Regional integration and value chains in a challenging external - - PowerPoint PPT Presentation

Regional integration and value chains in a challenging external environment

International context

• 1. International conditions are

slowing regional trade

Global output and trade are growing have grown more slowly since the 2008-2009 crisis

Annual GDP growth and exports by volume

(Percentages)

Fuente: ECLAC, on the basis of data from ECLAC and International Monetary Fund, World Economic Outlook, October 2014. Data for Latin America are ECLAC estimates.

a) GDP b) Goods exports

,0 ,1 ,2 ,3 ,4 ,5 ,6 ,7 ,8 ,9 ,10 World United States Eurozone LAC China 2003-2007 2011-2013 2014 ,0 ,5 ,10 ,15 ,20 World United States Eurozone LAC China 2003-2007 2011-2013 2014

Post-crisis, the difference between the growth rates of global exports and output has narrowed considerably

World: average variation in exports and GDP, selected periods

(Percentages)

Source: ECLAC, on the basis of data from WTO, and United Nations projections for 2014.

5.7 2.5 3.0 2.2 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 1950s 1960s 1970s 1980s 1990s 2001-2007 2011-2014 Exports GDP

1.9 1.1

5 Goods I (12.4%) II (5.8%)

Primary products

I (17.4%) II (4.9%)

Natural-resource- based manufactures

I (14.8%) II (7.0%) Services I (12.6%) II (6.7%)

Period I 2000-2008 Period II 2010-2013

Low- and medium- tech manufactures

I (11.9%) II (5.7%)

The slower global trade growth is evident in exports of both goods and services

Source: ECLAC, on the basis of data from WTO and COMTRADE.

Annual variations in the value of global exports of goods and services, 2000-2008 and 2010-2013

High-tech manufactures

I (8.0%) II (4.7%)

Commodity prices are falling, but remain above historic levels

Source: ECLAC, on the basis of World Bank, The Economist Intelligence Unit and IMF.

Latin America and the Caribbean: prices of main export products, 2000-2018

(Index: January 2008=100)

Exports by developed countries have failed to gain momentum since the crisis

Advanced and developing countries: index of goods exports by volume

(Index: January 2008=100)

Source: ECLAC, on the basis of World Trade Monitor of the CPB Netherlands Bureau of Economic Policy Analysis.

70 80 90 100 110 120 130 140 2008m01 2009m01 2010m01 2011m01 2012m01 2013m01 2014m01 Advanced countries Developing countries

North-North North-South South- South South- North World 2000-2009 5.4 8.1 13.3 6.8 7.5 2010 12.3 25.7 36.3 28.1 22.5 2011 15.2 18.6 32.5 21.4 21.0 2012

• 4.6

0.8

12.0 17.7

4.8 2013 3.0 3.1

3.9

• 0.4

2.6

The slowdown in the North is dragging down export growth in the South

Structure of global exports by major world regions: 2009 and 2013

Global trade: annual variation in export values, 2000-2013

(Percentages)

Source: ECLAC, on the basis of United Nations, COMTRADE.

North- North 51% North- South 16% South- South 14% South- North 19%

2000

North- North 34% North- South 18% South- South 28% South- North 20%

2013

23.5 1.6

• 0.2 0.8
• 30.0
• 20.0
• 10.0

0.0 10.0 20.0 30.0

• 30
• 20
• 10

10 20 30 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Volume Price Value

Source: ECLAC, on the basis of official information. The figures for 2014 are ECLAC estimates.

The export stagnation in Latin America and the Caribbean has now lasted three years

Latin America and the Caribbean: growth in goods exports, 2000-2014

(Percentages)

• 2. Impact on the region

4.9 0.8

• 1.5
• 1.7
• 2.3
• 6
• 4
• 2

2 4 6

Mexico and Central America Latin America and the Caribbean Andean Community South America MERCOSUR

Volume Price Value

Exports by Mexico and Central America will be the fastest-growing in 2014 (in subregional terms)

Exports Imports

Source: ECLAC estimates, on the basis of official information.

