Competitiveness: Creating a Rwandan Economic Strategy Professor Michael E. Porter Institute for Strategy and Competitiveness Harvard Business School Kigali, Rwanda July 2008 This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage of Nations (The Free Press, 1990), “Building the Microeconomic Foundations of Competitiveness,” in The Global Competitiveness Report 2006 (World Economic Forum, 2006), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998), and ongoing research on clusters and competitiveness. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without the permission of Michael E. Porter. Further information on Professor Porter’s work and the Institute for Strategy and Competitiveness is available at www.isc.hbs.edu Version: July 20, 2008 GCR South Africa 062007.ppt 1 Copyright © 2007 Professor Michael E. Porter Prosperity Performance East Africa versus Other Developing Countries PPP-adjusted GDP per Capita, 2007 ($USD) $15,000 Singapore ($39,356) South Korea ($23,094) Botswana Gabon Malaysia $12,000 African countries Asian countries East African Community Mauritius South Africa $9,000 Thailand $6,000 $3,000 Papua New Guinea Cote d’Ivoire Eritrea $0 Zimbabwe -6.0% -4.0% Togo Burundi -2.0% China Namibia Swaziland Sri Lanka Angola Indonesia Lesotho Philippines India Guinea Vietnam Pakistan Laos Senegal Cameroon Nigeria Cambodia Kenya Congo Tanzania Mozambique Malawi Burma Rwanda Uganda Ethiopia 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% Growth of Real GDP per Capita (PPP-adjusted), CAGR, 1998-2007 Note: highlighted countries are part of the East African Community (EAC). Source: EIU (2008), authors calculations East African Business Summit – final.ppt 2 Copyright 2008 © , M. Porter Comparative Economic Performance Real GDP Growth Rates Annual growth rate of real GDP (US$ 2005 prices) Countries sorted by 20032007 annual real GDP growth rate (CAGR) 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 ANGOLA ETHIOPIA SUDAN CHAD MOZAMBIQUE NIGERIA UGANDA KENYA MALAWI ZAMBIA GHANA LIBYA BOTSWANA RWANDA MADAGASCAR THE GAMBIA CONGO (Dem Rep.) SOUTH AFRICA NAMIBIA BURKINA FASO SENEGAL MACEDONIA ALGERIA BENIN MOROCCO BURUNDI CAMEROON GABON TOGO GUINEA COTE D'IVOIRE ZIMBABWE Source: EIU (2007) Competitiveness Master - 2008-05-22.ppt 3 Copyright 2008 © Professor Michael E. Porter Rwanda Competitiveness in 2008 • Rwanda continues to be on a positive track for continuing growth and improvements in prosperity levels • The economic gains are a reflection of the policy reforms undertaken as well as the bouncing back from low current levels of GDP • Rwanda has also weathered the impact of political disturbances in Kenya, a weakening global economy, and continued political tensions with individual European countries • Despite these achievements, Rwanda will need further efforts to realize the ambitious goals of its longer-term economic strategy • Key areas for action are – Better alignment of government and donor activities with core competitiveness needs of the Rwandan economy – Better coordination across different areas of policy – Stronger focus on the barriers for private sector development in physical infrastructure and government rules and regulations 4 Copyright 2008 © , M. Porter What is Competitiveness? • Competitiveness depends on the productivity with which a nation uses its human, capital, and natural resources. – Productivity sets the sustainable standard of living (wages, returns on capital, returns on natural resources) that a country can sustain – It is not what industries a nation competes in that matters for prosperity, but how productively it competes in those industries – Productivity in a national economy arises from a combination of domestic and foreign firms – The productivity of “local” or domestic industries is fundamental to competitiveness, not just that of export industries • Nations compete to offer the most productive environment for business • The public and private sectors play different but interrelated roles in creating a productive economy Competitiveness Master - 2008-05-22.ppt 5 Copyright 2008 © Professor Michael E. Porter Sources of Prosperity Inherited Inherited Prosperity Prosperity Created Created Prosperity Prosperity •• Prosperity Prosperity is is derived derived from from selling selling or or exploiting exploiting inherited inherited natural natural resources resources •• Prosperity Prosperity is is derived derived from from creating creating more more and and more more valuable valuable products products and and services services with with rising rising efficiency efficiency •• Prosperity Prosperity is is constrained