Role of Agro-Based and Resource-Based Small and Medium Enterprises (SMEs) For Export Promotion, Employment Generation and Poverty Alleviation in Asia by Tarun Das

Promoting Resource-Based Export-Oriented SMEs for Employment
Generation and Poverty Alleviation in Asia and Pacific*

_____________________________________________________________________
DR. TARUN DAS**

Economic Adviser
Ministry of Finance
Government of India
January 2003
____________________________________________________________________
____
* Prepared for the International Trade and Industry (ITD) Division, ESCAP, United
Nations, Bangkok as a background paper for the “Expert Group Meeting on Promoting
resource-based Export-oriented SMEs for poverty alleviation in Asia and the Pacific”.
** The author would like to express his gratitude to ESCAP, particularly to the Director
and Chief of the ITD Division for providing an opportunity to prepare this report and the
Ministry of Finance, Government of India for granting necessary permission for writing
this report. However, the paper expresses personal views of the author and should not be
attributed to the views of the Government of India.
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Promoting Resource-Based Export-Oriented SMEs for Employment
Generation and Poverty Alleviation in Asia and Pacific*
_____________________________________________________________________
CONTENTS
1.1 Objectives and Scope of the Study

1.2 An Overview of the Study
1.3 Profile of Regions and Sample Countries
(a) South Asia and SAARC
(b) East and South East Asia
1.4 Structure of GDP and External Trade
(a) Trend in sectoral shares in GDP
(b) Structure of manufacturing value added
(c) Structure of merchandise exports and imports
1.5 Export dynamism of Asian developing countries
(a) Trend in export shares
(b) Contribution of labour-intensive products to exports
(c) Twenty most dynamic products in world trade
2 Resource based and agro based industries: Sectors’ main characteristics

Definition and types of industries
(a) Typology of industries
(b) Distribution of world MVA for selected branches
(c) Leading producing countries of agro and resource based industries
(d) Concept of small and medium enterprises (SMEs)
2.1 Structure of the sector
2.2 Economic significance
(a) Contribution to GDP
(b) Contribution to employment
(c) Contribution to productivity
2.4 Issues at stake
(a) Prospects of agro based and resource based SMEs
(b) Major issues for consideration
(c) Availability of skilled labour and modern technology
(d) Availability of raw materials and credits
(e) International barriers on trade
(f) Role of multinationals and foreign investment
(i) international production networks
(ii) production sharing and preferential market access
(g) Environment and sustainability
2
3 Rationale for development and contribution of agro-based
and resource-based industries to poverty alleviation
Rationale for development of agro and resource based SMEs
3.1 Growth and poverty alleviation
3.2 Employment generation
4 Economic Policies and strategies for Development of

agro-based and resource-based industries
4.1 Industry development formulation
4.2 Business environment
(a) Licenses and regulatory system
(b) Fiscal and investment incentives
(c) Export promotion schemes
(d) Role of special economic zones (SEZs)
(e) Foreign investment policy
4.3 Development of skills and technology
4.4 Access to capital
(a) Lending by commercial banks
(b) Specialised financial institutions
(c) Role of micro finance
4.5 Infrastructure and information technology
(a) Cluster development
(b) Trading houses
(c) Networking
(d) IT and E-Commerce
5 Role of International Organisations for the development

Of agro-based and resource-based industries
5.1 Role of World Bank, ADB and IMF for policy planning
5.2 Institutional capacity building
(a) Role of ESCAP
(i) Exchange of national experiences
(ii) Promotion of indigenous capacity building
(iii) Research on sectoral restructuring
(b) Asian and Pacific Centre for Transfer of Technology (APCTT)
(c) Environmentally sound technologies (ESTs)
(i) Technology Fairs and Promotion of ESTs
(ii) Technology Bureau of Small Enterprises (TBSE)
(iii) Mechanism for Exchange of Technology Information (METI)
5.3 World Trade Organisation (WTO)
(a) Role of WTO
(b) WTO and market access
(i) Import tariffs
(ii) Agreement on Agriculture
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6 Conclusions and Recommendations
6.1 Role of Agro-based and Resource-based industries
6.2 National Level Policies
6.3 Development Strategy for the Agro-based and Resource-based industries
(a) Macro economic policies
(b) Fiscal incentives
(c) Technology development
(d) Infrastructure and human resource development
(e) Competent and committed bureaucracy
(f) Legal, Institutional and Regulatory System
6.4 Role of External Trade
(a) Trade and techniques of production
(b) Role of export promotion policies
(c) Free trade zones (FTZs)
6.5 Participation at Regional Level
(a) Regional economic co-operation
(b) Role of ESCAP
(i) FDI and technology transfer
(ii) FDI and export promotion
(iii) Multilayered bilateral cooperation
(iv) Cooperation at subregional level
(v) Role of NGOs
(vi) Source Book on ESTs
(vii) Cooperation among country associations
6.6 Multilateral Level Actions
(a) Role of WTIO
(b) Market access for agriculture and T&C
6.7 Technical Assistance
Selected References
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ACRONYMS
ADB Asian Development Bank

AFTA ASEAN Free Trade Area
APCTT Asia and Pacific Centre for Transfer for Technology
APEC Asia Pacific Economic Cooperation (presently comprises 21 countries viz.
Australia, Brunei Darussalam, Canada, Chile, China PR, Hong Kong, Indonesia,
Japan, Korea Republic, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru,
the Philippines, Russia, Singapore, Chinese Taipei, Thailand and the United States).
ASEAN Association of South-East Asian Nations (comprises Brunei, Indonesia,
Malaysia, Philippines, Singapore, Thailand, Vietnam, Lao PDR, Myanmar, Cambodia)
ATC Agreement on Textiles and Clothing
ECB External Commercial Borrowing
EEC European Economic Community
EOU Export Oriented Unit
EPZ Export Processing Zone
ESCAP Economic and Social Commission for Asia and the Pacific
FDI Foreign Direct Investment
FIIs Foreign Institutional Investors
FTZ Free Trade Zone
GATT General Agreement on Tariffs and Trade
GDP Gross Domestic Product
GNP Gross National Product
GSP Generalized System of Preferences
ILO International Labour Office
IMF International Monetary Fund
INTEST international Network for Transfer of Environmentally Sound Technologies
IPR Intellectual Property Rights
M&A Mergers and acquisitions
MFN Most Favoured Nation
MIGA Multilateral Investment Guarantee Agency
NIEs Newly Industrializing Economies
OCBs Overseas Corporate Bodies
OECD Organisation for Economic Co-operation and Development, comprise
Australia, Austria, Belgium, Canada, and Czech Republic, Denmark, Finland,
France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Republic of
Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal,
Spain, Sweden, Switzerland, Turkey, United Kingdom, United States of America.
OPEC Organisation of Petroleum Exporting Countries
PPP Purchasing Power Parity
QRs Quantitative restrictions
R&D Research and Development
SAARC South Asian Association for Regional Cooperation comprises Bangladesh,
Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.
SEs Small enterprises
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SEZ Special Economic Zone
SMIs Small and Medium-Sized Industries
SIDBI Small Industries Development Bank of India
SSI Small Scale Industry
SOEs State Owned Enterprises
TBSE Technoly Bureau of Small Enterprises
TNCs Transnational Corporations
UN United Nations
UNCTAD United Nations Conference on Trade and Development
UNDP United Nations Development Programme
UNIDO United Nations Industrial Development Organisation
VATIS Value Added Technology Information System
WB World Bank
WTO World Trade Organisation
Notes on Units
Million = 1000 thousand

Billion = 1000 million
Trillion = 1000 billion
Tons = 1000 kilograms
Dollar $ = US dollars, unless otherwise specified
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1 INTRODUCTION AND OVERVIEW
1.1 Objectives and Scope of the Study
The present report is a part of studies being prepared for the Expert Group Meeting on
Promoting Resource-based Export-oriented SMEs for Poverty Alleviation in Asia and the
Pacific to be held in November 2002 by the International trade and Industry Division of
the ESCAP, United Nations. The basic objective of the meeting is to deliberate on the
prospects and challenges for promoting resource-based and agro-based Small and
Medium Enterprises (SMEs) for employment generation, export-promotion and thereby
help countries in promoting integration at the regional and global levels. The meeting is
also expected to identify areas for policy orientations, institutional capacity building and
private sector led rural enterprise development with a view to improve employment in
rural areas and productivity improvement for poverty alleviation. It is also expected that
some new ways and means entrepreneurship development would be evolved.
As the study is concerned with the role of agro-based and resource-based SMEs for
employment generation and poverty alleviation in the past and future issues, the time
frame of the study is confined mainly to 1990s. For analytical purpose, Asian economies
considered in the study have been grouped into the following regions:
South Asia comprising Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri
Lanka.
The Newly Industrializing Economies (NIEs) comprising Hong Kong, China; the
Republic of Korea; Singapore; and Taiwan, China.
Developing Economies in the Southeast Asia comprising Cambodia, Indonesia, Lao

PDR, Malaysia, Myanmar, the Philippines, Thailand and Vietnam. These countries
alongwith Brunei and Singapore now constitute the Association of Southeast Asian
Nations (ASEAN) and ASEAN Free Trade Area (AFTA).
Three other economies in East Asia viz. Japan, Mongolia and People’s Republic of China
are also included in the study.
1.2 An Overview of the Study
This report is divided into six chapters including this introduction which describes the
scope of the study, and provides general economic profiles of Asian economies. The
chapter also discusses the structure of GDP and external trade and the contribution of the
agro-based and resource-based small and medium industries in merchandise exports.
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Chapter-2 discusses the types of industries, their structure and key industry players, their
contribution to employment generation, industrial value added and overall GDP. The
chapter also provides an introduction of various issues at stake such as the following:
(a) Integration of agricultural production and agro-based industries
(b) Availability of basic raw materials and finance
(c) Location of the industries, transport cost and accessibility to markets
(d) Economies of scale and size of markets
(e) Availability of skilled workers and technical capacity building
(f) Role of multinationals and foreign investment
(g) Technological Upgradation
(h) Environment and sustainability
Chapter 3 discusses valuable contributions made by agro-based and resource based

industries to poverty alleviation and the rationale of promoting these industries towards
economic empowerment of the poor. Development of agro-based industries, particularly
SMEs, in rural areas leads to valorization of agricultural land and commodities,
enhancement of revenues, and development of skill of the rural poor. These enterprises
employ the work force, which may otherwise remain idle or under employed and thereby
contribute significantly to poverty alleviation and promote economic and social justice.
Agro-based industries open up new channels of distribution and marketing of agricultural
commodities produced by the small farmers and raise their incomes. Higher employment
provides the poor with a source of empowerment and income security.
Chapter 4 deals with industry development strategies and business environment in Asian
developing countries. It provides a critical analysis of problems and barriers faced by the
agro-based and resource-based industries. Major problems relate to the following:
(a) Unfavorable business environment through proliferation of licenses,

regulations, permits, taxes and duties on agricultural commodities, and
various restrictions on movements and trade of agricultural goods,
(b) low level of skill development,
(c) low access to capital provided by banks and development institutions,
(d) Constraints on transport, communications and information technology.
The chapter focuses on need for integration of industrial activities at regional level,
regional capacity building and identification of credible pilot programmes, rationalisation
of fiscal, monetary and other policies for development of SMEs, and improvement of
infrastructure and information technology in rural areas.
Chapter 5 deals with role of international organisations (including the United Nations) for
the development of agro-based and resource-based industries through technical assistance
programs for formulation of appropriate policies, institutional capacity building, skill
development, networking and investment promotion.
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Chapter 6 summarises the basic issues and problems for development of agro-based and
resource-based industries and makes recommendations for appropriate national level
actions and strategies and regional level actions for promoting these enterprises for
poverty alleviation in Asia and the Pacific.
The report ends with a list of selected bibliography on the subject.
1.3 Profile of Regions and Sample Countries
Selected countries for this study covering 55 per cent of the world population and 15 per
cent of area display a number of contrasts (see Tables 1.1 and 1.2 for general economic
profiles of the countries). The sample includes two most populous countries of the world
viz. China and India, and also small economies like Bhutan and Maldives with population
less than a million and a city-state like Singapore. The sample includes the world’s
second largest economy Japan with per capita GNP of $35620 in 2000 on the one hand,
and some of the poorest countries of the world – Bangladesh, Cambodia, Mongolia,
Nepal and Vietnam. Social development indicators also differ widely among the regions.
While East Asia generally have higher degree of adult literacy and life expectation, South
Asian countries except Sri Lanka, Maldives and Myanmar lag far behind.
Despite serious foreign exchange and financial crisis in some of the East Asian countries
in 1997-1999, Asian developing economies had shown remarkable economic vigor and
dynamism during 1990-2000 by outperforming by a wide margin other developing
regions and industrial countries as a group (Table 1.2). As regards industrial growth,
performance by the developing countries of Asia continued to outpace that in every other
developing region and even the industrialised countries by about 5 percentage points. The
continued robust growth in Asia was attributable to a number of factors such as
widespread and sustained policy reforms in industry, trade and financial sectors and
continued surge of foreign capital flows to these countries.
The best performers during 1990s have been in Asia. China’s growth has been
particularly spectacular, with real GDP growing at 10.3 percent a year and real per capita
income at 9.2 percent during 1990-2000. Building on past investments in human,
physical and institutional capital, continual high growth was the result of an ambitious,
comprehensive and sustained reforms programme. There were continual liberalisation of
agriculture, redirection of savings to the provinces, removal of price controls, gradual
liberalisation of external trade, revamping of the tax and financial systems, and
conversion of economic zones into attractive manufacturing platforms for export.
The slowdown of global growth during 2001 was accompanied by an even more marked
deceleration of growth of international trade. After expanding by about 14 per cent in
2000, export volumes from the developing countries rose by less than 1 per cent in 2001.
This slowdown affected almost all major regions. The economic impact of these declines
was reinforced by downward pressure on export prices. Leading to a pronounced
deterioration by 3 per cent, in the terms of trade of developing countries in 2001.
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Table-1.1 Basic Economic Indicators of selected Asian countries in 2000
Country Population Area GNP GNP PPP GNP PPP GNP Adult Life
million '000 US$ billion per capita US$ billion Per capita Literacy Expectancy
sq.km. (US $) (US $) (%) (years)
2000 2000 2000 2000 2000 2000 2000 2000
Newly Industrializing Economies (NIEs)
Hong Kong 7 1 176 25920 174 25590 79 80

Korea,Republic 47 99 421 8910 818 17300 72 73
Singapore 4 1 99 24740 100 24910 76 78
Taiwan,China 22 36 280 12670 .. .. 75 76
China & Mongolia
China 1262 9598 1063 840 4951 3920 69 70
Mongolia 2 1567 0.9 390 4 1760 64 67
South-East Asia
Cambodia 12 181 3 260 17 1440 53 54
Indonesia 210 1905 120 570 596 2830 64 66
Lao, PDR 5 237 1.5 290 8 1540 52 54
Malaysia 23 330 79 3380 194 8330 71 72
Myanmar 48 677 .. .. .. .. 59 60
Philippines 76 300 79 1040 319 4220 66 69
Thailand 61 513 122 2000 384 6320 69 69
Vietnam 79 332 30 390 157 2000 68 69
South Asia
Bangladesh 131 144 48 370 209 1590 58 61
Bhutan 0.8 47 0.5 590 1.2 1440 48 61
India 1016 3287 455 450 2375 2340 62 63
Maldives 0.3 0.3 0.5 1960 1.2 4240 63 68
Nepal 23 147 6 240 32 1370 55 58
Pakistan 138 796 61 440 257 1860 60 63
Sri Lanka 19 66 16 850 67 3460 72 73
East Asia
Japan 127 378 4519 35620 3436 27080 80 81
World
Low & middle income 5154 101491 6315 1230 19980 3910 65 64
East Asia & Pacific 1855 16385 1962 1060 7609 4130 68 69
Europe & Central Asia 474 24217 953 2010 3140 6670 68 69
Latin America & Carib. 516 20459 1895 3670 3624 7080 69 70
Mid. East & N.Africa 295 11023 618 2090 1545 5270 66 68
South Asia 1355 5140 595 440 2984 2240 61 63
Sub-Saharan Africa 659 24297 310 470 1044 1600 52 47
High Income 903 32315 24994 27680 24793 27770 77 78
World 6057 133806 31309 5170 44459 7410 67 66
Note: (a) Two dots (..) stand for "Data not available"
Sources :
(1) World Development Indicators 2002, World Bank.
(2) World Development Report 2002, World Bank.
(3) Asian Development Outlook 2002, Asian Development Bank, Manila.
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Table-1.2 Growth of output in selected Asian countries in 1980-1990 and 1990-2000
Country GDP growth GDP growth Agriculture Industry Manufacture Services

per annum per annum Growth pa Growth pa Growth pa growth pa
1980-1990 1990-2000 1990-2000 1990-2000 1990-2000 1990-2000
Hong Kong 6.9 4.0 .. .. .. ..

Korea,Republic 8.9 5.7 2.0 6.3 7.5 5.7
Singapore 6.7 7.8 -1.6 7.9 7.1 7.8
Taiwan,China 8.8 6.1 0.5 5.3 5.5 7.0
China & Mongolia
China 10.1 10.3 4.1 13.7 13.4 9.0

Mongolia 5.4 1.0 3.2 -0.5 .. 0.1
South-East Asia
Cambodia n.a. 4.8 1.9 8.3 8.2 6.9

Indonesia 6.1 4.2 2.1 5.2 6.7 4.0
Lao, PDR 3.7 6.5 4.9 11.0 11.7 6.5
Malaysia 5.3 7.0 0.3 8.6 9.8 7.2
Myanmar 0.6 6.6 5.3 10.1 7.0 6.8
Philippines 1.0 3.3 1.6 3.3 3.0 4.0
Thailand 7.6 4.2 2.1 5.3 6.4 3.7
Vietnam 4.6 7.9 4.8 12.1 .. 7.7
South Asia
Bangladesh 4.3 4.8 2.9 7.3 7.2 4.5
Bhutan 7.5 6.2 10.2 10.5 2.5 5.7
India 5.8 6.0 3.0 6.4 7.0 8.0
Maldives 12.1 6.6 10.3 10.5 2.4 7.2
Nepal 4.6 4.9 2.5 7.2 9.2 6.2
Pakistan 6.3 3.7 4.4 3.9 3.5 4.4
Sri Lanka 4.0 5.3 1.9 7.0 8.1 6.0
East Asia
Japan 4.1 1.3 -3.2 -0.4 0.5 2.5
World
Low & middle income 3.5 3.5 2.2 3.7 5.7 4.1
East Asia & Pacific 7.9 7.2 3.1 9.3 9.9 6.4
Europe & Central Asia .. -1.5 -2.3 -3.8 .. 1.6
Latin America & Carib. 1.7 3.3 2.3 3.3 2.6 3.4
Mid. East & N.Africa 2.0 3.0 2.6 0.9 3.8 4.5
South Asia 5.6 5.6 3.1 6.2 6.6 7.1
Sub-Saharan Africa 1.6 2.5 2.8 1.6 1.6 2.6
High Income 3.3 2.5 0.0 0.7 .. ..
World 3.3 2.7 1.4 1.5 .. 2.9
Sources :
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Table 1.3 Structure of Demand in selected Asian economies in 1990 and 2000
Country Household final General govt. Gross Domestic Exports of goods Imports of goods Gross Domestic
consumption consumption Investment and services and services Savings
expenditure expenditure % of GDP % of GDP % of GDP % of GDP
as % of GDP as % of GDP
1990 2000 1990 2000 1990 2000 1990 2000 1990 2000 1990 2000
Newly industrializing Economies (NIEs)

Hong Kong, China 57 58 7 10 27 28 134 150 126 145 36 32
Korea,Rep 53 58 10 10 38 29 29 45 30 42 37 31
Singapore 46 40 10 10 37 31 202 180 195 161 44 50
Taiwan,China .. .. .. .. .. .. .. .. .. .. .. ..
China and Mongolia
China 50 47 12 13 35 37 18 26 14 23 38 40
Mangolia 58 66 32 20 38 30 24 65 53 82 9 14
South-East Asia
Cambodia 91 92 7 .. 8 15 6 40 13 47 2 8
Indonesia 59 67 9 7 31 18 25 39 24 31 32 26
Lao, PDR .. 82 .. 5 .. 24 .. 36 .. 48 .. 13
Malaysia 52 43 14 11 32 26 75 125 72 104 34 47
Myanmar 89 87 .. .. 13 13 3 0 5 1 11 13
Philippines 72 63 10 13 24 18 28 56 33 50 18 24
Thailand 57 60 9 9 41 23 34 67 42 59 34 31
Vietnam 86 69 8 6 13 27 26 .. 33 .. 6 25
South Asia
Bangladesh 86 78 4 5 17 23 6 14 14 19 10 18
Bhutan .. .. .. .. .. .. .. .. .. .. .. ..
India 66 65 12 13 25 24 7 14 10 17 22 21
Maldives .. .. .. .. .. .. .. .. .. .. .. ..
Nepal 83 75 9 9 18 24 11 24 21 32 8 16
Pakistan 74 77 15 11 19 16 16 16 23 19 11 12
Sri Lanka 76 72 10 10 23 28 29 40 38 51 14 17
East Asia
Japan 53 56 13 16 33 26 10 10 9 8 34 28
World
Low & middle income 60 60 14 14 26 23 21 31 20 29 26 26
East Asia & Pacific 54 54 11 11 35 30 26 42 26 37 35 35
Europe & Central Asia 55 58 18 16 28 21 23 44 24 39 26 26
Latin America & Carib. 65 66 13 15 19 20 14 17 12 18 21 19
Mid. East & N.Africa 57 51 20 18 24 20 33 38 35 28 23 30
South Asia 69 68 12 12 24 23 9 15 13 18 20 20
Sub-Saharan Africa 66 66 17 17 15 17 27 32 26 32 16 17
High Income 59 61 18 17 23 22 20 22 20 22 24 22
World 59 61 17 17 24 22 20 23 20 23 24 23
Note: Two dots (..) stand for "Data not available"

Sources :
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In Asia, where recovery after the 1997 financial crisis was driven by exports, owing to
the rapid expansion of investment in the IT sector, the fall in United States demand led to
stagnation in export growth, a rapid deterioration of current account positions and
declining growth rates in early 2001 in all countries except India and China.
The adverse impact on the region of the slowdown in the United States has been
exacerbated by the return of recession in Japan. The Asian Development Bank has
estimated that for its members the value of exports fell by 5 per cent in 2001, compared
to an increase of over 20 per cent in 2000. Similarly, the value of merchandise imports,
which grew by almost 25 per cent in 2000, declined by 3 per cent 2001. Overall, the
aggregate current account balance for the region, in surplus since 1997, is expected to
remain positive but to fall as a share of GDP from 3.4 per cent 2000 to 2.3 per cent in
2001, and to further erode in 2002 as recovery fuels import demand (ADB, 2001).
The mechanism that contributed the high growth of the Asian economies in these years
can be summarised as export-oriented investment-led growth supported by extremely low
production costs. As judged by ratios to GDP, investments and exports together made a
much higher contribution to growth in Asia than in the other regions (Table 1.3). Asian
economies achieved high economic growth by introducing capital and technology from
advanced countries, while enjoying the benefits of the huge markets that these advanced
countries offer. In other words, the Asian economies are typical examples of “catch-up
type” economic growth.
Rapid growth in intra-Asian trade was accompanied by rising FDI. The traditional focus
of foreign investment by Asian companies in financial sector and real estate of industrial
countries was augmented by rapid growth in investment in manufacturing, primarily in
South-east Asia. The changing pattern of capital flows was partly due to the changing
cost structure in the Asian economies as wages and other costs were rising rapidly in
Japan and the NIEs. It was also indicative of the movement towards higher value added
and more technologically intensive activities in these economies.
The process of rapid growth in output and intraregional trade and investment in Asia is
sometimes referred to as a “virtuous circle” of economic development. Foreign capital
inflows were the result of favourable policy environment, sustained industrialisation,
trade expansion and overall economic growth. This process is gradually helping to
internalise Asian growth and to reduce Asia’s vulnerability to external shocks.
During 1990s, the “virtuous circle” evolved rapidly primarily due to the structural
adjustment process in Japan subsequent to the sharp appreciation of the yen following the
Plaza Accord. Japan’s growth became increasingly “domestic demand led” and it had
been sustaining rapid export growth of other Asian countries. More recently, such a
process occurred in the NIEs as well, fueling further intra-regional trade and investment.
Rapid structural adjustment and shifting comparative advantage from Japan to the NIEs
and further to the Southeast Asian countries due to rising wages and factor prices
contributed significantly to Asia’s dynamism. South Asia, which depended more on the
agriculture sector, was initially left out of this process. But the situation changed in
13
recent years, as these countries liberalised trade and investment regimes gradually and
cautiously. South Asia achieved an average growth rate of 5.6 per cent a year during
1990s which was regarded as a “lost decade” for many other regions of the world.
Two themes have characterised the development approach of most the Asian economies:
a strong economic role for the private sector and relatively outward-looking development
policy. The broad lessons of development during the past decade are that countries with
more market-friendly policies and outward-looking strategies do better both in generating
growth and reducing poverty. While there was general focus on the need of reforms, the
pace had been uneven due to mainly political economy issues. Recent progress was most
visible in reforms in privatisation, industrial, trade, external, fiscal and financial sectors.
(a) South Asia and SAARC
South Asia is a region full of contrasts. On the one hand, it has vast economic potential
due to its large market space measured by the size of its population, emerging middle
class and rising purchasing power. Its bio-diversity is an immense wealth, and mineral
and water resources are plenty. The region is endowed with a large pool of skilled and
semi-skilled manpower. It achieved an average growth rate of 5.6 per cent a year in
1990s which was regarded as a “lost decade” for many other regions of the world.
On the other hand, South Asia is characterised by widespread poverty and unemployment
and low levels of living. While accounting for a fifth of the world’s population, South
Asia is also home to nearly half the world’s poor. It has lower life expectancy than in any
other region except Africa, high infant mortality rates, high rates of malnutrition and low
levels of literacy (except Maldives and Sri Lanka).
Fueling the growth in 1990s in South Asia were savings and investment rates of around
20-25 percent, mainly from domestic sources building on strong legal and political
traditions and a growing pool of technical manpower. Deregulation and trade reforms
increased internal competition, reduced transactions costs, and improved product range
and quality. The increased private activity stimulated the financial sector and is beginning
to attract foreign investment, particularly in infrastructure and the stock market.
As compared to the world and other developing countries, the contribution of the
industrial sector to GDP in South Asia is rather small. During 1990s, the service sector
grew at a faster rate than the industrial sector in South Asia.
The share of South Asia in world trade is negligible being less than one per cent. The
composition of South Asian trade reveals concentration of exports in labour-intensive
products like textiles, clothing, gems and jewelry, while imports consist of mostly crude
oil, petroleum products and capital goods.
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The challenge facing South Asia in the new millennium is how to continue the high
economic growth of the 1990s with rapid reductions in poverty and unemployment and
improvement in social indicators. A sustainable growth path for the 2000s must be based
on continued economic reforms, lower fiscal deficits, dynamic capital market, sustainable
balance-of-payments, and improvement in environment. Economic cooperation in the
region would be an effective instrument for improving the welfare of the people.
(b) East Asia and South-East Asia
Over the past three decades, the economies of East Asia made remarkable economic
progress and grew faster than all other regions of the world. Many South East Asian
economies, particularly Korea, Taiwan Province of China, Hong Kong SAR, China,
Indonesia, Malaysia, Thailand and Singapore experienced sustained economic progress
since 1980s with some attaining an average growth rate of 8-10 percent a year, except for
the crisis period during 1997-1999. In East Asia and Pacific, GDP grew at average annual
rate of 7.2 percent in 1990s, while annual population growth averaged 1.2 percent.
The rapid growth of the East Asian economies was accompanied by impressive advances
in social development indicators. Poverty, infant mortality, and adult illiteracy declined
significantly, while life expectancy at birth rose considerably. Also, contrary to the earlier
conventional wisdom, rapid economic growth was achieved with significant reduction in
poverty ratios and without increases in income inequality (World Bank 1998).
Economic growth in Asia correlates strongly not only with export growth but also with
high savings and investment rates. A trinity of openness to trade, high investment and
high savings rates coexist the fast growing economies of Asia and it is important to stress
the presence of three factors to achieve higher growth. The benefits of a more liberal
trading environment reached beyond the narrow efficiency gains highlighted by the
theory of comparative advantage. Other benefits include more competitive goods and
factor markets, increased investment including foreign capital, and associated transfer of
knowledge and technology.
Savings and investment rates of the South East Asian economies were generally higher
than those in other regions. Governments boosted savings through a combination of
fundamental and interventionist policies. The former included maintaining macro-
economic stability – primarily controlling inflation, and ensuring the security of banks.
The latter included forced savings by both households and corporate bodies through
public provident funds and insurance.
East and South East Asia relied heavily on export-push strategy and were generally open
to foreign investment and technology transfer. Initially endowed with abundant labour
resources, they expanded their exports of low value added and labour intensive goods.
Subsequently, as labour costs increased, they shifted the structure of manufacturing
production and exports towards more sophisticated and higher value added products.
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The prospects for an improved world-trading environment have been enhanced with the
formation of the World Trade Organisation (WTO). But there are still legitimate concerns
in a number of areas. There is a view that the gradual nature of some of the reforms did
not adequately cover investment issues, and much remains to be done to reduce tariff and
non-tariff barriers to trade in both services and agriculture. Some developing countries
fear that new obstacles in the name of “social conditionalities and environment
protection” might take the place of old ones. There is also evidence that some
industrialized countries have bound themselves to maximum tariffs on many
commodities such as textiles and agricultural commodities in which many developing
countries in Asia have comparative advantage. “Dirty tariffication”, as this practice is
called, opens the way to reducing the potential gains from the WTO agreement.
During 1997-1999, a number of Southeast Asian economies and Korea had been in the
grip of severe financial crises that had thrown the region into deep recession. Economic
activity in Japan, after languishing since the busting of the asset price bubble in 1990,
also contracted sharply since spring 1997. Unemployment rates increased to 3 percent in
Malaysia, 6 percent in Korea and 15 percent in Indonesia in 1998. Poverty, therefore,
increased at an alarming rate. Indonesia, which had an impressive record of poverty
reduction, experienced a rise in the poverty ratio from 11 per cent to about 16 per
cent within a year (World Bank 1998). The severity of the “Asian crisis” raised questions
about the durability of the region’s rapid growth and the factors that underlay it.
Although the region recovered quickly following the structural reforms and adjustment
programs supported by the IMF and other funding agencies, recent crisis had highlighted
that there remain serious obstacles to sustained development for many countries in the
region. Despite recent gains, the countries of the region had an average income of
US$4120 in 2000, which is much below that of US$27450 in the developed countries.
Serious environmental damages associated with rapid urbanisation, inadequate regulation
and planning, and incorrect pricing of resources, continues to impose major costs.
Another serious problem is the historical inadequacy of infrastructure investment relative

to rapidly growing demand. As the region’s infrastructure needs are large, the private
sector themselves and foreign direct investment (FDI) will have to play an increasingly
critical role in developing and modernising East Asia’s infrastructure base. In turn,
governments of the region will need to strengthen the regulatory and legal frameworks to
attract and secure such investment. The need for expanding competent management
across most areas of development is emerging as a major issue in East Asia. Effective
institutions are essential in pollution monitoring and control, design and implementation
of monetary and fiscal policies, traffic-management planning and deregulation.
16
1.4 Structure of GDP, Trade and Employment
(a) Trend of Sectoral Shares
Sectoral shares in GDP indicate mixed trends over time among regions and countries
(Table 1.4). In all the regions and countries under study except Mongolia and Myanmar,
share of agriculture declined during 1990s. For newly industrialized countries (NIEs),
which have dominant share of the services sector in GDP, share of industry and
manufacturing either remained unchanged or declined and shares of services increased
further in 1990s. Only in Korean republic, share of manufacturing in GDP increased from
29 per cent in 1990 to 31 per cent in 2000 and that of agriculture declined from 9 per cent
to 5 per cent over the same period.
In East Asia and Pacific as a whole, the shares of industry, manufacturing and services
increased in 1990s at the cost of agriculture whose share declined by 7 percentage points.
As regards individual countries in the Southeast Asia, only Myanmar, Philippines and
Vietnam experienced decline of share of manufacturing in 1990s. There was also
substantial increase in the share industry in overall GDP in 1990s in all countries except
in Myanmar and Philippines (Table 1.4).
For South Asia as a whole, the share of services in GDP improved in 1990s at the cost of
all other sectors. In all the individual countries, agricultural share declined, while
industrial share increased in Bangladesh, Bhutan, Nepal and Sri Lanka.
Structure of manufacturing value added
An analysis of the structure of manufacturing given in Table 1.5 indicates that in general
the shares of agriculture and primary sector based traditional goods (such as food,
beverages, tobacco, textiles and clothing) in overall manufacturing value added have
declining share, while the shares of machinery, transport and equipment, chemicals or
other products have increasing share in GDP in 1990s. It is also observed from the table
that these agro-based and allied sectors have significant shares in manufacturing in Hong
Kong, China, Indonesia, Philippines, Thailand, Bangladesh, India, Nepal, Pakistan and
Sri Lanka.
Structure of merchandise exports and imports
An analysis of the structure of exports and imports given in Tables 1.6 and 1.7 indicate
that manufactures have predominant share in both merchandise exports and imports in all
the countries. Agricultural products and raw materials and primary goods (such as ores
and minerals) have significant shares in total merchandise trade in China, India,
Malaysia, Myanmar, and most of South Asian countries.
17
Table 1.4: Structure of output in selected Asian countries in 1990 and 2000
Country GDP GDP Agriculture Industry Manufacture Services

