Transcript International Trade as Engine of Growth

International Trade as Engine
of Growth
Uri Dadush
Director, International Trade Department
The World Bank
June 13, 2003
Outline
• Trade and foreign direct investment (FDI)
are important for Madagascar
• Global trends in trade and FDI, and how
Madagascar compares
• Policies and institutions important for trade
and FDI—lessons from Integrated
Framework
• Way forward for Madagascar
2
Why is trade important for Madagascar?
• Tap into global markets
– Madagascar is a small player in a large and increasingly
globalized world (world economy is almost 7000 times
the Madagascar economy, and almost 100 times all of
SSA together)
• Doha agenda
– “Development” now given center stage in multilateral
trade talks
– Technical assistance provided by developed countries
(under the Integrated Framework)
3
The role of foreign direct investment
(FDI) in trade
• Key role in trade in services
• Key role in setting up supply chains across
countries—an increasingly important feature
in global trade
• Madagascar needs much more FDI to sustain
exports and growth; this requires reforms
identified in IF
4
Trade has become more important in all regions
Trade (exports plus imports) as share of GDP (real)
60
50
40
30
20
10
0
Developed Developing Madagascar
AFR
EAP
89-91
99-01
ECA
LCR
MNA
SA
5
Developing countries as a group have
increased their share of the global market...
35
Share of developing countries
Percent30
25
20
15
10
5
0
1970
1975
1980
1985
1990
1995
6
..gaining share essentially in manufacturing..
Percent
US$ millions
35
30
2,000
Share of developing countries (lhs)
1,600
25
1,200
20
15
800
Agriculture
10
5
0
1970
400
Energy & other
Manufactures
0
1975
1980
1985
1990
1995
7
...but the poorest countries have fared badly
Increase in world market share, percentage points, 1991-99
Exports of non-energy goods
7
6
5
4
3
2
1
0
Middle income
countries
Other low income
Least developed
8
Poorest countries have failed to gain
world market shares..
• Continued dependency on agriculture and laborintensive manufactures, exports of which have not
kept pace with world trade growth because of:
– High tariffs in developed countries
– Tariff escalation in developed and developing countries
– Distorted global agricultural trade including high levels
of domestic support to agriculture
– Restrictions on textile and clothing exports
• Domestic supply constraints
– Border and “behind-the-border” barriers
9
Why does it matter? Integration with global
markets is associated with faster growth
Average annual per capita growth, 1980-99
3.5
3.0
Decreasing export
share in GDP
Increasing export
share in GDP
2.5
2.0
1.5
1.0
0.5
0.0
10
FDI to developing countries
(US$ billions)
FDI to developing countries
Global FDI
200
1600
150
1200
100
800
50
400
0
0
1991 1992 1993 1994 1995
1996 1997 1998 1999 2000 2001
Developing countries
Global total
11
Source: GDF 2002
FDI is increasingly important in
developing country economies
FDI as a share of GDP, in percent
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
Developing
Madagascar
AFR
EAP
1989-1991
ECA
LCR
MNA
SA
1999-2001
12
Significant trade liberalization over the
last decade
Average unweighted tariffs, in percent
70
60
50
40
1988-90
30
1998-00
20
10
0
High Income Developing
South Asia
Africa
Latin
America &
Caribbean
E.Asia
Middle East E.Europe &
& North Central Asia
Africa
13
Trade liberalization is not enough..(1)
• Requires supporting environment and
institutions:
– Sound governance
– Macroeconomic stability
• sound fiscal framework
• stable and competitive real exchange
rates
14
Trade liberalization is not enough..(2)
• Some governance issues in Madagascar:
– low capacity of the legal system to guarantee
contracts and effectively impose sanctions in
the event of litigation, constraining private
sector access to finance, inhibiting investments
and exports
– Excessive use of discretionary measures
resulting in unstable and unpredictable rules,
overlapping and contradictory legislation, all of
which discourage investment and trade
15
Remaining trade reform agenda
• Issues and lessons emerging from the
diagnostic studies under the Integrated
Framework:
–
–
–
–
Unfinished trade liberalization
Regionalism
Institutional capacity
Behind-the-border (customs, transport, other
infrastructure, supply chain logistics)
– Trade and poverty
16
Unfinished liberalization (1)
• Cascading tariffs resulting in high effective
