tekst na srpskom

Some people claim that Christopher Columbus was the first economist. He has many of our characteristics. When he left to discover America he didn't really know where he was going.  When he got there, he didn't know where he was.  When he returned, he didn't know where he had been.
Let us not forget, however, that Columbus discovered the new world. This discovery transformed the old world forever and for the better. It led to an unprecedented expansion in international trade - a vast exchange of new ideas and new products.  So did the opening up of trade routes to India and many other continents and sub-continents. It all happened ages ago so you are probably asking: why does it matter today in Serbia? Well, in many ways Serbia is at the crossroads, facing crucial decisions on which paths to explore going forward.  These decisions will have long-term consequences. They will have a significant impact on the country’s standard of living - a major, if not the major, preoccupation of the citizens of Serbia. Let me focus here on one of the greatest challenges – exports.

I do hope there is no need for me to elaborate at length how and why exports are important for economic development.  Let me just point to some of the export-led success stories of the twentieth century: Japan, Korea, Hong Kong, Taiwan, Thailand, Malaysia and now China…. With an ever widening current account deficit the need to strengthen Serbia’s competitiveness and her ability to export is becoming a more and more pressing challenge to sustainable economic development.
A review of trade data shows us that growth in the volume of exports in of itself is not enough to keep a country on the path to prosperity.  Indeed in an ever integrated world the structure of a country’s exports will be decisive as to whether it can survive the vagaries of shifts in global demand and/or price volatility. History has shown that countries heavily reliant on primary commodities and a narrow basket of exports often suffer more from economic downturns and shifting terms of trade. This is not new news, although perhaps less fashionable of late with commodities like oil, copper, gold, wheat, corn etc… reaching record prices having benefited from booming international growth; but probably an important one to remember as we now face the prospect of a global economic slow-down.  What is new is that there is increasing evidence to show that export growth into new geographic markets may be even more important to a country’s development than the discovery of new export products. Export diversification of both product and market is, therefore, the name of the game. In other words, the message is: don’t concentrate your exports in a small number of countries and don’t rely on small number of goods for exports. Or, to expand on a well worn turn-of-phrase, don’t keep all your eggs in one basket, but aim for a lot of baskets, with a lot of eggs.

Recent analysis of the link between export diversification and income per capita, produced clear results. Export diversification has a strong positive correlation with increased per capita income. Many of the fast growing South East Asian countries have a relatively low level of export concentration, while many countries with poor growth performance – like the ones in Sub-Saharan Africa – have limited levels of product and market diversification. Let me give you some successful examples. In slightly more than two decades (1980 – 2004), Thailand increased its per capita income by 150 percent, Malaysia by 100 percent and China by 400 percent! In each case their basket of exports was considerably more diversified by the end of the period.

Striking differences between incomes per capita and the number of different clients a country exports to, are compelling arguments for market diversification. Kenya had an income per head $480 in 2004 while Korea had an income per capita $14, 135.  Kenya at that time exported 2 148 products to 6 789 different clients. Korea exported 2 930 products to 66,983 different clients; almost ten times more than that of Kenya.

To be in a position to reap maximum benefits from global markets Serbia needs to aggressively pursue membership of the World Trade Organization to ensure it is an active player with a voice in a club of nations that sets the rules for global commerce. Its recent ratification of the Central Europe Free Trade Agreement  (CEFTA) which replaces 32 bilateral free trade agreements and aims to establish a free trade zone in the region by the end of 2010 presents tremendous opportunities for the country.  Trade and investment opportunities with both large and small countries in the neighborhood require vigorous engagement and nurture by the authorities and business community alike.  The shear economic stimulus and potential for sustained income growth presented by the European Union, a market of  27 countries with a population of 493 million is a geographical opportunity that would be the envy of many a developing nation. As an economist who has worked in Latin America and Africa let me tell you that there is many a country in these regions that would give their eye teeth to have such an engine of growth on their doorstep.

Of course it’s not much use being part of such trading blocs and economic organizations if Serbia is not competitive enough to stand tall in these markets. Serbia still has quite a sizeable unfinished agenda in this respect. Just by way of illustration a small example. According to the latest World Bank “Doing Business” report it costs three times as much to export a container load of goods in Serbia as it does in Singapore. Sustaining and strengthening Serbia’s competitive position requires continued attention and follow-up on a whole battery of issues: maintaining macro-stability, getting rid of any anti-export biases in the incentive structure, promoting an open competitive domestic market that ensures local consumers are getting the best value for their Dinar, constantly expanding the role of the private sector (completing privatization), reducing red-tape and the cost of doing business, eliminating infrastructure bottlenecks, improving the flexibility of labor markets and last but not least reorienting education and training to meet the demands of the job market.

Furthermore the good sector-level and firm-level support provided to exporters by such entities as SIEPA, SMECA and AOFI, to name a few, need to be encouraged and expanded.

As we stand at the threshold of a new year let us like Columbus, therefore, be open to new adventure and put our faith in the benefits of expanding friendships and understandings in new markets.

Simon Gray

World Bank Country Manager in Serbia

Weekly NIN, January 31, 2008