Export and FDI Promotion Institutions: Are there any success stories?

World Bank’s Seminar onPolicies to Promote Export Growth and

DiversificationMay 9-10, 2006

Héctor Reyes RetanaPresident and CEO

Mexico’s National Bank for Foreign Trade

BANCOMEXT

2

Contents

• Exports and FDI evolution• Bancomext: some findings in

trade promotion • Bancomext results

3

• Attraction of FDI• Coordination of different

organizations– Federal and local

governments– Private-public sectors

• Promoting the competitiveness of Mexican firms– Financing– Promotional tools– Technical assistance

MEXICO’S EXPORT STRATEGYHas relied on stability, liberalization, trade

agreements and promotion

• Macroeconomic stability• Free floating exchange

regime• Trade liberalization• Market access

– Multilateral system– Bilateral trade

agreements

4

e/ EstimatedSource: Banco de México

• Due mainly to trade liberalization and NAFTA• Between 1990 and 2005 total exports increased from 40 to 214

billion dollars – Average annual growth rate: 12%

• Exports of manufactures account for 82% of total exports– While in 1981 oil exports share reached 73%

• For 2006 total exports are estimated around 235 billion dollars

Total exports (billion (billion dollars) dollars)

DYNAMIC EXPORT GROWTH

NAFTA

214235

0

40

80

120

160

200

240

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006e/

Non-oil

Oil

5

2,090

10,973

12,830

24,730

17,800

0

4,000

8,000

12,000

16,000

20,000

24,000

28,000

1980 1990 1992 1994 1996 1998 2000 2002 2004

Foreign direct investment, 1980-2005(million dollars)

• In the last decade Mexico has received 140 billion dollars in FDI

– And remains as the second FDI recipient among emerging economies

• The U.S. is the main FDI source for Mexico – With 63% of total– And Mexico is the leading destination of U.S. investment

Source: Secretaría de Economía

NAFTA

TRADE LEADS TO INVESTMENT OPPORTUNITIESSo Mexico has become a major recipient of FDI

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MAIN CHALLENGES AHEADDecreasing share in world exports

• Mexico ranks as tenth world exporter (considering the European Union as a whole)

• But has started to decrease its share in world exports– From 3.3% to 2.8% between 2000 and 2005

• This is due to:– Loss of competitiveness arising from pending domestic reforms– Participation of new countries in international trade, such as China– The impact of Nafta started to fade out and other countries have

obtained similar advantages

3.5 3.3

2.1

1.1 0.91.5 1.2

5.0

3.22.83.7

9.9

0

2

4

6

8

10

12

China Korea Mexico Russian Fed. Brazil India

2000 2001 2002 2003 2004 2005Source: WTO

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MAIN CHALLENGES AHEAD

• To incorporate a greater number of small and medium size firms to the export chain

– 543 firms account for 80% of non-oil exports

– The other 20% comes from 22,854 firms • To diversify export markets

– 86% of total exports go to United States• To increase the national contents of

exports

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BANCOMEXT: SOME FINDINGS IN TRADE PROMOTION

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BANCOMEXT OVERVIEW

• Founded in 1937• Own resources generation• Export credit and guarantees• Information, advise and training• Promotion in Mexico and abroad• Focused on small and medium size exporting firms • Attraction of foreign direct investment into Mexico• 35 representative offices in Mexico and 31 offices

abroad

With the irrevocable full faith and credit obligation of the Mexican Government

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Mexican exporter

Services in Mexico:•Information•Consulting•Training•Technical assistance•Financing

Services through the Overseas Trade Commissions

•Business agendas

•International events

• Promotion of exportable goods

•Commercial brokerage

22 Bancomext Centers in Mexico

31 Trade Commissions abroad

Corporate Headquarters

Export Projects

Corporate Headquarters

• Coordination

• Development of new products

• Follow up and feed back

Foreign importer

BANCOMEXT TRADE PROMOTION WORKS A COORDINATED SYSTEM

Involving domestic and international infrastructure

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Developing export capabilities

Market research

Export market development

Commercialization

Start

Diversification

•Information•Consulting•Training•Technical assistance•Publications

FIRST TIME EXPORTER:

EXPORT DEVELOPMENT PROCESSExport services vary

according to the firm’s development and experience

in international business

PICKING AND CONTACTING CLIENTS: •Business agendas•International trade fairs•Exporters missions•International PYME•Insurance•Letters of credit•Guarantees•Credit

SALES AND DIVERSIFICATION• Trade mediation• Financing• Letters of credit • Financing of Mexican investments abroad

MARKET PROSPECTS:• Market opportunities• Market studies• Promotion of exportable goods• Marketing

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INTERNATIONAL TRENDS IN EXPORT PROMOTION ORGANIZATIONS

To offer a more efficient support to exporting firms

• Greater collaboration between the public and private sectors– The private sector has an increasing role in the design of

export strategies and its related services – And has started to cover some export promotion costs

• To concentrate in one single entity all tasks related to export promotion– On this regard the following quotation from the U.S.

