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IDB study looks at export agency effectiveness

Latin American and Caribbean export agencies have succeeded in supporting the diversification and expansion of exports but could be more effective, a new study by the Inter-American Development Bank shows.

The study recommends that agencies better evaluate the impact of their actions, enabling them to adjust to client needs over time. “Systematic and periodic evaluations are required to maximize the impact of agencies on countries’ export potential”, stated Christian Volpe, author of the report.

Institutional architecture of export promotion is a key factor for its effectiveness, the study concluded. Export agencies of countries such as Chile, Mexico, Colombia and Costa Rica have representations overseas, while other countries such as Argentina, Peru and Uruguay need to rely on their embassies and consulates. The analysis reveals that opening an export promotion office abroad translates into an increase in exports that is 5.5 times larger than enlisting a new embassy or consulate tasked with the same duty, according to the 250-page book “Odyssey in International Markets.”

On average, offices of export agencies have generated additional exports in 47 sectors in the region. In contrast, diplomatic missions have generated increased exports in only 12 sectors. This is especially true for value added products, such as shoes or specialized machinery.

For Mexico, calculations show that opening a new PROMEXICO office could increase exports by an average of eight of these products per sector and destination country.

“This does not mean countries should blanket the globe with offices of export promotion agencies,” said Volpe. “Policymakers need to carefully evaluate what is right for them as there are instances where a diplomatic mission can perform as well as an office of an export agency. On occasion it is better to strengthen the trade competencies of a diplomatic mission. Other measures include better coordination between diplomatic missions and the export promotion agency at home, capacity building or bringing potential buyers to your own country.”

International trade is widely recognized as a vital engine for development. Over the past two decades, competition has become fierce with rising trade giants in Asia. Export promotion agencies have become key agents to help companies make the leap overseas, by helping overcome the lack of knowledge of foreign markets, regulations and practices. “Agencies are like GPS that provide companies with guidance in the odyssey through unknown routes that implies venturing in international markets”, stated Volpe.

Export promotion has worked well for Latin America and the Caribbean by having helped firms diversify their exports, particularly in manufacturing.

The study assesses the effectiveness of export promotion activities over the 2000–2007 period for Peru, Costa Rica, Uruguay, Chile, Argentina, and Colombia. A calculation for Peru, for example, shows that the rate of growth of exports was 17 percent higher for firms assisted by PROMPEX/PROMPERU. The growth rates of number of countries and number of products were 7.8 percent and 9.9 percent higher, respectively.

In fact, export agencies help diversify exports by promoting a greater variety of products exported to a greater number of countries, rather than simply generating a greater volume of exports for the same product or importer country. Thus, in Costa Rica, firms selling abroad more sophisticated products that were assisted by PROCOMER had growth rates of exports and number of destinations 15.3 percent and 8.5 percent higher, respectively.

The effect of export promotion measures is larger in small and medium sized companies, and those with little exposure to international markets. In Argentina, small firms that received support for the first time enjoyed export growth rates of 13.9% in the 2002–2006 period, and mid-sized companies enjoyed 28.7% growth. In terms of destination markets, the increase was of 18.5% and 26.4% respectively. This shows the potential for a country such as Mexico, which has around 30,000 micro and small exporters, who on average ship to 1.2 and 2.2 countries primarily in this hemisphere, respectively, for a joint total value of more than 5 billion US dollars.

The study shows also that export promotion agencies are far more effective when supporting the whole export process, from providing information and training and bringing entrepreneurs on missions or fairs to setting up business meetings with potential buyers. For example, Colombian firms using bundled services from PROEXPORT outperformed in growth rates of exports and number of countries by 17.7 percent and 11.7 percent their peers that only received one service.

“The design of trade promotion programs is a key determinant of their effectiveness. Findings in the book provide agencies with general recommendations that may help them improve their instruments and programs and thus their relevance for the export development of countries in the region”, concluded Volpe.

“Odyssey in International Markets” is a publication by the Integration and Trade Sector within the Vice Presidency of Knowledge and Sectors.

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