1 / 27

Can Africa Make an Export Push?

Can Africa Make an Export Push?. Topic 2: Some New Developments in International Trade National Graduate Institute For Policy Studies IDPTP Fall 2012 John Page. The Challenge of Breaking In. New entrants to global markets are competing with Asia A window of opportunity?

booth
Download Presentation

Can Africa Make an Export Push?

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Can Africa Make an Export Push? Topic 2: Some New Developments in International Trade National Graduate Institute For Policy Studies IDPTP Fall 2012 John Page

  2. The Challenge of Breaking In • New entrants to global markets are competing with Asia • A window of opportunity? • Rising costs in Asia • Growing domestic demand in Asia • Industry no longer need smokestacks • But Africa is beginning from a really low base

  3. “Out of Africa”:Manufacturing export capacity has moved out Decomposition of Changes in Manufactured Exports, 1985-2005 • Notes:[x] Change in Export intensity. [x] Change in global production [x]Change in global demand • Africa data excludes South Africa. • Source: UNIDO industrial development database (2008). Author’s calculations

  4. There’s a big export gap…

  5. And It’s not closing…

  6. Can Africa Break In? • A “naive” Ricardian view: • Productivity is too low and wages are too high • What does this do to unit labor costs? • Are there any “easy fixes” • But what would a “structuralist” interested in firms say to this? • Sector and firm specificity are important determinants of comparative advantage • And what do the data show?

  7. What do we know about labor productivity in Africa?It’s not “exceptionally” lowLabor productivity per worker

  8. Can Africa Break In?Trade in Tasks • There is the potential for task based exports • Imported intermediates grew from 20 percent of total intermediate inputs 1986-1990to almost 50 percent in 1996-2000. • A chance for a foothold, but many low wage economies have not attracted task-based production

  9. Intermediates in Production

  10. Unfortunately… • Most imported intermediates were destined for domestic production • A brief surge of final assembly exports has faltered • Overseas Chinese investment in Lesotho, Madagascar and Swaziland under AGOA • US imports of clothing from AGOA countries increased from $730 million in 2000 to $1755 million in 2004 • A severe decline occurred with the end of the MFA • A ray of hope? Not all task based production has exited: garment exports still remained above 2000 levels.

  11. Policies for Export Development • Conventional Wisdom: reform trade policy and fix the “investment climate” • Trade policy reform • Regulatory reform • Infrastructure and skills • Less Conventional Wisdom: Africa needs an “export push” • Tilting incentives toward exporters • Removing the obstacles to export

  12. Why Do Economists Always Focus Fist on Trade Policy Reforms? • Import tariffs tax consumers, but they also tax exporters! • A simple way to see this is through “effective protection”: • [Value Added at Domestic Prices/Value Added at World Prices] – 1 • Why the focus on “value added”? • Why the use of world prices

  13. What do we learn from effective protection? • As Bill Clinton would say: “it’s arithmetic”. • A key assumption: PD = PW (1 + t) R • Where t is the tariff rate and R is the exchange rate • Three simple examples (with R=1): • Making an import substitute with a 20 % duty and 25 % value added. [1.20-0.75]/[1.0-0.75] -1 = 80 % protection to value added. • An exporter of the same product with no duty and 25% value added. [1.0-0.75]/[1.0-0.75] -1 = 0 % protection to value added. • An exporter who pays 20 percent duty on imported inputs (and gets no subsidy to output) with 25% value added. [1.0-(0.75x1.20)]/[1.0-0.75] -1 = -60 % protection to value added • Which business would you rather be in?

  14. But is trade policy the villain of the piece? • Since the “structural adjustment” period tariffs and non trade barriers for Africa have come down to levels similar to other developing countries • There is little difference between effective protection rates in Africa and Asia • But a big difference in export performance! • So, trade policy is important but not the only part of the story…

  15. Priorities for Regulatory Reform • Port transit times are longand delays common (and interest groups may not want a solution!) • Customs delays on both imported inputs and exports are significantly longer for African economies than for Asian competitors. • Export procedures—including certificates of origin, quality and sanitary certification—can are burdensome. • Duty drawback, tariff exemption and VAT reimbursement schemes are often complex and poorly administered • Perishable exports (horticulture/cut flowers) are particularly sensitive to delays in shipping caused by inefficient or corrupt inspection procedures at airports • The aviation industry is heavily protected resulting in high air freight costs and limiting tourism

  16. Closing the infrastructure gap • Firm level studies in Africa highlight infrastructure deficiencies as a significant constraint • Africa lags at least 20 percentage points behind the average for low income countries on almost all major infrastructure measures • Donors are part of the problem: ODA for economic infrastructure has declined as a share of aid since the 1970s • But if infrastructure cannot be built everywhere at the same time, where should it be focused?

