piero ghezzi presentation for the 20th tci global conference

MESAS EJECUTIVAS IN PERU A Tool for Productive Development Policies

Piero Ghezzi, Former Minister of Production of Peru


2

Piero Ghezzi, Former Minister of Production of Peru Bogota, 9 November 2017

Development has equaled industrialization

Source: Kennedy (1989) & The Groningen Growth & Development Centre (2017). Author’s Elaboration.

0

5

10

15

20

25

30

35

40

UK USA Germany Japan Korea China

Man

ufa

ctu

rin

g sh

are

of

GD

P %

Beginning ofIndustrialization

0

5

10

15

20

25

30

35

40

UK USA Germany Japan Korea China

Man

ufa

ctu

rin

g sh

are

of

GD

P %

Beginning ofIndustrialization

Peak ofIndustrialization

Manufacturing: the “growth escalator”

• It offered significant advantages:

High and growing productivity (unconditional convergence)

Large employment generation for unskilled labor

Not limited by domestic market size

Generation of “capacities”

4

Quickest way to boost productivity : structural transformation

Structural Transformation has been a strong contributor to productivity growth…

Source: McMillan, Rodrik & Spúlveda (2016) and Rodrik & McMillan (2011). Author’s Elaboration.

…but its contribution has now declined

-3 -2 -1 0 1 2 3 4 5

India (90 - 99)

Brazil (65 - 79)

Botswana (70-80)

Latin America (50 - 75)

Korea (70 - 90)

Vietnam (90-00)

Contribution to productivity growth (pp)

-3 -2 -1 0 1 2 3 4 5

India (90 - 99)India (00 - 04)

Brazil (65-79)Brazil (90 - 05)

Botswana (70-80)Botswana (00 - 10)

Latin America (50 - 75)Latin America (90 - 05)

Korea (70 - 90)Korea (95 - 10)

Vietnam (90 - 00)Vietnam (00 - 08)

Contribution to productivity growth (pp)

Early Period Late period

What explains this decreased contribution?

Premature deindustrialization

Labor-saving technological change

Late industrializers can´t compete on lowwages

But we may not know the complete answer yet

7

In general, EM productivity growth has declined

Source: Conference Board, FMI – WEO (abril 2016).

2.0

0

0.4

0

1.1

0

0.2

0

0.0

0

0.2

0

0.00

0.50

1.00

1.50

2.00

2.50

EMERGING ECONOMIES ADVANCED ECONOMIES WORLD

TOTA

L TF

P2003 - 2010 2011 - 2014

-1.8 pp.

-0.9 pp.

-0.4 pp.

How are we going to “replace” manufacturing as the growth escalator?

Multiple sectors (in addition to manufacturing)with manufacturing-like characteristics

To increase productivity within each sector

9

Traditional agriculture

1. Very limited use of technology

2. Tillage/plowing (soil erosion)

3. Low (and stagnant) productivity

4. Repetitive tasks not used elsewhere

5. Very vulnerable

Absolute control of all phases of the productive process to reduce uncertainty and maximize efficiency gains

Modern agriculture

Before planting Pre-harvest Post-harvest

Absolute control of all phases of the productive process to reduce uncertainty and maximize

efficiency gains

Before planting

1. Adaptation of best seeds to local conditions

2. Use of germplasm bank for cloning the best

3. Large scale nurseries of seedlings

4. Genome editing

5. Development of organisms for biological control of pests


Modern agriculture


Pre-harvest

1. Sensors info to optimize fertilizers, water and pesticides (or organisms for biological pest control) per parcel

2. Optimal density of planting (multispectral analysis)

3. 24/7 monitoring

4. Very high productivity


Modern agriculture


Post-harvest

1. Machine learning for sorting products

2. Immediate cooling

3. Maximization of shelf-life of products

“ Farms are becoming like factories: tightly controlled operations for turning out reliable

products, immune as far as possible from vagaries of nature “ (The Economist, June 2016)

Not only farms are becoming like factories:

Modern Livestock Raising

Modern Aquaculture

Mining

Knowledge Intensive Business Services, etc.

• WHAT you produce may be less important thanHOW you produce it

18

Objetive: maximize productivity of ALL sectors

• Need to Identify and remove constraints to theproductivity growth of all sectors. This is precisely whatProductive Development Policies are about.

• Not easy. Increased uncertainty/fast-paced technologicalchange. Higher International Standards (environmental,labor, phytosanitary, etc.)

• Multiple public and private actors need to cooperate tosolve coordination failures

• This process of cooperation needs to be institutionalized

19

Public sector stakeholdersPrivate sector stakeholders

Public – public coordination problems

Private - private coordination problems

Public - private coordination

problems

Which coordination failures?

