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Contents
Acknowledgmentsiv Introduction1 The Regional Comparison of Cities Study Analyzing the Competitiveness of City and Industry Clusters Findings of the Study Asian Cities: Case Study Summaries Dhaka, Bangladesh Nanning, Peoples Republic of China Ho Chi Minh City, Viet Nam Seoul, Republic of Korea Latin American Cities: Case Study Summaries Bogot, Colombia Curitiba, Brazil Guayaquil, Ecuador Lima, Peru Trade Corridors of Asia and Latin America Preliminary Findings Asian Cities Case Studies Latin American Cities Case Studies Next Steps 2 3 4 6 6 9 12 15 18 18 21 24 26 29 31 31 33 35
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Acknowledgments
This joint study is implemented within the framework of the memorandum of understanding signed between the Asian Development Bank (ADB) and the Corporacin 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 SouthSouth 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 Peoples 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.
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Introduction
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 worlds 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 powerhousessupplying a wide range of products to global markets. However, cities in these two regions recognize that if they
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 Corporacin Andina de Fomento (CAF)the Development Bank of Latin Americato 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
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 organizationsADB and CAFon 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.
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, Peoples Republic of China (PRC); Seoul, Republic of Korea; and Ho Chi Minh City, Viet Nam. The four Latin American cities are Curitiba, Brazil; Bogot, 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) (ii) (iii) (iv)
How can cities make a difference in the development of nations? What justifies a larger role for cities in local economic development? What kind of market failures and coordination problems can local governments address? 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?
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 (skills, 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 Porters diamond technique to evaluate the competitiveness of the clusters. Some 40attributes 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).
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 MERCOSURChile corridor, and the Mxico United States corridor.
The framework used to prepare the case studies involved a seven-step process. It is designed to examine a citys 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 citys economy and its dynamics. The competitiveness of the citys 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 MinhBangkok, MumbaiDelhi, Kuala LumpurSingapore, and the Pearl River
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
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The Pearl River Delta Corridor, a megalopolis with 100million population, is an increasingly integrated urban cluster comprising the PRCs densely populated urban areas covering Shenzhen and Guangzhou in the north and Zhuhai and Macao, China in the west.
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.
Dhaka, Bangladesh
Basic Facts
National population DCR* population Metropolitan population DCR area Metropolitan area DCR Metropolitan GDP (2011) Bangladesh GDP (2011) Dhaka City GDP/per capita (2011) Bangladesh GDP/per capita (2011) DCR Urban Employment Structure Total employment 12 million (Est.) 4.5% 40.0% 55.5% Ready-made garments, manpower 45th Primary Manufacturing Services Main export industries 150 million 23.5 million 8.9 million 7,440 km2 360 km2 2,688 people 24,722 people $118 billion $36 billion $735
$1,800
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 countrys 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
DCR = Dhaka Capital Region, GDP = gross domestic product, km2 = square kilometer. Source: World Bank. 2012. World Development Indicators.
agglomeration in the country with a population of over 23.5 million. It drives the development of the national and export economies of Bangladesh.
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 Table1 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.
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.
1= Very low level of competitiveness, 5 = Very competitive. Source: ADB. 2011. Competitiveness of Cities in the 21st Century. Manila.
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 industrialurbanization initiatives in the DCR that will address problems as a result of an overloaded transport and logistics system.
Nanning is the capital and the center of government, economy, and culture of the Guangxi Zhuang Autonomous Region in the Peoples 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 Peoples 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 citys 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.
