Download The Impact of Export Promotion Strategies Trade

The Impact of Export Promotion strategies trade sector on in Economy of
Myanmar
Chapter
I.
Introduction
II.
Literature Review
III.
Changes in Trade Policy and export promotion strategies
IV.
Analysis on Export Structure changes
V
Conclusion
The Impact of Export Promotion strategies on Trade Sector in
Economy of Myanmar
Ms Kyi Kyi Hlaing (Myanmar)
Abstract
Trade was regarded as an engine of growth .In early postwar years the trade policy in
developing countries focused on inward looking policy to emerge the industrialized country
in line with their macroeconomic policy. In the late 1980s, however, the world economy had
trade to benefit the economic growth of the nation. There is a two-way link between trade
witnessed for phases of changes along with the globalization process. Most of the developing
countries opened up their economies and liberalized in trade. Their trade policy shifted from
(inward-oriented) import substitution industrialization to export promotion policy (outward
oriented). Once, Myanmar practiced the import substitution industrialization policy during
central planned economy . In line with the changes of world economy, Myanmar also
initiated the series of economic reform in various sectors in general and particular in trade
sector. Since Myanmar has adopted market oriented economic policy in 1988, the
government liberalized in trade sector and adopted the export promotion policy to develop as
an industrialized country and encouraged the private participation in international trade to
promote the export expansion. In additions, the trade sector had emphasized to implement the
export promotion strategies rather than the policy of import substitution.
As a result, Myanmar got in a favor of balance of trade since 2004-05. The total value
of export grew significantly in term of value and volume. Total value of export increased
from US$ 5071.28 million in 2000-01 to US$ 7930 million in 2006-07. The share of private
sector estimated about 54 percent and the rest of the share is for the State.
Keywords: Export promotion strategy, Trade policy,
2
The Impact of Export Promotion strategies on Trade Sector in
Myanmar
Ms Kyi Kyi Hlaing (Myanmar)
Background
Due to the First World War and the Great Depression, world commodity market
collapsed and almost countries faced macroeconomic imbalance and contentious deficits in
balance of trade. For that reason, the government of every country attempted to interfere in
international trade due to the market failure. When the markets do not function perfectly like
inefficient allocation of resource, government should use the trade restriction to offset the
impact of already existing distortions. Most of the developing countries opened up their
economies and liberalized in trade and Their trade policy shifted from (inward-oriented)
import substitution industrialization to export promotion policy (outward oriented).The
choice between these two strategies is based on both the nature of international economic
environment and the particular characteristics of individual economies.
Export promotion strategy is defined as a development strategy that promotes
industrialization and economic growth through encouraging exports. Economists tend to
defined export promotion as providing similar incentives for firms to produce for domestic
and foreign markets. Often identified with outward-oriented strategy, it sought to link the
domestic economy to the world economy in order to foster industrialization. In theory, this
strategy encourages free trade including free movement of factor of production and foreign
direct to the investment and free flow of information.
Export-oriented industrialization or export promotion strategy also has advantages
and disadvantages. 1 Advantages include the following: (1) it overcomes the smallness of the
domestic market and allows a developing nation to take advantage of economies of scale.
1
Dominick Salvatore, International Economics 8th Edition, John Wiley & Sons, INC
3
(2) Production of manufactured goods for export requires and stimulates efficiency
throughout the economy.
On the other hand, these are two serious disadvantages2: (1) it may very difficult for
the developing nations to set up export industries because of the competition from the more
establish and more efficient industries in developed nations. (2) Developed nations often
provide a high level of established and efficient industries in developed nations. (3)
Developed nations also provide a high level of effective protection for their industries
producing single labor-intensive commodities in which developing nations already have or
can soon acquire a comparative advantage.
This study is categorized into five chapters which consists of introduction, literature
review, review on Myanmar trade policy, Existing Export promotion measures and attempts
and conclusion. First of all, the study presents the rationale for the study and its objective,
scope and method relating to the topic in first chapter. Then it studies and analyses on the
literature review of international trade and patterns of trade based on various issues in second
chapter. After that, it is briefly reviewed on Myanmar international trade performance and
patterns of trade according to the changes in trade policies and strategies after adopting
market oriented economy since 1988 and it reveals the changes in structures and patterns of
Myanmar trade in chapter 3. The fourth chapter discusses the country's existing export
promotion measures and attempts, and the trade facilitating measures implemented by Trade
Council (TC) and analyses on the changes in export patterns. The last chapter is the
conclusion of the study and in this chapter, the paper will expose the weakness to compete in
international market and the put forward the suggestions how to promote Myanmar export in
international market, overcome trade barriers, encourage trading sector, attract Foreign Direct
Investment (FDI) in trading sector, and implement new measures and strategy to increase the
trade volume of country.