Mesas Ejecutivas

21

What is a Mesa Ejecutiva (ME)?

A ME is a tool designed in Perú to implement more effectively PDPs.

It is a public-private working group that….

…identifies and removes the bottlenecks that affect the productivityof a sector (forestry, tourism, agro-export, etc.) or factor (logistics,capital markets, transit, etc.)

It focuses on implementation and on the specifics. Not on generaldiscussions.

It includes key public and private stakeholders around sector/factor.

It does not replace ministries or public agencies. It works with them.

22

Who participates in a ME?

Ground level body

High level body

- Private sector stakeholders- Public sector stakeholders- A dedicated team that

coordinates the ME

MORE CONTEXTUAL KNOWLEDGE

- Ministers and above (can´t be just one minister)

MORE CONVENING AND COORDINATING CAPACITIES

THEY COMPLEMENT EACH OTHER

Types of MEs Meetings

Periodic Sessions: regular meetings whererepresentatives of GLB of the ME participate and whereprogress is presented. High periodicity (weekly orbiweekly) works as pressure mechanism.

Inter-sessional Meetings: smaller (bilateral ormultilateral) meetings in which solutions to problemsidentified during regular sessions are implemented.Could include HLB.

Dedicated team makes sure there is continuous progress24

What does government provide in a ME?

Government, with respect to the private sector, differentiates between MPs (“my problems”) and YPs (“your problems” ):

MPs are related to the public goods and services thatgovernment must provide as inputs for privateproduction.

YPs are things that private sector needs to do to becompetitive.

ME should provide only MPs

25

What does government provide in a ME? (II)

MEs help government to align its supply of public goods and services (MPs). For example:

Reduction of red tape (norms and implementation) Regulation that is adequate to productive reality of the sector Fill in loopholes Help complying with technical requirements for new export

markets Complementary public sector interventions. Creation of new public entities (and/or improve existing ones) Public infrastructure suited to productive needs of the sector. Incentives to promote innovation suitable to the sector Design of sector-specific training programs

26

Public sector stakeholdersPrivate sector stakeholders

Public – public coordination problems

Private - private coordination problems

Public - private coordination

problems

How do MEs help with coordination failures?

Public sector

Private sector

Steps to launch a ME

Define a sector / factor

candidate

Decide if ME is feasible

Launch ME

No ME (not yet)- As narrow as necessary (i.e. common problems)but as broad as possible (i.e. move the needle)

- Is the private sector self-organized

- Commitment to participate in ME?

- Does it involve several public entities?

Yes

No

Steps to start operating a ME

1. Set a LT objective and

generate initial list of problem/

solutions

2. Chose 3 or 4 problems and start to solve them

4. Solve other problems and incorporate

new

Elevate to high level bodyIf process

hits a wall

- Budget allocation- Dispute resolution- Regulation- Convening other

actors

In public policy sometimes we think we did our job because:

We passed a law, enacted a regulation, producednew guidelines, etc.

We created a new public sector institution

We launched a program

We allocated budget to achieve a given objective

We copied international “best practices”

31

But are we having an impact on the ground?

Very often we are not

We need to see where, in the whole chain, theprocess breaks

Are the norms adequate?Are they being implemented correctly?Or even being implemented at all? Is money allocated being spent? And well?Are “best practices” really adequate to local reality?

Frequent ME sessions allows to “keep ushonest”. And make adjustments/corrections.

32

Mesas Ejecutivas: Experience in Peru

33

MEs in Peru

• The Ministry of Production of Peru created 8 MEs in 2015-16

• Forestry• Aquaculture• Creative Industries• Textile• Gastrononomical• Agroexports

• Logistics• High-Impact Enterpreneurship

• New government initially discontinued MEs but has relaunchedthem due to private sector demand

• It shows the importance of “getting things done” for continuity

34

Sectorial

Transversal

Example 1: Forestry Mesa Ejecutiva (I)

• The sector has two subsectors: Forest plantations and Forestconcessions in the Amazon jungle

• There are 10 to 12 million hectares in the Amazon jungle ready forforest concessions. It is high quality wood

• Also, in the jungle there are approximately 4 millions Has. ready forreforestation. Inexpensive land, abundant sunshine and rainfall, andprivileged topography.

