ADB-CAF Regional Competitiveness of Cities in Asia and Latin America (Kamiya/Roberts et.al.)

Regional Competitiveness of Cities in Asia and Latin America

May 2013

Preliminary Summary Report

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iii

Contents

Acknowledgments iv

Introduction 1

The Regional Comparison of Cities Study 2

Analyzing the Competitiveness of City and Industry Clusters 3

Findings of the Study 4

Asian Cities: Case Study Summaries 6

Dhaka, Bangladesh 6

Nanning, People’s Republic of China 9

Ho Chi Minh City, Viet Nam 12

Seoul, Republic of Korea 15

Latin American Cities: Case Study Summaries 18

Bogotá, Colombia 18

Curitiba, Brazil 21

Guayaquil, Ecuador 24

Lima, Peru 26

Trade Corridors of Asia and Latin America 29

Preliminary Findings 31

Asian Cities Case Studies 31

Latin American Cities Case Studies 33

Next Steps 35

iv

Acknowledgments

This joint study is implemented within the framework of the memorandum of understanding signed between the Asian Development Bank (ADB) and the Corporación Andina de Fomento (CAF) on 20 January 2011 and cofinanced by both organizations.

At ADB, this joint study was implemented as a subproject of the regional technical assistance “Enhancing Knowledge Sharing and South–South Cooperation between Asia and Latin America” under the Strategy and Policy Department. The operation of this joint study was led at ADB by the Regional and Sustainable Development Department in conjunction with the Strategy and Policy Department. Five consultants were involved in the four Asian country case studies while regional departments in ADB contributed to the study by providing peer reviews and facilitating coordination with their counterparts in these countries.

At CAF, this study was implemented by the Direction of Public Policy and Competitiveness, under the Vice Presidency of Development Strategies and Public Policies. Five institutions worked on the consultancy reports in Latin America, and a network of different stakeholders in the region provided support and peer review.

Coordination was provided by Jinsu Mun, Gil-Hong Kim, Kiyoshi Nakamitsu, and Indu Bhushan at ADB; and by Marco Kamiya and Michael Penfold at CAF. Technical support to the project has been provided by the international consultant, Brian Roberts of Land Equity International Australia, along with inputs from national consultants involved in preparing case studies from Bangladesh, the People’s Republic of China, the Republic of Korea, and Viet Nam in Asia; and Colombia, Brazil, Ecuador, and Peru in Latin America. The contribution of Lloyd Wright and Ko Sakamoto in providing photos; and Carolyn D. Cabrera and Carina Arciaga for proofreading is also acknowledged.

1

Introduction

are to develop and grow, they must take steps to enhance their competitiveness.

The common interest to find ways to enhance the competitiveness of cities and the strategic infrastructure needed to support their development has brought together the Asian Development Bank (ADB) and Corporación Andina de Fomento (CAF)—the Development Bank of Latin America—to collaborate on a research project involving a regional comparison of cities (RCC) in Asia and Latin America. There is also a growing interest by governments in the two regions to improve the competitiveness of their cities and to develop trade and investment in areas along national and international trade corridors between cities.

Improving the competitiveness and sustainability of development of cities in Asia and Latin America is important if their standards of living are to improve and the problems associated with poverty, urbanization, low income, and wealth disparity are to be overcome. Governments will have a key role in shaping these policies, along with the regional development banks that will be funding the development of strategic infrastructure and providing the capital needed to support the development initiatives.

ADB is supporting the City Cluster Economic Development (CCED) initiatives in several Asian cities. The CCED enables cities to develop a deeper understanding of the factors that can make them more competitive, recognize the key role industry clusters can play in enhancing the development of local economies, and undertake initiatives in attracting investment and

In an age of increasing global competition for trade, investment, knowledge, and human capital, there is growing interest among governments and business on how to make cities more competitive. An estimated 80% of gross domestic product (GDP) is produced in cities, of which 14% come from megacities. Firms and companies actively seek to locate in cities that offer them competitive advantage in terms of production and access to markets. There is, thus, greater competition among cities to develop smart infrastructure and systems to attract investment, expand trade, and create jobs. Competitive cities are those with good economic governance, human capital, infrastructure, logistics, and dynamic business systems. Governments in many cities around the world have begun working closely with local business and communities to identify what makes their city competitive and the strategic infrastructure necessary to ensure that they maintain their competitive advantage.

For most of the world’s cities, especially those in developing countries and regions, the struggle to become more competitive is a significant challenge. Many acknowledge the importance of becoming more competitive but are not sure how to go about achieving it. The need to improve the competitiveness of their cities has never been more apparent and acutely recognized than in the two fastest-growing regions of the world: Asia and Latin America. Many cities in these regions are struggling to overcome problems of providing basic infrastructure and services, and to deal with pollution and poor governance problems. Despite these problems, in a few decades, both regions especially Asia, have become manufacturing powerhouses—supplying a wide range of products to global markets. However, cities in these two regions recognize that if they

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creating jobs. ADB uses CCED to help improve the design, targeting, integration, packaging, and delivery of urban sector projects. ADB is also conducting studies to help support investment, development, and competitiveness in cities located along trade corridors.

CAF is implementing the initiative “Cities with Future” where an integrated approach combining infrastructure, social development, and competitiveness is proposed for selected cities. Assessments and a tool kit are applied to identify the needs of the cities in the medium and long term. On the competitiveness component of “Cities with Future,” two tasks are included, first, an institutional capacity to assess the strength of the public sector to design and monitor business development services, and second, a quantitative value-chain analysis to support productive transformation.

In Latin America, there is a growing interest in the competitiveness of cities, with several studies showing the region lagging Asian cities and economies. The weaknesses in the drivers of competitiveness in Latin American cities are low labor productivity, weak business dynamics, and poor interregional infrastructure. This situation is dampening trade development and economic growth opportunities among countries in the region. The economic development of Latin American cities is being driven by the expansion of resources and agriculture products, whereas the development of Asian cities is being driven by export-oriented manufacturing and services. Consequently, the growth rate of many large cities in Latin America is falling below national growth rates, whereas in Asia, it is the other way round.

There is a growing interest in Asia and Latin America to develop trade corridors and city-to-city linkages to support the development of cities among the two regions. Much of the international trade in the two regions still occurs through shipping, but there is increasing interconnectedness of countries along the road and rail corridors. There are significant opportunities to leverage the development of trade corridors to support the growth of secondary cities and towns, which could become important subcenters or logistic hubs for the collection and distribution of goods, or as value-adding centers integrated into industry supply chain systems that are dependent on land or river transport systems connecting large cities across countries and continents.

This preliminary report provides a brief overview of the Asia and Latin America RCC project, to date. The study aims to learn more about the factors that make cities competitive and drive their development. The results will be used to inform the two organizations—ADB and CAF—on how they could improve their lending operations in the two regions to enhance the competitiveness and development of cities. Many opportunities exist for cross-learning and sharing of ideas from the findings of this research and how these can be shared among the cities of the two regions.

The Regional Comparison of Cities StudyThere are many studies on the competitiveness of Asian and Latin American countries and cities. Most show they are falling behind in critical areas of infrastructure, human capital development, and quality of life. For cities in these two regions to become more competitive, more in-depth studies are needed to identify specific deficiencies in strategic infrastructure, governance, business dynamics, and supply chain systems that underpin the development and performance of city economies. These studies need to investigate the role of industry clusters and how governments and businesses can work collaboratively to reduce externality costs for firms in clusters, and how to add value to local industry supply chains.

The new urban operational plan of ADB recognizes that the development of sustainable cities will require ADB to focus on strategies and initiatives that support the development of competitive, green, and inclusive cities. CAF has a similar goal—to promote the sustainable development of cities and regional integration programs for cities. These important themes are addressed in the case studies of the selected cities commissioned by national consultants in both regions. The findings will be used to direct future economic policy and development plans to enhance city competitiveness and sustainable development. The study will also enable the two organizations to learn from each other, which could lead to improvements in project identification, design, and lending operations, and to future opportunities for collaboration.

3

Introduction

The RCC study is the first of its kind to undertake a comparative study of cities in the two continents. To provide a common platform for the comparative analysis, a common methodology was developed for the research teams undertaking case studies in both regions. The ADB and CAF research teams in different countries have been working collaboratively to develop the framework for the study and its objective outcomes.

This study aims to understand the process of birth, growth, and consolidation of regional competitive cities. The four Asian cities are Dhaka, Bangladesh; Nanning, People’s Republic of China (PRC); Seoul, Republic of Korea; and Ho Chi Minh City, Viet Nam. The four Latin American cities are Curitiba, Brazil; Bogotá, Colombia; Guayaquil, Ecuador; and Lima, Peru. The study will have a particular focus on productivity, development, and competitive policies in the eight selected cities. This study will also review existing practices on competitiveness, focusing on the design and delivery of policies for enterprise development analyzing institutional arrangements, historical evolution and background, and policy design and policy instruments. This will be done with a standard methodology. The cities were selected by ADB and CAF operations management as these cities have past or developing associations with the two organizations, and they showed a keen interest in participating in the research program.

