Managing Competitive Advantage: The Values of National Strategy Confirming Value: Export Strategy Performance Measurement Ghana Executive Forum Montreux, Switzerland 25-28 September 2002
1 Contributed by: THE PRIVATE ENTERPRISE FOUNDATION 1.0 Introduction 1.1 It is now generally accepted that export-led growth strategies can be critical for achieving the development goals of Developing and Transition Economies. For this reason, export strategies and work programmes are being increasingly adopted in many countries. But these export strategies involve an outlay and deployment of resources for which some form of accounting or evaluation and justification need to be provided. It is also necessary to demonstrate whether the strategies are effective or not. For these and other reasons, export strategy stakeholders need to engage in performance measurement and strategy evaluation. The information yielded from such measurement and evaluation will usually confirm the value of the strategy adopted. 1.2 In this paper, drawing on the Ghanaian experience, an attempt will be made to explore why export strategy measurement is important, and also what aspects of the performance may be subjected to measurement. Consideration will also be given to exploring how performance may be measured. By this means, it is hoped that a useful contribution would have been made to the discussions on measuring export performance for confirming the value of export strategies. 2.0 Why measure performance 2.1 Performance measurement and evaluation can justify increased or at least continued support for export strategy deployment. The fact is that, in most developing and transition economies, such as Ghana, resource availability is not to be taken for granted. This may happen even when national policy specifically prescribes an export-led strategy, such as occurred in Ghana when the national Economic Recovery Programme (ERP), which was predicated on an export-led growth strategy, was launched in 1983. 1 As a response to the ERP, the national focal point trade development and promotion institution, the Ghana Export Promotion Council (GEPC), launched a Short Term (3-year) Non-Traditional Export Development Plan (1988-1990). Notwithstanding the ERP, the GEPC never received full budgetary support. The review and evaluation report on the plan observed as follows: "as a subvented organization, the GEPC budgetary allocations were not enough to undertake most of the activities for which local funding was required" 2 Measurement, and certainly evaluation, helps to justify the activity. This objective is rarely stated, and sometimes may even be sub - conscious. At any rate, it can be counted upon to lead to an evaluation with findings which are always useful, whether such findings are positive or not. 2.2 Performance measurement and evaluation can help to select the most effective types of activities for achieving particular tactical objectives. A record of measurements and evaluations conducted over a period of time can provide guide lines for selecting 1 In 1983, Ghana adopted an Economic Recovery programme under which Structural Adjustment programmes were undertaken by Government with the assistance of the Bretton Woods Institutions. 2
one or a mixture of activities in developing a subsequent export strategy. Thus, in 1993, the USAID provided assistance to Ghana under the Ghana Trade and Investment Programme (TIP), which was a five year $80 million initiative to increase private sector non-traditional exports. That program was based on data, statistics and evaluation reports generated from previous GEPC work done under its 3 year Short Term Plan. 2.3 Additionally, measurement and evaluation can help to improve organization and methods by identifying strengths, weaknesses and problem areas. In this way, guidelines for resource allocation can be better formulated based on past performance. So for example, it will be possible to provide indications as to which markets are showing best results in response to specific promotional activities in relation to one product or the other. So the results of the 3 year Short Term Plan, for example, indicated clearly that Ghanaian fresh agricultural produce had better prospects in Western European markets while West African Regional markets held better prospects for manufactured and processed products. 2 2.4 In sum, performance measurement and evaluation are useful for reviewing the scope and effectiveness of export strategies. They constitute important management and policy making tools as they provide guidelines for the best course of action in a particular situation. Thus performance measurement and evaluation activities need not be employed just to satisfy funding agencies, though the existence of performance measurement and evaluation results can enhance the chances of attracting donor assistance. 3.0 Performance Measurement Issues: What and How 3.1 Generally, strategies are about the establishment of objectives. It is obvious that the stated objective of an export strategy would be an increase in exports. But just as every good strategy should have measurable objectives, so should the stated objectives in export strategies provide a basis for measuring and evaluating the results of the strategic activities. Unfortunately, it is often difficult to measure the impact on exports of an export promotion programme. Too many other factors enter into play, including economic conditions in the market, events and conditions at home, and so on. 3.2 Common sense suggests however that where an active export promotion programme has been mounted in a particular market for several years, and there has been an increase in exports to that market during this period, (beyond the historic growth trend) then the promotion programme probably contributed to it. The reverse is also valid. But evaluation requirements demand more precise, direct and solid answers. 