(40)industrial policies in a changing world ppt hari master piece

1. INDUSTRIAL POLICIES IN
A CHANGING WORLD
N. HARIHARAN DDTP.,DOA ,
BCOM CS -SECOND YEAR

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PRESENTACTION OUTLINE
 What Prospects for Low-Income Countries?
 Domestic policy challenges
 Policy space paradox
 In the specific case of LICs
 Bangladesh: Pharmaceutical sector (generic drugs)
 Cut flower in Ethiopia
 LICs prepared
 Industrial development

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What Prospects for Low-Income
Countries?
E15 Second Expert Group Meeting Reinvigorating Manufacturing: New
Industrial Policy and the Trade System Isabelle Ramdoo Deputy Head of
Programme Trade and Economic Transformation Geneva, 4-5 December
2014. Industrial Policies in a Changing World
2. 1. Background 2. Industrial policies in LICs • What distinguishes LICs
from other developing countries? • What has worked? Why and under
what conditions? 3. Industrial and trade dynamics: What is changing? 4.
What then for LICs? Structure of Presentation Page 2ECDPM

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The Paper focuses on the specific case of low-income
countries, zooming on some specific cases where targeted
industrial policies have been used to promote specific economic
sectors. In particular, the Paper looks at particular policies taken
to address:
 Market failures (pharmaceuticals in Bangladesh);
 Economic diversification and productivity gaps notably
through industrial upgrading (Ethiopia and cut flowers and
RMG in Bangladesh) and;
 Economic diversification (Mozal in Mozambique)

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. Domestic policy challenges:
4 Experience of industrial policy has generally been uneven and
inconclusive due to:  Systemic factors: Cost of addressing market failure
higher and ability of public sector to address these is more limited;
Institutional/ governance weaknesses; poor private-public coordination; 
Structural factors: Low-income, under-diversified, under- industrialized;
significant productivity gaps; weak private sector; Significant weaknesses in
hard and soft infrastructure and business/ investment climate;
competitiveness is a major challenge although low labour cost is an
advantage; access to

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“Policy space paradox”
• 5. In the multilateral trading system, Policy space is NOT an issue: LICs
have a lot of flexibility to undertake policy measures. Problem is how
best to use such policy space; • But most often domestic policies are
influenced by external pressures (eg conditional loans at IMF, WB;
donor driven agenda etc) • LICs have rarely used up all available space
to conduct industrial policies; Those who have, have never been
challenged under the DS at WTO; • With increasing bilateral FTAs, they
are themselves now constraining their policy space ECDPM.

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. In the specific case of LICs,
The policy paradigm is still driven by the need to develop economic
activities around labour/ resource intensive activities with the view of
broadening the economic structure (incl for local consumption) and
improving the competitiveness of exports. Why? Because industrial deficit
large! • As such: objectives and focus of industrial policies and the need to
overcome certain gaps/ constraints are somewhat guided that that logic of
“take off” and “catching up”. • Policies guided by (i) need to acquire
industrial capabilities; (ii) move up the value chain; (iii) promote and
develop new industries • Most popular policies remain (new forms of) ISI,
EOI and RBI types of policies, although new global challenges imperatives
certainly call for more innovation and technological-based policies.

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Bangladesh: Pharmaceutical sector (generic
drugs)
Primary objective (1982): Public health to address market failure
preventing provision of affordable medicines for the poor; • Host of
measures to encourage local production and restrict imports of certain
drugs by MNEs; Price regulations; Transfer of know-how and skills from
foreign to local firms; Training of local cadres;

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Pharmaceutical sector (generic
drugs)
 Successful: covers 97% domestic demand & exports to 85 countries
 Overtime: some restrictive market conditions relaxed Key factors of
success
 Policies framed in a way to limit rent capture (price caps & market
control)
 technological learning, transfer of know how and skills upgrading
 TRIPS waiver for LDCs conferred production advantages Potential
challenges
 Protection is not time bound; Expiry of TRIPS waiver in 2016 Examples
of ISI-types of policies.

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Cut flower in Ethiopia
 Incentives under export promotion strategy in four areas
 Land acquisition: Govt-owned land leased at cheap rates
 Low-interest rate long-term credit
 Subsidized key logistics (namely cargo space if using national carrier and
post-harvest cold chains)
 Upgrading capabilities, through strategic partnership with Dutch
government Key factors of success:
 Targeted support through some sort of cluster approach (close to
airport)
 Government acted as a facilitator by removing key barriers • Subsidies
contributed to cost advantage compared to regional rivals . .

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Aluminum smelting in Mozambique
 RBI is quite specific: favourable resource endowment does not
translate automatically into competitive advantage in RBI
 Mozambique developed aluminum smelting without producing a
single tonne of Bauxite (imported mainly from Australia). Objective
economic diversification from agriculture
 Cheap inputs – essentially electricity and provision of logistical
infrastructure (railways and port) Fiscal and financial incentives
Strategic Joint venture combined with market factors (initially secured
market for aluminum in Japan thanks to JV with Mitsubishi

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Changing nature of industries
10 (increasingly driven by global buyers and suppliers) and trade
frameworks (proliferation of FTAs, in partic among big economies) pose
additional challenges to LICs; Fragmentation of production structures
led to
 global dispersion of activities and (ii) shift of invt focus from country
to value chain Few are well integrated in GVCs; Those who are, are
trapped at the lower-rung of the value ladder
 GVCs: Linking to GVCs require a different logic. Moving from
industrial policies from the prism of government’s responsibility to
diversify to one that focuses on firms and how to accompany them to
remain competitive, upgrade and evolve

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LICs prepared
 How are to adopt this paradigm shift in the way they put forward
industrial policies? Advantage of LICs late comers (potential to
leapfrog); disadvantage of LICs: late comers (getting more complicated)
Important to match policies against performance some forms of support
need to be time bound with clear sunset clause for ineffective ones
 Not a question of policy space Rather a question of: 1. policy scope:
using existing policy breadth and depth in an effective and creative
manner to broaden support and which are adapted to the new global
challenges; 2. Policy mix: “hard” vs “soft”; “vertical” vs “horizontal” 3.
Policy shift: trade policy is now dictating industrial policy, no longer the
other way round.

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Industrial development
 Industrial development is driven by firms, then policies need to be
guided by firms. Addressing coordination problems with private sector
is key LICs are not expected to be LICs forever
 Needs an adaptive strategy:how can policy evolve to move away from
LICs ‘logic’ i.e from border restrictions to policies to build markets and
capabilities
 Needs different sets of logic that guide objectives and focus of
industrial policies (eg. Policy space start to become real issues; less
flexibility etc.

15. Thank You.
N. Harihran ,
harimasterpiece @gmail.com
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