The study involves a combination of primary and secondary research, drawing on findings from the eight city cases and two regional trade corridor studies. In the context of the research, the report explores the importance of cities as drivers of economic growth and development. The study raises and addresses the following questions:

(i) How can cities make a difference in the development of nations?

(ii) What justifies a larger role for cities in local economic development?

(iii) What kind of market failures and coordination problems can local governments address?

(iv) What policy areas and instruments for promoting economic development (e.g., innovation, cluster development, investment promotion, small and medium-sized enterprise (SME) business support, business-related infrastructure, and others) are important for nations and the two regions to develop?

Analyzing the Competitiveness of City and Industry Clusters Most studies on the competitiveness of cities used an analytical framework and tools to evaluate attributes of key drivers of competitiveness in the development of cities and industry clusters. The basic framework used for the RCC study was developed by ADB for the CCED work on South Asian cities in 2009. This work is documented in the book Competitive Cities in the 21st Century: Cluster-Based Local Economic Development, published by ADB in 2011.

Two sets of analyses were used to measure the drivers of competitiveness underpinning the development of cities. The first is a citywide analysis of competitiveness. This involved the use of qualitative analysis to measure 56 attributes of competitiveness listed under six key competitiveness drivers. The analysis was undertaken by expert reference groups and panels comprising government officials, industry experts, academics, and members of professional associations. The panels were asked to evaluate—on a scale of 1–5—the strength of the 56 attributes for the six key drivers of competitiveness listed below:

� Cost of doing business (taxes, informal fees, utilities, labor costs, and property rentals).

� Dynamics of local economy (growth and performance, innovation, and access to finance).

� Human resources and training (ski l ls, competences, and personnel).

� Infrastructure (transport, logistics, utilities, and environmental waste management),

� Responsiveness of government to business needs (transparency, governance, and regulations).

� Quality of life (health, peace and order, and environment).

The second analysis was a competitive gap analysis of two industry clusters in each city studied. The analysis used Michael Porter’s diamond technique to evaluate the competitiveness of the clusters. Some 40 attributes of competitiveness were measured for the following five drivers in the Porter model:

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� Factor conditions (labor, infrastructure, resources, and social environment).

� Demand conditions (markets, new products, and business practices).

� Strategy of a firm and rivalry (industry structure and collaboration)

� Related supporting industries (supply chains and value adding).

� Government (regulations, incentives, and research and development).

The framework used to prepare the case studies involved a seven-step process. It is designed to examine a city’s competitiveness from a holistic perspective, using tools and techniques designed to identify deficiencies in attributes of competitiveness, which require attention, to improve the performance of city clusters. The process intends to provide an outline of a framework of international and global policies that shapes the economy of the country and the city under analysis. Some factors, such as world heritage listing or special economic zone status, can have a significant impact on the development of city economies.

A range of statistical and qualitative techniques is used to gather information and to build a profile of the city’s economy and its dynamics. The competitiveness of the city’s economy is analyzed using the city competitiveness analytical tools, as described earlier. The patterns of industry agglomeration and the spatial nature of industry clusters are mapped using geographic information system and other techniques. The analysis is used to identify two industry clusters that demonstrate the strongest growth prospects for the economy that are then analyzed using the second of the competitive techniques described earlier. Strategies and actions to enhance the competitiveness of the industry clusters are described in each case study. This report includes summaries of the initial findings of the eight case studies.

The study includes research on the competitiveness of trade corridors and the development of cities along these corridors. It examines the emergence of these cities and corridors in the context of the two regions. Case studies are being undertaken for the Ho Chi Minh–Bangkok, Mumbai–Delhi, Kuala Lumpur–Singapore, and the Pearl River

Delta1 economic development corridors. The study explores the potential of the development proposals in these corridors aimed at encouraging and stimulating the development, growth, and competitiveness of secondary city growth poles. In Latin America, the case studies will include the trans-Andean Highways, including the Trans-Oceanic corridor from Brazil to Peru, the MERCOSUR–Chile corridor, and the México–United States corridor.

Findings of the StudyThis preliminary report outlines some initial findings and lessons from the study, which is still in progress. The learning outcomes from the final study report will be used to develop more detailed strategic directions for the future operations, especially to enhance the formulation of urban sector projects and activities funded by the two development banks. Opportunities to advance cross-learning and information-sharing initiatives between cities and development banks in the two regions will be outlined in the final report. The final report will cover the following:

� Cities, Competitiveness, and Productive Transformation

� Comparative Framework for Analyzing City Competitiveness in Asia and Latin American Countries (LAC)

� Competitiveness of Cities and Clusters in Asian Cities

� Competitiveness of Cities and Clusters in Latin American Cities

� Trade Corridors and Development of Competitive Cities in Asia and LAC

� Cities in Asia and LAC: Lessons and the Road Ahead

The final report will present the results of a substantial research effort done by a team of dedicated researchers from institutions and

1 The Pearl River Delta Corridor, a megalopolis with 100 million population, is an increasingly integrated urban cluster comprising the PRC’s densely populated urban areas covering Shenzhen and Guangzhou in the north and Zhuhai and Macao, China in the west.

5

Introduction

organizations from 10 countries. It will make an important contribution to the partnership between ADB and CAF in improving the knowledge about cities in the two regions, and in ways to improve the targeting of their investment and technical support to enhance the competitiveness of cities to stimulate investment, economic development, and job creation. The lessons and insights gained from the study are expected go well beyond ADB and CAF, and will have wider application in the way international development finance can contribute more to creating competitive and sustainable cities.

The summaries are presented here to provide some details on the eight case studies, including initial findings on the competitiveness of cities and selected industry clusters. Informative details provide readers some learning on the investment needs in strategic infrastructure to enhance the competitiveness and development of the cities studied. A brief summary is also given on trade corridors, and the initial findings and lessons gained from the research to date. An outline of the next steps is given at the end of the summary report.

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Asian Cities: Case Study Summaries

Dhaka, BangladeshBasic FactsNational population 150 million

DCR* population 23.5 million

Metropolitan population 8.9 million

DCR area 7,440 km2

Metropolitan area 360 km2

DCR 2,688 people

Metropolitan 24,722 people

GDP (2011) Bangladesh $118 billion

GDP (2011) Dhaka City $36 billion

GDP/per capita (2011) Bangladesh

$735

GDP/per capita (2011) DCR

$1,800

Urban Employment Structure

Total employment 12 million (Est.)

Primary 4.5%

Manufacturing 40.0%

Services 55.5%

Main export industries Ready-made garments, manpower

World Bank’s Doing Business Indicator

45th

DCR = Dhaka Capital Region, GDP = gross domestic product, km2 = square kilometer.

Source: World Bank. 2012. World Development Indicators.

Rapid urbanization is an important contributor to growth and development of Bangladesh, but it has also put enormous strain on existing services and the ability of authorities to protect the natural environment. About 25% of the country’s population live in urban areas, and these areas contribute more than 60% to GDP. However, there are significant geographic differences in the levels of development, wealth, and poverty occurring among cities and rural districts in the country.

In recent years, Bangladesh has experienced rapid economic growth and development, with a GDP growth rate of around 6% per annum. Much of this is due to the rapid development of the Dhaka Capital Region (DCR), the largest urban

agglomeration in the country with a population of over 23.5 million. It drives the development of the national and export economies of Bangladesh.


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The DCR is a major generator of jobs and is one of the largest textile and garments manufacturing centers in the world. It also plays a key role in supporting health, higher education, and social welfare in the country. The DCR has many competitive advantages over cities in other parts of the country.

The study undertaken for ADB on the DCR shows there are high levels of firm agglomeration occurring in the manufacturing and service sectors. A new form of economic geography is emerging in the region with many firms and factories moving and expanding to the periphery of Dhaka where land is cheaper, services better, and with less traffic congestion. Export firms in the DCR are also experiencing greater competition in trade, local business, and labor. As figures in Table 1 show, the DCR is a dynamic place, especially for micro business, but it has many deficiencies in terms of infrastructure, on the responsiveness of government to business needs, and the quality of life it offers to residents and investors. The response of the government and development authorities, and much of the business sector to these issues leave much to be desired. The important question is how to encourage the government and the business sector to initiate the necessary changes especially on ways to boost productivity and resolve inefficiencies in the economy to make the DCR a more competitive place for business and investment.

The current study identifies the need for the DCR to adopt best practices and embrace innovative ideas to deliver a vision and urban infrastructure services to the region. Policies and key infrastructure needed to create stronger business and enabling environments to support investment and jobs in the DCR are also required.

