Perspectives on Global Development 2013

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Apresentação em inglês, do diretor do Centro de Desenvolvimento da OCDE, Mario Pezzini, sobre as perspectivas de desenvolvimento global 2013 e velocidade das políticas industriais num mundo em mudança. Apresentação mostrada na “Conferência Internacional sobre Sustentabilidade e Promoção da Classe Média”, ocorrida em 25 de setembro de 2013. Veja mais na matéria: http://ow.ly/poL9G

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  • To demonstrate the shift of world income since the 2000s, our estimations applied and extended the “four-speed” world concept by former World Bank President James Wolfensohn. We distinguish affluent, converging, struggling and poor countries according to their income and rate of growth per capita relative to the OECD. For better visibility, we have combined the two groups of “poor” and “struggling” countries in this graph. These are the countries in light blue.The analysis showed that in the 1990s only 12 developing countries managed to double OECD per capita growth rates (these are the red converging countries” that you see in the map).
  • Now the same exercise for the decade of 2000 shows a radically different picture: In the 2000s, 83 developing countries managed to double OECD per capita growth rates (see the increase in red countries )
  • Aunque todavía favorable en comparación con el desempeño de décadas previas, un escenario global menos benigno resta impulso al crecimiento de América Latina por tres vías: a) volumen de comercio exterior, b) precios de materias primas c) la normalización en las condiciones financieras de acceso al crédito.
  • a) Comercio esterior:Un crecimiento global mas débil entraña una ralentización del comercio. ( El comercio global de bienes y servicios paso de crecer de tasas superiores al 7% en la década anterior a una expansión cercana al 4% en 2012, y no se espera que en los próximos años supere el 6%).b) Precios de la materia prima:La menor demanda global frena la expansión de los precios de las materias, sobre todo en América del Sur. Nos se esperan retrocesos mayores en los próximos dos años, tampoco se prevén alzas.
  • La ralentización del comercio y el freno a la expansión a los precios de las materias primas ha deteriorado el balance externo de los países de América Latina y reducido la contribución de la demanda externa al crecimiento. Todavia A pesar del deterioro reciente, el déficit agregado de cuenta corriente de América Latina de 1.6% del PIB en 2012 se mantiene en niveles relativamente manejables.
  • Esta tendencia podría revertirse frente ala gradual salida del estimulo monetario en las economías industrializadas, la desaceleración económica de las economías emergentes las expectativas mas positivas de las economías avanzadas.Un ejemplo fue el anuncio del 19 de Junio 2013, en el cual Ben Bernanke, insistió que la Reserva Federal estaría reduciendo el ritmo de compras de activos (QE3) hacia finales del 2013. Esto desato fuertes movimientos en los mercados de capitales, especialmente una salida importante de capitales de los mercados emergentes, incluyendo América Latina.
  • We have focused on 4:InnovationSkillsFinanceInfrastructure (stylized facts and policy responses)
  • In our report wehighlight 3 main impacts of the process of « ShiftingWealth » that are infulencing the changes in developmentpolicy and that are contributing to the re-birth of the « structural challenge  » in the policydebate. First, highgrowth in developingeconomies has been accompanied by the creation of new « middle classes ».Our estimatessuggestthat by 2030, 80% of the world’s middle classes willbe living in developingeconomies. In addition, as the process of SW evolves, countries including Brazil, China and India are increasinglylookingatinternaldemand as an additional source of growth.This opens up new opportunites for industrialdevelopmentsincetheseconsumers have new aspiraitons and consumptionneedswhichneed to be met. Note on the definition: Middle classes are commonlydefined as those people living on between 10 and 100 US$ a day (in PPP terms).