constrained •• Prosperity Prosperity is is unlimited unlimited •• Government Government is is the the central central actor actor in in the the economy economy as as the the owner owner and and distributor distributor of of resource resource wealth wealth –– Resource Resource revenues revenues allow allow unproductive unproductive policies policies and and practices practices to to persist persist •• Government’s Government’s role role gravitates gravitates towards towards the the distribution distribution of of wealth wealth as as interest interest groups groups seek seek aa bigger bigger share share of of the the pie pie •• Companies Companies are are the the central central actors actors in in the the economy economy –– Prosperity Prosperity can can only only be be created created by by firms firms Competitiveness Master - 2008-05-22.ppt •• Government’s Government’s role role is is to to create create the the enabling enabling conditions conditions for for productivity productivity and and foster foster private private sector sector development development 6 Copyright 2008 © Professor Michael E. Porter Decomposing Prosperity • Standard of living • Inequality Prosperity Prosperity Domestic Domestic Purchasing Purchasing Power Power Per PerCapita CapitaIncome Income • Local prices – Efficiency of local industries – Level of local market competition • Consumption taxes Labor Labor Utilization Utilization Labor Labor Productivity Productivity • Skills • Capital stock • Total factor productivity Competitiveness Master - 2008-05-22.ppt 7 • Workforce participation rate – Population age profile • Unemployment • Working hours Copyright 2008 © Professor Michael E. Porter Labor Productivity Selected Countries GDP per person employed (constant 1990 PPP $) 2250 Cote d'Ivoire 2000 Ghana 1750 Kenya 1500 Madagascar Mali 1250 Nigeria 1000 Rwanda 750 Senegal Tanzania 500 Uganda 250 Zambia 0 1980 1985 Source: World Bank Development Indicators (2008) Competitiveness Master - 2008-05-22.ppt 1990 1995 8 2000 2005 Copyright 2008 © Professor Michael E. Porter Decomposition of Rwandan Prosperity Growth Growth Rate 12% 10% Total Factor Productivity Capital 8% Labor 6% 4% 2% 0% -2% -4% 1980-1989 1995-2003 Source: World Bank (2007) Competitiveness Master - 2008-05-22.ppt 9 Copyright 2008 © Professor Michael E. Porter Rwandan Export Share Trends World Export Market Share (current USD) 0.008% Processed Goods Semi-processed Goods Unprocessed Goods Services TOTAL 0.007% 0.006% 0.005% 0.004% 0.003% 0.002% 0.001% 0.000% 1996 1998 2000 2002 2004 2006 Source: UNComtrade (2008) Competitiveness Master - 2008-05-22.ppt 10 Copyright 2008 © Professor Michael E. Porter Export Shares Selected Countries Exports as Share of GDP (in %, 2007) 100% 90% Malaysia Papua New Guinea Swaziland African countries Asian countries East African Community Angola 80% 70% Vietnam Thailand Lesotho 60% Cambodia Nigeria 50% Chad Zambia Tunisia 40% China Gabon Namibia Botswana Korea Burma Cote d’Ivoire Philippines Ghana Malawi Mauritius Indonesia Togo Laos Sri Lanka South Africa Guinea Cameroon Bangladesh Sudan Japan Kenya Uganda Senegal Pakistan Benin Tanzania Ethiopia India Rwanda Burundi Eritrea Gambia Mozambique 30% 20% 10% 0% -30% Congo -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% Change of Exports as Share of GDP, 2003 to 2007 Source: UN Comtrade (2007), authors’ analysis Competitiveness Master - 2008-05-22.ppt 11 Copyright 2008 © Professor Michael E. Porter Inbound Foreign Investment Performance Selected Countries Inward FDI Stocks as % of GDP, Average 2002 2006 70% Azerbaijan (116.4%, 48.5%) Tunisia Vietnam 60% Congo Namibia New Zealand African countries Other countries East African Community 50% Cambodia Burma Tanzania Malaysia 40% Australia 30% Togo South Africa Malawi Ghana 20% Russia Rwanda 10% 0% Laos Brazil Kazakhstan Moldova Thailand Armenia Egypt Mongolia Georgia Nigeria (52.8%) Turkmenistan Ethiopia Cote d’Ivoire Kyrgyz Republic Uganda Guinea-Bissau Cameroon Mali Ukraine Tajikistan (70.4%) Guinea Central African Republic Burundi Botswana Philippines China Taiwan Sri Lanka Kore Pakistan a Belarus / Uzbekistan India Kenya Indonesia Gabon Japan Somalia 0% 5% 10% 15% 20% 25% 30% 35% 40% FDI Inflows as % of Gross Fixed Capital Formation, Average 2002 - 2006 Source: UNCTAD, World Investment Report (2007) Competitiveness Master - 2008-05-22.ppt 12 Copyright 2008 © Professor Michael E. Porter Inward Foreign Investment Flows Rwanda, 1970 - 2006 Inward FDI (USD, millions) $21.0 $18.0 $15.0 $12.0 $9.0 $6.0 $3.0 $0.0 1970 1973 Note: Data not available for 1994. Source: UNCTAD (2007) GCR South Africa 062007.ppt 1976 1979 1982 1985 