Initiatives to Enhance Competitiveness

The government has taken measures to enhance the competitiveness of the city by supporting an ADB project to strengthen regional planning and governance. At the empirical level, there is a lack of coherent policy measures to raise the competitiveness of the DCR. Opportunities for the further expansion of export processing zones are extremely limited, there is no gas supply for new industrial units, and connectivity to Chittagong seaport is fragile. In addition, there are no integrated environmental and land development policies, which led to livelihood degradation.

The following are required to enhance the city’s competitiveness:

� Develop export processing zones. � Implement policies supportive to textile and

garment manufacturing. � Upgrade major arterial road network from the

international airport to the city center. � Improve industrial gas supplies to the DCR to

support industrial development. � Facilitate industrial, commercial, and residential

land development and public housing. � Set up a textile and fashion design university.

Cluster Development

Two industry clusters selected by the study have strong potential to attract investment and create jobs in the DCR.

Textile and Ready-Made Garment (RMG) ClusterThe textile and ready-made garment sector is the largest export industry in the DCR and in

Table 1. Key Drivers of Competitiveness: Dhaka Capital Region

Key DriversRanking

1–5

Cost of doing business 2.33

Dynamics of local economy 4.13

Human resources and training 2.25

Infrastructure 1.65

Responsiveness of government to business needs

1.43

Quality of life 1.73

Overall average index ranking 2.251= Very low level of competitiveness, 5 = Very competitive.

Source: ADB. 2011. Competitiveness of Cities in the 21st Century. Manila.


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the country. It employs over 1.77 million people in the DCR (2010 data). The sector gains its competitiveness from the large pool of cheap labor, low transport costs, and generous government subsidies to the sector. However, high land cost, lack of land for site expansion, high rents, and traffic congestion are making the cluster less competitive. To make the sector more sustainable and globally competitive, the study of Dhaka by an ADB national consultant identifies the need to remove bottlenecks in the supply chains, reduce transaction costs, encourage innovation and new ideas, and design and diversify products in the sector. Poor compliance to implementing policies, plans, regulations, and quality assurance are major constraints to development, productivity, and management of a sustainable environment. Better spatial development plans and new special zones for garment factories are needed. Government needs to work more closely with the business sector for planned industrial—urbanization initiatives in the DCR that will address problems as a result of an overloaded transport and logistics system.

Knowledge Industry ClusterThe knowledge industry cluster in Dhaka, made up of higher education, information and research institutions, and businesses, is beginning to flourish. This is in response to the demand for increased knowledge-based and technology-driven services needed to support the development and improve the competitiveness of the city’s economy. The DCR is the hub of the knowledge industry for the country and generates 140,000 jobs annually. The knowledge industry cluster study is attempting to map the elements of supply chains in this cluster and to outline a knowledge-based development framework for the DCR. For these two goals, the first step is to create a demand-based understanding of the levels of scientific manpower and skills needed to maintain the development of the DCR economy. This is expected to lead to the development of a program of hard and soft infrastructure needed to develop the knowledge industry—especially the higher education and industry research sectors.


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Nanning, People’s Republic of China

Basic FactsMetropolitan population 7,073,000

Metropolitan area 22,112 km2

Urban density 319 people/km2

GDP (2010) People’s Republic of China (PRC)

$6.04 trillion

GDP (2010) Nanning $27.3 billion

GDP per capita (2010) PRC $4,514

GDP per capita (2010) Nanning

$3,869

GDP per hectare $12,346

GDP structure

Total GDP $27.3 billion

Primary 13.58%

Secondary 36.26%

Tertiary 50.16%

Total rural employment 3,030,000


Total employment 705,500

Primary 2.18%

Secondary 31.85%

Tertiary 65.97%

Main export industries Earphone, earplug, ADPE accessory, rosin, frozen tilapia fillets, and chemical products


91th

GDP = gross domestic product, km2 = square kilometer, ADPE = Auxiliary Data Processing Equipment.


Nanning is the capital and the center of government, economy, and culture of the Guangxi Zhuang Autonomous Region in the People’s Republic of China (PRC). It is the largest city in Guangxi Zhuang Autonomous Region with a population of more than 7 million people. Known as a “Green City,” it has been listed as one of the “Ten Livable Cities in [the People’s Republic of] China.” Its environmental assets are a significant factor in attracting an increasing the number of tourists to the city.

With the reforms and opening up of the PRC economy over the past 2 decades, Nanning has sought to capitalize on these changes and has undergone significant structural changes to modernize the city’s economy. Its GDP has increased over 10% annually since 2000, with Guangxi Zhuang Autonomous Region ranked as one of the better-performing regions in the PRC. It has come to be established as a major regional center of southwest PRC, with many new technology-based industries developing in the city.

Competitiveness of the City

The ADB study on Nanning’s competitiveness is still in progress. The study seeks to measure the key drivers and attributes of competitiveness that underpin the development of the city’s economy. According to the research done by the Chinese Academy of Social Sciences (CASS), Nanning, in 2011, ranked 57 out of 294 cities in the PRC in terms of city competitiveness. Factors that add to the city’s competitiveness are the quality of its environment, good local government, and low labor costs compared to the larger cities in the coastal provinces. The weaknesses identified include inadequacy and cost of strategic infrastructure, low skills development of the city’s labor force, poor access to working capital to

support new industry development, and the need to further streamline local business regulations and approval processes. The city has worked hard


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to develop its trade and networks internationally to attract business and investment, but because of geographic location, transport costs, access to markets, and links to major transport logistics centers and ports along the south coast of the PRC and Viet Nam are proving to be hindrances.

Initiatives to Enhance the City’s Competitiveness

The Government of Nanning City has supported a range of policy and project initiatives to enhance the development and competitiveness of the city. ADB and the World Bank have supported important urban development and infrastructure projects including the Guangxi Nanning Urban Infrastructure Development Project (2004), Guangxi Nanning Urban Environmental Upgrading Project (2006), Guangxi Nanning–Yunnan Kunming Railway Project (2007), Guangxi Southwestern Cities Development Project (2010), and Guangxi Beibu Gulf Cities Development Project (2011), which are boosting the development of the Nanning and Guangxi economies.

In 2009, the World Bank and the Government of the PRC entered into a loan agreement to construct a railway project and an urban environment improvement program for Nanning. The amount of $300 million is allocated for the Nanning–Guangzhou railway project, which aims to enhance transport capacity and reduce travel time between the less-developed southwestern region and the relatively more developed Pearl River Delta region. As the capital city of the Guangxi Zhuang Autonomous Region, Nanning has expanded its area three times since 2001. As part of the 11th Five-Year Development Plan, Nanning has focused on urban area improvements, built several new urban districts, and extended urban infrastructure.

Institutional InitiativesIn 2000, the Guangxi Zhuang Autonomous Region received special policy support under the government’s “Go West” Western Development Strategy. In 2008, the State Council approved the Beibu Gulf Economic Rim, also known as Gulf of Tonkin Economic Belt, as part of an economic region around the PRC’s southwestern

coastal region and cities on the Gulf of Tonkin. This economic belt covers Guangdong, Hainan and the Guangxi Zhuang Autonomous Region, and northern and central Viet Nam. The implementation of the initiative has resulted in many new construction projects in cities around the Beibu Gulf Rim, especially Nanning. Nanning has also benefited from the new PRC–ASEAN cooperation agreement, with Viet Nam, which is cooperating in the development of this economic zone. Since the establishment of the Beibu Gulf Economic Rim initiative, Nanning, as the capital of the Guangxi Zhuang Autonomous Region, has received strong fiscal support and direct investment from the Government of the Guangxi Zhuang Autonomous Region to develop critical infrastructure projects to develop the city and the province. Since 2004, Nanning has hosted many events that attracted investors from within the PRC and overseas, including hosting the PRC–ASEAN Business and Investment Summit.

Industry Cluster Development

There are a several industry clusters that are developing in Nanning. Two clusters that have significance and have development potential are food processing and tourism.

Food Industry Cluster Nanning is a major food processing center in the PRC, forming an important export-driven food industry cluster in the PRC. Since the beginning of 2012, the Nanning–ASEAN Economic Development Zone has actively expanded the development of the food processing industry. The goal is to build an industry-supported satellite city suitable for industry, commerce, and a settlement that will form a new town in Nanning to support the development of the food industry. Two large international food conglomerates have established food processing plants in the industrial park cluster, the largest food processing place in the Guangxi Zhuang Autonomous Region, which further promoted the development of the food industry cluster. In total, there are over 40 well-known companies investing in the food industrial park. The ADB study of the food industry cluster in Nanning will identify and map critical drivers of competitiveness, with a view to identifying strategic investments required to


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support further the development of a competitive food industry cluster in this city.

