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Market access, export diversification & industrial upgrading in LATAM The Mercosur Chair  Annual Seminar Paris    March 6 2006 Javier Santiso Chief Development Economist & Deputy Director OECD Development Centre
1 Latin America: the challenge of diversification Suspects: who’s to blame?  2 Country narratives: building new areas of CA 3 Conclusions 4
Export structure in comparison Latin America 0 10 20 30 40 50 60 70 80 90 100 Ecuador Paraguay Bolivia Venezuela Chile Argentina Uruguay Colombia Peru Indonesia Brazil Canada Netherlands India Thailand Spain Malaysia Mexico Belgium UK France US Singapore Italy China Germany South Korea Taiwan Hong Kong Japan Source: WTO Exports of agricultural, energy and mineral products ( % of the total) (2003 )
The challenge of diversification … Share of processed exports then (1970) and now (2000) Increased processing Decreased process Source: Bonaglia and Fukasaku (2003) “Export Diversification in low Income countries,” OECD Development Centre WP 209 A important role played by GSP, NAFTA & CBI… with some qualifications
What’s wrong with natural resources?  A boon or a curse? ,[object Object],[object Object],[object Object],Source: Sachs and Warner  (2001), “The Curse of Natural Resources,”  European Economic Review
It’s not (only) what you have, it’s how you use it … ,[object Object],[object Object],[object Object],[object Object],[object Object],Resource-Rich champions
…  Many  resource-rich underachievers Source: Manzano, 2006 Development Level of natural resource clusters in the Andean region (0=low, 10=high) Country Cluster Exploitation  and Export,  minimum  processing Processing and  export, import  substitutions and  public goods  delivery Export of some  of the goods  and services  that are  substituted Export of processed refined  products,  inputs, machines and services associated to  the cluster. The firms of the country  associated to the cluster start to invest  abroad Bolivia Gas 10 0 0 0 Wood 10 7 2 2 Minerals 10 4 4 0 Soy 10 8 4 2 Colombia Coffee 10 8 8 4 Flowers 10 10 10 5 Fruits 10 10 8 1 Ecuador Bananas 10 10 2 2 Shrimp 10 9 2 2 Flowers 10 5 2 2 Oil 6 3 2 2 Peru Asparagus 10 9 1 8 Fish Flower 10 5 3 2 Minerals 10 2 1 7 Venezuela Aluminum 10 0 0 0 Iron 10 5 4 1 Oil 10 8 5 5
…  Gas, the unexploited potential Source: The Economist,  “ The explosive nature of gas”, Feb 9th 2006 Where demand and supply don’t meet
In fact export sophistication remains below benchmarks … Source: Hausmann,  Hwang and  Rodrik (2005), “ What You Export Matters,”  mimeo
Even when looking at other resource-rich countries  Source: Hausmann,  Hwang and  Rodrik (2005), “ What You Export Matters,”  minmeo
1 Latin America: the challenge of diversification Suspects: who’s to blame?  2 Country narratives: building new areas of CA 3 Conclusions 4
Good News: The commodity boom has been a bonanza Venezuela 83.1% Peru 70.7% Chile 59.1% Colombia 46.3% Argentina 38.0% Brazil 29.6% Mexico 14.6% Latam 31.2% Source: BBVA over total exports (2004) Exports of commodities 60 70 80 90 100 110 120 130 140 150 160 170 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source: BBVA BBVA-MAP Index of Latin America commodity prices  (100 =jan03) TOTAL Without oil
Sad News: Capitalising on previous bonanzas was not easy ,[object Object],[object Object],[object Object],[object Object],Source: Manzano and Rigobon (2001), “ Natural Resources or Debt Overhang?” NEBR Working Papers
Market access and supply capacity ,[object Object],[object Object],[object Object],[object Object],*M. Fugazza (2004), “ Export Performance And Its Determinants: Supply And Demand Constraints,” Policy Issues In International Trade And Commodities Study Series No. 26 ** A. Goldstein,  The Dynamics of Foreign Direct Investment and A-B-C Competitiveness, chapter 3 in  Trade  and  Competitiveness  in  Argentina ,  Brazil  and  Chile :  Not  as  Easy  as  ABC   *** Bair and Dussel Peters(2005), “Global Commodity Chians and Endogenous Growth: Export Dynamism and Development in Mexico and Honduras,”  World Development
1 Latin America: the challenge of diversification Suspects: who’s to blame?  2 Country narratives: building new areas of CA 3 Conclusions 4
Brazil: Trade openness and the catching-up process Successful Asian emerging countries were able to simultaneously combine growth with trade opening. Brazil has recently started to open up its economy.  In 2005 the trade surplus reached a record USD 45 billion, an increase of 33% yoy (in spite of a 13% appreciation of the Real).