Latin America and the Caribbean: annual variation in goods trade by volume, price and value, 2014

(Percentages)

2.3 1.4

• 0.6
• 2.8
• 3.6
• 8
• 6
• 4
• 2

2 4 6 8

Mexico and Central America Andean Community Latin America and the Caribbean South America MERCOSUR

Volume Price Value

• 4.8
• 4.0
• 2.6
• 0.6

2.4 3.4

• 7
• 5
• 3
• 1

1 3 5 7 Latin America and the Caribbean European Union Rest of Asia World China United States

The poor performance of regional trade is due mainly to declines in trade with the European Union and within the region itself

Exports Imports

Latin America and the Caribbean: estimated annual variation in goods trade value, by trading partner, 2014

(Percentages)

Source: ECLAC estimates, on the basis of official information.

• 4.9
• 0.7

0.8 2.1 3.2 5.4

• 7
• 5
• 3
• 1

1 3 5 7 Latin America and the Caribbean European Union World Rest of Asia United States China

• 6.1
• 4.9
• 0.6

2.2 3.0

• 8
• 6
• 4
• 2

2 4

Capital goods Consumption goods Total imports Intermediate inputs Fuels

In 2014, agricultural exports will be the fastest-growing

Latin America and the Caribbean: estimated variation in goods trade value, by major sector, 2014

(Percentages)

Source: ECLAC estimates, on the basis of official information.

Exports Imports

• 2.2

0.8 1.8 3.4

• 3
• 2
• 1

1 2 3 4

Mining and oil Total exports Manufactures Agricultural products

• ,10.6
• ,5.2
• ,4.3
• ,3.0
• ,1.8
• ,1.5
• ,0.8

,0.8 ,0.8 ,1.8 ,3.1 ,3.4 ,3.6 ,4.3 ,5.0 ,6.7 ,7.4 ,8.6 ,9.3 ,13.6 ,14.1

• 15
• 5

5 15 Peru Argentina CARICOM Brazil Colombia El Salvador Venezuela (Bol. Rep. of) LAC Chile Panama Dominican Republic Honduras Costa Rica Cuba Mexico Guatemala Nicaragua Bolivia (Plur. State of) Ecuador Uruguay Paraguay

Exports Imports

Latin American and Caribbean countries: projected variation in trade value, 2014

Source: ECLAC estimates, on the basis of official information.

• ,7.0
• ,6.6
• ,4.9
• ,3.2
• ,2.8
• ,2.3
• ,1.6
• ,0.6
• ,0.6
• ,0.2

,0.4 ,0.4 ,1.3 ,1.6 ,1.9 ,2.3 ,3.9 ,5.5 ,5.5 ,5.9 ,6.5

• 15

5 Chile Argentina Paraguay Brazil Venezuela (Bol. Rep. of) Peru CARICOM Dominican Republic LAC Nicaragua Ecuador El Salvador Honduras Cuba Costa Rica Mexico Colombia Guatemala Panama Uruguay Bolivia (Plur. State of)

• 3. Participation and upgrading in

value chains

What is inclusive trade?

A type of trade that:

• promotes growth and

productivity

• reduces structural

heterogeneity

• improves well-being for

the majority (employment and wages)

• reduces inequality

Potential benefits of international value chains for inclusive development

• Greater value added
• Broader access to quality intermediate goods
• Better human capital and wages
• A. Upgrading
• Larger market (international)
• Technology transfer
• Job creation
• B. Participation of SMEs
• Provided by large firms
• … or banks (lower lending risk associated with

being in a GVC)

• C. Access to financing

These benefits depend crucially

• n cross-cutting policies

• A. Example of innovation and upgrading: synthetic fibre

sportswear chain in El Salvador

Source: R. Padilla Pérez (ed.), Strengthening value chains as an industrial policy instrument. Methodology and experience of ECLAC in Central America, Libros de la CEPAL, No. 123 (LC/G.2606-P), Santiago, Chile, Economic Commission for Latin America and the Caribbean (ECLAC), 2014. United Nations publication, Sales No. E.14.II.G.9.

