US 28,000; Canada 22,000; Australia 16,000; UK 13,000 • Religions mainly Buddhism and Taoism • Employment = 3.4 million • Average Wages = HK$10,797 (US$1400) per month • Unemployment rate = 4.4% • Economic growth = 6.8% • 98% = Small and Medium Enterprises (<50 Non manuf’g or <100 Manuf’g people)

Hong Kong’s History & Economic Milestones

1843 June 26 th Hong Kong declared British Crown Colony 1898 June 9 th Convention of Peking : Extension of the Hong Kong Territory Hong Kong declared a Free Port; healthy and active entrepôt 1841 - 1949 1950 – 1980 1978 – 1980 – Industrialization of Hong Kong PRC’s Open Door Policy De-industrialization 1997 June 30 th Expiration of 99 year lease and end of Colonial rule

1997 July 1 st

1997/1998

Establishment of Hong Kong Special Administrative Region, and reunification with China : One country, two systems

Set-back : Economic impact of the Asian Financial Crisis 2001 2003 Set-back : Economic impact of 9/11 Set-back : Severe Acute Respiratory Syndrome (SARS)

Foreign Exchange Regimes

African Global Competitiveness Initiative

From a presentation by Molly Loomis Andrew Stephens Mike Radic Brain Westerberg

Introduction

• U.S. Government spent over $19 Billion in Foreign Aid in 2004* • USAID is the primary agency to administer foreign aid – Managed $12.65 Billion in 2004* • Outline – USAID and AGCI in Kenya – 2 projects that are in progress – What the Kenyans think about aid – Conclusion: Is aid helping?

*Source: CRS Report for Congress, 2004

USAID

• Objectives Economic, agriculture and trade growth – Global health – Promoting democracy, conflict prevention – Humanitarian assistance

African Global Competitiveness Initiative

• Established 3 hubs throughout Sub Saharan Africa to increase trade competitiveness • $200 million, 5-year project • 2 main projects – Customs Software Interface – COMESA Regional Customs Transit Guarantee

Customs Software Interface

• Form trade relationships between border countries. • In 2005, telecommunications survey of customs border posts.

Lunga Lunga, Kenya

• • • • • 22 customs officers No landline No internet No computers Totally manual process

Revenue Authorities Digital Data Exchange

(RADDEx) • RADDEx Committee KRA and URA • Communication is key!

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Customs data will be communicated instantly from point of transit • Two tier approach

Transport Infrastructure

• Essential for economic and social growth – Improved transportation spreads knowledge and goods alike • Kenya is the key – Development of Infrastructure pivotal to region • Problems and Potential – Kenyan roadways – Mombasa Sea Port

COMESA Regional Transit Customs Guarantee

• Common Market of Eastern and Southern Africa – Made up of 18 African countries • Large area for foreign investment • Regional Transit Customs Guarantee – Focus on reducing security issues of goods in transit within COMESA

Summary of Ch 10

• Facilitate entry of “3 billion” into global economy by making countries more accessible to business • Macro-economic reforms • Reform “retail”