Creating a Competitive Rwanda

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Creating a Competitive Rwanda Creating a Competitive Rwanda Professor Michael E. Porter Harvard Business School Kigali, Rwanda June 2007 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 Kenya CAON 2007 June-07.ppt 1 Copyright 2007 © Professor Michael E. Porter The Changing Nature of International Competition • Fewer barriers to trade and investment Drivers • Rapidly increasing stock and diffusion of knowledge • Competitiveness upgrading in many countries • Globalization of markets • Globalization of capital investment Market • Globalization of value chains reaction • Increasing knowledge and skill intensity of competition • Value migrating to the service component of the value chain • Improving competitiveness is increasingly essential to Rwanda’s prosperity Kenya CAON 2007 June-07.ppt 2 Copyright 2007 © Professor Michael E. Porter Prosperity Performance Selected Countries Real PPP-adjusted GDP per Capita, 2006 $16,000 Botswana $14,000 South Africa $12,000 $10,000 $8,000 Gabon Namibia Swaziland Cape Verde $6,000 Angola $4,000 Cameroon Mauritius (6.2%) Lesotho Zimbabwe Guinea Ghana Chad (-6.3%) Cote D’Ivoire Madagascar $2,000 Kenya Rwanda Tanzania Togo Burundi Nigeria Mozambique Eritrea Uganda, Zambia Ethiopia $0 Malawi -4% -3% -2% -1% 0% 1% 2% 3% 4% 5% 6% Growth of Real GDP per Capita (PPP-adjusted), CAGR, 1998-2006 Source: EIU (2007) Kenya CAON 2007 June-07.ppt 3 Copyright 2007 © Professor Michael E. Porter Comparative Economic Performance Real GDP Growth Rates Countries sorted by 2001- 2006 annual real GDP Annual growth rate of real GDP growth rate (CAGR) ANGOLA 20% MOZAMBIQUE TANZANIA NIGERIA ETHIOPIA 15% UGANDA BURKINA FASO GHANA CAPE VERDE 10% MALAWI BOTSWANA NAMIBIA RWANDA 5% CONGO (BRAZZAVILLE) ZAMBIA SOUTH AFRICA SENEGAL 0% SAO TOME AND PRINCIPE KENYA BENIN THE GAMBIA -5% CAMEROON MAURITIUS GUINEA BURUNDI LESOTHO -10% TOGO SWAZILAND MADAGASCAR ERITREA -15% GABON 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 COTE D'IVOIRE ZIMBABWE Source: EIU (2007) Kenya CAON 2007 June-07.ppt 4 Copyright 2007 © Professor Michael E. Porter 70 Gini Index 60 50 40 30 Income Inequality Selected Countries 20 10 0 Haiti Note: Most recent Gini index data available for each country (1999 – 2003). Rwanda’s data is from 2000. Source: World Bank, WorldBrazi Developmentl Indicators, 2007. Kenya CAON 2007 June-07.ppt South Africa Chile Argentina Mexico Madagascar China Cote d'Ivoire Cameroon Nigeria Uganda Zambia 5 Burkina Faso Ghana Mauritania Benin Tanzania Indonesia Ethiopia Rwanda Copyright 2007 © Professor Michael E. Porter The Rwandan Economy in 2007 • Economic growth rates have rebounded strongly since 2003 • Many areas of the Rwandan business environment have improved (e.g., communications and IT, education) • Established clusters (coffee, tea, tourism) have performed well However • The global economic environment has been favorable • Rwanda’s growth rates are still moderate relative to peers • Numerous areas of the business environment need further improvement • Strengthening the private sector and increasing public-private collaboration is essential to achieving the next level of progress • Rwanda must dramatically improve its competitiveness Kenya CAON 2007 June-07.ppt 6 Copyright 2007 © Professor Michael E. Porter What is Competitiveness? • Competitiveness is determined by the productivity (value per unit of input) with which a nation uses its human, capital, and natural resources. – Productivity sets a the standard of living (wages, returns on capital, returns on natural resources) that a nation can sustain – Productivity depends on the prices that a nation’s products and services command (e.g. uniqueness, quality), not just on efficiency – It is not what industries a nation competes in that matters for prosperity, but how it competes in those industries – Productivity requires a combination of domestic and foreign firms operating in the nation – The productivity of “local” or domestic industries is fundamental to competitiveness, not just that of traded industries – Devaluation does not make a country more competitive • Only business can create wealth • Nations compete in offering the most productive environment for business • The public and private sectors play different but interrelated roles in creating a productive economy 20070511 AMP – Final 20070508 7 Copyright © 2007 Professor Michael E. Porter Enablers and Indicators