Exporting for growth: identifying leading sectors for Egypt

Transcription

1 Exporting for growth: identifying leading sectors for Egypt Sustainable Industrial Areas Conference Cairo March 6-7, 2018 Amirah El-Haddad *Senior Economist Stabilization and Development in the Middle East and North Africa German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) Amirah.El-Haddad@die-gdi.de Homepage: *Professor of Economics - Faculty of Economics and Political Sciences, Cairo University

2 OUTLINE Background: History of Egypt s Economic Policy The Product Space Egypt in the Product Space Results: PS, Strategic Bets and Forward Looking Open Discussion Points

3 Main Landmarks of Egyptian since Independence: 5 periods Egypt s economic policy is rooted in its approach to economic development. 1. Gamal Abdel Nasser ( ) in Egypt committed to public sector-led, inward looking import substitution industrial policies. 2. Egypt reversed that model with a mixed economy one open door policy (President Anwar El-Sadat in Egypt ( ). Combining import substitution with export promotion policies (For Egypt, reforms concentrated on liberalization of the foreign exchange market and consumer imports). Encouraging private sector and FDI but tightly regulated market access & resource allocation maintained monopoly over public utilities continued their support to the public sector through persistent cheap state credit, bailing failed public companies (i.e. soft budget constraint) & increased public employment. Hybrid model meant public sector remained a large polit. & econ. power. this period was marked as one of Partial Liberalization.

4 Main Landmarks of Egyptian and Tunisian Economic Policies since Independence: 5 periods 2 oil price shocks in 1973 & consumption phase (70s & 80s) budgetary deficits (18% in Egypt but only 4.5% in Tunisia) & a severe - trade balance, external debt (116% (63%) of GDP Egypt (Tun) depleted foreign exchange resources 3. Growing severity of situation Egypt pursued an Economic Reform and Structural Adjustment Program in 1991 Programs targeted: macroeconomic stability of external accounts and state budgets promoting greater market orientation, both decentralizing and liberalizing the economy through reduction of state intervention and price distortions. Ensuring greater trade liberalization (joining WTO & Euro- Mediterranean Partnership (EMP) & signing association agreements 1995, 2001) Thus deepening Egypt s integration into the international global market economy.

5 Main Landmarks of Egyptian and Tunisian Economic Policies since Independence: 5 periods 4. 4 th stage in 2004 introduced more profound economic reforms: slashing of customs and tariffs, and the replacement of politicians with techno-bureaucrats The Arab Spring sparked in Tunisia in 2010 propagating to Egypt in Most recent policy period: a return to state control and more protectionist measures backed up by a severe foreign exchange and youth unemployment crisis (13%) a budget and current account deficits mounting to 12% and 7% of GDP respectively, government debt exceeding the 100% mark and inflation reaching its highest level in seven years. Was reported at over 15% in August, climbing to 19% by November 2016 (CBE, 2016).

6 The Product Space Methodology Product Space Analysis Ǝ an established + relationship btw export diversification & growth (by boosting economies of scale, so becoming highest productivity activity in country( (e.g. de Ferranti et al., 2005; Feenstra et al., 2005)) Exports diversification (& sophistication) r distinct goals to any active industrial policy PS approach considers how countries may achieve that. PSM is outcome of combined efforts of six scholars in Hausmann, Hwang and Rodrik (2005), Hausman and Klinger (2006), Hidalgo et al. (2007), Hidalgo and Hausmann (2009), and Hausmann et al. (2011).

7 Product Space Analysis Drawing on the tools of Network Analysis, they empirically map the product space for exported products. It is likely that a country exporting asparagus to b also able 2 export artichoke (as Ǝ rural infrastructure in appropriate climatic zone suitable for both + cold storage transp. systems + customs & regulatory regimes+ services that support export of fresh produce,e.g. product approval and phytosanitary permits). Since the set of capabilities requisite 4 1 existing industry is easily redeployed to another new industry spillover effects r at the heart of the analysis. it is easier to start on an industry when the other already exists Therefore artichoke and asparagus are near each other in z product space whereas oil and asparagus r not (implication of path dependence).