billion US$ billion US$ % of GDP % of GDP % of GDP % of GDP
1990 2000 1990 2000 1990 2000 1990 2000 1990 2000
Hong Kong 75 163 0 0 25 14 18 6 74 85
Korea, Rep 253 457 9 5 43 43 29 31 48 53
Singapore 37 92 0 0 34 34 27 26 65 66
Taiwan,China 158 279 3 2 40 35 30 24 57 63
China and Mongolia
China 355 1080 27 16 42 51 33 35 31 33
Mangolia .. 1 17 33 30 19 .. 5 52 48
South-East Asia
Cambodia 1 3 56 37 11 20 5 6 33 42
Indonesia 114 153 20 17 38 47 18 26 42 36
Lao, PDR 1 2 61 53 15 23 10 17 24 24
Malaysia 44 90 15 11 42 45 24 33 43 44
Myanmar .. .. 57 60 11 9 8 7 32 33
Philippines 44 75 22 16 34 31 25 23 44 53
Thailand 85 122 12 10 37 40 27 32 50 49
Vietnam 6 31 37 24 23 37 19 18 40 39
South Asia
Bangladesh 30 47 29 25 21 24 13 15 50 51
Bhutan 0.3 0.4 38 33 28 32 20 20 34 35
India 317 457 31 25 28 27 17 16 41 48
Maldives 0.3 0.4 .. 10 .. 15 .. .. .. 75
Nepal 4 5 52 40 16 22 6 10 32 37
Pakistan 40 62 26 26 25 23 17 15 49 51
Sri Lanka 8 16 26 20 26 27 15 17 48 53
East Asia
Japan 3052 4842 2 1 39 32 27 22 58 66
World
Low & middle income 4404 6561 16 12 38 35 23 23 46 54
East Asia & Pacific 927 2059 20 13 40 46 28 32 40 41
Europe & Central Asia 1253 942 17 10 44 35 .. .. 39 57
Latin America & Carib. 1133 2001 9 7 36 29 23 21 55 64
Mid. East & N.Africa 401 660 15 14 39 37 12 14 47 48
South Asia 405 597 31 25 27 26 17 16 43 49
Sub-Saharan Africa 298 323 18 17 34 30 17 14 48 53
High Income 17414 24927 .. .. .. .. .. .. .. ..
World 21817 31493 7 5 36 31 .. 22 57 64
Sources :
(3) World Development Outlook 2002, Asian Development Bank, Manila.
18
Table 1.5 Structure of manufacturing in selected Asian economies in 1990 and 1999
Country Manufacture Food-beverages Textiles and Machinery and Chemicals Other
Value Added and tobacco Clothing Transport manufacturing
US$ billion % share % share Equipment % share % share
% share
1990 1999 1990 1999 1990 1999 1990 1999 1990 1999 1990 1999
Newly Industrializing economies (NIEs)
Hong Kong 12.6 8.5 8 11 36 21 21 24 2 3 33 40
Korea,Rep 72.8 124.8 11 8 12 8 32 45 9 10 36 29
Singapore 9.9 21.0 4 4 3 1 53 60 10 11 29 25
Taiwan,China 47 67 .. .. .. .. .. .. .. .. .. ..
China and Mongolia
China 116.6 333.4 15 16 15 12 24 28 13 11 34 32
Mangolia .. 0.05 33 .. 37 .. 1 .. 1 .. 27 ..
South-East Asia
Cambodia 0.06 0.2 .. .. .. .. .. .. .. .. .. ..
Indonesia 20.9 36.6 27 16 15 18 12 20 9 9 37 36
Lao, PDR 0.1 0.2 .. .. .. .. .. .. .. .. .. ..
Malaysia 10.7 23.2 13 9 6 5 31 43 11 8 39 35
Myanmar .. .. .. .. .. .. .. .. .. .. .. ..
Philippines 11.0 16.5 39 33 11 9 13 15 12 13 26 29
Thailand 23.2 38.0 24 .. 30 .. 19 .. 2 .. 26 ..
Vietnam 1.2 5.0 .. .. .. .. .. .. .. .. .. ..
South Asia
Bangladesh 3.8 6.9 24 .. 38 .. 7 .. 17 .. 14 ..
Bhutan 0.06 0.08 .. .. .. .. .. .. .. .. .. ..
India 48.8 61.6 12 11 15 10 25 24 14 20 34 35
Maldives .. .. .. .. .. .. .. .. .. .. .. ..
Nepal 0.2 0.4 37 35 31 34 1 3 5 6 25 23
Pakistan 6.2 8.5 24 23 27 26 9 13 15 16 25 22
Sri Lanka 1.0 2.3 50 .. 24 .. 4 .. 4 .. 17 ..
East Asia
Japan 810 970 9 11 5 4 40 40 10 10 37 35
World
Low & middle income 852 1350 .. .. .. .. .. .. .. .. .. ..
East Asia & Pacific 260 584 .. .. .. .. .. .. .. .. .. ..
Europe & Central Asia n.a. n.a. .. .. .. .. .. .. .. .. .. ..
Latin America & Carib. 254 330 .. .. .. .. .. .. .. .. .. ..
Mid. East & N.Africa 46 77 .. .. .. .. .. .. .. .. .. ..
South Asia 61 81 .. .. .. .. .. .. .. .. .. ..
Sub-Saharan Africa 43 39 .. .. .. .. .. .. .. .. .. ..
High Income 3765 4048 .. .. .. .. .. .. .. .. .. ..
World 4617 5398 .. .. .. .. .. .. .. .. .. ..
Sources :
19
Table 1.6 Structure of merchandise exports in selected Asian economies in 1990 and 2000
Country Merchandise Food Agrl. Raw Fruits Ores and Manufactures

exports % share materials % share minerals % share
US$ billion % share % share
1990 2000 1990 2000 1990 2000 1990 2000 1990 2000 1990 2000

Hong Kong 82.4 202.4 3 2 0 0 0 0 1 2 95 95
Korea,Rep 65.0 172.3 3 2 1 1 1 5 1 1 94 91
Singapore 52.8 137.9 5 2 3 0 18 10 2 1 72 86
Taiwan,China .. 148 .. .. .. .. .. .. .. .. .. 95
China and Mongolia
China 62.0 249.3 13 5 3 1 8 3 2 2 72 88
Mangolia 0.7 0.4 .. .. .. .. .. .. .. .. .. ..
South-East Asia
Cambodia 0.09 0.7 .. .. .. .. .. .. .. .. .. ..
Indonesia 25.7 62.1 11 9 5 4 44 25 4 5 35 57
Lao, PDR 0.08 0.3 .. .. .. .. .. .. .. .. .. ..
Malaysia 29.4 98.2 12 6 14 3 18 10 2 1 54 80
Myanmar 0.3 1.4 51 .. 36 .. 0 .. 2 .. 10 ..
Philippines 8.1 39.8 19 5 2 1 2 1 8 2 68 92
Thailand 23.0 69.1 29 14 5 3 1 3 1 1 63 76
Vietnam 2.4 14.5 .. .. .. .. .. .. .. .. .. ..
South Asia
Bangladesh 1.7 6.5 14 7 7 2 1 0 0 0 77 91
Bhutan .. .. .. .. .. .. .. .. .. .. .. ..
India 18.0 42.3 16 14 4 1 3 0 5 2 71 79
Maldives .. .. .. .. .. .. .. .. .. .. .. ..
Nepal 0.2 0.8 13 21 3 0 0 0 0 2 83 77
Pakistan 5.6 9.2 9 11 10 3 1 1 0 0 79 85
Sri Lanka 2.0 5.1 34 21 6 2 1 0 2 0 54 75
East Asia
Japan 287.6 479.2 1 0 1 0 0 0 1 1 96 94
World
Europe & Central Asia 125 307 .. 5 .. 3 .. 26 .. 6 .. 53
Mid. East & N.Africa 127 213 3 3 1 0 79 80 3 2 15 14
South Asia 28 64 16 15 5 1 2 0 4 2 71 80
Sub-Saharan Africa 66 93 13 17 3 4 28 28 7 8 20 36
High Income 2730 4612 8 6 3 2 5 4 3 2 79 82
World 3433 6356 10 7 3 2 8 8 4 3 74 78
Sources :
20
Table 1.7 Structure of merchandise imports in selected Asian economies in 1990 and 2000
Country Merchandise Food Agrl. Raw Fruits Ores and Manufactures

imports % share materials % share minerals % share
US$ billion % share % share
1990 2000 1990 2000 1990 2000 1990 2000 1990 2000 1990 2000

Hong Kong 84.7 214.2 8 4 2 1 2 2 2 2 85 91
Korea,Rep 69.8 160.5 6 5 8 3 16 24 7 6 63 62
Singapore 60.9 134.5 6 3 2 0 16 12 2 2 73 82
Taiwan,China .. 148 .. .. .. .. .. .. .. .. .. 95
China and Mongolia
China 53.3 225.1 9 4 6 5 2 9 3 6 80 76
Mangolia 0.9 0.6 .. .. .. .. .. .. .. .. 62 65
South-East Asia
Cambodia 0.2 0.6 .. .. .. .. .. .. .. .. .. ..
Indonesia 21.8 33.5 5 10 5 7 9 18 4 3 77 61
Lao, PDR 0.2 0.6 .. .. .. .. .. .. .. .. .. ..
Malaysia 29.2 82.2 7 4 1 1 5 8 4 3 82 85
Myanmar 0.3 2.4 13 .. 1 .. 5 .. 0 .. 81 ..
Philippines 13.0 33.8 10 8 2 1 15 12 3 3 53 76
Thailand 33.4 61.9 5 4 5 3 9 12 4 3 75 77
Vietnam 2.8 15.6 .. .. .. .. .. .. .. .. .. ..
South Asia
Bangladesh 3.6 8.4 19 15 5 5 16 7 3 2 56 69
Bhutan .. .. .. .. .. .. .. .. .. .. .. ..
India 23.6 50.5 3 7 4 3 27 31 8 5 51 51
Maldives .. .. .. .. .. .. .. .. .. .. .. ..
Nepal 0.7 1.6 15 17 7 5 9 12 2 3 67 63
Pakistan 7.5 11.0 17 14 4 3 21 33 4 2 54 47
Sri Lanka 2.7 6.8 19 15 2 1 13 6 1 1 65 77
East Asia
Japan 235.4 379.5 15 13 7 3 25 20 9 6 44 57
World
Europe & Central Asia 137 312 .. 9 .. 2 .. 9 .. 3 .. 65
Mid. East & N.Africa 100 138 19 18 3 2 6 6 3 2 68 70
South Asia 39 79 9 10 4 4 23 26 6 4 54 54
Sub-Saharan Africa 56 86 .. 10 .. 2 .. 14 .. 2 .. 68
High Income 2846 4949 9 7 3 2 11 10 4 3 72 75
World 3516 6565 9 7 3 2 11 10 4 3 71 74
Sources :
21
1.5 Export dynamism of Asian developing countries
(a) Trend of export shares
Between 1970 and 1999 merchandise exports of developing countries grew at an average
annual rate of 12 per cent, compared to 10 per cent for the world as a whole, resulting in
their share in world merchandise trade increasing from less than one fourth to almost one
third. During this period share of trade among them also reached 40 per cent of their total
exports. These trends were accompanied by a rapid transformation in the composition of
their exports from primary commodities to manufactures, which accounted for 70 per
cent of developing country exports at the end of the 1990s compared with around 20 per
cent during 1970s and early 1980s. The share of agricultural commodities fell from about
20 per cent to 10 per cent during the same period.
Rapid liberalization of trade and foreign direct investment (FDI) has been the chosen
policy approach, and in many cases this has indeed been accompanied by increased
participation of developing countries in world trade, including a rapid expansion of their
exports. However, as indicated in TDR 1999, for almost all developing countries imports
expanded faster than exports, resulting in a deterioration of their trade balance. Therefore,
their trade expansion was not necessarily accompanied by faster growth in gross domestic
product (GDP) and by greater income convergence with industrial countries. The share of
developed countries in world income increased from less than 73 per cent in 1980 to 77
per cent in 1999, while that of developing countries stagnated at around 20 per cent.
The share of developed countries in world manufactured exports fell from 82 per cent in
1980 to 71 per cent in 1997. Their share in world manufacturing income also declined
from 85 per cent to 73 per cent during this period (Table 1.8). Among the developing
countries, it was mainly the East and South East Asian economies that improved their
share in both world manufacturing income and manufacturing exports, and was able to
reduce the gap with richer industrial countries. All the countries under the group of NIEs
and ASEAN had significant increase in their shares of world manufacturing exports
during 1980-1997. China’s share in world manufacturing exports increased significantly
from 1.1 per cent in 1980 to 3.8 per cent in 1997 and that in world manufacturing income
increased from 3.3 per cent to 5.8 per cent over the same period.
Developing economies shares both in world manufacturing exports and value added show
a sharp increase during the same period, but growth in exports is much stronger than in
value added. All Asian economies increased their shares in world manufacturing exports.
Similarly, with the exception of Hong Kong (China) and the Philippines, all East Asian
countries increased their shares in world manufacturing value added. All these economies
pursued rapid liberalization of trade and investment over the past two decades.
22
Table 1.8: Share of selected regional groups and developing economies in world
manufacturing exports and manufacturing income in 1980 and 1997
Region/ economy Share in world Share in world

Manufacturing exports Manufacturing income
1980 1997 1980 1997
Developed countries 82.3 70.9 85.5 73.3
Developing countries 10.6 26.5 14.5 23.8
Latin America 1.5 3.5 7.1 6.7
Argentina 0.2 0.2 0.9 0.9
Brazil 0.7 0.7 2.9 2.7
Chile 0.0 0.1 0.2 0.2
Mexico 0.2 2.2 1.9 1.2
South and East Asia 6.0 16.9 7.3 14.0
NIEs 5.1 8.9 1.7 4.5
Hong Kong, China 0.2 0.6 0.3 0.2
Republic of Korea 1.4 2.9 0.7 2.3
Singapore 0.9 2.6 0.1 0.4
Taiwan, China 1.6 2.8 0.6 1.6
ASEAN-4 0.6 3.6 1.2 2.6
Indonesia 0.1 0.6 0.4 1.0
Malaysia 0.2 1.5 0.2 0.5
Philippines 0.1 0.5 0.3 0.3
Thailand 0.2 1.0 0.3 0.8
China 1.1 3.8 3.3 5.8
India 0.4 0.6 1.1 1.1
Turkey 0.1 0.5 0.4 0.5
Source: UNCTAD (TDR 2002)
(b) Contribution of labour-intensive products to exports
A classification of products made by TDR 2002 according to the mix of different skill,
technology and capital intensity and scale characteristics results in five categories:
(A) Primary commodities,
(B) Labour and resource-intensive manufactures,
(C) Manufactures with low skill and technology intensity,
(D) Manufactures with medium skill and technology intensity, and
(E) Manufactures with high skill and technology intensity
Trade in all five categories expanded considerably since the mid-1980s (Table 1.9).
Generally, trade in skill and technology-intensive manufactures increased faster than that
of labour-intensive and resource-based manufacturers and primary commodities. These
differences cannot be explained only in terms of differences in income elasticity or
comparative advantage. Policies governing market access also play a major role in
boosting skill and technology-intensive sectors in which industrial countries have a
competitive edge over agricultural commodities and middle-range manufactures, which
are more important for less advanced countries.
23
Table-1.9 Structure of exports by product categories
according to factor intensity in 1980 and 1998
(percentage share)
Product category Share in exports of Share in
developing countries World exports
1980 1998 1980 1998
A. Primary commodities 50.8 19.0 25.7 14.8
B. Labor-intensive and resource based 21.8 23.2 14.7 15.0
manufactures
C. Manufacture with low skill and 5.8 7.3 10.1 7.6
technology intensity
D. Manufacture with medium skill and 8.2 16.8 26.6 29.6
E. Manufacture with high skill and 11.6 31.0 20.2 30.2
F. Unclassified 1.8 2.7 2.7 2.8
The expansion was rapid for manufactures with high skill and technology intensity since
1993. Trade in such products increased about fivefold in 1980-1998. Trade in labour- and
resource-intensive products, and medium skill-and technology-intensive manufactures,
also increased faster than total non-fuel trade. By contrast, trade in manufactures with
low skill and technology intensity, and non-fuel primary commodities, increased at
slower rate than the average, particularly in recent years. Thus there was a sharp fall in
the share of non-fuel primary commodities in world trade, and a strong and sustained
increase in the share of manufactures with high skill and technology intensity. Indeed, by
the end of the 1990s, the share of the latter product category came to exceed the share of
medium skill-and technology-intensive manufactures (Table-1.9).
Perhaps the most striking finding is that the higher the skill and technology contents of
exports, the faster is the growth rate of exports of developing countries. However, this
does not necessarily imply that there has been a rapid and sustained technological
upgrading in exports of developing countries. First, their rapid growth in exports of skill-
and technology-intensive goods started from a relatively small base in the early 1980s.
Secondly, in many cases, in involvement of developing countries in exports of such
products is usually limited to the labour-intensive processes in these sectors as a part of
international production sharing.
(c) Twenty most dynamic products in world trade
Table-1.10 shows the trend growth rates of the 20 most dynamic products in world trade
during 1980-1998. Most of these products fall into four categories:
• Electronic and electrical goods
• Textiles and labour-intensive products particularly textiles and clothing
• Finished products from industries that require high R&D expenditures and are
characterized by high technological complexity or economies of scale; and
• Primary commodities including silk, non-alcoholic beverages and cereals
24
The main exports of developing countries are concentrated in computers and office
equipment; telecom, audio/video equipment, semiconductors; and clothing, which
involve labour-intensive processes. This suggests that the increased importance of global
production sharing has been a crucial determinant of the growth of their exports.
Table-1.10 Export value growth and share in total exports

Of the 20 most market-dynamic products 1980-1998
(per cent)
SITC Product groups Average Share in total Share in total

code annual world export exports from
export developing
growth countries
1980-1998 1980 1998 1980 1998
776 Transistors and semiconductors 16.3 1.0 4.0 1.9 7.7
752 Computers 15.0 0.9 3.4 0.2 5.0
759 Computer parts, office machines 14.6 0.7 2.3 0.3 3.6
871 Optical instruments 14.1 0.1 0.3 0.0 0.3
553 Perfumes and cosmetics 13.3 0.2 0.5 0.1 0.2
261 Silk 13.2 0.0 0.0 0.0 0.0
846 Knitted garments 13.1 0.3 0.6 0.8 1.4
893 Plastic articles 13.1 0.6 1.2 0.6 1.1
771 Electric power machinery 12.9 0.3 0.6 0.2 0.8
898 Musical instruments & records 12.6 0.3 0.7 0.2 0.5
612 Leather manufactures 12.4 0.1 0.1 0.1 0.2
111 Non-alcoholic beverages 12.2 0.1 0.1 0.1 0.1
872 Medical instruments 12.1 0.2 0.4 0.1 0.2
773 Electricity distribution equipment 12.0 0.4 0.7 0.3 1.0
764 Telecommunications and parts 11.9 1.5 3.0 1.7 2.9
844 Textile undergarments 11.9 0.2 0.3 0.8 0.8
048 Cereal preparations 11.9 0.2 0.4 0.1 0.2
655 Knitted articles 11.7 0.2 0.3 0.1 0.6
541 Pharmaceutical products 11.6 1.1 2.0 0.4 0.6
778 Electrical machinery 11.5 1.1 1.7 0.7 1.5
20 most dynamic products 12.9 9.5 22.6 14.1 28.7
Memo Items:
World exports 8.4
Developing country exports 11.3 15.4 24.3
Source : UNCTAD, TDR 2002.
25
The experiences of major exporting countries regarding fastest growing product groups
of exports reveals the following:
• Computers, office machines, optical instruments, and telecommunications, audio and

video equipment are the most important subgroups in the dynamic exports of the
ASEAN-4 (Indonesia, Malaysia, the Philippines and Thailand).
• Passenger motor vehicles are also among the 20 fastest growing exports from
ASEAN countries.
• The most dynamic products in exports from South Asia belong to a wide variety of
products groups, but there are significantly fewer electronics products than in East
Asia. The absence of any product from the clothing sector is also notable.
• Electronic and electrical goods are the leading exports of all four first-tier NIEs
(though they are less important in the Republic of Korea than in the others) as well as
of Malaysia, the Philippines and Thailand. They also play an important role in China,
Costa Rica and Mexico.
• Textiles and labour-intensive manufactures, in particular clothing, are important in
China, Costa Rica, India, Mexico, Morocco, the Philippines, the Republic of Korea,
Taiwan, Thailand, Tunisia and Turkey.
• Primary commodities and, in particular, supply-dynamic primary commodities are of
some importance in India, Indonesia, Malaysia, the Philippines, Thailand, Tunisia and
Turkey, and are very important for a number of countries in South America and for
Morocco.
No doubt country-specific factors, including size and resource endowments, influenced

the export composition and dynamics of these countries. However, there is a distinctive
regional pattern in the experiences of different countries, which suggests that geography
has played an important role. However, this does not mean that international production
networks are contained within regions.
Traditional labour-intensive products are the obvious candidates for the first generation
of manufactured exports. As incomes rise and the surplus labour is absorbed, rising
labour costs and the entry of lower-cost producers progressively erode the
competitiveness of many labour-intensive manufactures. This leads to a new challenge,
that of upgrading industrial activity so as to produce more sophisticated manufactures.
This move away from resource-dependent and labour-intensive activities towards more
technology-and skill-intensive activities underlies the success of post-war
industrialization in East Asia, mainly in Japan, the Republic of Korea and Taiwan
Province of China.
China participates in labour-intensive segments of international production networks, and

the direct import content of its exports of electrical and electronic goods is high. It has
also large traditional labour-intensive export industries with relatively high value added
and little import content. Furthermore, China has so far avoided rapid import
liberalization (except for exports), and its imports of manufactured consumer goods
remain low.
26
2 RESOURCE BASED AND AGRO BASED INDUSTRIES:
SECTOR’S MAIN CHARACTERISTICS
2.1 Definition and Types of Industries
(a) Typology of Industries
There is no uniform definition of the agro-based and resource-based industries. Different

organisations and consultants use different concepts depending on the scope of the study.
In the broadest sense of the terms, all manufacturing industries depending on agricultural
and natural resources can be categorized as agro-based and resource based industries. As
per International Standard Industrial Classification these manufacturing units may fall
under the following broad categories (detailed types of these are indicated in Table 2.1).
(a) Food processing industries and beverages (ISIC 311-313)

(b) Tobacco and tobacco products (314)
(c) Textiles (321)
(d) Wearing apparel, leather and leather products and footwear (322-324)
(e) Wood and cork products (331)
(f) Paper (341)
(g) Printing and publishing (342)
(h) Rubber and plastic products (355-356)
(i) Non-metallic mineral products (361-362, 369)
(b) Distribution of World MVA for selected branches
Tables 2.2-A and 2.2-B indicate the distribution of world manufacturing value added. It
is observed that the share of industrialised countries in world MVA declined continuously
from 85.5 per cent in 1980 to 76 per cent in 1990 and that of the developing countries had
the corresponding increase from 14.5 per cent to 24 per cent over the period (Table 2.2-
A). The importance of Asian developing countries in world manufacturing production
can be highlighted by the fact that they account for more than two thirds of total MVA in
the developing countries. The share of South and East Asia increased from 43 per cent in
1985 to 66.8 per cent in 2001 and that of China from 13.3 per cent to 30.2 per cent in
developing country MVA, while the shares of all other regions (viz. Africa, Latin
America, West Asia and Europe) declined during the same period (Table 2.2-B).
Table 2.3 indicates that the developing countries increased their shares in all agro-based
and resource-based industries as classified above during 1985-2000. They also gained
their share in chemicals, petroleum and coal products, basic metals, metal products,
electrical machinery and transport equipment, and their share in sectoral MVA declined
only in non-electrical capital goods. In 1990s South and East Asia recorded positive
growth rates in all branches except clothing, leather and wood products and had the
highest growth rates in all branches in developing countries (Table 2.4-A). Consequently,
South and East Asia increased their shares in 1990s in the MVA of all agro-based,
27
resource-based and all other products except in wood and cork products with only
marginal loss (Table 2.4-B).
Table 2.1: Agro based and Resource based industries as per ISIC
ISIC Description
3-digit level 4-digit level
3 Manufacturing
311/2 Food manufacturing
3111 Slaughtering, preparing and preserving meat
3112 Manufacture of dairy products
3113 Canning and preserving of fruits and vegetables
3114 Canning, preserving and processing of fish, crustacean and similar foods
3115 Manufacture of vegetable and animal oils and fats
3117 Manufacture of bakery products
3118 Sugar factories and refineries
3119 Manufacture of cocoa, chocolate and sugar confectionery
3121 Manufacture of food products not elsewhere classified
3122 Manufacture of prepared animal feeds
313 Beverage industries
3131 Distilling, rectifying and blending spirits
3132 Wine industries
3133 Malt liquors and malt
3134 Soft drinks and carbonated waters industries
314 3140 Tobacco manufactures
321 Manufacture of textiles
3211 Spinning, weaving and finishing textiles
3212 Manufacture of made-up textile goods except wearing apparel
3213 Knitting mills
3214 Manufacture of carpets and rugs
3219 Manufacture of textiles not elsewhere classified
322 3220 Manufacture of wearing apparel, except footwear
323 Leather, leather products & substitutes, fur, except footwear/wearing apparel
3231 Tanneries and leather finishing
3232 Fur dressing and dyeing industries
3233 Leather, leather products & substitutes except footwear and wearing apparel
324 3240 Footwear, except vulcanized or molded rubber or plastic footwear
331 Manufacture of wood and wood and cork products, except furniture
3311 Sawmills, planing and other wood mills
3312 Manufacture of wooden and cane containers and small cane were
3319 Manufacture of wood and cork products not elsewhere classified
332 3320 Manufacture of furniture and fixtures, except primarily of metal
341 Manufacture of paper and paper products
3411 Manufacture of pulp, paper and paperboard
3412 Manufacture of containers and boxes of paper and paperboard
3419 Manufacture of pulp, paper and paperboard articles not elsewhere classified
342 3420 Printing, publishing and allied industries
361 3610 Manufacture of pottery, china and earthenware
369 Manufacture of other non-metallic products
3691 Manufacture of structural clay products
3692 Manufacture of cement, lime and plaster
3699 Manufacture of non-metallic mineral products not elsewhere classified
28
Table 2.2-A Distribution of World Manufacturing Value Added (MVA) 1980-2001
Industrialized Countries Developing Countries
Year Eastern EU Other Japan North Others Total Africa Latin South & West Total
Europe Western America America East Asia
Europe Asia
1980 9.1 35.2 1.7 13.6 23.9 2.0 85.5 0.9 6.7 5.2 1.7 14.5
1985 9.5 32.3 1.6 15.4 23.9 1.8 84.5 1.0 5.9 6.6 2.0 15.5
1990 8.3 31.4 1.5 16.8 23.4 1.7 83.1 0.9 5.3 8.8 1.9 16.9
1995 3.5 31.0 1.4 15.8 25.2 1.8 78.7 0.9 5.4 13.4 1.6 21.3
2000 3.3 29.0 1.4 14.1 26.8 1.7 76.3 0.9 5.4 15.7 1.7 23.7
2001 3.7 28.5 1.3 14.6 26.3 1.6 76.0 0.9 5.3 16.1 1.7 24.0
Table-2.2-B Distribution of MVA and Population among developing countries in 1985-2001 (Percentage)
Country groups MVA at constant 1990 prices Population
1985 1990 1995 2000 2001 1985 1990 1995 2000 2001
Low income 14.4 15.7 15.5 14.5 14.5 49.2 49.9 50.8 51.7 52.0
Middle income 53.2 46.2 37.5 33.6 33.0 18.8 18.8 18.9 19.0 19.0
High income 19.1 22.3 22.2 22.4 22.3 2.7 2.7 2.7 2.6 2.6
China 13.3 15.8 24.8 29.5 30.2 29.3 28.6 27.6 26.7 26.4
Developing countries 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Africa 6.2 5.4 4.1 3.9 3.9 13.7 14.3 14.9 15.6 15.7
Latin America 38.0 31.5 25.5 22.6 22.1 11.2 11.1 11.1 11.0 11.0
South and East Asia 43.0 52.0 62.6 66.2 66.8 71.4 70.8 70.2 69.4 69.3
West Asia & Europe 12.8 11.1 7.8 7.3 7.2 3.7 3.8 3.8 4.0 4.0
Developing countries 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Memo Item:
Least dev. countries 2.4 2.0 1.6 1.6 1.6 11.7 12.1 12.6 13.1 13.3
Source: The International Yearbook of Industrial Statistics 2002, UNIDO.
29
Table-2.3 Distribution of World Value Added: Selected branches and year (Percentage)
Branch (ISIC) Industrialized countries Developing Countries
1985 1990 1995 2000 1985 1990 1995 2000
1. Food products and 84 83 81 80 16 17 19 20

beverages (311-313)
2. Tobacco (314) 71 70 66 61 29 30 34 39
3. Textiles (321) 77 75 70 67 23 25 30 33
4. Wearing app., leather, 77 75 75 72 23 25 25 28

footwear (322-324)
5. Wood and cork 89 88 88 89 11 12 12 11
products (331)
6. Paper (341) 90 90 88 88 10 10 12 12
7. Printing and publishing 94 94 92 93 6 6 8 7