2
Dominick Salvatore, International Economics 8th Edition, John Wiley & Sons, INC
4
Literature Review
Trade was regarded as an engine of growth .In early postwar years the trade policy
in developing countries focused on inward looking policy to emerge the industrialized
country in line with their macroeconomic policy. In the late 1980s, however, the world
economy had trade to benefit the economic growth of the nation. Most of the developing
countries opened up their economies and liberalized in trade. Their trade policy shifted from
(inward-oriented) import substitution industrialization to export promotion policy (outward
oriented). Once, Myanmar practiced the import substitution industrialization policy during
central planned economy . In line with the changes of world economy, Myanmar also
initiated the series of economic reform in various sectors in general and particular in trade
sector. Since Myanmar has adopted market oriented economic policy in 1988, the
government liberalized in trade sector and adopted the export promotion policy to develop as
an industrialized country and encouraged the private participation in international trade to
promote the export expansion. In additions, the trade sector had emphasized to implement the
export promotion strategies rather than the policy of import substitution.
In Myanmar, Ministry of Commerce (MOC) formed Export-Promotion Information
Centre (EPIC) in 1st March of 2005, that essentially concerned with the promotion of export
activities such as broad education on export promotion, arrangement of export promotion
workshop, issues of trade news through mass media; providing services for export promotion
etc. As far as trade policy for a 30-year long-term plan period is concerned, the government
has set out the objectives3 as follows:
1. To increase the trade volume of the country in terms of Export first Import second –
to raise export promotion first and control the imports when it comes to
implementation of trade policies for development of the country.
2. To reach a balance of trade effective from the first five years of third short-term plan
period and to enjoy a trade surplus in the fourth short-term plan period.
3
Ministry of Commerce
5
3. To reduce the ratio of the State's involvement and increase the participation of private
sectors in dealing with international trade
4. To cooperate with other foreign countries in addition to neighboring and ASEAN
member countries for the self-interest of the country
5. To promote not only normal trade but also border trade for the development of trade
6. To increase the volume of export to earn more foreign exchange
7. To raise the productivity by utilizing modern manufacturing machinery
Rapid growth of foreign trade under market oriented system is mainly due to active
private participation of the state and private sector just like a competitive pattern. The
ministry of commerce gives continuous effort for the export promotion measures by the
coordination and cooperation of concerned ministries.
During the market oriented economic system, Myanmar enjoy consecutive trade
surplus significantly since 2002-03. Prior to 2001-02, Myanmar was facing the deficit in
international trade consecutively due to the “import first export later” measures. To reduce
the persistent trade deficit, “export first import later” measure was replaced and Trade council
established to control the import. Moreover, the Ministry of Commerce (MOC) continuously
attempts to promote the export by the coordination and cooperation of concerned ministries.
Therefore, trade deficit gradually decreased. By figure Myanmar has gained trade surplus of
$954 million in 2004-05 financial year, U$1575 million in 2005-06 financial year and $2087
million in 2006-07 year which was the highest record of trade surplus throughout the period
since market oriented economy has been adopted.
6000
5000
4000
3000
2000
6
1000
Export
Import
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
2000-01
1999-00
1998-99
1997-98
1996-97
1995-96
1994-95
1993-94
1992-93
1991-92
1990-91
0
1989-90
US$ million
Changes in value of export & import (1988-2007)
Year
Hence the trade volume of the country has risen about 21 times from US$ 391 million
in 1988-89 to US$8169.41 million in 2006-07 under the export promotion strategy. Thus,
Myanmar got in a favorable situation in 2006-07. In fact, massive export of natural gas
caused the positive effects on terms of trade and balance of trade of Myanmar international
trade. Myanmar enjoyed trade surplus of US$ 2295. 95 million in 2006-07 which is up from
$1573.37 million in 2005-06 financial year and it was the highest record of the trade surplus
throughout the period since market oriented economy has been adopted.
Ministry of Commerce (MOC) is making efforts to promote export by setting up the
objectives:
-
to export all exportable surpluses and diversify foreign markets by using natural and
human resources
-
to increase and diversify exports and improve the quality of products.