Within the 50 LATAM companies that had greater profits in 2004, 19 are Brazilian, with an average utility over sales of 18%. The average ratio of exports over total sales was 32%. The 50 most profitable firms 19 16 7 3 1 1 1 1 1 0 5 10 15 20 Brazil Mexico Chile Argentina Colombia Ecuador Panama Peru Venezuela Source: America Economia 2005 Source: America Economia 2005 Brazilian firms are beginning to increase activities overseas
Brazil: Embraer & t he aircraft cluster ,[object Object],[object Object],[object Object],A. Goldstein (2005), “Lead Firms and Clusters in the North and in the South: A Comparison of the Aerospace Industry in Montreal and São José dos Campos” in E. Giuliani et al (eds)  Clusters Facing Competition: The Importance of External Linkages,  Editions Ashgate.
Chile: Salmon, wine and copper – more than commodities ,[object Object],[object Object],[object Object],[object Object],[object Object]
Costa Rica: hi-tech success or new-economy enclave? ,[object Object],[object Object],[object Object],[object Object],Ciravegna and Giuliani (2005), “MNC-dominated clusters and the upgrading of domestic suppliers: the case of Costa Rican Electronics and Medical Device industries,” mimeo
1 Latin America: the challenge of diversification Suspects: who’s to blame?   2 Country narratives: building new areas of CA 3 Conclusions 4
Some of the main challenges facing LATAM are to push forward the competitiveness agenda to boost productivity, diminish transaction costs and overcome inefficiencies. Conclusions Domestic reforms, coupled with market access in OECD and regionally have been fundamental for the emergence of new industries, often building on the natural resource wealth Export sophistication remains low and the emergence of CHINDIA, pushing commodity prices up, could be a double-edged sword Market niches are a moving target: a need to constantly adapt and improve/create new areas of competitive advantage Slow advancement in multilateral liberalisation would be detrimental for LATAM and, in any case, cannot be an excuse for delaying much-needed domestic reforms.
Thank you for your attention!

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36239969

  • 1. Market access, export diversification & industrial upgrading in LATAM The Mercosur Chair Annual Seminar Paris  March 6 2006 Javier Santiso Chief Development Economist & Deputy Director OECD Development Centre
  • 2. 1 Latin America: the challenge of diversification Suspects: who’s to blame? 2 Country narratives: building new areas of CA 3 Conclusions 4
  • 3. Export structure in comparison Latin America 0 10 20 30 40 50 60 70 80 90 100 Ecuador Paraguay Bolivia Venezuela Chile Argentina Uruguay Colombia Peru Indonesia Brazil Canada Netherlands India Thailand Spain Malaysia Mexico Belgium UK France US Singapore Italy China Germany South Korea Taiwan Hong Kong Japan Source: WTO Exports of agricultural, energy and mineral products ( % of the total) (2003 )
  • 4. The challenge of diversification … Share of processed exports then (1970) and now (2000) Increased processing Decreased process Source: Bonaglia and Fukasaku (2003) “Export Diversification in low Income countries,” OECD Development Centre WP 209 A important role played by GSP, NAFTA & CBI… with some qualifications
  • 5.
