Is Trade Promotion a Good Investment?

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Anthony Peters
5 years ago
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1 Is Trade Promotion a Good Investment?

2 El Salvador: Is Trade Policy a Good Investment?

3 El Salvador s Trade Policy in the 90 s 1989: A new Economic Model was implemented to pursue a global commercial opening. 1990: Export Reactivation Law is approved as an instrument for the promotion of non traditional exports destined to outer Central American markets. Export Fiscal incentive promotes the diversification of national production (6% of FOB export value for non traditional exports outside Central America).

4 El Salvador s Trade Policy since 2000 Free Trade Agreements with: Mexico: March 15, 2001 Dominican Republic: October 4, 2001 Chile: June 1, 2002 Panama: April 11, 2003 United States - CAFTA: March 1, 2006 In negotiation: Canada, Taiwan, Colombia and European Union (to initiate this year).

5 Export Development ,000 3,500 $2,941 $2,995 $3,128 $3,302 $3,387 $3,513 3,000 2,500 $2,441 $2,426 $2,510 $2,864 2,000 $1,788 $1,652 1,500 $1,249 $1,032 1,000 $695 $755 $591 $609 $498 $582 $725 $ Source: BCR, El Salvador

6 Export Evolution % 7% 8% 46% % Traditional Non Traditional Maquila 23% % 46% Traditional Non Traditional Maquila 43% Traditional Non Traditional Maquila

7 Some economic and social indicators El Salvador: Is one of the three countries (with Mexico and Chile) in Latin America that has investment grade from Moody s for the past 8 years. Is ranked as the third most transparent economy in Latin America, after Chile and Uruguay (Transparency International Organization ). Is ranked as the 5th most competitive economy in Latin America (The World Economic Forum 2006). In the last 12 years El Salvador has doubled its GDP and have reduced its poverty from 58.9% in 1992 to 34.5% in 2004 and its extreme poverty from 27.8% to 12.6%, (UNDP).

8 EXPORTA National Export Promotion Agency of El Salvador Is a TPO a Good Investment?

9 National Export Strategy Exporters Competitiveness Private-Public Partnership Cultura Exportadora Entorno de Negocios Favorable Export Culture Business Environment Increase productive capacity/ diversify the exportable supply (more Competitividad products)) Empresarial Increase exports (x4) Differentiation Incrementar la capacidad in high value Financiamiento Transportation productiva / diversificar la segments & oferta exportable (more value) Logistics (más productos) Improve market access (more markets) Diferenciación en nichos de alto valor Logística y External Network: Transporte Country Branding (más valor) Commercial Offices Competitivos Mejorar el acceso a mercados (más mercados) Finance & Insurance Strategic pillars: 1. Exporters Competitiveness 2. Finance and insurance 3. Logistic and transportation 4. External Network 5. Country Branding Promoción Imagen País Comerciales 6. Export Culture 7. Business Environment

10 National Export Strategy: Institutional Framework Strategic Exports Commitee Vice-President of the Republic (Chair) Minister of Economics Presidential Commissioner of Agriculture Vice-Minister of Foreign Affairs Vice-Minister of Finance President of the National Association of Private Enterprise President of the Salvadoran Exporter s Association President of the Salvadoran Chamber of Commerce President of the Salvadoran Industry Association Executive Exports Committee EXPORTA (Executive Secretary) Export Promotion Agency, EXPORTA Ministery of Economics Ministery of Foreign Affairs Salvadoran Exporter s Association Salvadoran Chamber of Commerce Salvadoran Industry Association Salvadoran Agricuture Association Pillar 1: Exporters Competitiveness Pillar 2: Finance and Insurance Pillar 3: Logistic and Transportation Pillar 4: External Network Pillar 5: Country Branding PIllar 6: Export Culture Pillar 7: Business Environment EXPORTA Multilateral Investment Bank Salvadora n Chamber of Commerce Minister of Foreign Affairs Ministery of Tourism Salvadora n Exporter s Associatio n Ministery of Economics

11 El Salvador s Export Promotion Agency Activities and client orientation: Market Information and Research Export Support Services Marketing and Country Branding Created in February 2004 Attached to the Presidency of the Republic (Vice-president of the Republic is EXPORTA s President). Small organizational structure: 25 employees (shared administration with Investment Promotion Agency). Export promotion focused on non traditional products (without maquila) 38% of EXPORTA s support goes to Agribusiness. Support for established and potential exporters.

12 Is EXPORTA s Budget a Good Investment? EXPORTA BUDGET 2006 MARKET RESEARCH 32.94% Supported Exporters EXPORT SUPPORT SERVICES 34.01% MARKETING AND COUNTRY BRANDING 33.05% % 13.1% 26.7% 7.0% 17.7% 35.5% Micro Small Medium Large Other In 2006: EXPORTA s budget represented only 1% of the total exports increase. EXPORTA has supported 94.5% of Salvadoran Exporter s Directory Those 94.5% exported the equivalent of 67.8% of non traditional exports Salvadoran Exports grew 3.7% Non traditional exports grew 23.1% Agribusiness exports grew 141%

13 Final Remarks Exports performance is the result of diverse internal and external components, but it can also reflect the efficacity and efficiency of a TPO. There are two possible measurements: TPO efficacity on overall exports TPO efficacity on the performance of exporters directly supported. Does size matter? There are large local companies with small export activities. Focus on certain markets and certain sectors allow to make a better use of scarce ressources. Private-Public Partnership and funding are necessary.

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