Ecuadorian Competitiveness: Ready for the Next Stage? Files/2011-1024...Comparative Labor Productivity Selected Countries Growth of real GDP per employee (PPP-adjusted), 2000 - 2010

1 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt

Professor Michael E. PorterHarvard Business School

Quito, Ecuador October 24, 2011

This presentation draws on ideas from Professor Porter’s books and articles, in particular, Competitive Strategy (The Free Press, 1980); CompetitiveAdvantage (The Free Press, 1985); “What is Strategy?” (Harvard Business Review, Nov/Dec 1996); “Strategy and the Internet” (Harvard BusinessReview, March 2001); and a forthcoming book. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form orby any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Michael E. Porter. Additional information maybe found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu.

Ecuadorian Competitiveness: Ready for the Next Stage?

2 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.pptSource: EIU (2011), author’s calculations

PPP-adjusted GDP per Capita, 2010 ($USD)

Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2000 - 2010

Prosperity PerformanceSelected Lower and Middle Income Countries

AlbaniaAlgeria

Argentina

Bahrain

Belarus

Belize

Bolivia

Brazil Bulgaria

Chile

China

ColombiaCosta Rica

Croatia

Cyprus

Czech Republic

Dominican Republic

EcuadorEgypt

El Salvador

Estonia

Georgia

Greece

GuatemalaGuyana

Honduras

Hungary

India

Israel

Jordan

Kazakhstan

Latvia

Lebanon

Lithuania

Malaysia

Mexico

New Zealand

Nicaragua

Oman

Pakistan

Panama

Paraguay

Peru

Philippines

Poland

Portugal

Romania

Russia

Saudi ArabiaSlovakia

Slovenia

South Africa

South Korea

Sri Lanka

Thailand

Trinidad & Tobago

Tunisia

Turkey

Ukraine

Uruguay

Venezuela

Vietnam

$0

$4,000

$8,000

$12,000

$16,000

$20,000

$24,000

$28,000

$32,000

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

Average: $13,910

Average: 5.4%

Latin American countriesOther countries


Export PerformanceSelected Countries

Exports of Goods and Services (% of GDP), 2010

Change in Exports of Goods and Services (% of GDP), 2000 - 2010Source: EIU (2011), authors’ analysis

Albania

Algeria

Argentina

Bahrain

Belize

Bolivia

Brazil

Bulgaria

Chile

China

Colombia

Costa RicaCroatia

Czech Republic

Dominican Republic

Ecuador Egypt

El Salvador

Estonia

Georgia

Greece

Guatemala

Honduras

Hungary

India

Israel

JordanKazakhstan

Latvia

Lebanon

Lithuania

Mexico

New Zealand

Nicaragua

Oman

Pakistan

Panama

Paraguay

Peru

Poland

PortugalRomania

Russia

Saudi Arabia

Slovakia

Slovenia

South Africa

South Korea

ThailandTrinidad & Tobago

Tunisia

Turkey

Ukraine

United Arab Emirates

Uruguay

Venezuela

Vietnam

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

-15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

Average: 2.9%

Average: 45.1%



Inbound Foreign Investment PerformanceStocks and Flows, Selected Countries

Source: UNCTAD, World Investment Report (2010)

Inward FDI Stocks as % of GDP, Average 1999 - 2009

FDI Inflows as % of Gross Fixed Capital Formation, Average 1999 - 2009

Albania

Algeria

Argentina

Bahrain

Belarus

BelizeBolivia

Brazil

Bulgaria

Chile

China

ColombiaCosta Rica

Croatia

Cyprus

Czech Republic

Dominican Republic

EcuadorEgypt

El Salvador

Estonia

Georgia

Greece

Guatemala

Guyana

Honduras

Hungary

India

Israel

Jordan

Kazakhstan

Latvia

Lebanon

Malaysia

Mexico

New Zealand

Nicaragua

Pakistan

Panama

Paraguay

Peru

Philippines

PolandPortugal

Romania

Russia

Saudi Arabia

Slovakia

Slovenia

South Africa

South Korea

Sri Lanka

Thailand

Trinidad & Tobago

Tunisia

Turkey

Ukraine Uruguay

Venezuela

Vietnam

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%


Average: 19.7%

Average: 35.0%


The Ecuadorian Economy in 2011

• Ecuador has had a long history of economic and political instability • Since 2001, Ecuador has enjoyed relative macroeconomic stability as a result of