  • 6.
  • 7. … Many resource-rich underachievers Source: Manzano, 2006 Development Level of natural resource clusters in the Andean region (0=low, 10=high) Country Cluster Exploitation and Export, minimum processing Processing and export, import substitutions and public goods delivery Export of some of the goods and services that are substituted Export of processed refined products, inputs, machines and services associated to the cluster. The firms of the country associated to the cluster start to invest abroad Bolivia Gas 10 0 0 0 Wood 10 7 2 2 Minerals 10 4 4 0 Soy 10 8 4 2 Colombia Coffee 10 8 8 4 Flowers 10 10 10 5 Fruits 10 10 8 1 Ecuador Bananas 10 10 2 2 Shrimp 10 9 2 2 Flowers 10 5 2 2 Oil 6 3 2 2 Peru Asparagus 10 9 1 8 Fish Flower 10 5 3 2 Minerals 10 2 1 7 Venezuela Aluminum 10 0 0 0 Iron 10 5 4 1 Oil 10 8 5 5
  • 8. … Gas, the unexploited potential Source: The Economist, “ The explosive nature of gas”, Feb 9th 2006 Where demand and supply don’t meet
  • 9. In fact export sophistication remains below benchmarks … Source: Hausmann, Hwang and Rodrik (2005), “ What You Export Matters,” mimeo
  • 10. Even when looking at other resource-rich countries Source: Hausmann, Hwang and Rodrik (2005), “ What You Export Matters,” minmeo
  • 11. 1 Latin America: the challenge of diversification Suspects: who’s to blame? 2 Country narratives: building new areas of CA 3 Conclusions 4
  • 12. Good News: The commodity boom has been a bonanza Venezuela 83.1% Peru 70.7% Chile 59.1% Colombia 46.3% Argentina 38.0% Brazil 29.6% Mexico 14.6% Latam 31.2% Source: BBVA over total exports (2004) Exports of commodities 60 70 80 90 100 110 120 130 140 150 160 170 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source: BBVA BBVA-MAP Index of Latin America commodity prices (100 =jan03) TOTAL Without oil
  • 13.
  • 14.
  • 15. 1 Latin America: the challenge of diversification Suspects: who’s to blame? 2 Country narratives: building new areas of CA 3 Conclusions 4
  • 16. Brazil: Trade openness and the catching-up process Successful Asian emerging countries were able to simultaneously combine growth with trade opening. Brazil has recently started to open up its economy. In 2005 the trade surplus reached a record USD 45 billion, an increase of 33% yoy (in spite of a 13% appreciation of the Real).
  • 17. Within the 50 LATAM companies that had greater profits in 2004, 19 are Brazilian, with an average utility over sales of 18%. The average ratio of exports over total sales was 32%. The 50 most profitable firms 19 16 7 3 1 1 1 1 1 0 5 10 15 20 Brazil Mexico Chile Argentina Colombia Ecuador Panama Peru Venezuela Source: America Economia 2005 Source: America Economia 2005 Brazilian firms are beginning to increase activities overseas
  • 18.
  • 19.
  • 20.
  • 21. 1 Latin America: the challenge of diversification Suspects: who’s to blame? 2 Country narratives: building new areas of CA 3 Conclusions 4
  • 22. Some of the main challenges facing LATAM are to push forward the competitiveness agenda to boost productivity, diminish transaction costs and overcome inefficiencies. Conclusions Domestic reforms, coupled with market access in OECD and regionally have been fundamental for the emergence of new industries, often building on the natural resource wealth Export sophistication remains low and the emergence of CHINDIA, pushing commodity prices up, could be a double-edged sword Market niches are a moving target: a need to constantly adapt and improve/create new areas of competitive advantage Slow advancement in multilateral liberalisation would be detrimental for LATAM and, in any case, cannot be an excuse for delaying much-needed domestic reforms.
  • 23. Thank you for your attention!