adminDr Gift Mugano
The business environment for exports in India has undergone a radical change since the first economic liberalisation reforms were introduced in 1991.
Be it the policy framework, the procedural obligations or the marketing methods, the entire structure is becoming more and more transparent and flexible. Several steps have been taken by the Government to promote foreign direct investment, create growth centres, and stimulate exports.
The Foreign Trade Policy for 2005-2006, designed by the Ministry of Commerce and Industry, highlights that coherence and consistency among trade and other economic policies is important for maximising the contribution of such policies to development.
The Foreign Trade Policy is built around two major objectives:
To double India’s percentage share of global merchandise trade by 2009; and
To act as an effective instrument of economic growth by giving a thrust to employment generation.
These objectives are proposed to be achieved by adopting, among others, the following strategies:
Removing controls and creating an atmosphere of trust and transparency;
Simplifying procedures and bringing down transaction costs;
Neutralising incidence of all levies and duties on inputs used in export products
Identifying and nurturing different special SMEs focus areas (agriculture, hand looms, handicraft, gems and jewellery and leather, footwear).
The Indian Government, through the Ministry of Industry and Commerce, availed financial schemes under the banner of market access initiative (MAI) and market development assistance (MDA). MAI scheme uses a ‘focus product — focus country’ approach, developing specific strategies for specific markets and products through market studies/surveys. And, MDA scheme supports export promotion activities abroad.
Support under these schemes financial incentives is provided to exporters on a decreasing basis, normally via the Export Promotion Councils. Business plans are required only for certain activities. For both schemes, the level of assistance depends also on the export country and product.
In addition to financial schemes, India built strong institutions which were critical in supporting generation of exports. In this endeavour, the Indian Government established several semi — public which are charged with the exported — related services such as:
India Trade Promotion Organisation (ITPO): a public sector undertaking, the premier trade promotion agency of India;
Indian Institute of Foreign Trade: engaged in training of personnel, market and marketing research, area surveys, commodity surveys, market surveys and dissemination of information;
Export Promotion Councils (EPCs): the 20 Export Promotion Councils are organised on a sector basis and perform both advisory and executive functions. They are also the registering authorities under the Export Import Policy. One of their main tasks is to organise missions abroad. However, the results of such visits often do not meet the expectations of members, who hesitate in joining the business delegations of EPC’s. Their functions have been recently reviewed;
Federation of Indian Export Associations: the FIEO is an apex body of various export promotion organisations and institutions. It acts as a central co-ordinating agency for export consultancy services;
Two advisory bodies, The Board of Trade and the Export Promotion Board, on which the various concerned ministries are represented, advise the Ministry of Commerce on policy measures.
The Government consults regularly with the private sector when drafting trade policies. The latest Foreign Trade Policy (2005-2006) called for the revitalisation of the Board of Trade and an enhanced role for the Indian embassies in the export strategy. The partnership with the private sector is to be enhanced.
Moreso, the Indian Government also established SME consortia and export consortium. Indian SMEs had difficulties in exporting to foreign markets due to a number of factors which inter alia include lack of necessary knowledge and financing, lack of capacity to meet foreign regulatory requirements, or may produce products in quantities or quality that are not adequate for foreign buyers, among many other potential problems. However, these problems were overcome through cooperation among SMEs. By combining their knowledge, financial resources and contacts within an export consortium with the support of the banks, SMEs significantly improve their export potential and reduce the costs and risks involved in penetrating foreign markets.
An export consortium is a voluntary alliance of firms with the objective of promoting the export of goods and services of its members through joint actions. An export consortium is a formal organisation to promote medium- to long-term strategic cooperation among firms, and it organises joint activities to facilitate access to foreign markets. Most consortia are non-profit entities, and members retain their financial, legal, managerial, and commercial autonomy. So, despite their participation in the export consortia, member firms do not give up any control over their business to others. This is the main difference between consortia and other types of strategic alliances.
By cooperating with other firms within an export consortium, SMEs can effectively penetrate and increase their share of foreign markets, at reduced cost and risk. At the same time, members can improve their profitability, achieve productivity gains and accumulate knowledge through various types of joint action that are not directly related to export marketing, such as joint management training programmes, joint certifications, improve shop floor procedures, and the like.
These initiatives resulted in an impressive growth in 2002-03, export growth continued to maintain momentum during the year 2004-05. During April-October 2004, there was a significant increase in the exports of processed food, meat and meat products, ores and minerals, leather and manufactures, gems and jewellery, chemicals and allied products, engineering goods, electronic goods, project goods, textiles, carpets, raw cotton and petroleum products. Exports of commodities like floriculture products, sports goods, handicrafts and silk carpets declined during this period.
Interestingly, exports by SMEs grew tremendously during 1990-2000 period. While SMEs production at constant prices went up went up by less than 8% between 2001-02 and 2002-03, exports rose by 20.7%. In 2000-2001, direct exports from the SMEs sector accounted for 35% of the country’s total direct exports. Besides direct exports, it is estimated that SMEs contribute around 15% to exports indirectly. This is taking place through merchant exporters, trading houses and export houses, or in the form of export orders from large units or the production of parts and components for finished exportable goods. The product groups where the SMEs sector dominates in exports are sports goods, readymade garments, woollen garments and knitwear, plastic products, processed food and leather products.
Zimbabwe in recent years has witnessed astronomical increase in trade deficits which in itself under the dollarized economy has been the major driver of the liquidity crunch which among other things has led to depressed demand and poor industrial viability. Basing on the Indian experience quick take away for Zimbabwe includes:
· In order to stimulate exports, strong and specialised export promotion institutions must be established. For Zimbabwe, this is a critical requirement since we only rely on ZimTrade which is again not well capacitated to deliver its mandate;
· In every endeavour in promoting exports, Government and private sector must agree on policy framework;
· Establishment of SMEs consortia and export consortia are a necessary requirement in building critical mass in both production and exports. This is again a critical requirement for Zimbabwe particularly now since the economy is much more informal than before and SMEs are now a dominant feature. Creating industrial clusters will help the country to formalise the informal sectors which will both help Government collect revenue while at the same time help our industry compete with the global players; and
· In order to generate exports, there is need to create an enabling business environment by improving the easy of doing business, designing policy and legal framework which is in line with global developments. This is again an important lesson from India. Zimbabwe economy is suffering from multiple factors such as rigid labour laws, high cost of utilities (electricity and water), unnecessary legal requirements which inhibit business which were put in place by the Smith regime such as company registration requirements, multiple tax regimes and unproductive levies from regulatory authorities. Most of these cost drivers can be addressed by pen and paper!
In conclusion, we need to come to the table as a nation and build consensus through dialogue or tripartite negotiation forum (which is supported with evidence) and agree on policy areas which need to be addressed and come up with an implementation matrix.
- Dr Mugano is an Economic Advisor, Author and Expert in Trade and Competitiveness. He is a Research Associate of Nelson Mandela Metropolitan University. Feedback: +263 772 541 209 or [email protected]
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