National Export Strategy may be helpful: • (U. S. firms) “... expect seamless service across agencies and are

frustrated that the U.S. Government does not always function as if it were one entity. They expect government personnel to be fully trained to take them through the maze of government programs and to understand the big picture. Finally, they want more proactive government involvement from the earliest stages of project development through the entire life cycle of a project”1/

1/ U.S. Department of Commerce, The 2002 National Export Strategy, p. vii

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INTERNATIONAL TRENDS IN EXPORT PROMOTION ORGANIZATIONS

To offer a more efficient support to exporting firms

• To provide services that support the whole export chain and not only one isolated stage– This promotes overall competitiveness due to a

more efficient operation along the productive chain

• Focus on the development of exportable goods and competitiveness

• To bring together in one single organization export promotion and the attraction of FDI

• Improved systems to keep track of export promotion and evaluate results– Performance indicators

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BANCOMEXT APPROACH TO EXPORT PROMOTION

• Close collaboration with the private sector and local governments– The leading private organizations are in our

Executive Board– In many cases we develop joint promotional

activities– We have gradually increased the share of products

and services that are sold to our customers• Bancomext solves Mexican exporters needs

regarding financial and promotional services– Offers trade promotion, financing and attraction of

FDI– “One stop shop” for those firms looking for services

that would help them compete abroad

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BANCOMEXT APPROACH TO EXPORT PROMOTION

• Our services cover the whole export cycle– The coordinated work of our offices constitutes an

important value added to the export chain• The comprehensive approach has resulted in

efficiency gains– For Mexican exporters – In the attraction of FDI, since trade and investment

flows are closely linked• Promotional services are provided in Mexico and

abroad– In order to facilitate the contact between exporters

and importers• Financing is offered directly or through financial

intermediaries

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BANCOMEXT APPROACH TO EXPORT PROMOTION

• Promotion is focused on specific export projects – Matching highly competitive exports and the specific

markets demanding those products– Project management and supervision through an

electronic network that involves:• Our foreign offices around the world, our national

branches all over the country and the central headquarters in Mexico City

• Follow-up, evaluation and feed back– To improve process operation and customer

satisfaction we systematically measure the impact of the Bank’s services and their performance

– A whole system of performance indicators has been implemented

• There is no central government budget for export promotion

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BANCOMEXT RESULTS

18

11.2

15.2

17.918.9

20.621.7

0

5

10

15

20

25

2000 2001 2002 2003 2004 2005

BANCOMEXT SHARE IN MEXICO’S FOREIGN TRADE LOANS, 2000-2005 (%)*

%

*Share in total foreign exchange outstanding loans granted by the banking system

• The Bank has had an increasing role in overall export financing

• One out of five dollars granted by the banking system are channelled through Bancomext

%

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TOTAL CREDIT, 2004-2006(Million dollars)

4400

4600

4800

5000

5200

5400

5600

5800

6000

2004 2005 2006p/

Second-tierFirst-tier

4,939 5,049

5,50047

205

300

4,986

5,254

5,800

p/ Program

• Bancomext grants credit either directly or through a network of financial intermediaries

• The Ministry of Finance has asked Bancomext to strengthen second-tier financing– So we are increasing the number of our financial intermediaries

and developing new financial products to fulfill this mandate

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TRADE PROMOTION CONTRIBUTES TO EXPORT DEVELOPMENT

7000

5487 5573

5977

6400 6450

3000

4000

5000

6000

7000

2001 2002 2003 2004 2005 2006p/

Exports generated by Bancomext services (Million dollars)

*Considering firms with annual exports between 200 thousand dollars and 20 million dollarsp/ Program

• Bancomext services generate annual exports over 6 billion dollars

• This amount represents 38% of SME’s exports*

• Each year Bancomext promotional services enable, on average, 2,000firms to export

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BANCOMEXT: NUMBER OF FINANCIAL AND PROMOTIONAL SERVICES PROVIDED TO

SME’s BETWEEN 2001 AND 2005

12,647

16,930

25,920

37,346 37,638

10000

20000

30000

40000

2001 2002 2003 2004 2005

• In the last five years services granted to SME’s have multiplied by three

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ATTRACTION OF FDI

707

1,109 1,095

2,045

0

500

1000

1500

2000

2500

2002 2003 2004 2005*

* 935 Million in extraordinary investments in automotive, autoparts and aerospace

• In 2002 Bancomext received the mandate to promote FDI • We work in coordination with:

– The Ministries of Economy and of Foreign Relations as well as with state governments

• Between 2002 and 2005 FDI projects reached five billion dollars– Mostly in export oriented activities such as automotive and

autoparts, electronics, textile and apparel, food and agribusiness and metal-mechanic