Title: Bridging the Gap between Desirable Policy and Local Capability How Donors Can Assist Growth in Afric
1Bridging the Gap between Desirable Policy and
Local CapabilityHow Donors Can Assist Growth in
Africa Elsewhere
Cashew nut seller in Mozambique
Copper Belt in Zambia
Garment workers in Ethiopia
- Policy Formulation in Developing Countries
- GRIPS Development Forum
2Topics
- Desirable policies vs. local capability
- Good governance? Growth diagnostics?
- Dynamic capacity development
- How donors can assist
- Japanese initiative for African development
- How Ethiopia mobilizes donors
3Development PolicyDesirability vs. Feasibility
- Development is both a political process and an
economic process.
What should be doneHRD technology Infrastructur
e Integration competition Systemic transition,
etc
What can be done Leadership Politics, foreign
relationsPopular sentiment Administrative
capacity
(mainly economics)
(mainly politics)
- Each country is unique in what needs to be done
as well as what can actually be done. - Any policy maker must work simultaneously with
economic and political space (content vs.
doability).
4Policy Design (cont.)
- Policy advice without feasibility consideration
cannot be implemented regardless of whether
proposed actions are a few or many, common or
tailor-made.Examples macro conditionality,
big-bang liberalization vs. gradualism,
privatization, external opening, governance,
growth diagnostics, etc. - We need to figure out a policy sequence which is
both desirable and feasible in each countrys
context. - While developing countries are directly
responsible for politics/feasibility, donors can
offer aid and advice to help them overcome this
problem from the sideline.
5Good Governance DebateWorldwide Governance
Indicators (Kaufman Index)
- Causality? (Growth ? Good governance)
- Feasibility of the long menu of institutional
changes and capacity-building initiatives? - No guidance on what specifically needs to be done
in the real world context - Merilee Grindle good enough governance
- Mushtaq Khan growth-enhancing governance
capability - Yasutami Shimomura endogenous good governance
elements - E. Asias high performing economies did not have
good governance (or do not have it even now).
6Growth Diagnostics (HRV Model)
- Hausmann, Rodrik and Velasco (2005)
- Washington Consensus does not work (a long list
of common reforms imposed on all countries) ? - Discover a small number of most binding
constraints to growth in each country. - HRV Treeprivate investment as key to growth
checklist for finding the cause of slow growth. - Harvard, Oxford-LSE, WB, DFID, AsDB, IDB etc.
conducting growth diagnostics in many countries - Armenia, Baltics, Bangladesh, Benin, Bolivia,
Brazil, Cambodia, Egypt, Ethiopia, El Salvador,
Guatemala, India, Jamaica, Liberia, Madagascar,
Malawi, Mali, Mongolia, Morocco, Nicaragua, Peru,
Philippines, Rwanda, S. Africa, Tanzania,
Tazikistan, Thailand, T.Tobago, Uganda, and others
7Problem low levels of private investment and
entrepreneurship
Low return to economic activity
High cost of finance
Bad international finance
Low social returns
Low appropriability
Bad local finance
Government failures
Market failures
Information externalities self-discovery
Coordination failures
Poor geography
Bad infra- structure
Micro risks property rights, corruption, taxes
Macro risks financial, monetary, fiscal
instability
Low human capital
Low domestic saving
Poor inter-mediation
8Problems with Growth Diagnostics
- Search for desirable policies without
considering political/administrative feasibility
(a few or many, common or unique secondary
issues) - Discovery of general weaknesses relative to
global norm instead of enhancing ones unique
strengthdo you have to become average in all
aspects before launching a development strategy? - No mechanism for prescribing concrete policy
actions
9Dynamic Capacity DevelopmentImproving ability
through hands-on experience
- Goal orientation long-term vision ? phased
strategies ? concrete action plans. - Direct most effort to perfecting your strengths
rather than correcting your general weaknesses
(dont worry too much about Kaufman index or
investors ranking). - Choose sequence carefully for feasibility.
- Reform government to execute targeted policies
effectively. - Achieve successes one by one, and be proud.
- Top leaders take political risk and
responsibility to move things fast forward.