Basic Facts
Metropolitan population Metropolitan area Urban density GDP (2010) Peoples Republic of China (PRC) GDP (2010) Nanning GDP per capita (2010) PRC GDP per capita (2010) Nanning GDP per hectare GDP structure Total GDP Primary Secondary Tertiary Total rural employment Urban Employment Structure Total employment Primary Secondary Tertiary Main export industries 705,500 2.18% 31.85% 65.97% Earphone, earplug, ADPE accessory, rosin, frozen tilapia fillets, and chemical products 91th $27.3 billion 13.58% 36.26% 50.16% 3,030,000 7,073,000 22,112 km2 319 people/km2 $6.04 trillion $27.3 billion $4,514 $3,869 $12,346
GDP = gross domestic product, km2 = square kilometer, ADPE = Auxiliary Data Processing Equipment. Source: World Bank. 2011. World Development Indicators.
support new industry development, and the need to further streamline local business regulations and approval processes. The city has worked hard
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 VietNam are proving to be hindrances.
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 PRCASEAN 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 PRCASEAN Business and Investment Summit.
Institutional Initiatives
In 2000, the Guangxi Zhuang Autonomous Region received special policy support under the governments 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 PRCs southwestern
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support further the development of a competitive food industry cluster in this city.
annum, contributing over 10% of the citys 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 (HCMC) is one of the fastestgrowing 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. HCMCs 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 citys 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 citys 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
Service
GDP = gross domestic product, HCMC = Ho Chi Minh City, km2 = square kilometer. Source: World Bank. 2012. World Development Indicators.
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.
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central and local government. To capture and diversify investment resources, national reforms have facilitated more private investments under the publicprivate 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.
Institutional Reforms
HCMC 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
the industry becomes more dispersed spatially. This is adding to business transaction costs and undermining the industrys 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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GDP = gross domestic product, km2 = square kilometer. Source: World Bank. 2011. World Development Indicators.
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, Seouls transport equipment, machinery, and chemical industries still play a significant role as major export sectors of the country.
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
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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).
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.
Urban Development
Seoul has a comprehensive strategy to develop the economy and minimize negative externalities to surrounding regions. To deal with these challenges, Seouls 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
Institutional Framework
The 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
1= Very low level of competitiveness, 5 = Very competitive, ( ) = negative figure. Source: ADB. 2013. National Consultants Study on Korea. Manila.
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.
role in its growth surge, along with well-trained human resources, reduced informal fees, and the development of the Sangam Digital Media City.
Cluster Development
Information and Communication Technology Cluster
ICT was the most significant contributor to Seouls economic growth during the period 20002010. 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 governmentdriven ICT infrastructure investment, coupled with improved access to various finances, played a pivotal
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Bogot, the largest city, is the countrys 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 Bogot, and these generate a quarter of Colombias GDP and account for 15% of its FDI. Bogot is
GDP= gross domestic product, km2 = square kilometer. Source: World Bank. 2012. World Development Indicators.
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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.
City Competitiveness
The main challenge for Bogot 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).
1= Very low level of competitiveness, 5 = Very competitive. Source: CAF. 2012. National Consultants Study of Colombia. Caracas.
Urban Development
Bogot 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 citys 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.
The local government has made significant efforts to attract investments by creating an agency Invest in Bolgot to promote international investment, restructuring the Chamber of Commerce to promote the competitiveness of the citys entrepreneurs, and commissioning the Bogot 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 Bogot 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 Bogot Chamber of Commerce. Although other initiatives of publicprivate 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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Institutional Framework
Bogot 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.
Industry Clusters
Software Cluster
The software cluster in Bogot 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. Bogot offers advantageous conditions for this clusters development in terms of costs, infrastructure, and business environment.
Fashion Cluster
Bogot 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 Bogot, (iii) availability of skilled labor, and (iv) production capacity. The clusters main weakness is the limited sophistication of the garment, mostly focused on producing generic items.
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Curitiba, Brazil
Basic Facts
Metropolitan population Urban growth rate Urban area Urban density GDP (2009) Brazil GDP (2009) Curitiba GDP/capita (Brazil) GDP/capita (Curitiba) GDP/hectare Urban Employment Structure Total employment Primary Manufacturing and building Services and trade Main export industries 833.585 0.2% 17% 82.8% Cars and tractors (including parts and components), agricultural machinery, integrated circuits 130th 1,751,907 10.36% (20002010) 43,527 hectares 40.24 $1.62 trillion $18.98 billion $8,472 $12,379 $435,960.28
to the other economic centers of Brazil and to the most relevant MERCOSUL3 countries, a Southern Common Marketan economic and political agreement that promotes free trade and the fluid movement of goods, people, and currency.
