1 Copyright 2009 © Professor Michael E. Porter20090408 – CAON Nigeria.ppt
Professor Michael E. PorterHarvard Business School
Presentation to Federal MinistersLagos, Nigeria July 23, 2009
This presentation draws on ideas from Professor Porter’s books and articles, in particular, Competitive Strategy (The Free Press, 1980); CompetitiveAdvantage (The Free Press, 1985); “What is Strategy?” (Harvard Business Review, Nov/Dec 1996); “Strategy and the Internet” (Harvard BusinessReview, March 2001); and a forthcoming book. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form orby any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Michael E. Porter. Additional information maybe found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu. Version: July 17, 6pm
Creating a Competitive Nigeria: Towards a Shared Economic Vision
2 Copyright 2009 © Professor Michael E. Porter20090408 – CAON Nigeria.ppt
What is Competitiveness?
• Nations compete to offer the most productive environment for business
• The public and private sectors play different but interrelated roles in creating a productive economy
• Competitiveness depends on the productivity with which a nation uses its human, capital, and natural resources.
– Productivity sets the sustainable standard of living (wages, returns on capital, returns on natural resources)
– It is not what industries a nation competes in that drives prosperity, but howit competes
– Productivity in a national economy depends on a combination of domestic and foreign firms
– “Local” or domestic industries are fundamental to competitiveness, not just export industries
3 Copyright 2009 © Professor Michael E. Porter20090408 – CAON Nigeria.ppt
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
-2% -1% 0% 1% 2% 3% 4% 5% 6% 7% 8%
Labor ProductivitySelected Countries
Growth of real GDP per employee (PPP-adjusted), 2004 to 2008
Real GDP per employee (PPP adjusted US$), 2008
Source: authors calculation Groningen Growth and Development Centre (2009), EIU (2009)
Turkey
Mexico
New Zealand
Australia
Iran
Slovakia
Pakistan
Brazil
Malaysia
Germany
Senegal
Poland
Slovenia
USA
Argentina
Sudan
China (10.1%)
UgandaGhana
Philippines
Russia
Indonesia
Ireland
Vietnam
Korea
IndiaCameroon
Thailand
Japan
PeruAlgeria
France
EgyptTunisia
Zimbabwe (-8.9%)
Czech Republic
Morocco
Cote d’Ivoire
Zambia
Romania
Mozambique
Saudi Arabia
BangladeshNigeriaKenya
South Africa
Italy
Syria
UK
Spain
Croatia
Chile
Oman
Cambodia
Kazakhstan
Ethiopia
Angola (14.0%)
4 Copyright 2009 © Professor Michael E. Porter20090408 – CAON Nigeria.ppt
Macroeconomic Competitiveness
Microeconomic Competitiveness
Sophisticationof Company
Operations andStrategy
Quality of the NationalBusiness
Environment
MacroeconomicPolicies
SocialInfrastructure and PoliticalInstitutions
State of Cluster Development
• Productivity ultimately depends on improving the microeconomic capability of the economy and the sophistication of local competition
Determinants of Competitiveness
Natural Endowments
5 Copyright 2009 © Professor Michael E. Porter20090408 – CAON Nigeria.ppt
Sources of Prosperity
Inherited Prosperity
• Prosperity is derived from inherited natural resources– Prosperity is limited
• Dividing the pie• Government is the central actor in the
economy• Resource revenues fuel corruption and
allow unproductive policies and practices to persist
Created Prosperity
• Prosperity results from productivity in producing goods and services
– Prosperity is unlimited
• Expanding the pie• Companies are the central actors in the
economy• Government’s role is to create the
enabling conditions for productivity and foster private sector development
6 Copyright 2009 © Professor Michael E. Porter20090408 – CAON Nigeria.ppt
Nigerian Macroeconomic CompetitivenessMacroeconomic Policy
Macroeconomic Policy• Nigeria has made significant progress on macroeconomic policy• These gains must be sustained against short-term temptations• Tax complexity remains a weakness
Political Institutions• Political institutions remain weak• The data shows some progress on reducing corruption and rule of
law but Nigeria remains among the worst affected countries globally• Nigeria remains in the bottom group of sub-Saharan countries in terms
of governance• Government entities are often inefficient and uncoordinated• The States and the Federal government suffer from rivalry and poor
collaboration
Social Infrastructure• Education and health care remain major weaknesses
7 Copyright 2009 © Professor Michael E. Porter20090408 – CAON Nigeria.ppt
Strengths
Nigerian Microeconomic CompetitivenessBusiness Environment
• Home market• Favorable location• Abundant resources and
agricultural potential