dollarization• High oil prices have allowed the country to increase government spending• Ecuador export growth has been driven by commodities prices

• In 2010, the Ecuadorian economic growth was slower than other Latin-American countries

• Prosperity remains low• High poverty levels and inequality persist and large segments of the population lack

access to basic needs• Ecuador is overly dependent on oil exports

• Higher economic growth rates and poverty reduction are possible only if Ecuador can substantially improve competitiveness

BUT


What is Competitiveness?

• Only competitive businesses can create wealth and jobs

• Nations compete to offer the most productive environment for business

• The public and private sectors play different but interrelated roles in creating a productive economy

• Competitiveness is the productivity with which a nation uses its human, capital, and natural resources

– Productivity sets the sustainable standard of living (wages, returns on capital, returns on natural resources)

– It is not what industries a nation competes in that matters for prosperity, but how it competes in those industries

– Productivity in a national economy arises from a combination of domestic and foreign firms


Comparative Labor ProductivitySelected Countries

Growth of real GDP per employee (PPP-adjusted), 2000 - 2010

Real GDP per employee (PPP adjusted US$), 2010

Source: Authors calculation Groningen Growth and Development Centre (2011), EIU (2011)

Algeria

Argentina

BahrainBolivia

Brazil

Bulgaria

Chile

ChinaColombia

Costa Rica

Croatia

CyprusCzech Republic

Dominican Republic

EcuadorEgypt

Estonia

Greece

Guatemala

Hungary

India

Israel

JordanKazakhstanLatvia Lithuania

Malaysia

Mexico

New Zealand

Pakistan

Peru

Philippines

Poland

Portugal

Romania

Russian Federation

Saudi Arabia

Slovak Republic

Slovenia

South Africa

South Korea

Sri LankaThailand

Trinidad & Tobago

Tunisia

Turkey

Ukraine

UruguayVenezuela

Vietnam

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

-2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

Average: $20,882

Average: 1.25%



• Endowments create a foundation for prosperity, but true prosperity is created by productivity in the use of endowments

What Determines Competitiveness?

Endowments


• Macroeconomic competitiveness sets the potential for high productivity, but is not sufficient• Endowments create a foundation for prosperity, but true prosperity is created by productivity in the use

of endowments


Macroeconomic Competitiveness

Human Development and Political Institutions

Macroeconomic Policies

Endowments


Components of Macroeconomic Competitiveness

•

• Fiscal policy– Government surplus/deficit– Government debt

• Monetary policy– Inflation– Business cycle management– Savings


•

• Human development– Basic education– Health

• Political institutions– Political freedom– Voice and accountability– Political stability– Government effectiveness– Decentralization of economic policymaking

• Rule of law– Security – Civil rights– Judicial independence– Efficiency of legal framework– Freedom from corruption

Social Infrastructure and Political Institutions


• Productivity ultimately depends on improving the microeconomic capability of the economy and the sophistication of local competition

• Macroeconomic competitiveness sets the potential for high productivity, but is not sufficient• Endowments create a foundation for prosperity, but true prosperity is created by productivity in the use

of endowments



Microeconomic Competitiveness

Sophisticationof Company

Operations andStrategy

Quality of the NationalBusiness

Environment

Human Development and Political Institutions


State of Cluster Development

Endowments







Environment

SocialInfrastructure and PoliticalInstitutions

MacroeconomicPolicies


Endowments

The external business environment conditions

that enable company productivity and

innovation








Environment




Endowments

A critical mass of firms and institutions in each

field to harness efficiencies and externalities across

related entities





Competitiveness and Poverty Reduction

Social Development

• There is a strong connection between economic and socialdevelopment

• Improving competitiveness and decreasing poverty requires improving the economic and social context simultaneously

