Presented to the Trade & Industry Policy Studies, 14th June, 2011, Pretoria.

William S. MbutaRESEARCHER

1. The strong positive correlation between share of MVA in GDP and GDP / Capita

2. Poverty is still a menace in the SACU region3. Other countries have significantly reduced

poverty through industrialization.

Market Side: Small size of the local market Poor supply chain Links Small domestic market due to the small size of

the country’s population Lack of understanding of international trade

practices and policies Market access, especially the export market The small size of the local economy is a serious

constraint on the ability of the country to set and run efficient industrial activities.

The lack of information on foreign markets also limits the ability of Namibian producers to provide the right products to the export markets.

Limited access to external markets The lack of “interesting investment opportunities

in the tradable sector” Small domestic market due to the small

population, with limited purchasing power; Shortage of exports markets due to high

competition markets. Limited markets opportunities, particularly in the

international market,

Low human capital levels at all levels of production

Obsolete production technology Erratic access to industrial inputs

The concept of economic integration process which involves the amalgamation of separate economies into larger free trading areas. The key elements relate to the deepening of intra-economic interdependence through intra-regional trade, foreign direct investment and harmonization of commercial regulations, standards and practices. Some division of labour is also necessary for economic integration (Dennis and Yusof,2003).

While the international flows of goods and services and investment are the key parts of economic integration, the process of economic integration is accelerated by movements of labour, technology and information, especially in recent years of information and communication technology (ICT) and e-commerce. These forces put increasing pressure on economies towards commercial harmonization of standards such as customs standards and procedures. A combination of market forces and the push towards liberalization has enhanced economic integration in various parts of the globe.

1. Preferential Trade Area:2. Free Trade Area:3. Customs Union4. Common Market5. Economic Union6. Political Union7. Sectoral Integration

8. Limits of integration lies in the long term production function. It is also the function that generates the debate industrial policy

1. To address issues of adjustment

2. Contents of Policy

Identified struggling industries with latent comparative advantage and those with potential for global competitiveness in the long term

cars, aircraft, shipbuilding, coal, steel, textiles and clothing, railway rolling stock, telecoms equipment, consumer electronics

Support given include subsidies in factor inputs for capability development, explicit protectionism, special regulations, anti-dumping, among others

1. By 1980, most of the products had become competitive and targeted support had been phased out on such industries.

2. In place of sectoral and specific approaches, EU industrial policy drifted into endeavours to strengthen fundamental determinants of competitiveness, to some degree corresponding to dynamic comparative advantage.

3. Since the 1990s, there has been the 'horizontal' emphasis on research strategies, skills and human capital and a general promotion of innovation throughout industry.

4. This was expected to accord well with the deepening of the internal EU market that had been going on, and the consistency of EU competition policy

5. While policy reversals are not totally excluded if pressures are extreme, competitiveness and hence adjustment still retain overriding importance.

1. Institutional Framework

Country Italy France Germany Net/lands

Belgium Lux/borg

Italy - 219.7 163.3 119 84.4

France 149.7 - 100.8 111.4 42.3

Germany 111.5 92.1 - 33.6 57

Net/lands 156.2 109.7 94.2 - -4.7

Belgium/Lux

51.4 56.5 54.5 -33.4 -

1993 – ASEAN FTA Created2004 – Regional Industrial Policy Framework Developed & Implemented12 sectors identified for accelerated integration and policy supportCriteria for Selection: Comparative Advantage, Labour & skills availability, Cost Competitiveness, Value addition, & market penetration.

1. Agro-based products2. Air travel, 3. Automotives4. e-ASEAN5. Electronics6. Fisheries7. Healthcare8. Logistics9. Rubber-based products10. Textiles and apparel11. Tourism12. Wood-based products

Liberalization of Trade in Services such as:Business and professional services such as accounting, auditing, architecture, and engineering;Construction, distribution, education, environment, healthcare, maritime transport telecommunications, and tourism services; financial services and air transport services architectural, accountancy, engineering, dental practitioner, medical practitioner, nursing, and surveying qualifications

1. Palm Oil 2. Motor Vehicle Parts 3. Computer Components4. Health Services5. Rubber-based products6. Cotton Woven Apparel7. Hardwood, Plywood & Flooring

Upon this selection, the ASEAN Framework Agreement for the Integration of Priority Sectors was ratified together with the roadmaps for each priority sector and related industries with specific measures that needed to be implemented, and the broad cross-cutting initiatives such as trade facilitation measures, including timelines for their implementation.