1988 13 1991 1994 1997 2000 2003 2006 Copyright © 2007 Professor Michael E. Porter Fixed Investment Rates Selected Countries Gross Fixed Investment as % of GDP (2006) 45% 40% Senegal Equatorial Guinea 35% Ghana 30% Namibia Zambia Ethiopia Madagascar Algeria Uganda Morocco Gambia Gabon Nigeria Togo Tunisia Rwanda Tanzania South Africa Mozambique Benin Kenya Sudan Botswana Burkina Faso Zimbabwe Cameroon 25% 20% Burundi 15% 10% Chad (-25.9%) Libya Guinea Cote d’Ivoire Malawi 5% 0% -10% -5% 0% 5% 10% 15% 20% 25% CAGR Gross Fixed Investment (as % of GDP), 2001 - 2006 Source: EIU, 2007. Competitiveness Master - 2008-05-22.ppt 14 Copyright 2008 © Professor Michael E. Porter International Aid and Assistance Flows Aid as % Gross Capital Formation East African Community, 2002 - 2006 5 2001 2002 2003 2004 2005 2006 4 4 3 3 2 2 1 1 0 Burundi Source: World Development Indicators (2008) Competitiveness Master - 2008-05-22.ppt Kenya Rwanda 15 Tanzania Uganda Copyright 2008 © Professor Michael E. Porter Determinants of Competitiveness Microeconomic Competitiveness Quality of the National Business Environment State of Cluster Development Sophistication of Company Operations and Strategy Macroeconomic Competitiveness Social Infrastructure and Political Institutions Macroeconomic Policies Endowments • Macroeconomic competitiveness creates the potential for high productivity, but is not sufficient • Productivity ultimately depends on improving the microeconomic capability of the economy and the sophistication of local competition Competitiveness Master - 2008-05-22.ppt 16 Copyright 2008 © Professor Michael E. Porter Macroeconomic Competitiveness Social Infrastructure and Political Institutions Macroeconomic Policies • Basic human capacity • Fiscal policy – Education – Health • Safety and security • Monetary policy • Political institutions • Economic openness • Rule of law Competitiveness Master - 2008-05-22.ppt 17 Copyright 2008 © Professor Michael E. Porter Governance Indicators Selected Countries Best country in the world Voice and Accountability Political Stability Government Effectiveness Regulatory Quality Rule of Law Control of Corruption Index of Governance Quality, 2006 UT SO BO TS W H AN AF A R N A I CA M IB G IA M H O ZA AN A M B S E I QU N E E TA G A NZ L A Z A NI A M G B IA AM M BIA AL A G WI AB RW O N AN UG DA AN D NI A G E KE R CA N Y M ER A E T OO HI N O A N PIA G O LI L A BE R CO IA N B U GO RU N N CE IG D I ER NT I R G AL U A I AF N E A R. RE P CH . A CO SU D TE D D' A N ZI IV O M IR BA E BW E Worst country in the world Note: Sorted left to right by decreasing average value across all indicators. The ‘zero’ horizontal line corresponds to the median country’s average value across all indicators. Source: World Bank (2008) Competitiveness Master - 2008-05-22.ppt 18 Copyright 2008 © Professor Michael E. Porter Corruption Perception Index, 2007 1 Finland / New Zealand Denmark Iceland Norway Improving Switzerland Canada Austria Germany Japan United States Ireland Uruguay Chile Estonia Slovenia Spain Malta Hungary South Africa Botswana Czech Republic Italy Bahrain Malaysia Korea Costa Rica Jordan Namibia Greece Tunisia Poland Turkey Croatia El Salvador Ghana Romania Senegal China Mexico India Brazil Serbia Saudi Arabia Gabon Montenegro Swaziland Sri Lanka Tanzania Madagascar Deteriorating Low corruption Oman Rank in Global Corruption Index, 2007 Belize Egypt Thailand Panama Argentina Rwanda Mozambique Benin Ukraine Zambia Vietnam Philippines Honduras Niger Burundi Ethiopia Cameroon Pakistan Gambia Russia Indonesia Angola Nigeria Kenya Zimbabwe Kazakhstan Ecuador Congo Liberia Cote d’Ivoire Turkmenistan Bangladesh Congo (Dem. Rep.) Equatorial Guinea Uzbekistan Sudan Chad Haiti Somalia Iran High corruption 158 -30 Bolivia Uganda -20 -10 0 10 Change in Rank, Global Corruption Report, 2007 versus 2005 Note: Ranks only countries available in both years (158 countries total) Source: Global Corruption Report, 2007 19 20 30 African countries Other countries East African Community Copyright 2008 © , M. Porter Corruption Perception Index Ranking (constant sample, 158 countries) 160 East African Countries 2005 CPI Rank 2006 CPI Rank 140 2007 CPI Rank 120 100 80 60 40 20 0 Tanzania Rwanda Uganda Burundi Kenya Note: Ranks only available starting in 2005 for all 5 countries Source: Global Corruption Report, 2007 20 Copyright 2008 © , M. Porter M Na ad m ag ibia as So K car ut en h ya A Ta fric nz a a M A nia oz ng am ol bi a U que ga Se nd ne a Za ga m l R bia w M an au da rit an To ia go Bo M ts ali w a M na al aw N i i N ger ig e G ria h Et an hi a op C ot C ia e ha d' d Iv o G ire C ui am ne er