Economic Development







Environment




Endowments

Internal skills, capabilities, and sophistication of

management practices of companies





Geographic Influences on Competitiveness

Neighboring Countries

Regions and Cities

Nation

17 Copyright © 2011 Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt

Prosperity PerformanceU.S. States, 1999 to 2009

Gross Domestic Product per Capita Real Growth Rate, 1999 to 2009

$30,000

$35,000

$40,000

$45,000

$50,000

$55,000

$60,000

$65,000

$70,000

-1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%

U.S. GDP per Capita: $46,093

High and rising prosperity versus U.S.

Notes: Real GDP figures in 2005 chained US dollars from the Bureau of Economic Analysis. Growth rate is calculated as compound annual growth rate. D.C. excluded

U.S. GDP per CapitaReal Growth Rate: 0.86%

Gross Domestic Product per Capita Real Growth Rate, 1999 to 2009

Gro

ss D

omes

tic P

rodu

ct p

er C

apita

, 200

9

High but declining versus U.S.

Low and declining versus U.S. Low but rising versus U.S.

Illinois

Wyoming

North Dakota

South Dakota

Delaware

AlaskaConnecticut

Wisconsin

Nevada

Arizona

New York

New JerseyMassachusetts

California

West Virginia

Mississippi

VermontOklahoma

IowaNebraska

North Carolina

Georgia Florida

Michigan

IdahoSouth Carolina

Texas

Oregon

Rhode Island

Louisiana

PennsylvaniaKansas

New Hampshire

Arkansas

Maine

ColoradoWashington

Virginia

Minnesota

HawaiiMaryland

Alabama Montana

KentuckyNew Mexico

MissouriOhio

IndianaUtah

Tennessee


Regions and Competitiveness

• Economic performance varies significantly across sub-national regions (e.g., provinces, states, metropolitan areas)

• Many essential levers of competitiveness reside at the regional level

• Regions specialize in different sets of clusters

• Cluster strength directly impacts regional performance

• Each region needs its own distinctive competitiveness strategy and action agenda

• Improving competitiveness requires effective policy collaborationbetween regions and the national government

• Decentralization is important to foster regional specialization, internal competition, and greater government accountability

• Effective decentralization requires clarity on roles and responsibilities, and sufficient administrative capacity at local and regional level


Economic Coordination with Neighboring Countries


Competitiveness and the Neighborhood

• Opening trade and investment among neighbors

– Expands the available market

– A nation’s neighbors are its most natural trading and investment partners

– The natural path of internationalization for local firms is the neighborhood

– Open trade and investment make each country a more attractive location for investment

• Economic coordination to drive improvements in the business environment– Capture synergies in policy and infrastructure

– Gain greater clout in international negotiations

• External agreements to help overcome domestic political and economic barriers to reform


• Eliminating trade and investment barriers within the region

• Simplifying and harmonizing cross-borderregulations and paperwork

• Coordinatinganti-monopoly and fair competition policies

• Opening governmentprocurementwithin the region Harmonizing environmental standards

• Harmonizing product safetystandards

• Establishing reciprocal consumerprotection laws

• Improving the efficiency of the regional transportationnetwork

• Creating an efficient energy network

• Enhancing regional communicationsand connectivity

• Harmonizing administrativerequirements for businesses

• Linking financialmarkets

• Facilitating the movement of students for higher education

• Facilitating cross-border cluster development

– e.g., Supplier networks

– Transport & Logistics

– Quality standards

Factor Conditions

Context for Strategy

and Rivalry

Related and Supporting Industries

Demand Conditions

Economic Integration Among NeighborsCapturing Synergies


• Coordinating macroeconomicpolicies

• Coordinating programs to improve securityand public safety


Ecuador’s Competitiveness Profile, 2010Harvard Country Competitiveness Model

Macroeconomic Competitiveness (107)

