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Trade competitiveness in Uruguay

Gonzalo Varela's picture
For a small economy like Uruguay, integration into the global marketplace is one of the most powerful vehicles for growth and development. Participating actively in international trade allows Uruguayan firms to become more productive, by achieving economies of scale and by learning through exposure to international technologies, know-how and ideas. 

How did Uruguayan firms perform, over the last 15 years, in the global marketplace?


Using the Trade Competitiveness Diagnostic Framework – which we presented today to the Uruguayan public and private sector – a World Bank team examined the performance of Uruguayan firms in global markets in terms of export growth, diversification, quality upgrading and survival;. The team presented a number of recommendations to increase integration and to gain from it.

The main findings of
the report reveal the following:

  • Exports have grown fast thanks to favorable external conditions, but also due to the dynamism of the private sector, as well as to sound trade and investment policies.
  • Tailwinds due to high commodity prices helped export growth. Exports in gross and in value-added terms expanded at double-digit rates, and they expanded even faster among primary and resource-based products. The emblematic example is that of soybean exports, which stood at US$1.5 million in 2001 and which climbed to US$1.6 billion in 2014, making Uruguay an increasingly important player in the world market with a share of 3 percent of total exports.
  • But it wasn’t just tailwinds. The private sector was dynamic enough to seize the opportunity of favorable conditions and penetrate 46 new markets between 2000 and 2013. In just one product, beef, exporters gained access to 30 new destinations, and they secured higher prices in top-quality markets on the back of smart entrepreneurship, quality upgrading and a longstanding government strategy of negotiating market access for the sector. In services, for example, modern, knowledge-intensive sectors such as ICT and other business services also grew at double-digit rates, increasing the knowledge content of the export bundle.

Still, there is room for increased integration.
 

  • Uruguay’s exports did expand fast, but so did the exports of others – which, in fact, grew even faster than Uruguay’s. The Uruguayan share of global exports decreased between 1997 and 2013, from US$88 per every million traded globally to US$70 per every million. And, even if the trade-to-GDP ratio increased over the period, it remains below average for countries at a similar level of development and remoteness. Moreover, exporting appears to be a more risky undertaking than in comparator countries: Only 45 percent of firms that start exporting in a given year manage to keep exporting the year after. The riskiness is also evident when looking at the number of exporters in Uruguay, which is lower than in countries of comparable size and level of development.   

What can Uruguay learn from the world and what can the world learn from Uruguay?
Complementing the efforts that governments make to improve market access at the national level, through trade and investment treaties, governments also devote resources to help firms internationalize. They do this, for example, by subsidizing consulting services on management practices and on export business plans, by encouraging the circulation of information or ideas, or by co-financing participation in trade fairs and missions. The impact of some of these interventions in specific countries have been rigorously evaluated (see report for a brief review, and Cadot et al for a detailed analysis). Uruguay could learn from cases of success and failure to guide their export-promotion activities.

Moreover, Uruguay’s experience can also provide lessons for other countries. Consider one example: The experience of the private-public partnership through which Uruguay managed to make its bovines 100-percent traceable from birth to the meatpacker, and that helped producers secure the high-value EU market is certainly one of extreme importance for many non-EU, European countries that are struggling to comply with EU standards in this area.
 

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