Tourism Industry Cluster

Inland cities in the PRC, especially Nanning, are becoming increasingly popular destination for domestic and foreign tourists. In 2010, the Guangxi Zhuang Autonomous Region reaped a total revenue of CNY95.3 billion ($15.3 billion) from tourism, increased revenue by 36% per

annum, contributing over 10% of the city’s GDP. New international flights are expected to bring about a significant expansion of the industry, so it is necessary to develop competitive infrastructure, services, and tourism products, and improve the labor skills and management capabilities to develop the tourism cluster in Nanning. The study of the tourism industry cluster in Nanning will identify the critical drivers of competitiveness that need improvement to support the further development of the tourism industry cluster, especially focusing on the hotel and catering services.

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Ho Chi Minh City, Viet Nam

Ho Chi Minh City (HCMC) is one of the fastest-growing cities in Southeast Asia. Forming part of the Southern Focal Economic Zone, it has become a large commercial and manufacturing center of almost 8 million people. It is the southern gateway of Viet Nam to the outside the world.

HCMC’s development since the Doi Moi reforms of 1986 have been remarkable, spurred on by substantial foreign direct investments (FDI) into the manufacturing, tourism, and offshore oil and gas sectors. The GDP per capita of $3,260 (2011) is more than double that of the nation. The city’s contribution to the GDP of the national economy is equivalent to 21.1%, 30.0% in terms of exports, and 35.2% in terms of budget revenue.

In recent years, the service sector has grown, accounting for its increasing share in the GDP of the city’s economy. Tourism is a major industry for the city. There has also been a steady increase in the proportion of GDP that is generated by the private and foreign investment sectors. This has helped to improve the competitiveness of business in the global marketplace, but the city still ranks behind other cities in the region. About 70% of


Urban population 6,250,963

Urban area 494 km2

Urban density 12,449 people/km2

GDP (2011) Viet Nam $121.3 billion

GDP (2011) HCMC $24.4 billion

GDP per capita (2011) Viet Nam

$1,400

GDP (2011) HCMC $3,260

GDP per hectare $117,100


Total employment (HCMC) 3,950,000

Primary 2.3%

Manufacturing 43.3%

Service 54.4%

GDP = gross domestic product, HCMC = Ho Chi Minh City, km2 = square kilometer.


inputs used in industry production in HCMC are imported. Most industry activities involve assembly resulting in lost opportunities to add value to local industry supply chains.

Competitiveness of the city

The survey of city competitiveness shows that HCMC is weak relative to other Asian cities. This is confirmed by other independent surveys. Infrastructure, dynamics of the local human capital development, and quality of life are average and require improvement. Economic governance in terms of responsiveness to business needs and cost of doing business caused by administrative issues, traffic congestion, and low productivity require improvement to enhance the city’s competitiveness (Table 2).


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Initiatives to Improve City Competitiveness

Urban Development Under the policy of modernization, HCMC has planned and delivered new large-scale urban development projects such as the Sai Gon South, Thu Thiem, Northwest, and Hiep Phuoc Port Urban Area. The Phu My Hung New Urban Area of Saigon South has been developed in partnership with a foreign investor. Thu Thiem New Urban Area is planned as a major financial and business center of Southeast Asia. Transport and telecommunication in the HCMC expanded rapidly over the last 5 years. Since individual means of transport (especially motorbike) leads to severe traffic congestion—the use of public transport is low and accounts for only 7.8% of total transport usage—the city authority plans to invest in seven lines of a metropolitan rail transport system.

Institutional ReformsHCMC is in the process of streamlining its management system with a new administrative model to strengthen the authority of the People Council and to streamline decision making in the city. The central government has introduced many decentralization policies designed to give HCMC and other cities more authority, clarity, and responsibility in functions between the

Table 2. Ranking of Key Drivers of Competitiveness: Ho Chi Minh City

Key DriversRanking

1–5




Infrastructure 3.12


2.97



Source: ADB. 2013. National Consultant Study of Ho Chi Minh City. Manila.

central and local government. To capture and diversify investment resources, national reforms have facilitated more private investments under the public–private partnership (PPP) model. The legal framework of PPP implementation has been gradually improved by the central government to support infrastructure investment in HCMC. Several PPP projects have been completed under the HCMC Investment Fund for urban development.

Cluster Development Opportunities

Tourism Industry ClusterThe tourism industry cluster in HCMC plays an important role in the city’s economy, contributing 10.0% to the city’s GDP (2011), and accounting for 42.5% of the national annual tourism revenue. Tourism is a sector that offers potential for employment and income generation in HCMC, especially if it is linked more closely with the industry in surrounding provinces. The study of the tourism industry cluster shows the need for more investments in infrastructure and the upgrading of some tourist destinations. Support to strengthen the HCMC Tourist Association—especially collaboration with other domestic, regional, and world tourist associations—is essential. It is also essential to focus on improving the integration of industry supply chains and addressing the language barrier.

Garment and Textile Industry Cluster

The textile and garment industry cluster consists of two main activities, the (i) fiber, textile, and dyeing industry; and (ii) garment industry. This cluster contributes about 12%–13% of total manufacturing production value to the city and is a high generator of employment and exports. The competitiveness study of the industry indicates that HCMC needs to develop a strategy for better integration of the supply chains and to improve the operations and development of the cluster. Currently, inner-city land and transaction costs are rising and production plants are being transferred or developed at the outskirts of the city or surrounding provinces. The beneficial effects of spatial agglomeration are being lost as


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the industry becomes more dispersed spatially. This is adding to business transaction costs and undermining the industry’s competitiveness. A technical fashion training center is needed in

HCMC to enhance design techniques and the skills of the labor force. Government support is needed for modernizing production and providing tax breaks for new investment.

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Seoul, Republic of Korea

Basic FactsMetropolitan population (2010)

10,312,545

Urban growth rate (2000–2010)

0.01%

Urban area 605.25 km2

GDP (2010) Korea $1,080 billion

GDP (2010) Seoul $250.18 billion

GDP per capita (2010) Korea $21,381

GDP per capita (2010) Seoul $24,261

GDP/hectare $41,336


Total employment 4,487,357

Primary 0.02%

Manufacturing 6.06%

Services 84.99%

Others 8.91%

Main export industries Transport equipment, machinery, and chemicals


8th

GDP = gross domestic product, km2 = square kilometer.


Seoul, as the capital of the Republic of Korea, has been the primary driver of national development. The city, with a population of over 10 million (21% of national population) contributes roughly a quarter of the national GDP. The total employment of Seoul is roughly a quarter of national employment. Economic, cultural, and political activities have been disproportionately concentrated in Seoul.

The economies of the Republic of Korea and Seoul have undergone significant transformations in recent years, with the employment structure of Seoul shifting toward growth in the tertiary

sectors. The primary and secondary sectors have steadily declined, while the tertiary sector has grown predominantly. In particular, the GDP shares of information and communication industries and finance and insurance activities have increased remarkably. However, Seoul’s transport equipment, machinery, and chemical industries still play a significant role as major export sectors of the country.

Competitiveness of the Economy

Seoul is one of the most competitive cities in the world. However, as a manufacturing center, it is losing competitiveness as rising wages and operational costs are forcing Korean companies to move offshore. The survey on Seoul’s six key drivers of city competitiveness indicates that infrastructure, quality of life, human resource development, and the dynamics of the local economy ranked well, but identifies a gap in business, hence, the need to strengthen human development and the government’s responsiveness


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to business to enhance the overall competitiveness of the economy. The cost of doing business and responsiveness of government to business needs are below average, requiring attention, such as initiating regulation reforms, improving planning for development, offering investment incentives, improving productivity, and stabilizing rental and land costs, which have become expensive compared to other capital cities in the region (Table 3).

Initiatives to Improve City Competitiveness

Governments have undertaken several measures to develop and improve the city’s competitiveness.

Urban DevelopmentSeoul has a comprehensive strategy to develop the economy and minimize negative externalities to surrounding regions. To deal with these challenges, Seoul’s policies have targeted three goals: (i) developing knowledge-intensive industries, (ii) shaping an innovative business environment, and (iii) attracting FDI. Seoul has designated the following as “6 New Growth Engine Industries”: (i) digital content, (ii) information and communication technology (ICT), (iii) bio/nano technology, (iv) financial services, (v) design and fashion, and (vi) tourism and conventions. To promote these, areas were designated as

Table 3. Ranking of Key Drivers of Competitiveness: Seoul

Key Competitiveness Drivers Current Status Desired StatusCompetitiveness

Gap

Cost of doing business 2.68 3.33 (0.65)

Dynamics of local economy 3.31 4.11 (0.80)

Human resources and training 3.38 4.33 (0.95)

Infrastructure 3.71 4.33 (0.62)


2.96 3.93 (0.97)

Quality of life 3.54 4.00 (0.46)

Overall average index ranking 3.26 4.00 (0.74)1= Very low level of competitiveness, 5 = Very competitive, ( ) = negative figure.

