India's National Innovation Council

There is much we can learn from India on innovation (viewed as the transformation of knowledge into goods and services for the marketplace).  Realising that innovation is the engine for the growth of prosperity and national competitiveness in the 21st century, the President of India declared 2010 as the ‘Decade of Innovation’. To take this agenda forward, the Office of Adviser to the PM on Public Information Infrastructure and Innovations (PIII) developed a national strategy on innovation with a focus on an Indian model of inclusive growth. The idea is to create an indigenous model of development suited to Indian needs and challenges.

Towards this end, the Prime Minister has approved the setting up of a National Innovation Council (NIC) under the Chairmanship of Mr. Sam Pitroda, Adviser to the PM on PIII to discuss, analyse and help implement strategies for inclusive innovation in India and prepare a Roadmap for Innovation 2010-2020. NIC would be the first step in creating a crosscutting system which will provide mutually reinforcing policies, recommendations and methodologies to implement and boost innovation performance in the country.

One of the outcomes of this process has been a proposal to set up 14 new “universities for innovation” that will aim at stimulating economic growth.  Africa can learn a lot from India’s experiences, especially in regard to the importance of bringing technical knowledge to bear on development through a new species of universities.  These universities will aim at doing for India in the 21st century what its institutes of technology did in the last century.  India is showing Africa that the secret of economic success is not a secret: it lays in re-inventing the university system.

Africa should therefore no longer be an enclave reserved for mineral and raw material extraction.  There is alot of potential in the African continent however the limiting factors include Africa’s low level of training in engineering sciences and the lack of venture capital to turn ideas of products for the marketplace. On education, a new generation of technology/innovation schools directly linked to the productive sector, will be an effective way to move to the frontiers of technological innovation.

Useful discussion on innovation in Africa can be accessed here.

Why Export Bans Fail to Spur Local Value Addition

Exports of raw cashews nuts by Kenyan farmers were banned last year in a bid to revive the local cashew nut industry. The ban provided that only Government and the National Cereals and Produce Board would be authorized to buy raw nuts from farmers. The purpose of the ban was to attract investors to set up cashew nut processing units in the country, however, the low volumes of nuts produced meant that a year later, no factory of viable capacity has been established.

There could have been some implementation weaknesses. The national task force that recommended the ban, also proposed that the National Cereals and Produce Board (NCBP) should become the buyer of last resort and market regulator, as is the case with maize and wheat. However since  no funds were channeled to NCPB for the task, this gave middlemen a field day as they bought the nuts at about a third of the price prevailing before the ban. As a result, farmers are now bracing themselves for substantial losses following cashew nut harvests and government delays in providing alternative marketing channels. 

If I may think out loud- I wonder if the authorities made specific efforts to increase production of local cashew nuts, identify investors, provide incentives and jointly venture with them, to help establish cashew processing plants in the country. 

See recent article here.

Trade in Natural Resources: A look at Norway

The WTO World Trade 2010 Report on Trade in Natural Resources illustrates that Russia, Saudi Arabia, Canada, United States and Norway are the top five global exporters of natural resources, with Algeria and Nigeria (ranked globally at 13th and 15th respectively) included in the top 15 in the world (data includes intra EU trade).

This is a focus on Norway, an EFTA Member but not part of the European Community EC.  Norway is the fifth highest exporter of natural resources globally and a European country whose exports display some similarities with Africa’s overall export profile. Like many African economies, Norway is particularly rich in commodities and energy resources (oil, natural gas and water for hydro power production).  Commodities include fish, timber, and some minerals, including thorium as a potential resource base for new technologies of nuclear power generation. Norway however has not suffered many of the curses that plague some resource-rich countries, such as corruption, inequitable benefit sharing, capital flight or the “Dutch disease”. Norway has consistently been ranked by the UN Human Development Index as the best country in the world to live in, and the World Economic Forum has ranked Norway as one of the top 15 most competitive countries globally. The small size of the country (population 4.8 million), its geographic location on the outskirts of Europe, makes its development trajectory which is based on sustainable natural resource management, an interesting case study for Africa.

