Trade increases with reduction in transactions time

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Moving to Competitiveness A Value Chain Approach
Uma Subramanian
May 30, 2007Berlin
IFC- The World Bank
2
Competitiveness f (Input Costs, Trans. Costs,
Productivity, Market access, e) Results
expected . Jobs created . Share of market .
Investment generated

• Sound policies and institutions governing product
  and factor markets are critical for
  competitiveness
• Product market trade policy, competition, price
  distortions, licensing, standards, property
  rights, logistics
• Factor market wages, labor market rigidities,
  capital charges, utility price/quality, land
  market issues

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How does a Value Chain Analysis Help?

• The sectoral lens helps trigger a more
  comprehensive reform process
• Prioritization is key to being effective
  Through benchmarking performance indicators with
  global competition and best practices, helps
  identify priorities
• Gets at priority issues specific to sectors as
  well as economy wide issues.
• Provides a concrete data based policy agenda for
  public and private sector in addition to the more
  traditional market related agenda.

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T-Shirt Value Chain Kenya and Honduras Compared
SOURCE
MAKE
DELIVER
Outbound Logistics
Labor Cost /T-Shirt
Overheads
Raw Material Costs
FOB Cost Per T-Shirt
Import Dependence
Utilities
Kenya
65
2.30
0.28
0.40
3.60
0.05
0.57
Honduras
80
0.80
0.16
0.06
0.25
1.30
0.03
High Tariffs Honduras 9.5 Kenya
17.5 Impact of Rules of Origin Exacerbated by
location and therefore transportation
costs High Cost of Import Logistics Honduras
670 / TEU Kenya 2325 /TEU Total
Import Logistics Time Honduras 39 days Kenya
45 days
Lower Wages Offset by Lower Labor
Productivity Honduras 12.00/ labor day Kenya
9.40/ labor day Honduras 45-50
shirts/day Kenya 20-25 shirts/day Nominal
Interest Rates Honduras 18.8 Kenya
12.9 Electricity Charges Honduras 3.5 cents/
kwh (IEA) Kenya 6 cents/ kwh (IEA)
Speed to Market Honduras lt15 days Kenya gt 30
days High cost of Export Logistics Honduras
500/TEU Kenya 1980/TEU High Incidence
of Rejects Honduras lt1 Kenya gt3
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How does a Value Chain Analysis Help?

• The sectoral lens helps trigger a more
  comprehensive reform process
• Prioritization is key to being effective
  Through benchmarking performance indicators with
  global competition and best practices, helps
  identify priorities
• Gets at priority issues specific to sectors as
  well as economy wide issues.
• Provides a concrete data based policy agenda for
  public and private sector in addition to the more
  traditional market related agenda.

6
Action Agenda
7

• Thank you!

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Example of Potential Implementation Projects
following a Value Chain Project
DOWNSTREAM PROJECTS
BUSINESS ENABLING ENVIRONMENT/ FIAS
WORLD BANK/ IFC

• Trade policy (tariffs,
• agreements)
• Infrastructure
• Labor policy
• Innovation
• Governance
• Land Policy

• Lending
• Investments

• Industry Specific Licensing
• Product Quality Standards
• Taxes
• Trade Logistics
• CSR (Labor or Env. Standards
• FDI Promotion
• Competition Policy
• Investment Law
• Land Admin. barriers

• Linkages
• Firm level/ bus. Assoc.
• Capacity Building

IFC / Facilities