Transcript Brazil

Market access, export diversification &
industrial upgrading in LATAM
Javier Santiso
Chief Development Economist & Deputy Director
OECD Development Centre
T h e
M e r c o s u r
A n n u a l
Paris

C h a i r
S e m i n a r
March
6
2006
1
1
Latin America: the challenge of diversification
2
Suspects: who’s to blame?
3
Country narratives: building new areas of CA
4
Conclusions
2
0
Hong Kong
Japan
Taiwan
China
Germany
South Korea
Italy
US
Singapore
UK
France
Belgium
Malaysia
Mexico
Spain
80
India
Thailand
90
Canada
Netherlands
Indonesia
Brazil
Colombia
Peru
100
Argentina
Uruguay
Bolivia
Venezuela
Chile
Ecuador
Paraguay
Export structure in comparison
Exports of agricultural, energy and mineral products
(% of the total) (2003)
Latin America
70
60
50
40
30
20
10
Source: WTO
3
The challenge of diversification …
Share of processed exports then (1970) and now (2000)
A important role played by GSP, NAFTA & CBI… with some qualifications
Increased processing
Share of Processed X in Total (average 1996-2000)
100
DOM
90
HAI MEX
80
JAM
ELS
HND
70
BAH
SUR
BRB
BRZ
60
50
BOL
PER
ARG
CRI
TTB
CHL
GTM
NIC
CUB
UGY
40
VEN
30
BLZ
COL
20
PGY
ECU
GUY
Decreased process
10
0
0
10
20
30
40
50
60
70
80
90
100
Share of Processed X in Total (average 1966-1970)
Source: Bonaglia and Fukasaku (2003) “Export Diversification in low Income countries,” OECD Development Centre WP 209
4
What’s wrong with natural resources?
A boon or a curse?
 Sachs and Warner: countries
rich in natural resources
grow more slowly …
 … because of limited
linkages and spillovers,
lower skill content and
incentives to rent seeking
and corruption.
 More recent evidence is less
negative, e.g. World Bank
(2002) From natural
Source: Sachs and Warner (2001), “The Curse of Natural Resources,” European Economic Review
resources to the knowledge
economy - trade and job
quality
5
It’s not (only) what you have, it’s how
you use it …
Resource-Rich champions
 These are countries that built – in
different historical periods – their
growth on natural resources
(mineral, wood, agro, etc) …
 … managed to increase the
technological and scientific content
of resource-based clusters …
 … and developed new ones as well
as new areas of competitive
advantage (e.g. services).
 There are some encouraging
examples in LATAM as well …
 … but
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… Many resource-rich underachievers
Development Level of natural resource clusters in the Andean region (0=low, 10=high)
Country Cluster
Bolivia
Gas
Wood
Minerals
Soy
Colombia
Coffee
Flowers
Fruits
Ecuador
Bananas
Shrimp
Flowers
Oil
Peru
Asparagus
Fish Flower
Minerals
Venezuela
Aluminum
Iron
Oil
Exploitation
and Export,
minimum
processing
Processing and
export, import
substitutions and
public goods
delivery
Export of some
of the goods
and services
that are
substituted
10
10
10
10
0
7
4
8
0
2
4
4
0
2
0
2
10
10
10
8
10
10
8
10
8
4
5
1
10
10
10
6
10
9
5
3
2
2
2
2
2
2
2
2
10
10
10
9
5
2
1
3
1
8
2
7
10
10
10
0
5
8
0
4
5
0
1
5
Source: Manzano, 2006
Export of processed refined
products,
inputs, machines and services associated to
the cluster. The firms of the country
associated to the cluster start to invest
abroad
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… Gas, the unexploited potential
Where demand and supply don’t meet
Source: The Economist, “The explosive nature of gas”, Feb 9th 2006
8
In fact export sophistication remains
below benchmarks …
Source: Hausmann, Hwang and Rodrik (2005), “What You Export Matters,” mimeo
9
Even when looking at other resourcerich countries
Source: Hausmann, Hwang and Rodrik (2005), “What You Export Matters,” minmeo
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1
Latin America: the challenge of diversification
2
Suspects: who’s to blame?