10A Comparison of East and West
11Example Pragmatism of Deng Xiaoping in China
- (In power 1978-97)
- All for production increase rather than fighting
for political ideology (cf. Mao, in power
1949-76) - Black Cat or White Cat capitalism (FDI) or
socialism (SOEs) does not matter as long as it
catches mice (increases output). - Special Economic Zones creating good business
conditions in limited areas to receive
investment. - Trial-and-error and flexible adjustment (Even
try stock market and see). - Some get rich first, others can follow later.
12Example Latecomer Japan Beats British Textile
Industry
- 1883 Establishment of Cotton Spinning Industry
- Target import substitution of cotton yarn
(industrial input) - Actors Eiichi Shibusawa (super business
organizer) - Takeo Yamanobe (engineer studying in
UK) - Action establish Osaka Spinning Co. with
sufficient scale and technical breakthrough - Result instant success with a large number of
followers Japan overtakes UK as top textile
exporter by early 20th century Osaka is called
Manchester of the Orient
Shibusawa
Yamanobe
13Example Thai AutomotiveMaster Plan 2002-06
- PM Thaksins Vision Become Detroit of Asia
- Targets produce 1 million cars/year export
40 produce 2 million motorcycles/year
export 20 export high quality parts
(gt200 billion baht) localization gt60 - Actors Ministry of Industry, Thai Automotive
Institute, FDI producers, local suppliers - Action 180 pages of policy matrices detailing
strategies, actions plans, performance criteria,
responsible parties - Result all targets achieved by 2005, one year
ahead of schedule
14How Donors Can Help
- GRIPS Dev. Forum, Proposal for a New African
Growth Support Initiative, Aug.2008. - (1) If the government already has a good
strategy, mobilize standard assistance tools to
support that strategy. - (2) Engage in long-term, open-ended policy
dialogue for strategy formulation (preferably
followed by specific ODA and other assistance). - (3) Build a core infrastructure and align aid and
investments around it through donor coordination
and private-public partnership. - (4) Provide ODA for infrastructure, technology,
skills, etc. to assist (Japanese) firm to invest.
15(1) Mobilizing Standard Aid Tools to Support
Existing National Vision
- If the country has a reasonable development
vision, donors should support it rather than
creating a new one. - Japan has many aid tools for industrial support
- - Management and technology
- - Industrial human resource training
- - Efficient logistics and marketing
- - Infrastructure (esp. transport and power)
- - Industrial zones and EPZs
- - Regional development planning
- - Creating necessary laws, standards,
institutions - - Removing negative impacts of industrialization
16Japans ODA Standard Policy Menu for Enhancing
Industrial Capability in East Asia
17Standard Policy Menu (cont.)
Note This table summarizes Japans assistance
measures to East Asian countries contained in the
New Aid Plan for ASEAN (late 1980s to early
1990s), the Mizutani Report for Thailand (1999),
the Urata Report for Indonesia (2000), and
ongoing discussion for strengthening Vietnams
supporting industries (Ohno, 2008b).
18(2) Japans Policy Dialogue with Developing
Countries
- If the national vision is still weak or unclear,
Japan can engage in policy dialogue for
formulating a proper vision and building mutual
trust and understanding - Argentina Okita Mission, 1985-87
- Vietnam Ishikawa Project, 1995-2001
- Thailand Mizutani Report for upgrading SMEs and
supporting industries, 1999 - Indonesia Continuous Government-Business Policy
Dialogue Urata Report for SMEs, 2000 Prof.
Shiraishi Asanuma for financial crises, 2002-04 - Laos Prof. Hara for overall development
strategy, 2000-05 - Ethiopia GRIPS-JICA, 2009-2011
19Ishikawa Project in Vietnam1995-2001
- Communist Party General Secretary Do Muoi
requested Prof. Shigeru Ishikawa to study the
Vietnamese economy. The bilateral project was
agreed between two prime ministers. - JICA mobilized a large number of scholars and
consultants. Prof. Ishikawa emphasized the spirit
of mutual respect and joint work (and a lot of
patience). - Topics covered macro, budget finance,
industry, agriculture, trade, SOE reform, Asian
financial crisis. - Continued dialogueNew Miyazawa Plan (1999),
Vietnam-Japan Joint Initiative for improving
investment climate (2003-). - Now under preparationVietnam-Japan Partnership
for Supporting Industry Development.