• But sector has not lived up to its potential:

• Less than 2 million has. of the Amazon Forest are utilized inconcessions. And less than 40k has. have been reforested (for acommercial/industrial use)

• Peru´s forestry exports: stagnant in the last 10 years

35

0 10 20 30 40 50

Clonal Plantations Peru and Brazil

Peru

Brazil

Uruguay

New Zealand

Mexico

Chile

Argentina

South Africa

Australia

USA

Canada

Finland

Sweden

m3 / ha / year

VOLUME INCREASES IN FORESTRY PLANTATIONS

0

200

400

600

800

1000

1200

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

Mill

ion

s U

SD

Peru´s Forest Exports and Imports 1992-2016

Exports Imports

0

1000

2000

3000

4000

5000

6000

70001

99

2

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

Mill

ion

s

Forestry Sector: Peru vs Chile exports

Peru Chile

Example 1: Forestry Mesa Ejecutiva (II)

• First phase of Forestry ME operated from Dec 2014 untilJuly 2016

• It included 6 Ministries, other 4 public entities and privatesector.

• New government stopped ME but it was re-launched onFeb. 2017

• It included more actors: regional/local authorities andsmall producers (represented by the recently createdCONAFOR-Peru)

• For the first time, forestry´s full potential is understood.

38

Forestry ME: All Actors Improve

• Public sector entities are “forced” to coordinate. Likewise differentlevels of government (national/regional/local) have to coordinate

• Government entities started to learn how the forestry sector reallyfunctions

• It has generated institutional memory. It reduced the impact of“turbulence” resulting from government change

• Private sector starts to understand how public sector works

• It promotes associativity. Example, creation of CONAFOR-Peru (entitythat includes 16 regional small business associations)

• Private banks have started to focus on the sector. First loans ever

39

Before After

Forestry plantations not recognized as differentfrom forest concessions in the Amazon Jungle

New Law and Regulation (led by ME) recognizes plantation trees as crops

No financing for the sector (particularly plantations). Banking system did not know the sector.

Creation of new fund. Approximately S/.120million of new loans through banking system.Production can be used as collateral

It took up to 8 months to obtain a permit to extract wood from plantations No permit is now required

It took up to a year to register a plantation property It takes 3 days to register plantation properties

Forestry ME: Key Achievements (Plantations)

40

No interest in forest plantations by foreign investors

Some of the largest global forest funds arecoming. Launching of local forest funds

Before After

OSINFOR, national Entity in charge ofsupervision, did not trust plans approved byregional authorities: uncertainty for investors

OSINFOR has now accepted to accompany regional authorities in early inspections (and approvals). Budget is being allocated to strengthen implementation

For 15 years there were no new concessions in the Amazon Jungle

2 Million Hectares recently concessioned by Ucayali and Loreto

Entities at different government levels (national, regional and local) had different standards about timber resources.

New Protocol with the same standards at different levels of government has been approved. It is now being utilized.

No guidelines reflecting productive reality of the sector

12 new guidelines have been isused and have been implemented

Forestry ME: Key Achievements (Concessions)

41

No traceability system. 25% of trees reported in the operating plans did not actually exist

Significant improvements in traceability system. Percentage has fallen to 10%.

Example 2: Agroexports Mesa Ejecutiva

• Peruvian agro-exports have grown from USD400 millions to USD4,800 millions in the last 15 years.

• Continued high growth will require government support inresearch (INIA), access to new export markets (SENASA) andinfrastructure (MTC)

• The Agro-export ME is made up by 5 Ministries, other publicentities and representatives of the private sector.

• The Agro-export ME worked in the Ministry of Production in2016. Re-launched by the Ministry of Agriculture on May 2017.

42

Before After

Identification of products prioritized for theopening of new export markets was in chargeonly of SENASA (Agricultural Health Authority)

There is now a list (agreed in the ME by public and private stakeholder) about the products prioritized.

The agricultural Research Institute (INIA) had aresearch agenda divorced from private sectordemand/information

Private and public participants of the ME haveagreed on the list of products to be investigatedin 2017 and 2018.

Restrictions to the chocolate and cocoa Peruvian exports to the European Union because of the presence of heavy metals (Cadmium)

National Plan for the Reduction of Heavy Metal Pollution in the Productive Value Chain of Cocoa – Chocolate

It is difficult to import genetic material Simplification of the management of genetic material (because INIA is able to import it for short periods). Priority list has been generated.

Agroexports ME: Key Achievements

43

The functional, technical and managerial structure of SENASA is outdated. Draft bill to strengthen it had been dormant for years

The ME/SENASA have finalized bill. It is now being presented to Congress.

Example 3: Aquaculture Mesa Ejecutiva

• Peru has likely comparative advantages in Aquaculture due tosunshine, cheap energy, extensive sea (and water abundance in thejungle).

• Our largest shrimp producers are already getting (in intensiveponds) TM100 per ha/year, by far the highest in the world

• Despite growth in previous years, aquaculture exports are stillsmall (USD270 mln). Ecuador, with very similar underlyingconditions, exports 10 times that amount.

• Aquaculture ME started operating on May 2015 until July 2016 .The ME was made up by two Ministries, other public entities andrepresentatives of the private sector.