3.3 In response to this dilemma, some suggest three levels of performance measurements. The first focuses on inputs, the second on outputs and the third on outcomes or impact. In this scenario, input measurements can be expected to focus on resources deployed expressed in money value terms or as costs. The outputs could be expressed either in money value terms or some other quantifiable units, for example, "the number of exporters increased from 200 to 300". Impact, is the most difficult to measure. It has been suggested that surveys provide the tools for measuring this. 2 Medium Term (5-year) Non-Traditional Export Development Plan (1991-1995) GEPC Nov. 1991 3
3.4 It would seem however that the most feasible way to deal with this problem is to frame the objectives in an export strategy by basing the measurements and evaluation in terms of causing "desirable events" which are often called "immediate objectives". These are events which must happen if the ultimate objective is to be realized, or can contribute to the realization of the objective. The desirable events become indicators of results. 3.5 Proceeding from that point, it may be recalled that the ultimate objective of an export strategy is an increase in exports. But what indicators or "desirable events" can contribute to showing that as a result of the strategy there has in fact been an increase in exports? Examples may be as follows: - increase in exports of specific products within X years after the strategy, - increase in market share, - increase in value of confirmed orders, or - increase in number of buyers purchasing from the market the first time. The challenge for viable performance measurement and evaluation then lies in how skillfully the objectives can be framed. 3.6 It helps to have the objectives expressed in quantitative terms, to the extent that reliable data on results can actually be obtained in those terms. Over a period of time, the results of performance measurements and evaluations will provide a basis for formulating increasingly realistic and useful objectives. 3.7 Export strategy performance measurement and evaluation results should indicate the cost effectiveness of the strategy. This is the common denominator needed by decision makers for choosing their promotional options, and to provide the necessary justifications that will secure support for the strategy and the agency itself. If an export promotion activity costs $50,000 to deliver, but the exports that emanated from that activity are only $60,000 then there will be a difficulty in gaining future support for the programme. Full cost data measurement and evaluation can enhance the value of the results. 3.8 It may be observed that a successful performance measurement and evaluation operation has its foundations in two sources. First, the strategy document itself which must provide clear, quantifiable objectives and activities to be followed. Second, there must be a comprehensive system established to capture trade information and data in a sustainable and consistent manner. It is when these two attributes are brought together that it is possible to discern a perceived movement in one direction or the other. Accordingly, carrying out the activities required under the strategic plan is as important as the activities involved in capturing data and information. Often, little or no attention is paid to the task of developing, maintaining and running a credible trade information system. But this really forms the bed rock for strategic work. 4.0 The Ghana Experience: Background 4.1 Export Trade plays a strategic role in the growth path of Ghana s economy profoundly. A change in exports affects almost all sectors of the economy, specifically investment, revenue and expenditure. It is in recognition of the importance of exports in Ghana s economy that the Ghana Export Promotion Council (GEPC) was established as a statutory agency in 1969. The mission of the GEPC, the focal point public sector agency for export promotion, was to promote exports in any manner which the Council thought necessary or desirable. 4
4.2 In the last hundred years or so, Ghana's export trade has been dominated by cocoa beans, gold and other minerals and timber exports. By 1980 Ghana's economy was in crisis. This was attributable to increasing population, increasing expenditure on social development, the collapse in commodity prices on international markets, increasing costs of imported manufactured products and the oil shocks of 1973/74. An economic recovery programme (ERP) was launched by the Government, with assistance from the Bretton Woods Institutions and other donors, to resuscitate the economy. The ERP was thus predicated on an export-led strategy for growth. 4.3 In implementing the ERP, initial attention was focused on the resuscitation of the traditional export sectors (cocoa, gold (mining) and timber) as well as the services and infrastructures needed to support them (ports, roads, finance, etc.). The targeted sectors responded positively by showing significant increases in export volumes and earnings. Thus, for example, in the case of cocoa, export volumes rose from a low of 150,000 tons in 1981 to 350,000 tons by 1986. This has now stabilized around 450,000 tons per annum. However, notwithstanding these increases, the balance of trade continued to suffer significant deficits. It may be observed that this persistent deficit in the national trade balance constitutes the heart of the development challenge that confronts Ghana's economic managers., as is probably the case for most other developing countries. 