3
Country narratives: building new areas of CA
4
Conclusions
11
Good News: The commodity boom has
been a bonanza
BBVA-MAP Index of Latin America commodity prices
Exports of commodities
over total exports (2004)
(100 =jan03)
170
160
150
140
Without oil
130
120
110
TOTAL
100
90
80
2005
2004
2003
2002
2001
2000
1999
1998
1997
60
1996
70
Venezuela
83.1%
Peru
70.7%
Chile
59.1%
Colombia
46.3%
Argentina
38.0%
Brazil
29.6%
Mexico
14.6%
Latam
31.2%
Source: BBVA
Source: BBVA
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Sad News: Capitalising on previous
bonanzas was not easy
 The debt overhang:
 Resource-rich countries that
performed poorly went
through SAPs
 During the 1970s, high
commodity prices might
have induced resourceabundant countries to use
them as collateral
 Then, the 1980s saw a fall
in commodity prices, leading
to a debt crisis faced by
most of these countries.
Source: Manzano and Rigobon (2001), “Natural Resources or Debt Overhang?” NEBR Working Papers
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Market access and supply capacity
 UNCTAD (2004)*: market access is key, but domestic supply capacity
appears to have been a more limiting element of export
performance in African, Middle Eastern and Latin American countries
 OECD (2004) ABC Study**: important policy changes but a need to
address the competitiveness agenda
– Gains from economic integration could be higher if domestic conditions
improved
 Apparel manufacturing: The unintended effects of preferential
market access (textile rules of origin -> specialisation at the bottom
end of the value chain)***
*M. Fugazza (2004), “Export Performance And Its Determinants: Supply And Demand Constraints,” Policy Issues In International Trade And
Commodities Study Series No. 26
** A. Goldstein, The Dynamics of Foreign Direct Investment and A-B-C Competitiveness, chapter 3 in Trade and Competitiveness in Argentina,
Brazil and Chile: Not as Easy as ABC
*** Bair and Dussel Peters(2005), “Global Commodity Chians and Endogenous Growth: Export Dynamism and Development in Mexico and
Honduras,” World Development
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1
Latin America: the challenge of diversification
2
Suspects: who’s to blame?
3
Country narratives: building new areas of CA
4
Conclusions
15
Deviation of Real GDP per capita with respect to world average
(in logarithms)
Brazil: Trade openness and the
catching-up process
Trade openness and development
1,0
0,8
Successful Asian emerging
countries were able to
simultaneously combine growth
with trade opening.
0,6
2001- 04
0,4
0,2
0,0
1951- 55
- 0,2
2001- 04
2001- 04
- 0,4
- 0,6
1951- 55
1951- 55
- 0,8
Thailand
- 1,0
0,0
0,2
Taiwan
0,4
South Korea
0,6
Japan
0,8
India
China
1,0
Real trade openness (as a % of GDP)
1,2
Brazil has recently started to
open up its economy.
Source: BBVA using Penn World Tables and IMF data
Brazilian Real Trade Openness
(as a % of GDP)
30%
25%
20%
15%
10%
In 2005 the trade surplus
reached a record USD 45 billion,
an increase of 33% yoy (in
spite of a 13% appreciation of
the Real).