• It was relaunched in September by Ministry of Finance.

44

Before After

Many of the pre-requisites for aquacultureoperations were related to extractive fishing

No longer. All extractive fishing pre-requisites have been eliminated

Triplicity (or more) of requirement by different Government Agencies (Produce, OEFA, Sanipes)

They have been eliminated

It took up to 2 years to obtain an aquaculture concession

It now takes 6 months

No National Fisheries Health Agency. There was a low level direction in one government agency

Sanipes (the National Fisheries health agency) was created in Nov 2015. Thanks to ME “it hit the ground running”, including opening of operations across the country

Aquaculture ME : Key Achievements

45

It was not possible to export shrimp to China Chinese markets has now been opened and first exports within 6 months

An outdated regulation that had the same requisites to export all products to all countries

Regulation tailor made to each product and country. Significant reduction of requirements

Exports of scallops to EU were in danger partly because of inadequate equipment

New equipment (MASA MASA) with much quicker and accurate results was acquired. Scallop exports to EU now ok.

46

Example 4: Logistics ME

This resulted in:• Additional charges by APMT.

• Increase of the freight of the ships,by the delay of the stay of the ships.

• Increase in the cost of renting thetrucks and the waiting time of these

• Truck drivers exposure to citizeninsecurity while awaiting theirattention on the street.

• Low competitiveness of Callao port inrelation to other ports in the region.

PROBLEM OF ENTRY TO CALLAO PORTThe admission to the port concessioned to APM Terminals took between 5 to 6 hours. Significant vehicular congestion outside the port

47

One example of solving coordination issues: Logistics ME

ACTION TAKEN. The Road Reordering Pilot Project was implemented to eliminate congestion of heavyvehicles in the avenues close to the port.

• The Plan was promoted by a working group led by the National Port Authority (APN) and made up of MININTER, PROVÍAS, UNT, PNP and MPC.

• It allowed the use of 3 lanes of entrance in the avenue Manco Capac.

• PROVIAS reprogrammed ill-calibrated traffic lights

• MININTER with the Transit Police established, in order to facilitate the flow of traffic, 3 control points, in:

I. Crossing Contralmirante Mora avenue with Atalaya,II. Atalaya with Guardia Chalaca and,III. In Manco Cápac avenue.

• APN created a WhatsApp group for urgent communications between members of the ME, with the aim of quickly solving traffic problems

• The private sector (ASPPOR) has instructed its drivers regarding the Pilot Plan.

49

The results of coordinating:

Waiting time declined to less than 2 hours.

Less important / effective More important/effective

Did you pick the very best industries based on comparative advantage, cluster centrality, growth, or other technical metrics?

To have a commited group of people from both the public and private sector.

Big-bang approach launching a large number of Mesas Ejecutivas

To start slowly and accumulate “know how”. Over time increase number of MEs. Sequential Priorization.

Provide MEs with big budgets To have an effective ME dedicated team that make things happen.

Long periods of consultation and study with the private sector, thorough analyses, long reports, etc.

To start solving 3 or 4 problems from the very beginning to create “momentum”

Lessons from MEs

50

To have a clear road map from the outset that simply has to be implemented (linear approach)

To start implementing and rapidly learn what works and what does not, iterate, and improve (recursive approach)

Other Lessons from MEs

ME sessions need to have a clear periodicity. Weekly or biweeklyperiodicity appears to be ideal to keep constant pressure to deliver.

To have a dedicated team that makes sure there is continuous progress isprobably the most important determinant of success of MEs as a tool.

It is important to secure that the public sector participants “own theachievements” of the ME.

Important to maintain the discipline of focusing on measures that increaseproductivity. Deprioritize exemptions that, instead, compensate for lowproductivity.

Due to the mistrust that exists in society regarding public-private dialogue,transparency is fundamental.

MEs must receive support from the very top of the government.Otherwise they will hit a wall. However, it is not an absolute necessity tohave them depending from the President or Primer Minister

51

Some additional points

MEs are an invaluable tool for transparently obtaining informationfrom the productive private sector.

MEs are very labor intensive. But the cumulative effect of many"small" measures is often greater than that of a major reform.

The MEs in Peru have solved many problems in the productive sectors.That is important. But more importantly, the MEs have allowed tolearn how to identify and solve problems.

There are not many successful and proven PDPs tools. The MEs are.They could be progressively extended (on issues beyond PDPs) to theentire State, which should be working with a “ME chip”

Clear and stable rules are very important, but in a period of highuncertainty and fast technological change, public policies may requirean iterative approach with continuous learning

52


53

Piero Ghezzi, Former Minister of Production of Peru Bogota, 9 November 2017

piero ghezzi presentation for the 20th tci global conference

Economy & Finance