4.4 A further response under the ERP was to adopt strategies for diversification and value addition in Ghana's exports. It is in direct response to this that a re-organized and re-surgent GEPC launched the 3 - year Non-Traditional Export Development Plan in 1987 to cover the years 1988-1990. This short term Export Strategy has been followed by a Medium Term Five Year Plan (1990-1995), the Trade and Investment Programme (TIP) funded by USAID, and its sequel Trade and Investment Reform Programme (TIRP). Following the implementation of these export Development and promotion strategies, Ghana's non-traditional exports (NTEs) have grown from under US$ 2 million in 1984 to over US$ 400 million in 1999, and up to US$ 460 million as at the end of 2001. 4.5 While acknowledging the phenomenal growth in non-traditional exports over the period 1984 to date, the problem regarding the deficit in the trade balance remains. Accordingly, new strategies may need to be deployed to revive upward growth in NTE performance. 5.0 The Ghana Experience: Lessons 5.1 The first observation one may venture in respect of the Ghanaian experience is that, the national response to the economic crisis in the early eighties was to adopt an economic recovery programme (ERP) based on an export-led strategy. In this respect, the initial objectives were focused on resuscitation of the traditional export sectors. 5.2 The second, and perhaps more intriguing, observation is that the national focal point trade promotion agency, GEPC, leading off from the ERP, mounted a series of Export Development and promotion plans based on a strategy of diversification. Hence the focus on NTEs. 5.3 The third observation is that the series of strategic plans mounted by GEPC set out objectives expressed in increasingly specific quantitative terms. Thus under the USAID supported TIP for example, the over aching objective was stated as 5
"...increasing private sector non-traditional export". Accordingly, the end of the program status (EOS) and Output Indicators were specified as follow: - - an increase in the nominal value of NTEs US$62 million in 1991 to US$250 million by end of TIP; - an increase in the number of firms participating in NTEs by 1,500 from the 1991 total of 2,822; - an increase in real per capital income of persons engaged in NTEs by 5% per annum; and - at least 60,000 new full time NTE related jobs created. These TIP program objectives were supported by a comprehensive array of specific activities and conditionalities that were quantifiable and therefore provided bench marks which could yield measurable results. Thus, under Overseas Based Trade Services for instance, TIP required that "Export market entry and expansion assessments will have been conducted for 100-150 firms." 3 This is a good example of specific and measurable "immediate objective" which results in a "desirable event" that can contribute to the realization of the overall objective of the strategy. 5.4 A fourth observation is that the TIP as a strategic plan, relied heavily on results and lessons learnt from previous work done in respect of export strategic planning and execution, such as the 3 - Year Short Term Plan. To illustrate the value of performance measurement and evaluation in providing guidance for future action, one may consider this piece from the TIP project document:. "The GEPC has prepared a five year export development plan for the period 1991-1995. Under this plan, NTEs are projected to grow annually by about 29%, reaching a level of US$335 million by 1995. This would give NTEs a 15% share of total exports by 1995. In overall terms, the estimates seem to be overly ambitious, however, the choice of products is in line with what might be feasible for Ghana's present stage of development" 4 This illustrates how the strategic process feeds on itself to achieve forward movement through a reliance on performance measurement results of previous strategic activity. 5.5 This should lead to a fifth, and perhaps, the most important observation regarding the establishment of a credible, consistent and reliable trade information system. Such a system actually establishes the measurement process and provides for the collection of results, processing and presentation of the data in a form that can be usefully applied for evaluation and assessment. In a situation where the national data and information systems are slow and therefore can provide mostly out dated information, 3 The Ghana Trade and Investment Program (TIP) supported by USAID covered the period 1993 to 1998 (5 years) 4 Ghana Trade and Investment Program (TIP), US Agency For International Development, Project Assistance Approval Document (641-0125; 641-0126) pp 16 Chp. 2.2.1 6
or are unreliable, or even non-existent, the need to consider the establishment of a competent trade information system as a necessary basis for successful export strategy performance measurement becomes imperative. 7