Source: ADB. 2013. National Consultants Study on Korea. Manila.

special districts with deregulatory measures and infrastructure, such as the downtown area for business services, Yeoido for financial services, and Teheran Road in Gangnam for ICT.

Seoul has developed new business parks and research and development centers to boost knowledge-based industries and provide enabling business-friendly environments. The Digital Media City is a high-technology digital media and entertainment cluster under construction in the Sangam District. The Seoul International Financial Center in Yeouido was constructed for the development and expansion of the financial district. Magok area, in the southwestern part of Seoul, is being developed as a high-technology industry R&D cluster for ICT and bio/nano technology that will cater to international businesses.

Institutional FrameworkThe Presidential Council on National Competitiveness was established in 2008. The council was a public–private regulatory reform task force set up to monitor and resolve difficulties in doing businesses. The Seoul Business Agency (SBA) was established to support innovation and entrepreneurship. The SBA has encouraged the development of strategic industries, including the Seoul Fashion Center and the Animation and Game Center. It also operates the Seoul Trade Exhibition & Convention and the convention centers, exhibition stores for small and medium-sized enterprises, and facilitates their participation in domestic and international


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exhibitions. The SBA supports international trading, and attracts overseas investments by organizing trade delegations and market pioneering teams, and managing the Promotion Gallery and the Seoul Trade Center in Beijing.

Cluster Development

Information and Communication Technology Cluster ICT was the most significant contributor to Seoul’s economic growth during the period 2000–2010. Employment in ITC grew 663% during the period, with its gross regional domestic product (GRDP) contribution increasing near 80%. The Seoul competitiveness survey reveals that government-driven ICT infrastructure investment, coupled with improved access to various finances, played a pivotal

role in its growth surge, along with well-trained human resources, reduced informal fees, and the development of the Sangam Digital Media City.

Financial and Insurance Cluster One of the fastest-growing sectors of Seoul’s economy has been the financial and insurance cluster. It accounted for over 15% of Seoul’s GRDP in 2010, growing over 127% during 2000–2010. Its increasing importance to Seoul is associated with the changing dynamics of the local economy, as access to bank finance and venture capital has became vital to Seoul’s competitiveness. Taking advantage of the Cheonggyecheon restoration in downtown area, the city designated this as a Finance Development Promotion District, providing software and hardware support, including mitigating building regulation and offering professional management consultancy.

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Latin American Cities: Case Study Summaries

Bogotá, Colombia

Bogotá, the largest city, is the country’s capital and is the economic, political, educational, and cultural center of Colombia. Such an agglomeration has led to the dynamism of the city, evidenced by its inclusion in the league of global cities.2 Most companies operating in the country are based or have representations in Bogotá, and these generate a quarter of Colombia’s GDP and account for 15% of its FDI. Bogotá is

2 Economist Intelligence Unit (2012) and America Economía (2011).


Urban area 384 km2

Urban density 19,531 people/ km2

GDP (2011) Colombia $328.42 billion

GDP (2011) Bogota $74.25 billion

GDP/per capita (2011) Colombia

$7,131

GDP/per capita (2011) Bogota

$9,943

GDP/hectare $2,876.5



Primary 0.7%

Manufacturing 21.5%

Services 76.5%

Main export industries Planes and aircrafts, coffee, flowers, medicines


45th

GDP= gross domestic product, km2 = square kilometer.


also an attractive location for people from other regions seeking job opportunities or for starting a business. Although the city is known for its industrial production, it is gradually transforming into a service-oriented economy.


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City Competitiveness

The main challenge for Bogotá is its transformation from a manufacturing to services economy, which is underway. The government formulates a strategy toward a more technology-intensive economy, and this needs more skilled labor, require better training and education, and a framework for innovation. In the key drivers of competitiveness, the cost of doing business indicator is weak at 2.90 because of high cost of public services. As to the responsiveness of government to business needs, based on qualitative indicators, the index is poor at 2.55, with public sector affecting rather than promoting business environment (Table 4).

Urban Development

Bogotá has in place a plan to increase the density of the city; consequently, land is scarce and becoming more expensive. Residential and commercial projects are taking up most available urban land, to the detriment of industry. In addition, poor road infrastructure and fleet growth is increasing traffic congestion in the city, especially in industrial areas. This trend is also transforming the city’s suburban populations into urban conglomerates boosting their development in different areas.

Poor urban planning is one of the critical problems of the city, which requires a reform focused on improved access of goods, the provision of efficient and affordable public transport, and the availability of housing and recreation facilities.

A revamped governance model for Bogota emphasizing strategic planning and long-term development goals is needed. It should result in an inclusive growth and collective commitment to attain sustainability, good quality of life, and enhanced competitiveness; and one that attracts investment.

Institutional FrameworkBogotá is the capital district of the country that is administratively equivalent to a state within a federation, which provides flexibility and priority on fiscal, budgetary, and administrative matters.

Table 4. Ranking of Key Drivers of Competitiveness: Bogotá

Key DriversRanking

1–5




Infrastructure 2.70


2.55



Source: CAF. 2012. National Consultants Study of Colombia. Caracas.

The local government has made significant efforts to attract investments by creating an agency Invest in Bolgotá to promote international investment, restructuring the Chamber of Commerce to promote the competitiveness of the city’s entrepreneurs, and commissioning the Bogotá Connect to promote technology entrepreneurship.

The Commission of Regional Competitiveness (CRC) is predominantly a technical organization that includes public, private, and civil sector players. It has managed to achieve stability regardless of the political situation, making a region particularly attractive for investment and ensuring the use of effective approaches for large-scale strategic initiatives. While the CRC has high potential to mobilize influences and resources, it faces the challenges of formalizing and strengthening its governance system. The Bogotá Chamber of Commerce serves as the technical secretariat of the CRC, which aims to strengthen business skills to enhance competitiveness and to create shared business values among companies in the region. The creation and consolidation of industry clusters is now a priority for the Bogotá Chamber of Commerce.

Although other initiatives of public–private sector integration exist, relations between the two sectors are not particularly strong. In general, the private sector sees the city as a client, rather than as a collaborating partner with whom to develop joint projects.


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Industry Clusters

Software Cluster

The software cluster in Bogotá is composed mainly of micro and small enterprises (95%) devoted to the development of business personnel and entertainment applications, custom software, and the provision of services related to information technology and related fields. Companies in general are highly technical, equipped with competent human resources, and have a good reputation abroad. Bogotá offers advantageous conditions for this cluster’s development in terms of costs, infrastructure, and business environment.

Fashion Cluster Bogotá is host to approximately half of all clothing, footwear, leather goods, and jewelry manufacturers in Colombia. The products are exported mainly to South and North American markets. The fashion cluster is likely to develop leadership in the sector at the regional level, although it is recognized that Brazil and Peru are also major competitors. The overall competitiveness analysis of the cluster identifies the strengths as (i) sophisticated demand, (ii) large market size around Bogotá, (iii) availability of skilled labor, and (iv) production capacity. The cluster’s main weakness is the limited sophistication of the garment, mostly focused on producing generic items.

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Curitiba, Brazil

Curitiba is one of the most vibrant cities in Brazil. It performs well above the national average in most social and economic factors and its environment is conducive to sustainable economic development. The city’s GDP has grown very rapidly during the last decade, coinciding with a gradual transformation into a services-oriented economy. Its logistical conditions are conducive for exporting activities as it benefits from infrastructure such as major highways, ports, and airports that connect the city


Urban growth rate 10.36% (2000–2010)

Urban area 43,527 hectares

Urban density 40.24

GDP (2009) Brazil $1.62 trillion

GDP (2009) Curitiba $18.98 billion

GDP/capita (Brazil) $8,472

GDP/capita (Curitiba) $12,379

GDP/hectare $435,960.28


Total employment 833.585

Primary 0.2%

Manufacturing and building

17%

Services and trade 82.8%

Main export industries Cars and tractors (including parts and components), agricultural machinery, integrated circuits


130th

GDP = gross domestic product, km2 = square kilometer.


to the other economic centers of Brazil and to the most relevant MERCOSUL3 countries, a Southern Common Market—an economic and political agreement that promotes free trade and the fluid movement of goods, people, and currency.


Curitiba ranks well in most of the key driver indicators of competitiveness with an overall index score of 2.96. The indicators that scored lower than expected were human resources and training, with companies perceived to lack adequate management, skilled technical labor force, and weak ability to perform in other languages aside from Portuguese. In all the other key drivers of competitiveness, however, the city performed high when compared with other cities in Latin America (Table 5).