protection
– Madagascar needs to reduce tariff dispersion;
most imports come in either at 5 percent or 30
percent (the minimum and maximum tariffs)
• Higher protection in agriculture and laborintensive manufacturing (in developed and
developing countries)
17
Unfinished liberalization (2)
• Incomplete services liberalization
• Trade in services becoming much more
important for developing countries
– Madagascar has high potential in trade in
information technology (data processing) and
tourism
18
Services liberalization
Services liberalization index
South Asia
East Asia
Middle East & Africa
Europe & Central Asia
Latin America
High Income
Financial
services
Middle East & Africa
Europe & Central Asia
South Asia
East Asia
Latin America
High-income
Telecoms
0
2
4
6
8
Greater competitiveness
10
19
Rising Regionalism (1)
• Proliferation of bilateral, regional and
preferential trading arrangements (RTAs)
• Generally inferior to multilateral free trade
although there could be benefits:
– Larger markets than otherwise
– Can help accelerate trade and investment
reforms (especially North-South arrangements)
20
Rising Regionalism (2)
• Benefits from preferential trade agreements
have sofar been limited (e.g. AGOA, EBA,
Cotonou)
– Often only small shares of LDC export baskets
eligible for preferences
– Complicated and administratively-burdensome
rules of origin requirements
21
Rising Regionalism (3)
• Madagascar—AGOA has complicated
customs services:
– nearly one-fourth of customs resources are
devoted to checking conformity of transactions
to the AGOA rules
– Special service employed by customs is
counterproductive, penalizing regular operators
and benefiting semi-illegal operators
– Physical inspection approaching 100 percent
and supplemented by “audits” of
manufacturers’ facilities to review
export/import documentation
22
Weak institutional capacity
• Policy-making capacity
• Public-private dialogue
– Governments need to work with industry associations and
producer groups
• Export support institutions (export promotion
agencies, duty drawback schemes, business
development services, etc.)
23
Key “behind-the-border” agenda (1)
• Customs
– Lengthy clearance times and weak risk
assessment capacities
– Informal fees
– In Madagascar
• recent improvements—adopting ASYCUDA and
expected adoption of preshipment inspection
• Serious problems remain—low use of information
technology; abuse of physical inspection, excessive
delays in customs clearance
24
Key “behind-the-border” agenda (2)
• High transport costs need to be addressed:
– Increasing domestic competition
– Revisiting airfreight policy and landing rights
– Dealing with intra-country corridor
arrangements
– Infrastructure investments
– For Madagascar
• transport costs for children’s clothes exported to
Paris are one-third higher than those from Sri Lanka
• reducing connection costs for information
technology sector would allow sector to boom
25
Trade and Poverty (1)
• Agricultural trade important for poverty reduction
– 77 percent of rural households live below $1 a day in
Madagascar
• External constraints to agricultural exports
– high protection and support of farmers in rich countries
reduce world prices
• Domestic constraints to agricultural exports
–
–
–
–
–
Transportation
Post-harvest marketing infrastructure
Water control infrastructure
Quality and standards
In Madagascar, government control of sugar and cotton
industries resulting in subsidies have negatively affected
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the agro-food sector
Trade and Poverty (2)
• Poor domestic market integration reduces
benefits of global integration to the poor
– Transportation bottlenecks
– Informal fees and internal check points
– Studies and experience of Malagasy companies
show that investments in basic infrastructure
increases economic output
27
Trade and Poverty (3)
• Need to strengthen social safety net
– Madagascar needs to restructure public
expenditures towards pro-poor expenditures—
social sectors and infrastructure
28
Way forward for Madagascar
• Anchor FDI in Export Processing Zone
– Particularly urgent in light of abolition of MFA in 2004
that reduces value of preferential schemes and hence
attractiveness of Madagascar as production base
– Requires customs reforms
• Restructure public expenditures towards pro-poor
expenditures (social sectors and infrastructure)
• Streamline legal and regulatory framework for firms
29