Export promotion and complementary policies in Latin America and the Caribbean: The Cases of Chile and Colombia Nanno Mulder Division of International Trade and Integration, Economic Commission for Latin America and Caribbean (CEPAL)

Outline 1. Recent trade and growth performance 2.Trade promotion: Chile & Colombia 3.Need for complementary policies 4.Concluding remarks

Introduction 1. Focus is on trade promotion and framework conditions, not on poverty reduction 2. Key mechanism: trade growth poverty reduction 3. Use one instrument for one objective (Tinbergen)

1. Recent trade and growth performance

Source: ECLAC, on the basis of oficial information. Volume of exports: Annual growth rates (%) Exports have grown faster in LAC than in other regions during But there are notorious differences among sub regions.

3 types of specialisation 1.- Mexico & Central America manufactures (low value added) 2.- South America natural resources (Agr. and Min.) 3.- Caribbean services (tourism and finance)

Natural resources continue to account for large share of exports of Latin America

Exports and economic growth are strongly correlated in Latin America

Economic growth underpins recovery in per capita income

2. Trade Promotion: Chile and Colombia

Export promotion in the region PUBLICPRIVATE MIXED BICE (Arg) APEX (Bra) CEPROBOL (Bol) PROCHILE (Chi) PROMPEX (Per) PROEXPORT (Col) URUGUAY XXI (Ur) BANCOEX (Ven) BANCOMEX (Mex) ARG. EXPORTA (Arg) FUNCEX (Bra) BOLINVEST (Bol) ASEXMA, SOFOFA (Ch) ANALDEX (Col) CORPEI (Ecu) ANIERM (Mex) ADEX (Per) Cámaras de Comercio PROEXPORT (Col)

Horizontal measures Exchange rate policy Trade policy FDI promotion policy Fiscal incentives Reimbursement VAT exemptions Tax reduction Less procedures Trade negotiations Integration agreement FDI promotion and protection agreement Double taxation agreement Agreement on free movement of persons; Dispute settlement mechanism Indirect stimulus Customs incentives Draw Back Temporary admission Temporary exports Tax free zone Export processing zone (maquila) Export promotion A

Direct support (Meso and Micro) Financial Instruments Production support (Pre-shipment credit) Fiscal support Proyect finance Investment credit Tax rebate for R&D spending Improving production process (quallity) Export support (Post shipment credit) Import or buyer credit Export insurance Tax exemptions Other than financial instruments Institutions Market and sales information Promoting exports Quality control Missons and trade shows Country image campaigns Advice on international insertion strategies (comercial, customs, legal) Training of personnel (seminars, courses) Technology support Creation of specialised agency Export promotion B Tax free zones Export processing zones Special incentives

Trade preferences Legislation and promotion instruments Direct support to firms Export promotion Basic scheme for export promotion

Why Chile and Colombia? 1. Recognised as being among the region´s best export promoters 2. Successful in combining X with economic growth & poverty reduction through complementary policies 3. Process of mutual learning & exchanges 4. Colombia: Panellists Surprise Award, granted by World Trade Promotion Organization

Colombia & Chile are among leaders in export promotion in LatAm Source: WEF

Export promotion agencies Chile: ProChile - public Colombia: ProExport – private/public

Orientation Both Chile and Colombia are shifting emphasis from consumer commodities (branding!) to export diversification into nontraditional products

Co-financing Co-financing by export firm is pre- condition for support from X promotion agency except for no-export ready SMEs. In Chile, part of funding is through Annual Export Competition.

ProChile: foreign network 46 offices worldwide Information providers (market opportunities, market trends, competition) Connection between export supply and possible opportunities in foreign markets Promote alliances between Chilean and foreign firms

Proexport: International Network Germany, Hamburg Madrid, Spain Beijing China Caracas, Venezuela Lima, Peru Quito, Ecuador Santiago, Chile Sao Paulo, Brazil Ciudad de México, New York, USA Miami, USA Toronto, Canada London, UK San Jose, Costa Rica Commercial Offices Commercial Representations Caribbean Brussels, Belgian Rome, Italia Washington

Organization of export promotion 1. Both conduct market research. Latter has special tools/databases to identify potential exportables to potential market. 2. Identifying priorties: ProChile - together with business associations & public/private council; ProExport – regional public/private consultative committees

How to prioritise? Com Offices abroad REGIONS Business association Private sector Market & product

Export potential test: - strengths, - weaknesses - Opportunities in these firms regarding their export potential Measure export capacity of firms:

12 factors: Export Potential Test (ProChile) 1.Employees´arguments on markets & products 2.Int.l operational management 3. Available resources 4. Acquired experience (at home and abroad) 5. Products - Services 6. Reasonable expectations 7. Available information 8. Existing trade barriers 9. Price level 10. Motivation of directors 11. Quality of processes 12. Environmental concerns

Export promotions: Actions Multiple: Incoming buyers missions (Ex.: MacroRueda in Cartageña) Trade shows (Ex. Chile: Country Image with Flavours of wine, salmon and fruits) Videoconferencing Export directory Variety of internet services !! Follow the client from beginning to end !!