20Ishikawa Project in Vietnam
- Tasks
- Macroeconomic stabilization
- Structural adjustment (systemic transition to
market economy) - Long-term development strategy
Vietnam Transition economy
Underdevelopment
Advice on the implementation issues of the 6th
Five-Year Plan, including participation in
AFTA/APEC/WTO and industrial policy
Advice on the emerging issues arising from the
East Asian crises and the economic integration
process
Advice on the formulation of the 7th Five-Year
Plan
Advise on the drafting process of the 6th
Five-Year Plan
- Phase 3 (99.9-01.3)
- General commentary
- Fiscal and financial reform
- Trade and industry
- Agricultural and rural development
- SOE reform and private sector development
- Follow-up Phase (98.7-99.7)
- General commentary
- Fiscal and monetary matters
- Industry and trade
- Agricultural and rural development
- Phase 1 (95.8-96.6)
- Macro-economy
- Fiscal and monetary policy
- Industrial policy
- Agricultural and rural development
- Phase 2 (96.7-98.3)
- Fiscal and monetary policy
- Participation in AFTA/ APEC/ WTO and
industrial policy - Agricultural and rural development
- SOE reform
- Joint research (2001- )
- Agriculture and rural development (livestock,
vegetable, fruits and industrial crops, etc.) - Monetary policy under partial dollarization
- Fiscal policy (introduction of personal income
tax) - Trade and industrial policies in the age of
integration (NEU-JICA joint research program
?GRIPS-VDF)
Source MPI and JICA, Study on the Economic
Development Policy inthe Transition toward a
Market-Oriented Economy In the Socialist
Republicof Viet Nam (Phase 3) Final Report Vol.
General Commentary, 2001, pp.iii-vi.JICA
Vietnam Office, Executive Summary of Ishikawa
Project Phase 3, March 29, 2002.
21(3) Japanese Assistance around a Core
Infrastructure
- Greater Mekong East-West and North-South
Corridors for development of Indochina Region - Thailand - Eastern Seaboard creation of
industrial cities around port infrastructure - Vietnam - Highway No.5 and FDI attraction
- Cambodia - Port, industrial park and FDI
attraction - El Salvador - La Union Port and regional
development - Mozambique (planned) Nacala Port and Corridor
for regional development
22El Salvador Growth Diagnostics vs. Japans ODA
- Hausmann-Rodrik Report 2003 The largest
constraint in El Salvador is the lack of
self-discovery caused by market failure (low
appropriability). Infrastructure is not a binding
constraint. - Local Report 2008 (FUSADES) Our infrastructure
is best in Central America and we are already a
regional hub, but we can do even better by
handling trade more efficiently. This will raise
our productivity and competitiveness. For this
purpose, infrastructure, especially La Union
Port, is essential. - Japanese ODA in El Salvador Upgrade La Union
Port as key infrastructure. Additional support
for social HRD, productive sectors, Eastern
Region development, and regional integration.