Recommendations for upgrading:

• Create a centre of

innovation and technological development

• Improve the educational

profile of technical staff

• Better support for public

innovation bodies

• Work on the country brand

• B. Example of SME participation: the

fine aromatic cocoa value chain in Ecuador

Impact of the SME programme, 2006-2010

Source: Hernández, R. A., J.M Martínez-Piva and N. Mulder (2014), Global value chains and world trade: Prospects and challenges for Latin America, ECLAC, Santiago.

a) Income per hectare of the participating groups

(Dollars)

b) Other income of participant and non-participant farms, 2010

(Dollars)

50 100 150 200 250 300 350 400 450 500 2006 2010 2006 2010 KALLARI APROCANE 500 1000 1500 2000 2500 3000 3500 4000 Participants Non-participants Participants Non-participants KALLARI APROCANE

• C. Better access for financing for SMEs in value chains:

dairy produce in Argentina

• Dairy processing firm “La Serenísima” (5,000

employees) created guarantee fund in 2009 : – For 1,046 suppliers (a third of the total) – Suppliers: 65% are small dairy farms – Guarantees increased between 2002 and 2009:

• from 743 to 1.345 in number
• from US$ 1.8 million to US$ 5.5 million in amount

International chains in the textile and clothing industry in Peru, 2012

Suppliers of textile inputs to Peru Exports of textiles and clothing by Peru

Destination of Peru’s textile and clothing exports

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of United Nations Commodity Trade Statistics Database (COMTRADE).

How can value chains be leveraged to make trade more inclusive?

• To upgrade in chains:

– build capacity to innovate in products and processes – strengthen relations between and among links in the chain – prepare workers for more sophisticated tasks

• To boost SME participation:

– ensure support by large firms and government for competitiveness – develop horizontal and vertical collaboration

• To expand access to financing:

– create guarantee funds for SMEs – create good public incentives and support coordination between SMEs, banks and large corporations

• Explore regional value chains (which are more inclusive)

• 4. How regional integration

contributes to production integration

The regional market is the most receptive to export diversification

Source: ECLAC, on the basis of United Nations Commodity Trade Database (COMTRADE).

a Includes Belize, Dominica, Dominican Republic and Jamaica.

Latin American and Caribbean countries and subregions: average number of products exported to selected destinations, 2013

2312 2141 824 3841 1149 1034 792 4136 1204 479 404 2855 308 120 57 1419 500 1000 1500 2000 2500 3000 3500 4000 4500 South America Central America a The Caribbean Mexico Latin America and the Caribbean United States European Union China

The region absorbs almost 60% of its own manufacturing exports (not including Mexico)

Latin America and the Caribbean: share of the region in total mid- and high-tech manufacturing exports, 2013

(Percentages)

Source: ECLAC, on the basis of United Nations Commodity Trade Database (COMTRADE).

,7 ,8 ,8 ,9 ,17 ,18 ,20 ,23 ,51 ,52 ,54 ,54 ,56 ,59 ,62 ,63 ,65 ,75 ,75 ,77 ,79 ,82 ,85 ,88 ,89

20 40 60 80 100

Mexico Jamaica Belize Dominican Republic Costa Rica Honduras Suriname Latin America and the Caribbean Bolivia (Plurinational State of) Brazil Venezuela (Bolivarian Republic of) Barbados Guyana Latin America and the Caribbean (excluding Mexico) El Salvador Nicaragua Panama Chile Colombia Peru Argentina Guatemala Ecuador Paraguay Uruguay

However, the region’s intraregional trade is still limited, with little production integration

Source: ECLAC, on the basis of United Nations Commodity Trade Database (COMTRADE).

a Includes the 10 members of ASEAN and China, Japan, the Republic of Korea, Hong Kong Special Administrative Region of China, and Taiwan Province of

China.

