Innovation and Competitiveness for Spurring Growth. IFC Jobs Study Launch January 15, 2013

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Brett Gregory Shaw
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1 Innovation and Competitiveness for Spurring Growth IFC Jobs Study Launch January 15, 2013

2 Jobs needed by

3 Is there a link between jobs, private sector, and poverty reduction? 3

4 Growth and poverty reduction depend on labor-intensive sectors

5 As achieved Bangladesh since 1990 s with the Garment Industry

We strive to replicate what successful countries did to achieve sustained economic growth Economies identified by the Growth Report as development success stories Used industry approach Did not

6 We strive to replicate what successful countries did to achieve sustained economic growth Economies identified by the Growth Report as development success stories Used industry approach Did not Success story Growth, 1960s to 2005 % change p.a. in income per capita High growth period Results 8X per capita incomes 700m people out of poverty 90% focused on specific industrial sectors and explicit actions to boost innovation and technological upgrade 1 Period in which GDP growth was 7 percent per year or more, according to Growth Report Source: The Growth Report, Commission on Growth and Development, 2008; literature search; team analysis 6

7 What? (and why are countries so interested?) By creating the conditions to allow firms and industries to compete successfully in the global marketplace, while also raising the standard of living of people in the home country, spurring the creation of sustainable, higher-value-added jobs But each country has its own reason How do we escape the middle-income trap (ECA) How can we generate investments and jobs, while decentralizing (LAC) How do we make growth inclusive and sustainable (EAP / SAR) How do we avoid the natural resource curse (AFR / SAR) How can we create good, sustainable jobs and reduce inequality? (MNA and everybody else!!) 7

8 How about global VCs? German Transport Sector Source: World Input-Output Database (WIOD), 8

9 ACCELERATING GROWTH THROUGH SECTOR COMPETITIVENESS Morocco Auto Parts Exports Sector Competitiveness Story Revenue of $1.8 billion annually, of which export revenue is $1.5 billion (2006). 60 component manufacturers (2006). Employment: 28,000 workers (2006). Export Business Growth of 25% annually. Proximity to 28 production sites in France, Spain and Portugal. Annual Production of Moroccan Auto Parts Until 2004 Source: Automotive Industry Morocco A competitive Sourcing Platform Nov 2006 Sources: Moroccan American Trade and Investment Center USAID: Potential US Market for Moroccan Auto Companies Public Policies and Public-Private Collaborations Government incentives in the form of SEZ, subsidies and tax rebates As part of emergence plan export tax rate is 17.5% instead of standard rate of 30%. Government set up of Automotive City, a free zone dedicated to automobile industry, which will be operational by Renault set up plants in the Tanger-Med Special Free Zone. FTAs resulting in cost effective sourcing arrangements. Focus on high value-added components, such as wiring systems and automotive textiles. 9

Competitive Industries Practice Example of agribusiness ecology Illustrative constraints to growth at the industry level 1. Tax and regulations e.g. Trade restrictions Demographics Endowment Fertilizer Machinery supply & maintenance 2.

10 Competitive Industries Practice Example of agribusiness ecology Illustrative constraints to growth at the industry level 1. Tax and regulations e.g. Trade restrictions Demographics Endowment Fertilizer Machinery supply & maintenance 2. Infrastructure e.g. Feeder roads Grain mill products Edible oils Beverages Market creators Snack / spice producers Trucking & distribution Intermediators 1 and SMEs Foundation Factors 3. Access to Finance e.g. Credit bureaus Country Factors Crop production Trade services 4. Skills e.g. Food scientists Lack of private sector coordinating body (to set and regulate quality standards & enable access to export markets). Lack of mechanisms or institutions to pool resources for market intelligence and promotion 5. Technology e.g. Food research institute Regulations distorting supply and prices of key inputs, e.g. tariffs and import restrictions, transport regulations Investment barriers to provision of inputs at low cost and high availability (e.g., fertilizer plants, trucking firms) Low availability or high cost of finance for contract farmers and entrepreneurs Low-quality transport infrastructure increasing costs of produce delivered to plants as well as export costs High cost or low availability of power and water Absence of mechanisms for investing in and diffusing new or improved Political economy technologies Cross-cutting investment climate issues, e.g., on trade or business registration procedures 10

11 This is not only about on investment or technical assistance: this is about simultaneously bringing cutting-edge knowledge together with public lending (IBRD) and private sector investment (IFC and Private Sector). 11

12 How can we structure IFC/WB (WBG) programs to spur growth? ECONOMY WIDE Macrostability, investment climate reforms and innovation policies INDUSTRY LEVEL Interventions and innovation support at industry-level bringing together public and private sectors to unlock value chains and clusters FIRM LEVEL Mentoring, networking and financing support to grass roots and entrepreneurs, direct investments and advice to firms 12

13 Focus on the eco-system

14 Questions to ourselves Did we productize too much and limited our ability to put together the right combination of solutions to address the binding constraints? How can we enhance our sector-focus? There are great examples of WBG collaboration (and IFC AS BL)? How do we make it systematic for results? Do we have enough understanding and/or focus on global VCs and the investment tools to target clusters/value-chains? 14

15 Appendix 15

Competitive Industries Practice Competitive Industries policy is not traditional industrial policy Competitive industries is Nurturing industries with good governance and checks and balances Creating

16 Competitive Industries Practice Competitive Industries policy is not traditional industrial policy Competitive industries is Nurturing industries with good governance and checks and balances Creating healthy competition with safeguards Creating public goods Leadership from private sector and championing from public sector Employing and flexibly adapting multiple tools and frameworks Scaling up success and shutting down failure in a nimble fashion Vs it is not Picking winners Helping rent seekers Central planning Government in control Unitary, cookie-cutter approach, whether clusters or any other Once-and-for-all policy formulation without exits or capacity to scale 16

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