By comparing the export structure , the share of natural gas in total export value was
44.5% in 2006-07. The second was beans and pulses which caused dramatic increase in
agricultural export. Apparently the structure of Myanmar export was dominated by natural
resource products rather than the primary products such as agriculture products. Due to huge
export of natural gas, the economic growth of Myanmar significantly increased.
Major export commodities (2006-07)
No
1
2
3
4
5
6
7
8
9
10
Commodity
Value (million in US$)
Natural gas
2039.1
Beans and Pulses
608.6
Timber in log
460.7
Jade
355.6
Garment
279.1
Fishery
116.0
Minerals and Ores
111.9
Shrimp
105.8
Timber
50.7
Gems and Jewellary
30.3
- Source: Source: Ministry of Commerce, Myanmar
US$ in million
Percentage
44.5%
13.3%
10.0%
7.8%
6.1%
2.5%
2.4%
2.3%
1.1%
0.7%
7
Moreover, MOC encouraged the private participation in foreign trade as well as in
border trade by eliminating some trade restrictions. Border Trade is most important for
Myanmar. Border Trade Department of Trade Ministry was officially founded in 28 August,
1996 as first priority institution. Under this institution, trade offices are opened. Border Trade
with China, India, Thailand, and Bangladesh are officially signed with respective countries.
India and Bangladesh are becoming more and more important for Myanmar’s border exports
and China is increasingly important for Myanmar’s border imports.
Top 10 exports through normal and border trade (2005-06)
Normal Trade
No Commodities
1
2
3
4
5
6
7
8
9
10
Natural gas
Garment
Teak Log
Jade
Hard Wood Log
Metal & Ore
Shrimp
Fish
Green Gram
US$
million
1079.59
272.55
240.29
205.47
169.73
102.4
99.4
87.83
76.3
Border trade
in Commodities
Fisheries
Green Gram
Crab
Shrimp
Other Marine Products
Cashew nut
Eel
Beans and Pulses
Isinglass
Fish Powder
US$
million
130.55
29.91
21.85
17.68
14.88
11.43
11.17
10.48
8.56
7.07
in
Source: Ministry of Commerce
The potential for the development of Myanmar’s export in border trade may be
examined by using the “Export Intensity Index”. This indices measure the extent to which a
partner country’s share in a country’s exports (imports) is larger or smaller in relation to the
former country’s share in world trade. It is defined as:
Export Intensity Index
x ij =
X ij X i
M j M w  Mi
x ij = Export intensity index of trade of country i with j
X ij = Total export of country i to country j
X i = Total export of country i
8
M j = Total import of country j,
M w = Total world imports, and
M i = Total imports of country i
If export intensity index is more (or less) than 1.0, it means that Myanmar is exporting
more (or less) to a particular country than might be expected from the country’s share in
world trade. Likewise, the intensity of Myanmar’s import index indicates the extent to which
Myanmar imports more (or less) from a particular country in border trade than might be
expected from that country’s share in total world trade.
Problem Statement
Competitiveness issue is one of the challenges faced by exporters in Myanmar in
order to facilitate trade. The critical one that we are facing is supply side constraints problem.
Most of the exporters are entirely depend only upon a few exportable products. Although
efforts are being made to identify new products and trying to get market access, it could not
be appeared due to the following weaknesses :- Limited capacity to produce for export
- Lack of exports diversification into high value-added,
processed and manufactured products
- Stringent quality and standard requirements
- Production of export products not matched by market demand
- Inadequate foreign market information
- Lack of skilled manpower and institutional capacities
- Lack of technological capacity and technical know-how
- Lack of financial and marketing capability
Research Questions
1) How much extent the export volume could be promoted by changing export
strategy ?
9
2)
Are there development of private involvement in Myanmar’s export share?
Objective of Study
The paper mainly aims to study the changes in export structure by adopting the export
promotion strategy and its impacts on Myanmar economy after Myanmar launched economic
reforms in line with market oriented economic system. The paper will reveal the prospect of
development of trade in general and particular in the changes of export volume and structure
in line with Myanmar Export Promotion Strategy.
Conceptual Framework
Reduce state
involvement
Changes
of export
strategies
Export
promotion
Increase private
involvement
Cooperation
with other
countries
Surplus
balance of
trade
Normal
trade
Border trade
Export
volume
Exporters
increase and
diversify exports
Increase
export quality
10
Scope and Limitation of study
The study focus on the changes in export patterns of Myanmar experienced after
initiating the economic reform in line with the changes of trade policies period after 1988.