• Electricity• Land transport• Air transport• Land use• Workforce skills• Access to finance• ICT capacity• Business regulation / red tape• Tariff and non-tariff barriers• Monopoly / lack of open
competition• IP protection
Weaknesses
8 Copyright 2009 © Professor Michael E. Porter20090408 – CAON Nigeria.ppt
Rank versus 134 Countries
Patents per million population 134Quality of electricity supply 133Ease of access to loans 124Burden of customs procedures 122Regulatory quality 122Quality of railroad infrastructure 121Personal computers per 100 population 117Quality of port infrastructure 115Domestic credit to private sector 114Mobile telephone subscribers per 100 population 111Internet access in schools 105Quality of roads 104Tertiary enrollment 103Low tariff rate 100Internet users per 100 population 99Intellectual property protection 96Pay and productivity 93Ease of starting a new business 93
Nigerian Microeconomic CompetitivenessSelected Rankings from the Global Competitiveness Report
Note: Rank versus 134 countries; overall, Nigeria ranks 106th in 2008 PPP adjusted GDP per capita and 93rd in Global CompetitivenessSource: Institute for Strategy and Competitiveness, Harvard University (2009)
9 Copyright 2009 © Professor Michael E. Porter20090408 – CAON Nigeria.ppt
0
20
40
60
80
100
120
140
160
180
Ease ofDoing
Business
EmployingWorkers
ProtectingInvestors
GettingCredit
EnforcingContracts
Starting aBusiness
Closing aBusiness
PayingTaxes
TradingAcrossBorders
Dealingwith
Licenses
RegisteringProperty
Microeconomic CompetitivenessEase of Doing Business
Ranking, 2008 (of 181 countries)
Source: World Bank Report, Doing Business (2009)
Favorable Unfavorable
Nigeria per capita GDP rank: 117
Median Ranking, Sub Saharan Africa
10 Copyright 2009 © Professor Michael E. Porter20090408 – CAON Nigeria.ppt
Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
Hotels
Attractions andActivities
e.g., theme parks, casinos, sports
Airlines, Cruise Ships
Travel agents Tour operators
Restaurants
PropertyServices
MaintenanceServices
Government agenciese.g. Australian Tourism Commission,
Great Barrier Reef Authority
Educational Institutionse.g. James Cook University,
Cairns College of TAFE
Industry Groupse.g. Queensland Tourism
Industry Council
FoodSuppliers
Public Relations & Market Research
Services
Local retail, health care, andother services
Souvenirs, Duty Free
Banks,Foreign
Exchange
Local Transportation
Competitiveness and Cluster DevelopmentTourism Cluster in Cairns, Australia
11 Copyright 2009 © Professor Michael E. Porter20090408 – CAON Nigeria.ppt
Government Agencies, NGOs & Industry Associations
Education, Research & Quality Standards Organizations
FlowerFarming
Post-HarvestHandling;
Transport toMarket
FreightForwarders
Clearing andForwarding
Agents
Air Carriers(Commercial /
Charters)
PlantstockTrade & Industry Associations
Kenya Flower Council (KFC)Fresh Produce Exporters Association of Kenya (FPEAK)
Regional Growers Associations e.g., North & South Kinangop; Lake Naivasha, etcGreenhouse;Shading
Structures
Pre-CoolingTechnology
Irrigationtechnology
Grading /Packaging Sheds
Post-HarvestCooling
Technology
AgriculturalCluster
HorticulturalCluster
(Fruits & Vegetables)
Public universities with post graduate degrees inhorticulture:
University of Nairobi; Jomo Kenyatta University of Agriculture & Technology
Horticultural Crops Development Authority (HCDA)Government Export Policies targeting Horticulture
Government Policy for Revitalizing Agriculture; National Export Strategy; ExportPromotion Council (EPC)
Fertilizers,pesticides,herbicides
Research Institutions:Kenya Agricultural Research Institute (KARI)
International Center for Insect Physiology and Ecology (ICIPE)
RefrigeratedTrucks
Quality & Standards:EUREGAP Standard (UK & Dutch Supermarkets)
Kenya Plant Health Inspectorate Services (KEPHIS)
Non-Governmental OrganizationsThe Rural Enterprise Agri-Business Promotion Project (USAID, CARE, IFAD)
Horticultural Produce Handling Facilities Project (JBIC)
Packaging &LabelingMaterials
TourismCluster
Cluster in Developing CountriesKenya’s Cut Flower Cluster
Sources: Student team research by Kusi Hornberger, Nick Ndiritu, Lalo Ponce-Brito, Melesse Tashu, and Tijan Watt, Microeconomics of Competitiveness Course, 2007
12 Copyright 2009 © Professor Michael E. Porter20090408 – CAON Nigeria.ppt
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
-0.6% -0.4% -0.2% 0.0% 0.2% 0.4% 0.6% 0.8%
Nigeria’s Cluster Export Portfolio1997 to 2007
Change in Nigeria’s world export market share, 1997 to 2007
Source: Institute for Strategy and Competitiveness; Richard Bryden, Project Director. UN Commodity Trade Statistics Database and IMF BOP statistics.
