Decoding Honduras' Growth towards a Sustainable Development through - - PowerPoint PPT Presentation

Decoding Honduras' Growth towards a Sustainable Development through PDIA

Reading and Research Presentation José Arocha, Jorge Jiménez, Marco Midence

Building a Method: From Volatile to a Diversified Economy…

Overcoming the Growth Challenge…

Starting point. Several efforts to diagnose and define a growth route

• McKinsey study (2014) / Plan 2020:
• 6 strategic sectors:
• Tourism, Textiles, Intermediate Manufacturing, Services,

Agroindustry, Housing

• Broad recommendations: Where to head on? Next steps?

Challenge

Given Honduras’ volatile economy and non-tradable dependence the country needs to develop:

• A clear, tailored methodology for a targeted sector selection based on Honduras’ capabilities
• Applying problem-driven pushes w/ first level decision makers in the Public and Private Sector

(i.e., A-team)

Our Approach…

• 1. Growth Diagnostics:
• Binding Constraints
• Economic Complexity Index Analysis
• 2. PDIA to Construct and Deconstruct the Problem:
• Fishbone
• Triple A
• Industrial Targeting
• 3. Diversification Strategy (3 Study Cases)
• Climbing the Value Added Ladder: “Solutions to Evolve Honduras’ Coffee”
• Formalizing Economy & Women Inclusion: “Paseo de las Baleadas”
• Changing the Game in Honduras: “Digital Empowerment”

Part 1. Growth Diagnostics

• 1. Growth Diagnostics: Exports
• Honduras exports ($17.2B) are concentrated: Basic Agriculture & Textiles
• This results in a negative trade balance of $7.91B
• Undiversified economy focused on non-tradables

Source: http://atlas.cid.harvard.edu/

Product Space & ECI

• Low complexity economy (small dots, few letters)
• Few neighbors in more complex sectors today

Based on ECI, there is growth room “climbing the ladder” into more complex products & services

Source: http://atlas.cid.harvard.edu/

High cost of finance Low return to economic activity Low social returns Low appropriability government failures market failures poor geography low human capital bad infra- structure micro risks: property rights, corruption, taxes macro risks: financial, monetary, fiscal instability, debt service information externalities: “self-discovery” coordination externalities Low domestic savings + bad international finance bad local finance High risk High cost Low competition Limited access for firms ! ! Weak governance BINDING CONSTRAINS

What Hinders Growth In Honduras?

Problem: Non-diversified economy vulnerable to external shocks and dependent on non-complex/non-tradable sectors

Part 2. PDIA… Digging Deeper

Experiential Iterative Learning…

• In-depth literature review:
• World Bank Growth Diagnostics (4 studies), Economist Intelligence Unit, IADB, Doing Business, IMF
• Honduras 2020 Development Plan, National Development Plan 2010-2038 (Past Administration)
• Field interviews with key decision makers (private & public sector):
• 7 Economic Cabinet Ministers; 3 SOEs Heads; 2 Mayors; 3 leaders of Chambers of Commerce; 3 Top Business Leaders

Public Sector Private Sector

Big Learning: “A Whale Fishbone”

Our Learning Process

• Total Iterations: 5 pushes
• Decomposition: 26 bones
• Main Binding Constraints: 5
• Entry Points: 18 bones

10 Political Instability AAA Estimation Category Entry Point Lack of or weak electoral legislation and no enforcement 3 Authority 5 M Acceptance 9 H Ability 6 M 11 Economy focused on low productivity sectors AAA Estimation Category Entry Point Industrial targeting 2 Authority 9 H Acceptance 9 H Ability 9 H 12 Economy focused on low productivity sectors AAA Estimation Category Entry Point Current Accounts Deficits/Financing 3 Authority 8 H Acceptance 8 H Ability 8 H 13 Trade AAA Estimation Category Entry Point Not enough investors/FDI 3 Authority 8 H Acceptance 8 H Ability 8 H 14 Trade AAA Estimation Category Entry Point Not enough buyers/trade agreements 3 Authority 9 H Acceptance 9 H Ability 9 H 15 Low Endowmen of Human Capital AAA Estimation Category Entry Point Limited supply of skilled labor 3 Authority 6 M Acceptance 9 H Ability 6 M 16 Low Access to Capital AAA Estimation Category Entry Point Credit Ratings/Country Risk/Debt Restructuring 3 Authority 5 M Acceptance 7 M Ability 7 M 17 Low Access to Capital AAA Estimation Category Entry Point Coordination with International Sources of Capital 2 Authority 5 M Acceptance 9 H Ability 6 M 18 Informal Economy AAA Estimation Category Entry Point Credit Sharks 3,600% interest rate 1 Authority 8 H Acceptance 9 H Ability 5 M