  • Second, another impact of the evolution of SW are the changes in global trade and investment patterns.Especially the integration of China into global markets is opening up new learning opportunities in developing economies. China has started to generate substantial FDI that target not only OECD countries but also and in a growing manner developing economies. China is also becoming a major trade partner for developing countries. For example, in 2011, China accounted for 17% of total African imports, up from only 5% in 2000. However FDI is not automatically going to be translated into learning opportunities; much depends on strategic choices of recipient countries and development policy of emerging economies.This process is not only limited to China. For example, India and Brazil increased their share in total African trade from 2.3% and 1.7% respectively in 2000, to 7% and 3% in 2011.These new trade patterns open opportunities for learning. For example, Brazil is actively investing in Africa especially in knowledge sharing and technology transfer in agricultural production.
  • Third, SW is also translating on the “real economy” side. We are witnessing the emergence of a new geography of production. For example, the panorama of the top world manufacturers has radically changed over the last 2 decades.China is today the top world manufacturer. In 2010 China's share of total world manufacturing value added (18.9%) outperformed that of the United States (18.2%).In addition to China, also Brazil, India, the Russian Federation and Indonesia were among top 20 world manufacturers in 2010.China, Brazil, India, Russian Fed. And Indonesia account all together for 28% of total world manufacturing vale added in 2010.The message is that we could be entering in a new development phase characterised by “multi-polarity” and hence multi-polar perspectives on development models and models of economt.
  • Average annual growth rate (1990-2010) = 4.78% Average annual inflation rate (2000-2010)= 3.35% [60% of budget dedicated to social sectors:]
  • Note:Cases accepted refer to labor dispute cases accepted by different levels of labor dispute arbitration institutionsOne of many ways in which rapid growth can disrupt the social order is via labour markets. The workplace is key in distributing the fruits of growth and that distribution has been increasingly against workers since the 1990s – the share of value added going to labour is on a decreasing trend in almost every region [flat in Eastern Europe]In China this process translated into an exponentially increasing number of labour disputes. The link with growth? This coincided with the end of surplus labour – the “Lewis turning point” . Before that, wages were kept low as new migrant labour could be found easily; after wages have to be bid up in manufacturing to attract workers, which resulted in wage increases throughout the economy, especially since 2005. However, this (as the data on disputes show) was not done without strife. [NB: The jump in 2008 corresponds to the enactment of the Labour Contract Law which gives migrant workers a much wider set of rights, including that of having labour contracts and therefore appealing to their fulfillment at arbitration courts.]Source: Cai and Wang (2011) on the basis of National Bureau of Statistics, China Labor Statistical Yearbook (various years), China Statistics Press.
  • However, all that glitter is not gold and SW also opens challenges for developing economies. In fact, when we look at the accumulation of capabilities to innovate, the capacity to create good employment and to have a vibrant production base…SW looks more like a process in progress rather than an accomplished fact.Developing economies face multiple structural challenges. What is interesting is that in the last decade they have started to implement policies to address them. =>Learning processIn our report we have focused on four main interrelated challenges.The innovation gap that still persist between developing economies and OECD countries. Whereas OECD countries on average invested 2.3% of their GDP in research and development (R&D) in 2009, China invested only 1.5% of its GDP, and manydeveloping countries, including Brazil, the Russian Federation and India, invested less than 1% of GDP.We know that scientific and technological capabilities are essential for processes of catching up and increasing productivity and even though some developing economies are increasing their efforts in these domains they are still far from OECD standards. In addition, the private sector is the one that is more reluctant to invest in innovation in developing economies, contrary to OECD countries (as the graph shows).This gap exists because:Prevailing specialisation in sectors with low R&D intensityLow degree of diversificationCountry strategies that only recently have emphasised technological development.Developing economies are recognising these challenges and are putting in place policies to tackle them. The new industrial policies recognise the need to coordinate incentives for innovation with production transformation strategies. Countries are following different schemes. For example: Some are targeting resources to specific scientific and technological areas (new materials, biotechnology and clean energy vehicles; healthcare, etc.). This is the case in Brazil with the sectoral technology funds or South Africa with the specific funds for renewable energies. Others increasingly use pubic procurement for innovation (e.g. Brazil, China, India and South Africa) Attracting more knowledge-intensive FDI is a main priority in a number of developing countries (e.g. Brazil, Costa Rica, Malaysia, Morocco)Promoting start-ups is also becoming another new priority (e.g. Brazil, Chile, Colombia, Mexico) So is promoting cluster development (e.g. Brazil, Chile, India, South Africa)
  • Improves (domestic and international) connectivity - Enhances efficiency in resource allocation Decreases the cost of doing business- Spurs growth
  • - Current productive structure in LAC with exports concentrated in natural resources, apparel, and agricultural products makes logistics particularly important for competitiveness.
