3 Competitive Cities for jobs and growth Companion Paper 3 Appendices to Six Case Studies of Economically Successful Cities Alexandra Cech, Drilon Gashi, Luke Jordan Austin Kilroy, Z. Joe Kulenovic, Megha Mukim, T. Juni Zhu December 2015 Disclaimer The case studies in this series are focused solely on what specific cities did well that subsequently contributed to high rates of economic growth during a particular period. These case studies should not be mistaken for investment climate reports, as the con- straints, problems and flaws of cities are not covered. Studies should also not be considered an exhaustive list of all of the factors that contributed to growth in a city; because while some external or national level factors are highlighted, the studies were not in- tended to document or list every contributing factor. The studies focus on the local economic development actors within a city and address what these actors did well. Particular attention was paid to initiatives that were uncommon and/or carried out in a unique manner that could be of interest or assistance to other cities. 2 Table of contents Case Study 1: Bucaramanga, Colombia 5 Case Study 2: Coimbatore, India 37 Case Study 3: Kigali Rwanda 73 Case Study 4: Gaziantep, Turkey 93 Case Study 5: Changsha, China 137 Case Study 6: Tangier, Morocco 165 3 Bucaramanga, Colombia, April 2014 Case Study 1 Bucaramanga, Colombia A Metropolitan Economy Reinvents Itself Table of contents Introduction 7 Executive Summary 8 National Context 12 Local Context 14 Analysis 18 Factors of Competitiveness 18 Lessons for Other Cities 21 Appendices 23 6 Introduction T his case study of the economic success of the Colom- Bucaramanga also provides an example of proactive economic bian city of Bucaramanga marks the first in a series of development initiatives largely led by the local private sector, World Bank case studies of successful metropolitan but including other key participants in a citywide “growth economies around the world. The Bank’s Competitive Cities coalition”, such as local and regional government agencies, Knowledge Base (CCKB) project aims to provide city leaders the chamber of commerce and industry associations (sec- with the tools and knowledge for the successful formulation tor guilds), other private-sector actors (e.g. the oil company and implementation of effective economic development strat- Ecopetrol), and representatives of academia. Understanding egies at the city level. No single case study will provide a reci- not just what Bucaramanga did, but more importantly exactly pe for success for other city leaders, but each case study in the how it did it, is the centerpiece of this analysis, and what series will offer insights and strategies for cities faced with makes it most interesting to decision-makers in other cities similar conditions, factors, and challenges. The CCKB team around the world. has conducted one case study of an economically successful city in each world region; Bucaramanga has been selected to This case study is based on primary and secondary research represent the Latin America and Caribbean (LAC) region. by the Bank’s Competitive Cities Knowledge Base team, including two weeks spent in Colombia, in March and April, Bucaramanga is a landlocked, mid-sized city in an upper-mid- 2014, interviewing government officials in the national capi- dle income country, still recovering from decades of political tal, Bogota, and in Bucaramanga itself, as well as members of instability and economic dislocation wrought by violence. the city’s business community. The report also incorporates Yet over the past decade, Bucaramanga has had one of the Bank staff feedback received at an internal review event in best performing metropolitan economies in the Americas in Washington, DC, in June 2014. terms of GDP and employment growth, exceeding the growth of both the Colombian economy as a whole, and that of com- This report was prepared by Alexandra Cech and Z. Joe Ku- parable cities in its region. Its surrounding Department of lenovic, with input and suggestions from the broader CCKB Santander is modestly endowed in natural resources, primar- team. The co-TTLs of the CCKB project are Austin Kilroy and ily oil, yet it is by no means a petro-state with an economy Megha Mukim. Overall guidance on the project has been reliant on extractives. Faced with the challenges of globaliza- provided by Stefano Negri, Sameh Wahba, and Somik Lall as tion, Bucaramanga has helped its firms compete and succeed senior advisors. in the global marketplace, and in the process gradually been transitioning to a post-industrial economic structure. 7 Executive summary B ucaramanga1 provides an example of a success- How exactly did Bucaramanga address the acute ful transition to a post-industrial economy by challenges presented by globalization, market liber- a landlocked, mid-sized city in an upper-mid- alization, and ever-fiercer competition? In 2006, the dle-income country, in which the private sector has Bucaramanga Chamber of Commerce convened leaders of played a leading role. Bucaramanga managed to turn an Santander’s business community, academia, municipal and existential threat – the erosion of its traditional economic departmental government, labor unions, and local officials of base – into an opportunity to reinvent itself, becoming a national agencies to discuss the economic challenges beset- globally-competitive city with the fastest rates of GDP and ting