Nig
eria
’s w
orld
exp
ort m
arke
t sha
re, 2
007
Change In Nigeria’s Overall Growth In World Export Share: -0.162%
Nigeria’s Average World Export Share: 0.353%
Exports of US$500 million =
Leather and Related Products
Transportation and Logistics
Business Services
Plastics
Oil and Gas (-0.22%, 2.73%), $50.5 billion
Metal Mining and Manufacturing
Fishing and Fishing Products
Agricultural Products
Forest ProductsChemical Products
Tobacco
Processed Foods
Textiles
Marine Equipment
Building Fixtures and Equipment
Footwear
Publishing and Printing
• Nigeria has not yet embraced cluster development at the federal or state level
13 Copyright 2009 © Professor Michael E. Porter20090408 – CAON Nigeria.ppt
Competitiveness of Nigerian States
• Many of the essential levers of competitiveness reside at the state level• Competitiveness requires effective policy collaboration between states and the national
government• Every state (and city) needs its own distinctive competitiveness plan
14 Copyright 2009 © Professor Michael E. Porter20090408 – CAON Nigeria.ppt
Economic Integration With NeighborsWest Africa
• Economic integration in ECWAS remains limited• Nigeria would be the greatest beneficiary
15 Copyright 2009 © Professor Michael E. Porter20090408 – CAON Nigeria.ppt
Nigerian Competitiveness Agenda
Macro
• Maintain sound macroeconomic policy• Improve the tax system• Implement truly effective anti-corruption policies and strengthen the rule of law• Modernize government• Improve education and health care
• Address bottlenecks in physical infrastructure and land use• Catch up in ICT• Modernize and simplify business rules and regulations• Continue reform of the financial sector• Open up local and international competition• Protect intellectual property (IP)
• Develop a concrete economic diversification strategy based on cluster development
• Align the interests of the states and the national government around competitiveness
• Create effective economic strategies at the state level
• Assume a leadership role in West African economic integration
BusinessEnvironment
Cluster Development
States
Regional Integration
16 Copyright 2009 © Professor Michael E. Porter20090408 – CAON Nigeria.ppt
Turn Niche Products Into Clusters
Develop Related Clusters
Clusters and Economic Diversification
Deepen Existing Clusters Build Clusters AroundStrong MNCs
17 Copyright 2009 © Professor Michael E. Porter20090408 – CAON Nigeria.ppt
Recent Nigerian Economic Plans• President Yar’Adua’s priorities
– Electricity– Agriculture– Transport system– Jobs– Land– Education– Security
• Nigeria 2020– Stable democracy– Globally competitive economy– Good infrastructure– Sound education system– Quality health care– Modern agricultural sector– Competitive manufacturing
• Economic reform has been a central focus of recent Nigerian governments
• National Economic Empowerment Development Strategy (NEEDS)
– Public sector reforms– Privatization and liberalization– Governance– Transparency and anticorruption– Service delivery by government
agencies
18 Copyright 2009 © Professor Michael E. Porter20090408 – CAON Nigeria.ppt
National Economic Strategy
Defining a Nigerian Economic Strategy
Developing Unique Strengths Addressing Crucial Constraints
• What are the key strengths that the nation must build upon?
• What weaknesses must be addressed to achieve parity with peer countries?
• What is the unique competitive position of the nation given its location, legacy, endowments, and potential strengths?
• What is the national value proposition?• In what clusters can the nation excel?• What role can the nation play in its region?
• Nigeria needs an overall strategic framework, not just lists of aspirations and weaknesses• The strategy requires more rigorous prioritization and sequencing• Competitiveness improvement demands a coordinating structure within government and
a disciplined process of monitoring implementation
19 Copyright 2009 © Professor Michael E. Porter20090408 – CAON Nigeria.ppt
The Process of Economic DevelopmentNew Roles and Responsibilities
Old Model
• Government drives economic development through policy decisions and incentives
New Model
• Economic development is a collaborative process involving the private sector, government at multiple levels, universities, labor, and civil society
• Competitiveness needs to become a bottoms-up process• A shared economic vision across all stakeholders in society is needed• A national campaign to communicate competitiveness principles and
challenges to the broader population is a necessity, not just to the elites• The private sector must take responsibility for driving competitiveness
improvement and ensuring continuity