THE PRIMACY OF INDUSTRY

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THE PRIMACY OF INDUSTRY

• Industry matters for MDGs (the role of industry
  in filling the gap between the required growth
  rate and actual growth rate)
• Industry-led growth makes a difference (e.g.,
  recent development experience of Tanzania)

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TWO SIMPLE QUESTIONS TO UNDERSTAND COMPLEX ISSUES
CONTAINED IN THE REPORT
1) What drives world trade? 2) Why some
countries are doing better than others?
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THE ROLE OF MANUFACTURED EXPORTS IN TOTAL EXPORTS
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THE ROLE OF MEDIUM- AND HIGH-TECH PRODUCTS
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KEY FOCUS OF THE REPORT DIFFERENCE BETWEEN
TECHNOLOGY AND SOPHISTICATION

• Low-, medium- and high-technology products
  (hardware)
• Organization, quality, design, logistics and
  marketing (software), leading to the production
  of sophisticated products across all segments of
  manufacturing

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U-SHAPED SPECIALIZATION, INDUSTRIAL DIVERSITY AND
GROSS DOMESTIC PRODUCT PER CAPITA WHAT YOU MAKE
MATTERS FOR BREAKING IN AND MOVING UP
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DIVERSIFYING PRODUCTION AND MOVING UP THE
PRODUCT SOPHISTICATION LADDER APPEAR TO BE
IMPORTANT DRIVERS OF DEVELOPMENT (PRODUCTION
SOPHISTICATION)
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DIVERSIFYING PRODUCTION AND MOVING UP THE
PRODUCT SOPHISTICATION LADDER APPEAR TO BE
IMPORTANT DRIVERS OF DEVELOPMENT (EXPORT
SOPHISTICATION)
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DIVERSIFICATION AND PRODUCT SOPHISTICATION KEY
FINDINGS

• China and India stand out. In 1975, both
  economies had structures of manufacturing
  production that were significantly more
  sophisticated than those associated with their
  level of per capita income.
• Among African countries, Kenya and Tanzania
  maintained production structures that were more
  sophisticated than their predicted income levels.
• If a country remains well below its predicted
  level of export sophistication according to its
  level of per capita income, the country fails to
  perform well at the export front despite high
  level of production sophistication at home.

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PICTURES TAKEN FROM AN ETHIOPIAN MANUFACTURING
UNIT PRODUCING SOPHISTICATED LEATHER PRODUCTS
TASK-BASED PRODUCTION OFFERS DEVELOPING COUNTRIES
THE SAME OPPORTUNITIES TO CLIMB THE MANUFACTURING
SOPHISTICATION LADDER
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PRODUCTION OF SOPHISTICATED PRODUCTS ACROSS ALL
MANUFACTURING SEGMENTS POSSIBLE AND PROFITABLE AS
EVIDENCED BY THE ETHIOPIAN EXPERIENCE IN
PRODUCING LEATHER PRODUCTS AND EXPORTING THEM TO
OECD COUNTRIES, WITH UNIDO TECHNICAL ASSISTANCE
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SOPHISTICATED LEATHER PRODUCTS MADE IN ETHIOPIA
AT AN INTERNATIONAL EXHIBITION IN NEW YORK
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UNIDO technical assistance enabled informal
manufacturers of leather products to break in and
move up.
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WHERE YOU MAKE MATTERS Agglomeration of firms
entails economies of scale external to firms and
internal to a group of firms.
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THE LOCATION OF MANUFACTURING PRODUCTION

• Agglomeration economies raise the productivity of
  firms in industrial clusters (an atypical trend
  in Ethiopia Clustering of firms producing
  differentiated products resulted in higher
  productivity growth)
• Clusters matter in low income countries

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THE LOCATION OF MANUFACTURING PRODUCTION CASE
STUDIES OF 10 DYNAMIC CLUSTERS SHOW THE RANGE AND
EXTENT OF AGGLOMERATION ECONOMIES AND DIFFERENT
SOURCES OF INDUSTRIAL DYNAMISM
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THE GROWING ROLE OF MANUFACTURED EXPORTS
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CHANGING DIMENSIONS OF MANUFACTURED EXPORTS

• Developing countries are increasing their market
  share of manufactured exports
• East Asia dominates manufactured export growth
• Export diversity and sophistication spur growth,
  especially in middle income countries
• Trade in tasks is growing

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THE GROWING ROLE OF EXPORTS DEVELOPING
COUNTRIES HAVE GAINED MARKET SHARE IN ALL
CATEGORIES OF MANUFACTURED EXPORTS, 2000-2005
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SOURCES OF GROWTH IN MANUFACTURED EXPORTS BY
REGION

• Growth in exports
• Growth in global demand
• Geographical shift in production
• Change in export propensity

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SOURCES OF GROWTH IN MANUFACTURED EXPORTS BY
REGION,1991-2005 (PERCENTAGE)
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THE GROWING ROLE OF MANUFACTURED EXPORTS
TASK-BASED TRADE HAS GROWN EVERYWHERE
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IMPLICATIONS FOR INDUSTRIAL DEVELOPMENT

• Is there room at the bottom to break in?
• How to reduce the pressure in the middle to move
  up?