Space for Change…

1 State Capability AAA Estimation Category Entry Point Permits/Red Tape 1 Authority 8 H Acceptance 5 M Ability 7 M 2 State Capability AAA Estimation Category Entry Point No Professionalized Civil Service 1,3 Authority 8 H Acceptance 5 M Ability 7 M 3 State Capability AAA Estimation Category Entry Point Lack of PPP Expertise 3 Authority 9 H Acceptance 7 M Ability 8 H 4 Investment Climate AAA Estimation Category Entry Point Lack of clear fiscal and commercial rules 3 Authority 5 M Acceptance 8 H Ability 7 M 5 Investment Climate AAA Estimation Category Entry Point Lack of Fiscal Incentives for Private Sector 3 Authority 5 M Acceptance 10 H Ability 8 H 6 SOE AAA Estimation Category Entry Point Poor Management and Performance 3 Authority 7 M Acceptance 5 M Ability 8 H 7 SOE AAA Estimation Category Entry Point No Corporate Governance 3 Authority 8 H Acceptance 5 M Ability 8 H 8 Corruption AAA Estimation Category Entry Point Bad Procurement Practices 2 Authority 8 H Acceptance 6 M Ability 8 H 9 Political Instability AAA Estimation Category Entry Point Weak Electoral Authority 3 Authority 5 M Acceptance 7 M Ability 8 H

Triple-A Change Space Analysis

Categories 1 Things already been solved… low hanging fruit 2 Things we think we can solve quite quickly 3 Things that are solvable but concerned about timeline 4 Unsolvable Priority Level High 8 to 10 Medium 4 to 7 Low 1 to 3

Selection Criteria

• The following two entry points were selected given their High Space for Change
• Honduras presents high vulnerability to external shocks

1) Dependence on oil prices (IMPORTS) 2) coffee price shocks(EXPORTS)

• Most labor belongs to informal sector (49% of underemployment)

PDIA: Selected Entry Points

11 Economy focused on low productivity sectors AAA Estimation Category Entry Point Industrial targeting 2 Authority 9 H Acceptance 9 H Ability 9 H 15 Low Endowment of Human Capital AAA Estimation Category Entry Point Limited supply of skilled labor 3 Authority 6 M Acceptance 9 H Ability 6 M

Part 3. Industrial Targeting

Diversification Strategy: Industrial Targeting

Climbing Up the Ladder: Narratives for Success

3 Study Cases:

• Climbing the Value Added Ladder: “Solutions to Evolve Honduras’ Coffee”
• Formalizing Economy & Women Inclusion: “Paseo de las Baleadas”
• Changing the Game in Honduras: “Digital Empowerment”

Climbing the Value Added Ladder: “Solutions to Evolve Honduras’ Coffee”

Financial Strategies

• Debt re-structure for large producers
• Microfinance solutions for small players
• Auction of top quality harvest in high-end markets (Europe and U.S.)

Improving Quality, Value Added in Production

• Managing price risk and volatility (e.g. price risk management markets
• Climb up from green beans to upstream transformed processed coffee products (Costa Rica’s

Café Britt, Colombia soluble coffee and soft drink products)

Marketing & Origin Denomination

• Geographic Indicators of Origin (GIOs), eco-friendly & sustainable certifications & country

branding

• E-trade, roasters and trade shows “Cup of Excellence”; Brazil, Guatemala (2001) and Nicaragua

(2002)

Formalizing Economy & Women Inclusion: “Paseo de las Baleadas”

Infrastructure

• Revitalize city site: “English Town” at the heart of historic center
• From an abandoned XIX century rail track to a XXI century pedestrian walkway

People

• Women inclusion by benefiting families w/ single mothers as family heads currently in informal sector
• Training in management skills, customer service and high-quality products by Chamber of Tourism

and private sector coalitions (NGOs, businesses, local government)

• A social spillover for 300+ families in La Ceiba

Gastronomic Tourism

• Exquisite traditional dishes prepared from century-long family recipes
• Visit La Ceiba and enjoy tasting of Baleadas and other Honduran cuisine in a family-friendly

environment

Changing the Game in Honduras: “Digital Empowerment”

Building infrastructure

• Universal Access
• Digital inclusion

Education and empowerment

• Digital literacy
• Enriching Knowledge

Social enterprises

• Grassroot markets
• Digital interactions (Marginalize digital excluded communities)

Knowledge hub and networks

• Common platform
• Best practices in the field of ICT

Next Steps

• Present in site & gain sponsorship with A-team
• Identify and build capabilities with T-team
• Implement recommendations in selected targets w/

balanced sector risk mix (new & established sectors)