THE PRIMACY OF INDUSTRY Ø Industry matters for

THE PRIMACY OF INDUSTRY Ø Industry matters for MDGs (the role of industry in filling the gap between the required growth rate and actual growth rate) Ø Industry-led growth makes a difference (e. g. , recent development experience of Tanzania)

TWO SIMPLE QUESTIONS TO UNDERSTAND COMPLEX ISSUES CONTAINED IN THE REPORT 1) What drives world trade? 2) Why some countries are doing better than others?

THE ROLE OF MANUFACTURED EXPORTS IN TOTAL EXPORTS

THE ROLE OF MEDIUM- AND HIGH-TECH PRODUCTS

KEY FOCUS OF THE REPORT: DIFFERENCE BETWEEN TECHNOLOGY AND SOPHISTICATION Ø Low-, medium- and high-technology products (hardware) Ø Organization, quality, design, logistics and marketing (software), leading to the production of sophisticated products across all segments of manufacturing

U-SHAPED SPECIALIZATION, INDUSTRIAL DIVERSITY AND GROSS DOMESTIC PRODUCT PER CAPITA: WHAT YOU MAKE MATTERS FOR BREAKING IN AND MOVING UP

DIVERSIFYING PRODUCTION AND MOVING UP THE PRODUCT SOPHISTICATION LADDER APPEAR TO BE IMPORTANT DRIVERS OF DEVELOPMENT (PRODUCTION SOPHISTICATION)

DIVERSIFYING PRODUCTION AND MOVING UP THE PRODUCT SOPHISTICATION LADDER APPEAR TO BE IMPORTANT DRIVERS OF DEVELOPMENT (EXPORT SOPHISTICATION)

DIVERSIFICATION AND PRODUCT SOPHISTICATION: KEY FINDINGS Ø China and India stand out. In 1975, both economies had structures of manufacturing production that were significantly more sophisticated than those associated with their level of per capita income. Ø Among African countries, Kenya and Tanzania maintained production structures that were more sophisticated than their predicted income levels. Ø If a country remains well below its predicted level of export sophistication according to its level of per capita income, the country fails to perform well at the export front despite high level of production sophistication at home.

PICTURES TAKEN FROM AN ETHIOPIAN MANUFACTURING UNIT PRODUCING SOPHISTICATED LEATHER PRODUCTS: TASK -BASED PRODUCTION OFFERS DEVELOPING COUNTRIES THE SAME OPPORTUNITIES TO CLIMB THE MANUFACTURING SOPHISTICATION LADDER

PRODUCTION OF SOPHISTICATED PRODUCTS ACROSS ALL MANUFACTURING SEGMENTS POSSIBLE AND PROFITABLE AS EVIDENCED BY THE ETHIOPIAN EXPERIENCE IN PRODUCING LEATHER PRODUCTS AND EXPORTING THEM TO OECD COUNTRIES, WITH UNIDO TECHNICAL ASSISTANCE

SOPHISTICATED LEATHER PRODUCTS MADE IN ETHIOPIA AT AN INTERNATIONAL EXHIBITION IN NEW YORK

UNIDO technical assistance enabled informal manufacturers of leather products to break in and move up.

WHERE YOU MAKE MATTERS: Agglomeration of firms entails economies of scale external to firms and internal to a group of firms.

THE LOCATION OF MANUFACTURING PRODUCTION Ø Agglomeration economies raise the productivity of firms in industrial clusters (an atypical trend in Ethiopia: Clustering of firms producing differentiated products resulted in higher productivity growth) Ø Clusters matter in low income countries

THE LOCATION OF MANUFACTURING PRODUCTION: CASE STUDIES OF 10 DYNAMIC CLUSTERS SHOW THE RANGE AND EXTENT OF AGGLOMERATION ECONOMIES AND DIFFERENT SOURCES OF INDUSTRIAL DYNAMISM

THE GROWING ROLE OF MANUFACTURED EXPORTS

CHANGING DIMENSIONS OF MANUFACTURED EXPORTS • Developing countries are increasing their market share of manufactured exports • East Asia dominates manufactured export growth • Export diversity and sophistication spur growth, especially in middle income countries • Trade in tasks is growing

THE GROWING ROLE OF EXPORTS: DEVELOPING COUNTRIES HAVE GAINED MARKET SHARE IN ALL CATEGORIES OF MANUFACTURED EXPORTS, 2000 -2005

SOURCES OF GROWTH IN MANUFACTURED EXPORTS BY REGION Growth in exports = Growth in global demand + Geographical shift in production + Change in export propensity

SOURCES OF GROWTH IN MANUFACTURED EXPORTS BY REGION, 1991 -2005 (PERCENTAGE)

THE GROWING ROLE OF MANUFACTURED EXPORTS: TASK-BASED TRADE HAS GROWN EVERYWHERE

IMPLICATIONS FOR INDUSTRIAL DEVELOPMENT • Is there room at the bottom to break in? • How to reduce the pressure in the middle to move up?