(342)
8. Chemicals (351-352) 86 85 82 81 14 15 18 19
9. Petroleum inc. coal 69 64 60 57 31 36 40 43

products (353-354)
10. Rubber and plastic 86 86 85 84 14 14 15 16
products (355-356)
11. Non-metallic mineral 85 83 79 78 15 17 21 22
products (361-2, 369)
12. Basic metals (371-372) 86 83 79 77 14 17 21 23
13. Metal products (381) 91 91 90 90 9 9 10 10
14. Non-electrical 92 93 93 96 7 7 7 4
machinery (382)
15. Electrical machinery 91 89 87 90 10 11 13 10
(383)
16. Transport equipment 89 90 86 84 11 10 14 16
(384)
30
Table 2.4-A Annual Growth of Value Added of Selected branches in developing regions (Percentage)
Branch (ISIC) Developing regions
All countries South and East West Asia and Latin America North America Sub-Saharan
Asia Europe Africa
1980- 1990- 1980- 1990- 1980- 1990- 1980- 1990- 1980- 1990- 1980- 1990-
1990 2000 1990 2000 1990 2000 1990 2000 1990 2000 1990 2000
1. Food products 2.7 3.8 5.3 6.7 1.5 0.6 1.6 2.6 3.2 3.2 2.0 1.3
and beverages
(311-313)
2. Tobacco (314) 1.9 6.7 2.7 10.3 1.7 6.2 1.4 2.9 2.4 2.7 0.5 0.3
3. Textiles (321) 2.6 0.9 3.1 1.8 5.0 0.7 0.7 -0.7 1.7 -0.4 1.6 0.7
4. Wearing app., 2.0 -1.4 6.3 -1.8 2.2 -2.7 -1.5 -1.0 2.2 1.3 -2.1 0.8
leather, footwear
(322-324)
5. Wood and cork 2.6 -0.4 4.4 -0.9 -1.3 -0.4 1.6 1.6 6.0 -1.7 0.2 -1.0
products (331)
6. Paper (341) 4.9 4.0 7.9 6.3 3.8 0.6 3.4 2.8 2.6 1.6 3.2 -0.7
7. Printing and 3.6 2.9 7.9 3.8 1.8 -1.6 1.7 3.1 -4.2 -1.4 3.7 1.2
publishing (342)
8. Chemicals (351- 5.1 5.4 9.7 8.0 6.4 2.2 2.5 3.8 6.6 4.3 -0.5 2.7
352)
9. Petroleum inc. 4.6 3.8 5.3 6.2 7.6 3.4 3.2 1.7 0.2 0.9 2.3 1.3
coal products
(353-354)
10. Rubber and 5.5 3.5 9.0 3.2 2.1 5.1 2.5 3.6 5.8 2.4 4.0 2.4
plastic products
(355-356)
11. Non-metallic 3.8 4.1 7.4 5.7 5.5 3.2 0.4 2.6 4.0 2.8 1.1 2.7
mineral products
(361-2, 369)
12. Basic metals 5.0 5.2 7.7 6.7 7.2 1.3 2.3 4.2 6.0 2.9 0.2 5.0
(371-372)
13. Metal products 3.7 2.8 7.8 3.3 3.5 -0.6 0.7 3.2 0.6 1.2 1.3 1.1
(381)
14. Non-electrical 3.6 3.5 8.1 5.1 1.3 2.2 0.9 1.4 4.6 1.9 -2.6 -0.6
machinery (382)
15. Electrical 7.6 7.6 15.2 9.5 2.7 4.8 1.5 3.8 6.9 1.5 -5.7 -0.9
machinery (383)
16. Transport 3.1 6.8 7.6 9.3 5.6 -0.8 0.3 4.8 -2.5 -0.8 -8.3 -1.6
equipment (384)
17. Prof. Scientific 4.8 1.7 9.1 1.4 3.9 0.3 1.2 2.2 15.1 -0.2 6.6 -4.0
equipment (385)
18. Other manuf. Inc. 2.5 1.2 7.5 0.4 -2.1 1.8 0.6 2.4 0.9 0.6 -7.1 2.0
furniture (390
and 332)
31
Table 2.4-B Distribution of MVA of Selected branches among developing regions (Percentage)
Branch (ISIC) Developing regions Least

developed
Africa Latin America South and East West Asia and All countries countries
Asia Europe
1990 2000 1990 2000 1990 2000 1990 2000 1990 2000 1990 2000
1. Food products 10.9 9.8 45.7 44.1 31.7 37.4 11.7 8.7 100 100 5.8 6.7
and beverages
(311-313)
2. Tobacco (314) 9.0 6.9 40.9 37.0 39.4 43.6 10.7 12.5 100 100 4.8 5.7
3. Textiles (321) 8.5 7.7 23.1 20.7 54.2 59.4 14.2 12.2 100 100 4.6 4.3
4. Wearing app., 6.5 8.2 34.3 35.7 43.4 43.6 15.8 12.5 100 100 3.1 5.4
leather, footwear
(322-324)
5. Wood and cork 9.3 9.2 20.9 24.1 55.2 54.7 12.6 11.0 100 100 2.6 3.2
products (331)
6. Paper (341) 4.7 3.3 46.3 44.3 37.9 45.1 11.1 7.3 100 100 1.7 1.0
7. Printing and 4.9 3.5 41.3 43.7 42.6 46.1 11.2 6.7 100 100 2.2 2.0
publishing (342)
8. Chemicals (351- 4.3 3.3 47.1 40.5 36.3 47.6 12.3 8.6 100 100 1.5 1.2
352)
9. Petroleum inc. 8.2 6.6 33.8 27.2 33.8 44.0 24.2 22.2 100 100 1.4 1.2
coal products
(353-354)
10. Rubber and 3.2 2.7 33.4 33.0 54.4 54.4 9.0 9.9 100 100 0.6 0.6
plastic products
(355-356)
11. Non-metallic 9.4 8.1 33.0 28.8 40.2 48.0 17.4 15.1 100 100 2.2 1.8
mineral products
(361-2, 369)
12. Basic metals 4.3 3.9 39.0 34.5 45.0 54.1 11.7 7.5 100 100 0.6 0.5
(371-372)
13. Metal products 6.8 5.9 34.3 36.8 45.7 49.3 13.2 8.0 100 100 1.4 1.4
(381)
14. Non-electrical 2.4 1.7 38.2 31.0 48.0 58.7 11.4 8.6 100 100 0.4 0.3
machinery (382)
15. Electrical 2.6 1.3 29.0 18.6 60.1 74.8 8.3 5.3 100 100 0.5 0.2
machinery (383)
16. Transport 3.1 1.4 40.9 35.8 47.2 58.9 8.8 3.9 100 100 0.6 0.3
equipment (384)
(c) Leading producing countries of agro and resource based industries
Tables 2.5-A to 2.5-J indicate the 15 leading producing countries of agro and resource-
based products in the world and in developing countries in 1990 and 2000. It may be
observed from the tables that Asian developing countries have improved their position in
most of the products during 1990s. Within the developing countries (excluding China)
their progress in significant in production of food products and beverages, tobacco,
textiles, leather and footwear, wood products, paper, and rubber and plastic products.
Table 2.5–K on the position of China in its main export products also indicate that China
has significant share in world trade in exports of agro-based and resource-based
industries such as toys and sporting goods, footwear, knitted outer and under garments,
textiles, travel goods, apparel and clothing, textiles, radios, watches and clocks.
32
Table 2.5-A Leading Producers of Food Products and Beverages (ISIC 311-313) in 1990 and 2000
World leading producers* Leading producers in developing countries**
1990 2000 1990 2000

Country Share Country Share Country Share Country Share
(%) (%) (%) (%)
USA 22.6 USA 22.6 Brazil 12.9 Brazil 12.2
Japan 15.7 Japan 13.4 Mexico 9.2 Mexico 9.8
Germany 8.3 Germany 8.7 Argentina 8.9 Argentina 9.6
France 5.6 France 5.4 Korea, Rep 5.9 India 6.1
U.K. 5.2 U.K. 4.7 India 5.1 Korea, Rep 5.7
Italy 4.1 Italy 4.0 Yugoslavia 4.3 Philippines 5.7
Spain 3.8 Spain 3.5 Turkey 4.0 Indonesia 4.7
Brazil 2.6 Brazil 2.8 Philippines 3.8 Turkey 4.1
Canada 2.5 Canada 2.5 Thailand 3.8 Thailand 3.9
Mexico 1.9 Mexico 2.2 Taiwan, China 3.4 Taiwan, China 2.6
Netherlands 1.8 Argentina 2.2 Indonesia 2.5 Myanmar 2.4
Argentina 1.8 Netherlands 1.9 Colombia 2.3 Malaysia 1.9
Australia 1.4 Australia 1.6 Puerto Rico 1.8 Peru 1.8
Belgium 1.3 India 1.4 Peru 1.6 Colombia 1.7
Korea, Rep 1.2 Belgium 1.3 Venezuela 1.5 Egypt 1.5
Sum of above 79.8 Sum of above 78.2 Sum of above 71.0 Sum of above 73.7
Table 2.5-B Leading Producers of Tobacco (ISIC 314) in 1990 and 2000
1990 2000 1990 2000

(%) (%) (%) (%)
USA 26.6 USA 21.1 Argentina 11.5 Indonesia 19.0
Germany 18.9 Germany 17.2 Indonesia 10.1 Argentina 14.0
Argentina 3.6 Indonesia 7.6 Korea, Rep 9.8 Turkey 9.4
Netherlands 3.2 Argentina 5.6 Cuba 9.7 Korea, Rep 7.3
Indonesia 3.1 Turkey 3.8 Brazil 6.9 Mexico 6.6
Korea, Rep 3.0 Netherlands 3.4 Mexico 6.8 Cuba 6.4
Cuba 3.0 Austria 3.2 Turkey 6.4 Brazil 4.6
Japan 3.0 Korea, Rep 3.0 India 4.8 India 3.8
U.K. 2.8 Mexico 2.6 Thailand 3.3 Bangladesh 2.7
France 2.5 Japan 2.6 Morocco 2.6 Philippines 2.5
Austria 2.3 Cuba 2.6 Philippines 2.5 Morocco 1.8
Brazil 2.1 Spain 2.1 Hong Kong 1.9 Thailand 1.8
Mexico 2.1 Brazil 1.8 Pakistan 1.9 Pakistan 1.7
Turkey 2.0 U.K. 1.8 Yugoslavia 1.5 Hong Kong 1.3
Spain 1.7 France 1.6 Bangladesh 1.5 Venezuela 1.1
* Excluding Eastern Europe, the former USSR and Mainland China.

** Excluding Mainland China.
33
Table-2.5-C Leading Producers of Textiles (ISIC 321) in 1990 and 2000
1990 2000 1990 2000

(%) (%) (%) (%)
USA 16.3 USA 18.9 India 12.9 India 22.5
Japan 16.0 Italy 12.3 Brazil 11.3 Taiwan, China 8.8
Italy 10.5 Japan 9.4 Korea, Rep 9.7 Brazil 8.8
Germany 7.0 India 8.1 Taiwan, China 9.0 Turkey 8.0
France 4.0 Germany 5.2 Turkey 7.2 Korea, Rep 6.2
India 3.9 France 3.4 Yugoslavia 5.3 Iran 4.0
Brazil 3.4 Taiwan, China 3.2 Thailand 5.1 Indonesia 3.9
U.K. 3.3 Brazil 3.2 Hong Kong 3.5 Mexico 3.6
Korea, Rep 2.9 Turkey 2.9 Pakistan 3.3 Pakistan 3.4
Taiwan, China 2.7 U.K. 2.6 Iran 3.2 Thailand 3.0
Spain 2.5 Spain 2.2 Argentina 3.2 Hong Kong 2.6
Turkey 2.2 Korea, Rep 2.2 Mexico 3.1 Peru 2.2
Yugoslavia 1.6 Canada 2.1 Indonesia 3.1 Argentina 2.0
Thailand 1.5 Iran 1.4 Egypt 2.2 Egypt 1.9
Canada 1.4 Indonesia 1.4 Bangladesh 1.8 Colombia 1.8
Table-2.5-D Leading Producers of Wearing app., Leather, Footwear (ISIC 322-324) in 1990 and 2000
1990 2000 1990 2000

(%) (%) (%) (%)
Japan 11.9 Italy 13.9 Korea, Rep 10.1 Hong Kong 7.1
Italy 11.1 Japan 10.4 Thailand 8.8 Thailand 7.0
Germany 6.2 Brazil 5.0 Yugoslavia 7.6 Indonesia 6.9
France 5.8 Spain 3.7 Hong Kong 6.9 Argentina 6.2
Brazil 5.4 U.K. 3.5 Taiwan, China 5.2 Korea, Rep 5.4
U.K. 4.0 Germany 3.4 Argentina 4.8 Mexico 5.2
Spain 3.6 France 3.1 Mexico 3.5 Turkey 4.1
Korea, Rep 2.9 Canada 2.4 Turkey 3.3 Philippines 3.4
Thailand 2.5 Hong Kong 2.2 India 3.0 Bangladesh 3.1
Yugoslavia 2.2 Thailand 2.2 Iraq 2.8 India 2.8
Canada 2.0 Indonesia 2.2 Indonesia 2.3 Taiwan, China 2.7
Hong Kong 2.0 Argentina 1.9 Philippines 1.9 Iraq 2.7
Portugal 1.7 Korea, Rep 1.7 Puerto Rico 1.6 Tunisia 2.0
Taiwan, China 1.5 Mexico 1.6 Algeria 1.5 Puerto Rico 1.9

34
Table-2.5-E Leading Producers of Wood and Cork Products (ISIC 331) in 1990 and 2000
1990 2000 1990 2000

(%) (%) (%) (%)
USA 22.1 USA 24.6 Indonesia 17.5 Indonesia 16.7
Japan 18.9 Japan 10.5 Brazil 9.6 Thailand 12.3
Germany 8.3 Germany 9.6 Thailand 8.7 Malaysia 11.2
France 5.0 Canada 5.7 Yugoslavia 7.8 Brazil 10.3
Canada 4.8 France 4.8 Malaysia 7.7 Argentina 5.9
Italy 3.7 Italy 4.6 Korea, Rep 6.7 Korea, Rep 4.9
Spain 3.7 Sweden 3.9 Taiwan, China 6.0 Turkey 3.7
Sweden 3.6 Spain 3.8 Argentina 4.7 India 2.4
U. K. 3.5 Finland 2.9 Algeria 2.9 Philippines 2.2
Switzerland 2.8 Switzerland 2.7 Turkey 2.3 Sudan 1.6
Indonesia 2.3 U. K. 2.7 India 2.2 Taiwan, China 1.5
Finland 2.1 Austria 2.4 Philippines 2.2 Chile 1.4
Australia 1.7 Australia 2.1 Chile 1.8 Honduras 1.4
Austria 1.3 Indonesia 2.0 Cameroon 1.4 Ghana 1.4
Brazil 1.2 Thailand 1.5 Iran 1.4 Mexico 1.3
Table-2.5-F Leading Producers of Paper (ISIC 341) in 1990 and 2000
1990 2000 1990 2000

(%) (%) (%) (%)
Japan 15.5 Japan 14.2 Korea, Rep 10.0 Korea, Rep 10.7
Germany 9.4 Germany 8.3 Mexico 9.4 India 9.9
Canada 4.8 Italy 4.9 India 7.5 Mexico 8.3
Italy 4.6 Canada 4.8 Taiwan, China 7.1 Taiwan, China 6.5
U.K. 4.5 France 4.3 Argentina 5.6 Argentina 6.0
France 4.2 U.K. 3.4 Yugoslavia 4.6 Indonesia 5.8
Sweden 2.8 Finland 3.1 Turkey 4.1 Turkey 3.2
Finland 2.5 Sweden 2.9 Indonesia 3.7 Thailand 3.0
Brazil 2.4 Brazil 2.6 Chile 2.2 Philippines 2.5
Spain 1.9 Spain 2.2 Colombia 1.9 Chile 2.5
Netherlands 1.3 Korea, Rep 1.4 Hong Kong 1.8 Colombia 2.0
Korea, Rep 1.1 India 1.3 Philippines 1.5 Hong Kong 1.6
Mexico 1.0 Netherlands 1.2 Venezuela 1.4 Iran 1.4
Austria 1.0 Austria 1.2 Malaysia 1.3 Peru 1.3

35
Table-2.5-G Leading Producers of Printing and Publishing (ISIC 342) in 1990 and 2000
1990 2000 1990 2000

(%) (%) (%) (%)
USA 35.7 USA 33.8 Brazil 16.4 Argentina 17.6
Japan 21.1 Japan 20.4 Korea, Rep 12.9 Brazil 13.2
U.K. 6.9 U.K. 6.5 Argentina 12.8 Korea, Rep 10.4
France 4.9 Italy 5.6 Hong Kong 6.1 India 6.8
Italy 4.6 Germany 4.9 Taiwan, China 5.6 Thailand 6.3
Germany 4.5 France 4.8 Yugoslavia 5.0 Taiwan, China 5.3
Canada 2.7 Spain 2.7 India 4.8 Singapore 4.4
Spain 2.5 Switzerland 2.0 Singapore 3.6 Hong Kong 4.0
Switzerland 1.7 Canada 1.9 Turkey 3.5 Malaysia 2.4
Netherlands 1.7 Netherlands 1.8 Mexico 2.5 Mexico 2.3
Australia 1.3 Australia 1.4 Malaysia 2.3 Turkey 2.1
Sweden 1.2 Argentina 1.3 Thailand 2.3 Philippines 2.0
Brazil 1.0 Sweden 1.1 Colombia 1.5 Peru 2.0
Finland 0.9 Brazil 1.0 Indonesia 1.3 Chile 1.7
Korea, Rep 0.8 Denmark 0.9 Puerto Rico 1.1 Iran 1.4

Table-2.5-H Leading Producers of Rubber and Plastic Products (ISIC 355-356) in 1990 and 2000
1990 2000 1990 2000

(%) (%) (%) (%)
Japan 22.7 USA 25.8 Taiwan, China 17.4 Korea, Rep 15.9
USA 21.5 Japan 16.6 Korea, Rep 15.4 Brazil 12.2
Germany 12.8 Germany 11.8 Brazil 14.7 Taiwan, China 10.9
Italy 6.5 Italy 6.3 Mexico 6.5 Malaysia 10.7
U.K. 4.8 France 5.1 India 6.4 India 6.5
France 4.8 U.K. 4.3 Argentina 5.2 Argentina 6.4
Spain 2.7 Spain 3.4 Malaysia 3.6 Mexico 6.1
Taiwan, China 2.6 Canada 2.7 Turkey 3.3 Turkey 6.1
Korea, rep 2.3 Korea, Rep 2.6 Indonesia 3.2 Indonesia 3.7
Brazil 2.2 Brazil 2.0 Yugoslavia 3.0 Peru 1.9
Canada 1.8 Taiwan, China 1.8 Hong Kong 2.8 Philippines 1.8
Belgium 1.1 Malaysia 1.7 Singapore 1.3 Singapore 1.3
Netherlands 1.0 Belgium 1.2 Colombia 1.3 U.A. Emirates 1.3
Mexico 1.0 India 1.1 Iran 1.2 Iran 1.2
India 0.9 Argentina 1.0 U.A. Emirates 1.2 Thailand 1.1
36
Table-2.5-I Leading Producers of Non-metallic Mineral Products (ISIC 361, 362, 369) in 1990 and 2000
1990 2000 1990 2000

(%) (%) (%) (%)
Japan 20.7 USA 17.3 Mexico 10.9 India 14.9
USA 15.3 Japan 15.9 Korea, Rep 10.8 Korea, Rep 10.0
Germany 10.0 Germany 9.5 Brazil 10.7 Mexico 9.9
Italy 8.2 Italy 7.8 Turkey 8.1 Turkey 9.4
France 5.5 Spain 4.8 India 7.8 Brazil 8.6
U.K. 5.5 France 4.8 Taiwan, China 6.1 Taiwan, China 5.1
Spain 4.4 U.K. 4.2 Argentina 4.5 Thailand 4.2
Mexico 2.0 India 3.5 Thailand 4.3 Malaysia 3.8
Korea, Rep 2.0 Korea, Rep 2.3 Yugoslavia 3.0 Argentina 3.6
Brazil 1.9 Mexico 2.3 Iran 2.9 Iran 3.0
Canada 1.5 Turkey 2.2 Saudi Arabia 2.3 Philippines 2.4
Turkey 1.5 Brazil 2.0 Malaysia 2.1 Indonesia 2.2
India 1.4 Canada 1.6 Algeria 2.0 Egypt 1.8
Switzerland 1.3 Austria 1.2 Indonesia 1.9 Saudi Arabia 1.7
Austria 1.2 Taiwan, China 1.2 Egypt 1.8 Morocco 1.5

Table-2.5-J Leading Producers of Metal Products (ISIC 381) in 1990 and 2000
1990 2000 1990 2000

(%) (%) (%) (%)
Japan 23.3 USA 23.8 Korea, Rep 14.3 Brazil 13.1
USA 20.6 Japan 17.2 Brazil 14.0 Korea, Rep 12.7
Germany 14.6 Germany 16.2 Taiwan, China 11.7 Mexico 12.2
France 6.6 France 6.6 Mexico 7.5 Taiwan, China 11.9
Italy 5.1 Italy 4.6 Argentina 6.8 Malaysia 6.1
U.K. 4.5 U.K. 3.4 India 4.8 India 5.5
Spain 2.6 Spain 2.5 Yugoslavia 4.6 Argentina 5.2
Canada 1.9 Canada 2.1 Turkey 4.0 Thailand 4.0
Switzerland 1.5 Switzerland 1.7 Thailand 2.9 Singapore 3.0
Sweden 1.5 Sweden 1.6 Singapore 2.8 Turkey 2.6
Korea, Rep 1.4 Brazil 1.4 Hong Kong 2.8 Iran 1.9
Brazil 1.4 Korea, Rep 1.4 Algeria 1.9 Indonesia 1.5
Netherlands 1.3 Austria 1.4 Indonesia 1.9 Saudi Arabia 1.3
Australia 1.1 Belgium 1.3 Iraq 1.6 Peru 1.3
Taiwan, China 1.1 Mexico 1.3 Iran 1.6 Chile 1.2

37
Table 2.5-K
China's Position in World Trade in its main export products

Average of 1997 and 1998
SITC Product groups Product Percentage share of

code category product group in
China's total exports World exports
894 Toys and sporting goods B 4.5 24.5
851 Footwear B 4.4 23.0
845 Knitted outergarments B 3.7 16.7
843 Women's textiles outergarments B 3.6 16.1
752 Computers E 3.4 3.9
842 Men's textile outergarments B 3.3 19.0
764 Telecom equipment, and parts E 3.2 4.3
846 Knitted undergarments B 2.7 17.3
893 Plastic articles D 2.1 7.0
831 Travel goods B 1.8 31.0
778 Electrical machinery D 1.8 4.2
848 Apparel and clothing accessories B 1.7 26.4
759 Computers and office machines E 1.6 2.8
899 Miscellaneous manufactures F 1.6 8.8
755 Household equipment D 1.6 8.8
652 Woven cotton fabrics B 1.6 12.3
762 Radios E 1.5 18.9
658 Made-up textile articles B 1.5 18.6
821 Furniture and parts thereof B 1.5 5.0
653 Woven man-made fibre fabrics B 1.4 8.5
771 Electric power machinery D 1.2 8.6
844 Textile undergarments B 1.2 17.0
651 Textile yarn B 1.2 6.5
776 Transistors and semiconductors E 1.2 1.1
333 Crude petroleum A 1.2 1.0
772 Electrical apparatus D 1.2 2.9
699 Base metal manufactures C 1.0 4.4
885 Watches and clocks E 1.0 12.0
Total shares of above items 59.7
Note: The classification of products into product categories in this table follows that in this
chapter. The categories are as follows: A=primary commodities; B=labour-intensive and
resource-based manufactures; C=manufactures with low skill and technology intensity;
D=manufactures with medium skill and technology intensity; E=manufactures with high skill and
technology intensity; F=unclassified manufactured product.
38
(d) Concept of Small and Medium Enterprises (SMEs)
The focus of this study is on the resource based and export oriented small and medium
enterprises (SMEs). But, the concept of small and medium industries differs from country
to country. The single criterion for defining small-scale industry (SSI) units in India is
historical value of plant and machinery. Workforce as a criterion for defining SSIs in
India was discontinued in 1960. Another distinct feature of industrial classification by
size in India is the absence of the concept of medium scale industries.
In many parts of the world, the widely prevalent notion is that of Small and Medium
Enterprises (SMEs). It is also seen that workforce rather than assets are the major
criterion for determining the size of a unit in most of the countries. The criteria of
defining SMEs in selected Asian and other countries are presented in Table-2.6.
The comparison of SME definition as given in Table-2.6 shows that workforce based
definition of SSIs and/or SMEs is prevalent in countries such as the United States, U.K.,
Thailand, Sweden, Spain, Netherlands, Denmark, Korea, Ireland, Indonesia, Germany,
France, Greece, Italy and Australia. On the other hand, Belgium, China, Malaysia,
Mexico, Portugal, Singapore, and Taiwan use workforce along with one of the other
criterion, such as investment ceiling, annual turnover, shareholder fund, gross
income/sales, revenue, or fixed assets for categorizing industrial units as SSIs or SMEs.
Japan categorizes industrial units as manufacturing wholesale trade and retail trade on the
basis of asset capitalization or the number of employees, while Thailand categorizes
entire manufacturing sector as labour intensive or capital intensive sector based on
employment criteria.
2.2 Structure of the sector
Table 2.7 presents the structure of MVA in industrialized and developing countries
during 1985-2000. It is observed from the table that in 2000, agro-based and
resource-based manufacturing had a share of about 45 per cent in total MVA of
developing countries compared with only 28 per cent in industrialized countries.
In developing countries, food products and beverages had the highest share (13.3
per cent) in total MVA in 2000 followed by chemicals (12.8 per cent), electrical
machinery (12.1 per cent) and transport equipment (9.5 per cent). In contrast, in
2000 the industrialized countries had the dominant share in non-electrical
machinery (19.7 per cent) followed by electrical machinery (18.9 per cent),
chemicals (9.6 per cent), food products and beverages (8.9 per cent) and transport
equipment (8.5 per cent).
In both the industrialized and developing countries the shares of agro based and resource
based products such as food products and beverages, tobacco, textiles, wearing
materials and leather, wood and cork products, paper, printing and publishing
have increased during the period 1985-2000.
39
Table 2.6
Definition of Small and Medium Industries in selected Asian and other countries
Country Category of industries Country’s official definition Measure

China SME <100 employees and Employment &
investment<30 mln Yuan Investment
India Small Scale Industry Investment in plant and machinery up Investment
to Rupees 10 million
Indonesia SME <100 employees Employment
Japan Manufacturing <300 employees or asset<100 mln Yen Employment
Wholesale trade <50 employees or assets<30 mln Yen and assets
Retail trade and services <50 employees or assets<10 mln Yen
Korea Manufacturing <300 employees Employment
Services <20 employees
Malaysia SMIs <75 workers or share fund<RM 2.5 mln Employment
Sis 5-50 workers & share fund<Rm 0.5 ml And shareholder
Mis 50-75 workers, fund RM 0.5-2.5 mln fund
Singapore Manufacturing/ services <100 employees and assets <S$12 mln Employ./assets
Taiwan SMEs <200 employees, capital<NT$40 mln Employment
SSEs <20 employees, sales<NT$120 mln And sales
Thailand Labour intensive sectors <200 employees Employment
Capital intensive sectors <100 employees
Vietnam SME <200 employees Employment
Brunei SME Up to 100 employees Employment
Hong Kong SME Manufacturing<100 employees Employment
Australia Small enterprises <20 employees Employment
Medium enterprises <100 employees
USA Very small enterprise, < 20 employees Employment
Small enterprise, 20-99 employees
Medium enterprise 100-499 employees
Canada Manufacturing < 200 employees Employment
Mexico Micro <15 workers and sales <US$175,000 Employment
Small 15-99 employees & sales <US$175,000 and gross sales
medium 100-249 workers & sales <US$350,000 or income
Belgium SME < 50 workers & turnover ECU 4.2 mm Empl. / turnover
Denmark Manufacturing 6-499 employees Employment
France SME 10-499 employees Employment
Germany SME <500 employees Employment
Greece Small enterprises <50 employees Employment
Medium enterprises 50-500 employees
Ireland SME <500 employees Employment
Italy Small enterprises <200 employees Employment
Netherlands Small enterprises <10 employees Employment
Portugal SME <500 employment Employment
Spain Small enterprises <200 employees Employment
Sweden SME <200 employees Employment
Switzerland SME No fixed definition
U. K. SME No fixed definition
40
Table 2.7 Structure of MVA in Industrialized and Developing Countries in 1985-2000 (Percentage)
Brach (ISIC) Industrialized countries Developing countries
1985 1990 1995 2000 1985 1990 1995 2000
Food products & beverages (311-313) 12.0 11.2 11.0 8.9 15.2 14.5 14.0 13.3
Tobacco (314) 1.3 1.2 1.2 0.8 3.6 3.1 3.1 3.1
Textiles (321) 4.2 3.7 2.9 2.0 8.2 7.6 6.4 5.6
Wearing app., leather (322-324) 3.3 2.7 2.2 1.1 6.3 5.4 3.9 3.2
Wood and cork products (331) 1.8 1.7 1.6 1.3 1.4 1.4 1.2 1.0
Paper (341) 3.2 3.2 3.3 2.8 2.1 2.3 2.3 2.2
Printing and publishing (342) 5.1 5.2 5.1 4.2 2.0 2.1 2.2 1.9
Chemicals (351-352) 10.0 10.2 10.6 9.6 11.0 11.3 11.9 12.8
Petroleum inc. coal products (353-354) 2.7 2.4 2.3 1.8 7.9 8.2 8.1 7.8
Rubber and plastic products (355-356) 3.8 4.0 4.2 3.6 3.9 4.0 4.0 3.9
Non-metallic mineral prod (361-62-69) 4.1 4.0 3.7 3.0 4.7 4.9 5.2 4.9
Basic metals (371-372) 6.2 5.6 5.3 4.3 6.5 6.9 7.5 7.5
Metal products (381) 6.1 6.1 6.0 5.0 3.9 3.8 3.7 3.4
Non-electrical machinery (382) 11.2 12.3 13.7 19.7 5.5 5.5 5.4 5.3
Electrical machinery (383) 9.7 10.7 12.6 18.9 6.6 8.3 9.8 12.1
Transport equipment (384) 9.9 10.4 9.4 8.5 7.8 7.4 8.3 9.5
Prof. Scientific equipment (385) 2.6 2.5 2.4 2.1 0.8 0.9 0.8 0.7
Other manuf. Incl. Furniture (390-332) 2.8 2.9 2.5 2.5 2.6 2.4 2.2 1.8
Total manufacturing (3) 100 100 100 100 100 100 100 100
41
2.3 Economic Significance
(a) Contribution to GDP
Growth rates of manufacturing value added and the share of MVA in GDP in selected
Asian countries are given in Table 2.8. It is observed from the table that the share of
MVA in GDP in 2000 was highest in South and East Asia at 30.4 per cent. China had the
highest share at 42.8 per cent followed by Korea (35 per cent), Malaysia (32.4 per cent),
Thailand (31.7 per cent) and Mongolia (30.1 per cent).
Contribution to Employment
Table 2.9 presents male and female employment by economic activity in selected Asian
economies in 1990 and 2000. It is observed from the table that in NIEs, service sector
has predominant share in both male and female employment followed by industry and
agriculture in that order, whereas in most of the countries in South Asia and South East
Asia, agriculture and allied sector has the predominant share in both male and female
employment. Over time, consistent with the change in sectoral shares in GDP, both male
and female labour force have shifted from agriculture to industry and service in NIEs and
South East Asian countries.
Table 2.10 provides information on the share of females in total employment by different
branches of manufacturing in selected Asian countries (Macao, Taiwan, India, Indonesia,
Japan, Malaysia, Myanmar, Nepal, Philippines, Korean republic and Sri Lanka) in the
most recent period for which data are available. It is observed from the table that in many
countries, the share of female employment in total sectoral employment is higher than
that of male employment in tobacco, textiles, wearing apparel, footwear, leather and fur
products, chinaware and potteries.
(b) Contribution to productivity
Table 2.11 presents value added per employee in different branches of manufacturing in
selected Asian countries (Japan, Bangladesh, Hong Kong, Macao, Taiwan, India,
Indonesia, Malaysia, Korean Republic, Singapore and Sri Lanka) in latest year, for which
data are available, and may provide some indication about differences in labour
productivity in different segments. For almost all the countries, iron and steel has the
highest productivity of labour, while the sector with the lowest value added per employee
is not uniform across the countries. However, productivity of majority of agro-based and
resource-based industries such as food products and beverages, textiles and clothing,
apparel, leather products and footwear were relatively high in most of the countries.
42
Table-2.8 Growth rate and share of MVA in selected Asian countries in 1980-2000
Country Total MVA Per capita MVA Share of MVA in GDP

Growth rate (%) Growth rate (%) Value ($)
1980-1990 1990-2000 1980-1990 1990-2000 2000 1985 1990 2000
Newly Industrialized Economies (NIEs)

