Exports are among the most desired ways for any country to increase its cash reserves and keep its economy moving. Most developing countries, even ones with large populations, may not necessarily have a highly developed domestic market that local businesses could rely on for a significant income. For these economies, tapping the international market is their best bet.
Here are some tried and tested ways developing countries could develop their export industry:
1.) Create special economic zones
Special economic zones are areas designed to facilitate the growth of specific industries. These often contain industrial parks as well as facilities to support the types of activities the host government wants to encourage. More importantly, these zones usually follow a different set of legal frameworks from the rest of the country. These zones often offer tax breaks for specific types of investors, as well as expedited visa approvals and other similar perks.
These zones are often used by governments to boost exports and foreign currency reserves. Because they follow a different set of business guidelines compared to other parts of the country, they are sometimes used to experiment with different economic policies before they are more widely adopted.
2.) Improve relationships between exporters and the national government
In developing countries, the relationships between governments and businesses are rarely as symbiotic as they are in more developed nations. The simple expedience of having a specific government office intended as a liaison between the national government and exporting businesses can do much to reduce the hassle of setting up shop in a given country.
3.) Specialized incentives
We already mentioned tax incentives being commonly offered in most special economic zones. However, depending on the laws of a given country, different kinds of incentives could still be given to investors and other people who wish to set up an export business.
Apart from tax breaks, citizenship is also offered by some countries to foreign investors who put up a specific amount of cash for key industries. These and other incentives can be used by developing nations to boost capital inflow that could be used to further improve exports.
4.) Develop specific processing capabilities
Many of the world’s poorest countries export some of the world’s best raw materials. For example, while Ghana exports world-class cacao, countries in Western Europe and North America that import that cacao and process it to chocolate earn more from exporting the finished product. This pattern repeats itself in various other materials, from timber to rare earth minerals.
In most situations, countries that can process their own raw materials and export processed products create more value and thus, earn more cash. The catch is, setting up the necessary infrastructure and support systems for creating these value-added products can be a significant investment, which brings us to our next two points.
5.) Invest in higher education
Going off the example of cacao and chocolate, while the development of a cacao growing industry can be complex, there is a lot more technical know-how in developing a chocolate confection export industry. Very specific machinery and production lines must be built and maintained, the products need to be developed for a target market’s preferences, and a logistics supply chain has to be created to support all of this.
In other words, the developing nation has to sufficiently educate and incentivize its people to create value-added exports. Even when working with foreign investors, most of these will prefer to set up shop in countries that already have an educated population, as local institutions will have effectively done much of the needed training for them.
6.) Develop relevant infrastructure
It will be tough if the not downright impossible task to make exports competitive without the right infrastructure. Exports that are not entirely based on basic natural resource extraction would be impossible without them. It’s not just roads and schools that developing nations need to consider either. Water supplies, power generation, and seaports are just a few of the things that could significantly improve a nation’s export industry.
7.) Reduce red tape
Special Economic Zones, while important for many developing countries, are often merely workarounds for systemic inefficiencies that couldn’t easily be addressed—red tape being a notable example of this. Reducing red tape not only helps improve the baseline ease of doing business for investors but also enables much-needed local entrepreneurship to be done legally.
This is especially important, as exports are not created in a vacuum. In virtually all cases, a significant export-oriented economy relies on a well-developed supply and services chain. Each of the links in these chains is likely created through the work of entrepreneurs, so it’s important to incentivize this type of activity.
As you might gather, improving export industries is mostly easier said than done, especially in the context of a less-developed nation, which may also be facing other socioeconomic and sociopolitical issues like corruption and inequality. However, developing nations with good fundamentals will tend to enjoy significant improvements over time. The trick, of course, is making sure that there is a commitment to seeing these improvements through so that they bear fruit for future generations.
Karina is not your ordinary supermom. She juggles her time bonding with her three amazing kids while being in the loop on the latest happenings in the tech and lifestyle scene. Follow me on Instagram (@digitalfilipina) regularly visit www.digitalfilipina.com for daily dose of updates not just for moms but for everyone!