  • Greater regional integration (regional corridors included), GVC insertion and domestic competitiveness depend more on improving logistics and decreasing costs than decreasing tariffs.
  • To address these structural challenges and sustain growth, some developing economies are implementing production transformation strategies. Their industrial policies exhibit some common trends, and some differences. Industrial policies come in different scopes and shapes in different countries. We have identified 4 categories to describe them.1. Governance (to what extent regions and sub national governments play a role in industrial policy planning, budget and execution? For example in India regions have a high margin of manoeuvre. In Brazil and China this is intermediary while it is low in South Africa and Chile.2. Priorities: We see that in addition to traditional priorities (job creation, growth, international competitiveness) developing countries are increasingly concerned about the territorial inclusion, social cohesion and sustainable development. This widens the scope of industrial policies.3. Objectives: We have observed that countries often have to target multiple objectives: diversification, specialisation and the increase in the density of the production system. This means that industrial policies are more articulated today than in the past.4. Policy mix: In addition to industrial policy tools strictusensuindustrial policies include a set of actions in different policy fields including trade, innovation, skills and infrastructure, but also macroeconomic policies.Brazil has been a pioneer in industrial policy in Latin America: Ithas re-launched industrial policy since 2003. Brazil offers interesting examples for the articulation between the Ministry of Industry, the National Development Bank and the Ministry for Science and Innovation. Industrial policy in Brazil has pushed for institutional innovations, for example the ABDI Agency for Industrial Development (of which we have the president here today with us) has been created in 2003 to follow up the implementation of the policy and the BNDES has introduced new mechanisms to finance innovative projects. In South Africathe New Industrial Policy Framework promotes diversification and creation of activities in sectors beyond the mining cluster.The industrial policy involves a growingrole for the national development bank (Industrial Development Corporation, IDC), which manages funds for innovation, and it targets renewable energies among its priorities. In Morocco the strategy is based on two pillars: i) supporting the existing local industrial structure; and ii) creating incentives for entry into new sectors in which Morocco could develop competitive advantages. It includes investment for creating infrastructure and platforms for industrial development as well as targeted initiatives for skills upgrading. The priority sectors include automotive, aeronautics, agribusiness, off-shoring and textile. Morocco aims to use FDI as a lever to foster production upgrading. SEZs are planned in regions to make the establishment and operations of foreign investors easier. The country is also actively engaged in identifying mechanisms to clarify skills requirements and put in place short and medium-term actions to bridge the skills gap. Malaysiais an interesting case for its strategic management of FDI and the growing attention towards monitoring and evaluation.