MicroeconomicCompetitiveness (125)

Social Infra-structure and Pol. Institutions (117)

Macroeconomic Policy (55)

Business Environment Quality (127)

Company Sophistication

(114)

Source: Country Competitiveness Model (CCM), Institute for Strategy and Competitiveness, Harvard University (2010)

Overall Ranking (113)

Ecuador GDP per Capita Rank 77

Note: Rank versus 139 countries


Ecuador’s Macroeconomic Competitiveness Macroeconomic Policy

• Dollarization stabilized the economy

– Inflation relatively low since dollarization in 2001

• Expansionary fiscal policy funded by borrowing and oil resources

However

• Budget deficit threatens the dollarization model

• Central Bank is no longer an autonomous institution

• No stabilization fund


• Lack of high-quality public education system

• Weak social security system, despite some improvements

• Persistent problems with corruption

• Weak legal system and effectiveness of property rights

• Need for modernization of political and government institutions

w since dollarization in 2001


Corruption Perception Index, 2010

Note: Ranks only countries available in both years (160 countries total) Source:Global Corruption Report, 2010

High corruption

Low corruption

Worsening ImprovingChange in Rank, Global Corruption Report, 2010 versus 2006

Rank in Global Corruption Index,

2010

Albania

Algeria

Argentina

Armenia

AustraliaAustria

Azerbaijan

Bahrain

Bangladesh

Belarus

BeninBolivia

BrazilBulgaria

Burundi

Cambodia

Cameroon

Canada

Chad

Chile

ChinaColombia

Costa Rica

Côte d´Ivoire

Croatia

Cyprus

Czech Republic

Denmark

Dominica

Dominican Republic

Ecuador

Egypt

El Salvador

Estonia

Ethiopia

Finland

France

Gambia

Georgia

Germany

Greece

Guatemala

Guinea

Guyana

Haiti

Honduras

Hong Kong

Hungary

Iceland

India

Indonesia

Israel

Italy

Jamaica

Jordan

Kazakhstan

KenyaKyrgyzstan

Laos

LithuaniaMacau

Malaysia

Mexico

Morocco

Nepal

New Zealand

Nicaragua

Niger

Nigeria

Oman

Pakistan

Panama

Paraguay

Peru

Philippines

PolandPortugal

Qatar

Romania

Russia

Saudi Arabia

Senegal

Serbia

Slovakia

Slovenia

South Africa

South Korea

Spain

Sudan

Swaziland

SwedenSwitzerland

Syria

Taiwan

ThailandTrinidad and

Tobago

Turkey

UgandaUkraine

United KingdomUruguay

U.S.

Venezuela

Viet Nam

Zambia

Zimbabwe


Quality of the National Business EnvironmentContext for

Firm Strategy

and Rivalry

Related and Supporting Industries

Factor(Input)

ConditionsDemand

Conditions

• Sophisticated and demanding local customers and needs

– e.g., Strict quality, safety, and environmental standards

– Consumer protection laws

• Many things matter for competitiveness• Successful economic development is a process of successive upgrading, in which the

business environment improves to enable increasingly sophisticated ways of competing

• Local rules and incentives that encourage investment and productivity

– e.g. salaries, incentives for capital investments, intellectual property protection, corporate governance standards

• Open and vigorous local competition– Openness to foreign competition– Competition laws• Access to high quality business

inputs– Human resources– Capital availability– Physical infrastructure– Administrative and information

infrastructure (e.g., registration, permitting, transparency)