Methodology
The study of this paper is also based on the descriptive methods using secondary data
obtained by trade bodies such as the Ministry of Commerce, Trade Council (TC) ,the Union
of Myanmar Federation of Chambers of Commerce and Industries (UMFCCI), World Trade
Organization (WTO), ASEAN, Customs Department and other international trade
organizations.
Expected outcome and dissemination
The study is expected to identify what are the constraints to increase exports of
Myanmar . The research findings will be disseminated in workshops, particularly the Mekong
Institute Round Table Meeting, government officials and other relevant stakeholders
interested in Trade sector. In addition, the report will be published as a research working
paper of the Mekong Institute (MI). It is also intended to publish in review of development
and cooperation of MI.
11
References:
1.
ASEAN: Statistical Year book 2008
2.
CSO: Statistical Year book 2007 (Yangon: Central Statistical Organization) .
3.
Cho Cho Thein,(2004) Trade and Economic Development of Myanmar Ph.D
Thesis submitted to Centre for Economic Study and Planning of Jawaharlal Nehru
University, New Delhi, India
4.
UMFCCI, Export Promotion and Diversification in Myanmar, Yangon, ESRI 2,
2005,
5.
Ministry of Commerce : “ Trade Relations between Myanmar and other countries”
(Ministry of Commerce: Department of Trade, February.2005)
6.
Mya Than ., Myanmar’s External Trade: An overview in the Southeast Asian
Context ( Singapore: ISEAS, 1992 )
7.
Mya Than & Tan , Joseph L. H., (eds)
Myanmar Dilemmas and Options :
The Challenge of Economic Transition in the 1990s (Singapore, ISEAS,1990,)
8.
Mya Than “ASEAN, Indo-China and Myanmar Towards Economic Cooperation” ASEAN economic Bulletin, vol. 8, no.2. November, 1991.
9.
-----------, “Myanmar’s Cross-Border Economic Relations and Cooperation with
the People’s Republic of China and Thailand in the Greater Mekong Subregion”
10.
MYANMAR: Facts and Figures, 2000&2002 (Yangon: Ministry of
Information)
11.
Myat Thein, 2004, Economic Development of Myanmar, ISEAS.
12.
--------------, 2001, Trade and Industrial Policy, Mimeographed, Yangon.
13.
Website- : http:// www. commerce.gov.mm/
14.
Todaro Michael, P & Stephen C. 2003, Smith, Economic Development,
15.
Pearson Educational Limited.
The Myanmar Times, Weekly Business Journal (Myanmar and English
12
13
TIMETABLE
Jun-10
No.
Activities
1
Advocacy
2
Data collection
3
Data entry and cleaning
4
Mid-term review
5
6
Data analysis
Report writing - First
draft
7
Report finalization
Jul-10
W1
W2
W3
W4
W1
W2
X
X
X
X
X
X
X
X
X
X
Aug-10
Sep-10
W3
W4
W1
W2
W3
W4
W1
W2
X
X
X
X
X
X
X
X
X
X
X
X
W3
X
Oct-10
W4
Nov-10
Dec-10
W1
W2
W3
W4
W1
W2
W3
W4
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Jan-10
W1
W2
W3
W4
W1
W2
W
X
X
X
X
X
X
X
X
X
X
X
ESTIMATED BUDGET
No.
Description
Contribution of Fund
Remarks
Myanmar
1
Total
MI
Recepient
Direct Costs
1.1
Advocacy
200.00
200.00
1.2
Local Transportation
500.00
500.00
bus, train, taxi, airfare
1.3
Accommodations/Food
500.00
500.00
during data collection for
three months
1.4
Books and literature purchase
100.00
100.00
1.5
100.00
100.0 0
1.6
Software purchase/rent
Field activities expenses (tea/ snacks,
others)
200.00
200.00
1.7
Team leader/members allowances
300.00
300.00
2000.00
2000.00
Sub-total
during data collection
not more than 10% of the
total fund
-
2
Support Services
2.1
Printing/Copying
200.00
200.00
2.2
Tel, fax, internet,Mail
500.00
500.00
2.3
Computer accessories
200.0
200.00
2.4
Stationary/purchase
100.00
100.00
1000.00
1000.00
for report and other
documents
Notebook, folders, pencils
Sub-total
Dissemination
-
3.1
National workshop
-
3.2
Publication on local language
-
3
Sub-total
4
-
-
Recipient Contribution
for ten months
4.1
Computer uses
100.0
100.00
4.2
Office room uses
300.0
300.00
4.3
Contribution on cash
4.4
Others (please specify)
400.0
400.00
3400.0
3400.00
for ten months
Sub-total
Grand Total US$
16