5.6 The GEPC response to this challenge, beginning from the mid-eighties, was to develop an in-house Non-Traditional Export Performance Trade Information System. The success of the system was guaranteed by obtaining inter-institutional cooperative support from statutory bodies having control over one aspect or the other of the Trade Information Process. In this regard, one may make reference to institutions such as the Ghana Customs, Excise and Preventive Service (CEPS), the Bank of Ghana (central bank), the Ministries of Finance and Trade; and the national Statistical Services Bureau. Strong awareness programmes including award schemes were mounted to encourage cooperative participation by the exporting firms. The system is based on the export declaration forms required by law to be completed by all commercial exporters at the points of exit. These are submitted to, CEPS for verification and collection at the exit points. 5.7 The GEPC system pro-actively obtains copies of these completed export forms on a monthly basis from all the exit points. The information is digitized by employing a handful of desk top computers using a specially developed software for processing the data. The performance data is compiled and published quarterly and annually, as provisional information on NTE performance. Due to its currency and general accuracy the GEPC data has become the main tool for export strategy measurement and management in Ghana, as it can be used for plan monitoring purposes as well. 5.8 The GEPC performance data, captures and tracks every NTE product exported during the year. New entry products and those that fall out are thus easily identified. The system provides information on the number of products exported in the year, so that, for example, it shows that 239 NTE products were exported in the first quarter of 1998 as against 247 products during the same period in 1999. The system also provides information on the exporting firms. It shows how many and which firms have exported, which products they exported, the frequency of the exports, the value and volume of such exports per transaction and totals. GEPC conducts periodic surveys to verify the information gathered from the documentation to enhance the veracity and reliability of its information. 5.9 Given the capacity for measurement of performance results developed under the GEPC system, it is possible to monitor, assess and evaluate export strategy performance in Ghana. Thus, in respect of the 3-year Short Term Plan, it was possible to conclude that the plan targets set for export revenues were exceeded as follows: Targets and Results: 3 - Year Plan (US$ millions) Year Target Result 1998 32.667 42.346 1989 36.335 34.719 1990 50.898 62.340 Using the TIP experience as another example of how the GEPC system for the measurement of performance enables one to confirm the value of an export strategic plan, one may consider a review of some of the TIP objectives (EOPS) and results as follows: TIP/EOPS (a) - an increase in the nominal value of NTEs from US$62 million in 1991 to US$250 million by end of TIP. Results: - Nominal value of NTEs for 1998 (end of TIP plan period) was US$ 401.71million
TIP/EOPS (b) - an increase in the number of firms participating in NTEs by 1500 from 1991 total of 2,822. Results: - number of firms engaged in NTEs fell to 2,760. An evaluation of these results against the objectives thus provide a basis for new strategies and policies based on the knowledge and awareness that increased export revenues can be achieved without having to increase the number of firms engaged in exports. 5.10 The GEPC system therefore, is a unique example for measuring export strategy performance. The value of the system lies in its currency, reliability and credibility; attributes which are now generally acknowledged. In a recent work by a group of researchers to decipher the cause of the stagnation of NTE earnings around US$ 400 million from 1998 to 2000, it was stated as follows: "Using excellent statistical base of the Ghana Export Promotion Council (GEPC), the study looked at 51 products, which accounted for 86.5% of NTE exports by value. Since the quantities of each product were given, unit prices were generated. Indices of process and quantities were also generated for the years 1998, 1999 and 2000 with 1998 as the base year. The study reveals that, in general, the cause of stagnation of NTE export earnings was not due to stagnation in the quantity of exports, but rather as a result of the fall in international prices." 5 5.11 It is important to point out, however, that the GEPC system, notwithstanding all its strengths, still cannot fulfill all the performance measurement needs of the export strategy environment. Often, it becomes necessary to gather data and information by other means, such as by surveys, to provide a sense of measurement and for evaluation. So, where the TIP EOPS requires that at least 60,000 new full time NTE related employment opportunities should have been created for men and women by end of programme, it would be necessary to conduct a survey of the exporting firms to generate information additional to that available in the GEPC system to establish movement or otherwise, to confirm value. 5.0 Conclusion 6.1 Developing and transition economies need to develop and deploy export strategies as part of their development agenda. In the process, however, systems of measurement need to be installed to confirm the value of the strategies so deployed. The Ghanaian experience suggests that, operating from a small resource base, it is possible to establish a reasonably reliable and relevant system for measuring export strategy out turns. The proviso, however, must be that the strategic plans themselves must be well prepared with clearly defined and quantifiable objectives specified. 5 Paper: Non-Traditional Exports Sector: More Dynamic than the Aggregate Numbers Suggest - prepared by: J. Goodwin, E. Owusu-Afriyie, E. Addison and A. Gockel. Working Paper No. for TIRP, Sigma One Corp. March 2002. 9