1. Werner Corrales-Leal UNCTAD-UNDP Global Programme on Globalization, Liberalization and Sustainable Human Development Marrakech, April 2004 DEVELOPING LOCAL COMPANIES’ CAPACITIES AND DIVERSIFYING TOWARDS HIGHER VALUE ACTIVITIES IN THE OIL AND GAS SECTOR: THE VENEZUELAN EXPERIENCE IN ENGINEERING AND CAPITAL GOODS DEVELOPING LOCAL COMPANIES’ CAPACITIES AND DIVERSIFYING TOWARDS HIGHER VALUE ACTIVITIES IN THE OIL AND GAS SECTOR: THE VENEZUELAN EXPERIENCE IN ENGINEERING AND CAPITAL GOODS LESSONS FROM A DEVELOPMENT POLICY CASE AND QUESTIONS ABOUT THE FUTURE IN MULTILATERAL RULES NEGOTIATIONS NOT AN OFFICIAL UNCTAD RECORD

2. LIST OF CONTENTS The use of market-friendly active policies : A case of the oil sector in Venezuela. Clustering in development policy in hydrocarbon-dependent countries. Opportunities and challenges in multilateral negotiations

3. PART ONE The use of market-friendly active policies : A case of the oil sector in Venezuela

4. Only 15% of the engineering & capital goods procurement was national  Strategic need to reduce technological dependence on TNCs MID- EIGHTIES : MAIN CHALLENGES IN THE SECTOR RELATED TO TECHNOLOGICAL CAPABILITIES Almost inexistent R&D Capabilities in the sector (PDVSA or elsewhere)  Objective shortages in technological capabilities in the country Only 5 construction management firms capable of major assignments Decision to face the program on a “Market Friendly” basis  Lack of confidence on local capabilities among many groups Firm commitment of PDVSA and the Venezuelan private sector Public doubts about the success of the Capacity Development Program Pre-existing contracts for the provision of technology and engineering The use of Market-Friendly Active Policies, a case of the Oil Sector in Venezuela About 20 engineering companies for projects of medium complexity

5. Establishment of a policy for Transfer of Technology on commercial basis  Creation of a High Quality Research & Development Organization Massive program for training human resources in research fields A STRATEGY FOR CAPACITY DEVELOPMENT IN R&D, ENGINEERING AND CONSTRUCTION SERVICES Implementation of SMEs Quality Assurance and Competitiveness Programs  Promotion of domestic suppliers of capital goods and services Export promotion program for capital goods and inputs Contracting rules reform introducing practice of project disaggregation  Promotion of Engineering and Construction Management firms Continuous improvement and quality control practices in all contracts Non Mandatory Performance Requirements for Joint Ventures Creation and development of INTEVEP The use of Market-Friendly Active Policies, a case of the Oil Sector in Venezuela Incentives and financial supports for Suppliers Development Programs

6. 0 10 20 30 40 50 60 70 80 90 100 808284868890929496982000 % evolution trend Investment: 2,500 MM/ US$ yr Very high improvement in technological capabilities and market share LONG TERM EVOLUTION OF THE ENGINEERING AND CONSTRUCTION SERVICES 1985 - 2000 The use of Market-Friendly Active Policies, a case of the Oil Sector in Venezuela Highly skilled jobs, sources of added value and backward links created Further evolution of Engineering & Construction to Integrated Services

7. PART TWO Clusters and SMEs in development policy in hydrocarbon-dependent countries.

8. Basis and intensity of competition erodes capacities for reinvestment  Reduce dependency on current trade in commodities Commodity production has very limited networking or spill-over effects  Promote effective tech transfer and increase internal multipliers THE NEED FOR ACTIVE POLICIES FOR DEVELOPMENT IN OIL-EXPORTING COUNTRIES “Global Chain Optimisation”: Promote Clusters and insertion to Chains Motivate and promote domestic R&D and Technological Capacity Building A “Levelled playing field ” to negotiate alliances and complementarities Modify trends: extreme productivities and exchange rate appreciation  Modify dynamics of investment affected by the Dutch Disease Incentivate Investment towards higher value added goods & services Clusters and SMEs in development policy in hydrocarbon-dependent countries

9. COMPONENTS AND AIMS OF AN INTEGRATED TRADE-SUPPORTED DEVELOPMENT STRATEGY KNOWLEDGE, INNOVATION SYSTEMS & TECHNOLOGY TRANSFER POLICIES ENTERPRISE DEVELOPMENT AND CLUSTERING, PRODUCTIVITY & INVESTMENT POLICIES POLICIES AND RULE MAKING IN INTERNATIONAL TRADE AND INTEGRATION  Trade-related policy areas  Strategic Policy Goals Enhance social effectiveness of economic policy Improve internal multipliers of export-led growth Secure equilibrium and stability in external flows Environmental concerns as cross-cutting policy issues Increase knowledge value & diversification in exports Enhance market access and defense capabilities Improve productivity through technology & innovation Clusters and SMEs in development policy in hydrocarbon-dependent countries

10. ENTERPISE DEVELOPMENT AND CLUSTERING POLICIES TRADE POLICIES INNOVATION AND TECHNOLOGY POLICIES INFRASTRUCTURE POLICIES INVESTMENT POLICIES ENVIRONMENTAL POLICIES SOCIALLY-TARGETTED COMPETITIVENESS RELATED POLICIES ACTIVE & REGULATORY POLICIES (THE TOOL BOX) COMPETITION AND ACCESS TO INFORMATION POLICIES MACRO- ECONOMIC FRAMEWORK OF POLICIES RISK MANAGEMENT FRAMEWORKS NATIONAL ENABLING FRAMEWORKS RULES ON PROPERTY RIGHTS & INVESTMENT MANAGING COMPETITIVENESS AND TRADE : RELEVANT POLICY AREAS AND ENABLING FRAMEWORKS Clusters and SMEs in development policy in hydrocarbon-dependent countries

11. LINKAGES IN THE TWO DIMENSIONS OF TRADE AND DEVELOPMENT POLICIES KNOWLEDGE, INNOVATION SYSTEMS & TECHNOLOGY TRANSFER POLICIES ENTERPRISE DEVELOPMENT, PRODUCTIVITY & INVESTMENT POLICIES NATIONAL POLICIES FOR INTERNATIONAL TRADE AND INTEGRATION DEMAND SIDE TRADE- SUPPORTED POLICIES SUPPLY SIDE TRADE-SUPPORTED POLICIES RULES IN THE SPACE FOR DEVELOPMENT POLICIES MARKET ACCESS AND FAIR TRADE RULES Clusters and SMEs in development policy in hydrocarbon-dependent countries

12. Conditioned access to FDI, as “benefit” in sectors reserved for national investment  Market consistent investment-related policies for competitiveness Focalized promotion; incentives to ToT, R&D, Clustering and SME development POE procurement promoting technological capacity building and SMEs clustering OPPORTUNITIES AND CHALLENGES FOR SUPPLY-SIDE POLICIES RELATED TO WTO RULES Subsidies (dual pricing in gas); tariffs & tariff binding for value-added goods  Multilateral disciplines and issues involved in the immediate future Performance requirements for ToT, domestic capabilities development & clustering Energy services and GATS rules in general; Coordinated implementation of IPR, competition rules and R&D programmes Special and Differential Treatment; “Spaces for Development Policies” in general Eventual negotiations on investment, public procurement and competition Clusters and SMEs in development policy in hydrocarbon-dependent countries