Sunday, April 25, 2010

Export competitiveness debate brings out key insights

By Brian Hatyoka [Times of Zambia]

THE export-led growth model is widely accepted as the optimal path to development for poor countries.

East Asia’s and especially China’s dramatic successes in both growth and poverty reduction are often cited as evidence.

In Sub-Saharan Africa, however, even if some countries had boosted their economic growth before the global crisis hit, most countries still struggle to improve their competitiveness.

Competitiveness is basically the ability of a firm or a nation to offer products and services that meet the quality standards of the local and world markets at prices that are competitive and provide adequate returns on resources employed or consumed in producing them.

The major exporting countries in the region, unlike those in Asia, continue to rely heavily on primary commodity exports, and remain exposed to adverse terms of trade shocks and severe export competitiveness constraints.

This growing divergence between Africa’s export competitiveness and the rest of the world largely explains the growing welfare and income gaps between sub-Saharan African countries and other parts of the world.

Failure in this area has left a legacy of persistent poverty and unemployment, which have dimmed the prospects for meeting the Millennium Development Goals (MDGs) in the region.

Some countries look to a policy shift to enhance economic diversification and export competitiveness to get Africa on a path to growth and income convergence with other regions.

To address the above important agenda, the World Bank Group last week sponsored a groundbreaking debate among world-class experts and African policymakers under the theme “The Meaning of Export Competitiveness in the African Context and how do countries achieve it in an uncertain world.”

Ghana was linked by multi-country videoconference to Washington, DC, and Ethiopia, Nigeria, Tanzania and Zambia.

The debate was the first of a series of “Development Debates” aimed at finding workable strategies for growth and development in a post-crisis global economy.

It was aimed at creating a space in which top analysts and policymakers candidly share their insights and practices with their peers, to present best practice knowledge to decision makers seeking strategies to deal with new challenges posted by the global crisis.

Zambian Commerce, Trade and Industry Minister Felix Mutati, who was one of the speakers during the multi-country videoconference, said Zambia is implementing policies aimed at promoting export competitiveness and diversification.

Mr Mutati said the key pillars included accelerating the regulatory reform process through the review of business licensing procedures as well as Zambia’s commitment to promoting economic diversification and enhancing market access.

He said export competitiveness is important for the predominant purpose of job creation and prosperity in the country.

“As Zambia, we are trying to address the domestic business environment by making it easier to do business in the country. We are looking at the whole range of 517 business licences across 87 different Acts.

“Our intention is to compress these licences. We are taking amendments to Parliament and will eliminate 170 licences. We are also undertaking labour reforms and issues of starting a business, transferring property to improve the business environment. We think these reforms are important and we are pushing harder on them,” Mr Mutati said.

The Government is unwavering in its commitment to promote economic diversification saying diversification would add value to export competitiveness.

Mr Mutati said Zambia was moving away from being a commodity exporter to focusing on other sectors such as non-traditional exports (NTEs).

“We are examining other key sectors of the economy such as agriculture, livestock and tourism by putting measures in place to ensure that they contribute well to the national economy,” he said.

Mr Mutati said NTEs in Zambia had grown by more than 100 per cent over the last three years.

He said the steady growth of NTEs recorded was significant for jobs and prosperity in the economy.

Zambia was also developing Multi-Facility Economic Zones (MFEZs) in various parts of the country to promote exports and creating jobs in Zambia.

On dealing with issues of market access, Mr Mutati said there was need to address transport costs which he said were adding to about 20 per cent of the overall cost.

The Zambian Government was working with co-operating partners and regional Governments to improve and expand regional transportation networks in an effort to improve export competitiveness.

The three regional economic communities namely the Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC) and Southern African Development Community (SADC) under the Tripartite Agreement, have undertaken to implement an extensive Aid for Trade programme encompassing transport, power and trade facilitation projects along the North-South Corridor (NSC) traversing eight countries in East and Southern Africa.