5%
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
0%
Source: BBVA
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Brazilian firms are beginning to
increase activities overseas
The 50 most profitable firms
20
Rk
19
16
15
10
7
5
3
1
1
1
1
1
Panama
Peru
Venezuela
3
12
32
48
21
63
40
66
144
94
20
62
52
208
102
143
31
16
Firm
Sector
Petrobras
Petroleum
Vale do Rio Doce
Mining
Grupo Votorantim
Holding
Usiminas
Steel
Gerdau
Steel
Gerdau Açominas
Steel
Telesp
Telecom
CSN
Steel
CST
Steel
Cemig
Electricity
Electrobras
Electricity
Embraer
Aerospace
Ambev-CBB
Drinks
Aracruz Celulose
Paper
Balgo Mineira
Steel
Cosipa
Steel
Telemar Norte Leste Telecom
Odebrecht
Holding
Utility
Exports
04 (US$ Mill) % of sales % of sales
6.728,7
16,5
11,2
2.433,5
23,5
30,6
1.544,6
26,6
18,9
1.137,3
24,7
9,1
1.066,7
14,4
11,6
935,6
24,5
22,4
821,7
16,4
746,6
20,2
20,2
611,9
31,9
53,5
521,7
19,4
487,2
6,5
473,1
12,3
86,9
437,6
9,7
402,5
31,3
61,8
391,6
15,5
363,2
18,8
33,5
345,5
5,9
320,2
3,9
-
0
Brazil
Mexico
Chile
Source: America Economia 2005
Argentina Colombia Ecuador
Source: America Economia 2005
Within the 50 LATAM companies that had greater profits in 2004, 19 are
Brazilian, with an average utility over sales of 18%. The average ratio of
exports over total sales was 32%.
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Brazil: Embraer & the aircraft cluster
 Crucial role of public policy directed
towards the lead firms
 Location in a privileged FDI area
attracting additional investments and
2nd-tier suppliers.
 However, the local aeronautic SME
remains weak
A. Goldstein (2005), “Lead Firms and Clusters in the North and in the South: A Comparison of the Aerospace Industry in Montreal and
São José dos Campos” in E. Giuliani et al (eds) Clusters Facing Competition: The Importance of External Linkages, Editions Ashgate.
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Chile: Salmon, wine and copper – more
than commodities
 Exports have changed to include more technology
and added value in sectors linked to natural resources
that utilize technology in novel ways
 Government’s changing role in developing a world
class export industry: from facilitator to regulator
 Wine: in 1984, only 2 per cent of the total production
volume was exported, 7 per cent in 1989, and in 63
per cent 2002.
 Salmon: With $1.2 billion exported, Chile qualified as
the world’s top exporter of farmed salmon in 2003.
Chilean salmon farming only began in 1979 and
salmon is not a species native to this country
 Copper: from basic mining to a hi-tech cluster
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Costa Rica: hi-tech success or neweconomy enclave?
 Considered as the most successful example
of trade-FDI-led growth, thanks to a well
managed development strategy to promote
non-traditional exports (e.g. INTEL 1998)
 Recently, some skepticism on the ability to
create stronger linkages to the domestic
economy and promote upgrading of
domestic suppliers (enclave)
 Challenges remain in improving firm-level
capabilities and favouring linkage-formation
 New opportunities emerging in the service
sector (e.g. tourism)
Ciravegna and Giuliani (2005), “MNC-dominated clusters and the upgrading of domestic suppliers: the case of Costa Rican Electronics
and Medical Device industries,”mimeo
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1
Latin America: the challenge of diversification
2
Suspects: who’s to blame?
3
Country narratives: building new areas of CA
4
Conclusions
21
Conclusions
Some of the main challenges facing LATAM are to push
forward the competitiveness agenda to boost productivity,
diminish transaction costs and overcome inefficiencies.
Domestic reforms, coupled with market access in OECD and
regionally have been fundamental for the emergence of new
industries, often building on the natural resource wealth
Export sophistication remains low and the emergence of
CHINDIA, pushing commodity prices up, could be a doubleedged sword
Market niches are a moving target: a need to constantly
adapt and improve/create new areas of competitive
advantage
Slow advancement in multilateral liberalisation would be
detrimental for LATAM and, in any case, cannot be an excuse
for delaying much-needed domestic reforms.
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Thank you
for your attention!
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