8 The Global Product Space and Leamer clusters 1) each node is a product 2) node size reflects product s size in world trade 3) Proximity as explained above is expressed by the color-coded links between pairs of products according to linkage strength 4) Specifically light blue links indicate proximity less than 0.4, beige links proximity of , dark blue proximity of and finally a red link depicts proximity greater than Hierarchically clustered proximity matrix representing the 775 SITC-4 product classes exported in the period. This network representation of the product space is laid out using a force spring algorithm and retouched by hand (Hidalgo et. al 2007).

9 Community Characteristics: Complexity & Connectedness

10 Egypt and Tunisia in the Product Space (2014) 2014 Egypt 2014 Tunisia 2014 Egypt s Exports 2014 Tunisia s Exports

11 Location Opportunities: Cross Country Comparisons What exactly is Egypt s prospects for greater diversification and sophistication? OV is a unique measure 4 each country & measures the benefit of a country s export basket/location in the PS. It measures how many other different and/or sophisticated products are near a country s current set of productive capabilities OV is a strong determinant of a country s future ability to move into new, and eventually more sophisticated activities over time.

12 EGY Location Opportunities: Opportunity Value & GDP per capita, IND ESP TUR PRT CHN EGY BGR IDN VNM SRB THA LTU ZAF ROU HRV LVA GRC PAK PHL UKR BIH LBN BRA MEX HUN MYS POL EST GBR FIN BEL NLD CAN DNK TUN CHE SVK SVN ISR KOR HKG GTM LKA BLR ITA FRA SWE ARG CZE NPL PSE KEN SLVJOR DOM RUSCYP NZL IRL AUS NOR PERCRI UGA MDA MKD STP KGZ MAR SEN TZA HND WSM SWZ FJI VCT ALB COL MUS GEO CAF MWI MDG SLE RWA SSD BDI MOZ TGO COD LBRNERGINGNB COM ETH ZWE AFG GMB KIR MLI BEN BFATCD HTI SLB TLS YEMKHM TJK VUT CMR DJI CIV DMA NRUMNE BRBURY MLT JPN ARE PAN CHL BHR AUT USA ZMB TON UZB ARM TUV CPV BLZ KAZ SAU JAMLCA GRD BGD FSM MHL LSO GHA NIC MMR LAO BOLPRY KNA SYC ISL SDN COG AGO GUY BTNNAM ECU MNG MDV PLW DZA NGA IRQ BWA TKM SUR AZE GAB CUB BHS ATG OMN TTOGNQ SGP LUX KWT BRN MAC QAT -4-2 Algeria Iraq DEU Real GDP per capita (ln, PPP)

13 Location Opportunities: OV versus ECI, IRQ GNB NGA IND ESP TUR PRT CHN EGY BGR IDN LTU NLD SRB THA TWN VNM CAN DNK BEL LUX ZAF GRC LVA HRV ROU EST FIN GBR LBN BRA BIH HKGMEX POL SGP TUN HUN PAK MYS ISR SVK SVN KOR UKR PHL ARG BLR ITA FRA SWE LKA GTM CYP IRL CZE DOMAUS JORNZL NOR KEN PER NPL PSE RUS SMR SLV CRI MAC GUMAIA AND MAR MDA MKD NIU UGA ARE ALB COL MLT SYR BHR BRB ABW CHL KGZ MUS URY TKL HND FJI GEO MNE ASM CCK STP TZA ATA AUT SEN DMA MSR CIV IRN KAZ PRK PAN SWZWSM VCT UMI USA BLZ ARM CAF BLM MNP NFK NRU RWA SAU MDG KHM JAM MWI SLE ATF AGO AFG BEN ATG BMU BOL CPV GRD ISL SPM OMN TON TCA KWT LCA COK CUW BES BGD BFA BDI CMR BRN BHS AZE BTN BVT COG COD COM CUBBWA DJI CYM DZA ECU CXR ESH ETH FLK GIB KNA SHN ERI GAB FRO FSM GHA GIN GNQGMB GRLGUY HMD IOT MMR LAO MOZ LBR MNG LBY MLI NAMPRYQAT PYF PCN SSD KIR MHL MDV PLW SGS TGO PNG MRT NCL HTI NER NIC SXM SYC VAT VGB UZB TUV WLF YEM ZMB ZWE TCD TKM SDN SOM TJKSLBVEN VUT SUR TLS TTO LSO CHE JPN -4-2 DEU Economic Complexity Index