Selected groupings: share of intra-group exports in total exports, 2008-2013

(Percentages)

Grouping Percentage ASEAN+5 34 TLCAN 19 European Union 17 Latin America and the Caribbean 10

Share of parts and components in intra-group exports, 2013

(Percentages)

59.1 49.6 49.8 19.2 27.0 10 20 30 40 50 60 70 2008 2009 2010 2011 2012 2013 European Union NAFTA ASEAN+5 a Latin America and the Caribbean Latin America and the Caribbean (excluding Mexico)

The Caribbean has sectors with potential for intra-industry trade

Antigua and Barbuda Saint Kitts and Nevis Saint Vincent and the Grenadines

Jamaica 3.3% Xs 23% Ms

Saint Lucia

2.3% Xs 4.5% MS

Dominica

0.8% Xs 1.9% Ms

Trinidad and Tobago 72% Xs 8.4% Ms

Barbados 5.3% Xs 21.6% Ms Guyana 5.1% Xs 11% Ms

Medical products Animal feed Soap and cleaning products

Telecoms

Beverages Textiles and medicines

Hand tools Domestic appliances Source: ECLAC, on the basis of United Nations Commodity Trade Database (COMTRADE).

Suriname 8% Xs 10.4% Ms 0,10 0,31 0,10

Beverages Paper Metals Plastics Articles for cleaning

Because trade in value chains is highly sensitive to distance-related costs Because intraregional trade has a large manufactured goods component Because regional expansion of the trans-Latins encourages production linkages with local suppliers To leverage this potential, industrial and trade policies need to be coordinated The regional market is crucial for developing value chains in Latin America and the Caribbean

Industrial policy still has significant room for manoeuvre

• WTO and FTA agreements limit the use of some

instruments:

– Export subsidies – Local-content requirements for foreign investment

• But significant manoeuvreing room remains:

– Support for R&D and innovation – SME preference in public procurement – Support for “green” goods and services – Selective FDI attraction – Support for clusters – Supplier development – Building of specialized human capital – Skills and quality certification

The region is going through a stage of industrial policy redefinition

South America

• Strategic Industrial Plan 2020 (2011, Argentina)
• Greater Brazil Plan (2011, Brazil)
• Agenda for Productivity, Innovation and Economic

Growth (2014, Chile)

• Production Transformation Programme (2008, Colombia)
• Strategy for Transforming the Production Matrix(2011,

Ecuador)

• National Plan for Production Diversification (2014, Peru)

Mexico and Central America

• National Centre for the Development of Production

Ecosystems (2014, Costa Rica)

• National Policy for Production Structure Development,

Diversification and Transformation (2014, El Salvador)

• National Competitiveness Programme (2013,

Guatemala)

• National Development Plan “Programme for

Democratizing Productivity” (2012-2013, Mexico)

The different national initiatives share several common features

Concern over dependence on raw material exports Active role of the State and institution-building Selectiveness (efforts concentrated on particular industries/sectors) Focus on internationalization and value chains Boosting growth and employment Reducing heterogeneity of production Public-private partnerships Balanced territorial development Environmental sustainability

But there are also major differences between the various national initiatives

Issue Features of the national initiatives Sectors targeted Some focus on supporting sectors with proven potential; others seek to create new sectors or industries Trade orientation Some seek to replace imports; others aim to boost exports Role of public and private sectors Some give the private sector a key role in defining policies and activities; in others the public sector takes the initiative Use of quantitative targets Some set specific quantitative targets (on exports, production, employment, etc), others do not Approach to value chains Some promote the development of vertically integrated chains; others seek to develop specific segments within particular chains

Some policy messages

• Greater international trade integration is key to

progress in achieving more sustainable and inclusive growth

– Improve embedded knowledge in exports – Increase the relative presence of companies in value chains – Support the participation of SMEs in value chains – Reduce the carbon footprint of production and exports and reduce their use of water – Energy efficiency; sustainability – Production and export diversification

Some policy messages

• Transition in trade policy

– From trade liberalization to export promotion, then to internationalization and participation in value chains

• From finished goods to intermediate goods
• Growing link: goods-services-investment

– Professional and technical services; ICT; cultural services and leisure

• Foreign investment; business partnerships
• Investing in exports

Some policy messages

• Coordinate macroeconomic, industrial and trade policies
• Need to to shift from a purely national perspective to a

regional or subregional one:

– Greater openness to intraregional trade – Avoiding competition for FDI through “incentive wars” – Moving towards a regional market with common rules (on FDI, public procurement, service regulation etc) – Multinational components in specific areas of industrial policy and production sectors

• Dialogue with trans-Latin companies is an essential part
• f these efforts