Supporting Industrial Development in LDCs:

1
Presentation on
Supporting Industrial Development in LDCs What
can we learn from assistance to ASEAN and recent
donor approaches?
February 29, 2004 Dhaka, Bangladesh
2
Contents

• Introduction
• Japanese Assistance in ASEAN
• Bangladesh compared with ASEAN
• Donor Approaches
• Alternatives for Discussion

3
Objective of the study

• To explore ways to promote industrial development
  in LDCs in the light of assistance to ASEAN
  countries.

4
Study Flow for Industrial Development
Recommend Potential Program for Industrial
Development
Study on Industrial Development in Bangladesh
Review on Japanese Experience in ASEAN
5
Premises

• Pro-poor approach needs to integrate more growth
  elements to break poverty trap.
• Strategic use of foreign aid can promote
  investment-trade nexus better.
• Good practice models in promoting industrial
  development in ASEAN countries can work if LDC
  factors are properly taken into account.

6
Mainstreaming investment trade in aid

• Doha Ministerial Conference (2001) Monterrey
  Conference on Financing for Development (2002).
• Poverty trap caught commodity exporters, but
  manufacturing and services exporting LDCs are
  better off
• Growth of ASEAN through FDI-trade nexus

7
Manufacturing services exports help
Share of LDC sub-groups in world exports of goods
and services, 19801999
UNCTAD, The Least Development Countries Report
2002
8
reduce poverty in LDCs
THE INCIDENCE OF POVERTY IN LDCS GROUPED
ACCORDING TO EXPORT SPECIALIZATION, 19811983,
19871989 AND 19971999 (Share of total
population)
UNCTAD, The Least Development Countries Report
2002
9
Japanese Assistance in ASEAN
10
Japanese Assistance in ASEAN

• ltBefore 1990sgt
• Focus on Building Economic Infrastructure
• Project Approach

• ltSince 1990sgt
• Focus on Institutional Building
• Program Approach

11
Japans assistance to ASEAN countries

• As the NO.1 donor more than a decade
• Seeking synergy between aid and investment-trade
  since 1987
• Leveraging economic infrastructure (physical to
  institutional)
• Investing in HRD in management and technical
  skills
• Paving a way to partnership thru South-South
  cooperation
• Building trust thru attention to implementation
  (how) and long-term commitment

12
Japans assistance to ASEAN new moves

• Working with ministers to design and implement
  coherent policy reforms
• Assisting throughout global value chain (GVC)
  from raw material to end-consumer market
• Making SME finance work with BDS and enabling
  credit environment
• Building government capacity to implement WTO
  agreements

13
The Bangladesh Model Committee

• Coordinate policies and actions among EoJ, JICA,
  JBIC and JETRO thru sector WGs linked to LCG WGs
• Concentrate resources in prioritized areas
• PSD is one of ten priority areas
• Development of physical and institutional
  infrastructure for investment and trade promotion
  is one of four objectives of the country
  assistance plan.

14
Japanese Assistance in ASEAN
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Case 1 Strengthening export promotion strategy
for SMEs

• Background
• The Indonesian government requested the Japanese
  government for assistance in strengthening
  Indonesia's export promotion strategy - urgently
  needed to overcome external debt problem caused
  by the Asian Financial Crisis.
• Outline of Project
• To recommend ways to improve the business
  environment for exports and identify new policy
  measures to promote exports by Indonesian SMEs in
  six target industries
• Period 1999-2000
• Stakeholders
• Japanese JICA, JETRO, JODC, AOTS
• Indonesian MOI, Export Promotion Agency, Bank of
  Export Indonesia,MOA, Chamber of Commerce

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Case Study 1 Export Promotion Strategy
Background
Asian Crisis

• Slowed down economic growth
• Increased external debt
• Weakened SMEs performance

Urgent needs to promote SMEs export
17
Case Study 1 Export Promotion Strategy
Focus on Marketing Strategy
18
Case Study 1 Export Promotion Strategy
Project Achievement

• Project Achievements
• The project assisted garment and furniture model
  exporters to successfully export to Japanese
  market.
• The project assisted the Indonesian Export
  Promotion Agency (IEPA) to reopen its overseas
  office in Japan.
• The project assisted to strengthen the linkage
  between IEPA and the Indonesian Trade Training
  Center.