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ROOM AT THE BOTTOM IN SLOW-GROWING LOW-INCOME
COUNTRIES

• Key challenge
• Products of the first and second generations of
  NICs and emerging economies
• Sense of optimism The role of China trade in
  tasks supportive policies in developed
  countries and
• leveraging agro-industries
• 120 innovative ideas were presented
• at the recent "UNIDO International Conference on
  Sharing Innovative
• Agribusiness Solutions, held
• in Cairo, Egypt.
• http//www.agribusiness-solutions.org/

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REDUCING THE PRESSURE IN THE MIDDLE TO MOVE UP

• Key challenge
• Failure to keep pace with the rapidly changing
  facets of processing, design and marketing
• Escaping the pressure
• Enhancing adaptive and technological capabilities
  and incremental learning
• Supporting the growth of dynamic exports
• Enhancing innovative capabilities to capture
  niche markets

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IMPLICATIONS FOR POLICY ACTION IN SLOW-GROWING
COUNTRIES

• Key issues High cost of production and doing
  business and low science and technological base
• Changing expenditure priorities and investment
  efforts on creating infrastructural base should
  not be eroded by unit costs (e.g., less
  kilometers of roads paved at high cost)
• Break public monopoly and encourage private
  sector competition in infrastructure provision
• Convince donors on the inclusion of industrial
  development as an integral part of poverty
  reduction strategy papers
• Implement trade logistics reforms

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THE POLICY SPACE (Continued)

• Exploiting the transformative role of IT (e.g.,
  India)
• Encouraging firms producing differentiated
  products to agglomerate
• Fostering effective public private partnership
• A success story of partnership in
• Nicaragua An apex body of eight
• cooperatives representing over
• 700 small milk-producing and
• processing units was established
• by UNIDO in 2000 337
• kilometres of new energy lines
• built by the government
• made a breakthrough in milk
• production and processing

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THE POLICY SPACE (Continued)

• Strengthening the science and technological base
  as well as innovation systems
• Regional economic cooperation for creating strong
  infrastructural base and facilities

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THE POLICY SPACE RESOURCE RICH COUNTRIES

• Difference between manufacturing profit and
  economic rent
• Policies for knowledge services and construction
• Linking it to manufacturing Investments to
  offset the impact of Dutch diseasethrough
  infrastructure and skillsoffer an important path
  towards an alternative export sector for those
  resource-rich countries

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POLICY IMPERATIVES FOR DEVELOPED COUNTRIES

• Why the rich countries should care?
• Closing the income gap
• Sustaining the NICE times
• Trade preferences
• Creating the Least Developed Manufacturing
  Countries
• A simple, time bound system with liberal rules of
  origin
• Aid for Trade
• Putting trade at the center of the development
  agenda
• Mobilizing additional resources and coordinating
  donor efforts

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POLICY IMPERATIVES FOR DEVELOPED COUNTRIES, Aid
for Trade (Continued)
Within a relatively short time (2000-2006), UNIDO
intervention, funded by Norway, managed to
establish seven internationally accredited
testing laboratories covering chemical testing,
microbiology testing, rubber/plastics testing and
food analysis, and thereby enabled the Sri Lankan
exporters to comply with international standards.

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RANKING COUNTRIES ON THE SCALE OF COMPETITIVE
INDUSTRIAL PERFORMANCE (CIP)

• The CIP index combines four
• main dimensions of industrial competitiveness
• Industrial capacity
• Manufactured export capacity
• Industrialization intensity
• Export quality

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CIP (continued)

• Six quantitative indicators are used to measure
  those four dimensions
• Industrial capacity MVA per capita
• Manufactured export capacity Manufactured export
  per capita
• Industrialization intensity share of
  manufacturing in GDP and the share of medium- and
  high-technology activities in MVA
• Export quality share of manufactured exports in
  total exports and the share of medium- and
  high-technology products in total exports

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CIP (continued)

• The combined indices for the four dimensions are
  simply calculated as the arithmetic mean of
  standardized values. The top country in the
  sample gets a 1 while the worst performing
  country gets a 0.
• Singapore tops the list.

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WHY DOES SINGAPORE TOP THE LIST OF 122 COUNTRIES
ON THE SCALE OF COMPETITIVE INDUSTRIAL
PERFORMANCE?

• 1) Effective national industrial innovation
  system
• 2) Enhanced domestic capability building
• 3) High level of functional literacy rate (high
  percentage of literatures with enhanced adaptive
  capabilities to use modern technology and device
  and to commercialize new knowledge)

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TWO FINAL POINTS TO PONDER

• The Report is not a doctrine.
• The Report is an analytical tool to rethink the
  long-term industrial development realities

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Thank You