Hong Kong 4.7 -1.8 3.5 -3.6 1499 20.9 16.3 8.9
Korea,Republic 12.1 7.5 10.8 6.6 3434 25.6 28.9 35.0
Singapore 6.6 6.7 4.3 3.6 5049 22.2 27.2 25.4
Taiwan,China 8.4 5.1 7.0 4.2 3920 35.7 32.7 29.3
China & Mongolia
China 10.7 13.2 9.1 12.1 347 31.6 33.1 42.8
Mongolia 5.8 1.1 2.7 -0.2 210 26.5 29.0 30.1
South-East Asia
Cambodia 8.0 8.7 3.8 5.4 13 4.1 5.2 7.7
Indonesia 12.6 6.6 10.5 5.0 201 17.2 20.7 24.8
Lao, PDR 6.8 12.1 4.1 9.4 53 7.6 10.0 17.9
Malaysia 8.9 9.3 6.1 7.0 1258 19.9 26.5 32.4
Myanmar -0.1 6.6 -2.0 4.9 70 8.5 7.8 8.2
Philippines 0.2 3.0 -2.2 0.8 187 24.6 24.8 24.1
Thailand 9.5 5.8 7.6 4.4 650 22.0 27.2 31.7
Vietnam 7.1 11.1 4.7 9.3 28 14.0 12.3 16.4
South Asia
Bangladesh 3.0 7.3 0.4 4.9 53 13.4 12.7 16.0
Bhutan 12.7 10.5 9.9 8.3 30 5.7 8.1 12.1
India 7.4 7.2 5.2 5.3 92 17.1 18.7 20.0
Maldives 12.0 8.8 8.6 5.6 63 5.3 5.4 6.1
Nepal 6.6 8.5 4.3 5.9 21 5.9 6.0 8.8
Pakistan 7.7 3.6 4.5 1.0 65 16.3 17.4 17.0
Sri Lanka 6.3 8.1 4.6 6.9 122 12.6 14.8 19.0
East Asia
Japan 4.8 0.6 4.2 0.3 6865 25.8 25.8 23.9
World
Industrialized countries 2.8 1.9 2.0 1.4 2669 22.9 22.4 21.5
Developing countries 5.1 6.4 3.0 4.6 314 21.4 22.2 25.5
Least developed 2.2 4.3 -0.6 1.7 37 10.2 9.7 10.0
countries
Low income 5.9 5.9 3.4 3.8 88 15.3 16.8 18.3
Middle income 2.4 3.2 0.2 1.4 556 22.2 21.9 21.7
High Income 8.5 5.8 6.3 4.3 2685 21.2 22.7 25.3
Africa 3.9 2.9 1.0 0.4 78 12.6 12.3 12.3
Latin America 1.4 2.9 -0.6 1.2 643 25.0 24.1 22.8
South and East Asia 9.0 8.9 6.9 7.3 300 22.8 25.1 30.4
ASEAN 7.5 6.5 5.3 4.7 292 18.9 23.0 25.9
West Asia and Europe 4.0 2.7 1.3 0.5 580 16.8 16.2 16.8
World 3.1 2.8 1.4 1.3 1037 22.7 22.4 22.3
Sources : (1) World Development Report 2002.
43
Table 2.9 Employment by economic activity in selected Asian economies in 1990 and 2000
Country Agriculture Industry Services

Male Female Male Female Male Female
as % of male as % of female as % of male as % of female as % of male as % of female
labor force labor force labor force labor force labor force labor force
1980- 1998- 1980- 1998- 1980- 1998- 1980- 1998- 1980- 1998- 1980- 1998-
1982 2000 1982 2000 1982 2000 1982 2000 1982 2000 1982 2000

Hong Kong 2 0 1 0 47 28 56 12 52 71 43 88
Korea,Rep 31 10 39 13 32 34 24 19 37 56 37 68
Singapore 2 0 1 0 33 33 40 23 65 67 59 77
Taiwan,China .. .. .. .. .. .. .. .. .. .. .. ..
China and Mongolia
China .. .. .. .. .. .. .. .. .. .. .. ..
Mangolia .. .. .. .. .. .. .. .. .. .. .. ..
South-East Asia
Cambodia .. .. .. .. .. .. .. .. .. .. .. ..
Indonesia 57 .. 54 .. 13 .. 13 .. 29 .. 33 ..
Lao, PDR 77 .. 82 .. 7 .. 4 .. 16 .. 13 ..
Malaysia 34 21 44 13 26 33 20 29 40 46 36 58
Myanmar .. .. .. .. .. .. .. .. .. .. .. ..
Philippines 60 47 37 27 16 18 15 13 25 36 48 61
Thailand 68 50 74 47 13 20 8 17 20 31 18 36
Vietnam .. .. .. .. .. .. .. .. .. .. .. ..
South Asia
Bangladesh .. .. .. .. .. .. .. .. .. .. .. ..
Bhutan .. .. .. .. .. .. .. .. .. .. .. ..
India .. .. .. .. .. .. .. .. .. .. .. ..
Maldives .. .. .. .. .. .. .. .. .. .. .. ..
Nepal .. .. .. .. .. .. .. .. .. .. .. ..
Pakistan .. .. .. .. .. .. .. .. .. .. .. ..
Sri Lanka 44 38 51 49 19 23 18 22 30 37 28 27
East Asia
Japan 9 5 13 6 40 38 28 22 51 57 58 73
World
Low & middle income .. .. .. .. .. .. .. .. .. .. .. ..
East Asia & Pacific .. .. .. .. .. .. .. .. .. .. .. ..
Europe & Central Asia .. 22 .. 21 .. 31 .. 16 .. 48 .. 64
Latin America & Carib. .. 20 .. 11 .. 28 .. 14 .. 52 .. 75
Mid. East & N.Africa .. .. .. .. .. .. .. .. .. .. .. ..
South Asia .. .. .. .. .. .. .. .. .. .. .. ..
Sub-Saharan Africa .. .. .. .. .. .. .. .. .. .. .. ..
High Income 7 4 6 2 42 36 22 15 51 60 72 82
World .. .. .. .. .. .. .. .. .. .. .. ..
Sources :
44
Table-2.10 Share of Females in Total Employment by Branches in Selected Asian Countries (Percentage)
Branch (ISIC) Ma- Tai- India Indo- Japan Malay Myan- Nepal Phili- Korea Sri
cao wan nesia -sia mar ppines Rep Lanka
1997 1997 1997 1999 1999 1997 1999 1996 1995 1999 1998
1. Food products 48 45 15 41 59 38 .. 8 33 50 34
(311-312)
2. Beverages (313) 24 34 6 35 31 38 .. 9 9 24 12
3. Tobacco (314) 39 93 35 82 34 16 47 7 45 19 71
4. Textiles (321) 70 53 9 52 60 49 .. 37 52 47 62
5. Wearing app. 81 79 55 78 84 73 .. 18 80 74 86
(322)
6. Leather and fur 58 34 16 55 50 71 53 8 67 42 69
products (323)
7. Footwear (324) 78 65 38 73 54 55 73 16 58 49 57
8. Wood and cork 10 41 9 36 29 35 .. 3 17 23 35

products (331)
9. Furniture, 6 38 1 32 28 28 21 5 29 20 4
fixtures (332)
10. Paper (341) 20 32 4 23 32 34 .. 19 23 31 20
11. Printing and 29 37 3 .. 30 38 45 7 31 11 12

publishing (342)
12. Industrial .. 24 1 17 11 18 .. .. 20 30 19
Chemicals (351)
13. Other 50 45 19 47 34 40 46 10 33 .. 41
Chemicals (352)
14. Petroleum .. 10 0.3 .. 9 11 13 5 13 .. ..
refineries (353)
15. POL and coal .. 11 5 .. 15 13 .. .. 23 20 ..
products (354)
16. Rubber 40 41 4 23 29 45 35 12 41 26 30
products (355)
17. Plastic products 30 45 5 49 40 43 47 7 27 51 40
(356)
18. Pottery,earthen .. 39 7 .. 42 55 50 .. 44 17 48
ware (361)
19. Glass (362) 17 38 2 .. 24 28 36 6 9 14 17
20. Other non-metal 16 23 7 .. 19 16 .. 15 14 7 28

min. prod (369)
21. Iron and Steel .. 15 1 4 10 13 .. 0.1 8 12 6
(371)
22. Non-ferrous .. 23 1 14 17 22 20 .. 18 20 3
metals (372)
23. Metal products 11 33 2 25 25 25 27 2 19 19 7
(381)
24. Non-electrical 17 35 2 17 24 42 .. 1 48 41 ..
machinery
(382)
25. Electrical 69 52 8 62 37 67 .. 5 70 10 45
machinery
(383)
26. Transport 4 24 1 11 17 21 .. .. 12 36 10
equipment
(384)
27. Prof. Scientific 57 57 12 63 36 91 .. .. 80 43 30
equipment
(385)
28. Other manufac- 68 52 16 .. 42 71 38 21 65 31 74
tures (390)
29. Total manufac- 72 42 11 .. 35 47 .. 22 46 58
turing (3)
45
46
Table 2.11 Value added per employee in selected Asian countries (in 100 US dollars)
Products (ISIC) Japan Bangl Hong Ma- Tai- India Indo- Malay Korea Singa- Sri
adesh Kong cao wan nesia -sia Rep pore Lanka
1999 1997 1999 1997 1990 1998 1999 1997 1999 1999 1998
1. Food products 738 37 356 108 276 26 46 208 639 463 60

(311-3120
2. Textiles (321) 535 11 327 128 161 20 42 197 427 335 28
3. Wearing apparel 339 9 276 113 203 26 25 74 238 180 25

(322)
4. Leather and 635 39 213 74 124 20 28 78 421 342 40
leather products
(323)
5. Footwear (324) 505 33 142 83 123 21 27 80 267 187 51
6. Wood and cork 621 17 277 67 109 13 38 101 423 291 22

products (331)
7. Furniture and 427 15 261 142 226 25 20 101 363 235 8
fixtures (332)
8. Paper (341) 1030 24 351 99 231 28 81 173 715 498 50
9. Rubber 1013 11 336 .. 141 47 46 167 570 409 46

products (355)
10. Plastic products 853 38 294 119 160 28 36 168 484 303 33
(356)
11. Pottery, china, 615 13 .. .. 116 20 72 102 260 .. 28
earthenware
(361)
12. Iron and Steel 1440 82 460 .. 442 67 149 741 1175 750 80
(371)
13. Non-ferrous 1096 .. 462 .. 347 68 198 337 773 343 35
metals (372)
14. Metal products 869 23 326 129 132 34 56 172 409 354 30
(381)
2.4 Issues at stake
(a) Prospects of agro based and resource based SMEs
Up to mid-1997, the economies of Southeast Asian countries experienced robust

economic growth due to:
• Political, social and economic stability

• Endowment of natural and human resources
• Efficient legal and institutional framework
• Pro-business and pro-foreign direct investment policies
• Sound macroeconomic policies
• Emphasis on the market, private enterprise, outward-looking industrialization and
relatively open economies.
47
Despite this growth, Asian SMEs suffered from age-old problems:
• Low level of productivity, lower average value added and output levels per employee;
• Inadequate access to financial institutions and high credit cost;
• Higher costs of raw materials because of small quantities ordered;
• Inadequate level of technology and managerial skills due to lack or inadequacy of
R&D and difficulty of access to technological information;
• Difficulties in marketing and distribution due to lack of direct overseas market
exposure and penetration;
Although many government programs focused on developing the SME sector, these
support programs suffered from the following deficiencies:
• Involvement of too many government agencies with minimal coordination;

• Short run and unfocused approach for the development of SMEs;
• Absence of continuity or frequent revisions of many programs;
• More benefits accrued to large and medium industries compared to small industries;
• Involvement of many non-governmental organizations for private groups (local
chambers, federations and associations) necessitating need for greater coordination.
Economic liberalization affected Small and Medium Industries in many ways with some
positive as well as negative effects:
• Decrease in number of micro-enterprises.

• Better access to and low prices for machinery, equipment and tools.
• Greater competition in consumer goods sectors.
• Improved access to the system of new and universalized government incentives.
• Increased access to financial resources.
• High costs of support services including infrastructure.
• More opportunities for subcontracting and networking from foreign investment.
• Greater competition from foreign investments in modern market and labour force.
The East Asian economic crisis diminished the positive effects, at times even negating
them and magnifying the negative effects. The crisis exposed weaknesses in the
competitive ability of the traditional manufacturing and had disproportionate effects on
small and medium-size enterprises (SMEs). Although East Asian firms, including those
in crisis countries, were adept in adopting new manufacturing techniques, they faced
continual challenges from low wage developing countries and from China and Japan. As
in the case of Mexican crisis, the East Asian crisis led to a sharp fall of production and
investment in non-traded sectors. This is expected because currency depreciation, which
favours traded goods, reduces incentive to invest in non-tradable sectors.
48
(b) Major issues for consideration
Above analysis indicates that major issues at stake for the development of agro-based and
resource based SMEs include the following:
(h) Integration of agriculture and agro-based industries
(i) Availability of raw materials and credits
(j) Location of industry, transport costs and access to markets
(k) Economies of scale and size of markets
(l) Availability of skilled labour and capacity building
(m)Lack of modern technology
(n) International barriers on trade
(o) Role of multinationals and foreign investment
(p) Environment and sustainability
In many developing countries there is lack of co-ordination for the development of

agriculture and agro based industries due to several restrictions imposed on both internal
and external trade of agricultural commodities. Due to lack of basic infrastructure such as
electricity and transport, agro-based food processing industries are generally established
nearer to the cities and towns, which are the major consumption and demand centres for
these goods. As a result, transport costs for raw materials become high and impose a
burden on the cost of production. In order to reap several fiscal and monetary benefits,
agro based and resource-based industries generally lack vertical expansion and therefore
suffer from the low economies of scale.
Availability of Skilled labour and Modern Technology
Lack of technological upgradation in SSI is attributable to a number of factors such as

lack of coordination between technology schemes required for SSI and technology
developers, and lack of resources and technological manpower by SSI. The reasons for
such lack of effective coordination between R&D schemes by technical institutes and
development policy of the SSIs could be ascribed to the following factors:
• Institutional research is mainly science-driven and not technology/ demand-driven.
• The basic research payoff period is too long.
• The growing complexity of industrial R&D.
• R&D institutions act as an 'ivory tower' and do not commercialize the research result.
• Industry's primary orientation is towards short-term profits and product improvements
and not on long term cost effectiveness.
Technology development capability of the SSI is found to be weak mainly due to:
• Inadequate management skills.
• Lack of access to technological information and Consultancy services.
• Relative isolation from technology hubs.
• Low levels of investment in R&D.
• The desire to avoid risks (the 'not-me-first' syndrome).
• Emphasis on production and not on production costs.
49
(c) Availability of raw materials and credits
In many developing countries, the predominant view is that state owned banks could
reduce poverty by providing subsidized lending to the SMEs. This view is based on the
perception that the private sector is not able or willing to supply the necessary financial
services to key economic sectors and it does not have any interest in lending to the poor.
However, experience indicate that the state-owned financial institutions often hinder
more general financial market development, serve only a small proportion of the poor and
have favoured politically connected larger borrowers. They have also high transactions
cost, high level of non-performing assets and low productivity.
In the late 1980s, this approach was countered by a belief that state withdrawal would be
more beneficial and more efficient. As a result, either closing or privatizing State owned
financial institutions became an important priority in adjustment programs supported by
IMF and other international financial institutions. However, the expectation that private
institutions would rapidly take the place of state-owned banks and improve the provision
of financial services to the poor has not been materialized.
In recent years, financial services for the poor through the so-called "micro-finance
movement" have generated considerable support by academics, donors, and development
practitioners. Availability of credit from both formal and informal micro-finance
institutions can generate employment in small informal businesses, which in turn has the
potential to increase the income of the poor.
(d) International barriers on trade
There are still several barriers in multilateral trading arrangements for market access in
labour-intensive manufactures. Although there have been some recent initiatives in this
area, including preferential market access provided by the EU, and the United States, the
improved access they offer is restricted to the poorest countries. Pockets of protection
remain in products of particular interest to developing countries. Between 6 per cent and
14 per cent of Quad (Canada, the EU, Japan, and the United States) tariff lines are subject
to "tariff peaks." The effect of these tariffs is further aggravated by the subsidies on
agriculture in OECD countries (which depresses world prices of commodities), quotas in
textiles and clothing trade, and high barriers in inter-developing country trade.
Trade in textiles and clothing is still governed by quota regulations, and developing
countries’ manufactured exports encounter high tariffs and contingent forms of protection
such as anti-dumping action and labour and environmental standards. Tariff peaks
imposed by developed countries are often concentrated in labour-intensive manufactures.
Textiles, clothing, leather and rubber products, footwear and travel goods are subject to
tariff peaks in Canada and the United States; and leather, rubber, footwear and travel
goods are subject to tariff peaks in Canada and the United States; and leather, rubber,
footwear and travel goods in Japan. In the EU, tariff peaks concern mainly agricultural
50
products, but leather, rubber, footwear and travel goods are the most affected categories
within manufactures (UNCTAD/ WTO, 2000).
Table 2.12 gives average most favoured nation (MFN) tariff rates as applied to selected
groups of manufactured imports by developed and developing economies. The Table
confirms that developed countries apply higher import tariffs to traditional labour-
intensive products (textiles, clothing, leather, travel goods and footwear) than to other
products, and within the group of traditional labour-intensive manufactures, import tariffs
are highest on clothing and footwear. The low-income countries in Africa and Asia have,
on average, higher tariffs than the middle-and high-income developing countries. The
table also reveals that the NIEs apply, on average, lower tariffs than developed countries
to all of the selected traditional labour-intensive manufacturing sectors.
Table 2.12 Average MFN tariffs of selected economies by product groups (per cent)
Importing economy/ Manufa Textiles Clothing Leather Footwear Computers Telecom,

region ctures & travel and office Audio.
goods equipment Video.
equipment
Developed 4.1 7.8 14.5 5.0 13.7 0.3 2.6
countries 5.4 9.9 20.7 4.7 11.1 0.3 5.4
Australia 4.9 10.7 18.4 4.2 16.3 0.2 1.5
Canada 4.4 7.9 11.4 3.3 12.4 0.8 4.1
European Union 2.9 6.5 11.0 10.2 19.2 0.0 0.0
Japan 3.1 2.4 13.7 2.7 9.5 0.3 3.0
New Zealand 4.0 9.1 11.4 5.5 13.4 0.4 1.6
United States
Developing countries
NIEs 3.6 4.5 6.4 2.8 4.3 2.3 4.3
Hong Kong 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Rep of Korea 8.0 9.4 12.4 6.5 12.2 7.3 8.0
Singapore 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Taiwan, China 6.4 8.3 13.1 4.6 5.0 1.6 8.1
ASEAN-4 10.6 14.7 24.1 10.8 23.6 5.8 14.4
Indonesia 9.0 12.6 18.1 8.8 17.8 3.8 13.9
Malaysia 9.9 16.7 19.6 9.5 26.8 2.0 13.1
Philippines 7.4 10.7 19.2 7.8 15.0 1.0 10.9
Thailand 16.1 18.7 39.7 17.3 34.8 16.4 19.5
South Asia 21.4 24.2 29.2 22.1 33.6 14.0 22.3
Bangladesh 22.2 30.2 .. 17.1 .. 9.4 22.5
India 34.1 39.0 40.0 32.3 44.0 28.9 37.0
Sri Lanka 8.0 3.4 11.0 17.0 23.2 3.6 7.4
Other Asia 12.5 14.3 20.8 19.3 25.8 8.3 17.2
China 9.6 9.7 16.1 13.0 20.4 4.0 13.7
Latin America 11.9 15.8 20.8 14.1 20.8 8.3 13.6
North Africa 25.9 38.4 44.1 33.8 44.5 15.6 25.4
Sub-Saharan Africa 16.8 21.8 34.5 19.6 26.9 15.5 23.9
High/ middle income 14.6 19.5 26.9 16.8 25.1 10.3 15.3
developing countries
Source: UNCTAD World Trade Report 2002.
51
The rapid growth of developing country T&C exports has created a high dependency on
these products for export earnings (Table-2.13). Textiles alone accounted for 51 per cent
of Pakistan's merchandise exports in 1999, clothing for 50 per cent of Sri Lanka's.
Among least developed countries, T&C represented 83 per cent of Bangladesh's
merchandise exports and 87 per cent of Cambodia's. The remarkable growth in T&C
exports from developing countries was achieved despite extensive quantitative
restrictions and high tariffs in developed countries, which are the main export markets for
most developing countries.
Agricultural liberalization in both industrial and developing countries is likely to have

long-term, dynamic effects on developing country production and trade. A joint study by
the IMF and World Bank (2002) indicate that gains from agricultural liberalisation alone
would be on the order of US$30 billion in income and US$120 billion in exports per
year. Increased investment and upgraded technologies could magnify the benefits of
liberalization, but require a framework of supportive domestic policies and infrastructure
(transport, logistics, credit, and technical assistance).
Tariff barriers on T&C far exceed those on other manufactured products, in industrial and
developing countries alike. Despite an international agreement to phase out quotas on
textile and clothing trade, the vast majority is still in place. The backloading of quota
removal by Canada, the EU, and the United States is set to cause sharp adjustment
pressures on the less competitive suppliers in both industrial and developing countries at
the end of the implementation period in early 2005.
Protection often imposes disproportionate burdens on the poor. Protection has raised the
prices of necessities in industrial countries, with a larger share in the consumption basket
of lower-income households. In developing countries, barriers to exports of labour-
intensive goods slowed job-creation. It is estimated by the World Bank that industrial
country restrictions on trade in textiles and clothing prevented the creation of over 20
million jobs in developing countries. Therefore, a removal of restrictions on trade on
textiles and clothing is necessary for alleviation of poverty in developing countries.
A further concern is that antidumping measures have become far more common in recent
years with developing countries being increasingly active. There is a risk that this trend
might intensify as statutory protection declines. Furthermore, technical barriers
(including health, safety, and product standards) have been accumulating at a fast pace,
and many developing countries are ill prepared to meet their complexity and cost.
Most developing countries have preferential access to industrial country markets through
GSP schemes, but the benefits are often limited. Preference margins are smaller for
"sensitive" products, which are also the most protected. Utilization rates of GSP schemes
tend to be low due to restrictive rules of origin or social and environmental requirements.
52
Table-2.13 Exports of textiles and clothing in 2001
(in billions of US dollars and percentages)
Countries Value (US$ billion) Percentage in the country’s total

merchandise exports
World 356.4 5.8
Camdodia 1.1 88.7
Macao SAR 2.1 83.9
Bangladesh 4.2 83.4
Pakistan 6.7 72.8
Mauritius 1.0 63.6
Sri Lanka 2.5 54.4
Tunisia 2.5 42.6
Turkey 10.2 38.4
Morocco 2.4 33.7
India 10.2 28.2
Romania 2.5 24.4
China 52.2 20.9
Hong Kong SAR 37.7 18.6
Portugal 4.2 18.2
Egypt 0.6 17.8
Bulgaria 0.8 16.9
Jamaica 0.3 16.5
Greece 1.3 16.4
Indonesia 8.2 13.3
Vietnam 2.0 13.1
Croatia 0.6 12.7
Italy 25.2 10.6
Korea 16.0 10.6
Taiwan, China 14.7 9.9
Peru 0.6 9.1
Thailand 6.1 8.8
Slovenia 0.7 8.7
Poland 2.7 8.4
Slovak Republic 0.9 7.7
Uruguay 0.2 7.4
Philippines 2.7 6.8
Mexico 11.2 6.8
Belgium-Luxembourg 11.5 6.4
Czech Republic 1.9 6.4
Colombia 0.8 6.0
Source: International Monetary Fund (2002)
53
(e) Role of multinationals and foreign investment
(i) International Production Networks
The three product groups with the fastest and most stable growth rates over the past two
decades (namely, parts and components for electrical and electronic goods, labour-
intensive products, such as clothing, and finished goods with high R&D content) had
been most affected by the globalization of production processes through international
production sharing. Lower transport and communication costs and reduced trade and
regulatory barriers facilitated production sharing, which are generally concentrated in
labour-intensive activities. These activities involve technically unsophisticated
production such as clothing or footwear; but they also involve separation and location in
different sites of labour-intensive segments of otherwise technologically complex
production processes, such as those in the electronics or the automotive industry.
International production networks involve large TNCs, which produce a standardized set
of goods in several locations, or groups of small and medium-sized enterprises located in
different countries and linked through international subcontracting. In the production of
standardized goods, scale economies play a key role, and TNCs seek to increase profits
by choosing locations with appropriate combinations of high labour productivity and low
wage and infrastructure costs. However, know-how and technology are usually kept
within the TNCs themselves.
(ii) Production sharing and preferential market access
International production sharing constitutes a particular form of input-output relations

between imports and exports that tends to raise the direct import content of exports
relative to value added. The development of international production sharing has often
been associated with the provision of preferential market access. The MFA quota
restrictions have had a crucial impact on production location and expansion of trade in
textiles and clothing, particularly in Asia, where countries that had exhausted their quotas
in industrial markets shifted production to new locations, using them as bases for exports.
Preferential tariffs provided under regional trade agreements among developing

countries, such as the Southern Common Market (MERCOSUR) in Latin America and
the ASEAN Free Trade Agreement (AFTA) in Asia, had a substantial impact on the
expansion of trade in specific products among the countries involved. For example, the
creation or consolidation of regional automobile industries in Latin America and in the
Association of Southeast Asian Nations (ASEAN), respectively, has given rise to
substantial increases in FDI and intra-industry trade in these regions.
54
(f) Environment and sustainability
Location, safety and environmental regulations are necessary for the efficient functioning
of industry, but these are a relatively small component of sectoral regulation.
Complicated regulations and laws in most developing countries have their origins to
offset market failures. The financial sector, transport and telecommunications,
professional services and media all have special regulatory requirements, but most of
these regulations are excessively detailed and outdated. The reduction, simplification and
rationalisation of rules and procedures, laws and regulations alongwith greater
transparency and reduction of bureaucratic intervention are needed to ensure that a
country can obtain benefits from development of industry including SMEs.
Industries in agriculture, forestry, fisheries, minerals and hydro power have various
environmental aspects that should be taken into account on a nationwide basis rather than
project by project. Agriculture and real estate present difficulties for foreign investment
because of complexities of landownership, and rules and taxes regarding tenancy, sale,
purchase, transfer, lease or mortgage. Because of these problems, many countries like
India donot allow foreign investment in agriculture and real estate. In the case of
plantation, foreign investment in nucleus estates and processing facilities can provide a
market for farmers and at the same time enable them to improve their productivity.
The rapid increase of industrialisation puts a pressure on infrastructure facilities for

human settlements manifesting in environmental problems in the form of increased
incidence of air, water and noise pollution. The manufacturing technology adopted by
most of SMEs places a heavy load on environment through intensive use of resources and
energy as in evident in natural resource depletion (agricultural land, fossil fuel, minerals
and forestry) and water, air and land contamination. With high proportion of fossil fuel as
the main source of industrial energy and major air polluting industries (such as mini steel,
cement and fertilizer plants and automobiles) growing, industrial development has
contributed significantly to air pollution. SMEs also lack proper arrangements for
disposal of solid and hazardous wastes with serious environmental health implications.
Most of the SMEs in the developing countries lack technical knowledge and financial
resources to install proper affluent treatment plants and other pollution abatement
equipment. Although the industries are encouraged and fiscal incentives such as soft
loans and excise and customs duty concessions are provided for installing equipment for
pollution control, in many cases government has to take punitive measures including
legal action and shifting of SMEs out of the urban areas.
In recent years, international trade issues have been very much inter-mixed with
environmental issues. The massive demonstration of NGOs at Seattle, demand of USA
for explicit mandate by WTO on environmental and labour standards, insistence on
environmental cleanliness by developed countries, more vigorously by EU countries, are
all testimony to the impending threat to SSIs for non-conformance to standards on safety,
health and environment (SSHE) in developing countries.
55
3 RATIONALE FOR DEVELOPMENT AND CONTRIBUTION OF AGRO-
AND RESOURCE-BASED INDUSTRIES TO POVERTY ALLEVIATION
3.1 Rationale for development of agro and resource based SMEs
Rationale for promoting agro and resource based SMEs lies in their valuable
contributions to employment generation and poverty alleviation. These enterprises
contribute significantly to poverty alleviation and promote economic and social justice by
employing a significant portion of the poor and low skill work force, which may
otherwise remain unemployed or under employed. Higher employment in rural areas
helps in reduction of inequalities, development of backward areas and balanced regional
growth and development.
The poor persons cannot participate in the growth process for reasons of extreme
deprivation or vulnerability combined with poverty or face continuing exposure to risks
of ill health and malnutrition, which may jeopardize their ability to participate in the
opportunities offered by growth. Employment generated by the SMEs provides effective
safety nets that insure rural poor against the income fluctuations.
Development of agro-based and resource-based industries provides opportunities for the

growth of economic activities in the informal sector and micro enterprises in both rural
and urban areas. The informal sector remains an important source of income and
employment for the poor and self-employed in developing countries. This sector is very
diverse and covers multiple economic activities ranging from petty trading and personal
and domestic services to manufacturing, transport and construction. The social groups
include artisans and craftsmen, hawkers, fruits and vegetable vendors, women, and daily
labourers for construction and other services. Employment or ownership of
microenterprise provides the poor with a source of empowerment and income security
and enables them to participate actively in rural and overall economic development.
Agro-based industries open up new channels of distribution and marketing for

agricultural commodities produced by the small and marginal farmers and raise their
incomes. Development of resource-based industries, particularly SMEs, in rural areas
leads to valorization of agricultural land, agricultural commodities and other resources.
Locations of agro-based and resource-based industries in rural areas help to distribute

broadly among the rural poor the benefits of economic growth. They also improve value
addition and productivity of rural industries through wider distribution networks and
greater access to both internal and external markets.
A dynamic small and medium industries sector serves not only to create employment but
also to earn foreign exchange through exports, upgrade the quality of the labour force and
diffuse technological know-how throughout the economy. These industries help to
mobilize domestic resources by utilising the savings, labour and agricultural raw
56
materials that otherwise remain idle. They serve the low-income consumer markets and
produce a wide variety of goods that also include sophisticated products for export.
The location of small and medium industries in rural areas creates livelihood
opportunities that help to stop migration to urban centres. They provide a training ground
for the small-scale entrepreneurs and business management personnel, who may later join
larger undertakings.
The role of financial markets as an instrument to promote SMEs and to alleviate poverty
is generally focused on supplying credit facilities. However, credit is only one of the
financial services that the poor need. Access to bank accounts or savings facilities in the
rural areas is equally important. For example, people who extract their income primarily
from agriculture must build up financial assets following harvests to sustain themselves
for the rest of the year. Even the poorest households are eager to save if they can obtain
positive real interest rates and there are conveniently located deposit collecting facilities.
This point has been confirmed by the experience in Bangladesh and Indonesia.
Integration of SMEs into global market offers the potential for more rapid growth and
poverty reduction. Increased market access for agricultural products would work to
directly address poverty reduction in developing countries. While the rapid expansion of
demand for unskilled labour in manufacturing and urban services in many developing
countries has sharply reduced rural poverty, about three-quarters of the world's poor still
live in rural areas, where agriculture is often the dominant economic activity (IFAD,
2001). Agriculture accounts for about 27 per cent of GDP in developing countries, a
similar share of exports and 50 per cent of employment. This dependency on agriculture
is even higher in LDCs. But agricultural markets are among the most heavily distorted
and attract tariffs several times higher than those facing manufactured imports.
Historically, textiles and clothing (T&C) have played a unique role in economic
development and poverty reduction. Their contribution to the Industrial Revolution in
Western Europe and North America in the 18th and 19th centuries is well known, and they
continued to spearhead industrialization in many developing countries in the 20th century.
Since textile and clothing production often requires only simple technology and is
intensive in unskilled labour, many developing countries have a strong comparative
advantage in these sectors. In the mid-1960s, developing countries accounted for 15 per
cent of world textile exports and less than 25 per cent of world clothing exports. By 1998,
these shares had reached 50 per cent and 70 per cent, respectively. However, the sector
has also long been a prime target for protectionism.
Despite these positive aspects, SMEs are criticised for their inability to realize economies
of scale in procurement and production, and to have higher costs of production. In many
countries, SMEs exist on the strength of costly government support programs in terms of
several fiscal, monetary and other concessions.
57
3.2 Growth and Poverty Alleviation
In many Asian developing countries, agro-based and resource-based small and medium
industries have succeeded in achieving the intended objectives of absorbing surplus
labour, alleviating poverty and bringing about a more balanced regional growth. In many
cases, SMEs have succeeded in raising their share in terms of number of establishments,
employment and output vis-à-vis large-scale industries. This is clearly illustrated in the
Philippines in the case of professional and scientific equipment, electrical machinery and
non-metallic products, pottery, glass products and electrical equipment.
Table 3.1 presents the average annual growth rates by broad branches of manufacturing
in selected Asian economies (India, Indonesia, Republic of Korea, Singapore, Sri Lanka
and Hong Kong) during 1990s. Although growth rates of agro based and resource based
industries were adversely affected in the East Asian countries due to economic crisis at
the end of 1990s, India and Sri Lanka achieved significant growth rates in the value
added of these industries in the 1990s
During 1990s, sectors achieving average annual growth rates exceeding 8 per cent (i.e.
the average growth rate of MVA recorded by East Asian countries in 1990s) include the
following:
Non-metallic mineral products, motor vehicles and trailers, paper and paper products,
radio and TV sets, textiles, chemical products, basic metals, machinery and
equipment in India;
Food and beverages, wearing apparel and fur products, paper products, coke and
petroleum, basic metals in Indonesia;
Coke and petroleum products, chemical products, basic metals, computers and office
machinery, radio and TV sets, motor vehicles and other transport equipment in
Republic of Korea;
Chemical products in Singapore;
Wood and paper products in Sri Lanka;
None in Hong Kong which recorded negative growth for most of the subgroups.
Of all the crisis economies, Korea’s industrial production recovered the fastest rising
above the pre-crisis levels within two years, whereas the levels of industrial production in
Malaysia, Thailand and Indonesia remained below the pre-crisis level even after two
years (World Bank 2000). The more rapid recovery in Korea reflects partly its greater
strengths in sectors such as electronics, computers and telecommunications. Korean firms
also performed well in transport equipment, whereas Malaysian and Thai firms suffered
in these sectors. Korea had poor performance in traditional and resource-based sectors
such as food, chemicals, base metals, paper and pulp products.
58
Traditional manufacturing sectors were expected to lead the way to recovery in the crisis
countries having lower wages. In Thailand the textiles sector grew rapidly following the
depreciation of Baht, but output fell back to pre crisis level as the currency appreciated
and Thai products faced steep competition in export markets. Traditional manufacturing
in Korea rebounded only slightly after the crisis reinforcing a secular decline.
Small and medium sized firms were adversely affected in all crisis countries. While
aggregate Korean industrial output started to increase in late 1998, production by SMEs
continued to fall in absolute terms until July 1999, resulting in a decline by one-third
from pre crisis production levels. In other countries, where SMEs had larger proportion in
industrial production, poor performance by SMEs intensified overall industrial set back.
For example, more than 50,000 small firms and 400,000 households throughout Thailand
accounted for about 50 per cent of non-performing loans in 1999. The inability to
restructure these debts effectively contributes to financial sector problems, which feed
back into continued financial difficulties of SMEs.
Despite these adverse effects of the economic crisis, countries continued with their
commitment to liberalization and Globalisation while strengthening international
regulation for financial markets and capital flows. Countries also enhanced their global
competitiveness with structural reform programs supported by the multilateral
organisations like the ADB, IMF and the World Bank. Countries continued to review the
rigid and outdated laws, rules and regulations particularly in services, finance, labour,
technology and all production inputs. As SMEs account for almost 80 per cent of
industrial establishments in Asia, and these SMEs faced serious shortage of capital,
markets and professional management, all the countries continued to have special
programs for the development and technology upgradation of the SMEs. They also
emphasised the development of both physical and social infrastructure, especially public
utilities, research and development and technical-oriented infrastructure, which are
particularly needed by the small and medium enterprises.
The countries continued to move from resource based and labour intensive types of
industries to skill and knowledge based and medium and high technology industries.
They also liberalised further foreign investment policies to attract more of the widely
accepted foreign direct investment and portfolio investment.
Table 3.2-A to 3.2-C present sectoral shares in manufacturing employment and value
added in selected countries (India, Indonesia, Philippines, Republic of Korea,
Singapore, China, Hong Kong, Sri Lanka and Thailand) in the most recent year for
which data are available. These tables indicate that agro-based and resource-based
manufacturing units account for major shares in value added in all these countries.
59
Table 3.1 Average Annual Growth of Manufacturing in Selected Asian economies
during 1990-1999 (in percentage)
Products by ISIC India Indonesia Korea Singapore Sri Hong