a o C on G on C go Zim abo en , R b n tra e ab l A pu we fri blic ca o n f R Bu ep ru . nd i Openness to Trade Rank (157 countries) 120 Source: Index of Economic Freedom (2008), Heritage Foundation Competitiveness Master - 2008-05-22.ppt Selected African Countries, 2008 160 140 Sub-Saharan Average: 112.2 100 80 60 40 20 0 21 Copyright 2008 © Professor Michael E. Porter Microeconomic Competitiveness: Quality of the Business Environment Context Contextfor for Firm Firm Strategy Strategy and andRivalry Rivalry z Factor Factor (Input) (Input) Conditions Conditions z Local rules and incentives that encourage investment and productivity – e.g. salaries, incentives for capital investments, intellectual property protection z Vigorous local competition – Openness to foreign and local competition Access to high quality business inputs Natural endowments Human resources Capital availability Physical infrastructure Administrative infrastructure (e.g. registration, permitting) – Information infrastructure (e.g., transparency) – Scientific and technological infrastructure Demand Demand Conditions Conditions – – – – – Related Relatedand and Supporting Supporting Industries Industries z z Sophistication of local customers and needs – Strict quality, safety, and environmental standards Availability of suppliers and supporting industries • Many things matter for competitiveness • Successful economic development is a process of successive upgrading, in which the business environment improves to enable increasingly sophisticated ways of competing Competitiveness Master - 2008-05-22.ppt 22 Copyright 2008 © Professor Michael E. Porter Ease of Doing Business Rwanda, 2007 Ranking, 2007 (of 178 countries) Favorable Unfavorable 180 Rwanda per capita GDP rank: 162 160 140 120 100 80 60 40 20 0 Ease of Doing Business Enforcing Contracts Paying Taxes Starting a Employing Business Workers Dealing Registering with Property Licenses Protecting Investors Closing a Business Trading Across Borders Median Ranking, Africa Source: World Bank Report, Doing Business (2008) Competitiveness Master - 2008-05-22.ppt Getting Credit 23 Copyright 2008 © Professor Michael E. Porter Doing Business Selected African Countries South Africa Namibia Botswana Kenya Ghana Ethiopia Nigeria Zambia Uganda Malawi Tanzania Gambia Mozambique Gabon Madagascar Rwanda Benin Zimbabwe Cameroon Togo Mauritania Mali Burkina Faso Senegal Guinea Angola Niger Chad Burundi Congo, Republic of Central African Rep. African Average Ease of Doing Starting a Dealing with Employing Registering Getting Protecting Paying Trading Across Enforcing Closing a Business Business Licenses Workers Property Credit Investors Taxes Borders Contracts Business 35 53 45 91 76 26 9 61 134 85 68 43 101 31 33 128 36 64 48 144 33 47 51 99 122 70 36 26 107 14 145 95 26 72 112 9 66 114 13 83 154 148 107 76 87 138 140 138 26 115 33 75 61 51 96 102 106 58 89 147 97 107 29 150 77 70 108 80 161 30 173 84 51 107 138 93 89 116 82 148 121 125 97 64 30 160 86 84 118 114 81 11 163 158 122 55 141 119 48 127 108 117 90 87 84 64 78 161 135 135 130 95 170 151 160 115 83 104 100 35 109 131 94 70 29 133 135 165 173 73 61 116 134 125 147 162 126 97 33 72 140 138 134 144 147 44 163 148 115 147 93 106 145 130 61 139 150 165 176 51 86 126 151 178 149 150 63 124 95 137 158 165 50 166 44 178 151 137 123 115 105 115 147 161 124 166 106 152 143 172 123 79 97 107 144 169 74 151 154 160 154 120 134 115 107 166 132 172 92 156 176 143 146 150 135 138 138 81 153 90 157 167 142 117 52 115 141 171 152 89 143 158 149 101 88 90 135 147 151 162 157 107 161 105 169 152 170 115 138 133 170 109 91 162 159 64 160 155 135 158 164 136 148 73 166 171 158 99 151 135 165 163 102 127 111 167 173 136 172 166 84 51 120 164 176 138 169 153 155 161 63 135 147 115 163 132 133 173 177 68 135 123 135 122 124 157 167 178 174 124 171 99 122 170 147 109 167 148 178 175 154 67 167 168 115 147 176 171 156 110 139 133 149 95 115 122 175 172 169 178 177 133.625 126.875 111.275 113.05 125.05 109.425 110.325 105.075 131.375 113 115.65 Rank out of 178 countries. East African countries highlighted. Competitiveness Master - 2008-05-22.ppt Source: World Bank Doing Business (2008). 