While industrial products typically make up 85 per cent of OECD countries’ total merchandise exports, the OECD figure for Norway is around 28 per cent. Norway’s reputation as raw materials supplier however, should be understood in light of the fact that major segments of its raw materials industry are highly knowledge- and technology-intensive, even though the end products are not considered to be processed industrial goods. A good example is the petroleum industry, in which technology and know-how have in themselves become an increasingly important business sector. In fact, the increase in oil and gas revenues has resulted in a reduction in the share of export revenues attributable to services, from around 28 per cent in 1991 to around 24 per cent in 2004. While services typically account for a growing share of world trade, the opposite trend in Norway is due to the fact that its petroleum exports are growing even more strongly than its services exports.

Norway’s direction of trade is unlike that of most African countries. For geographical and historical reasons Norwegian trade largely takes place with its European neighbors while African countries trade primarily with other continents. Crude petroleum and natural gas remain Norway's most important export products which together account for about 56.8% of the exports, 25.8% of Norway's GDP and 65.1% of the total value of merchandise exports (however Norway is not an OPEC Member). Within the food sector, Norway is the tenth biggest fishing nation in the world in terms of quantity produced, and the world's second largest exporter of seafood in terms of value. Forests cover 38% of Norway's land area, and are mainly privately owned (88%) and export financing in the forestry sector is subject to local content requirements. In addition, Norway is the largest producer of hydropower in Europe; about 96% of electricity generation in Norway is hydroelectric. 

The manufacturing sector is relatively small and is concentrated on industries associated with the production of equipment used in the extraction and processing of natural resources such as aluminium, machinery and transport equipment, followed by chemicals.  However 80% of Norway's imports are manufactured goods.

The Norwegian economy is generally characterized as a mixed economy - a capitalist market economy with a clear component of state influence.  For example, revenues from Norwegian oil and gas activity are invested in the Government Pension Fund, ensuring that the country’s petroleum wealth will benefit future generations. The fund serves as a resource as it makes long-term investments in solid companies throughout the world, with ethical considerations as cornerstones in the fund’s investment strategy. The “oil fund”, as it is known to the general public, is often cited by the IMF as an exemplary sovereign wealth fund which has an average ownership stake of one per cent in the global stock markets, thus securing its right to a considerable share of future profits in listed companies throughout the world. 

What seems to make the difference is the participation of the Norwegian State and her effective management of natural resources in the economy. For instance it is estimated that in 2008, the State owned around one-third of the Oslo Stock Exchange capitalisation and is a major shareholder in several of the larger commercial listed companies.  The State’s ownership contributes to safeguarding the public interest in Norway’s natural resources and the revenues flowing there from.  For instance, the Petroleum Act establishes that the property rights over Norway's petroleum and gas resources are vested in the State. In the same vein, revenue management and taxation in this sector are directly linked to the States responsibility to its citizens which historically is proven to be an important driving force to strengthen accountability- because of the social fiscal contract created between citizens and the government.

Along these lines, we should recall a previous post which highlighted the importance of local content as a basis for sustainable development in Africa. This is relevant since natural resource exports as a share of Africa’s total merchandise exports, are second highest globally at 73%, after the Middle East which holds the highest concentration at 74%. This is according to the WTO Report on Trade in Natural Resources, which also reveals that export taxes on natural resources appear twice as often as export taxes in other sectors. Hence it appears that there is a global fiscal practice where the State intervenes to provide for effective natural resource management, sustainable development and the advancement of comparative advantage in an economy. Despite this, WTO and EPA negotiations continue to push for the elimination of export taxes in Africa’s resource based sectors.  Export taxes could be used to fund research, technology and innovation in resource sectors just like Norway does in the fish and seafood sector. Exporters of fish and fish products have been subject to a levy that varies between 0.2% and 1.05% of the export value depending on the species and the stage of processing.  The levy is used to finance the activities of the Norwegian Seafood Export Council (NSEC) and the Fishery and Aquaculture Industry Research Fund.  The elimination of export restrictions for the sole benefit of importers can also be detrimental to the environment and the development of African resource economies.