Republic Lanka Kong
15 Food and beverages 4.7 100.0 2.6 0.4 1.6 0.0
16 Tobacco products 2.6 .. 0.8 .. .. ..
17 Textiles 8.3 4.3 -3.1 -5.6 7.0 -2.1
18 Wearing apparel, -4.4 26.6 -5.0 -5.4 .. -1.2
fur products
19 Leather, its 1.7 .. -7.6 -1.5 .. ..
products, footwear
20 Wood products 0.5 -3.5 -3.1 -3.6 14.5 ..
(excl.furniture)
21 Paper and paper 10.9 28.2 5.4 -1.4 10.0 2.4
products
22 Printing and .. -3.6 0.6 4.4 .. ..
publishing
23 Coke, refines 4.0 10.7 19.0 1.8 .. ..
petroleum
24 Chemicals and 8.3 .. 13.6 17.1 1.1 -4.7
products
25 Rubber and plastic 3.0 .. 3.7 1.5 .. -7.1
products
26 Non-metallic 18.3 4.6 2.6 1.5 0.2 ..
mineral products
27 Basic metals 9.3 12.6 7.3 -0.6 0.1 -4.9
28 Fabricated metal 2.3 0.3 1.4 2.5 5.7 ..

products
29 Machinery & 8.0 -9.0 4.3 3.9 .. -5.5
equipment n.e.c.
30 Office / computing 3.4 .. 73.9 .. .. ..
machinery
31 Electrical 5.3 2.8 6.2 5.8 .. 0.2
machinery
32 Radio, TV, comm. 10.6 .. 55.7 .. .. ..
Equipment
33 Medical & optical 2.7 -6.5 3.7 .. .. ..
instruments
34 Motor vehicles, 13.4 -4.8 14.3 2.6 .. ..
trailers
35 Other transport 75 .. 25.7 .. .. ..
equipment
36 Furniture, residual .. .. -2.1 -5.3 .. -3.7
manufacturing
37 Recycling .. .. .. .. .. ..
38 Total Manufacture 7.1 3.9 9.9 8.1 3.1 -1.9
60
Table 3.2-A Distribution of Employment and value added among the manufacturing sectors
(in percentage)
Products by ISIC India Indonesia Philippines
Labor MVA Labor MVA Labor MVA

16 Tobacco products 5.3 2.0 6.0 8.9 0.7 4.1
17 Textiles 17.1 12.4 15.7 12.6 4.8 2.1
18 Wearing apparel, fur 3.3 1.0 10.7 5.0 14.2 5.2
19 Leather, its products, footwear 1.5 0.5 7.0 3.7 3.8 1.0
20 Wood products (excl.furniture) 0.9 2.5 10.2 7.5 2.1 0.9
21 Paper and paper products 2.0 2.0 2.4 3.8 2.1 2.2
22 Printing and publishing 1.3 1.3 1.3 2.9 2.7 2.0
23 Coke, refines petroleum 0.8 2.0 0.1 0.2 0.2 9.7
24 Chemicals and products 9.6 15.7 4.7 7.2 5.0 12.0
25 Rubber and plastic products 3.4 3.7 6.9 5.3 3.8 2.5
26 Non-metallic mineral products 5.2 5.3 0.1 0.0 4.3 4.8
27 Basic metals 7.3 9.1 1.4 4.5 3.5 3.9
28 fabricated metal products 3.2 4.0 2.7 2.9 3.6 1.8
29 Machinery & equipment n.e.c. 8.8 5.8 1.2 0.8 3.3 1.7
30 Office & computing machinery 0.2 0.5 0.0 0.0 2.1 3.2
31 Electrical machinery 3.1 8.5 1.7 3.1 4.3 3.4
32 Radio, TV, comm. Equipment 1.7 2.4 3.7 4.9 11.3 2.8
33Medical & optical instruments 1.0 1.5 0.5 0.6 3.3 1.2
34 Motor vehicles, trailers 3.3 4.7 1.0 2.6 1.8 2.0
35 Other transport equipment 3.4 4.3 1.6 6.9 1.0 1.8
36 Furniture, manufacturing n.e.c. 1.3 1.5 6.9 2.8 5.0 1.9
37 Recycling 0.0 0.1 0.1 0.0 0.1 0.0
Total Manufacturing 100.0 100.0 100.0 100.0 100.0 100.0
• In India, chemical products had the highest share in MVA (15.7 per cent) followed by
textiles (12.4 per cent), food and beverages (12.2 per cent), basic metals (9.1 per cent)
and electrical machinery (8.5 per cent). Sectors having significant share in
employment include food and beverages, tobacco, textiles, chemical products, basic
metals, machinery and equipment, and automobiles.
• Dominant sectors for MVA in Indonesia include food and beverages (having a share
of 13.6 per cent in MVA), textiles (12.6 per cent), tobacco products (8.9 per cent) and
wood products (7.5 per cent). Sectors having significant share in employment include
food and beverages, textiles, chemical products, non-metallic mineral products, basic
metals, machinery and equipment, electrical machinery and automobiles.
• Dominant sectors for MVA in Philippines include food and beverages (29.8%) and
chemical products (12%). Sectors having significant share in employment include
food and beverages, textiles, wearing apparel and fur products, chemical products,
non-metallic mineral products, electrical machinery, radio and TV sets and furniture.
61
Table 3.2-B Distribution of Employment and value added among the manufacturing sectors
(in percentage)
Products by ISIC Korea, Rep Singapore China

17 Textiles 9.0 5.5 0.4 0.2 11.0 6.7
27 Basic metals 4.2 6.6 0.4 0.4 8.3 9.0
37 Recycling 0.2 0.1 0.1 0.1 0.1 0.1
• Dominant sectors in MVA in Korean Republic include radio and TV sets (16.2%),
chemical products (9.5%) and food and beverages (7.8%). Sectors having significant
share in employment include food and beverages, textiles, wearing apparel and fur
products, chemical products, rubber and plastic products, fabricated metal products,
machinery and equipment, radio and TV sets, electrical machinery, and automobiles.
• Dominant sectors in MVA Singapore include computers & office machinery (22.5%),
radio and TV sets (19.4%) and chemical products (18.5%). Sectors with high
employment potential include food and beverages, chemical products, fabricated
metal products, machinery and equipment, computers and office equipment, radio and
TV sets, and automobiles.
• China had significant share of MVA in food and beverages, chemical products, basic
metals, radio and TV sets and automobiles. Sectors having significant share in
employment include food and beverages, textiles, chemical products, non-metallic
mineral products, basic metals, computers and office equipment, and automobiles.
62
Table 3.2-C Distribution of Employment and value added among the manufacturing sectors
(in percentage)
Products by ISIC
Hong Kong Sri Lanka Thailand

17 Textiles 14.0 10.9 15.2 9.3 10.1 6.8
27 Basic metals 0.9 1.0 0.3 0.5 4.2 1.5
37 Recycling 0.0 0.0 0.0 0.0 0.0 0.0
• Dominant sectors in MVA in Hong Kong include food & beverages, textiles, wearing
apparel, printing and publishing, radio and TV sets. Sectors having significant share
in employment include food and beverages, textiles, wearing apparel and fur
products, printing and publishing, radio and TV sets, furniture and automobiles.
• Sri Lanka had dominant shares in MVA in food and beverages, tobacco products,
wearing apparel, chemicals, rubber and plastic products. Sectors with high
employment include food and beverages, tobacco products, textiles, wearing apparel,
rubber and plastic products, non-metallic mineral products, and furniture.
• Thailand had dominant shares in food and beverages, motor vehicles, non-metallic
mineral products, textiles and rubber and plastic products. Sectors with high
employment include food and beverages, textiles, wearing apparel, rubber and plastic
products, non-metallic mineral products, radio and TV sets, and furniture.
63
The significance of SMEs in the development process may be beyond the recorded
shares in MVA and employment that are directly attributed to them. They are often the
vehicles, which facilitate the birth and expansion of large-scale industries in the structural
transformation that occurs with growth in income. For example, in the Republic of Korea,
much of the increase in employment of factories with 100 or more workers since 1960s
came from small firms that grew larger and larger over time. In India, Indonesia, and the
Philippines, most of the enterprises now in existence began as household firms,
subsequently growing into the SMEs and into larger enterprises in a number of cases.
In order to achieve faster growth and alleviation of poverty, industrialization in many

developing countries has focused on development of textiles and clothing industries. As a
labour-intensive sector, clothing provides significant job opportunities in labour-abundant
economies having a comparative advantage due to lower wages. Moreover, for over two
decades the quota regulations of the Multi-Fibre Arrangement enabled latecomers to
access markets for clothing and textiles once other countries filled their MFA quotas.
More recently, improvements in production and communication technologies and

declining transport costs have enabled geographical separation of the labour-intensive
segments from the skill-and capital-intensive segments of the manufacturing process in
textiles and clothing. For example, while growing automation has increased the capital-
intensity of the pre-assembling stages of the production process, the assembling stages
have remained relatively labour-intensive. As a result, it has become both technically
feasible and economically profitable for high-wage country manufactures to relocate their
assembling stages of production to low-wage countries and to re-import the end products
for domestic sale or for export to third markets. The NIEs in East Asia were the first to
establish production facilities under outsourcing agreements with large United States
retailers and brand-name merchandisers.
It is generally held that prices of manufactures are much less flexible than prices of
primary commodities in world trade, because markets for manufactures are much less
competitive. Most markets for manufactures have high barriers to entry; many are
oligopolistic, controlled by a small number of producers who often compete on the basis
of quality, design, marketing, branding and product differentiation rather than prices.
In most major industrial countries, wages in firms are not flexible due to a number of
labour market regulations, including minimum wage legislation, collective bargaining
and restrictions on hiring and firing. The absence of such conditions in the labour markets
of most developing countries, together with large amounts of surplus labour, often
implies that wages in developing countries are much more flexible than in industrial
countries. This increases the ability of firms to lower wages when there are price declines
so those profit margins are maintained. It thus allows them to compete on the basis of
prices in markets for labour-intensive manufactures.
64
Furthermore, the East Asian experience shows that mobility of low-skilled labour is
greater among developing countries than between developing and industrial countries.
All these factors combined not only introduce greater price flexibility in the markets for
developing countries labour-intensive manufactures vis-à-vis those exported by industrial
countries, but also exert a downward pressure on their prices and terms of trade.
The share of developing countries in world export grew considerably during the period
1980-1998 for both clothing and selected products from the electronics industry, which
are labour-intensive. However, the increase was concentrated in a small number of
economies. The NIEs accounted for two thirds of all clothing exports from developing
economies during the first half of the 1980s, but their share declined thereafter to about
one fifth by the mid-1990s, as they upgraded their exports and began to exist from the
clothing markets. Their market shares were taken up by other developing countries in
Asia, notably those in South Asia, the ASEAN-4, China, Turkey and Mexico.
In the markets for the selected products from the electronics sector NIEs accounted for
most of the spectacular increase in the share of developing countries in world exports
during; 1980-1995. During this period, the share of these economies increased from two
thirds to three fourths of all developing country exports of these products. Other
developing countries, such as the ASEAN-4, China and Mexico have succeeded in
increasing their market shares in the past few years. It is interesting to note that the
ASEAN-4 and China have gained market shares in the electronics sector much more
rapidly than in clothing.
3.3 Employment generation
Small and medium industries have predominant shares in output, exports and
employment in agro-based and resource-based industries in many Asian countries such as
Bangladesh, India, Pakistan, China, Korea, Indonesia, Thailand and Philippines. Even
they played a significant role in the economic development in USA, Germany, Japan and
Singapore. They are mainly in the textiles, garments, wood products, food processing,
leather products, fabricated metals, machinery and equipment, rubber and plastic
products, pottery, printing and publishing.
International experiences indicate that even under most competitive conditions,

unorganised and small business enterprises not only provide major employment
opportunities but also survive alongside with the highly organised sector. For example,
There are about 23 million small business enterprises in the USA that constitute the
principal source of new jobs in the economy. All firms under the US Small Business Act:
• Employ 53 per cent of the private workforce;

• Represent 99 per cent of all employers;
• Account for more than 50 per cent of GDP;
• Account for 28 per cent of jobs in the high technology sectors;
• Provide 55 per cent of all innovations;
65
• Provide virtually all new jobs in the economy;
• Account for 47 per cent of all sales in the country;
• Account for 35 per cent of federal contract deals;
• Account for 51 per cent of private sector output; and
• Represent 96 per cent of all US exporters.
Nearly 60 per cent of US small business have 4 employees or less, 18 per cent have 5 to 9
employees, 11 per cent have 10 to 19, 9 per cent have 20 to 99, and only 1.4 per cent
have above 100 to 499 - the traditional high-end demarcation in qualifying in the small
business segment.
In Germany, 64 per cent of all employed have their jobs in small and medium firms,
which contributed at least 48 per cent to the Gross National Product and 27 per cent to
exports for the year 1990.
As regards Asian countries, in 1990 small and medium enterprises accounted for 95 per
cent of establishments in Bangladesh, 98 per cent in Thailand, 93 per cent in Malaysia, 70
per cent in Indonesia and 80 per cent in the Philippines.
The SSI sector in India produces over 7,500 products ranging from consumer goods to
sophisticated machinery and computer peripherals and covers a wide spectrum of
industries. Small-scale industries basically fall under the unorganised sector, which
accounts for 93 per cent of employment. Besides, SSI sector contributes over 40 per cent
of the gross turnover in the manufacturing output, 45 per cent of manufacturing exports
and 40 per cent of total exports.
In Japan, of the total 54.16 million people engaged nationwide (excluding those in
primary industries), 42.27 million, i.e., 78 per cent employment is in small and medium
enterprises. Their share of employment in various manufacturing sub sectors ranged from
41 percent in transport machinery to 100 percent in silverware. SMEs accounted for 99
per cent of all business establishments, 52 per cent of both manufacturing value added
and exports, 64 per cent of wholesale business and 78 per cent of retail sales.
Korean development has been largely driven by the expansion of conglomerates. But in
the 1980s, the SME sector began to grow rapidly. There are now nearly 96,000 small and
medium manufacturing enterprises, which employ 1 to 300 persons each. They represent
99 per cent of all manufacturing enterprises and account for 69 per cent of total
employment in this sector.
Like South Korea, Taiwan has made rapid strides in expanding its industrial base and in
enhancing exports. SMEs in Taiwan account for 90 per cent of enterprises and 65 per
cent of exports. The root of the progress made by both the Republic of Korea and Taiwan
is the combined result of the sound economic policies and a strong scientific and
technological base. Like South Korea, Taiwan benefited tremendously from the Asian
export boom to the USA. The main exports have been textiles, clothing, footwear,
furniture, chemicals, electric appliances and consumer and computer electronics.
66
In China, the highest priority is given to employment generation, environmental and
ecological protection, poverty eradication and raising the living standards of people in
rural areas by increasing agricultural productivity. In China SMEs provide nearly 75 per
cent of urban job opportunities and the number of units has exceeded 8 million, being 99
per cent of total enterprises in China. A large number of these enterprises are employing
around 4 persons per unit under the SME sectors. SMEs account for 78 per cent of
employees, 64 per cent of industrial turnover, 52 per cent of corporate profits and 52 per
cent of fixed assets held by industry.
In 1985, the Chinese Government started the SPARK programme, a project aimed at
establishing "big agriculture" in the vast rural areas for fostering the development of
industrialised agriculture, animal husbandry, forestry and all types of agro and forest
produce processing industries. The SPARK programme is a scientific and technological
development plan implemented by the State Science and Technology Commission
(SSTC) to develop advanced technologies for the township enterprises. From 1986 to
1993, more than 50,000 projects had been implemented at various levels under the
SPARK programmes, covering more than 85 per cent of the total number of towns and
training 30 million technical and management personnel. Over 400 types of advanced
technical equipment had been developed and more than 100 SPARK technology-
intensive zones had been established. Since 1993, 71 regional pillar industries, 43
SPARK technology-intensive zones and 173 industries at provinces have been
established all over China. Today, there are over 2000 technology trade markets all over
China employing about 1 million people.
In China, rural industries dominate production in cement, iron and steel, fertilisers,
hydropower and agri-machinery and contribute 25 per cent of rural employment. Initial
focus of rural industry in China was on primary processing of farm production,
handicrafts, manufacturing and repairing of simple farm tools, developing and processing
local industrial resources. The industries were small and used primitive techniques.
Reforms in China have encouraged rural industrialisation alongwith entry of
multinationals in export-oriented sectors.
Sub-contracting and ancillarisation have helped the dispersal of industry and growth of
the small and medium industries and rural non-farm sector in many countries. The most
successful example of sub-contracting from large urban areas to small rural entrepreneurs
is Japan. The division of responsibility and resources, in keeping with its economic
propensity, has given Japan an unparalleled global edge. Its success is attributed to
expanding demand, limited capital of large companies, low basic skills required by small
units and paternalistic relationships. Big business houses share the production process,
technology and innovation with small/medium industries.
Thailand, Malaysia and Indonesia have adopted Japanese model with variations to suit
each nation’s cultural and social environment. In Thailand large companies are allowed
to develop ancillaries, which can operate within the same factory premises and yet
entitled to have independent recruitment, wage structure and service conditions.
67
In Pakistan, sub-contracting have been in practice over a long period in traditional
products such as carpets, garments and footwear. Sub-contracting is also strong in the
labour intensive activities of rattan in Indonesia and for garments in Philippines.
“Bapakangkat” (parent Unit) and “Anakangkat” (related units) of Indonesia are good
examples of networking. Under the scheme, in addition to contractual networking, the
Bapakangkat provides technical and financial assistance, leases plant and equipment and
trains people who leads to higher employment and lowering of cost of production.
These facts suggest that although the definition of SSEs may not be uniform across
countries, they contribute significantly to employment generation. As unemployment is
the root cause of poverty, the SMEs through employment generation help in poverty
reduction. However, all available studies show that the growth and the quality of
employment in the SMEs has been very much affected by the absence of timely low cost
credit, improved technology, good infrastructure, quality consciousness, modern
marketing, proper organisation and a synergy with the large organised industries.
All measures should be taken to improve technology, quality and productivity by

vocational and other training, skill development, organizational changes like cluster
development etc. Indeed hardly 5.3 per cent of Indian youth in the labour force in the age
group of 19-24 in 1999-2000 are trained in vocational skills through formal training as
against nearly 30 per cent in selected LDCs and above 70 per cent in developed countries.
SMEs have high employment elasticity. Their employment intensive character should be
protected by selecting proper labour-intensive technology drawn from all sources
including from the grassroots indigenous level. Proper rules and regulations should be
laid down so that benefits of higher growth get translated in the form of increased
earnings of the workers.
As the major portion of the poor exist in the unorganised sector, a faster growth and
productivity in this sector will also reduce poverty. In the attempt to increase the labour
productivity, it is necessary to improve the job quality and its security by major changes
in legislation regarding basic social security, working conditions minimum wages and
protection of labour interests.
68
4 ECONOMIC POLICIES AND STRATEGIES FOR DEVELOPMENT
OF AGRO-BASED AND RESOURCE-BASED SMEs
4.1 Industry Development Formulation
The development of the agro-based and resource-based industries provides the poor
opportunities to generate income and assets. But, these industries face many barriers
development and cannot fulfill their potential to generate income or improve wealth
distribution to the poor and to contribute to poverty alleviation. In rural areas, the
business environment may not be favourable to thriving agro-based industries. This
reflects not only low skill development but also low access to capital, information and
technology. These constraints are discussed in detail in the following sections.
Even after establishment of the World Trade Organisation (WTO), there are still several
barriers in multilateral trading arrangements for market access in agro-based
manufactures. Although there have been some initiatives in this area such as preferential
market access provided by the EU and the United States, the improved access they offer
is restricted to the poorest countries. Given that those countries generally are not large
exporters of labour-intensive manufactures, the initiatives do little to improve market
access for such exports. In Canada and the United States, tariff peaks are concentrated in
textiles and clothing; in the EU and Japan, in agriculture, food products and footwear.
The majority of developing countries with capacity to expand exports of agro-based

products continue to face significant barriers. Trade in textiles and clothing continues to
be governed by quota regulations, and developing countries’ manufactured exports
encounter high tariffs, and increased contingent forms of protection, such as anti-
dumping action and labour and environmental standards.
The roadblock towards technological upgradation and transfer of technology to SSIs is

also due to complex modalities of technology transfer, lack of knowledge about new
global trade system which is being engineered by WTO through GATT, GATS, TRIMS
and TRIPS, and various technical and non-tariff barriers for exports of products by SSIs
imposed by advanced countries on grounds of environment, health, labour etc. Another
important constraint pertains to inadequate availability of finance towards the acquisition
of patenting for any indigenously developed technology or product. Technology quality
management by adhering to ISO standards has been found lacking in many SSIs.
After the establishment of World Trade Organisation (WTO), the roles of Intellectual
Property Rights (IPRs) and Patenting have become dominant in the flow of technologies
and international trade. IPRs include copyrights, patents, trademarks and designs. All
these have far-reaching implications for SSIs since reverse engineering, an important
source of technology for SSIs, is difficult under the stricter IPR regime. The issues of
IPRs and Patenting have serious implications for specific segments like agro and food
processing, biotechnology, chemicals including pharmaceuticals etc.
69
In order to learn from international best practices and to formulate appropriate policies
for the development of agro-based and resource-based industries, the following measures
are suggested:
(a) A task force at the regional level may help to come with an action plan to formulate
strategies to support the development of agro-based and resource-based industries.
(b) A regional capacity building program could help regional governments or
development agencies to work with the private sector to stimulate growth and
opportunity
(c) Identification of some pilot programs with progressive regions can provide a good
demonstration or benchmark for other regions to replicate.
4.2 Business environment
(a) Licenses and regulatory system
All the countries have specialised organised and very elaborate system of rules and
regulation, licenses and control for the development of SMEs. Fiscal and other incentives
are also given in some form or other to the SMEs and export oriented units in almost all
countries including developed countries. Some of these policies are directed explicitly at
these industries, while others are generally aimed at firms in certain priority sectors on
account of their special role in development.
The nodal agency for SSIs promotion and development in the USA is called Small
Business Administration (SBA). Established in 1953, SBA provides financial, technical
and management assistance to enable Americans to start, run and grow their business
enterprises. SBA has a portfolio of $45 billion business loans and is the USA's single
largest promoter of small business. It provides loans, loan guarantees and what are called
"disaster loans". In 1998, the SBA offered management and technical assistance to more
than one million business entrepreneurs.
Japan has enacted the Small and Medium Enterprise Basic Law which stipulates that the
government must implement necessary measures in a comprehensive manner in the
following areas for the SME sectors:
(a) Modernization of equipment;

(b) Improvement of technology;
(c) Stimulation of demand;
(d) Rationalisation of management;
(e) Structural upgrading of small and medium enterprises; and
(f) Prevention of excessive competition and establishment of proper sub-contracting.
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The SPARK programme on rural industrialisation approved by the Chinese Government
in 1986 aims at modernising the rural economy through Science and Technology. The
SPARK programme works at three levels - county, province and central government. In
general, units under SPARK include (i) village and township enterprises having R&D
units in cooperation, (ii) R&D units which have village or township units for cooperation
and (iii) scientific and production consortium. SPARK has adopted a mechanism of
setting up technology development and extension network that interlinks local sectors
and central departments and institutions for continuous flow of technology.
In addition, China has set up non-profitable productivity centres promoted by the SSTC
that provide comprehensive service to medium and small-sized enterprises. These
productivity centres are equipped with computers, fax machines and training equipment
and systems used in developed USA, Japan, Hong Kong, Italy, Australia, the European
Union (EU) and countries like Singapore. China’s experience in providing 100 million
jobs in rural enterprises under non-farm sector during 1986-1993 reveals that its rural
non-agricultural enterprises owe their success to a market-orientation, availability of
infrastructure, stress on higher technology, incentive-linked wages, competitiveness,
diversity in products and community cooperation.
Small and medium enterprises play an important role in South Korea's economy that is
supported both by Government and a well-developed institutional mechanism and
infrastructure. The development of SSIs has South Korea's Constitutional support which
states that "promotion of SSIs is the duty of the nation", while the country has also placed
a comprehensive SME legislation on its statute book.
In India, the primary responsibility to develop village and small industries rests with the
State Governments. However, Central Government provides various fiscal and monetary
incentives and support services for promotion of SSIs, and also for development of all
industries in industrially backward areas for reducing regional imbalances. The
government prescribes minimum credits (presently 40 per cent of total credits) that
government-owned commercial banks must lend to the priority sectors which include
agriculture, SSI and retail trade and transport operators. In addition, it has established
specialized institutions that extend long-term finance for fixed asset purchases. Some
credits and equity funds also come from state industrial development corporations.
Government provides various other fiscal, monetary and non-monetary incentives to
promote SMEs and export oriented units (see Box 4.1).
India has a unique policy of reservation of products for exclusive manufacture in the SSI
sector as a promotional and protective measure for the SSI, which was initiated in 1967
with 47 items and reaching a peak level of 873 items in October 1984. The policy is
applicable only to the manufacturing units and not for servicing or repairing activities.
This policy has statutory backing from the Industries (Development and Regulation) Act,
1951. As on June 30, 2001 there were 799 items in the reserved list. An item, viz. ready-
made garments, was de-reserved in January 2001 and further 12 items were de-reserved
in June 29, 2001 and 14 items in 2002.
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Box- 4.1 Policy Support to SSI Sector in India
The policy framework for the growth and development of the small and medium industries in the
competitive environment inter alia includes:
(i) SSI sector falls under the Priority Sector Lending Programme of the Banks.
(ii) Fiscal incentives to SSI units by the Central government include Corporate tax
exemptions or concessions for exports and SMEs, Customs and excise duty drawback for
inputs and raw materials for exports, Excise duty exemption or concessions for SSIs, Tax
holiday for new industrial units in infrastructure and backward regions etc.
(iii) State Governments incentives to SSIs include provision of land on easy terms, capital
subsidy, seed capital assistance, subsidy on power generating sets, exemptions or
deferment of sales tax and stamp duty, lower tariffs for public utilities, interest subsidy,
assistance for preparation of project reports, subsidy for obtaining technical know-how
and testing in approved test houses, etc.
(iv) Protection through product reservation (currently 749 items out of about 8000 items
manufactured in the SSI sector are reserved).
(v) Price Preference (up to 15 per cent) and Purchase Preference in respect of 358 items by
the Government Departments/Agencies.
(vi) Support for technology upgradation through Small Industries Service Institutes (SISIs),
Product-cum-Process Development Centres (PPDCs), Regional Testing Centres (RTCs),
Tool Rooms and Training Centres financial incentives for acquiring ISO9000
certification, adoption of bar coding etc.
(vii) Entrepreneurship Development Programmes conducted by various National level
Institute and support to State level Institutes.
(viii) Encouraging Ancillaries, Vendor Development, Sub-contracting Exchanges etc.
(ix) Emphasis on Development of Infrastructure for the SSI sector.
Recent Initiatives to increase credit flow to the SSI Sector include the following:
(i) Enhancement of loan limit under Composite Loan Scheme,
(ii) Increase in project cost limit under National Equity Fund (NEF) Scheme,
(iii) Credit Guarantee Fund Trust for Small Industries,
(iv) Concessional assistance under Technology Development and Modernisation Fund
(v) Special schemes for modernisation of units under Technology Upgradation Fund Scheme
for textiles and jute industries
(vi) Tannery Modernisation Scheme
(vii) Credit Linked Capital subsidy Scheme for Technology Upgradation.
(viii) Public sector banks have so far opened more than 400 specialised SSI branches.
(ix) Laghu Udyam Credit Card Scheme launched in November 2001.
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(b) Fiscal and investment incentives
Tax incentives accorded to firms are in the form of exemptions from sales taxes, customs
duties and income taxes. Such exemptions are granted for a variety of purposes and have
selective effects from the standpoint of firm size. In India, for example, small firms are
given central excise duties exemption which declines with firm size until it disappears for
large industries. However, many countries generally grant tax concessions on the basis of
considerations other than size. Tax holidays are granted for the establishment or
expansion of industries, which are classified as new or necessary or particularly desirable
such as infrastructure and core industries.
Investment incentive packages are also provided for diversifying exports and to regional
dispersion of growth and employment opportunities. India, which perhaps has the biggest
program and network for small industries, has an elaborate organization to promote
investments in different small industries and the ancillaries. These provide for industrial
estate facilities, tax holidays, export incentives and other direct subsidies such as
transport subsidies concessional credit and purchase and price preference.
In Indonesia and Philippines, new investment promotion facilities such as import duty
concessions on capital goods and raw material imports are available to firms, including
small and medium industries, in priority sectors.
The general nature of the investment incentive system, except in India, however, places
the SMEs in a disadvantageous situation for the following reasons:
• Proliferation of licenses, permits, taxes and duties, control over agricultural price
policies imposes major costs on the agro-based and resource-based SMEs.
• Administrative procedures, documentation and follow-up activities for incentives
involve fixed cost, and the net value of the implicit subsidy is much lower for SMEs.
• SMEs have less capability in financial management and project evaluation, making it
more difficult to meet documentation and project feasibility prerequisites for a loan.
• Investment boards are generally located in the capital, and the travel time and expense
can be a significant burden on SMEs that are generally located in the rural areas.
• Many types of tax concessions, e.g., exemption from duties on imported machinery,
are more valuable to large firms than to small labour-intensive firms.
• General tax rates on corporate and individual incomes are very high in many
countries in Asia (Table 4.1)
(c) Export promotion schemes
Of all the policies pursued in East Asia, "export promotion" is the most often talked
about. This policy starts from a basic principle in international economics, that any tax on
imports is a tax on exports, either through raising the cost of export production, or
making the domestic market more attractive. In East Asia, one the major factor for
73
economic success has been the maintenance and encouragement of export
competitiveness, while retaining some degree of domestic protection.
Table 4.1 Tax Policies in selected Asian economies in 1990 and 2000
Country Tax Taxes on Domestic taxes Export duties Import duties Highest marginal
revenue income, profits on goods and % of % of Income Tax rate
% of and capital gains services tax revenue tax revenue Individual Corpo-
GDP % of total taxes % of rate Exemption limit rate
corresponding income
value added (US $) Times
PC
GNP
2000 1990 2000 1990 2000 1990 2000 1990 2000 2000 2000 2000 2000