3 MERCOSUR, a free trade agreement among Argentina, Brazil, Paraguay, and Uruguay.


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Development Initiatives

Urban DevelopmentCuritiba has prioritized programs to foster technology-based industries, and has designed policies to attract and support the creation of these types of companies. These policies complement the federal programs that promote priority sectors, such as semiconductors, pharmaceuticals, software, and capital assets, in order to offer them more favorable conditions in terms of regulation, investment, financing, higher and technical education, infrastructure, and others.

The strategies and actions used to develop local competitiveness at the state level are stated in the Multi-Year Planning of the State Government, which covers a 4-year period. The plan establishes guidelines, objectives, targets, programs, and projects focused on state administration, equalization of territorial differences, and the socialization of opportunities. In the Multi-Year Planning of the State Government, 2012–2015, two programs of special interest that focus on the development of local capabilities and on competitive advantages are the (i) Paraná Competitive Program, which aims to attract investment in industrial establishments already based or that may settle in the territory of Paraná, and (ii) Paraná Innovative Program, which intends to allocate approximately $27 million

in 2012 for strategic projects of research and innovation through the TECPAR company and the Araucaria Foundation.

Institutional Framework

At the state level, the actions of the Department of Industry, Trade and MERCOSUL Affairs seek to encourage the creation of companies and export promotion firms to transform the cities, which comprise the Metropolitan Region of Curitiba (RMC, in its Portuguese acronym), into the main hub of Brazilian companies exporting products to member countries of the LAC economic bloc.

At the municipal level, the Curitiba Development Agency aims to promote economic activity through the development of infrastructure, business networks, and science and technology with emphasis on PPP. The agency advises investors and companies interested in installing or expanding their activities in the city, offering technical, socioeconomic, and environmental information, among others. The main programs of the agency are related to tax incentive, such that Tecnoparque is for the exemption and reduction of taxes, municipal fees, and contributions in order to stimulate the development of high-technology industries; and ISS Tecnológico is for enterprises and service providers that promote research, scientific, and technological development in the city, allowing the deduction of service tax.

The regional innovation system of Curitiba is composed of 157 institutions (laboratories, associations, institutes, agencies, and incubators) attached to the Ministry of Science, Technology and Innovation that provide institutional support and infrastructure for developing research and development, and support for innovation and quality assurance. While there are many strong academic and research institutions in the city and its surrounding areas, they are quite detached from the production sector. This could be easily changed if they work in a more coordinated manner. Figures demonstrate the importance of higher education and research and development activities to the city’s economy. It is worth noting that the leading universities of Curitiba are responsible for the incubation of a significant number of technology

Table 5. Ranking of Key Drivers of Competitiveness: Curitiba

Key DriversRanking

1–5




Infrastructure 2.72


2.69



Source: CAF. 2012. National Consultants Study on Brazil. Caracas.


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firms in the region, as in the case of Bematech.

Curitiba has a set of actors that are focused on developing the business environment, including several agencies and two trade federations, Fecomércio and Faciap, which are also based in the city. The Brazilian Service of Support for Micro and Small Enterprises (Sebrae)—a nonprofit institution that assists entrepreneurs in opening, planning, and in the maintenance of their companies—offers solutions, lectures, and trainings at its Paraná chapter.

Cluster DevelopmentsMedical, Hospital, and Dental Products Cluster Curitiba manufactures and markets a wide range of high technology products that are offered mainly by micro and small enterprises. Links between companies could be strengthened so

they could engage in joint ventures more often. Since export capacity is still fragile, production is aimed at meeting domestic demand by both the private and public sectors.

Software Cluster This cluster is composed of small businesses with a more mature level of articulation, with frequent joint venture activities and a network of diversified supporters. Its main competitive strengths are (i) the conditions of infrastructure and environment; (ii) the strategy, structure, and rivalry of companies; and (iii) support industries related to the cluster. Its main weaknesses are (i) shortage of skilled labor, (ii) demand conditions composed of firms requiring these products or services (especially those related to new products), (iii) procedures and rules set by the government, and (iv) inability to enter international market due to its relatively small scale.

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Guayaquil, Ecuador

Guayaquil City has been an important trade center for centuries, in part because it houses the country’s main port, which accounts for 65% of the goods traded in Ecuador. The city is the economic capital of the country, accounting for about 30% of national GDP. It is home to 40% of the country’s largest firms. It has the largest population and per capita income in the country. The city is currently undergoing a period of strong economic growth, which is being driven by construction, tourism, and agriculture. Over 20% of the city’s businesses export products to international markets.


The city has competitive advantages in its transport infrastructure and in some areas of business such as business dynamics. However, some aspects of administration and economic governance, such as constraints in registering a business, and high cost of labor, undermine the city’s competitiveness. In general, however, the key drivers of city competitiveness (Table 6) rank above other Latin American cities.


Urban growth rate 2%

Urban area 344.5 km2

Urban density 7,227/km2

Real gross production(2010) Ecuador per capita

$1,101.28

Real gross production (2010) Guayaquil per capita

$2,536.71

Real gross production/hectare $8,757.67


Total employment 780,000 Primary 15.7%

Manufacturing 18.4%

Services 65.9%

Main export industries Banana, seafood, fish, and cocoa


139th

km2 = square kilometer.


Table 6. Ranking of Key Drivers of Competitiveness: Guayaquil

Key DriversRanking

1–5




Infrastructure 3.63


3.16



Source: CAF. 2012. National Consultants Study on Ecuador. Caracas.


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In the last decade, the number of new firm establishments has been twice than in the rest of Ecuador. Most of the indicators are higher than in other cities in Ecuador, except security; though perception is that it is not worse than in urban areas in Latin America, it is a major concern in Guayaquil.


Urban DevelopmentThe city boasts of a well-developed infrastructure in transport (ports and roads), tourism, leisure, education, and others, which contribute to a relatively high standard of living.

In the last few years, residential areas (including social housing) have grown more than industrial areas. Large investments have been made to regenerate the downtown area, which has created business opportunities and attracted more visitors to this area.

Urban planning and housing programs are managed by the city administration. Guayaquil should establish a planning strategy for long-term development involving the private and public sectors to achieve a more efficient use of resources and increase the attractiveness of the city for business people, tourists, and its citizens.

Institutional FrameworkThe subnational government has been primarily responsible for the city’s positioning as a regional reference for doing business. It has sought to encourage foreign investment (either for large projects or large companies to settle in) by, among other actions, establishing a proper legal framework.

The city government requested the transfer of the powers of public goods that were not adequately

provided or administered by national and state institutions. Guayaquil is known for its successful privatization of most public services, which made these services more efficient and economical.

The city competitiveness is hindered by the weak performance of Ecuador in almost all categories of Doing Business Index, as the country is among those Latin American countries whose regulation is less conducive to encouraging investment. For example, the tax structure is rigid, centralized, and prevents cities and regions from choosing more competitive systems (although they may exempt businesses from paying municipal taxes). It is suggested that the city, which is noted for its transparency and accountability, should move toward greater decentralization of powers.

Industry Clusters

Commercial Services Cluster This cluster was included because of the intensity of commercial activity in Guayaquil, coupled with the importance given to it by the chamber of commerce and business associations. Local authorities keep their intervention in markets to a minimum, allowing this to be a strong and dynamic activity. Nevertheless, there is a need to conduct training for lower-skilled workers, reduce the level of informal employment, and improve working conditions (as many workers are immigrants from poorer regions).

Cocoa Products Cluster The produce in the Guayas region has a superior quality due to the unique characteristics of its land and climate. Cocoa-related exports generate a great deal of economic activity in rural areas and bring dollars to the country. The government is well aware of the competitive advantage of Ecuador in this sector and has supported producers (with subsidies and equipment) and scientific research (with seeds, varieties, growing techniques, and others).

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Lima, Peru

The city’s economy reflects the sound Peruvian macroeconomic conditions, as the country has grown steadily over the last 15 years as a result of the deep structural reforms undertaken. Lima is the center of economic, political, and cultural life in Peru since colonial times. The city is host to most of the country’s economic activity (accounts for approximately 45% of GDP), although Lima’s relative importance has declined in recent years due to the growth of other cities. Most relevant activities are related to services (trade, restaurants and hotels, government services, and others). The importance of manufacture has declined in recent years due to the decentralization process that the country is experiencing and to the dynamism of other regions. Lima accounts for a third of the country’s exports, partly due to its better infrastructures vis-à-vis other Peruvian regions.


