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developing countries trade

Looping in local suppliers rather than forcing out international firms

Anabel Gonzalez's picture



An instructor at the Savar EPZ training center in Dhaka, Bangladesh, helps young women being trained to make shirts. Photo Credit: © Dominic Chavez/The World Bank


Increasing economic prosperity for developing countries is related not only to rising trade, but also – and more important – to transforming the traditional composition of what they produce and export. In the world today, many developing countries strive to diversify away from exporting commodities toward higher-value-added goods and services.

The evolution of trade and investment flows over the last three decades shows that foreign direct investment (FDI) can be a powerful driver of exports, a creator of well-paid new jobs and a crucial source of financing. More important, FDI may become a very rapid and effective engine to promote the transfer of technology, know-how and new business practices, helping to raise productivity and setting a country on the course of convergence. This is particularly the case of efficiency-seeking FDI – that is, FDI that locates productive processes in a country seeking to enhance its ability to better compete in international markets-.
 
The benefits of FDI are further leveraged when local firms can catalyze the presence of foreign investors to connect to global and regional value chains (GVCs). As a result of new international firms investing in a host country, great new opportunities arise for local enterprises to supply the inputs – be it goods or services – that their international counterparts need.

This has been the experience of Bangladesh, where local suppliers have grown in tandem with foreign investors in the garment sector. It is through linkages with international investors that local firms can gradually be lured into producing new goods and services that, until then, were not produced in the host country.  This is how economic diversification and greater value added are generated.

Multinational enterprises (MNEs) and their key partners (Tier 1 suppliers) are generally keen to source locally if a competitive local supplier can be found. However, they are also reluctant to absorb high search-and-find costs, and they will typically not invest in assisting local suppliers with upgrading efforts. Likewise, local firms are generally keen to supply to foreign firms, but are often not ready to make the necessary investments in technology and in processes to meet strict quality standards without a clear line of sight on potential payoff for such investment.

Growth and development: Why openness to trade is necessary but not sufficient

Selina Jackson's picture
When the Olympic Games comes to Rio in 2016, new medal-worthy sports will include kitesurfing, golf, and rugby sevens. If the Olympic Committee ever considers including our “sport” – the practice of public-private partnerships (PPPs) – the top medal would surely go to the home-grown Galeão International Airport PPP, which set the 2014 record as the largest PPP deal that closed globally. For this gateway to Rio – which is in the midst of preparing to accommodate more than 10,000 athletes and tens of thousands more visitors for the 2016 Olympics – even the concessions merit global rankings.
 
Image: Wikimedia Commons

Standing by for liftoff
The concession of Galeao International Airport (official name: Rio de Janeiro/Galeão–Antonio Carlos Jobim International Airport) got off the ground in the second round of airport concessions. The first round dates back to early 2012, when the government issued tenders for three major airports: Guarulhos (São Paulo), Viracopos (Campinas) and Brasília.  

In mid-2012, following the successful outcome of these three projects, the Brazilian National Development Bank (BNDES) approached IFC to assist with a second round of airport concessions, including Confins airport (Belo Horizonte) and Galeão (Rio de Janeiro).  IFC teamed up with the Estruturadora Brasileira de Projetos (EBP), a project preparation company owned by some of the biggest Brazilian commercial banks and BNDES. Together, IFC and EBP were responsible for the financial, technical/economic/engineering, and environmental studies. 

Which South Asia do you live in?

Prabha Chandran's picture




This blog is part of the series #OneSouthAsia exploring how South Asia can become a more integrated, thus more economically dynamic region. The blog series is a  lead up to the South Asia Economic Conclave, an event dedicated to deepen existing economic links through policy and investments in regional businesses.

Which South Asia do you live in? The one which offers world-class metros and malls, super-specialty hospitals, gourmet eateries and designer homes where servants make your meals, drive your car or clean your mess? 

Or do you live in the South Asia where sanitation, water and electricity are a luxury, where filth, ignorance and violence means death comes early and more frequently from illness, poverty and natural disasters? Statistically, the latter is more likely.

Having lived in Southeast Asia, where the emergence of the Tigers has transformed the lives of millions of poor through investment in human development, infrastructure and exports producing high growth rates, the visible poverty and chaotic streets of South Asia are troubling. So, too, is the contrast provided by India's dollar billionaires -- the third-largest rich man's club in the world.

Prospects Weekly: Flows into the bond and equity funds of developing countries rallied in the second half of this year

Global Macroeconomics Team's picture

The United States has recently signed separate Memorandums of Understanding (MoUs) with El Salvador and Honduras to assist them in securitizing their future remittance receipts to raise financing for infrastructure and development projects. Under the Building Remittance Investment for Development, Growth, and Entrepreneurship (BRIDGE) initiative, banks in these countries will leverage their future remittance receipts to raise lower-cost and longer-term financing in international capital markets to fund infrastructure, public works, and commercial development initiatives (see press release).

In a speech in New York City on September 22, Secretary of State Hillary Clinton explained how BRIDGE would work to raise critically needed development funding:

“…Now, if they [migrants] send these remittances through the formal financial system, they create huge funding flows that are orders of magnitude larger than any development assistance we can dream of. By harnessing the potential of remittances, BRIDGE will make it easier for communities in El Salvador and Honduras to get the financing they need to build roads and bridges, for example, to support entrepreneurs, to make loans, to bring more people into the financial system…..Through BRIDGE and its in-country partners, local banks will be able to leverage their remittance flows….With the leverage from remittances, the local banks will be able to get lower-cost, longer-term financing for investments in infrastructure projects and small businesses.”