Export promotion and complementary policies in Latin America and the Caribbean: The Cases of Chile and Colombia

1. Export promotion and complementary policies in Latin America and the Caribbean:The Cases of Chile and Colombia Nanno Mulder Division of International Trade and Integration, Economic Commission for Latin America and Caribbean (CEPAL)

2. Recent trade and growth performance 2. Trade promotion: Chile & Colombia 3. Need for complementary policies 4. Concluding remarks Outline

3. Focus is on trade promotion and framework conditions, not on poverty reduction Key mechanism: trade → growth → poverty reduction Use one instrument for one objective (Tinbergen) Introduction

4. 1. Recent trade and growth performance

5. Exports have grown faster in LAC than in other regions during 2000-2005. But there are notorious differences among sub regions. Volume of exports: Annual growth rates (%) Source: ECLAC, on the basis of oficial information.

6. 1.- Mexico & Central America manufactures (low value added) 3.- Caribbean services (tourism and finance) 2.- South America natural resources (Agr. and Min.) 3 types of specialisation

7. Natural resources continue to account for large share of exports of Latin America

8. Exports and economic growth are strongly correlated in Latin America

9. Economic growth underpins recovery in per capita income

10. 2. Trade Promotion: Chile and Colombia

11. Export promotion in the region PUBLIC PRIVATE BICE (Arg) APEX (Bra) CEPROBOL (Bol) PROCHILE (Chi) PROMPEX (Per) PROEXPORT (Col) URUGUAY XXI (Ur) BANCOEX (Ven) BANCOMEX (Mex) ARG. EXPORTA (Arg) FUNCEX (Bra) BOLINVEST (Bol) ASEXMA, SOFOFA (Ch) ANALDEX (Col) CORPEI (Ecu) ANIERM (Mex) ADEX (Per) Cámaras de Comercio MIXED PROEXPORT (Col)

12. Export promotion A Horizontal measures Exchange rate policy Trade policy FDI promotion policy Indirect stimulus • Fiscal incentives • Reimbursement • VAT exemptions • Tax reduction • Less procedures • Customs incentives • Draw Back • Temporary admission • Temporary exports • Tax free zone • Export processing zone (maquila) • Trade negotiations • Integration agreement • FDI promotion and protection agreement • Double taxation agreement • Agreement on free movement of persons; • Dispute settlement mechanism

13. Export promotion B Direct support (Meso and Micro) Other than financial instruments Financial Instruments Production support (Pre-shipment credit) Fiscal support Proyect finance Investment credit Tax rebate for R&D spending Improving production process (quallity) Export support (Post shipment credit) Import or buyer credit Export insurance Tax exemptions Institutions Market and sales information Promoting exports Quality control Missons and trade shows Country image campaigns Advice on international insertion strategies (comercial, customs, legal) Training of personnel (seminars, courses) Technology support Creation of specialised agency • Tax free zones • Export processing zones Special incentives

14. Recognised as being among the region´s best export promoters Successful in combining X with economic growth & poverty reduction through complementary policies Process of mutual learning & exchanges Colombia: “Panellists’ Surprise Award”, granted by World Trade Promotion Organization - 2004 Why Chile and Colombia?

15. Colombia & Chile are among leaders in export promotion in LatAm Source: WEF

16. Chile: ProChile - public Colombia: ProExport – private/public Export promotion agencies

17. Both Chile and Colombia are shifting emphasis from consumer commodities (branding!) to export diversification into nontraditional products Orientation

18. Co-financing by export firm is pre-condition for support from X promotion agency except for no-export ready SMEs. In Chile, part of funding is through Annual Export Competition. Co-financing

19. ProChile: foreign network 46 offices worldwide • Information providers (market opportunities, market trends, competition) • Connection between export supply and possible opportunities in foreign markets • Promote alliances between Chilean and foreign firms

20. Proexport: International Network Washington Brussels, Belgian Toronto, Canada London, UK Germany, Hamburg New York, USA Madrid, Spain Beijing China Ciudad de México, Miami, USA Caracas, Venezuela San Jose, Costa Rica Quito, Ecuador Rome, Italia Sao Paulo, Brazil Lima, Peru Caribbean Santiago, Chile Commercial Offices Commercial Representations

21. Organization of export promotion • Both conduct market research. Latter has special tools/databases to identify potential exportables to potential market. • Identifying priorties: ProChile - together with business associations & public/private council; ProExport – regional public/private consultative committees

22. Private sector Com Offices abroad Market & product REGIONS Business association How to prioritise?

23. Export potential test: strengths, weaknesses Opportunities in these firms regarding their export potential Measure export capacity of firms:

24. 12 factors: Employees´arguments on markets & products Int.l operational management Available resources Acquired experience (at home and abroad) Products - Services Reasonable expectations Available information Existing trade barriers Price level Motivation of directors Quality of processes Environmental concerns Export Potential Test (ProChile)

25. Export promotions: Actions Multiple: • Incoming buyers missions (Ex.: MacroRueda in Cartageña) • Trade shows (Ex. Chile: Country Image with Flavours of wine, salmon and fruits) • Videoconferencing • Export directory • Variety of internet services • !! Follow the client from beginning to end !!