of Competitiveness Productivity Inbound Outbound Domestic Domestic Exports Foreign Direct Foreign Direct Investment Innovation Investment Investment Competitiveness Environment Kenya CAON 2007 June-07.ppt 8 Copyright 2007 © Professor Michael E. Porter Foreign Inward Investment Stocks and Flows Selected Countries FDI Stocks as % of GDP, Average 2002 - 2005 70% Gambia Angola (94%, 80%) Tunisia 60% Namibia Zambia 50% Eritrea Tanzania Lesotho Nigeria Swaziland 40% Morocco Mozambique Australia Canada 30% Zimbabwe South Africa Egypt Ethiopia Brazil Malawi Ghana Sudan 20% Russia Uganda Congo Uganda Rwanda China Mali Senegal Botswana Mauritius Madagascar 10% Cameroon Algeria Kenya India Niger 0% Libya 0% 5% 10% 15% 20% 25% 30% 35% 40% FDI Inflows as % of Gross Fixed Capital Formation, Average 2002 - 2005 Source: UNCTAD (2007) Kenya CAON 2007 June-07.ppt 9 Copyright 2007 © Professor Michael E. Porter DirectInward Investment, Foreign $M $9.0 $8.0 Inward Foreign Investment Flows $7.0 $6.0 $5.0 Rwanda, 1990 – 2005 $4.0 $3.0 $2.0 $1.0 $0.0 Note: Data not available for 1994. Source: UNCTAD (2007) Kenya CAON 2007 June-07.ppt 1990 1991 1992 1993 1994 1995 1996 1997 1998 10 1999 2000 2001 2002 2003 2004 2005 Copyright 2007 © Professor Michael E. Porter Investment Rates Selected Countries Gross Fixed Investment as % of GDP Sorted by 2006 Share 45 China Senegal 40 Ghana India 35 Zambia Namibia Nigeria 30 Madagascar The Gambia 25 Uganda Mozambique 20 Ethiopia Rwanda Kenya 15 Tanzania Botswana 10 South Africa Russia 5 Cameroon Brazil Zimbabwe 0 Burundi 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Malawi Source: EIU, 2007. Kenya CAON 2007 June-07.ppt 11 Copyright 2007 © Professor Michael E. Porter Determinants of Competitiveness Macroeconomic,Macroeconomic, Political,Political, Legal,Legal, andand SocialSocial ContextContext MicroeconomicMicroeconomic CompetitivenessCompetitiveness Sophistication Quality of the of Company Business Operations and Environment Strategy State of Cluster Development • A sound context creates the potential for competitiveness, but is not sufficient • Competitiveness ultimately depends on improving the microeconomic capability of the economy and the sophistication of local competition Kenya CAON 2007 June-07.ppt 12 Copyright 2007 © Professor Michael E. Porter Index of Economic Freedom 1996 - 2007 Free Mauritius Botswana South Africa Namibia Uganda Madagascar Brazil Kenya Senegal Ghana Zambia Mozambique Tanzania India Malawi Ethiopia Cameroon Lesotho China Russia Mali Niger Mauritania Egypt Nigeria Algeria Rwanda Chad 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Zimbabwe Libya Source: Index of Economic Freedom (2007), author’s analysis. Kenya CAON 2007 June-07.ppt 13 Copyright 2007 © Professor Michael E. Porter Improving the Business Environment: The Diamond ContextContext forfor FirmFirm StrategyStrategy andand RivalryRivalry z A local context and rules that encourage investment and productivity Factor –e.g., Intellectual property Factor Demand (Input) protection Demand (Input) Conditions Conditions z Meritocratic incentive systems in Conditions Conditions businesses and other institutions z Open and vigorous local z Presence of high quality, competition z Local demand with improving specialized inputs available –e.g., Anti-monopoly laws, sophistication to firms openness to imports z Local customer needs that –Human resources anticipate those elsewhere –Capital resources z Unusual local demand in –Physical infrastructure RelatedRelated andand specialized segments that can be –Administrative infrastructure SupportingSupporting served nationally and globally –Information infrastructure IndustriesIndustries –Scientific and technological infrastructure z Access to capable, locally based suppliers –Natural resource availability and firms in related fields • Successful economic development is a process of successive upgrading, in which the business environment improves to enable increasingly sophisticated ways of competing Kenya CAON 2007 June-07.ppt 14 Copyright 2007 © Professor Michael E. Porter Ease of Doing Business Rwanda Ranking, 2006 (of 175 countries) Favorable Unfavorable 180 Rwanda’s GNI per capita rank: 168 160 Median Ranking, Sub-Saharan Africa 140 120 100 80 60 40 20 0 Doing Starting a Enforcing Paying Employing Dealing Registering Closing a Obtaining Protecting Trading Business Business Contracts Taxes Workers with Property
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