Kenya's Economy; Driven by Services With Merchandise Exports Declining

While telecommunications, construction and transport sectors continued to drive Kenya's economy in 2009, merchandise exports have shrunk over the years and the Port of Mombasa has been identified as one stumbling block to Kenya's continued economic growth.  

This is according to the 2010 Kenya Country Report by the World Bank which finds that Kenya's growth rate was 2.5% in 2009 with higher projections of 4.0% foreseen in 2010. Even tourist arrivals registered a 18.9 percent growth in the first quarter of this year showing positive signs for this sector. Nonetheless, for the third consecutive year, Kenya's growth will continue to lag behind its EAC neighbours, as shown below.  

     The Report finds that overall, services grew by 4.2% and increased share of GDP from 50 % in 2000 to 55% of GDP in 2009. Agriculture contracted by 2.4%,and the role of agriculture in the economy  declined from 32% in 2000 to 26% in 2009, due in part to drought. Meanwhile, industry grew at 3.9% in 2009 due to the construction sub sector. 

This mixed performance is in part structural and in addition, Kenya remains sensitive to climatic conditions.  For instance, the 2009 weak performance in manufacturing was caused by the spillover effects from the drought which caused higher electricity costs, power outages and reduced water supply. The drought had spill-over effects in all sectors and clearly increased efforts in key infrastructure services will be necessary, to sustain increased growth.

Kenya’s economy is currently more dependant on domestic consumption than exports, and Kenya’s highest value exports, especially horticulture and tourism remain heavily dependant on Europe. This high degree of export concentration makes Kenya vulnerable to external shocks and points to the need to further diversify export markets. 

Surprisingly, Kenya has an export strategy, which was approved by Cabinet in 2004.  See previous post here on the weaknesses of export-led strategies. 

While exports of goods have been unimpressive, services exports increased from 8% in 2000 to 12% of GDP in 2009.  The strength of the domestic sector and the weakness in exports has created a large and growing current account deficit which reached 5.5% of GDP by end 2009. This current account deficit was financed mainly by increasing short term financial inflows including investment. 

                              One lesson learnt- so to speak- is that Kenya has not yet developed a targeted and strategic industrial policy. This is despite having several national policy documents such as the Vision 2030, the Private Sector Development Strategy, the Master Plan for Kenya’s Industrial Development, and the recently drafted National Trade Policy. 

Has the Financial Crisis Revealed the Limits of an Export Led Strategy?

The global economic crisis is making it painfully evident to the developing world, the limitations of over-dependence on a narrow set of exports and markets. Many countries are rightly worried about the merits of a growth process built on export-led growth. In the case of successful export-led growth strategies, the global economic crisis is revealing an additional limitation: the large exposure of exporting countries to financial vulnerability. 

For these reasons, countries should: strengthen their diversification and avoid agricultural or natural resource export vulnerability; emphasise the development of the domestic market; develop industrial policies rather than narrowly defined export led strategies only; increase regional trade and integration; enhance infrastructure development and other private sector development tools.

For instance, China's dependence on export-led growth, particularly as a global platform for exports of manufactured products, left it vulnerable to the effects of the global economic recession that began in late 2008. In 2009, China's exports fell by 16% and its imports fell by 11%, reflecting the high import-intensity of its manufactured export sector. Real GDP growth declined from 9.6% in 2008 to a year-on-year rate of 6.2% in the first quarter of 2009, the lowest rate in more than a decade. If China can be vulnerable to the downside of export-led growth, African countries are no exception.

Has the Financial Crisis Revealed the Limits of an Export Led Strategy? other views here.