Hong Kong .. .. .. .. .. .. .. .. .. 17 13,462 0.5 16
Korea,Rep .. 38 .. 7 .. 0 .. 13 .. 40 63,507 7.1 28
Singapore 16 45 50 4 5 0 0 4 3 28 400,000 16.2 26
Taiwan,China .. .. .. .. .. .. .. .. .. .. .. .. ..
China and Mongolia
China 7 50 7 1.5 6.5 0 0 22 7 45 12,089 14.4 30
Mangolia 22 28 16 9 16 0 2.3 20 8 .. .. .. ..
South-East Asia
Cambodia .. .. .. .. .. .. .. .. .. 20 38,412 147.7 20
Indonesia 17 65 65 6 6 0.1 0.5 7 2 35 20,949 36.8 30
Lao, PDR .. .. .. .. .. .. .. .. .. 40 658 2.3 ..
Malaysia .. 43 .. 6 .. 10 .. 15 .. 29 39,474 11.7 28
Myanmar 3 30 35 7 4 0 0 23 9 30 .. .. 30
Philippines 14 33 44 6 5 0 0 28 21 32 10,000 9.6 32
Thailand 14 26 34 9 8 0.2 0.3 24 12 37 92,829 46.4 30
Vietnam 15 .. 32 .. 8 .. 0 .. 21 50 5,695 14.6 32
South Asia
Bangladesh 7 .. 15 .. 5 .. 0 .. 30 .. .. .. ..
Bhutan .. .. .. .. .. .. .. .. .. .. .. .. ..
India 10 19 36 7 5 0.1 0.1 36 27 30 3,222 7.2 40
Maldives .. .. .. .. .. .. .. .. .. .. .. .. ..
Nepal 9 13 21 7 7 0.4 1 37 31 .. .. .. ..
Pakistan 12 13 28 9 8 0 0 44 16 35 17,271 39.3 ..
Sri Lanka 15 12 15 15 14 4 0 27 13 35 3,630 4.3 35
East Asia
Japan .. 73 .. 2.4 .. 0 .. 1.4 .. 37 156,863 4.4 30

Sources :
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East and Southeast Asia, in addition to maintaining realistic exchange rates, and reducing
the average level of tariffs, pursued policies directly in support of exports by granting
free trade status for all export activities. This is achieved through: (i) fenced private or
public free trade zones (FTZs); (ii) nonfenced FTZs; (iii) bonded manufacturing
warehouses (BMWs); (iv) duty exemption; and (v) duty drawbacks/rebates. The first
three were specialized schemes, which had been widely and effectively used in countries
at the early stages of development. Duty exemptions and drawbacks are economy-wide
schemes that were desirable complementary systems, used at the advanced stage of
development. However, development experience suggests that in many low-income
countries, the implementation of economy-wide schemes has been flawed, due to
inadequate development of the necessary instruments, institutions and mechanisms
(World Bank 1996).
The fundamental features of Korea's pioneering export promotion drive were the duty
drawback scheme, implemented through the domestic letter of credit (DL/c) and the
export finance system. The Instruments selected for Korea's export drive were
comprehensive and far-reaching. They included the provision of income tax deductions,
import duty exemptions and drawbacks, liberal access to pre and post-shipment and
investment finance at preferential rates, export finance guarantees and credit insurance,
preferential rates for electricity and rail transport, and supportive infrastructure
investment, such as the provision of free trade zones.
Taiwan also used effectively the system of duty drawbacks for export promotion, but the
scheme was significantly different. In Taiwan unlike in Korea duty rebates are claimed
on the basis of customs documents of exports and imports. Export credit (through banks)
is much less significant, as a proportion of export value, than in Korea. More of the credit
comes through suppliers credit (in the form of post-dated cheque), or buyers' credit
(mainly from Japanese trading companies which account for an estimated 30 to 50 per
cent of Taiwan, China's exports). Indirect exports cannot get export credit on the basis of
documentary proof of their production for an export orders. Finally, Korea's system
differs from that of Taiwan, China's in the area of input coefficients. For many products
they have been set more generously in Korea, so as to give more of a subsidy to exports
through an extra amount of rebate.
Indonesia, Malaysia and Thailand also applied export support instruments including tax
incentives, duty drawbacks and exemptions, and export and investment finance. But, the
intensive efforts were initiated only in the early 1980s and the system of exemptions and
drawbacks was unsatisfactory, because of limited access (especially by small and indirect
exporters) and slow and cumbersome procedures. Compared to Korea, the Southeast
Asian systems have not been as comprehensive in coverage and as automatic in access.
There are four main methods of financing trade: (i) company credit; (ii) bank credit; (iii)
bank loans and (iv) self-financing. In most developing countries, exporters cannot meet
financing needs through company credit or bank credit because they lack modern banks
and trading companies that can internalize the risk-taking. Therefore, the immediate
objective of assuring access to trade financing must be met through bank loans.
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The three instruments for the bank loan-based trade financing system are: (I) transaction-
based, self-liquidating mechanisms for trade financing (including rediscount mechanisms
of the central bank); (ii) institutions to deal with exporters' non-performance risk (i.e. pre-
shipment export finance guarantees (PEFG); and (iii) institutions to deal with overseas
buyers' non-payment risk (i.e. export credit insurance and guarantees (ECI/G). The Bank
of Korea's trade financing mechanisms are particularly good examples of successful bank
loan-based trade financing and consisted of all these instruments.
(d) Role of Special Economic Zones (SEZs)
Free Trade Zones (FTZs) became popular as an instrument for attracting foreign
investment for export development in the early 1970s. For countries, which lack the
financial and institutional infrastructure necessary, to support economy-wide export
activities, FTZs, ensure the quickest access to free trade status within designated areas.
The rapid expansion of export processing zones (EPZs) in developing countries during
the last two decades represents a significant development in the world economy. Ireland
is credited with establishing the first modern EPZ in the world with the establishment of
the Shannon Export Free Zone in 1955. The success of the Shannon experiment led to the
rapid growth of EPZs in developing countries. The first developing country to set up an
EPZ was India with the creation of the Kandla Free Trade Zone in 1965. In 1996 there
were more than 200 EPZs in 60 developing countries compared with just eight EPZs in
1970 and 55 EPZs in 1980. Nearly half of EPZs were located in Asia.
Malaysia, Indonesia, Mauritius, Sri Lanka, and the Dominican Republic are examples of
countries that used FTZs and bonded manufacturing warehouses (BMWs) in the early
stages of manufacturing for export. China, through its Special Economic Zones (SEZs)
also granted an opening for international economic and technical cooperation in the
1980s. Korea and Taiwan, China that already had considerable capacity for exporting
manufactured goods, established FTZs as part of an equal footing export policy.
Malaysia is one of the leading countries where FTZs have played a significant role in the
growth of industrial exports. Within ten years, FTZ exports accounted for 51 per cent of
total manufactured exports, and 14 per cent of merchandise exports. Excellent
infrastructure, macroeconomic and political stability, and outward-oriented strategies
adopted in the 1970s made Malaysia attractive to foreign investors. The Malaysian
government, in turn, actively promoted foreign investment to develop labour-intensive
industries as part of its export-led growth approach.
In Malaysia FTZs were better integrated with the rest of the economy, which provided
inputs from foreign-owned plants and joint ventures. Artificial barriers were dismantled,
and a Korean-type export financing scheme with pre-shipment export finance for
backward-integrated supplies were established as a part of export growth strategy.
Malaysia's FTZs have provided an important step towards a more liberal overall
76
economic environment. In recent years, some of the duty-free and other benefits received
by FTZ firms have been extended to firms producing for export outside the zones.
The Bataan EPZ, the largest and longest operating in the Philippines, has not been
successful compared to other zones in the Philippines and Asia. Only some of the
anticipated benefits from the EPZ-employment creation and foreign exchange earnings-
have been achieved. Transfer pricing by multinationals has reduced tax revenues from the
FTZ. The Philippines experience suggests that tax holidays are less important than they
appear. The Philippines experience also shows that although the gains from employment
generation are large, FTZs should not be used primarily as an outlet for abundant labour
(World Bank 1996).
China's early experiment with market forces was in 1979, through four Special Economic
Zones (SEZs) in Shenzhen, Shantou and Ziamen, mainly to exploit connections with
overseas Chinese. The remarkable success of market-based reforms and the SEZs spurred
the opening up of trade and investment all across China, and has a dramatic effect on
inflows of foreign investment, industrial output and exports.
The emergence of EPZs reflects a shift in the industrialisation strategy of developing

countries, which in the 1950s and 1960s favoured import substitution policies. The
inward-looking policies were supported with high tariff rates, generous subsidies and
foreign exchange restrictions. Since the late 1960s, there had been a gradual shift in
emphasis towards an outward-looking industrialisation strategy through the promotion of
non-traditional exports. This was accompanied by a more liberal attitude towards FDI in
an effort to attract it not only to acquire much needed capital but also to promote the
transfer of new technologies, upgrade skills and acquire access to international markets
through distribution channels. EPZs were a means of fostering export-oriented
industrialization, and in some countries they assumed a prominent role in the strategy.
There is undeniable evidence that the EPZ sector, although still small, has been among
the most dynamic sectors in attracting FDI. EPZs accounted for more than 85 percent of
FDI in Mauritius and over 70 percent in Mexico. FDI inflows to the oldest four special
economic zones in China amounted to more than 30 percent of FDI inflows in 1989.
Foreign investors account for a major portion of investment and employment in EPZs,
which are characterised by the dominance of the textiles, garments or the electronics
industry. There is also evidence that EPZs were successful in promoting exports of
manufactures and in generating foreign exchange earnings.
One of the striking features of EPZs is the tendency to breed a distinct type of industrial
monoculture, either in textiles and garments or in the electronics industry. An analysis of
the structure of employment by product group in EPZs of selected countries indicate that
there is one dominant industry in each country such as textiles and garments industry in
Bangladesh, China, Dominican Republic, Egypt, Jamaica, Mauritius and Sri Lanka; and
the electronics industry in Barbados, Brazil, Republic of Korea, Malaysia, Mexico and
Taiwan, China. Concentration rates vary among countries and zones. In Jamaica,
Mauritius and Sri Lanka, the leading industry, textiles and garments, accounts for almost
77
90 percent of total employment, whereas for the electronics industry, EPZs in Malaysia
have the highest concentration rate of over 74 percent.
EPZ’s role as an effective instrument for the long-term development of industries

depends on the degree of linkages created with the domestic industries and on the extent
to which they are able to transfer technology and to upgrade skills. In this regard, EPZs
seem to have fallen short of expectations. A major constraint to the transfer of technology
and skills is the nature of the production processes typically undertaken in EPZs, which
involve low technology or simple skills (UNCTAD 1993).
Success of EPZs depends on a favourable investment climate, skilled labour force and an
active local business community and government’s support for the EPZs, while failures
may be attributable to poor locations, inadequate infrastructure, insufficient promotion,
excessive costs and mismanagement. The long-term viability of EPZs also requires that
their operations should be properly integrated with the overall economic and industrial
development strategy of the country.
Results of a cost-benefit survey of a few Asian EPZs have shown that incentives,
subsidies and infrastructure expenditures entail considerable costs for the host countries
(UNCTAD 1993). These costs are difficult to justify from both financial and economic
viewpoints. Stiff competition among EPZs of developing countries to attract investors has
led to increasingly generous incentives resulting in erosion of net benefits.
(e) Foreign Investment Policy
Foreign Direct Investment (FDI) acts an engine of growth and embodies a package of
important sources of capital, technology, and managerial, marketing and technical skills.
The presence of multinationals promotes greater efficiency and dynamism in the
domestic economy. The training gained by workers and local managers and their
exposure to modern organisational system and methods are valuable assets.
Most of the Asian developing countries in recent years had welcomed FDI and had
undertaken general economic policies leading to a stable macroeconomic framework and
liberalization of industrial, trade, financial and public sectors and specific FDI-related
measures such as transparent and non-discriminatory legal and regulatory systems.
These policies for selected Asian countries are summarised in Tables 4.2, 4.3 and 4.4.
Among the traditional factors influencing FDI, most important factors are domestic
market potentials and low cost of labour. Governments of home and host countries have
adopted various measures to encourage FDI. Widely used instruments are bilateral
investment protection agreements containing rules on fair and equitable treatment,
repatriation of equity and dividends, and international arbitration in the case of disputes.
78
Table 4.2 Comparative statement on Foreign Investment regime in selected Asian countries
Country Sectors allowed Areas of 100% foreign Duration Local Export

for Foreign Direct equity of FDR content obligations
Investment obligation
1. India All except defense, 100% EOUs, FTZ, Unlimited Abolished None
agriculture, Planta- EPZ, power, technology since 1991 except for
tion, atomic energy, parks, hospitals, 100%
rail transport shipping, priority areas EOUs
2. Bangladesh All except arms, All allowed sectors Unlimited Value None
drugs, forestry, addition for except for
nuclear power, rail EOUs EOUs
3.Myanmer Selected areas All allowed sectors, Unlimited No No
minimum of 35%
4.Nepal All sectors Projects with FDI above Unlimited No No
Rs.20 million
5.Pakistan All except defense, In any business Unlimited No No
alcoholic beverage
6. Sri Lanka All areas except All allowed sectors Unlimited No No
broking, retail and
personal services
7.South All sectors except All allowed sectors Unlimited No No
Korea banned/ restricted
8.Singapore All sectors All areas except public Unlimited No No
utilities, media, telecom
and transport
9.Indonesia All sectors except FDI of at least $50 mln, 30 years 51% in 20 No
retail trade and EOUs, designated years
advertising sectors and locations
10.Malaysia All sectors Designated sectors Unlimited No No
11.Philippines All sectors except 100% EOUs and Unlimited No No
media, retail trade, designated sectors
engineering and
accountancy
12.Thailand All sectors except Over 80% exports, Unlimited 51% in 5 yrs No
negative list designated sectors and in allied and
locations agriculture
13.Vietnam All sectors except All allowed sectors, 20 years No No
minerals, telecom, Minimum of 30%
aviation, shipping
14. China All except public All allowed sectors, 10-30 No No
utilities, leasing, Minimum of 25% years
real estate, trust,
transport
15.Hong All sectors except All sectors except Unlimited No No
Kong broadcasting banking
16.Taiwan All sectors except All sectors except Unlimited No No
prohibited list restricted list
17.Japan All sectors except All sectors except Unlimited No No
arms,environment, prohibited list
related industries
18.Lao, PDR Selected sectors All allowed sectors 15 years No No
79
Table 4.3 Comparative statement on tax regime in selected Asian countries
Country Corporate tax Tax holidays Import duty Other fiscal Remi-
rate exemptions concessions ttances
1. India Local cos.35%, 5-10 years for R&D, For exports, Incentives for Free
Foreign cos.42% infrastructure, EOU, fertilisers, utility tariffs,
EPZ, SEZ, Tech.Parks, EPZ, SEZ, capital
backward areas Tech.Parks subsidy
2. Bangladesh 5-12 years for backward For EOUs Lower import Free
areas duty for back-
ward areas
3.Myanmer 3 years Lower land Res-
leasing rate tricted
4.Nepal No tax on exports, 5-7 years except for For EOUs Tax rebate for ..
cottage industries cigarette, bidi, saw mill and capital backward
and alcohol goods areas
5.Pakistan 3 years for all, 4 yrs for For power, Lower Free
rural/ backward areas engineering indirect taxes
6. Sri Lanka For EOUs, tourism, For tourism, Accelerated Res-
backward areas, infra. EOUs, infra. depreciation tricted
7.South 30-45% Tax holiday for high For exports Lower duty Free
Korea technology for high tech
8.Singapore 27% 5-10 years for pioneer Capital Free
status subsidy
9.Indonesia 10-30% Abolished in 1984 For EOUs Vat exemp- Res-
tion for EOUs tricted
10.Malaysia 28% 85% exemption for 5 For Capital Free
20% for SMEs years for pioneer status EOU/EPZ subsidy
11.Philippines 10-45% 8 years for pioneer For capital Lower rates Free
status goods on wages, inf.
Reinvestment
12.Thailand 30% 3-8 years for IPZs, For EOU/ Lower duties Free
targeted industries EPZ on capital
goods
13.Vietnam 30% 2-4 years For EOU/ Incentives for Res-
EPZ reinvestment tricted
14. China Local cos.55%, 2 years general, 5 years For EOU/ Tax rebate for Free
Foreign cos.33% for ports SEZ R&D, infra
15.Hong 15-16.5% none Free port, No No excise Free
Kong import duty except on
POL, tobacco
16.Taiwan 20% 5 years for high tech. On capital Cap subsidy Free
industries goods, R&D
17.Japan 52% None Low import Local govt. Free
duties (0-5%) incentives
18.Lao, PDR 4-6 years For few items …. Free
80
Table 4.3 Private Sector Development and Investment Climate in selected Asian economies in 1990 and 2000
Country Private fixed Domestic credit to Foreign Direct Entry and Exit Regulation in 2000
investment as % of private sector Investment
domestic fixed As % of GDP As % of GDP Entry Repatriation of:
investment
1990 2000 1990 2000 1990 2000 Income Capital
Hong Kong .. .. 165 159 .. 89.0 F F F
Korea,Rep 87 79 66 102 0.7 3.2 RF F F
Singapore .. .. 97 110 20.7 11.6 F F F
Taiwan,China .. .. .. .. .. .. F F F
China and Mongolia
China 34 47 88 125 1.2 4.3 SS F F
Mangolia .. .. 19 8 .. 3.4 .. .. ..
South-East Asia
Cambodia 90 61 n.a. 7 1.7 3.9 .. .. ..
Indonesia 70 61 47 21 1.0 4.2 R R R
Lao, PDR .. .. 1 9 0.7 5.4 .. .. ..
Malaysia 65 51 69 136 5.3 2.0 RF F D
Myanmar .. .. 5 9 .. .. .. R R
Philippines 82 69 22 45 1.2 2.8 SS F F
Thailand 85 68 83 109 3.0 2.8 RF F F
Vietnam .. .. 3 35 0.6 4.1 .. R R
South Asia
Bangladesh 58 70 17 25 0 0.6 F F F
Bhutan .. .. .. .. .. .. .. .. ..
India 61 70 25 29 0 0.6 AI F F
Maldives .. .. .. .. .. .. .. .. ..
Nepal .. .. 13 31 0 0 R R R
Pakistan 52 62 28 29 0.6 0.5 R F F
Sri Lanka .. .. 20 29 0.5 1.1 RF R F
East Asia
Japan 84 79 195 188 1.7 0.9 F F F
World
Low & middle income 65 67 42 55 0.9 3.5
East Asia & Pacific 63 50 71 106 15 3.9
Europe & Central Asia .. .. .. 21 0 3.8
Latin America & Carib. 74 80 28 28 0.9 4.5
Mid. East & N.Africa .. .. 42 47 0.9 1.0
South Asia 56 72 25 29 0.1 0.6
Sub-Saharan Africa .. .. 43 66 1.0 1.8
High Income 82 .. 108 136 3.0 10.1
World 78 .. 97 120 2.7 8.8
Notes:
(a) Two dots (..) stand for "Data not available"
(b) Entry and exit regulations are classified as Free (F), Relatively Free (RF), Delayed (D), Selected Sectors (SS), Authorised
Investors only (AI), Restricted (R).
Sources :
81
Impediments to FDI include sectoral protection, ceilings on foreign ownership, licensing
and approval procedures, performance requirements and restrictions on employment of
foreign staff. The formation of regional trading groupings (such as NAFTA, ASEAN,
SAARC etc.) has an important impact on the FDI pattern. In the foreseeable future,
countries outside the regional groupings might be at a disadvantage in attracting FDI.
There is general complain from small and medium industry associations and federations
that SMEs face an uneven playing field due to laws and regulations that favour large
conglomerates and multinationals or high costs on business detrimental to SMEs.
4.3 Development of Skill and Technology
Japan primarily relied on licensing, technical collaborations and imports of capital goods
as channels for technology transfer from the West. While they were successful in
developing their own technological capability based on imported technology, technology
transfer through FDI was small relative to other means of transfer. A lesson that can be
drawn from the Japanese experience is that there must be a close interaction and co-
ordination among public-funded R&D institutions, private sector institutions, in-house
R&D by private sector, universities and other technical institutions, so that duplication or
multiplication of R&D efforts is avoided and national resources are not wasted.
The Republic of Korea also followed a path similar to that of Japan and Malaysia to
enhance technological capability.
Despite attractions, such as, political stability, the rapid pace of deregulation, moderate
inflation, and availability of relatively cheap labour, large domestic market and plentiful
natural resources, most of the Asian developing countries do face obstacles to technology
transfer. These difficulties vary in degrees across all Asian countries given their different
levels of technological development and absorptive capacity. They fall broadly into the
following categories, namely,
(a) Poor infrastructure and utilities;

(b) Strict laws and regulations on foreign firms, and inefficiencies in the
implementation of deregulation policies;
(c) Shortage of trained technical and managerial workforce;
(d) Weak local supporting industry in the production of parts and components;
(e) Low rate of diffusion of technology to the rest of the economy except for FDI;
(f) High cost of technology agreements; and
(g) Transfer of technology, which is not environment friendly.
An important condition for successful technology transfer is the ability of the host
countries to attract foreign investment and to provide an environment that enhances the
willingness of foreign investors to take a long-term view and transfer know-how to local
partners and workers.
82
Lack of transparency and excessive bureaucracy in the implementation of foreign
investment laws often cause a big gap between approval and actual realization rates,
which may be as low as 30 to 35 per cent in the case of several countries in the Asia
Pacific region. Furthermore, the gap between approval and actual investment is as long
as two to three years.
Most of the SAARC countries share common strengths and problems. The problems
relate to low level of technology, environmental degradation and a limited base of export
concentrated on natural resources and semi-finished products. For long time, these
countries were dependent on the West for their technological need and paid little
attention to build their own technological capabilities.
By and large, SAARC countries encouraged transplantation of turnkey projects operating

at a sub-optimal level of efficiency and capacity utilization and were unable to absorb,
adapt and develop technologies needed for their economic development. Whatever
science and technology (S&T) infrastructure was developed, it remained weak in
establishing linkages with the productive sectors. Furthermore, much of the aid acquired
in the past was spent on public sector projects that were inefficient. There is also lack of
sufficient linkages and networking among the academia and the enterprise.
The Chinese case is an example that has met with considerable success in technological
upgradation of its small-scale sector through transfer of technology by creating sufficient
institutional mechanisms. In this direction, the SPARK Programme was initiated in 1986
for Village and Township Enterprises (VTEs) in rural areas and the Torch Programme
(for high tech areas) initiated in 1988 catering to industries mostly in 120 High
Technology Development Zones (HTDZs) in urban areas. To facilitate transfer of
technology and reduce the barriers between research institutions and the enterprises,
some 55,000 New Technology Enterprises (NTEs) have been set up. The government
provides soft bank loans, preferential taxation policies and development on infrastructure
facilities and risk capital for start-up for NTEs through a government-financing agency
known as the Venture Investment Corporation.
With the onset of economic liberalisation in India in 1991, the Government of India
liberalised the import of technologies by domestic manufacturers. Some salient features
relating to the technology import policy are:
• There is a commitment to development and utilization of indigenous capabilities in

technology and manufacturing, and its upgradation to world standards.
• Foreign investment and technology collaboration are welcome to obtain higher

technology to increase exports and expand the production base.
• Relationship between domestic and foreign industry is much more dynamic in terms
of technology and investment.
83
• Indian companies are free to negotiate terms of technology acquisition with their
foreign counterparts according to commercial judgment.
• Procedures for foreign investment, foreign technology agreements and services of

foreign technicians have been made easier and liberal.
• Imports of capital goods had been completely liberalised with significant reduction of
import duties.
India has acquired imported technologies, either by outright purchase, direct foreign
investment, and joint ventures or on the basis of royalty payments. For the acquisition of
foreign technologies, Indian companies have also received support and assistance from
international organisation like APCTT, UN, UNIDO, and IDRC, CANADA.
Main sources of imported technologies have been the USA, the UK, the erstwhile USSR,
Germany, France and Japan. Many financial and non-financial support systems built over
a period of time helped in the acquisition, adaptation and assimilation of imported and
indigenous technologies. India was also able to provide technical and consultancy
services to not only African and Asian developing countries but also to some developed
countries. However, India still lags far behind in its R&D activities when compared to
advanced countries, since the expenditure on R&D is very low (see Table 4.5).
The R & D expenditure at 0.6 percent of GNP in India, 0.4 per cent in Malaysia, 0.2 per
cent in Philippines, and at 0.1 percent in Thailand, 0.07 per cent in Indonesia and 0.06
per cent in China in 1989-2000 were considerably lower than that in USA (2.7%), Japan
(2.8%), Germany (2.9%), and South Korea (2.7%) and Singapore (1.1%). In USA, Japan,
Germany and South Korea, major portion of the funds was contributed by the private
sector. In contrast R&D expenditures are mostly funded by the public sector in Thailand,
Indonesia, China and India.
India has built a wide array of institutions to support the development and diffusion of
industrial technologies since the inception of planning in 1951. It has virtually all basic,
applied, hardware and software and R&D institutions, some of which have world-class
standards. But, these institutions have failed to commercialize R&D activities as these are
virtually financed and controlled by the public sector without any linkage with the private
sector. Since 1993 Government had encouraged private sector funding of research
institutions by providing tax relief on R&D expenditure.
84
Table 4.5 Science and Technology Development in selected Asian economies in 1990 and 2000
Country Scientists Technicians Science and Science Expenditures High technology exports
and in R&D engineering and for R&D
engineers per million students technical % of GNP US$ billion % of
in R&D people % of total Journal manufactured
per million tertiary level articles exports
people students
1990-2000 1990-2000 1987-1997 1997 1989-2000 2000 2000
Hong Kong 93 100 36 2,080 .. 5.2 23
Korea,Rep 2139 574 32 4,619 2.70 54.0 35
Singapore 2182 283 .. 1,164 1.13 73.6 63
Taiwan,China .. .. .. .. .. .. ..
China and Mongolia
China 459 187 43 9,081 0.06 40.8 19
Mangolia 468 92 24 13 0.07 .. ..
South-East Asia
Cambodia .. .. 13 3 .. .. ..
Indonesia .. .. 39 123 0.07 5.7 16
Lao, PDR .. .. 20 2 .. .. ..
Malaysia 154 44 27 304 0.42 40.0 59
Myanmar .. .. 56 3 .. .. ..
Philippines 156 22 14 159 0.21 8.5 59
Thailand 102 75 18 356 0.10 13.9 32
Vietnam 274 .. .. 106 .. .. ..
South Asia
Bangladesh 51 32 47 130 .. 0 0
Bhutan .. .. .. .. .. .. ..
India 158 115 25 8,439 0.62 1,245 4
Maldives .. .. .. .. .. .. ..
Nepal .. .. 13 35 .. 0 0
Pakistan 78 14 32 232 .. 0 0
Sri Lanka 188 45 34 61 .. 0.1 3
East Asia
Japan 4960 663 21 43,891 2.80 127,368 28
World
Low & middle income .. .. 35 75,298 .. 156.8 16
East Asia & Pacific 496 193 43 14,817 0.88 100.5 25
Europe & Central Asia 2212 478 44 34,905 0.83 15.6 10
Latin America & Carib. 287 .. 30 10,075 0.58 40.5 16
Mid. East & N.Africa .. .. 29 3,106 .. .. 1
South Asia 158 114 24 8,896 0.62 .. 3
Sub-Saharan Africa .. .. 29 3,499 .. .. 8
High Income 3344 .. 25 437,339 2.30 847.0 22
World .. .. 35 512,637 2.12 1003.8 20
Sources :
85
4.4 Access to capital
(a) Lending by commercial banks
In Korea, USA, Japan, China as in India, the Credit Guarantee programmes help small
enterprises to have access to bank loans without collateral support. Like India, Korea has
set up a special technology development fund and other programmes for supporting
venture capital. On the marketing side, the Central Government, local autonomous
authorities and State-run corporations in Korea are encouraged to extend procurements
from SMEs and provide special incentives to increase exports.
Among the numerous government support organizations for SSIs, the Korean
Technology Banking corporation and Korea Technology Credit Guarantee Fund provide
finance for technology development projects and venture capital finance, besides
extending credit guarantees for SSIs. Research Co-operatives promoted by industry are
encouraged to undertake R&D. The Korean Technology Banking Corporation (a private
institution) and the Korean Development Investment Corporation (a subsidiary of the
Korean Development Bank) provides substantial financial support.
The Small and Medium Industry Promotion Corporation (SMIPC), a non-profit

autonomous organisation established by the South Korea in 1979, provides financial
assistance for industrial extension services concerning management and technology.
Mention may also be made of the Korean Institute of Industries and Technology
Information, a non-profit organisation and the Ministry of Trade, Industry and Energy,
the helps in nationwide dissemination of information to support industrial and
technological developments in South Korea.
In Germany, special privileges and special incentives are provided for the Small and
Medium firms. For example, in the "Equity support programme" earmarked for the small
and medium industries, special support is given to young entrepreneurs and new
enterprises. This programme includes, among others, no interest for two years, a
comparatively low interest rate, 10-year grace period and 20-year repayment period.
India has a very organised system under which public sector commercial banks and
financial institutes provide various financial assistance to SSI units (see Box 4.2). The
Small Industries Development Bank of India (SIDBI) is a good example of a specialised
bank which provides financial and other services exclusively to the SMEs. SIDBI was set
up under an Act of Parliament as the all India financial institution for promotion,
financing and development of SSI, and commenced its operations on April 2, 1990. Apart
from extending financial assistance, SIDBI co-ordinates the functions of institutions
engaged in similar activities. As an apex institution for SSIs, SIDBI’s lending operations
are supplemented with promotional and developmental activities. SIDBI focuses on
meeting the credit requirements of the SSI sector in general and in emerging areas like
technology up-gradation, venture capital financing, information technology, micro
enterprises, export promotion etc. in particular (see Box 4.3).
86
Box-4.2 Role of Financial Institutes and Commercial Banks
in SSI Financing in India
• The credit needs of entrepreneurs could be divided in three parts: short term, medium term
and long term finance. Accordingly, the conventional mechanism for financing of SSIs in
India stressed provision of term loans and working capital.
• The public and private sector banks, Small Industries Development Bank of India (SIDBI),
Regional Rural Banks, Urban Cooperative Banks and foreign banks meet the credit needs of
the sector. While State Financial Corporations (SFCs) grant loans for setting up new
industries or modernisation of the existing ones, Khadi and Village Industries Commission
and Khadi and Village Industries Boards assist in financing handicrafts and village industries.
National Small Industries Corporation (NSIC) and State Small Industries Corporations
(SSICs) supply machinery on a hire-purchase basis to small-scale and ancillary industries.
• SFCs are one of the oldest credit institutions in the country, which cater to the long-term
credit needs of SMEs. At present, there are 18 SFCs covering the entire country and they
have been in existence for 5 decades now. Almost 75% of SFCs assistance flows to the SSI
Sector. Over the years the financial health of SFCs has become a cause of concern. Some of
the reasons for the poor financial health of SFCs are poor recovery and increase in Non
Performing Assets. Government of India had amended the SFCs Act 1951 in the year 2000 so
as to give them more operational flexibility for improving their performance.
• The Small Industries Development Bank of India (SIDBI) has played a pioneering role in
developing the financial and other support mechanisms aimed at hastening the dispersal of
SSIs. The enhanced contribution of the Indian small-scale sector is reflected in its
contribution to investment, output, employment and exports due partly to SIDBI's conscious
policy of larger credit dispensation and evolution and streamlining of support mechanisms.
China has a pilot project to introduce credit guarantee schemes for SMEs, covering 30
provinces. As per estimates, a corpus of around 7.6 billion Yuan has been raised. Like
India, China has the National Technological Innovation Fund to supplement technology
upgradation among SMEs.
In Bangladesh the government directs funds to SMEs through scheduled banks, which are
obliged to lend prescribed share of their total resources to these industries as working
capital. Some nationalized banks have also helped finance subcontracting arrangements
of small industries to large ones, but these constitute a small portion of the banks loan
portfolio, and as with the other loans, the recovery rate is low. In Indonesia the most
important among the priority schemes has been the provision of working capital and
small investment credit for fixed asset acquisition, but lending has been below target as
lending agencies involved have exercised extreme caution in disbursement of such loans.
In the Philippines there are also specialized programs for the SMEs.
87
Box 4.3 Schemes of Assistance to the SSI sector introduced by the
Small Industries Development Bank of India (SIDBI) since 1990-91
1990-91
Marketing Infrastructure Scheme
Direct Discounting of Bills for Equipment and components
Infrastructure Development
1991-92
Scheme for Ancillarisation
Resource Support to Factoring Companies
1992-93
Equipment Finance Scheme
Project Finance Scheme
Venture Capital Scheme
1993-94
Direct Equity Scheme
Foreign Currency Term Loan
Integrated Infrastructure Development Scheme
1994-95
Pre-Shipment Credit in Foreign Currency (PCFC) Scheme
Equity Assistance Scheme
ISO 9000 Certification Scheme
Micro Credit Scheme
Technical assistance for small enterprises
1995-96
TDMF (Trade Development Mutual Fund) Scheme
Marketing Finance and Development
1996-97
International Finance to SMEs
Vendor Development Scheme
Credit Rating for SSIs
1997-98
Direct Factoring Services
Line of Credit for Marketing
Exports Bills Financing
Pre and Post-shipment Credit in Rupees
Bills Rediscounting against Inland Supply bills of SSIs
1998-2000
Technology Upgradation Fund Scheme for Textile Industries
Short Term Loans to State Electricity Boards/ Power Companies
2000-01
Capital Subsidy Scheme for Technology Upgradation of SSIs
Refinance Scheme for term loans granted by SFCs/ SICs
2002-03
Infrastructure financing strengthened and widened
Introduction of Loghu Udyami Credit Card for providing simplified credit
facilities to SMEs, retail trade, artisans, small entrepreneurs, professionals
and self employed persons
88
Table 4.6 Financial Depth and Efficiency in selected Asian economies in 1990 and 2000
Country Domestic credit Liquid liabilities Quasi-liquid Ratio of bank Interest rate Spread over
provided by as % of GDP assets liquid reserves spread LIBOR
banking sector as % of GDP to bank assets percentage percentage
as % of GDP as % of GDP points points
1990 2000 1990 2000 1990 2000 1990 2000 1990 2000 1990 2000