  • Notes: Indiscriminate subsidies. Granting subsidies without conditionalities increases the risk of adverse selection of beneficiaries and the development of assistance-dependent behaviour among firms that are often not translated into productivity improvements. Never-ending support. The absence of sunset clauses in support programmes to companies discourages the necessary efforts to increase their productivity. “Cathedrals in the desert”. Building factories or research laboratories in remote locations works only when this is part of a broader plan for creating backward and forward linkages, and when it is matched with programmes to foster local infrastructure development. Preventing competition. While the creation of new activities and industries may require support in early stages (the traditional “infant industry” argument), gradual exposure to internal and external competition can ensure that these activities grow in a productive way. Closed-door bureaucracy-led prioritisation limits the possibility of generating the information flows and the trust that are essential to get the private-sector commitment to invest in innovation and production development. Capture by incumbents. Consultations with the private sector often end up being led by incumbents, while innovation and production diversification also depend on the creation and expansion of new firms. Targeted mechanisms to foster the creation of start-ups are needed to avoid the risks of policies that will only help to maintain the status quo instead of fostering a dynamic change. Low critical mass for investments limits the effectiveness of industrial development plans. In addition, if the government contribution is too small, it will not be able to mobilise the matching funds from the private sector. Short-term horizon and annual budgeting. The creation and strengthening of domestic scientific, technological and production capabilities take time, so industrial policies with short-term horizons and based on annual budgets tend not to be credible. Multi-annual plans and budgets are necessary to mobilise actions and achieve results, but this also requires effective mechanisms for monitoring and evaluation to correct implementation failures. Lack of monitoring and evaluation mechanisms limits the capacity to generate feedback between policy design and implementation and reduces the effectiveness of policies that evolve through trial and error. In addition, the lack of evaluation limits the possibility of regularly revising the policy to reduce the risks of capture and adverse selection.
  • Perspectives on Global Development 2013

    1. 1. PERSPECTIVES ON GLOBAL DEVELOPMENT 2013 SHIFTING UP A GEAR INDUSTRIAL POLICIES IN A CHANGING WORLD Mario Pezzini Director, OECD Development Centre Rio de Janeiro, 25 September 2013
    2. 2. Outline I. The starting point: shifting wealth II. The impacts of shifting wealth III. Is Shifting wealth sustainable? Emerging policy responses IV. A renewed interest in industrial policy in developing countries
    3. 3. I. THE STARTING POINT: SHIFTING WEALTH
    4. 4. The “Four Speed World” (PGD 2010)
    5. 5. The “Four Speed World” (PGD 2010)
    6. 6. Contribution to world GDP (1990-2011) (%) Source: Data from FMI (World Economic Outlook). 50% 19% 8% 4% 1% 18% 1990-1995 32% 41% 9% 6% 3% 9% 2005-2012 46% 27% 7% 7% 3% 10% 2000-2005 59%20% 8% 5% 2% 6% 1995-2000 Economías avanzadas Asia emergente América Latina Oriente Medio y Africa del Norte África subsahariana Resto del mundo The contribution of Latin America to the Shifting Wealth phenomena
    7. 7. The impact of the global scenario .... in Latin America’s growth GDP growth rate in LAC Source: IMF data Growth Rates* Source: IMF data *: Simple average 0 1 2 3 4 5 6 7 8 9 2003-2008 2009-2012 2013-2018 -2 -1 0 1 2 3 4 5 6 7 1990 1994 1998 2002 2006 2010 2014 2018 Tasas de crecimiento del PIB real Media movil de 5 años 7
    8. 8. Variación del volumen del comercio global de bienes y servicios Fuente: Elaborado con datos del FMI. Precios internacionales de las materias primas Fuente: Cálculos propios elaborados a partir de datos de Datastream y B -15 -10 -5 0 5 10 15 1980 1985 1990 1995 2000 2005 2010 2015 Volumen comercio global PIB de América Latina 0 0.5 1 1.5 2 2.5 3 3.5 4 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Petroléo Gas Cobre Soya 8 … in world trade volumes and prices
    9. 9. Cuenta corriente en porcentaje del PIB de América Latina y el Caribe Fuente: Elaborado con datos de la CEPAL. -5 -4 -3 -2 -1 0 1 2 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 9 … in the current account
    10. 10. But this trend could change… 60 70 80 90 100 110 120 130 Brasil Chile Colombia México Perú 90 95 100 105 110 115 Brasil Chile Colombia México Perú Bonos - Evolución de spreads (18 junio = 100) Índices bursátiles (18 junio = 100) Fuente: Cálculos propios elaborados a partir de datos de Datastream y Bloomberg. 10 Impacto del episodio del anuncio de la Reserva Federal del 19 de junio en países latinoamericanos seleccionados
    11. 11. II. THE IMPACTS OF SHIFTING WEALTH
    12. 12. Source: OECD Development Centre based on Kharas (2010). By 2030, 80% of the world’s middle classes will be living in developing economies Note: « Middle classes »: People living between 10 and 100 USD PPP a day. The impacts of Shifting Wealth (1): The rise of new “middle classes” and the growing attention towards internal sources of growth opens up new consumers markets.