– Scientific and technological infrastructure

– Efficient access to natural endowments

• Availability of suppliers and supporting industries


Infrastructure• Significant improvements in transportation infrastructure• High mobile phone penetration

Competitive Context• High levels of entrepreneurship

Other• A new national agenda for innovation and entrepreneurship• Improving sophistication of local buyers

Ecuador’s Business Environment Strengths


Financial Markets

• Weak financial markets

Workforce Development and Training

• Low skill level of the labor force

• Poor quality higher education system

Competitive Context

• Import substitution strategy reducing competitiveness

• High level of government subsidies distortcompetition

• Low intensity of local competition• Limited internationalization of firms

• Burdensome government regulations– Labor regulations give rigidity to the market

– Customs and Trade regulations

– Difficult new business formation

• Weak investor protection and protection of intellectual property

• High informality in the economy

Ecuador’s Business Environment Weaknesses

Trade and Investment Liberalization

• FDI limited to oil and mining sectors• New restrictions on capital flows

• High trade barriers• Complex custom procedures• Few trade agreements with other countries

Innovation Infrastructure• Weak university-industry research collaboration

• Low patenting rates

Other

• Low level of quality certification


0

20

40

60

80

100

120

140

160

180

Ease of Doing BusinessEcuador, 2010

Source: World Bank Report, Doing Business (2010); GPD per capita ranking based on 2009 GCI data.

Ranking, 2010 (of 183 countries)

Favorable Unfavorable

Ecuador’s GDP per capita rank: 77


Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden

Hotels

Attractions andActivities

e.g., theme parks, casinos, sports

Airlines, Cruise Ships

Travel Agents Tour Operators

Restaurants

PropertyServices

MaintenanceServices

Government Agenciese.g. Australian Tourism

Commission, Great Barrier Reef Authority

Educational Institutionse.g. James Cook University,

Cairns College of TAFE

Industry Groupse.g. Queensland Tourism

Industry Council

FoodSuppliers

Public Relations & Market Research

Services

Local Retail, Health Care, andOther Services

Souvenirs, Duty Free

Banks,Foreign

Exchange

Local Transportation

State of Cluster DevelopmentTourism Cluster in Cairns, Australia


State of Cluster DevelopmentKenya’s Cut Flower Cluster

Plantstock

Greenhouse; Shading Structures

Irrigation Technology

Pre-CoolingTechnology

Fertilizers, Pesticides, Herbicides

Agricultural Cluster

Horticultural Cluster

Post-Harvest Cooling

Technology

Grading / Packaging Sheds

Packaging & Labeling Materials

Refrigerated Trucks

Freight Forwarders

Clearing and Forwarding Agents

Air Carriers (Commercial /

Charters)

Tourism Cluster

Flower FarmingPost-Harvest

Handling; Transport to Market

Horticultural Agencies, NGOs & Industry Associations

Horticultural Crops Development Authority (HCDA) Government Export Policies Targeting Horticulture

Non-Government Organizations(e.g., The Rural Enterprise Agri-Business Promotion Project)

Trade & Industry Associations(e.g., Kenya Flower Council)

Education, Research & Quality Standards Organizations

Research Institutions(e.g., Kenya Agricultural Research Institute)

Public Universities with Post Graduate Degrees in Horticulture(e.g., University of Nairobi)

Quality & Standards(e.g., EUREGAP Standard, Kenya Plant Health Inspectorate Services)

Sources: MOC student team research by Kusi Hornberger, Nick Ndiritu, Lalo Ponce-Brito, Melesse Tashu, Tijan Watt, Harvard Business School, 2007


Clusters Development Over TimeThe Australian Wine Cluster

1955

Australian Wine Research Institute founded

1970

Winemaking school at Charles Sturt University founded

1980

Australian Wine and Brandy Corporation established

1965

Australian Wine Bureau established

1930

First oenology course at Roseworthy Agricultural College

1950s

Import of European winery technology

1960s

Recruiting of experienced foreign investors, e.g. Wolf Bass

1990s

Surge in exports and international acquisitions

1980s

Creation of large number of new wineries

1970s

Continued inflow of foreign capital and management

1990

Winemaker’s Federation of Australia established

1991 to 1998

New organizations created for education, research, market information, and export promotions

Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster – Supplement, Harvard Business School Case Study, 2002


FurnitureBuilding Fixtures,

Equipment & Services

Fishing & Fishing Products

Hospitality & TourismAgricultural

Products

Transportation & Logistics

Clusters and Economic DiversificationLinkages Across Clusters

Plastics

Oil & Gas

Chemical Products

Biopharma-ceuticals

Power Generation

Aerospace Vehicles &

Defense

Lightning & ElectricalEquipment

Financial Services

Publishing & Printing

Entertainment

Information Tech.

Communi-cations

Equipment

Aerospace Engines

Business Services

DistributionServices

Forest Products

Heavy Construction

Services

ConstructionMaterials

Prefabricated Enclosures

Heavy Machinery

Sporting & Recreation

Goods

Automotive

Production Technology

Motor Driven Products

Mining & Metal Manufacturing

Apparel

Leather & Related Products

Jewelry & Precious Metals

Textiles

Footwear

Processed Food

Tobacco

Medical Devices

Analytical InstrumentsEducation &

Knowledge Creation

Note: Clusters with overlapping borders or identical shading have at least 20% overlap (by number of industries) in both directions.


Clusters as a Tool For Economic Policy

• A forum for collaboration between the private sector, trade associations, government, educational, and research institutions

• Brings together firms of all sizes, including SME’s

• Creates a mechanism for constructive business-government dialog

• A tool to identify problems and action recommendations

• A vehicle for investments that strengthen multiple firms/institutionssimultaneously

• Fosters greater competition rather than distorting the market


0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

0.35%

0.40%

0.45%

0.50%

0.55%

-0.05% 0.00% 0.05% 0.10%

Ecuador’s Cluster Export Portfolio1997 to 2009

Change in Ecuador’s world export market share, 1997 to 2009Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics.

Ecua

dor’s

wor

ld e

xpor

t mar

ket s

hare

, 200

9

Change In Ecuador’s Overall World Export Share: +0.02%

Ecuador’s Average World Export Share: 0.11%

Exports of US$670 Million =

Fishing and Fishing Products(-0.63%, 1.74%)

CommunicationServices(-0.20%, 0.02%)

Agricultural Products

Oil and Gas Products

Tobacco

Textiles

Footwear

Transportationand Logistics

Hospitality and Tourism

Jewelry, Precious Metalsand Collectibles


Automotive

Processed Food

Building, Fixtures, Equipment and

Services Furniture




Fishing & Fishing Products Hospitality

& TourismAgricultural

ProductsTransportation

& Logistics

Ecuador’s Share of World Exports by Cluster, 2009

Plastics

Oil & Gas

Chemical Products

Biopharma-ceuticals

Power Generation


Defense


Financial Services


Information Tech.

Communi-cations

Services

Business Services


Forest Products

Heavy Construction

Services



Apparel


Jewelry & Precious Metals

Textiles

Footwear

Processed Food

Tobacco

Medical Devices


Knowledge Creation

Note: Clusters with overlapping borders have at least 20% overlap (by number of industries) in both directions.

Marine Equipment

Aerospace Engines

Heavy Machinery


Goods

Automotive




0.05% - 0.1%

0.11% - 1.0%

> 1.0%

Enter-tainment

World Market Share




Fishing & Fishing Products Hospitality

& TourismAgricultural

ProductsTransportation

& Logistics

Peru’s Share of World Exports by Cluster, 2009

Plastics

Oil & Gas

Chemical Products

Biopharma-ceuticals

Power Generation


Defense


Financial Services


Information Tech.