Africa's Growth and Exports Spurred by Commodity Prices

According to the IMF Regional Economic Outlook for Sub Saharan Africa 2009, the strong average economic
growth of 6 per cent that Africa experienced in the five years, leading up to the 2008 economic crisis was underpinned by a spectacular increase in the continent’s trade in commodities whose prices increased significantly over the period 2007-8. 


The commodity prices which showed the highest increase are oil followed by metals. There was a less dramatic increase in the prices of cocoa, coffee, sugar, tea and wood.. 

Audio Visual Services

According to a 2010 global cinema survey conducted by the United Nations Educational, Scientific and Cultural Organization (UNESCO) Institute for Statistics (UIS), Nigeria has overtaken the United States for second place in the global production of motion pictures. India remains the largest film producer in the world, producing 1041 feature films in 2005 and 900 short films in 52 different languages and dialects.  The US has in the past been the next largest producer of motion pictures, however Nigeria is closing the gap, outperforming the US for second place.  For Nigeria this is certainly no small accomplishment. 


According to the survey, Nollywood produced 872 productions  and in contrast, the United States produced 485 major films. The three heavyweights were followed by eight countries that produced more than 100 films: Japan (417), China (330), France (203), Germany (174), Spain (150), Italy (116), South Korea (110) and the United Kingdom (104).

The explosive growth of Nigeria’s Nollywood film industry attracts considerable attention, especially for developing countries looking for alternatives to the US or European models of film production and distribution, which require considerable investment.  To begin with, Nigerian film makers uncovered a winning formula by relying on video instead of screen film in order to reduce production costs.  Additionally, Nigeria capitalized on economies of scale given its sizable domestic market and her exports to the African continent and the diaspora.  One reason for Nollywood's popularity in Africa lies with the South African-based cable television MultiChoice, which is a fee-based broadcaster to the continent with 24-hour channels dedicated to African content, predominantly Nigeria productions. 

I should note however that these developments are not necessarily a result of Nigeria’s participation in multilateral or regional trade in services agreements but rather a result of home-grown supply capacity, technology usage and application of low cost approaches.  Trade in services negotiations however, are useful for the elimination of barriers to trade where the capacity to supply a market is hindered by regulatory measures.  In this regard, trade in services negotiations at the WTO aim to increase the liberalization commitments undertaken by participating Member States.  However, the audio visual sector is one in which fewest WTO Members have undertaken specific commitments under the General Agreement on Trade in Services (GATS) and it attracts significant MFN exemptions; a reflection of the controversial and divergent policy and cultural views among Members. 

For instance the European Community has almost no multilateral commitments in this sector and in the EC’s EPA Services, Investment and E-commerce template, the EC has excluded the sector from the scope of the EPA negotiations with ACP countries, of which Nigeria is a Member.  African countries could however choose to include this sector in the EPA negotiations with a view to developing an international advantage in the sub sector.  However the EPA trade in services negotiations would need to give priority to the development of services supply capacity rather than traditional market opening.

As one would expect, the US is a demanduer in this area and has effectively used bilateral and regional services agreements to advance audio visual commitments undertaken by its FTA negotiating partners e.g. Morocco in the US-Morocco Free Trade Agreement of 2006.  However these bilateral commitments have not necessary resulted in increased multilateral offers in the WTO Doha round, even though the sector is a dynamic one. 

International trade in audiovisual services extends to the production (including processing and finishing), distribution (including broadcasting) and exhibition of motion pictures, television and radio services.  It also includes sound recording and other entertainment such as theatre, bands, orchestras etc and includes the sale of advertising or promotion services. Additionally, the WTO Services Sectoral Classification List termed the W/120 also includes Recreational, Cultural and Sporting Services sector, under which news agency services are classified as a subsector and hence can be considered alongside audio visual services. 

President's Export Council: Is this a useful model for Africa?

President Barack Obama recently named Boeing Chairman, President and Chief Executive Jim McNerney as chairman of the Presidents Export Council (PEC) with Xerox Chief Executive Ursula Burns as Vice Chairwoman of the Council and has 8 private sector members. The PEC was created to advise the President on exports, trade, promotion and other matters relevant to exports and was first created in 1973 by President Nixon according to the U.S. Department of Commerce Charter of the Presidents Export Council.