14 Product Feasibility: Complexity and Opportunity Gain (2014) Complexity versus Distance Other articles of iron or steel nes Medicaments Other plastic plates, sheets, film, foil & strip Ice cream Industrial or laboratory electric furnaces Opportunity Gain vrsus Distance Medicaments Other plastic plates, sheets, film etc. Polishes and creams Other articles of iron or steel nes Springs of iron or steel Appliances for thermostatically controlled valves Ice cream

15 Distance vrs. Product Complexity and Opportunity Gain regressions Distance versus Complexity Distance versus Opportunity Gain

16 Product Space Potential Up-Market Export Sectors for Egypt, 2015 World exports (US$mil) HS Product Chapter Section Group RCA PCI Oppgain Distance Exports (US$mil) Imports (US$ mil) Agr. Pr Birds eggs, in shell, fresh, preserved or cooked 73 Tube, pipe of iron or steel, except seamless > 406.4m 48 Paper, board containers, packing items, box files 25 Quicklime,slaked, hydraulic lime for construction etc Dairy products, eggs, honey, edible animal product nes Articles of iron or steel Paper & paperboard, articles of pulp, paper & board Salt, sulphur, earth, stone, plaster, lime & cement 22 Unsweetened Beverages, spirits & beverage waters, ice & vinegar snow 19 Cereal food (roasted, swelled), cooked grain not maiz 21 Ice cream & other edible ice 39 Containers, bobbins & packages, of plastics Cereal, flour, starch, milk preparations & products Miscellaneous edible preparations Plastics & articles thereof Live animals; animal products Base metal & articles of base metal Pulp of wood or other; waste & scrap of paper, paper & paperboard & articles Metals & Manuf. Non Cons An. & Plnt Pr Min. Pr. Min. Pr Prprd foods., bevr., sprts, tobacco & subs Prprd foods., bevr., sprts, tobacco & subs Prprd foods., bevr., sprts, tobacco & subs Plastics & Rubber Agr. Pr Agr. Pr Agr. Pr Chemical & R. P Waters, non-alcoholic Beverages, spirits & Prprd foods., bevr., sprts, Agr. Pr sweetened or flavoured vinegar tobacco & subs beverage 41 Raw hides & skins of Raw hides & skins Raw hides & skins, leather Non Cons bovine, equine animals (other than furskins) & articles, salldlery & An. & Plnt

