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COMPARATIVE AND COMPETITIVE ADVANTAGE

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Key is not the absolute cost of production but the ease with which ... Aquaculture/mariculture. Fishing (e.g. Chokka) However, Minerals. Limestone. Salt (pans) ... – PowerPoint PPT presentation

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Title: COMPARATIVE AND COMPETITIVE ADVANTAGE


1
COMPARATIVE AND COMPETITIVEADVANTAGE
DPLG Developing Local Economies Conference
14-15 August 2006
  • Dr. Paul Jourdan CEO Mintek

2
Overview
  • Understanding Comparative and Competitive
    advantage
  • Building upon comparative advantages
  • Scans of real economy opportunities
  • Entry points for LED
  • Role of each tier of government in LED
  • Turning resources into account

3
Comparative advantage
  • A region/firm has a comparative advantage at
    producing something that they can produce at
    lower cost than others.
  • Key is not the absolute cost of production but
    the ease with which they can produce different
    kinds of things and gain by specialising on that
    with the least opportunity cost.
  • Every region/firm and person has a comparative
    advantage at producing something

4
Comparative advantage
  • South Africa has comparative advantages in its
    resources minerals, energy, agriculture,
    forestry, tourism, etc.
  • Reflected in Resource-based exports (gt60 of
    exports)
  • minerals/metals such as gold, coal, PGMs,
    ferro-alloys, aluminium, copper, diamonds,
    chemicals.
  • exporter of agriculture-based commodities (fruit
    juices wines, confectionary, wood/paper/pulp,
    wool, meat, etc.)
  • exporter of energy intensive (coal-based)
    products (aluminium, chemicals, ferro-alloys,
    etc)
  • natural resource based tourism (conservancies,
    fauna/flora, geomorphology, etc.)
  • Increasing manufactured exports, but off a very
    low base. Limited culture-based tourism
    (dynamic).
  • Essentially, SA is competitive on areas where we
    have the natural resources

5
Competitive advantage
  • Firms have a competitive advantage over rivals
    when organisation and managerial processes,
    position and technology competencies (skills)
    give them superior value creating processes
  • Competitive advantages are skills intensive,
    knowledge-based competencies
  • SA has very weak Human Resource base, due to the
    apartheid HRD neglect, except for a few niche
    competencies

6
Playing to Strengths
  • SA must build its economy on its resource
    comparative advantages to realise its
    competitiveness at micro, meso and macro level
    i.e. local, provincial national levels
  • LED opportunities are frequently in sectors
    supplying into industries with established
    static comparative advantage
  • Development methodology must start with a scan of
    what is available to build upon. Identifying raw
    materials opens up development activity

7
Approach processing of raw materials
Short to medium term potential lies in our
natural comparative advantage, vis
resource-based industries, which will create a
competitive platform for finished products in the
longer term. Also, resource-based capital goods
services.
Raw Mat. - Int. Product - Semi-Manufacture -
Fabricated
8
Resource Demand Gives Producers a Development
Window
Asian Boom global metal intensity of GDP
Global Steel consumption (t/1m GDP)
9
Experience from the SDI Methodology
  • Scan the regions potential, especially i.t.o.
    local raw materials
  • Aggregate demand for the economic provision of
    infrastructure on a sustainable basis
  • Scope potential resource-based investment
    opportunities
  • and crowd-in investment private, PPPs and CPPPs
  • Government has critical role to synchronise
    infrastructure with productive investment at
    Local, Provincial and National level

10
SynchronousINVESTMENT CONFIGURATION
11
Example Mature SDI The Maputo Development
Corridor
Infra Port Invest export inustries
Resource Coal for elec Infra trans. Lines to
Matola
Generic Infra highway Invest numerous export
inds.
Infra upgrade rail Invest export industries
Resource electricity Invest Al smelter
Resource Pande Gas Infra gas line to Secunda
Resource methane Invest Petro-chemicals
12
Local SDI
Local e.g. Algoa Bay (NM3, iBayi) Usually
considered not to be resource rich- just a port!
13
Local SDI
Basket Case? Not if you look closer
  • However, Minerals
  • Limestone
  • Salt (pans)
  • Coal (Molteno-Indwe)
  • Clay (Reni)
  • Silica/ Stone/aggregate
  • Mn (from Kalahari)
  • However, Logistics
  • 2 ports
  • Equidistant to SAs main markets
  • Road hub
  • Rail hub
  • Airport
  • However, Agriculture
  • 4 climate zones wide range of production
  • Major irrigation scheme (Senqu-Fish-Sundays)
  • Aquaculture/mariculture
  • Fishing (e.g. Chokka)
  • However, Energy
  • Electricity-nat. grid
  • Wind potential
  • Wave potential
  • Gas potential
  • LPG/LNG imports
  • However, HR infra
  • Well developed school infra
  • University
  • Tech institutions
  • Spread of HRD facilities
  • Medical facilities
  • However, Tourism
  • Major conservancies (Addo, Baviaans, etc.)
  • Several biozones
  • Beach/sun
  • End of mountain fynbos
  • marine/fishing/diving

14
New Spatial Development Strategies
NSDP
Sets SA Spatial Development Framework (formalise
s the original SDI methodology)
PGDSs
IDPs
IDZs
15
Scan for real economy opportunities
  • Search for economic opportunities for which an
    area has a comparative advantage, typically
  • Mineral resources
  • Commercial deposits
  • Minor mineral deposits (pegmatites, semi-precs)
  • Industrial minerals (clay, stone, lmst, dolomite)
  • Forestry resources (natural/plantation)
  • Tourism resources (natural cultural)
  • Agriculture livestock resources
  • Fishing aquaculture resources
  • Waste streams resources

16
Turning a resource to account
  • Resources that are uneconomic at one scale can be
    viable at a different scale
  • Example a clay deposit in Lichtenburg
  • Uneconomic to truck raw material to the market in
    Gauteng. Conclusion no potential
  • Place processing on deposit, covert raw material
    to tiles to truck to market. Changes the cost
    dynamics. Conclusion viable local economic
    development depending on infra
  • Critical infra e.g. access road to plant, elec
    supply, water supply, skills

17
Re-examining Sources of Potential
  • Competitive advantages exist in tradition of
    African beadwork
  • Manufacture of beads from recycled glass bottles
    (a waste stream) creates jewellery manufacturing
    business opportunity
  • Mix of comparative (glass energy)
    competitive (cultural skills)!

18
Re-examining Sources of Potential
  • e.g SLASH Low-cost soil ameliorant made from
    Sewerage, Lime Ash, raises soil productivity
    for food security and market gardening.
  • (many places have these raw materials!)

19
LED drivers for success
  • Scan for niches with real potential
  • Typically LED entry points are supplying
    industries with a static comparative advantage in
    mining, agriculture, forestry, tourism
  • Configure the requisite infrastructure
  • Encourage development of Human Resources in
    parallel to provide skills to develop a
    competitive advantages in design, research and
    innovation.

20
Thank You
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