Communi-cations

Services

Business Services


Forest Products

Heavy Construction

Services



Apparel


Jewelry & Precious

Metals

Textiles

Footwear

Processed Food

Tobacco

Medical Devices


Knowledge Creation

Note: Clusters with overlapping borders have at least 20% overlap (by number of industries) in both directions.

Marine Equipment

Aerospace Engines

Heavy Machinery


Goods

Automotive




Enter-tainment

World Market Share

0.1% - 0.21%

0.22% - 1.0%

> 1.0%


State of Cluster Development in Ecuador

• Ecuador has strengths in resource-related clusters, including cut-flowers, bananas, coffee, cacao, fishing, and tourism

• Clusters that serve mainly the domestic market include textiles, apparel, automotive, and metalworking

• Most of the clusters are shallow, with a weak supplier base

• There are weak supporting institutions with poor coordination between the private and public sectors

• Ecuador’s clusters have been subject to traditional industrial policy characterized by subsidies and protectionism

• Clusters could become an important tool for economic development


Competitiveness of Ecuador’s Regions

• 75% of business activity is concentrated in two provinces, Guayas and Pichincha

• Ecuadorian regions vary greatly in the quality of business environment

• Decentralization of economic policy remains incomplete, with weak capacity at local level

• Free Trade Zones have been created in some rural areas


Action Agenda for Ecuador

Macroeconomic Policy

• Maintain macroeconomic stability• Reduce the budget deficit • Create a stabilization fund• Broaden the tax base and improve collection


• Modernize the social security system• Fight corruption at every level of government and private sector• Improve the effectiveness of the legal system• Improve system of "checks and balances“ in government• Improve human development

– Rapid improvements in education, health, and nutrition are needed• Create equal opportunity for all groups



Improving the Business Environment

• Open up greater internal competition• Further open the economy to trade and investment

– Reduce tariffs– Simplify trade procedures– Negotiate trade agreements with strategic countries rather than limit them– Welcome foreign investment

• Upgrade workforce training and higher education• Reduce informality by limiting the cost and complexity of registering

companies– Simplify new business formation– Reduce the tax burden and labor market rigidities facing smaller firms



Cluster Development

• Adopt cluster development as a central tool to engage the private sector and implement economic policies

• All clusters are important to enhancing prosperity• Apply a cluster-based approach to economic diversification• Leverage clusters to attract FDI

Regional Development

• Continue decentralization of responsibilities and resources to sub-national governments

• Improve the capacity of local governments to plan, design, and implement development polices

• Improve national-regional collaboration to implement regional programs• Address the underlying causes of inequality between the coastal, Andean and

Amazon regions



Neighborhood Development

• Improve land connectivity with neighbors

• Upgrade political and trade relations with Colombia and Peru

• Restructure the Andean Community of Nations to make it an effective instrument for integration


• A prioritized agenda to create a uniquecompetitive position for a country or region

• Implementing best practices in each policy area

• There are a huge number of policy areas that matter

• No country can or should try to make progress in all areas simultaneously

PolicyImprovement

EconomicStrategy

The Need for an Economic Strategy


National Value Proposition

Creating a National Economic Strategy

• What is the distinctive competitive position of Ecuador given its location, legacy, existing strengths, and potential strengths?

– What unique advantage as a business location?– For what types of activities and clusters?– And what roles with neighbors, the region, and the broader

world?

Developing Unique Strengths Achieving and Maintaining Parity with Peers

• What elements of the business environment can be unique strengths relative to peers/neighbors?

• What existing and emerging clustersrepresent local strengths?

• What weaknesses must be addressed to remove key constraints and achieve parity with peer countries?

• Priorities and sequencing are necessity in economic development

Documents

Ecuadorian Competitiveness: Ready for the Next Stage? Files/2011-1024...Comparative Labor Productivity Selected Countries Growth of real GDP per employee (PPP-adjusted), 2000 - 2010