17 Egypt Product Space Methodology 1 Birds eggs, in shell, fresh, preserved or cooked Dairy products, eggs, honey, edible animal product Live animals; animal products 2 Tube, pipe of iron or steel, except seamless > 406.4m Articles of iron or steel 3 Paper, board containers, packing items, box files Top Five Up-Market Export Products by Methodology Strategic Bets Medicaments, therapeutic, prophylactic use, indosage Forward Looking Pharmaceutical products Products of the chemical or allied industries Agricultural Products Metals & Manuf. Chemical & R. P. Base metal & articles of base metal Metals & Manuf. Paper & paperboard, articles of pulp, paper & board Pulp of wood/other, waste & scrap of paper, paper & paperboard & articles 4 Quicklime,slaked, hydraulic lime for construction etc Salt, sulphur, earth, stone, plaster, lime & cement Non Cons An. & Plnt Pr. Mineral products Mineral Products 5 Unsweetened beverage waters, ice & snow Beverages, spirits & vinegar Hand saws and blades for saws of all kinds Tools, implements, cutlery, etc of base metal Moulds for metals (except ingot), plastic, rubber, etc Newsprint Base metal & articles of base metal Nuclear reactors, boilers, machinery, etc Machinery, Mechanical Appliance, Electrical Equip. & Accessories Metals & Manuf. Paper & paperboard, articles of pulp, paper and board Pulp of wood/other, waste & scrap of paper, paper & paperboard & articles Non Cons An. & Plnt Pr. Metals, clad with platinum, semi-manufactured Pearls, precious stones, metals, coins, etc Polyamides in primary forms Pearls, stones, metals, imitation Jewl. Plastics & articles thereof Metals & Manuf. Seats (except dentist, barber, etc. chairs) Containers, bobbins &packages, of plastics Articles of iron or steel Furniture, lighting, signs, prefabricated buildings New pneumatic tires, off rubber Miscellaneous manufactured articles Plastics & articles thereof Articles of iron or steel O Highly Manf. & Spcl- Purpose Goods Rubber & articles thereof Plastics & articles thereof; rubber & articles thereof Chemical & R. P. Plastics&Rubber Chemical & R. P. Prprd foods., bevr sprts tobacco&subs Agricultural Products Plastics&Rubber Chemical & R. P. Base metal & articles of base Metal Metals & Manuf.

18 Strategic Bets: More Invasive Active Industrial Policy Compare results to more invasive active IP One that tries to quickly steer the economy away from light industries such as food processing and clothing to more sophisticated, capital-intensive heavy industries such as machinery and iron and steel (provide OG but far away) (similar 2 dev strategis dominated much of thinking of several newly-independent countries in the 2nd half of the 20th century, such as India and the Maghrib countries). Can refer 2 this strategy as Strategic Bets: weight 2 PC & OG less 2 distance (a strategy that underscores more sophisticated sectors and greater opportunity gain (OG) and so gives less weight distance) Results r at the v end of the spectrum lead by machinery, equipment, and high complex chemicals.

19 Products in top 40% of PCI & OG, Distance >=0.8, Egypt 2015, ordered by distance Imports World Oppgain Exports (US$ exports HS Product Chapter Section Group Distance(US$mil) mil) RCA PCI (US$mil) 82 H& saws & blades for Tools, implements, Base metal & articles of base Metals & saws of all kinds cutlery, etc of base metal metal Manuf. 84 Moulds for metals (except Nuclear reactors, boilers, Machinery, Mechanical Metals & ingot), plastic, rubber, etc machinery, etc Appliance, Electrical Equip. & Accessories Manuf Newsprint Paper & paperboard, articles of pulp, paper & board Pulp of wood or other; waste & scrap of paper, paper&paperboard&articles 71 Metals, clad with platinum, Pearls, precious stones, Pearls, stones, metals, semi-manufactured metals, coins, etc imitation jewl. 39 Polyamides in primary Plastics & articles thereofplastics&rubber forms 38 Reaction initiators, Miscellaneous chemical Products of the chemical or accelerators & catalysts, products allied industries nes 84 Gaskets & similar joints of metal sheet 84 Machine-tool for working stone, ceramics, cold glass 84 Converters, ladles, ingot moulds etc, for metallurgy 38 Chemical industry products nes Nuclear reactors, boilers, Machinery, Mechanical machinery, etc Appliance, Electrical Equip. & Accessories Nuclear reactors, boilers, Machinery, Mechanical machinery, etc Appliance, Electrical Equip. & Accessories Nuclear reactors, boilers, machinery, etc Miscellaneous chemical products Machinery, Mechanical Appliance, Electrical Equip. & Accessories Products of the chemical or allied industries Non Cons An. & Plnt Pr. Metals & Manuf. Chemical & R. P. Chemical & R. P. Metals & Manuf. Metals & Manuf. Metals & Manuf. Chemical & R. P

20 Strategic Bets: More Invasive Active Industrial Policy SB promotes industries that will push economic growth, more diversification and urban job-creation Drawback especially 4 countries with high (youth) unemployment rates (e.g. Egypt and Tunisia). Sectors r mostly less labor intensive and require high skilled workers. If workers r moved quickly out of labor intensive light sectors agricultural products, garments and food processing labor maybe moved into unemployment or into low productivity informal sectors. The tradeoff more jobs versus better jobs or penniless versus jobless growth is quite apparent here.