In 2009, Zambia hosted the NSC under which Development Partners agreed to provide over US$1.2 billion of funding to meet the costs of a comprehensive aid for trade and infrastructure programme to upgrade road, rail, and port and energy infrastructure.

Projects such as the Kazungula Bridge and the Nacala Corridor would also be undertaken as part of the NSC programme, which would improve cross-border infrastructure and reduce regional trading costs.

“Even if we have efficiency in Zambia and yet other surrounding countries have no efficiency, it would still be a problem to transport goods hence a regional strategy is the best one.

We are improving efficiency as a region. We launched the one-stop-border post (OSBP) initiative chaired in December 2009 and we feel such initiatives should be introduced in other border posts. It now takes two hours to clear goods at Chirundu Border from the previous seven days,” Mr Mutati said.

Zambia is part of COMESA and SADC hence it is much cheaper to trade in the region where there is a larger market of more than 400 million people.

“We have been urging our producers to trade with next door neighbors where there is easy access and simple rules of origin,” Mr Mutati said.

Zambia has also maintained a liberal exchange rate system for sometime now having come from a history of exchange controls.

“Policy consistency is important even when things are not okay. In Zambia, the investors are assured that there will be no deviation in policy. We don’t shift the policies even when things are not okay,” he said.

Contributing to the same debate, Weller Professor of Political Economy at Massachusetts Institute of Technology, Alice Amsden said every developing country that succeeded in the world market had diversified its business structure with proper structures such as Samsung.

Prof Amsden, who was appointed by United Nations secretary general (U.N) Ban Ki-Moon in 2009 to a three-year seat on the U.N Committee on Development Policy, noted that it was important as Africa to create such type of business structures as Samsung did and enhance diversification.

“To succeed in Africa, policies should build on Africa’s powerhouse of knowledge. Africa has to create a level playing field with those with knowledge,” Prof Amsden said.

Bailey Klinger, a post-doctoral fellow at the Centre for International Development at Harvard University said there was need to boost export diversification saying countries needed to improve their economic policies.

And Cadman Mills, who is an economic advisor to the president of Ghana defined competitiveness as the country’s ability to sell products in other countries or country at the same level or even better level.

Mr Mills said Ghana had an intense promotion of NTEs saying the current agenda was that of removing trade barriers.

He said there was need for African countries to build capacity to mitigate external shocks that affect the countries.

“We need to build capacity to enable our African exports compete on the global markets. Also, providing infrastructure will be critical. However, many export models may not work today due to protectionalism in some countries,” he said.

Dato Esa, an economist and a Malaysian national said her Government was supporting growth by providing infrastructure and stability in the economy.

“We ensure to get cheaper raw materials for our exports. On human resource, we have to train people so that they are capable of supporting the industry. We have to diversify and find new niches for exports,” she said.

Ms Esa said the Governments must have consistent policies that create confidence and stability in the economy.

She said governments should be prepared to manage various economic challenges that affect their economies.

“During good times, ensure macroeconomic fundamentals are strong and also ensure financial sector viability.

“We work with the private sector to achieve overall development plans. Competitiveness is a benchmarking exercise,” she said.

Ethiopian Minister of Trade, Haile Tadasse said it was important to have right economic policies and need to reform business to create favourable platform for business.

Mr Tadasse said competitiveness had to be addressed countrywide.
“If you don’t have a competitive economy, it is difficult to have competitive firms operating. Create competitiveness at a country level as well as at firm level. If a firm is to be competitive, you need to start with capacity building and ensure that it has appropriate technology,” the Minister said.

Some experts noted that the cost of fuel and electricity should be lowered going forward as a way of enhancing competitiveness.

There is need for Zambia and other countries to continue reducing the cost of doing business by reforming cumbersome licensing procedures as well as addressing poor infrastructure and high transport and communication costs to achieve desired diversification and export competitiveness.