19
Case Study 2 SME Development Program
Asian Crisis
Background

• Decreased market demand
• Deteriorated banking sector
• Decreased SME Finance
• Weakened SME Performance

Needs to reconstruct SME development policy
20
Case Study 2 SME Development Program
Comprehensive Approach
Policy and Institutions
SME Basic Law
SME Promotion Agency
Specialized SME Finance Institution
Certified SME Management Consultant System
Management
SMEs
Capital
Human Resource
Credit Guarantee Facility
SME Management University
Skills Technology
Internal Resource
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Case Study 2 SME Development Program
Project Achievement

• Intermediate Outcome
• Office of SME Promotion has been established.
• SME Basic Law was enacted.
• Credit Guarantee Facility was launched.
• Specialized Financial Institution has been
  restructured.
• Certified SME Management Consultant System has
  been considered to be introduced.

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Case 3 Vietnam SME Financial Access

• Background Constrains for SME Development
• Lack of credibility of SME
• Insufficient ability of Banking Sector
• Weak supporting system for SME
• Project Outline PPTA
• To formulate soft infrastructure for JBIC
  Two
• Step Loan for SME
• Period 2003
• Related Agencies
• Japanese JBIC, JICA
• Vietnamese State Bank of Vietnam, MPI

23
Case3 Scope of SME Financial Access Improvement
Project
Expansion of dynamic SME clusters
Achieve higher objectives when all the modules
work together
SME access to financing improved
Objective of Project
Conducive business environment (level playing
field)
SME policy framework
24
Case 3Hypothesis on BDS-FS Linkage
BDS provider
Recommends Financing for good SMEs
Consulting services
SME information
Information asymmetry
RESOLVED
FIs
SMEs
25
Bangladesh compared with ASEAN
26
ASEAN grew through FDI-trade nexus
World Bank, World Development Indicators 2003
27
The same is beginning in Bangladesh
World Bank, World Development Indicators 2003
28
compared to ASEAN and world
World Bank, World Development Indicators 2003
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Benefiting from preferential market access

• Besides US MFA, Bangladesh is benefiting from
• Japanese GSP
• Bangladesh represented 26 of the total LDC
  exports that received trade preferences. (2nd to
  Cambodias 26)
• Canadian GSP
• Bangladesh products account 40 of Canadian
  imports from LDCs.
• EU GSP
• Bangladesh products represent 82 of GSP
  receiving trade volumes.

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but Bangladeshs FDI level is very low

• UNCTAD ranked Bangladesh among lagging 20
  economies among of 140 countries
• 125th with inward FDI performance index (down
  from 104th of 1988-1990)
• 121th with inward FDI potential index (down from
  105th of 1988-1990)

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Some cost of doing business remains high
Enforcing Contracts - covers formality of
procedures and time to resolve a dispute
Duration (days)
Number of
Cost ( GNI Per capita)
Procedural
Region or Economy
Cost ( GNI per capita)
procedures
Complexity Index
Bangladesh
15
270
270.3
51
India
22
365
95
50
Nepal
24
350
44.2
63
Pakistan
30
365
45.8
53
Sri Lanka
17
440
7.6
59
South Asia
21
358
92.6
55
ASEAN 4
25
217
105.4
59
OECD High income
17
233
7.1
49
World Bank, Doing Business 2003
32
the same is true for local entrepreneurs
Starting a Business procedures to start a
business
Number of
Cost ( of GNI
Min. Capital ( of
Region or Economy
Duration (days)
Procedures
per capita)
GNI per capita)
Bangladesh
7
30
75.5
0.0
India
10
88
49.8
430.4
Nepal
8
25
191
0.0
Pakistan
10
22
46.8
0.0
Sri Lanka
8.0
58.0
18.3
0.0
South Asia
8
44
76.3
86.1
ASEAN4 average
9.8
75
18.3
78.0
OECD High income
7
30
10.2
61.2
World Bank, Doing Business 2003
33
Weak governance limits growth potential
World Bank, Governance Indicators 2002
34
Experience in ASEAN and LDC factors
35
Donor Approaches
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How can Japan fill PSD assistance gap?
List of Donor Assistance to PSD (Incomplete)
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Selected Donor Activities

