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Competitiveness: Analytic Tools and Approaches
Norwegian Trust Fund Meetings
June 2005
Investment Climate UnitThe World BankWashington DC
2
Development Objective
Red TapePoor Productivity
Costly and
unreliable
UtilitiesLogistics
Competitiveness
Labor Cost
Corruption
Catalyze reform through addressing concrete issues affecting competitiveness
Competitiveness = f (Input Costs, Transactions Costs, Productivity)
3
Focus on Two Products
1. Global Logistics Indicators
Benchmarking across 137 countries (Doing Business 2006)
2. Value Chain Analysis
Process mapping of strategic products in terms of time, cost and value added to get at underlying factor and product market
constraints
4
1 Packing of consignment in factory 522 Loading onto 1 Nepalese truck 23 Trucking from factory to Birgunj over distance of 165 km 244 Customs clearance and containerization at Birgunj 845 Trucking to Indian border at Raxaul 8 6 Overnight wait to cross over to Indian Customs at Raxaul 10 7 Customs clearance at Raxaul (fees, informal payments, etc. 5 8 Line haul trucking to Calcutta 220
9 Waiting to enter Calcutta Port 9610 Unloading at Port 111 Customs inspection, tech clearance, terminal handling 20412 Other terminal charges (river dues, labor fund contr., etc. -14 Liner shipping from Calcutta Port to Bremen Port 528
Points of inefficiency:
Border crossing procedures
Customs
Port and terminal inefficiency
0 100 200 300 400 500
Process 1
Time (hours)
Process 2Process 3Process 4Process 5
Example: Carpet exports from Nepal to Germany
1. Global Logistics Indicators
5
A Streamlined Framework
Process 1
Process 14
Process 2Process 3Process 4Process 5
PORTS
CUSTOMS
BUREAUCRACY/ REGULATIONS
Pre-Arrival or Shipment Activity
Inland Transportation
Border Clearance
Port &Term Handling Activity
6
Key Metrics
TIMETIME
COSTCOST
TIMERELIABILITY
TIMERELIABILITY
Logistics Indicators Logistics Indicators
INFORMATION COMMUNICATION TECHNOLOGY
INFORMATION COMMUNICATION TECHNOLOGY
7
Key Indicators
PORT PERFORMANCE
PORT PERFORMANCE
CUSTOMS PERFORMANCE
CUSTOMS PERFORMANCE
BUREAUCRACY/REGULATIONS
BUREAUCRACY/REGULATIONS
Customs clearance time and cost (aver. & max)
Technical control time and cost (aver. & max)
Percent of containers inspected
Level of inspection (comprehensive; risk analysis based)
Customs clearance time and cost (aver. & max)
Technical control time and cost (aver. & max)
Percent of containers inspected
Level of inspection (comprehensive; risk analysis based)
Time for processing a typical trade order
Cost for processing a typical trade order
Number of signatures; Number of documents
Number of Agencies
Time for processing a typical trade order
Cost for processing a typical trade order
Number of signatures; Number of documents
Number of Agencies
Vessel turn-around time
Port and Terminal charges
Number of Days the Port did not function
Costs and time to comply with additional security measures
Vessel turn-around time
Port and Terminal charges
Number of Days the Port did not function
Costs and time to comply with additional security measures
Focus Areas Examples of Indicators
8
InfrastructurePolicy Institutions
DeliverMakeSource
Yarn
DeliverMakeSourceApparel
DeliverMakeSourceDeliverMakeSource
Textile
DeliverMake
CottonSource
2. Value Chain Analysis
9
Value Chain Analysis: Elements
RecommendationsRecommendations
WB policy advocacy/ lending
IFC investments/ technical assistance
Public-private dialogue
Value Chains/ Sectors
Selection
Value Chains/ Sectors
Selection
Measure Performance and
Benchmark
Measure Performance and
Benchmark
Overview of Industry Structure
Overview of Industry Structure
Size
Growth Potential
Poverty
Gender
Policy relevance
Linkages
Market share /trends
Price trends
Competition levels
Links to global value chains
Technological trends
Global policy trends(Trade; CSR)
Government failures
Market failures
Explain Performance
Gaps
Explain Performance
Gaps
Factor costs
Transaction costs
Value added
Productivity
Tariffs (e.g. import duties) Non-tariff barriers Infrastructure/ utilities service quality, price Regulatory barriers and enforcement Administrative barriers Market structure and Competition policy Factor market rigidities Price restrictions / Subsidies Product quality and standards CSR (environmental and social standards)
10
Example: Honduran Apparel Industry
- US $2.5 billion exports
- 16 % growth rate in 2003
- > 120,000 jobs created
( 75-80% women)
- Value added - US$ 500 mill.
- Key drivers:
CBI (89% of Honduran exports qualify)
Proximity to US market
- Regional : CAFTA
- Global: MFA phaseout
11
Is Honduras Competitive?