The Peruvian economy has been growing for the last decade, ranking 21st in the index of macroeconomic stability according to World Economic Forum (WEF). However, its key drivers


Urban growth rate 2.1%

Urban area 2,670.4 km2

Real gross product (2011) Peru

$157.05 billion

Real gross product (2011) Lima

$69.54 billion

Real gross product/hectare $1,998.00



Primary 3.9%

Manufacturing 16.3%

Services 54.0%

Main export industries Traditional mining, oil, and gas, textiles

km2 = square kilometer.


for competitiveness are weak. Though the dynamics of the local economy is relatively strong, all other indicators are below 1. In terms of the government’s capacity to support business, rules and regulations represent a heavy burden on businesses and the public sector does not promote the local economy as it should (Table 7).


Urban DevelopmentThe municipality is organized into gerencias (boards) with specific mandates, and all these require intensive coordination. Major projects are not directly addressed by these gerencias, but by supporting institutes dependent on the Municipal Council. For example, the Metropolitan Planning Institute is responsible for defining the


27

Coordinated Regional Development Plan, 2012–2025, which includes the set of actions to increase the city’s competitiveness, to be implemented by some gerencias.

The Business Development Gerencia is responsible for the development and promotion of clusters of micro and small enterprises in the city (which constitute 52% of the small and medium enterprises in Peru) and for the establishment of training programs for human resources. The Promotion of Private Investment Gerencia is responsible for promoting high-impact projects located within its territorial jurisdiction. Projects are handled through PPP in two forms: self-sustaining (which comprise mainly highway concessions and are funded solely by private capital), and cofinanced (requiring additional counterpart from the city).

While Lima is the center of Peru’s highway system, the city has few expressways relative to its size and there are major bottlenecks. It also has a limited public transport system.

Institutional Framework

National reforms have prioritized the facilitation of private investments. These entailed redesigning the legal framework to provide a set of incentives that would attract investors, especially on natural resources and public services. A set of

guidelines and principles was even added to the country’s Constitution. Proinversión is a national agency created with the objective of promoting private investment, competitiveness, sustainable development, and social welfare.

The city has a special administrative regime that allows the city to exercise its duties while simultaneously fulfilling the functions of the regional government. To facilitate coordination between the city of Lima and the other municipalities, meetings are arranged with Development Gerencias to set priorities. Through the so-called Participatory Budgeting, funds are allocated for research and innovation projects through the Peru Innova program. These funds finance universities that address specific problems of the city, although this is a pilot program with small amounts of budget. Coordination channels between the city and the private sector are still incipient. While there have been contacts with some business associations on specific issues (such as the use of city resources), there is no institutionalized mechanism for a formal collaboration.

Industry Clusters

Culinary Cluster The competitiveness of this cluster is determined by the rich Peruvian culinary traditions and the availability of a wide range of high-quality domestic products. The capital is full of restaurants of different styles that cater to the growing local demand (which expects good quality and service) and culinary tourism. This sector accounts for more than $1.5 billion annually and has become a vehicle to promote local entrepreneurship and Peruvian investment abroad. It is a dynamic cluster because it is based on collective efficiency, and is based on constant innovation with technological components.

Gamarra Area’s Textile Cluster The textile cluster known as the Gamarra area consists of a traditional industrial agglomeration of businesses engaged in the production and distribution of clothing located in La Victoria district. The cluster is considered underdeveloped because there are no institutions that will help

Table 7. Ranking of Key Drivers of Competitiveness: Lima

Key DriversRanking

1–5




Infrastructure 2.93


2.86



Source: CAF. 2012. National Consultants Study on Peru. Caracas.


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it grow sustainably. In order to reach a maturity stage, it should focus on improving joint action, cooperative competition, technological innovation,

social capital, and developing stronger formal procedures and institutions. The government has launched an initiative to promote this cluster.

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Trade Corridors of Asia and Latin America

As cities develop, trade and communications along the major land, sea, and river transport corridors connecting them also grow. In recent years, this phenomenon has given rise to a growing interest in the emergence of economic or trade corridors, some of which transit across many countries. A feature of trade corridors is they geographically link two or more large cities, but there are often many smaller secondary city nodes that have developed along transport corridors, which benefit from the flow of freight and passengers along them. Improving the connectivity of firms and industries between secondary and primary cities along trade corridors offers opportunities for smaller primary production in secondary cities to capitalize on the increasing trade flows occurring along land and river transport corridors. However, the poor level of connectivity at the nodes means many opportunities for local businesses located in secondary cities to feed into the supply chains of firms located at either end of the corridor are being lost.

The ADB–CAF Asia and Latin America Regional Competitiveness of Cities study examines several existing and emerging trade corridors in the two regions. Trade corridors have at least three characteristics that distinguish them from simple groupings of cities and surrounding areas with or without roads or rail connections to the nearest seaport. Trade corridors have (i) production functions that make available basic goods and services, (ii) transformation functions that add value to the basic goods and services, and (iii) logistical functions that provide opportunities for firms to have access to national and international markets.

A feature of trade corridors is they are transnational, or in larger countries they are trans-subnational corridors of economic trade, cooperation, and development. The ability to unlock the competitiveness of cities along trade corridors is crucial in supporting regional economic development and helping to diversify the economies of secondary cities. Developing new infrastructure, linkages, and transformation components is critical to supporting the supply chain development and tapping markets of large cities located along trade corridors.

Two studies, also by ADB–CAF, are being conducted to identify what could be done to develop the potential of cities along economic development corridors in Asia and Latin America. These studies aim to find out how to enhance the cities’ competitiveness to attract investment, create new employment, and take advantage of investment opportunities. A key component of these studies is to identify key factors of competitiveness that underpinned the economic development of trade corridor cities, and why some cities in these corridors are more successful than others in capitalizing on trade and economic development opportunities the corridors create. The study will include vignette case studies of corridors development to identify what is necessary to improve the formulation of policies to the development the corridors.

Several case studies of economic development corridors are being undertaken in Asia by ADB. These case studies cover the Ho Chi Minh–Bangkok, Kuala Lumpur–Singapore, Mumbai–Delhi, Tianjin–Beijing, and Pearl River Delta economic development corridors. These studies


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will describe policies and incentives agreed upon by governments to develop the trade corridors and an indication of the benefits that may be gained from promoting and supporting this type of development.

The case studies selected for Latin America include (i) MERCOSUL (Brazil, Paraguay, Uruguay,

and Argentina) and Chile; (ii) the Central Inter-Ocean from Brazil to Peru; and (iii) the México–United States corridor. These studies will emphasize the role that cities and urban and industrial agglomeration have to accomplish to achieve physical integration and supply chain strengthening in the region.

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Preliminary Findings

Asian Cities Case Studies

Competitiveness of Cities

The preliminary findings of the research for Asia show significant differences in the strength of drivers of competitiveness for the cities and clusters studied between the developed and developing parts of the region. Other studies on the competitiveness of cities in the region confirm similar findings.

Seoul—A Transforming Economy with Many New Challenges

Seoul is the most advanced economy of the four city case studies. As an advanced economy, it is losing competitiveness. The global financial crisis has had a significant impact on the development of the export sector of Seoul and on other cities of the Republic of Korea. The rising cost of doing business, especially labor, land, and utility costs—as the country imports much of its energy needs—are significant factors undermining competitiveness. This has forced structural changes to the city’s economy by moving away from heavier manufacturing to ICT; finance; and new service sector industries. In response to this move, the national and local governments have focused their efforts on building human capital, developing strategic infrastructure, enhancing business dynamics and regulation reforms to enable the city to compete for new global services business. Seoul’s quality of life is high, which remains

a factor in pulling in skills and investment into the economy.

Dhaka, Ho Chi Minh, Nanning—Better Infrastructure, Human Capital, and Business Dynamics

The case studies of Dhaka, Ho Chi Minh, and Nanning cities show economies at various stages of development. Nanning has the relatively advanced economy, with recent initiatives to develop infrastructure being supported by the three levels of government, adding to the competitiveness of the city’s economy. The studies on the competitiveness of the drivers of economic development in the three cities show clearly that infrastructure shortfalls are adding to the direct and indirect costs of business. However, poor development of human capital, the lack of responsiveness of government in streamlining economic governance, and business approval systems are significant factors that constrain investment and job creation. Quality of life is also an important indicator as these cities have a wide range of community, education, and health services attractive to investment and skilled labor.

Environmental Issues and Inner Area Revitalization

Environmental risks associated with climate change, air and water pollution, environmental wastes, and reduced quality in the built environment in


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urban areas are issues of concern in all four cities. Seoul and Nanning, and to a lesser extent Ho Chi Minh City, are giving attention to addressing these issues. How to revitalize inner-city areas is a major challenge. These areas are experiencing high levels of congestion, rising land and rental costs, poor quality housing, and a decline in investment and jobs. Collectively, these factors have caused many firms to expand their businesses on the periphery of cities or offshore, as in the case of Seoul. There is a need for substantial reinvestment in inner city revitalization projects to enhance the quality of the urban fabric and generate new types of jobs conducive to endogenous economic growth.