    13. 13. China 41% India 15% Brazil 7% Korea, Rep. 7% Turkey 5% Russia 3% oth.EP 22% The impacts of Shifting Wealth (2): China’s growing integration into world trade and investment is opening up potential opportunities for developing countries Top 15 destinations of Chinese FDI, 2003-12 Number of jobs created by Chinese FDI projects in the recipient country Note: This map is for illustrative purposes and is without prejudice to the status of or sovereignty over any territory covered by this map. Source: OECD (2013), Perspectives on Global Development 2013 -Shifting up a Gear: Industrial Policies in a Changing World, OECD, Paris. OECD (2013), African Economic Outlook 2013, OECD, Paris. Africa's emerging trading partners (average 2009-11) % of the Total Trade, Billion USD
    14. 14. The impacts of Shifting Wealth (3): Changing the global geography of production World top 20 manufacturers, 2010 Country share in total world manufacturing value added 0 5 10 15 20 25 30 % 1990 2000 2010 China is the main driver, but other countries are also contributing Source: OECD (2013), Perspectives on Global Development 2013 -Shifting up a Gear: Industrial Policies in a Changing World, OECD, Paris.
    15. 15. Partners for intermediate exports of goods and services 1995 vs. 2005 Asian economies are increasingly integrated with China through supply chains Source: OECD (2010a), Southeast Asian Economic Outlook 2010, OECD Publishing, Paris.
    16. 16. III. Is Shifting Wealth sustainable? Emerging policies responses
    17. 17. Is Shifting Wealth sustainable? However, different concerns, associated with:  “Middle-income traps” and structural challenges: need for adequate industrial policies  Growing social challenges: need for social cohesion policies
    18. 18. A success story? • A lower-middle income country • Average 5% annual growth rate since 1990 • Nearly 100% primary enrolment in 2008 • 80% health care coverage • ‘Prudent public debt management’ (42.8% of GDP in 2009) • 3% fiscal deficit • Inflation at approx. 3% in the 2000s
    19. 19. Source: OECD/AfDB/UNECA (2010), African Economic Outlook. Tunisia
    20. 20. Growth in life satisfaction and income do not necessarily coincide Sources: Authors‘ calculation based on Gallup World Poll (2010) and World Development Indicators. Annualised growth rates (%), 2006-2010
    21. 21. Source: Cai and Wang (2011). Increase in labour disputes in China Number of cases (thousand) Key policy areas for social cohesion - Example 2: Employment and labour institutions -
    22. 22. … “all that glitter is not gold”. Developing countries still face big challenges. However, some are implementing targeted policies to address them. Although developing countries are increasing their production and innovation capabilities, they are still far from the OECD average China India Indonesia Malaysia Russian Federation Thailand Argentina Brazil Costa Rica Kenya Morocco South Africa France Germany Japan Korea United Kingdom 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 0 10 20 30 40 50 60 70 80 90 100 R&Dinvesment(%ofGDP),2009 R&D investment financed by the private sector (%), 2009 OECD Average = 2.3 % Singapore United States Intensity in R&D investment and private sector contribution, 2009  Targeting resources to specific scientific and technological areas (new materials, biotechnology and clean energy vehicles; healthcare, etc.).  Pubic procurement for innovation (e.g. Brazil, China, India and South Africa)  Attracting more knowledge- intensive FDI (e.g. Brazil, Costa Rica, Malaysia, Morocco)  Promoting start-ups (Brazil, Colombia, Peru) Promoting cluster development (e.g. Brazil, Chile, India) Source: OECD (2013), Perspectives on Global Development 2013 -Shifting up a Gear: Industrial Policies in a Changing World, OECD, Paris.