  17. Closing the skills gap • Between 1990 and 2005: • East Asia secondary enrollment rates increased by 21 percentage points, Africa 7. • East Asia tertiary enrollment rates increased by 13 percentage points; Africa 1 • The skills gap poses a major constraint to export development • Higher education is linked to export performance (especially for African business owners) • It is also linked to export sophistication • Again, the donors are part of the problem: A new education MDG is needed.

  18. Tilting Incentives to Exporters • If there is “something special” about exports (learning by exporting) there is a good public policy argument for subsidizing exports. • What’s special? • All exports and exporters (vacasturisticas)? • What would be the “optimal” subsidy? • Isn’t tilting toward exporters just trying to “pick winners”?

  19. Tilting Incentives to Exporters • The debate about “picking winners” misses the point: governments make industrial policy on a daily basis via the budget, regulations and trade policy. • The issue is: do these decisions have a strategic focus? • In Africa they frequently do not. • A first step: focus “investment climate” reforms on export promotion

  20. Tilting Incentives to Exporters • Export subsidies • They worked in East Asia (color TVs in Korea) • But are a no, no under the WTO • Exchange Rate Protection • Maintaining an undervalued exchange rate to promote tradables • Macro policy tools are available (excess of saving over investment) • Forcing saving in poor societies has welfare costs • And rich countries may retaliate • Preferences for African manufactures • Simplify and unify EU and US preference systems • Extend preferences to Asia under WTO

  21. Reducing “Indirect Costs” • Efficient African enterprises have factory floor costs comparable to Chinese and Indian firms for some product lines, such as garments. • They become less competitive because of higher indirect business costs, • In China indirect costs are about 8 percent of total costs; • In Africa they are 18–35 percent.

  22. Reducing “Indirect Costs” • Why do indirect costs matter so much • In task trade low levels of value added amplify the impact of “trade friction” costs • To see this we can use the concept of effective protection again

  23. The impact of trade friction costs • Trade friction costs are like a “tax” between the factory gate and the border • Consider an assembly firm with 20 % value added: • China – trade friction cost 5 % of FOB price: • ERP = [.95 -.8] / [1-.8] -1 = -.25 % • Africa - trade friction cost 15 % of FOB price: • ERP = [.85 -.8]/[1- .8] -1 = -.75 % • Where would you rather do business?

  24. Improving Trade Logistics • Trade logistics covers shipping, handling and distribution. • African countries have an average ranking of 121 out of 155 countries in the recently compiled World Bank (2011) Trade Logistics Index. • Only three of Africa’s low income economies rank in the top half of the global distribution. • Two thirds of African countries are in the bottom third of the distribution, • And 36 percent are in the bottom quintile.

  25. Improving Trade Logistics • The region ranks especially badly in terms of trade related infrastructure • Poorly functioning institutions and uncompetitive logistics markets also increase trade friction costs. • And so does being landlocked • Recently some donors – notably JICA and the World Bank – have begun to focus on trade logistics, but more needs to be done

  26. Strengthening regional integration • Why regional integration matters for Africa: • Small countries • The disadvantages of the landlocked • The failure of collective action • A lot of talk but not much action • The AU initiative • Failures of regional infrastructure • The East African Union, a ray of light?

  27. Strengthening regional integration • A new approach to regional integration • African governments will need to cede sovereignty • Start “small” and get things to work (power grids; transit corridors) • RECs need to take the lead on regional issues • Development partners must step up • Aid bureaucracies find regional investments difficult • Regional Economic Communities are weak • Cross-border projects are too few and too slow • Link trade preferences with regional integration

More Related