Sector strategy to support competitive global and regional integration ING by Integration and Trade Sector

Inter-american Development Bank

Global and Regional Integration Strategy | Estrategia de Integraci贸n Regional y Global

Sector SectorStrategy StrategytotoSupport Support Competitive CompetitiveGlobal Global and andRegional RegionalIntegration Integration

Inter-american Development Bank Vice-presidency for Sectors and Knowledge Integration and Trade Sector

Banco Interamericano de Desarrollo Vicepresidencia de Sectores y Conocimiento Sector de Integraci贸n y Comercio

Estrategia Estrategia Sectorial Sectorial de de Apoyo Apoyo aa la la Integraci贸n Integraci贸n Competitiva Competitiva Regional Regional yy Global Global Banco Interamericano de Desarrollo estrategia cover.indd 1

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Box 1. Logistics Bottlenecks: Supply Chain Analysis of Tomatoes in Central America The importance of logistics costs can be illustrated by the example of tomato exports from Costa Rica to Nicaragua, as this product features an unusual sensitivity to time and damage related to efficient logistics movements. The analysis captures the cost structures involved in transporting a kilogram of tomatoes from the farm gate in Costa Rica to the final sale point in Nicaragua. Cost components are decomposed along the value chain. Results indicate that the biggest burdens for both small and large exporters are: (i) high domestic transportation costs and (ii) bottlenecks at the regionâ&#x20AC;&#x2122;s border crossings, mostly attributed to customs delays, which are particularly relevant in the trade of perishable goods. As shown in the figures below, the largest cost component as a percentage of the final price of a kilogram of tomatoes for the small exporter is transport (23 percent), followed by customs (11 percent), and duties (6 percent). Outside of trade and logistics costs, the farm gate price represents the largest cost component. Similarly, for the large exporter, the two most important trade and logistics costs remain customs (10 percent) and transport (6 percent), while duties represent a similar share at 5 percent. When comparing the small exporter to the large exporter, it is observed that the small exporter has the equivalent of a 27.5 cent extra cost per kilogram of tomatoes due to logistics inefficiencies.

Small Tomato Exporter

Large Tomato Exporter

1.4

Custom 11% Duties 6%

0.8

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Customs 10% Duties 5% Transport 6% Others 8% Farm gate 24%

Note: The cost decomposition does not add up to 100 percent because the graphs do not include retailer's operating and administrative costs and profits. Source: IDB, World Bank, ECLAC (2010)

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Box 2: Example of Sustainable Integration Corridors Creating corridors to promote intraregional trade, services and investment will be key to increasing competitiveness, productivity and jobs. These projects will (a) enhance connectivity across countries by reducing cross-border transactions and transportation costs; (b) increase competitiveness in regional and global markets through economies of scale offered by cross-border investments based on value-added production processes; (c) promote private sector activity by supporting joint financial, technological, production, distribution and other collaborations along the corridors; and (d) promote the provision of other regional public goods associated with these corridors to reduce poverty and support social development. The overarching objective is to transform classic â&#x20AC;&#x153;transportationâ&#x20AC;? corridors into effective â&#x20AC;&#x153;trade and investmentâ&#x20AC;? sustainable corridors, combining â&#x20AC;&#x153;software-typeâ&#x20AC;? interventions with â&#x20AC;&#x153;hardware-typeâ&#x20AC;? projects. The figure below shows an example of complementary national interventions in three countries, under a regional and global integration perspective. The graph also shows the strategic proposition of associating complementary Bank instruments, not only among participating countries, but between integration hardware and software interventions.

Country A

Investment Loans Guarantees Grants

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Country B

Investment Loans Guarantees Grants

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Country C Policy Based Loans Grants

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Investment Loans Guarantees Grants

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Non-Financial Products

Integration Hardware Roads Airports

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Strategic Initiatives Research Policy Dialogue Capacity Building Programming

Integration Software Trade/Investment Agreements Trade Facilitation/ Logistics

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Trade/Investment Promotion

Other regions have already begun to implement this concept of sustainable regional economic corridors. The TransEuropean Networks Program (TEN) in the European Union is a good example on how the EU shifted from a â&#x20AC;&#x153;patchwork to a networkâ&#x20AC;? in the words of former EU Commissioner Sir Neil Kinnock. The objectives of the TEN are to promote and improve the interoperability and interconnection of the transport, energy and telecommunications networks within the EU territory, eliminating bottlenecks (Schrlif, 2010). More recent similar efforts can be found in East and South East Asia, especially the Greater Mekong Subregion (ADB-ADBI, 2009).

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