    23. 23. 23 Fuente: Elaboración propia con base en The Conference Board Total Economy Database, Banco Mundial (LPI), Comtrade. Logística y productividad laboral : Correlaciones parciales (Valores, 2012) ARG BOL BRA CHL COL CRIDOM ECU GTMJAM MEXPER URYVEN -40000 -30000 -20000 -10000 0 10000 20000 30000 40000 50000 60000 -1 -0.5 0 0.5 1 1.5 OCDE Otrospaíses AméricaLatina ProductividadlaboralnoexplicadaporPIBpercápita Desempeño logístico no explicado porPIBpercápita An improvement in logistics could increase labour productivity in Latin America by 35%
    24. 24. 24 Fuente: UN COMTRADE. Nota: Los sectores intensivos en logística incluyen la minería, la silvicultura y la explotación forestal, la fabricación de productos de madera, la edición de papel e impresión. Los sectores sensibles al tiempo incluyen la agricultura, la pesca, la manufactura de alimentos y bebida, las prendas de vestir y la horticultura. Exportaciones sensibles al tiempo y con alta intensidad logística, 2010 (porcentajes) 0 10 20 30 40 50 60 70 80 90 100 Intensivoenlogística Sensible altiempo The productive structure in LAC: the key role of logistics
    25. 25. 25Fuente: Elaboración propia con base en U.S. Census Bureau. The need to reduce transportation costs to increase trade Relación entre costos de flete y aranceles en el comercio hacia Estados Unidos (2012, unidades) 0 10 20 30 40 50 60 70 CostaRica Chile Perú Colombia Panamá Venezuela Rep.Dominicana ALC México Uruguay Brasil Argentina OCDE Totalmundial Europa ANSA AsiadelSur
    26. 26. IV. A RENEWED INTEREST IN INDUSTRIAL POLICY IN DEVELOPING COUNTRIES (AND ITS POLITICAL ECONOMY CHALLENGES)
    27. 27. To address these structural challenges and sustain growth, some developing economies are implementing production transformation strategies. Their industrial policies exhibit some common trends, and some differences. Key features of industrial policies TRADITIONAL EMERGING GOVERNANCE PRIORITIES OBJECTIVES POLICY MIX Industrial policy tools (i.e. directand indirect incentives to firms) Trade policy and FDI Support toscience andtechnology Skills development Diversification(i.e. entry in new sectors/types of activities) Specialisationandupgrading(i.e. scaling up in local and/or global value chains) Increasing the density of the productionsystem(i.e. entrepreneurship, linkages, networks) Territorial inclusionandcompetitiveness Social cohesion Sustainable development Growth Jobcreation International competitiveness TOP-DOWN (Low margin of maneuver of regional/local governments); ex. Chile. MIXED (Coexistence of national and regional/local initiatives); ex. China, Brazil. BOTTOM-UP (High margin of maneuver and responsibilities of regional/local governments); ex. India. Infrastructure building andupgrading Financing (i.e. developmentbanks) Macroeconomic policy (i.e. exchangeand interest rate management) Competitionpolicy Source: OECD (2013), Perspectives on Global Development 2013: Shifting up a Gear – Industrial Policies in a Changing World, OECD, Paris.
    28. 28. What have we learned in terms of good lessons? There are no blue prints ….but the experience of OECD and non-OECD countries in industrial policies shows that there are pitfalls that should be avoided: • Indiscriminate subsidies • Never-ending support • “Cathedrals in the desert” • Preventing competition • Closed-door bureaucracy-led prioritisation • Capture by incumbents • Low critical mass for investments • Short-term horizon and annual budgeting • Lack of monitoring and evaluation mechanisms
    29. 29. Thank you!

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