23The Vision Strengthening El Salvadors Position
as a Regional Transport Hub
- Airport already a regional hub (built by Japan 28
years ago) - Central American Highway link
- Pacific-Atlantic link via Panama Canal El
Salvador as a regional feeder - However, La Union Port is low capacity
- ? Build a new port with sufficient capacity
and services
24Honduras
Road (US aid)
Bridge (Japanese aid)
(Japanese aid)
Pacific Ocean
Regional development (Japanese aid)
25Components of Japans ODA in El Salvador (ongoing)
- - Construction of La Union Port
- Rebuilding an old bridge (Honduras border)
- Digital map technology for efficient planning
- Urban development planning for La Union City
KEY INFRASTRUCTURE
- MEGATEC La Union (training center)
- Primary schools math
- Clean water
- Rural electrification
- Solid waste control
- SME promotion
- Aquaculture
- Small-scale agriculture
- Reservoirs irrigation
- Small-scale livestock
- La Union Port
- Plan Puebla Panama
- CAFTA other FTAs
- Cent. Amer. integration
- M/P for Eastern Region
Support forProductive Sectors
Eastern Region Development
Social Human RD
26The Vision for GMS in Southeast Asia (Source
JBIC)
27The Vision for Nacala Corridor in
Mozambique (Source JBIC)
28Japanese Government Initiatives in Africa
- TICAD IV Conference (Yokohama, May 2008)
- Yokohama Declaration
- Yokohama Action Plan
- Support African countries to plan and
implement industrial development strategies and
policies, drawing on Asian experiences as
appropriate. (only one sentence among many) - TICAD Follow Up Mechanism
- Japanese commitments Doubling ODA and FDI to
Africa by 2012 (relative to 2003-07 average) - Problems
- - Lack of leadership at the top (PM, OECC, MoFA,
JICA) - - Diffused policy authority
- - Bureaucratic concern conference successes
(short-term diplomatic attainment without
long-term strategic goals)
29GRIPS Development ForumJapan-UK Report
- Diversity and Complementarity in Development Aid
East Asian Lessons for African Growth, 2008 - Japan should concentrate additional aid on a few
African countries with - -Strong political will (top leader)
- -Reasonable social and macroeconomic stability
- -Sufficient administrative mechanism
- Initiate policy dialogue for formulating concrete
growth strategy, to combine - - Continuous policy dialogue
- - Core infrastructure
- - Socio-economic programs around core
infrastructure - Mobilize all aid tools to execute agreed
strategy, private actors and other donors
30JICA-JBIC Report (May 2008)Econ. Dev. in Africa
and the Asian Growth Experience
Establish Industrialization Strategy as a
process, not just a document.
- Identify desired vision, economic structure, and
positioning in global value chain. - Through public-private dialogue, discover
growth-leading industries for future. - Identify their constraints (infra, HRD, etc).
- Devise measures to remove constraints and promote
targeted industries.
Measures must be consistent with the countrys
institutional capability and executed under
discipline and competition.
31Ethiopias Industrialization Strategy
- Serious industrial policy since around 2003
punish rent-seeking and support value creation. - Promoting 3 export industries (leather, garment,
food processing) narrow focus but broad support.
Visible results but leaders not satisfied. - PM Meles Now we know the terrain (way to go)
and have learned various policy tools we will
expand support to import substitution
industries. - The key idea is to mobilize as many tools as
possible to enhance skill and technologybenchmark
ing, BPR, pilot project dissemination, marketing,
matching, twinning, etc. and kaizen.
32Ethiopias Ownership and Donor Management
- Ethiopia does not like aid harmonization or joint
pressure from donors. - PM approaches ambassadors individually and attend
conferences aggressively to absorb knowledge and
acquire assistance. - PM appreciates each donor and asks for industrial
support unique to each donor Germany large
TVET, TA, business support China
Infrastructure (roads, dams) India industrial
zone for garment firms Italy/UNIDO leather
industry, M/P drafting USAID marketing,
matching for AGOA Japan kaizen and policy
dialogue
33Japans New Assistance in Ethiopia(GRIPS-JICA,
2009-2011)
- In preparation since July 2008 official
launching in June 2009. - Kaizen component (JICA consultants)teaching
continuous and participatory improvement at 30
pilot factories. - Policy dialogue component (GRIPS)high level and
working level dialogue every 3 months. - Topic for June 2009 DD and ADLI.
- Topics for Aug.-Sep.2009 (1) cross-cutting
issues (2) organizational issues in industrial
policy formulation from East Asian perspective.
34Cross-cutting Issues for Ethiopia (Preliminary
Ideas)
- Broadening policy scope
- Need for overall industrialization strategy
- Performance review of past export support
- Time-bound official support with graduation
roadmap - Checklist for IS promotion attention to
technical details BOP impact avoiding
political capture pre-announced phase out - Difference with E. Asia not FDI- or user-led
difficulty in matching demand and supply - The order of economic liberalization timing of
WTO accession