Originally, the PEC consisted of only 20 private sector members drawn from business and industry, mostly CEO's of major U.S. companies. Eight of the members were chosen "without regard to geographic considerations." Twelve members were selected to provide appropriate regional representation. Six years later, in 1979, President Jimmy Carter reconstituted and expanded the PEC to the current roster of 48 members which was extended to include leaders of labor and agriculture communities, members of Congress, and members of the executive branch. 

The PEC reports its advice through the Secretary of Commerce. Members serve "at the pleasure of the President" with no set term of office and thus, a change in administrations would bring a change in the Council. The PEC’s activities and operations are subject to the Federal Advisory Committee Act and the full council meets at least twice a year with no compensation to members for their services.  The PEC maintains subcommittees according to the council’s interests, and membership in those subordinate committees is drawn from the council’s membership. The PEC in the past has maintained 5 subcommittees as follows:

1. Trade Promotion and Negotiations

2. Technology and Competitiveness

3. Services.

4. Corporate Stewardship

5. Export Administration

When I first heard about the PEC, I wondered whether African Heads of State could benefit from similar Advisory bodies in order to address key economic challenges.  For instance, the PEC has had an impact on US negotiating positions and made significant input in the National Export Strategy.  During the George Bush administration, the growth of the US trade deficit by over 50% was a key issue of concern which the PEC used to influence US negotiations in the WTO Doha round and the regional context.  President Obama’s administration is currently faced with even more dire economic challenges including the recent loss of 8 million American jobs, which will undoubtedly influence the incoming PEC’s work. 

In Africa, this approach could be used to address issues pertaining to competitiveness, agriculture, investment etc. in addition to exports. 

Obama's National Export Initiative 2010

At the recent State of the Union address, US President B. Obama announced his goal of doubling America’s exports over the next five years -– an increase that will support 2 million American jobs. Following this, he issued an Executive Order -The National Export Initiative (NEI), a federal initiative to improve conditions that directly affect the private sector's ability to export.  Currently the US imports from Africa under AGOA, more than it exports to the continent.  The Executive Order will result in the creation of an Export Promotion Cabinet to develop and implement the initiative.  

The NEI is replicated below:

For Immediate Release

March 11, 2010

Executive Order - National Export Initiative

EXECUTIVE ORDER

- - - - - - -

NATIONAL EXPORT INITIATIVE

By the authority vested in me as President by the Constitution and the laws of the United States of America, including the Export Enhancement Act of 1992, Public Law 102-429, 106 Stat. 2186, and section 301 of title 3, United States Code, in order to enhance and coordinate Federal efforts to facilitate the creation of jobs in the United States through the promotion of exports, and to ensure the effective use of Federal resources in support of these goals, it is hereby ordered as follows:

Section 1. Policy. The economic and financial crisis has led to the loss of millions of U.S. jobs, and while the economy is beginning to show signs of recovery, millions of Americans remain unemployed or underemployed. Creating jobs in the United States and ensuring a return to sustainable economic growth is the top priority for my Administration. A critical component of stimulating economic growth in the United States is ensuring that U.S. businesses can actively participate in international markets by increasing their exports of goods, services, and agricultural products. Improved export performance will, in turn, create good high-paying jobs.

The National Export Initiative (NEI) shall be an Administration initiative to improve conditions that directly affect the private sector's ability to export. The NEI will help meet my Administration's goal of doubling exports over the next 5 years by working to remove trade barriers abroad, by helping firms -- especially small businesses -- overcome the hurdles to entering new export markets, by assisting with financing, and in general by pursuing a Government-wide approach to export advocacy abroad, among other steps.