ROOM AT THE BOTTOM IN SLOW-GROWING LOWINCOME COUNTRIES Key challenge: Products of the first and second generations of NICs and emerging economies Sense of optimism: The role of China; trade in tasks; supportive policies in developed countries; and leveraging agro-industries 120 innovative ideas were presented at the recent "UNIDO International Conference on Sharing Innovative Agribusiness Solutions“, held in Cairo, Egypt. http: //www. agribusiness-solutions. org/

REDUCING THE PRESSURE IN THE MIDDLE TO MOVE UP Key challenge: Failure to keep pace with the rapidly changing facets of processing, design and marketing Escaping the pressure: Ø Enhancing adaptive and technological capabilities and incremental learning Ø Supporting the growth of dynamic exports Ø Enhancing innovative capabilities to capture “niche” markets

IMPLICATIONS FOR POLICY ACTION IN SLOWGROWING COUNTRIES Key issues: High cost of production and doing business; and low science and technological base Ø Changing expenditure priorities and investment efforts on creating infrastructural base should not be eroded by unit costs (e. g. , less kilometers of roads paved at high cost) Ø Break public monopoly and encourage private sector competition in infrastructure provision Ø Convince donors on the inclusion of industrial development as an integral part of poverty reduction strategy papers Ø Implement trade logistics reforms

THE POLICY SPACE (Continued) Ø Ø Ø Exploiting the transformative role of IT (e. g. , India) Encouraging firms producing differentiated products to agglomerate Fostering effective public private partnership A success story of partnership in Nicaragua: An apex body of eight cooperatives representing over 700 small milk-producing and processing units was established by UNIDO in 2000; 337 kilometres of new energy lines built by the government made a breakthrough in milk production and processing; 271 kilometres of road rehabilitation is underway for further enhancing the impact of public private partnership.

THE POLICY SPACE (Continued) Ø Strengthening the science and technological base as well as innovation systems Ø Regional economic cooperation for creating strong infrastructural base and facilities

THE POLICY SPACE: RESOURCE RICH COUNTRIES • Difference between manufacturing profit and economic rent • Policies for knowledge services and construction • Linking it to manufacturing: Investments to offset the impact of Dutch disease— through infrastructure and skills—offer an important path towards an alternative export sector for those resource-rich countries

POLICY IMPERATIVES FOR DEVELOPED COUNTRIES • Why the rich countries should care? – Closing the income gap – Sustaining the “NICE” times • Trade preferences – Creating the “Least Developed Manufacturing Countries” – A simple, time bound system with liberal rules of origin • Aid for Trade – Putting trade at the center of the development agenda – Mobilizing additional resources and coordinating donor efforts

POLICY IMPERATIVES FOR DEVELOPED COUNTRIES, Aid for Trade (Continued) Within a relatively short time (2000 -2006), UNIDO intervention, funded by Norway, managed to establish seven internationally accredited testing laboratories covering chemical testing, microbiology testing, rubber/plastics testing and food analysis, and thereby enabled the Sri Lankan exporters to comply with international standards.

RANKING COUNTRIES ON THE SCALE OF COMPETITIVE INDUSTRIAL PERFORMANCE (CIP) The CIP index combines four main dimensions of industrial competitiveness: 1) Industrial capacity 2) Manufactured export capacity 3) Industrialization intensity 4) Export quality

CIP (continued) Six quantitative indicators are used to measure those four dimensions: • Industrial capacity: MVA per capita • Manufactured export capacity: Manufactured export per capita • Industrialization intensity: share of manufacturing in GDP and the share of medium- and high-technology activities in MVA • Export quality: share of manufactured exports in total exports and the share of medium- and high-technology products in total exports

CIP (continued) The combined indices for the four dimensions are simply calculated as the arithmetic mean of standardized values. The top country in the sample gets a 1 while the worst performing country gets a 0. Singapore tops the list.

WHY DOES SINGAPORE TOP THE LIST OF 122 COUNTRIES ON THE SCALE OF COMPETITIVE INDUSTRIAL PERFORMANCE? 1) Effective national industrial innovation system 2) Enhanced domestic capability building 3) High level of functional literacy rate (high percentage of literatures with enhanced adaptive capabilities to use modern technology and device and to commercialize new knowledge)

TWO FINAL POINTS TO PONDER • The Report is not a doctrine. • The Report is an analytical tool to rethink the long-term industrial development realities

Thank You