Hong Kong, China 156 141 182 237 167 222 0.1 0.3 3.3 4.7 1.7 3.0
Korea,Rep 66 104 55 98 46 89 6 2 0 0.6 1.7 2.0
Singapore 76 90 123 108 101 87 4 2.5 2.7 4.1 -1.0 -0.7
Taiwan,China .. .. .. .. .. .. .. .. .. .. .. ..
China and Mongolia
China 90 133 79 152 41 91 16 13 0.7 3.6 1.0 -0.7
Mangolia 73 11 56 25 15 12 2 18 .. 16.5 .. 23.7
South-East Asia
Cambodia .. 7 .. 15 .. 11 .. 47 .. 10.5 .. 10.9
Indonesia 46 66 40 58 29 45 5 8 3.3 6.0 12.5 11.9
Lao, PDR 5 11 7 17 3 14 3 28 .. 20.0 .. 25.5
Malaysia 76 143 64 130 43 106 6 14 1.3 3.4 -1.1 0.2
Myanmar 33 27 28 26 8 10 272 23 2.1 5.5 -0.3 8.7
Philippines 27 68 37 67 28 55 21 7 4.6 2.6 15.8 4.4
Thailand 91 122 75 115 66 101 3 2 2.2 4.5 6.1 1.3
Vietnam 5 35 23 44 9 24 13 9 .. 6.9 .. 4.0
South Asia
Bangladesh 24 35 23 35 17 26 13 8 4.0 6.9 7.7 9.0
Bhutan .. .. .. .. .. .. .. .. .. .. .. ..
India 52 53 43 56 28 39 15 8 9.0 4.0 8.2 5.8
Maldives .. .. .. .. .. .. .. .. .. .. .. ..
Nepal 29 43 32 52 19 35 13 11 2.5 3.5 6.1 2.9
Pakistan 51 49 40 48 10 20 9 6 .. .. .. ..
Sri Lanka 43 44 35 47 23 37 10 8 -6.4 7.0 4.7 9.6
East Asia
Japan 260 311 182 190 155 142 1.5 1.4 3.4 2.0 -1.4 -4.5
World
Low & middle income 61 69 43 66 27 45 13 11
East Asia & Pacific 73 116 64 124 43 86 6 11
Europe & Central Asia .. 36 .. 36 .. 25 .. 11
Latin America & Carib. 59 38 25 30 18 21 22 15
Mid. East & N.Africa 69 70 62 62 30 37 14 10
South Asia 49 51 41 53 25 36 13 8
Sub-Saharan Africa 57 77 33 34 17 14 12 10
High Income 132 174 93 102 .. 77 2 1
World 121 152 83 92 .. 68 10 8.5

Sources :
89
Despite all these measures, in virtually all of the countries, small and medium industries
complain about the paucity of funds available to them and the onerous terms associated
with loans they receive. Interest rates on government loans are lower than market rates
but the funds available are limited and high collaterals are required by both private and
government banks. Interest spreads are very high in many countries (Table 4.6).
(b) Specialized financial institutions
In industrialized countries, besides commercial banks which undertake general lending,

there are large numbers of specialized financial institutions that focus on lending of
particular types, such as:
• Factoring companies, which lend against trade receivables and which frequently
undertake the task of debt collecting for companies using their services. The
receivables themselves provide the security for the loan.
• Leasing companies, which lend for the purchase of capital equipment, allowing the
lessee to take delivery of equipment which effectively serves as the collateral for the
leasing contract.
• Trade credit suppliers, which finance purchases of raw materials and which use raw
material inventories as collateral.
• Mortgage finance companies, which specialize in financing mortgages.
The specialized financial institutions play a vital role in allowing businesses to grow. In
most developing countries there are very few leasing or trade credit entities as the
financial and judicial systems necessary for their effective operations do not exist.
Role of Micro-finance Institutions
Since the late 1980s, the number of micro-finance institutions (MFIs) has grown rapidly
in many developing countries. MFIs can be defined as formal, semi-formal, or informal
providers of financial services to low-income clients, including the self-employed.
Financial services generally are restricted to lending although some MFIs also provide
savings, insurance and payments services.
There are a number of reasons why MFIs are likely to bring benefits to the poor. MFIs
enjoy better local knowledge and proximity, which is an important advantage because the
majority of poor households live in vast rural areas that are undeserved by the
commercial banks. Furthermore, the semi-formal and informal MFIs complement the
formal financial system by providing financial services to those who have limited access
to the formal financial system.
However, the importance of micro-finance as an instrument of poverty alleviation should

be treated with caution. The quality of the loan portfolio of MFIs is often poor because of
90
inadequate management. A large number of these institutions are not efficient and
survive on subsidies from their donors. Lending rates charged by MFIs are usually very
high. The linkages between MFIs and commercial banks are often weak. Replication of
successful MFI models is often impossible due to differences in demographic or cultural
contexts. Finally, there are still no countries with a comprehensive network of micro-
finance institutions.
Above analysis indicates that access to capital is a critical factor for the development of
agro-based industries, particularly the SMEs. Funding is critical to these industries in
their early stage of development. Commercial banks should offer more appropriate
instruments to SMEs and develop micro credit schemes with the support of government.
There is also need to develop specialised banks for supply of venture capital, trade
credits, mortgage finance, factoring and leasing services to the SMEs.
Commercial banks in the East and South East Asian countries are suffering lending
constraints in the aftermath of the Asian crisis. Governments and multilateral lending
institutions (like ADB) should consider the creation of special funds dedicated to help
funding SMEs in the agro-based and resource-based sectors.
4.5 Infrastructure and Information technology
Development of proper legal and institutional set up and efficient infrastructure (transport
and telecommunications) are essential for the development of SMEs. In open economies,
such as Singapore, Hong Kong or Mauritius, only minimal investment laws and
regulations exist and administrative costs are negligible. Most developing countries like
India are faced with a transition period. The experience of countries such as Indonesia,
Malaysia, Taiwan and Thailand suggests that the transition can be managed well. The
faster an economy is reformed, the easier the management of private investment
including foreign investment. Regulations can be simple and their administration may be
made efficient and transparent.
As regards infrastructure, some of the measures to improve the production and marketing
of SMEs are suggested below:
(a) Cluster development
A 'Cluster' refers to a geographically bounded concentration of similar, related or

complementary businesses, with active channels for business transactions and
communications that share specialised infrastructure, labour, markets and services.
Cluster approach facilitates SMEs to introduce innovative marketing. UNIDO has helped
to develop clusters for exports of textiles, rubber and pharmaceuticals in India to improve
their international competitiveness.
(b) Trading Houses
91
Japanese experience in this is worth noting. Japan is the pioneer in setting up large
trading houses known as "Sogo Sosha". These companies assisted marketing of products
of Japanese SMEs. In order to encourage export of products of SMEs, Government of
India encouraged setting up of Export Houses and Trading Houses and also extended
various facilities as well as incentives to Export Houses and Trading Houses.
(c) E-Commerce and development of information technology (IT)
E-commerce has revolutionized the international trade due to:
• Reduction in transaction costs globally.

• Direct contractual relations between buyers and sellers.
• More transparency in dealings.
The three major directions of commercial activity viz. (i) Business to Business (B2B), (ii)
Business to Consumer (B2C), and (iii) Business to Government (B2G) have been very
much captured through e-commerce and can help SMEs to expand their market, get
information of both demand and supply, behaviour of customers etc. Hong Kong, China
and Singapore are aggressively expanding their ICT infrastructure to improve their ability
to take advantage of the Internet and globalisation.
All the developed and developing countries are now attaching special importance to the
development IT infrastructure through formulation of national policies on IT and related
sectors. The government of India has passed in Parliament a convergence bill to cover
telecommunications, IT and broadcasting under the same act. Under the framework of
WTO, there is a special international arrangement on IT under which all participating
countries have agreed to duty free entry for all IT products and components.
(d) Networking
Networking can play a dominant role in supporting SMEs for marketing of their products.
Networking is of many types. However, vertical (which are aimed at finding
complementary activities in the development of a new product) and knowledge networks
(which are associations geared to solving a common technology or market information)
are more relevant in the context of market.
5 ROLE OF INTERNATIONAL ORGANISATIONS FOR THE DEVELOPMENT

OF AGRO-BASED AND RESOURCE-BASED INDUSTRIES
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5.1 Role of World Bank, ADB and IMF
This chapter discusses role of various multilateral organisations for the development of
resource based and agro based industries through assistance in policy formulation,
institutional capacity building, networking, investment promotion and skill development.
Through poverty reduction programs, World Bank and Asian Development Bank provide
aid, technical assistance and concessional loans to various countries and help them to
formulate appropriate policies. These development agencies believe that unemployment
is the root cause of poverty and attach significant importance for employment generation
through the development agro and resourrce based industries in the Asian developing
countries. The world Bank also provides grants under the Institutional Development Fund
(IDF) for capacity building. The International Monetary Fund (IMF) as a part of their
annual Article-IV Consultation and Surveillance helps the developing countries for
formulation of appropriate policies.
More recently, all the crisis affected countries in the South East Asia viz. Thailand,
Indonesia, Korea, Malaysia and Philippines intensified their structural reforms and
stabilisation programs with the help of multilateral funding agencies like the IMF, World
bank and the Asian Development Bank (Das 2002). The root cause of the East Asian
crisis, unlike some earlier crisis episodes in Latin America, were not in macro-economic
imbalances, rather stems from structural weaknesses. These weaknesses manifested
themselves in progressively weaker banking and financial sectors and heavily leveraged
corporate sectors. So the reforms program emphasised banking sector reforms, corporate
restructuring and good governance.
The vast bulk of measures taken by the countries involved financial sector restructuring
which was seen as essential to restore market confidence, overcome the crisis and lessen
vulnerability to future crisis. Corporate sector restructuring, a critical counterpart to the
reforms in the financial sector, was a vital part of the IMF supported program. However,
as the Fund was not well equipped to deal with corporate sector issues, which were
beyond its areas of expertise, close collaboration with the World Bank and ADB was
necessary for design of measures in this area. Due to the complexity of the needed
restructuring of the financial and corporate sectors, the policy matrices expanded
substantially as the programs evolved during 1997-1999.
The policy matrices went beyond the core areas of financial and corporate restructuring.
Some of the additional areas covered such as capital account liberalisation, strengthening
the social safety nets, labour market reforms, and systematic reforms (e.g. institution
building, the legal and regulatory framework) were essential to support the core areas.
Other areas of reforms included trade and financial services liberalisation, privatisation of
public enterprises, and tax reforms.
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5.2 Role of Regional Organisations
(a) ESCAP
As the largest, and perhaps the most influential, international organization in the Asia-
Pacific region, ESCAP has undertaken extensive work and has a major role to play in
future to promote technology flows and development of industries in the its member
states. The following areas may be the focus of its future action:
(i) Exchange of national experiences
Asia has become the leading recipient of inward FDI among all the regions in the world,
accompanied by the largest investment-related technology flows. In attracting FDI,
assimilating foreign technology, and promoting export, the Asian countries have adopted
different strategies and approaches, formulated specific plans and priorities according to
their national objectives and conditions. An exchange program of national experiences
and development practices at the regional or sub-regional level will help countries in the
region to learn from each other and improve national performance.
(ii) Promotion of endogenous capacity-building
ESCAP has been conducting/sponsoring various activities, including international and

bilateral seminar and workshops, the dissemination of information through journals and
computerized communication, and the publication of various manuals. Since ESCAP is in
a position to objectively and intimately evaluate the specific situations and needs of each
of its members, these activities should continue to be intensified for speedier endogenous
capability-building by its members and more effective technology transfer to the region.
(iii) Research on sectoral restructuring
A number of research studies on food processing, dyestuff and manufacturing industries

carried out by ESCAP have provided very useful reference materials for the regional
countries in formulating sectoral technology upgrading and development policies. Such
type of studies on agro-based and research based SMEs by ESCAP would be welcome.
(b) Asian and Pacific Centre for Transfer of Technology (APCTT)
As a regional organization specializing in technology transfer, APCTT has distinguished

itself in a number of activities such as information dissemination, technology fairs, skill
training, and promotion of Environmentally Sound Technologies (ESTs). The member
States of APCTT have recognized these activities as highly practical and very useful.
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(i) Environmentally Sound Technologies (ESTs)
With information dissemination as one of its major activities, APCTT has built up a data
bank on technology opportunities, experts, and institutions called the Mechanism for
Exchange of Technical Information (METI) which was made possible with the support of
UNDP. The International Network for Transfer of Environmentally Sound Technologies
(INTEST) is a worldwide network of technology transfer, consultancy and engineering
institutions and companies. APCTT has linkages with over 1000 agencies outside India,
and information received is regularly updated in its data bank. APCTT also has
standardized the technology information format so that a fair amount of data useful for
decision-making will be available. In addition, the Centre brings out a number of
publications and periodicals, such as Tech Monitor and Value Added Technology
Information Service. These information services help member states to meet their
information needs and produce greater awareness on technology flows. There seems to be
a need for APCTT to expand the METI service to include not only SMEs but also large
business in the member countries, and to link METI with other information service net
works around the world.
(ii) Technology fairs and promotion of ESTs
This is another area where ESCAP's initiatives have received strong support from its
members. The seminar and workshops run by ESCAP in the past have either initiated a
new promotional activity or played a catalytic role in endogenous capacity building.
Corporation in the Adoption of the ISO 9000 Series in Bangkok in 1997.
Other United Nations bodies have also supported systems to provide technical
information for meeting the needs of technology in developing countries. Thus TIPs
(technology information promotion system) has been established, with a national branch
in New Delhi, India UNIDO has attempted to provide technical information through
INTIB which has promoted technologies through arranging techmarts in different parts
of the world.
(iii) Technology Bureau for Small Enterprises (TBSE)
While individual countries are responsible for improving their own technological
capabilities, it is important to recognize the regional dimension in the upgrading process.
Intra-regional and inter-regional information flows have become increasingly important
factors in the economic development of the countries of the region.
Rapid changes in technology and management practices, and the increasing role of
services are revitalizing small enterprises (SEs) the world over. In the developed
countries, SEs have already become an important source of technological innovation.
Their main advantages lie in higher flexibility, and managerial adaptability and capacity
to remain cost efficient. With exports as the key word for developing economies, there is
no alternative for industry in general and for small industries in particular, but to upgrade
their technology levels.
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TBSE is an important instrument in raising the technology level of SEs. The main
objective of the Bureau is to assist SEs in technology acquisition, adoption, and
upgradation through its technology information and promotion services. It is the outcome
of the alliance formed between APCTT and Small Industries Development Bank of India
(SIDBI). APCTT maintains close and effective linkages with key sources and users of
technology, and other national and international centres involved in technology
management, transfer, and utilization. It handles more than 250 business references with
the help of over 1000 partners in about 70 countries.
The Bureau aims to provide a platform where SEs can interact with global enterprises in
the acquisition of technology or the marketing of technical capabilities. Towards this end,
it has taken immediate steps to arrange for speedy access to information on sources of
technology and facilitate transfer through a professionally managed system for the benefit
of SEs in India and SMEs in the Asia-Pacific region. Functioning from the headquarters
of APCTT, the Bureau has focused its activities on matchmaking, finance syndication,
business collaborations, and support services to SEs.
(iv) 'Mechanism for Exchange of Technology Information' (METI)
At the international level, APCTT implemented a project on 'Mechanism for Exchange of

Technology Information' (METI) with active participation of 12 member countries in the
region. APCTT has evolved an 'International Network for Transfer of Environmentally
sound Technologies' (INTEST) which deals with technologies available worldwide.
The catalytic role played by APCTT in promoting flows of technologies and facilitating
access to them on favourable terms needs to be further strengthened. APCTT brings out a
bi-monthly publication 'Value Added Technology Information Service' (VATIS) with
updated information on priority sectors such as: food processing, waste management;
sources of non-conventional energy; ozone layer protection and biotechnology. APCTT
proposes to cover more sectors and areas depending on the needs of the member
countries. APCTT also organizes business meetings and promotes technology market
forums, such as, 'Techmarts' to bring together buyers and sellers of technology in
specialized and high-tech areas. In addition, it disseminates information on technology
offers and requests, and on available consultants through its bimonthly publication "Asia-
Pacific Tech Monitor' and through exhibitions and workshops.
In India, APCTT is co-operating with the Small Industries Development Bank of India
(SIDBI) to assist small-scale industries in technology-transfer-related problems through
Technology Bureau for Small Enterprises (TBSE).
In India, APCTT joined hands with the National Small Industries Corporation (NSIC)
and the Council of Scientific and Industrial Research (CSIR), and formed a consortium to
assist SSIs in the country to improve and secure access of SSIs to advanced technologies,
strengthen linkages between R&D institutions and create and strengthen the local
innovative system.
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5.3 World Trade Organisation (WTO)
(a) Role of WTO
The prevailing world trade order came into existence in 1995, with the culmination of the
Uruguay Round of trade talks. The institutionalisation of this order is represented by the
World Trade Organisation (WTO) which monitors the compliance of member countries
with a number of agreements on trade relationships between countries and also acts as a
dispute resolution mechanism.
The current order is fundamentally different from the previous regime, manifested
primarily in the General Agreement on Trade and Tariffs (GATT) focussing mainly on
commodities and manufactured goods. Besides commodities, a number of other factors
have become extremely important in cross-border transactions. These can be broadly
classified into three categories: services, knowledge and capital. The agreements
administered by the WTO now cover the first two categories, while a collective
agreement on capital flows is also on the agenda for future talks. Thus, the new order is
far wider in scope than the one it displaced.
Quantification of all these various impacts is obviously very difficult. Most of them are
outside the purview of this study. However, the most significant impact on the
developing countries is likely to be that of the elimination of QRs under GATT.
While the Uruguay Round agreements achieved sizeable reduction in the use of NTMs,
the phasing out period for existing NTMs differed significantly for different products.
NTMs in agriculture, affecting temperate zone food products (particularly grains and
dairy products) exported mainly by developed countries, were to be phased out almost
immediately, but those on textiles and clothing were given a transition period of 10 years,
and VERs four years. These imbalances are reinforced by the unequal incidence of VERs
across exporting countries and products. For example, as of 1992, of the 79 VERs outside
agriculture and textiles and clothing, 69 involved Japan and the Republic of Korea as
exporters, and they applied mainly to motor vehicles and consumer electronics.
Regarding broad product categories, available evidence suggests that trade liberalization
has been limited and slow in agriculture, textiles and clothing; compared to other sectors.
Access to markets for these products continues to be much more restricted. Agricultural
subsidies, particularly in the EU, have been largely responsible for restricting growth of
exports of a number of agricultural commodities from developing countries.
In manufacturing, except in textiles and closing, differences in the evolution of market

access conditions are not large enough to explain the differences in the pace of expansion
of trade in these products. Among other factors, the growing importance of international
production networks, appear to have played a greater role.
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(b) WTO and Market Access
Market access covers a broad range of issues, which are briefly outlined in Box 5.1. The
scope of this report is limited to analyzing protection in agro and resource based exports
with special attention to trade in agriculture and T&C - two sectors a that are of great
export interest of developing countries. In the context of the Doha Development Agenda,
WTO members are committed to negotiations aimed at substantially improving market
access for agricultural and industrial products, in particular for developing countries.
(i) Import Tariffs
Successive rounds of multilateral negotiations have lowered average levels of protection.

Industrial countries have generally set applied tariff rates close to their tariff binding,
enhancing the predictability and transparency of market access regimes. In contrast, most
developing countries bind their tariffs at levels well above their applied rates so that they
could in principle substantially increase their applied tariffs without infringing their WTO
commitments. Among broad country groups, it is notable that the average tariffs of least
developed countries (LDCs) (17.9 per cent) is higher than that of other developing
countries (14.0 per cent) and well above that of industrial countries (5.2 per cent).
However, averages of most-favoured-nation (MFN) applied tariffs by importing country

or region provide an incomplete picture of protection for the following reasons:
(a) A number of barriers are not covered by the standard MFN databases, including
specific tariffs (viz. Absolute monetary value per unit of imports), tariff rate quotas,
prohibitions, contingent protection, the costs of rules of origin, and environmental and
technical standards.
(b) The averages do not capture the impact of tariff dispersion, in particular tariff peaks
and escalation.
(c) Because of preference schemes and differing export structures, the barriers faced by
exporters to the same market can vary widely.
(d) Uncertainty over market access related to contingent protection, interpretation of
norms and procedures, and the discretionary nature of many preference schemes, may
represent a further disincentive to exporters.
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Box 5.1. WTO and Market Access
Market access refers to the ability of providers of foreign goods and services to sell in a
given country. For the purposes of market access negotiations, WTO subdivides tradable
items into four groups viz. agricultural goods, textiles and clothing, industrial goods, and
services. A different set of multilaterally agreed rules apply to each group.
Main market access barriers include:

• Import tariffs and other price-based border measures: government policies usually
targeted at restricting market access in a particular commodity and raising budget
revenue. These measures include import duties tariff quotas, and other border duties,
levies, and charges.
• Non-tariff border measures: government policies that may restrict market access
through non-price instruments. Such measures include quantitative restrictions
(import quotas, direct prohibitions, domestic content requirements, licensing);
contingency measures (antidumping, countervailing, and safeguard measures);
technical barriers to trade (TBT) (regulations, standards, testing and certification
procedures); sanitary and phytosanitary measures (SPS) (food, animal and plant
health and safety).
• Domestic policy measures: government policies, which may restrict market access if
not applied uniformly to domestic and imported goods and services. These are tax,
competition, credit, and investment policies; price controls; and fiscal incentives, in
particular, trade-distorting export subsidies and domestic support.
Negotiations on market access. The Doha Development Agenda envisages negotiations

on market access in all the above areas.
Developing countries generally face higher barriers to their exports than industrial
countries. Adoption by all industrial countries of schemes that provide unrestricted
market access for LDCs could have significant benefits without imposing undue costs on
other suppliers, given the very small share of LDCs in world trade (around 0.5 per cent).
Trade preferences also have duty drawbacks. Apart from the economic inefficiencies,
they create vested interests and should therefore be set firmly within a context of rapid
multilateral liberalization.
Improved market access for LDC exports will not be sufficient to ensure sustained
growth in exports as constraints in key infrastructure sectors like telecommunications,
transport, and financial services often add more to export costs than foreign trade barriers
(world Bank, 2002).
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(ii) Agreement on Agriculture
Agriculture has traditionally been heavily shielded from import competition. It was not
until the conclusion of the Uruguay Round in 1994 that the sector was brought under
effective GATT disciplines. The Uruguay Round marked the beginning of a gradual
liberalization process in agriculture-initially over six years for industrial countries and ten
years for developing countries. WTO members also made a commitment to engage in
negotiations to continue the reform process in the final year of the six-year
implementation period- part of the so-called "built-in Agenda". The key commitments
entailed move away from quantitative restrictions, a binding of maximum tariff rates, and
the reduction of domestic support and export subsidies (Box 5.2).
Under the Agreement on Textiles and Clothing (ATC), quota restrictions are being
gradually abolished (as products are "integrated") over the period 1995-2005 and quotas
that have not been removed are subject to a progressive increase in their growth rates (see
Box 5.3).
Box 5.2 Uruguay Round: Principal Commitment on Agriculture
Tariffication and Binds: Non-tariff measures to be converted to bound tariff at the start of the
implementation period with average tariff cuts by industrial countries of 36 per cent over six years from a
1986-88 base, and a minimum cut of 15 per cent on any tariff line.
Minimum import access: Tariff rate quotas were introduced to guarantee minimum market access by the
end of the implementation period.
Domestic support, as measured by the total Aggregate Measurement of Support (AMS), to be reduced by 20
per cent from a 1986-88 base over the implementation period. Exempt are domestic supports of less than 5
per cent "green box" subsidies allowed for purposes such as development and technical progress, and "blue
box" subsidies linked to output reduction schemes.
Export subsidies to be reduced by 36 per cent in value and subsidized exports by 21 per cent in volume for
each product over the implementation period from a 1986-90 base.
Special safeguard provision, triggered by volume increases or prices reduction, permit the imposition of
additional duties up to specified limits.
• Greater flexibility was given to developing countries in their commitments to market access reductions
in domestic and export subsidies (generally 2/3 of developed country commitments and a longer
implementation period of 10 years).
• For subsidies excluded from the reduction commitments, the measures will be considered non-
actionable in terms of countervailing duties and legal challenges in the WTO until the end of 2003.
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Box 5. 3. The Agreement on Textiles and Clothing (ATC)
• Under the Uruguay Round Agreement on Textiles and Clothing (ATC), MFA quotas are to be phased
out progressively over a 10-year period. In the first stage, which began on January 1, 1995, WTO
Members were required to integrate products representing not less than 16 per cent in volume terms of
their 1990 import of T&C. In stage 2, starting January 1998 not less than a further 17 per cent was to
be integrated, and in stage 3, from January 2002, a further 18 per cent. Finally, on January 1, 2005, all
remaining products (amounting to a maximum 49 per cent) are to be automatically integrated.
• Products not yet integrated are subject to a special transitional safeguard mechanism, whereby an
importing country can apply quantitative restrictions for up to three years on imports from a particular
source of supply which causes or threatens to cause serious injury to the domestic industry. After
integration, regular GATT safeguards apply.
• In addition to this integration process, the ATC accelerated the growth rates for remaining quotas. The
annual growth rates of quota volumes were increased by a factor of 16 per cent for the first stage of the
Agreement, by a further 25 per cent for the second stage, and another 27 per cent for the last stage.
LDCs enjoy one-stage advancement in the acceleration of quota growth.
• In additional to the MFA quotas, T&C imports are subject to exceptionally high tariffs in both
developed and developing countries. Trade-weighted average (applied) tariffs for non-OECD countries
are 16 per cent. This average conceals large variations among individual countries. The largest
developing country exporters tend to have higher tariffs. ASEAN, China, and South Asia all have
tariffs in the range of 20-33 per cent on textiles, and of 30-35 per cent on clothing.
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6 CONCLUSIONS AND RECOMMENDATIONS
6.1 Role of agro-based and resource-based SMEs
In many developing countries, agro-based and resource-based SMEs contribute

significantly to GDP growth, employment generation and poverty alleviation. In general,
SMEs have higher labour elasticity and have grown at a higher rate than overall industrial
sector. This proves their ability to compete globally. But, these industries face a number
of problems and constraints, which include the following:
(a) Lower productivity and outdated technology

(b) Lack of skill labour and managerial skill
(c) Constraints on infrastructure
(d) Low economies of scale
(e) Lack of modern Marketing
(f) Increased capital intensity
(g) High cost of domestic credit and lack of foreign investment, and
(h) Increased competition due to removal of QRs and reduction of customs duties.
A wide range of opportunities can be seized by small-scale and labour-intensive

industries. It is particularly so in the Asian region where horizontal division of labour
through trade and joint venture projects are increasing sharply.
The following measures need to be given priority for strengthening the SMI sector:
• It is necessary to facilitate the transfer of technology to the SMEs by suitable

arrangements such as regional information networks and provision of timely and
adequate finance to SMEs.
• Adequate backward and forward linkages need to be established between small and
large units in terms of sub-contracting, production sharing and manufacture of parts.
• Suitable measures may be taken to enhance the access of the SMI sector to
information particularly relating to external markets and foreign investment.
• Vertical expansion of the SMEs may be limited due to reservation of items and limits
on investment. A review of the reservation policy and investment limits is necessary
to facilitate capacity expansion, technology upgradation and economies of scale.
• Much of the existing growth of SMEs has taken place in and around the metropolitan
areas, but the balanced regional growth requires that the process of industrialisation
needs to be extended to the countryside. In this respect, the experience of China in
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setting up Township Enterprises on a large scale may be particularly relevant for
other developing countries.
• SMEs are most vulnerable to trade protectionism and exchange rate fluctuations.
Undesirable tariffs and non-tariff restrictions on their products must be removed to
enhance the export potentials of SMEs.
6.2 National Level Policies
At the national level, development of agro-based and resource-based SMEs call for
various policies, including the following:
Marketing
Sectors with competitive advantage need to be identified and sector specific innovative
marketing support devised. SMEs need to be promoted as ideal destinations for
franchising and outsourcing. A mandatory purchase policy on Government purchases
would provide a captive market. US Small Business Act provides for compulsory
purchase of 24 per cent of Government purchases from small business.
Technology
In the pre-liberalization era, technology upgradation was often the last priority for SSIs.
With limited competition in the market place, depreciated machinery provided a cost
advantage. This has changed with liberalization, which emphasises on better quality. As
technology upgradation becomes a key parameter of competitiveness, it is necessary to
focus on enhancing technology information through a Technology Bank and facilitating
technology transfers through soft financing and a capital subsidy scheme.
Infrastructure
Power, water, industrial estates, roads, telecommunications and a clean environment are
some of the more critical aspects of infrastructure for doing business. Production and
commerce are heavily dependent on these inputs. Improvement in infrastructure facilities
to the SMEs is necessary to enhance their efficiency and productivity.
Clusters
Clusters have the potential to be springboards of core competencies. The creation of

common facilities, upgradation of infrastructure, demonstration projects, capacity
building, strengthening of associations, targeted credit delivery and brand building are
activities suggested for being built around clusters.
Cluster development has to be accorded priority for existing ones and the potential
clusters would have to be identified and appropriate action plan need to be worked out for
their integrated development. The programme needs support in the form of adequate
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infrastructure to the clusters and active involvement of Industry Associations in
maintenance of their services.
Access to Information
The World Wide Web is changing the face of the market place. Information is being
described as the fifth factor of production. Databases on market related and financing
related information need to be identified and made accessible in a user-friendly manner.
Government must provide more of its SSI related services through the Net.
Innovative Financing Techniques
There is a need for developing innovative financing measures such as setting up of