US $1.25Mexico
US $1.22Honduras
US $1.47China
Production of a cotton T-shirt
4 days
4 days
10 days
Order to Delivery: Lead Time
12
0.75 0.74 0.67
0.260.2
0.16
0.180.18
0.18
0.06 0.09
0.12
0
0,2
0,4
0,6
0,8
1
1,2
1,4
1,6
Mexico Honduras China
Quota & Tariff
Freight
Margin
Labor
Cloth & Inputs
US
$ p
er
un
it
US$1.25 US$1.22 US$1.47
Source: E. Dussel 2000, Interviews, ELCATEX, Interviews, Estimates
0.34
Cost Structure
13
Value Chain Distribution of Costs
40% 17% 5% 4% 4% 30%
Energy Raw Material Labor Freight Distrib Retail Markup
100%
One dozen T-shirts: FOB US $21
Imported yarn and fabric from US constitutes 60% of production cost
Raw material costs on average are 30% higher than China
LAC labor costs are three times as much as Asia
14
0.21
0.22
0.28
0.31
0.38
0.38
0.41
0.48
0.58
0.7
0.7
0 0.2 0.4 0.6 0.8
Indonesia
Vietnam
Bangladesh
Pakistan
India
Kenya
Sri Lanka
China
Bulgaria
Rusia
Filipinas
Asian labor costs
US$/ Hour
Source: Jassin O’Rourke Group LLC calibrated with Honduran industry experts from AHM
0,49
0,88
0,94
0,95
1,22
1,3
1,45
1,5
1,5
1,65
2,7
0 0,5 1 1,5 2 2,5 3
Haiti
Nicaragua
Colombia
Bolivia
Peru
Ecuador
Guatemala
EL Salvador
Honduras
DominicanRep.
Costa Rica
LAC labor costs
US$/Hour
Comparative Labor Costs
Average: US $0.40/hour Average: US $1.3/hour
15
Value Chain Distribution of Costs
40% 17% 5% 4% 4% 30%
Energy Raw Material Labor Freight Distrib Retail Markup
100%
One dozen T-shirts: FOB US $21
Honduran Power costs
>150 % of Chinese power costs
& 130% as much as Columbia
16
Comparative Electricity Costs
17
14
9
9
8.8
8
7
6
0 5 10 15 20
Mexico
Guatemala
Honduras
Nicaragua
Costa Rica
India
Colombia
China
Total Hours of Electricity CutsElectricity CostUS cents / kWh
-
127
129
67
60
32
28
Honduras
Nicaragua
Peru
Guatemala
Ecuador
Brazil
Source: WB Study estimates; Investment Climate Survey data
17
Major clothing exporters' share of the US market 2004
Other24%
China16%
Rest of Americas16%
Mexico10%
Hong Kong9%
EU5%
Taiwan4%
Philippines4%
Indonesia4%
India4%
Bangladesh4%
How U.S. market shares may rank after elimination of MFA quotas
Other12% Bangladesh
2%
Indonesia2%
Philippines2%
Thailand3%
India15%
China50%
Hong Kong6%
Rest of Americas5%
Mexico3%
Source: Gereffi (2005)
Policy Implications: MFA Phase out…
18
3
44
3
1 1
4
12
2
5
6
43
2
1
4
8
44 4
33
1
2
3
11
2
7
66
4
1
6
3
0
44 5
65
22
4
11
3
14
10
7
8
3
4
5
7
4
66
55
1
33
9
3
0
2
4
6
8
10
12
14
16
KnitCottonmen
Knit topsFor
women
Cotton Pantsmen
Cotton pantswomen
CottonUnderwear
Knit Manmade
fibertops
Manmadefiber
trousers for men
Lingerie Total
HondurasNicaraguaEl SalvadorGuatemalaMexicoChinaWorld
US
$ p
er
Sq
ua
re M
ete
r E
qu
iva
len
t… Moving Up-market
19
Kenya Africa PSD
IFC-SME Dep.
Growth & Competitiveness StrategyEcon. Recovery Strategy Support CreditMSME Project
Nigeria Africa PSD
IFC-SME Dep.
Country Assistance StrategyCountry Economic MemorandumMSME Project
Pakistan S.Asia PSD/ PREM
SEDF (PDF)
Growth & Competitiveness StrategyNW Frontier Province StrategyRural Development Project
Mozambique Africa PSD
IFC-SEATIPMIGA
Growth & Competitiveness Strategy PSD Linkages Project (PODE) IFC investment potentialMIGA Benchmarks
Cambodia E.Asia PSDE.Asia RuralMPDF (PDF)
Investment Climate AssessmentTrade Facilitation Project
Collaboration with Examples of Operational Applications
Mainstreaming into Operations: Some Examples
Competitiveness: Analytic Tools and Approaches
Norwegian Trust Fund Meetings
June 2005
Investment Climate UnitThe World BankWashington DC