1.Sales objectives 2.Management 3. Benefit/Costs 4. Other Aspects Model for Evaluation and Remuneration (ProExport Colombia) Direct impact on exports and coverage of firms thanks to support of PROEXPORT using the Proexport Selling Methodology Services and activities geared towards new opportunities that fit in the overall strategy Return on investment Performance, Image, etc.

1.Part of salary is flexible 2. Quarterly and annual premiums for exelence 3. Annual rewards for exceeding the target ProExport Colombia: Flexible remuneration of employees Related to meeting the target Create a result-oriented business culture Promotes endeavors to surpass the fixed objectives. Creates values of organisation wanting to have a major impact Rewards extraordinary results.

Success Cases Chile (ProChile): -Salmon -Wine -Fresh fruits Colombia (ProExport): -Flowers -Building materials -Textiles and clothing

4. Need for complementary policies

What is needed? l Consistency between trade policy, macroeconomic and other policies l Key links among real sector development, export promotion, technology diffusion and training l Macroeconomic context and trade policy may promote growth and poverty reduction but require effective social policies

Complementary policies 1.Macro stability –Avoid exchange rate overvaluations –Reduce exchange rate volatility –Correct sequencing of reforms –Anti-cyclical macro management 2.Institutional stability –Clear and predictable rules of the game –Clear legal system, independent judges –Public safety

Complementary policies 1.Macroeconomic stabiliy (Pn / Pt !!) 2.Mature and stable institutions 3.Export orientation 4.Active state role in technology diffusion and infrastructure building 5.Deep and stable financial markets 6.Efficient logistics associated to trade 7.Market friendly regulations 8.Little corruption and transparency 9.Selective export promotion 10.Links with real sector

Complementary policies 3.State, technological change –Digital agenda –E-government –E-billing –E-taxes –E-administrative procedures –Online trade facilitation 4.Infrastructure –Roads, railways, ports airports –Telecommunications: connectivity, coverage, costs, quality

Complementary policies 5.Export orientation –More than tariffs –Reduce anti export bias –SPS, health –Norms –Logistics: ports, customs, services 6.Financial stability –Supervision and prudent regulation –Independent Central Bank –Deepening of capital market –Hedging instruments

Complementary policies 7.Competition & regulation –Promote competition –Create markets –Market-friendly regulation –Transparency and technical criteria –Conducive to productivity gains and low prices –Let the price mechanism allocate resources 8. Transparency and low corruption –Diffusion through www: l Information l Performance evaluation l External auditing –Online public procurement and tenders

Complementary policies 9.Selective export promotion –SMEs with export potential –Information on export opportunities –Advice on procedures –Specialised advice –Information on markets –Business contacts –Fairs, foreign missions, video- business –Offices abroad 10. Real sector development –Link SMEs with export chains (clusters) –Modernising management –Quality (certification) –Education & training –Technology diffusion –Business cooperation

Basic Requirements 1.Institutions 2.Infrastructure 3.Macro economy 4.Health and primary education Efficiency Enhancers 5.Higher education and training 6.Market efficiency (goods, labor, financial) 7.Technological readiness Innovation and Sophistication Factors 8.Business sophistication 9.Innovation Key for factor–driven economies Key for efficiency–driven economies Key for innovation–driven economies Source: World Economic Forum, 2005 Nine pillars of competitiveness

Competitiveness Ranking Source: World Economic Forum, 2004 – 2005 (

64% Export Flows by Preferential Trade Agreements, 2005 They were almost 6% in 1991

Ranking (60 countries) Colombia Available Skilled Labor Source: The World Competitiveness Yearbook 2005-IMD Qualified human capital… Competitive Senior Managers Colombia Ranking (60 countries)

Index of Economic Freedom Source: Heritage Foundation, Top 20 positions. (

Transparency Source: Transparency International, 2003 (

Business Climate Source: Economist Inteligence Unit, (

External Debt Source: Global Development Finance World Bank External debt in developing countries / GNI. Multilateral, bilateral and private

GDP Average Annual Growth Rate (Selected Countries) Source: International Monetary Fund, 1990 – 2004 (

Colombia's economy has improved substantially since 1999 (crisis year) Source: DANE, ECLAC GDP Growth: Colombia vs Latin America ( ) %

Chile: Unemployment Rate (%) Source: National Statistics Bureau, INE, ( International Monetary Fund, (

COLOMBIA: Unemployment levels dropped from 15,7% to 11,8% Source: DANE Fuente: DANE Source: DANE

Chile: Reduction of Poverty (% of population)

Poverty and indigence levels have dropped, we have reached the lowest rates since 1991 Source : Estimaciones MERPD- ENH y ECH Between 2002 and 2005 poverty dropped 7,8 points: 2,3 million people out of poverty. National Poverty Between 2002 and 2005 indigence was reduced 6 points: 2,2 million people out of indigence National Poverty Fuente: Estimaciones MERPD- ENH y ECH Social Conditions in Colombia improved …

Concluding remarks 1. Export promotion needs to be supported by other policies to bear results 2. Key elements in successful trade promotion: cooperation with private sector, targeted and tailored assistance, variable remuneration, continuous evaluation 3. Main links with poverty: - Support of SMEs that realistically have potential - Create growth and effective social policies