Market Size: Intra ASEAN & Extra ASEAN Comparative Advantage Geographical/Locational Advantage FDI Attraction Regional Value Chain Intermediate Input Application Diversity

Massive Storage Infrastructure through cheaper finance

Massive refineries through FDI Relaxation of Work Permits for Foreign

Skilled Workers Establishment of Standards and safety

measures in collaboration with international agencies

Agro-Products Trade increased by 50% Palm Oil (Intra Asean) Trade increased by

66% Palm Oil (Extra Asean) Trade increased by

133%

A growing regional and global market Comparative Advantage due to the huge

local market, technological capabilities, and natural resources existing

Regional Production Networks FDI Attraction Technological Capabilities

Promotion of FDI Elimination of tariff & non-tariff measures customs cooperation, improvement of the rules of origin, harmonization of standards and

conformance improvement of logistics services, technological capabilities enhancement

through establishment of a training and skill certification system

Intra ASEAN exports increased by 111% Extra ASEAN exports increased by 106%

Adopted FTA integration approach;Uniform tariff elimination was adoptedNo industrial policy or selective instruments

applied

1. Intra NAFTA Trade increased by 150%2. Extra NAFTA Trade increased by 50%3. Canadian exports to NAFTA increased by 100

percent while export to the ROW stagnated4. American exports to NAFTA increased by

120% while to the ROW increased by 50%5. Mexican exports to NAFTA increased by more

than 200% while those to the ROW increased by 80%

6. Mexican imports more than doubled the value of exports resulting into trade deficits

Adopted the Common Market stage of Economic IntegrationAlso adopted the Industrial Policy for Automobiles Industry with criteria being:Market sizeLatent comparative advantageRegional production networks

Local content rules Tax exemptions and Credits on domestic inputs and export processing zonesDirest finance for exports

Preferential duties to set export targets.

Intra Regional trade increased by more than 400% driven by the automobiles industry while extra regional trade increased by 92%.

The trade deficit with the rest of the world coupled by macroeconomic instability resulted in abandoning of the incentives regime and consequent contraction of the automotive industry.

i. Where member states provide optimal conditions for development of industrial sector ieStable macro-economy with low and stable inflation rate and stable exchange rate; Effective sectoral Policy measures such as adequate infrastructure; technological capabilities, etc;Targeting measures have been effectively applied to infant industries.

i. The primary purpose for integration should therefore be to benefit from economies of scale both in terms of factor inputs and market access;

Apart from establishing common intra block and extra block tariff and non tariff measures, Macro-economic convergence is a must.This means that accessing both the trade account must be aided by the capital account.In spite of opening these two accounts, some industries with potential for long term competitiveness may be unable to access them and this is where the target based regional industrial policy comes in.

That the primary criterion for targeting an industry for policy support should be its propensity to be competitive in the medium to long term. Added to this are attributes such as:

a growing regional or global market regional production networks Intermediate products with multiple industrial

application Industries with high value addition Industries with propensity to attract FDI

i. Identify priority industries through detailed policy research

ii. Design Convergence Programmes based on the needs of selected industries

iii. Design sectoral policies aligned to the needs of the selected industries

iv. Design industry specific policy measures according to the needs of selected industries

v. Design an institutional framework with sufficient authority not only to monitor the performance of the selected industries but also to intervene within reasonable time

vi. Create a road map for policy support indicating the type of intervention, the time, the magnitude of intervention and the exit point at which the market will take over.

vii. This is a dynamic and on-going process.

END OF PRESENTATION

THANK YOU