Industry ClustersThe case studies have identified several industry clusters in each city that are important drivers of economic activity and employment. Industry clusters comprise spatial agglomeration of firms, which help foster competition; reduce externalization and business transaction costs; and stimulate local innovation, collaborative marketing, and business development. The studies of industry clusters have identified a number of common competitiveness issues.

Weakness in Fostering Industry Agglomeration and Cluster Development

All four case studies have shown that all the cities have developed industrial areas and special economic zones to enable their local economies to grow. However, little attempt has been made to encourage industry specialization and agglomeration in these zones, either through planning or other initiatives. The case studies reveal that the initial core of most industry clusters in inner-city areas is moving and firms are becoming more dispersed across metropolitan areas. This reduces agglomeration and is leading to increased transaction costs. Encouraging spatial agglomeration is important to enhancing competitiveness.

Poor Knowledge of Industry Supply Chains

There is poor knowledge of the nature of industry supply chains supporting the operations of firms in key industry sectors in the cities studied. This results in a significant loss of opportunities to add value to local economies through the expansion of local industry supply chains. The mapping of clusters and supply chains conducted for the case studies has identified opportunities to expand industry supply chains, and to measure deficiencies in competitive attributes underpinning them. Small innovations and improvements to supply chain systems and management could lead to big increases to productivity, employment, and wealth creation for clusters.

Weakness of Government and Business–Enabling Environments

There is good cooperation between governments and business on industry development in the four cities studied; however, the enabling environment, especially access to funds and bureaucratic processes are constraints to attracting investment and development in the clusters. Nanning has been successful in streamlining many of its regulatory requirements and is attracting international firms into its new enterprise zones. The level of networking and collaboration between businesses is weak, leading to low levels of research and innovation. Increasing the level of inter-firm rivalry and collaboration is an important factor in reducing risks and developing costs for new products and services offered by firms forming part of a cluster.

Inadequate Focus on Human Capital Development

All clusters, except Seoul, report significant shortages of skilled labor and competencies, particularly in high-level management and professional fields.

Preliminary Findings

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Provision of Strategic Infrastructure

Governments are attempting to address basic infrastructure problems in Nanning, Ho Chi Minh, and Dhaka cities; however, other elements of strategic infrastructure, such as specialized support facilities for testing, research and development, training, and marketing are not available. This is constraining the development and growth of the clusters studied.

Latin American City Case Studies Competitiveness of Cities

The studies of the Latin American cities show the differences between capital cities (Lima and Bogota) and non-capital cities (Guayaquil and Curitiba). It can be argued that the attributes that make these cities competitive vary depending on their status. For example, the capital cities are attractive for investors because most of the political and institutional actors are concentrated in these areas.

Curitiba—Keeping Leadership in Urban Planning and Productive Transformation

As one of the leading cities in Brazil, it performs above the national average in most social and economic factors. Its environment proves conducive to sustainable economic development. While it is gradually transforming into a service-oriented economy, its logistical conditions are privileged for exporting activities, as Paraná State benefits from strong infrastructures which connect it with other economic centers of Brazil and the main MERCOSUR countries. Moreover, Curitiba has prioritized programs to foster technology-based industries, designing policies to attract investment and support the creation of companies in these sectors. There is a strong regional innovation system with more than 150 institutions (laboratories, associations, institutes, agencies, incubators, universities, etc.).

Lima and Bogota— Economic Growth Supported by Institutional Capacity and Cluster Development

Both Lima and Bogota are dynamic capital cities that have made extensive reforms to facilitate business. Although their economic base was traditionally manufacturing, they are gradually becoming service-oriented economies. Lima and Bogotá have experienced strong growth and have received large inflows of FDI. Most large and international companies operating in Peru and Colombia are headquartered in these capital cities, which are also attractive locations for people from other regions seeking job opportunities or starting businesses. Quality of life indicators are important, as these cities offer a wide range of education and health services. Being capital cities, they have advantages in terms of fiscal and budgetary outlays. Institutional arrangements are complex making it difficult to streamline economic governance and the provisions on the issue of business permits. Studies on the competitiveness of the drivers of economic development in both cities show that shortfalls in infrastructure, human capital development, and availability of skilled labor add to the direct and indirect costs of doing business.

Guayaquil—Setting a Model for Competitiveness

Guayaquil, the economic capital of Ecuador, has the largest population and per capita income among the four LAC cities studied. Quality of life is relatively high, which makes it an attractive place for investment and skilled labor. The city is currently undergoing a period of strong growth and the main economic activities are construction, tourism, and agriculture. Over 20% of the city’s businesses export their products to international markets, partly because of the relevance of its port. The subnational government has been primarily responsible for the city’s positioning as a regional reference for doing business, encouraging private investments, and privatizing public services. The city’s competitiveness, however, is hindered by the weak performance of Ecuador in almost all categories of the World Bank’s Doing Business Index.


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Industry ClustersThe case studies identified several industry clusters in each city that are important drivers of economic activity and employment. The clusters studied compose mainly of small and medium firms with a relatively high level of specialization. Some are based on special characteristics of the regions where these are located (gastronomy and cocoa clusters) or factor endowments (software and medical, hospital, and dental products clusters). Most of them have an export focus, which reflects the importance of being competitive to trade goods and services in the international markets. The studies of industry clusters have identified a number of common competitiveness issues that should be tackled.

Policies for Cluster Development

All four cities studied have developed industrial areas although overall, public planning and initiatives to encourage industry specialization and agglomeration in these zones have not been prominent, except for the case of Curitiba. Guayaquil has done a good work in facilitating business creation and attracting investments but not so much in promoting cluster development. Lima and Bogota have launched initiatives to enhance competitiveness and promote investments, which are still being developed.

Industry Supply Chains

The study reflects the overall weakness of local supply chains, due to the scarcity of structural productive transformation processes. A large part of growth experienced in the region is led by external demand (i.e., Asia effect).

Weakness of Government and Business–Enabling Environments

Cooperation between policy makers and businesses in the region is not well institutionalized. Except for Curitiba, networking and collaboration among firms and industry associations is still relatively weak within the clusters studied. International market entry is still a barrier to overcome due to the relatively small-scale nature of the clusters.

Poor Innovation

All four cities studied have prestigious educational and research institutions, which are not always linked to industrial clusters to support them in their innovation and technological transformations. All studies report significant shortages of skilled labor and competencies, particularly in high-level management and technical fields to fill positions in their clusters. Training programs need to be more tailored to industry needs. Guayaquil and Lima should improve working conditions (many of them are immigrants from other regions) and reduce informality of many business activities and improve the level of business tax collection.

Provision of Strategic Infrastructure

Despite having received heavy investments in infrastructure in recent years, there is still a deficit in integration between cities (except for Curitiba and Guayaquil). This lack of connectivity in the urban systems in and between cities (especially trade and logistics systems) has had a negative effect on the competitiveness of cities and on the region as a whole. An agenda to focus on the development of strategic infrastructure led by multilateral development banks, in this regard, is thus a matter of urgency.

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Next Steps

The Asian Development Bank–Corporación Andina de Fomento’s (ADB–CAF) RCC research project on the competitiveness of the Asian and Latin American cities is in the middle stage. The two trade corridor studies for Asia and Latin America are already in an advanced stage and initial results indicate there are opportunities to foster the development of secondary city development nodes along trade corridors.

The preliminary result of this study indicates a need for more holistic and integrated approaches to be taken by governments in the way a strategic infrastructure is planned and developed to support the development of local economies, if they are to become more sustainable. This will require governments and the regional development banks in the two regions to shift away from the more traditional sector approaches to infrastructure and other urban sector projects to support the development and environmental improvements of cities toward a more strategic and system-based approach to the planning, design, implementation, operations and maintenance of ADB- and CAF-funded projects. There is now a greater need for including environmental, social, and governance issues in the design of projects that support the development of cities.

An important outcome of the research is to embed the learning outcomes of these case studies into the operations programs of the two banks in the cities of these two regions. This may involve new lending modalities and project design approaches that are holistic, systems, and performance driven. The knowledge and learning outcomes may also need to be widely disseminated so that these can be captured by a wider audience among these cities in the two regions.

The next steps in the project will be the following:

� Finalize the results of the eight case studies. � Conduct a workshop with the national

consultants to present the findings of the city case studies and to synthesize the results of the research into a series of learning outcomes.

� Develop a framework to operationalize the results of the research, for application by ADB and CAF.

� Prepare a report on the findings and recommendations of the research to be published in English, Spanish, and Portuguese.

� Prepare a program of activities to disseminate the learning outcomes and to apply the research results in designing sustainable urban development projects in the Asian and Latin American regions.

ADB-CAF Regional Competitiveness of Cities in Asia and Latin America (Kamiya/Roberts et.al.)

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