• Export Trade Policy
• Export Diversification Project ( World Bank )
• SME Development and Export Expansion (ADB)
• Custom Administration Modernization
• The Automated System for Customs Data (ASYCUDA)
  Program ( UNCTAD, World Bank)
• Business Development Service and Training
• The Global Trade and Technology Network (USAID)
• Agro based Industries and Technology Development
  Project (USAID)
• Human Development Implication of MFA Phase out
  and Sustainable Policy Option (UNDP)
• Marketing Skills Development Scheme for the
  Leather Sector (UNDP Trust Fund IF, ITC)
• Bangladesh South Asia Enterprise Development
  Facility (EU)

38
Japanese ODA to Bangladesh (Billion Yen)
39
Sample projects supported by Japan

• Grant assistance to construct 5 small and medium
  bridges on Dhaka-Chittagong road (JPY2,800
  million)
• Concessional loan for power distribution and
  efficiency enhancement project (JPY4,376 million)
• Training in Sri Lanka on quality improvement of
  apparel products
• Experts in such areas as agro-processing, SMEs
  and ICT.

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Alternatives for Discussion
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Checkpoints for Industrial Promotion in LDC

• Reduce High Regulatory Costs
• Strategy driven industrial Development
• Strengthen the Success Stories
• Integrate related functions
• Looking at Global and Regional Market
• Government support for Private Sector
• Sustainability

42
DRAFT Potential Programs in Bangladesh

• FDI Promotion Program
• Export-oriented SME Development Program
• Overseas Bangladeshi Business Networking

• WHY?
• WHAT?
• WHEN?
• WHO?
• WHERE?
• HOW?

Discussion Points Today
43

• FDI Promotion Program

Program Components
Issues for FDI Promotion

• Procedural Impediments
• Political Impediments
• Administrative Impediments
• International Impediments
• Infrastructure

• Industrial Zone
• Capacity Building
• IT for Trade
• Marketing FDI

(Mr. Rahman BOI Chairman, Investment Seminar in
Tokyo, Feb.24, 2004)
44
2. Export-oriented SME Development Program
Program Components
Impediments for SME / Export

• Marketing for SME
• Training for Export
• SME Finance for Export
• Soft Infra for Finance
• TA for Trade Policy

• Export Marketing
• Trading Cost
• Regulation
• Administration
• Trade Framework

45
Concentrated FDI in Chittagong-Dhaka
(UPTO NOV 03)
EPZ UNIT INVESTMENT EXPORT EMPLY. (NAME) (NO)
(US IN M) (US IN M) (NO) CTG 118 403.58
4,846.05 82,699 DAK 65 276.54 2,764.77
47,310 MON 03 0.60 5.68
285 ISD 0 0.60 0
0 COM 04 1.98 3.56
1395 UTR 1 0.38 0
1,290 TOTAL 191 683.68 7,620.06
1,32,979
BEPZA
46
Job creation capacity differs across sectors
(UPTO NOV 03)
BEPZA
47
3. Overseas Bangladeshi Business Networking
Resource of Bangladesh
Program Components

• Connection Model
• Support system
• Capacity Building
• Sub-Sector Analysis

• Educated overseas
• Workers overseas
• Domestic Labour
• Network with Japanese

48
JICA assigned UFJ Institute for this Study
UFJ Institute UFJ Institute is one of Japans
largest research and consulting firms with
presence in Tokyo, Osaka, and Nagoya. UFJ
Institute provides specialized research and
consulting services for both public and private
organizations. 700 consultants and researchers
of UFJ Institute generated sales of more than \11
billion in fiscal year 2002.   UFJI development
consulting has focused on three domains
financial management, the development of small
and medium-sized enterprises, and public sector
reform. To deliver optimum results we can
provide consolidated packages that cover several
domains and sectors. We are also able to draw on
expertise from other divisions of UFJI. An
ever-adapting organization, we welcome enquiries
for services in new domains. Our major overseas
clients include multilateral financial
institutions such as the Asian Development Bank
and the World Bank, as well as the Japanese
overseas development assistance agencies such as
the Japan Bank for International Cooperation
(JBIC) and the Japan International Cooperation
Agency (JICA). and also the governments
receiving financial assistance from such aid
agencies. In addition, we extend our services to
support the private sector in the domains of
finance, trade, manufacturing and other service
sectors. Please visit http//www.ufji.co.jp/eng/d
cd/