24 Copyright 2008 © Professor Michael E. Porter Microeconomic Competitiveness: State of Cluster Development Tourism Cluster in Cairns, Australia Public Public Relations Relations && Market Market Research Research Services Services Travel Travel agents agents Tour Tour operators operators Restaurants Restaurants Attractions Attractions and and Activities Activities Food Food Suppliers Suppliers e.g., e.g., theme theme parks, parks, casinos, sports casinos, sports Property Property Services Services Maintenance Maintenance Services Services Airlines, Airlines, Cruise Cruise Ships Ships Hotels Hotels Local Local retail, retail, health health care, care, and and other other services services Local Local Transportation Transportation Souvenirs, Souvenirs, Duty Duty Free Free Banks, Banks, Foreign Foreign Exchange Exchange Government Government agencies agencies Educational Educational Institutions Institutions Industry Industry Groups Groups e.g. e.g. Australian Australian Tourism Tourism Commission, Commission, Great Barrier Reef Authority Great Barrier Reef Authority e.g. e.g. James James Cook Cook University, University, Cairns College of Cairns College of TAFE TAFE e.g. e.g. Queensland Queensland Tourism Tourism Industry Council Industry Council Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden Competitiveness Master - 2008-05-22.ppt 25 Copyright 2008 © Professor Michael E. Porter Institutions for Collaboration Selected Massachusetts Organizations, Life Sciences Industry Industry // Cluster Cluster Associations Associations University University –– Company Company Initiatives Initiatives Harvard Harvard Biomedical Biomedical Community Community zz MIT MIT Enterprise Enterprise Forum Forum zz Biotech Biotech Club Club at at Harvard Harvard Medical Medical School School zz Technology Technology Transfer Transfer offices offices zz Massachusetts Massachusetts Biotechnology Biotechnology Council Council zz Massachusetts Massachusetts Medical Medical Device Device Industry Industry Council Council zz Massachusetts Massachusetts Hospital Hospital Association Association zz Broader Broader Business Business Associations Associations Informal Informal networks networks Associated Associated Industries Industries of of Massachusetts Massachusetts zz Greater Greater Boston Boston Chamber Chamber of of Commerce Commerce zz High High Tech Tech Council Council of of Massachusetts Massachusetts Company Company alumni alumni groups groups zz Venture Venture capital capital community community zz University University alumni alumni groups groups zz zz Joint Joint Research Research Initiatives Initiatives New New England England Healthcare Healthcare Institute Institute zz Whitehead Whitehead Institute Institute For For Biomedical Biomedical Research Research zz Center Center for for Integration Integration of of Medicine Medicine and and Innovative Innovative Technology Technology (CIMIT) (CIMIT) zz Competitiveness Master - 2008-05-22.ppt 26 Copyright 2008 © Professor Michael E. Porter Kenya’s Cut Flower Cluster Sources: Student team research by Kusi Hornberger, Nick Ndiritu, Lalo Ponce-Brito, Melesse Tashu, and Tijan Watt, Microeconomics of Competitiveness Course, 2007 Competitiveness Master - 2008-05-22.ppt 27 Copyright 2008 © Professor Michael E. Porter The Kenyan Cut Flower Cluster Trade Performance Kenyan Cut Flower Exports in thousand US $ Kenyan Cut Flower World Export Market Share 5.0% $350,000 Value 4.5% Market Share $300,000 4.0% $250,000 3.5% 3.0% $200,000 2.5% $150,000 2.0% 1.5% $100,000 1.0% $50,000 0.5% 0.0% $0 1990 1992 1994 1996 1998 2000 2002 2004 2006 Source: International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database. Competitiveness Master - 2008-05-22.ppt 28 Copyright 2008 © Professor Michael E. Porter Microeconomic Competitiveness: Company Sophistication Firm Infrastructure (e.g. Financing, Planning, Investor Relations) Human Resource Management Support Activities (e.g. Recruiting, Training, Compensation System) Technology Development (e.g. Product Design, Testing, Process Design, Material Research, Market Research) M Procurement (e.g. Components, Machinery, Advertising, Services) Inbound Logistics Operations (e.g. Incoming Material Storage, Data Collection, Service, Customer Access) (e.g. Assembly, Component Fabrication, Branch Operations) Value a r g Outbound Logistics Marketing & Sales After-Sales Service (e.g. Order Processing, Warehousing, Report Preparation) (e.g. Sales Force, Promotion, Advertising, Proposal Writing, Web site) (e.g. Installation, Customer Support, Complaint Resolution, Repair) i n What buyers are willing to pay Primary Activities • Competitiveness requires that local companies upgrade the quality of the value chain Competitiveness Master - 2008-05-22.ppt 29 Copyright 2008 © Professor Michael E. Porter Company Sophistication: Measures from the Global Competitiveness Report Strategy and operational effectiveness Internationalization of Firms • • • • • • • • • • Nature of competitive advantage Production process sophistication Degree of customer orientation Extent of marketing Value