21 Forward Looking: Trends in International Markets PSM & SB both do not consider effect of world trade on future viability of selected sectors (see criticisms of PSM in Altenburg 2016). Developed countries have increasingly lost market share to developing countries. important 2 take international trade trends into account when identifying upmarket sectors to strike balance btw PSM & SB Taking into account the significance of every product in world trade (remember size of the bubble in product community figure) Results of Up-Market Products weighted by their share in world exports

22 Up-Market Products weighted by World Trade, 2015

23 Egypt Top Five Up-Market Export Products by Methodology Product Space Methodology Strategic Bets Forward Looking 1 Birds eggs, in shell, fresh, preserved or cooked Dairy products, eggs, honey, edible animal product Live animals; animal products 2 Tube, pipe of iron or steel, except seamless > 406.4m Articles of iron or steel 3 Paper, board containers, packing items, box files Medicaments, therapeutic, prophylactic use, indosage Pharmaceutical products Products of the chemical or allied industries Agricultural Products Metals & Manuf. Chemical & R. P. Base metal & articles of base metal Metals & Manuf. Paper & paperboard, articles of pulp, paper & board Pulp of wood/other, waste & scrap of paper, paper & paperboard & articles 4 Quicklime,slaked, hydraulic lime for construction etc Salt, sulphur, earth, stone, plaster, lime & cement Non Cons An. & Plnt Pr. Mineral products Mineral Products 5 Unsweetened beverage waters, ice & snow Beverages, spirits & vinegar Hand saws and blades for saws of all kinds Tools, implements, cutlery, etc of base metal Moulds for metals (except ingot), plastic, rubber, etc Newsprint Base metal & articles of base metal Nuclear reactors, boilers, machinery, etc Machinery, Mechanical Appliance, Electrical Equip. & Accessories Metals & Manuf. Paper & paperboard, articles of pulp, paper and board Pulp of wood/other, waste & scrap of paper, paper & paperboard & articles Non Cons An. & Plnt Pr. Metals, clad with platinum, semi-manufactured Pearls, precious stones, metals, coins, etc Polyamides in primary forms Pearls, stones, metals, imitation Jewl. Plastics & articles thereof Metals & Manuf. Seats (except dentist, barber, etc. chairs) Containers, bobbins &packages, of plastics Articles of iron or steel Furniture, lighting, signs, prefabricated buildings New pneumatic tires, off rubber Miscellaneous manufactured articles Plastics & articles thereof Articles of iron or steel O Highly Manf. & Spcl- Purpose Goods Rubber & articles thereof Plastics & articles thereof; rubber & articles thereof Chemical & R. P. Plastics&Rubber Chemical & R. P. Prprd foods., bevr sprts tobacco&subs Agricultural Products Plastics&Rubber Chemical & R. P. Base metal & articles of base Metal Metals & Manuf.

24 Discussion Top sectors barriers to entry, e.g. medicaments subject to predatory anti-competitive practices (cartels e.g. Mario Mariniello and Marco Antonielli, 2014) highly protected sector (in Egypt limited licenses, bribes) Type of Value Chain (captive or modular) PSM is quiet as to how to proceed (97, 106) Dynamic aspects: IP Target Sectors during last 20 years Ability of IP to steer economy towards these sectors but creates distortions Active vrs neutral IP (Lin and Monga, 2010) Technology Life Cycle of Products (Lee 2013)