26. Model for Evaluation and Remuneration (ProExport Colombia) • Sales objectives Direct impact on exports and coverage of firms thanks to support of PROEXPORT using the Proexport Selling Methodology • Management Services and activities geared towards new opportunities that fit in the overall strategy Return on investment 3. Benefit/Costs 4. Other Aspects Performance, Image, etc.

27. ProExport Colombia:Flexible remuneration of employees • Part of salary is flexible Related to meeting the target Create a result-oriented business culture • Promotes endeavors to surpass the fixed objectives. • Creates values of organisation wanting to have a major impact • Rewards extraordinary results. 2. Quarterly and annualpremiums for exelence 3. Annual rewards forexceeding the target

28. Chile (ProChile): • Salmon • Wine • Fresh fruits Colombia (ProExport): • Flowers • Building materials • Textiles and clothing Success Cases

29. 4. Need for complementary policies

30. Consistency between trade policy, macroeconomic and other policies Key links among real sector development, export promotion, technology diffusion and training Macroeconomic context and trade policy may promote growth and poverty reduction but require effective social policies What is needed?

31. 1. Macro stability Avoid exchange rate overvaluations Reduce exchange rate volatility Correct sequencing of reforms Anti-cyclicalmacro management Complementary policies 2. Institutional stability • Clear and predictablerules of the game • Clear legal system, independent judges • Public safety

32. Macroeconomic stabiliy (Pn / Pt !!) Mature and stable institutions Export orientation Active state role in technology diffusion and infrastructure building Deep and stable financial markets Efficient logistics associated to trade Market friendly regulations Little corruption and transparency Selective export promotion Links with real sector Complementary policies

33. 3. State, technological change Digital agenda E-government E-billing E-taxes E-administrative procedures Online trade facilitation Complementary policies 4. Infrastructure • Roads, railways, portsairports • Telecommunications:connectivity, coverage, costs, quality

34. 5. Export orientation More than tariffs Reduce anti export bias SPS, health Norms Logistics: ports, customs, services Complementary policies 6. Financial stability • Supervision and prudent regulation • Independent Central Bank • Deepening of capital market • Hedging instruments

35. 7. Competition & regulation Promote competition Create markets Market-friendly regulation Transparency and technical criteria Conducive to productivity gains and low prices Let the price mechanism allocate resources Complementary policies 8. Transparency and low corruption • Diffusion through www: • Information • Performance evaluation • External auditing • Online public procurement and tenders

36. 9. Selective export promotion SMEs with export potential Information on export opportunities Advice on procedures Specialised advice Information on markets Business contacts Fairs, foreign missions, video-business Offices abroad Complementary policies 10. Real sector development • Link SMEs with export chains (clusters) • Modernising management • Quality (certification) • Education & training • Technology diffusion • Business cooperation

37. Basic Requirements • Institutions • Infrastructure • Macro economy • Health and primary education Key for factor–driven economies • Efficiency Enhancers • Higher education and training • Market efficiency (goods, labor, financial) • Technological readiness Key for efficiency–driven economies • Innovation and Sophistication Factors • Business sophistication • Innovation Key for innovation–driven economies Nine pillars of competitiveness Source: World Economic Forum, 2005

38. Competitiveness Ranking Source: World Economic Forum, 2004 – 2005 (www.weforum.org)

39. Export Flows by Preferential Trade Agreements, 2005 64% They were almost 6% in 1991

40. 22 3 Colombia 23 22 33 28 45 40 44 50 47 51 Qualified human capital… Competitive Senior Managers Available Skilled Labor Colombia Ranking (60 countries) Ranking (60 countries) Source: The World Competitiveness Yearbook 2005-IMD

41. Index of Economic Freedom Source: Heritage Foundation, 2005. Top 20 positions. (www.heritage.org)

42. Transparency Source: Transparency International, 2003 (www.transparency.org)

43. Business Climate Source: Economist Inteligence Unit, 2004-2008 (www.eiu.com)

44. GDP Average Annual Growth Rate (Selected Countries) Source: International Monetary Fund, 1990 – 2004 (www.imf.org)

45. Colombia's economy has improved substantially since 1999 (crisis year) GDP Growth: Colombia vs Latin America (1980-2005) % Source: DANE, ECLAC

46. Chile: Unemployment Rate (%) Source: National Statistics Bureau, INE, 1996-2003 (www.ine.cl). International Monetary Fund, 2004-2005 (www.imf.org)

47. COLOMBIA: Unemployment levels dropped from 15,7% to 11,8% Source: DANE Source: DANE Fuente: DANE

48. Chile:Reduction of Poverty(% of population)

49. Social Conditions in Colombia improved … Poverty and indigence levels have dropped, we have reached the lowest rates since 1991 Between 2002 and 2005 indigence was reduced 6 points: 2,2 million people out of indigence Between 2002 and 2005 poverty dropped 7,8 points: 2,3 million people out of poverty. National Poverty National Poverty Source : Estimaciones MERPD- ENH y ECH Fuente: Estimaciones MERPD- ENH y ECH

50. Export promotion needs to be supported by other policies to bear results Key elements in successful trade promotion: cooperation with private sector, targeted and tailored assistance, variable remuneration, continuous evaluation Main links with poverty: Support of SMEs that realistically have potential Create growth and effective social policies Concluding remarks