chain breadth Company spending on research and development • Capacity for innovation Competitiveness Master - 2008-05-22.ppt Extent of regional sales Breadth of international markets Control of international distribution Prevalence of foreign technology licensing Organizational Practices 30 • • • Reliance on professional management Willingness to delegate authority Extent of staff training • Performance-based compensation Copyright 2008 © Professor Michael E. Porter The Process of Economic Development Shifting Roles and Responsibilities Old Old Model Model New New Model Model •• Government Government drives drives economic economic development development through through policy policy decisions decisions and and incentives incentives •• Economic Economic development development is is aa collaborative collaborative process process involving involving government government at at multiple multiple levels, levels, companies, companies, teaching teaching and and research research institutions, institutions, and and private private sector sector organizations organizations • Competitiveness must become a bottom-up process in which many individuals, companies, and institutions take responsibility • Every community and cluster can take steps to enhance competitiveness • The private sector must become more engaged in competitiveness to improve rapidly Competitiveness Master - 2008-05-22.ppt 31 Copyright 2008 © Professor Michael E. Porter Clusters and Economic Policy Science and Technology Investments (e.g., centers, university departments, technology transfer) Standard setting and quality initiatives Education and Workforce Training Management Training Business Attraction Clusters Environmental Stewardship Export Promotion Market Information and Disclosure Natural Resource Protection Physical Infrastructure • Clusters provide a framework for implementing public policy and organizing public-private collaboration to enhance competitiveness Competitiveness Master - 2008-05-22.ppt 32 Copyright 2008 © Professor Michael E. Porter Role of the Private Sector in Economic Development • • A company’s competitive advantage depends partly on the quality of the business environment A company gains advantages from being part of a cluster • Companies have a strong role to play in upgrading their business environment • • • • Take an active role in upgrading the local infrastructure Nurture local suppliers and attract foreign suppliers Work closely with local educational and research institutions, to upgrade their quality and create specialized programs addressing the cluster’s needs Inform government on regulatory issues and constraints bearing on cluster development Focus corporate philanthropy on enhancing the local business environment • An important role for trade associations • – Greater influence if many companies are united – Cost sharing between members Competitiveness Master - 2008-05-22.ppt 33 Copyright 2008 © Professor Michael E. Porter Geographic Influences on Competitiveness World WorldEconomy Economy Broad BroadEconomic EconomicAreas Areas Groups Groupsof ofNeighboring Neighboring Nations Nations Nation Nation States, States,Provinces Provinces Metropolitan MetropolitanAreas Areas Sub-National Economies Rural RuralAreas Areas Competitiveness Master - 2008-05-22.ppt 34 Copyright 2008 © Professor Michael E. Porter Regional Economic Performance U.S. States Real Gross State Product per Capita, 2006 $60,000 U.S. average Delaware $55,000 Connecticut $50,000 Massachusetts $45,000 $40,000 Alaska Colorado New York New Jersey Virginia Minnesota California NV Illinois Washington Maryland Wyoming Oregon New Hampshire Hawaii Texas North Carolina Nebraska Rhode Island Iowa SD Wisconsin Georgia PA Vermont North Dakota Ohio Kansas TN IN Arizona Florida Missouri Michigan (4.1%) Louisiana Utah New Mexico Idaho Kentucky Maine Alabama South Carolina Oklahoma Montana Arkansas U.S. average $35,000 $30,000 $25,000 $20,000 0.0% West Virginia 0.5% 1.0% Mississippi 1.5% 2.0% 2.5% 3.0% 3.5% Change in Real Gross State Product per Capita, CAGR, 1997-2006 Note: Southern states as defined by the U.S. census highlighted in blue. All figures in chained 2000 dollars. Source: BEA, 2007 Competitiveness Master - 2008-05-22.ppt 35 Copyright 2008 © Professor Michael E. Porter Rwandan Provinces Competitiveness Master - 2008-05-22.ppt 36 Copyright 2008 © Professor Michael E. Porter Specialization of Regional Economies Selected U.S. Geographic Areas Seattle-BellevueSeattle-BellevueEverett, Everett,WA WA Aerospace AerospaceVehicles Vehicles and andDefense Defense Fishing Fishingand andFishing Fishing Products Products Analytical