Sec. 2. Export Promotion Cabinet. There is established an Export Promotion Cabinet to develop and coordinate the implementation of the NEI. The Export Promotion Cabinet shall consist of:

(a) the Secretary of State;

(b) the Secretary of the Treasury;

(c) the Secretary of Agriculture;

(d) the Secretary of Commerce;

(e) the Secretary of Labor;

(f) the Director of the Office of Management and Budget;

(g) the United States Trade Representative;

(h) the Assistant to the President for Economic Policy;

(i) the National Security Advisor;

(j) the Chair of the Council of Economic Advisers;

(k) the President of the Export-Import Bank of the United States;

(l) the Administrator of the Small Business Administration;

(m) the President of the Overseas Private Investment Corporation;

(n) the Director of the United States Trade and Development Agency; and

(o) the heads of other executive branch departments, agencies, and offices as the President may, from time to time, designate.

The Export Promotion Cabinet shall meet periodically and report to the President on the progress of the NEI. A member of the Export Promotion Cabinet may designate, to perform the NEI-related functions of that member, a senior official from the member's department or agency who is a full-time officer or employee. The Export Promotion Cabinet may also establish subgroups consisting of its members or their designees, and, as appropriate, representatives of other departments and agencies. The Export Promotion Cabinet shall coordinate with the Trade Promotion Coordinating Committee (TPCC), established by Executive Order 12870 of September 30, 1993.

Sec. 3. National Export Initiative. The NEI shall address the following:

(a) Exports by Small and Medium-Sized Enterprises (SMEs). Members of the Export Promotion Cabinet shall develop programs, in consultation with the TPCC, designed to enhance export assistance to SMEs, including programs that improve information and other technical assistance to first-time exporters and assist current exporters in identifying new export opportunities in international markets.

(b) Federal Export Assistance. Members of the Export Promotion Cabinet, in consultation with the TPCC, shall promote Federal resources currently available to assist exports by U.S. companies.

(c) Trade Missions. The Secretary of Commerce, in consultation with the TPCC and, to the extent possible, with State and local government officials and the private sector, shall ensure that U.S. Government-led trade missions effectively promote exports by U.S. companies.

(d) Commercial Advocacy. Members of the Export Promotion Cabinet, in consultation with other departments and agencies and in coordination with the Advocacy Center at the Department of Commerce, shall take steps to ensure that the Federal Government's commercial advocacy effectively promotes exports by U.S. companies.

(e) Increasing Export Credit. The President of the Export-Import Bank, in consultation with other members of the Export Promotion Cabinet, shall take steps to increase the availability of credit to SMEs.

(f) Macroeconomic Rebalancing. The Secretary of the Treasury, in consultation with other members of the Export Promotion Cabinet, shall promote balanced and strong growth in the global economy through the G20 Financial Ministers' process or other appropriate mechanisms.

(g) Reducing Barriers to Trade. The United States Trade Representative, in consultation with other members of the Export Promotion Cabinet, shall take steps to improve market access overseas for our manufacturers, farmers, and service providers by actively opening new markets, reducing significant trade barriers, and robustly enforcing our trade agreements.

(h) Export Promotion of Services. Members of the Export Promotion Cabinet shall develop a framework for promoting services trade, including the necessary policy and export promotion tools.

Sec. 4. Report to the President. Not later than 180 days after the date of this order, the Export Promotion Cabinet, through the TPCC, shall provide the President a comprehensive plan to carry out the goals of the NEI. The Chairman of the TPCC shall set forth the steps taken to implement this plan in the annual report to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Foreign Affairs of the House of Representatives required by the Export Enhancement Act of 1992, Public Law 102-249, 106 Stat. 2186, and Executive Order 12870, as amended.

Sec. 5. General Provisions. (a) Nothing in this order shall be construed to impair or otherwise affect:

(i) authority granted by law to an executive department, agency, or the head thereof, or the status of that department or agency within the Federal Government; or

(ii) functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.

(b) This order shall be implemented consistent with applicable law and subject to the availability of appropriations.

(c) This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.

BARACK OBAMA

THE WHITE HOUSE,

March 11, 2010.