Venture Capital Funds, Leasing companies, Mortgage finance companies, Factoring
companies, Trade credit suppliers and micro finance.
Micro Finance
Development of micro-finance promotes economic growth, thereby contributing to

poverty alleviation. Not only financial development fosters economic growth and creates
employment opportunities for the poor, but also helps to mobilise savings.
6.3 Development strategy for agro and resource-based SMEs
While agro and resource based small and medium industries play important roles in
different stages of a country's economic, social and political development, various studies
conclude that many of the small and medium industries in Asian developing countries are
less efficient and less productive than their larger counter-parts. They suffer from high
mortality rates, which inflict heavy costs to the economy. Many of them lack
entrepreneurial and technical resources to make them successful. While, various
incentives may make them profitable, the efforts might be economically wasteful.
(a) Macro-economic Pollicies
Macro-economic stability is one of the necessary conditions for efficient development of

resource base of industries and poverty reduction. Macro-economic volatility puts a break
on economic growth. High and unpredictable inflation hurts everybody particularly the
poor as their incomes are not indexed to prices, and thus contributes directly to higher
poverty rates.
However, sound macro-economic polices have only limited capacity to alleviate poverty
directly. These policies should be directed at promoting growth through prudent
implementation of macro-economic goals, and eschewing direct interventions for
protecting the interests of the poor and for developing target groups of industries with
employment potential and comparative advantage.
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The experiences of India, Bangladesh, Pakistan, China, Korea, Indonesia, Thailand,
Philippines, Japan and Singapore suggest that given appropriate program and policy
assistance, small and medium industries can make substantial contributions not only to
output and employment but also to exports. Rather than general subsidies, selective
support may be extended to qualified firms and industries only with fixed term finance
for the specific purpose of assisting them to become competitive.
(b) Fiscal Incentives
In many countries, tax holidays have been given as an investment incentive, but the
benefit has been marginal either because they are not available to small and medium
industries or they are more accessible to larger industries. Moreover, tax holidays have
been less effective in the regional dispersal of industries, as industries tend to be located
near the main demand centres or regions with better infrastructure facilities. Instead of
providing tax breaks for industries, it may be more productive to develop basic
infrastructure facilities in backward areas through increased allocation of public funds.
A reform of government policies should redirect the focus from the microeconomic level
of the firm to the macroeconomic level of business and the economic environment.
Instead of focusing on the different concessions to be provided, greater emphasis should
be placed on creating an environment conducive to long-term development of not only
efficient but also viable small and medium industries. This may entail the dismantling of
costly incentives and subsidies that encourage inefficiency and waste in firms, increasing
the availability of essential inputs and bank credits for small and medium industries, and
introducing a wide array of marketing options and possibilities.
(c ) Technology development
One of the major problems faced by the SMEs is technological obsolescence and use of
outdated plant, machinery and equipment. Considering the urgent need for attaining
technological competitiveness of SSIs in the face of global competition, it is important to
stimulate technological revolution in SSIs.
However, developing countries should not blindly adopt advanced technologies but
acquire or develop technologies that are appropriate to the local needs and that ensure a
smooth transition from outdated traditional technologies to more modern technologies
conforming to local conditions. It is generally agreed that instead of importing and
adopting advanced technologies from the West, developing countries should acquire,
adapt and use technologies that are available from the "regional sources" as these are
more compatible with the local culture, skills, raw materials and demand.
The technology policies adopted by SSIs should be an integral part of the overall Science
and Technology (S&T) policies in all countries. The experiences of the developed
economies of the USA, Japan and the Europe have shown that the average size of the
firm increases with the growth in national and per capita incomes. SSIs in the developed
105
countries are far more productive than even large firms because of the usage of modern
technology and management techniques. Economic development is invariably
accompanied by a reduction in wage disparities among different sectors, industries and
firms of different sizes.
In order to remain competitive in the era of globalisation, it is imperative that SMEs must
upgrade their technology, which may involve (i) Introduction of new tools and
equipment, (ii) changes in the manufacturing process, (iii) improvement in the quality of
products, (iv) introduction of new designs, (v) use of new raw materials and (vi) usage of
modern management and information technology. This requires an integrated approach
encompassing identification, technology transfer, adaptation and absorption. The
Government should provide financial assistance to the SMEs for technology up-gradation
and modernisation. The following are some of the recommendations for such an
integrated approach:
(i) Technology Information
Setting up of a Technology Bank at the country and regional level is recommended,

which will have information on technologies available and their sources. In addition, it
could provide information on technology policy, technologies for different sectors and
their applications, institutional infrastructure, sources of finance for acquiring technology
within the country and from abroad. To start with, it will disseminate information on
upgradation of technology, process know-how and design alongwith institutions and also
provide consultancy services or any other input required. A compendium of available
technologies from R & D institutions in various countries could be brought out on
sectoral basis and circulated amongst the facilitating institutions and industry associations
for dissemination of technology related information.
(ii) Financial assistance
Financing may also be provided to units entering into collaboration for technical know-
how and technology upgradation with a view to enhance the marketability of their
products or enter into buy back arrangements for exports. Concessional customs duties
within WTO framework may be provided for the imports of environment friendly plants
and machinery for technology upgradation for SMEs as is generally applicable to export
oriented units.
(iii) Industry clusters
As major portions of the exports of SMEs emerge from industrial clusters, massive
program needs to be launched to modernise export oriented industrial clusters.
(iv) Quality upgradation
More number of SMEs to be encouraged to obtain ISO 9000 so that it gains momentum.
Encouragement could be given to Small Industry Associations in the form some financial
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grants to set up and operate testing laboratories. Strengthening of existing testing
facilities in technical institutions would also be necessary. At least one testing facility for
each major cluster should be set up to fulfil their needs.
(v) Role of FDI
The diversity of experiences in Asia with respect of FDI requires different policy
approaches on the part of host countries. Those countries that have only recently been
open to FDI need to ensure that the “open door policy” is maintained and remains stable.
They should examine the possibility of a further liberalisation of FDI regimes; the
harmonisation of FDI and related policies on industry, trade and technology; and
improving the efficiency of their administrative set-up for investment approvals. In doing
so, all countries in the region should pay particular attention to the firms from
neighbouring countries, so as to capitalise the growing intra-regional investment. Special
attention needs to be given to small and medium-sized enterprises whose special needs -
dictated by their limited financial and managerial resources and insufficient information -
may call for incentives for the joint ventures. The Asian market has high potentials for
small and medium-sized TNCs.
(vi) Consortia for SSI marketing
Government may promote setting up of more consortia for SSI marketing and provide
them financial and other support. The participation of SMEs in domestic and
international trade fairs should be encouraged and promoted.
(d) Infrastructure and Human Resource Development
Efficient physical infrastructure and skill labour are critical factors for enhancing
productivity and efficiency. For the more dynamic traded goods and services,
telecommunications are the most important facilitator of investment, and technological
and organisational innovations drive foreign investment into those countries which have
trained and skilled workforce and fairly high educational standards. This points to the
overriding importance of developing countries to invest more in the development of
human resources, infrastructure and services. It also highlights the risk of being
marginalised for the least developed countries with a low level of skilled labour force and
infrastructure constraints. The existence of a dynamic local business sector creates a
supportive environment through efficient networks of local suppliers, service firms,
consultants, partners or competitors. It is, therefore, necessary to concentrate efforts on
the development of local entrepreneurship. Equally important is the availability of high
quality telecommunications and transport systems, energy supply and other utilities.
(e) Competent and Committed Bureaucracy
107
Another important institutional prerequisite appears to be the establishment of a
competent economic bureaucracy. The complexity and difficulty of
managing targeted industrial policies places high demands on the
economic administrators, who must be able to balance financial support
for targeted industries with penalties for non-performance. The
economies of Japan, Korea, and Taiwan, China had economic
bureaucracies capable of imposing discipline on private industry. In
short, management of a set of successful industrial policies requires a
stable macroeconomic framework and committed economic bureaucracy
capable of running complex pricing policies and objectively running
public subsidy schemes.
(f) Legal, Institutional and Regulatory system
It is also necessary to strengthen the regulatory system and the legal and institutional set-
up for orderly growth of industries. As regards the limits and nature of government
intervention in private sector activities, it is necessary to devise optimal rules for
regulatory system, which while servicing its legitimate purpose will not transcend its
limits to the disadvantage of the private sector development. First, any policy affecting
allocation of resources and regulation of private sector needs to be transparent and based
on a specified set of procedures. Second, even when there is strong presumption in favor
of government intervention, it is imperative to limit it to minimum necessary scale.
Third, from amongst the available alternative regulatory sets, it is necessary to go in for
one, which provides the least scope for rent seeking.
Alongwith with deregulation, more important measures are needed to be directed towards
creating a legal and institutional infrastructure for the smooth functioning of the private
sector. This is well illustrated by the Indonesian experience. Though Indonesia’s
industrial policy, trade and financial sector reforms were deep and sweeping, they failed
to get a full pay-off as Indonesia lagged in changing its corporate law and other laws vital
to trade and industry. Similar was the case with issues of land and property rights.
An important lesson from the East Asian development experience is that a holistic
approach to deregulation is more productive than a partial deregulation in any one sphere
say in industrial policy which is divorced from any reform in other areas. Domestic
deregulation should proceed pair pass with liberalisation of trade and tariffs in order to
ensure optimal allocation of resources between traded and no-traded goods.
6.4 Role of External Trade
(a) Trade and Techniques of Production
On the basis of a detailed analysis on the relationship between trade and manufacturing
value added (MVA) in the Trade and Development Report 2002, UNCTAD (2002)
108
concluded that for more than a decade, world trade has been growing, on average, faster
than world income as a result of rapid integration. Policies governing market access for
both goods and FDI had a more decisive influence over the evolution of trade in many
products. The increased mobility of capital, together with continued restrictions on the
mobility of labour has accelerated trade in a number of sectors where production chains
can be split up and located in different countries.
Policies in developing countries have also contributed by offering various incentives to

FDI and encouraging TNCs to operate in their territories with minimum restrictions.
UNCTAD further observed that aggregate picture conceals considerable diversity in the
developing world:
• First, countries that has not been able to move away from primary commodities, the
markets for which are relatively stagnant or declining, have been marginalised in
world trade.
• Second, most developing countries that have been able to shift from primary
commodities to manufactures have done so by focusing on resource-based, labour-
intensive products which generally lack dynamism in world markets.
• Third, a number of developing countries have also experienced a rapid rise in skill-
and technology-intensive products. However, with some exception, the involvement
of developing countries in the manufacture of such products has been confined to
labour-intensive and assembly-type processes with little value added.
• Fourth, a few developing economies have seen sharp increases in their shares in
world manufacturing value added. This group includes some East Asian NIEs that
had already achieved considerable progress in industrialization before other
developing economies began to shift their emphasis to export-oriented production.
• Fifth, with the exception of this last group, exports of developing countries continue
to be concentrated on resource-based, labour-intensive products. However, market
growth is slow for many of these products, which continue to be protected by both
tariff and non-tariff barriers in industrial countries.
Above trends lead to the conclusion that a simultaneous drive by a large number of
developing countries to expand their existing exports and to increase competition among
them for attracting FDI in labour-intensive products could be self-defeating, as this could
cause significant terms-of-trade losses and create frictions in the global trading system.
UNCTAD (2002) suggested that these problems could be avoided by three sets of factors:
• First, by faster growth of markets for labour-intensive manufactures in more

advanced economies (both the industrialized countries and the NIEs) which in turn
depends on faster income growth and improved market access;
109
• Second, the middle-income countries should diversify their trade and production and
move out of labour-intensive manufactures and create space for lower-income
countries, both in the markets of advanced countries and in their own markets; and
• Finally, the developing countries themselves should expand their domestic markets
by overcoming their deep-seated problems of unemployment and poverty.
A return to rapid and sustained growth and full employment policies in the industrialised
countries is crucial for averting problems associated with potential frictions within the
multilateral trading system. The growth in trade among developing countries is also
crucial for expanding markets for labour-intensive products. In particular, industrial
upgrading in more advanced developing countries would allow new players to take over
labour-intensive activities in line with the "flying geese paradigm". This has already
happened to some extent. China and the other highly populated low-income countries that
have adopted more export-oriented strategies gained much of the market shares given up
by NIEs when these economies shifted to more capital- and technology-intensive exports.
The industrial upgrading needed in the middle-income countries depends, to a large

extent, on the policies they pursue in such areas as trade, industry and technology. It also
depends on the extent to which large economies such as China, India and Indonesia will
rely on foreign markets to create jobs and incomes for large segments of their population.
Rapid industrialization in the NIEs particularly at the early stages of their development
depended heavily on expansion of exports. As these countries were poor in natural
resources, they depended on expansion of labour-intensive manufacturing to earn the
foreign exchange for importing capital goods and some essential primary commodities
such as oil. They had also small domestic market and their industries needed foreign
markets to achieve the necessary economies of scale in production. But large countries
such as China and India can rely less on foreign markets for their industrialization. Skill
mix and resource endowments in China and India are sufficiently well developed to allow
rapid upgrading in a number of technology-intensive sectors to enable them to earn the
foreign exchange needed for sustained economic growth and development of agro-based
and resource-based industries.
(b) Role of export promotion policies
Export promotion schemes have been a critical part of East Asia's economic success and
merit special consideration. These schemes consisted of mainly duty exemption and
drawback systems. But, these schemes had limited success in other Asian developing
countries due to cumbersome rules and procedures, and the costs from delays and
paperwork outweigh the reductions in duty. A review of experience in East Asia and
Africa suggest that simple exemption schemes focusing on the direct exporter are more
sustainable and attractive to the private sector than drawback mechanisms.
One of the key requirement of a modernized duty exemption or drawback should be the
development of a system of pre-tabulated and published input-output co-efficient. The
work of pre-tabulating the quantity or value co-efficients should be carried out by
110
technical persons, separated from the Customs, while the Customs Office may focus on
the implementation of exemptions and drawbacks based on the pretabulated and
published co-efficient. This is based on the experience of (a) Korea and Taiwan, China
(b) recent experiences of developing countries such as India and Bangladesh; (c) almost
fifty World Bank projects (during 1980-90) on the implementations of the duty-free
import administration reforms most of which failed primarily due to the mishandling of
the input-output co-effiicient administration; and (d) the new GATT rules on export
subsidies that require the systematic documentation of the input-output co-efficients.
The other key measure of export support has been the supply of export credits to
exporters, especially for pre-shipment finance. It is necessary to restructure and
strengthen the existing financial system with a focus on trade finance, rather than creating
new institutions for supply of export or foreign exchange credits.
It is also necessary to modernise Customs Administrations in many countries for quick

disbursement of duty drawback claims. An inefficient ;customs administration comes in
the form of slow or non-existent rebates, and negative effective protection. An alternative
solution that merits consideration would be zero tariffs on imported raw materials and
intermediates, coupled with increased reliance for revenue purposes on domestic indirect
taxes, such as VAT.
(c) Free Trade Zones
The free trade status for export activities can be achieved through: (I) fenced private or
public free trade zones (FTZs); (ii) nonfenced FTZs, (iii) bonded drawbacks/ rebates.
These specialised schemes have been widely and effectively used in countries at the early
stages of development. The fundamental feature of Korea’s pioneering export promotion
drive was the duty drawback scheme implemented through the domestic letter of credit
(DLC) and the export finance system. In Korea, the Input Coefficient Administration,
which estimates and publishes detailed input-output coefficients, band and individual
commodity drawback rates, and the back-to-back credit system offered through Domestic
Letters of Credit (DLCs), has efficiently provided tax free inputs and ready access to
working capital finance to direct and indirect exporters. India, Taiwan, China, Indonesia,
Malaysia and Thailand also have export support instruments including tax incentives,
duty drawbacks and exemptions, and export and investment finance for exporters.
Four broad conclusions can be drawn from the Asian experience for development of
export promotion zones:
• Where the general economic climate is reasonable, or becoming so, the development
of FTZs can be a useful instrument to the development of export-oriented industry,
as it can lower initial investment costs for investors, and encourage economies of
agglomeration.
111
• FTZs should be a component of a broader outward-oriented development strategy,
rather than a substitute for such a strategy, or an excuse to delay much needed
economy-wide trade reforms.
• FTZs should have proper infrastructure and linkages with the other parts of the
country through proper hinterland development.
• The benefits from FTZs in terms of foreign exchange earnings, employment,

technology transfer and linkages with domestic markets may be limited, unless
accompanied by an appropriate policy framework and human capital development for
sustained export development.
• While accepting that sometimes market failure justifies a potential role for the public
sector in the development of free trade zones, the pricing of land in such zones
should not be subsidized. Similarly, as part of a general programme to promote
foreign investment, governments should be sure to remain open to the private
development of such industrial estates, as in being done in China.
6.5 Participation at Regional Level
(a) Regional Economic Co-operation
A strengthening of regional economic cooperation could help this process along in East
and South Asia. The successful use of strategic trade, industrial and macro-economic
policies led to a pattern of regional division of labour, described as the "flying geese"
model. As the leading economies in the region successfully shifted from resource-based
and labour-intensive industries to sophisticated manufacturing activities, they provided
space for the less developed countries to enter simpler manufacturing stages. Regional
trade and investment flows played a central role in this process by helping to create
markets and by the transfer of skills and technology to neighbouring countries. The
challenge now lies in the extension of this regional dynamics and the growth pattern to
include newly emerging countries such as China and India, as well as other less
developed countries in South and East Asia.
Since regional economic arrangements imply close interdependence among a group of

economies, there is the risk of contagion effect that problems in one country may be
transmitted to its neighbours. In fact, a number of financial problems in the regional
integration at the end of 1990s contributed to volatile capital flows fuelling a boom-bust
cycle in East Asian economies. Thus, maintenance of a stable and rapid regional growth
needs not only credible economic policies for upgrading of production and exports, but
also appropriate regional arrangements to ensure the stability of financial markets,
including lending facilities and agreement on a sustainable pattern of exchange rates
(TDR 2001).
(b) Role of ESCAP
112
ESCAP and its regional institutions such as Asian and Pacific Centre for Transfer of
Technology (APCTT), the Regional Network for Agricultural Machinery (RNAM), and
the Regional Coordination Centre for Research and Development of Coarse Grains,
Pulses, Roots and Tuber Crops in the Humid Tropics of Asia and the Pacific (CGRPT)
have carried out many activities in the past, and could do more in the future, to promote
the exchange of national experiences, skill training and endogenous capability-building,
research on sectoral restructuring, the dissemination of information and specific
technology and ESTs through seminars, workshops and technology fairs.
(i) FDI and technology transfer
FDI-related technology transfer have played a major role in the development of many
developing members of ESCAP, such as the Republic of Korea and Taiwan Province of
China, as well as South-East Asia, as is evident from their flexible and practical approach
to FDI. Other ESCAP members are therefore advised to take a similar approach.
In particular, ESCAP members that have abundant, low-cost labour should welcome
labour-intensive technology; this should be the case even in countries that have already
built up a high level of science and technology, for instance, China and India.
Technology is a means for developing the economy and improving the standard of living.
Low-level technology is usually appropriate for those economies seeking to attain full
employment, which is the best policy for eradication of poverty.
(ii) FDI and Export promotion
Foreign direct investment (FDI) can be critical in introducing widespread technological

change, improving the agility and competitiveness of firms, and providing access to skills
and global markets. This is evident in China, and to a lesser extent in Bangladesh, India,
and Kenya, where FDI is increasingly generating spillover effects in many sectors.
Successful cases show the importance of having governments promote and welcome FDI,
particularly in infrastructure such as communications and energy. They also show the
importance of true such as communications and energy. They also show the importance
of avoiding excessive regulation and restrictions on expatriates and financial flows and
the business activities of firms.
Export promotion through FDI is a key reason for the government's desire to attract FDI.
FDI can help to channel capital into industries that have the potential to compete
internationally, and the global linkages of TNCs can facilitate their access to foreign
markets. The share of foreign affiliates in total Chinese exports increased from a
negligible amount in 1978 to 27.5 per cent in 1993, with even higher shares in
electronics, machinery, footwear, toys, travel goods, and textiles and clothing. Given that
the absolute volume of China's total exports has also been increasing substantially, this is
a remarkable achievement.
(iii) Multilayered bilateral cooperation
113
FDI and technology are increasingly flowing into ESCAP member countries from not
only developed countries but also from Asian NIEs and other dynamic Asian economies.
Technology from the latter may often be more appropriate than that of Japan in the case
of less-developed economies, in the sense that in the former it is more labour-intensive.
For this reason, the flow of FDI and technology from Asian NIEs and other dynamic
Asian economies should be actively encouraged by all organisations including ESCAP.
114
(iv) Cooperation at Subregional level
In the ESCAP region, ASEAN and SAARC are major subregional associations. The fact
that both the associations are building up intra-subregional cooperation for preferential
trade with minimal discrimination against other countries is a welcome move. These
arrangements will realize economies of scale for their member countries, the size of
which will be measured by the manufacturing , including those of India and Indonesia. It
is hoped that discrimination against non-member countries will not intensify.
(v) Role of NGOs
NGOs can serve as technical advisers to importing agencies by helping them in the
choice, appraisal, and negotiation of technology transfer, and in the assimilation and
dissemination of imported technologies. They may also be objective observers in
monitoring the government activities needed to facilitate the transfer process. Their
comments on the activities can serve as bases for the national legislative institutions, such
as the parliament, to force the government to improve services and cooperation. NGOs
may conduct long-term studies on technology requirements of the country or enterprise,
and render help in skill training and access to information.
(vi) Source book on ESTs
In 1993 APCTT, with support from the Ministry of Environment of the Government of
India, had published a very useful book entitled 101 Environmentally Friendly
Technologies, giving details of technology in different sectors, on such aspects as the use
of solar energy, energy conservation, energy from wastes, building materials, material
conservation, new products and equipment, food processing, waste composting, waste
treatment, and waste recycling.
It will be appropriate to prepare a similar source book containing information on

Environmentally Sound Technologies (ESTs). This could be prepared by ESCAP in
cooperation with APCTT and other technology transfer institutes in the region.
Technology source books from technology-supplying countries of the region would be
very valuable, but it must be ensured that they are updated periodically.
(vii) Co-operation among country associations
There is a need for national governments, NGOs, and international organizations in Asia
and the Pacific to intensify their efforts to facilitate technology flows to and from
countries of the region. For this there should be continual interaction and dialogue among
the country federations, chambers and associations of industries.
A number of initiatives could be taken by them, either jointly at the regional level, or
separately at the national level, in order to promote stronger technology transfer and
greater economic development in the region. The initiatives should include:
115
(i) In-depth studies on the status of endogenous capabilities of developing countries
of the ESCAP region in agro-based and resource-based industries, with a view to
identifying areas of comparative advantage and cooperation on the basis of
complementarity
(ii) Research on problems in technology flows between developed and developing

countries, and their role and influence in different sectors of the economy.
(iii) Establishment of a regional scheme of demand-oriented training in skills involved

in different aspects of technology transfer. Such a scheme would utilize
institutional and on-the-job training facilities of more advanced developing
countries and could be operated with the cooperation of national technology
transfer centres.
(iv) Organisation of seminars, workshops, and conferences to provide the exchange of

national experiences, introduce new investment forms, and disseminate particular
technologies.
(v) Strengthening the existing information networks on technology transfer so that

they can better satisfy the requirements of the developing countries.
(vi) Formulation of a common strategy for the prevention and removal of barriers to
flows of investment, technology, goods and services.
(vii) Establishment of national and then regional data bases on imported technologies
and an information-sharing network.
(viii) Provision of a suitable form of linkage between research institutions, technology

brooking agencies, and concerned government departments in the developing
countries of the region.
(ix) Strengthening the cooperation between regional institutions such as APCTT,

CGRPT, and RNAM, and the divisions of the ESCAP secretariat; and between
ESCAP and other international organizations.
6.6 Multilateral level actions
(a) Role of WTO
Improving market access for developing country exports requires a comprehensive

approach to liberalization. The Doha Development Agenda by WTO contains important
commitments but initial efforts need to be sustained. Particular issues include:
• The phasing out by all countries of tariff peaks (tariffs of 15 per cent or higher) and
multiplicity of rates is essential for development dimension of the current round of
multilateral trade negotiations.
116
• Developing countries should receive more technical assistance to implement product
and process standards.
• Schemes that provide unrestricted market access for all least developed countries
should be extended by all large trading nations.
• In agriculture, effective liberalization must cover border protection and subsidies in

both industrial and developing countries. OECD countries must de-link agricultural
income support from production and coordinate reforms of subsidy and tariff regimes.
• In textiles and clothing, the priority must be to accelerate the removal of quotas in
order to avoid an adjustment shock in 2005 as a result of the phasing out of quotas
under the Uruguay Round Agreement on Textiles and Clothing. The simultaneous
reduction in import tariffs would help to mitigate adjustment pressures.
• Reform of market access in developing countries themselves would contribute as

much to a development-oriented multilateral trading system as OECD policies.
• Distribution effects of reforms should be recognized and dealt with properly. Food
security issues and the concerns of poor consumers, in particular, must be addressed
as part of overall poverty-reduction and development strategies by the multilateral
organisations like the IMF, World Bank, ADB and UNDP.
(b) Market Access for Agriculture and T&C Exports
Market access barriers in world trade remain significant for products of export interest to
developing countries. The liberalization of imports, especially for agricultural products
and textiles and clothing, can generate large benefits for developing countries in terms of
incomes, exports and employment. These benefits would derive partly from the
elimination of access barriers to industrial country markets and partly from reforms of the
trade regimes of developing countries themselves. In the aggregate, further opening of
external trade is a win-win proposition for both industrial and developing countries.
It is desirable to accelerate the removal of quotas on textiles and clothing imports. Given
the risks associated with the backloading of quota removal under the ATC, the objective
should be to limit the adjustment shock at the end of the transition period for both
importing and exporting countries.
It is also desirable under the Doha round negotiations to substantially lower tariffs on
T&C trade, in both industrial and developing countries. Tariffs in this sector are
exceptionally high and liberalization can be expected to carry large benefits for
developing countries in terms of exports, employment, and income.
In order to prevent anti-dumping action from taking the place of quotas and tariffs once
these are liberalized, trade remedy rules should be reviewed with the aim to limit the
scope for discretion and incorporating consumer interest.
117
6.7 Technical Assistance
For stronger regional integration in South Asia as well as East and Southeast Asia., many
countries are starting to coordinate and harmonize policies for tariffs, taxation,
investment and business regulations. But the most productive impetus to regional
integration would come from removing the restrictions on movements of goods, capital,
and people. Regional integration is also likely to get a boost from strengthening the
regional growth centres in South Asia and Southeast Asia. These could produce
important pull effects on growth throughout the continent. They would also help promote
FDI by enlarging markets. But regional integration should not be a substitute for
globalisation, but should be a means to strengthen it.
Multilateral agencies have helped the developing countries by providing financial and
technical support and investment guarantees for the development of infrastructure and
human resources. They have also played a more catalytic role in mobilising funds from a
wide range of private sources. External assistance should further be increased and
continued to be provided on concessional terms, given the long-term nature of investment
in human capital and its link to poverty alleviation, skill formation and enhancement of
industrial productivity and efficiency.
The international organisations like the World Bank, IFC, Asian Development Bank,
UNDP, UNICEF, UNIDO and UNCTAD are engaged in the provision of technical
assistance, consultancy and advisory services with regard to the development of the
private sector, human resource development, and promotion of non-debt-creating
financial flows. The regional organisations can spur institutional progress by providing
forum for high level discussions on Asian solutions to Asian problems and by providing a
framework for collective policy actions for the development of SMEs.
Although the experience with technical assistance received from these institutions have
been found to be very valuable, there is scope for improvement in the following fields:
• Promotion of regional cooperation in human resource development, R&D, S&T

development, technology blending, use of IT and computer training and facilities.
• Consultancy and training aimed at technology upgrading and skill improvement for
the growth and globalisation of SMEs with special attention to entrepreneurs from
rural areas, ethnic minority areas, economically backward areas, ethnic and backward
classes, and women and young entrepreneurs.
• Regional technical assistance programmes on harmonisation of national and regional

policies on trade, tariffs, taxation, investment and business regulations and plans for
private sector development and foreign investment.
• Promotion of technology management, evaluation, assessment and enterprises

cooperation for the blending of indigenous technology and imported technology.
118
• Improvement of the institutional machinery, administrative and legal framework with
a view to facilitating private investment including foreign investment.
• Advisory services for developing countries and LDCs to strengthen capital markets
and to attract foreign portfolio investment.
• Technical support for developing countries and countries in transition to upgrade their
institutional capacity to identify, design, negotiate, and implement schemes on
BOT/BOO/BOLT for infrastructure development.
119
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Role of Agro-Based and Resource-Based Small and Medium Enterprises (SMEs) For Export Promotion, Employment Generation and Poverty Alleviation in Asia by Tarun Das

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Role of Agro-Based and Resource-Based Small and Medium Enterprises (SMEs) For Export Promotion, Employment Generation and Poverty Alleviation in Asia by Tarun Das

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Promoting Resource-Based Export-Oriented SMEs for Employment

Generation and Poverty Alleviation in Asia and Pacific*

DR. TARUN DAS**

1.1 Objectives and Scope of the Study

2 Resource based and agro based industries: Sectors’ main characteristics

4 Economic Policies and strategies for Development of

5 Role of International Organisations for the development

ADB Asian Development Bank

Million = 1000 thousand

1.1 Objectives and Scope of the Study

Developing Economies in the Southeast Asia comprising Cambodia, Indonesia, Lao

1.2 An Overview of the Study

Chapter 3 discusses valuable contributions made by agro-based and resource based

(a) Unfavorable business environment through proliferation of licenses,

The report ends with a list of selected bibliography on the subject.

1.3 Profile of Regions and Sample Countries

Hong Kong 7 1 176 25920 174 25590 79 80

Country GDP growth GDP growth Agriculture Industry Manufacture Services

Hong Kong 6.9 4.0 .. .. .. ..

China 10.1 10.3 4.1 13.7 13.4 9.0

Cambodia n.a. 4.8 1.9 8.3 8.2 6.9

Newly industrializing Economies (NIEs)

Note: Two dots (..) stand for "Data not available"

(a) South Asia and SAARC

(b) East Asia and South-East Asia

Another serious problem is the historical inadequacy of infrastructure investment relative

(a) Trend of Sectoral Shares

Structure of manufacturing value added

Structure of merchandise exports and imports

Country GDP GDP Agriculture Industry Manufacture Services

Country Merchandise Food Agrl. Raw Fruits Ores and Manufactures

Newly industrializing Economies (NIEs)

Country Merchandise Food Agrl. Raw Fruits Ores and Manufactures

Newly industrializing Economies (NIEs)

(a) Trend of export shares

Region/ economy Share in world Share in world

(b) Contribution of labour-intensive products to exports

(c) Twenty most dynamic products in world trade

Table-1.10 Export value growth and share in total exports

SITC Product groups Average Share in total Share in total

Source : UNCTAD, TDR 2002.

• Computers, office machines, optical instruments, and telecommunications, audio and

No doubt country-specific factors, including size and resource endowments, influenced

China participates in labour-intensive segments of international production networks, and

2.1 Definition and Types of Industries

(a) Typology of Industries

There is no uniform definition of the agro-based and resource-based industries. Different

(a) Food processing industries and beverages (ISIC 311-313)

(b) Distribution of World MVA for selected branches

Country groups MVA at constant 1990 prices Population

Source: The International Yearbook of Industrial Statistics 2002, UNIDO.

Branch (ISIC) Industrialized countries Developing Countries

1985 1990 1995 2000 1985 1990 1995 2000

1. Food products and 84 83 81 80 16 17 19 20

4. Wearing app., leather, 77 75 75 72 23 25 25 28

7. Printing and publishing 94 94 92 93 6 6 8 7

9. Petroleum inc. coal 69 64 60 57 31 36 40 43

13. Metal products (381) 91 91 90 90 9 9 10 10

Source: The International Yearbook of Industrial Statistics 2002, UNIDO.

Branch (ISIC) Developing regions

Source: The International Yearbook of Industrial Statistics 2002, UNIDO.

Branch (ISIC) Developing regions Least