AnalyticalInstruments Instruments Denver, Denver,CO CO Leather Leatherand andSporting SportingGoods Goods Oil and Gas Oil and Gas Aerospace AerospaceVehicles Vehiclesand andDefense Defense Chicago Chicago Communications CommunicationsEquipment Equipment Processed ProcessedFood Food Heavy HeavyMachinery Machinery Wichita, Wichita,KS KS Aerospace AerospaceVehicles Vehiclesand and Defense Defense Heavy HeavyMachinery Machinery Oil and Oil andGas Gas Pittsburgh, Pittsburgh,PA PA Construction ConstructionMaterials Materials Metal Manufacturing Metal Manufacturing Education Educationand andKnowledge Knowledge Creation Creation San San FranciscoFranciscoOakland-San Oakland-San Jose Jose Bay Bay Area Area Communications Communications Equipment Equipment Agricultural Agricultural Products Products Information Information Technology Technology Los Los Angeles Angeles Area Area Apparel Apparel Building Building Fixtures, Fixtures, Equipment Equipment and and Services Services Entertainment Entertainment Boston Boston Analytical AnalyticalInstruments Instruments Education Educationand andKnowledge KnowledgeCreation Creation Communications Equipment Communications Equipment Raleigh-Durham, Raleigh-Durham,NC NC Communications CommunicationsEquipment Equipment Information InformationTechnology Technology Education Educationand and Knowledge KnowledgeCreation Creation San SanDiego Diego Leather Leatherand andSporting SportingGoods Goods Power Generation Power Generation Education Educationand andKnowledge Knowledge Creation Creation Houston Houston Oil Oiland andGas GasProducts Productsand andServices Services Chemical Products Chemical Products Heavy HeavyConstruction ConstructionServices Services Atlanta, Atlanta,GA GA Construction ConstructionMaterials Materials Transportation Transportationand andLogistics Logistics Business Services Business Services Note: Clusters listed are the three highest ranking clusters in terms of share of national employment. Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School, 11/2006. Competitiveness Master - 2008-05-22.ppt 37 Copyright 2008 © Professor Michael E. Porter Geographic Influences on Competitiveness World WorldEconomy Economy Broad BroadEconomic EconomicAreas Areas Groups Groupsof ofNeighboring Neighboring Nations Nations The Neighborhood Nation Nation States, States,Provinces Provinces Metropolitan MetropolitanAreas Areas Rural RuralAreas Areas Competitiveness Master - 2008-05-22.ppt 38 Copyright 2008 © Professor Michael E. Porter The Neighborhood East Africa • Economic coordination among neighboring countries can significantly enhance competitiveness • Integration with neighbors offers greater opportunities than participation in broader economic forums Source: Google East African BusinessMaps Summit – final.ppt 39 Copyright 2008 © , M. Porter Regional Economic Strategy • Defining a strategic role for the region in the continent and the world economy • Opening internal trade and investment • Achieving synergies in enhancing the business environment • Facilitating cross-border cluster development • Enhancing company capabilities and non-traditional exports • Raising productivity • Increasing the attractiveness of the region as a whole for foreign investment • Winning greater support from the international community • Accelerating economic policy at the national level But • Cross-national collaboration is not a substitute for national microeconomic reforms East African Business Summit – final.ppt 40 Copyright 2008 © , M. Porter Economic Coordination Among Neighbors Capturing Synergies Factor Factor (Input) (Input) Conditions Conditions Context Contextfor for Strategy Strategy and andRivalry Rivalry • Improving regional transportation infrastructure • Eliminating trade and investment barriers within the region • Creating an efficient energy network • Enhancing regional communications and connectivity • Linking financial markets • Opening the movement of students for higher education • Simplifying and harmonizing cross-border regulations and paperwork • Coordinating anti-monopoly and fair competition policies Related Relatedand and Supporting Supporting Industries Industries Demand Demand Conditions Conditions • Harmonizing environmental standards • Facilitating cross-border cluster upgrading, e.g. • Harmonizing product safety standards – Tourism – Agribusiness • Establishing reciprocal consumer protection laws – Transport & Logistics – Business services • Opening government procurement within the region Competitiveness Competitiveness Regional Regional Strategy Strategy&& Governance Governance • Coordinating programs to improve public safety • Creating a regional strategy and marketing program • Coordinating macro-economic policies • Sharing best practices in government operations • Creating regional institutions – Dispute resolution mechanisms – Regional development bank • Developing a regional position with international organizations • Harmonizing administrative requirements for businesses East African Business Summit – final.ppt MacroMacroeconomic economic 41 Copyright 2008 © , M. Porter Strategy for Cross-National Regions Central American Logistical Corridor Belize Mexico Guatemala Honduras Nicaragua El Salvador Roads Ports Airports Logistic Corridor Costa Rica Country Boundary East African Business Summit – final.ppt 42 Panama Copyright 2008 © , M. Porter Regional Economic Strategy Initiatives Success Factors • Common understanding of competitiveness • Develop a regional value proposition = a strategy • Emphasis microeconomic aspects of competitiveness, not just macro • Focus on specific projects and initiatives • Led by the private sector with the participation of all regional actors and representation from the national governments • Institutionalized through formal enabling structures • Measure and report progress • Bottoms up, win-win projects, rather than grand political and macroeconomic declarations East African Business Summit – final.ppt 43 Copyright 2008 © , M. Porter Defining an Economic Strategy National NationalValue ValueProposition Proposition • What is the unique competitive position of the nation or region given its location, legacy, and existing and potential strengths? – What roles with neighbors, the region, and the broader world? – What unique value as a business location? – For what types of activities and clusters? Achieving Achievingand andMaintaining MaintainingParity Parity with withPeers Peers Developing DevelopingUnique UniqueStrengths Strengths • What elements of macroeconomic competitiveness and the business environment are crucial priorities? • What existing and emerging clusters should be developed first? • What weaknesses must be addressed to achieve parity with peer countries? • Priorities and sequencing are necessity in economic development Competitiveness Master - 2008-05-22.ppt 44 Copyright 2008 © Professor Michael E. Porter Toward A Rwandan Economic Strategy What is Unique about Rwanda? • • • • • • • • • • • • Some Implications Low corruption Stable Secure and safe Clean Responsive Integrated economic and social development Unique climate and growing conditions Central location on the African continent Established positions in tea, coffee, tourism Opportunity to lead the region in ICT and services Social innovator in health, education, reconciliation, gender equality, and other areas Disproportionate external interest in the country • Competitiveness Master - 2008-05-22.ppt • • • • • • • Rwanda must maintain stability, safety, orderliness, and lack of corruption at all costs Rwanda must accelerate improvement of skills and business infrastructure, managerial skills, ease of doing business Kigali must become a vibrant capital city Rwanda should seize the opportunity to transform agriculture Rwanda is unlikely to be competitive in exporting bulky goods with low value-toweight Rwanda should develop air freightable goods and services exports to nullify its logistical disadvantages – eg, silk, flowers Rwanda in inextricably linked with its neighbors A new model of African development 45 Copyright 2008 © Professor Michael E. Porter Rwanda’s Competitiveness Agenda Business Business Environment Environment Cluster Cluster Development Development • Land use • Physical infrastructure – Airport / air service – Connectivity – Economic zones • Energy – Renewable • Skills development • Build towns and increase urbanization outside of Kigali • Institutional capacity building • Improve government efficiency and cross agency coordination • Activate a formal cluster development program led by the private sector • Established clusters – Tea – Coffee – Tourism – Mining • Emerging clusters – Logistics and transport – Construction and real estate – ICT services – Specialty agriculture (e.g., silk, flowers) – Health and other social services – Arts and culture (Hillywood) Private Private Sector Sector Neighborhood Neighborhood • Upgrade private sector capabilities • Engage the private sector in economic development • Support cooperative private investment funds to jumpstart the private equity market East African Business Summit – final.ppt 46 • Lead economic integration with neighboring countries – e.g., Road transportation efficiency – Railway development – Energy grid Copyright 2008 © , M. Porter