City Competitiveness
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
GDP = gross domestic product, km2 = square kilometer. Source: World Bank. 2010. World Development Indicators.
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 citys 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
MERCOSUR, a free trade agreement among Argentina, Brazil, Paraguay, and Uruguay.
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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 Tecnolgico 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 citys economy. It is worth noting that the leading universities of Curitiba are responsible for the incubation of a significant number of technology
1= Very low level of competitiveness, 5 = Very competitive. Source: CAF. 2012. National Consultants Study on Brazil. Caracas.
Development Initiatives
Urban Development
Curitiba 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, 20122015, two programs of special interest that focus on the development of local capabilities and on competitive advantages are the (i) Paran Competitive Program, which aims to attract investment in industrial establishments already based or that may settle in the territory of Paran, and (ii) Paran Innovative Program, which intends to allocate approximately $27 million
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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, Fecomrcio 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 companiesoffers solutions, lectures, and trainings at its Paran chapter.
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.
Cluster Developments
Medical, 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
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Guayaquil, Ecuador
Basic Facts
Metropolitan population Urban growth rate Urban area Urban density Real gross production (2010) Ecuador per capita Real gross production (2010) Guayaquil per capita Real gross production/hectare Urban Employment Structure Total employment Primary Manufacturing Services Main export industries World Banks Doing Business Indicator
km2 = square kilometer. Source: World Bank. 2011. World Development Indicators.
780,000
15.7% 18.4% 65.9% Banana, seafood, fish, and cocoa 139th
Guayaquil City has been an important trade center for centuries, in part because it houses the countrys 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 countrys 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 citys businesses export products to international markets.
City Competitiveness
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 citys competitiveness. In general, however, the key drivers of city competitiveness (Table 6) rank above other Latin American cities.
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1= Very low level of competitiveness, 5 = Very competitive. Source: CAF. 2012. National Consultants Study on Ecuador. Caracas.
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.
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.
Development Initiatives
Urban Development
The 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 longterm 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.
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).
Institutional Framework
The subnational government has been primarily responsible for the citys 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
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Lima, Peru
Basic Facts
Metropolitan population Urban growth rate Urban area Real gross product (2011) Peru Real gross product (2011) Lima Real gross product/hectare Urban Employment Structure Total employment Primary Manufacturing Services Main export industries 4,444,000 3.9% 16.3% 54.0% Traditional mining, oil, and gas, textiles 8,432,837 2.1% 2,670.4 km2 $157.05 billion $69.54 billion $1,998.00
The citys 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 countrys economic activity (accounts for approximately 45% of GDP), although Limas 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 countrys exports, partly due to its better infrastructures vis--vis other Peruvian regions.
km2 = square kilometer. Source: World Bank. 2012. World Development Indicators.
for competitiveness are weak. Though the dynamics of the local economy is relatively strong, all other indicators are below 1. In terms of the governments 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).
Development Initiatives
Urban Development
The 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
City Competitiveness
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
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guidelines and principles was even added to the countrys Constitution. Proinversin 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.
1= Very low level of competitiveness, 5 = Very competitive. Source: CAF. 2012. National Consultants Study on Peru. Caracas.
Coordinated Regional Development Plan, 2012 2025, which includes the set of actions to increase the citys 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 Perus highway system, the city has few expressways relative to its size and there are major bottlenecks. It also has a limited public transport system.
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.
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
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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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 InterOcean from Brazil to Peru; and (iii) the Mxico 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
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 citys 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.
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 Clusters
The 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.
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Preliminary Findings
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 Bogot 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.
Industry Clusters
The 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.
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.
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Next Steps
The Asian Development BankCorporacin Andina de Fomentos (ADBCAF) 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 CAFfunded 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.
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