their region, and try to devise some concrete solutions. job growth in Colombia, and one of the fastest in the Western Breaking out into multiple working groups, this forum Hemisphere. According to present growth trends, Bucar- worked to identify the region’s key economic and develop- amanga may well be on track to become a high-income metro- mental priority areas, assess the general growth potential of politan economy within the next decade. individual industry sectors, discuss the institutional compo- sition of a new Regional Competitiveness Commission (RCC, In the early and mid-2000s, Bucaramanga’s economy or Santander Competitivo), and nominate prominent local was still heavily dependent on traditional manufac- individuals to serve on it. turing industries like garments, footwear, and agri- cultural products, largely made by small firms with Once established, Santander Competitivo became the low capital stock and limited export capabilities. driver of proactive economic development initiatives While the Colombian market remained relatively closed, such in the region, and the principal forum for systematic, a model was viable and supported numerous local jobs. How- highly effective public-private dialogue and stake- ever, with China’s accession to the WTO, Colombia’s conclu- holder engagement. With senior officials from govern- sion of several free trade agreements with partner countries, ment, academia, and the private sector all represented on the and other market-opening measures, Bucaramanga’s small RCC, this body had much clout, political weight in Bogota, firms found themselves unable to compete. While public and ability to ensure the effective implementation of strate- safety and security in Colombia were gradually improving gies, despite having no statutory authority2, and no dedicated during this period, the movement of people and goods within funding of its own. Significantly, the RCC could rely on the the country still presented numerous challenges, not helped support of the Bucaramanga Chamber of Commerce, on by the fact that there are no railroads, or by the country’s whose premises it is housed, and in particular on its highly famously rugged topography. capable professional staff, in carrying out its mission. In consultation with various stakeholder groups, in mid-2007 the RCC prepared a Regional Competitive- ness Plan for Santander. Based on robust analytics, the 1 A note about geographic coverage in this report – unless other- plan identified industries likely to be the drivers of Santand- wise specified, “Bucaramanga” refers to the entire Bucaramanga Metropol- itan Area ( Area Metropolitana de Bucaramanga – AMB), which consists of er’s future economic growth, and outlined specific measures four municipalities, each with its own mayor and local government struc- needed to aid their development. It also analyzed market ture: Bucaramanga, Floridablanca, Piedecusta, and Girón. Bucaramanga is the capital of Santander Department, one of 32 in Colombia. AMB accounts for approximately 54% of Santander’s population, and an even higher 2 Santander was a pioneer in this respect; national legislation pro- share of its economic output, as well as 95% of its non-oil manufacturing viding for the establishment of RCCs in all of Colombia’s 32 departments activity. Outside of AMB, the only other sizeable city economy in Santander was subsequently enacted in part modeled on Santander’s experience. How- is Barrancabermeja, site of one of Colombia’s two oil refineries and thus ever, the RCCs are not government entities, and they don’t have large oper- heavily reliant on the oil industry. Many of the strategies and interventions ational budgets. Santander Competitivo’s capacity for action and achieving analyzed in this report were undertaken at the departmental level, not the meaningful results on the ground depends on its ability to influence other municipal or metropolitan. Wherever an intervention was limited to only a actors, getting them to commit to interventions and then follow through, as specific municipality, this will be clearly specified in the report. well as its influence on central government actions. 8 trends and identified what types of support might be needed private sector has provided significant funding support by Bucaramanga’s existing industries, to help them adapt to to Santander’s economic development initiatives, and changing external conditions, and reorient their activities. its corporate leaders have acted as the main champions 3 The strategic plan identified three “strategic pillars” of eco- for the region. In fact, Bucaramanga did not simply nomic development: cluster development; formalization and benefit from engagement by the private sector; it thrived entrepreneurial development; and internationalization. These because of its leadership and role in implementing the pillars were supported by four cross-cutting “strategic lines” decisions made. enabling them: infrastructure; the development of science, technology, and innovation; metropolitan integration and 3. Proactive Industry Targeting Based on Sound strengthening; and government transparency and efficiency. Analytics: Bucaramanga has prioritized certain sectors The appendices to this report provide a detailed overview of as drivers of its future economic development, employ- the planning process. ing a rigorous analytical process to identify industries in which it has a competitive advantage, and to understand Why has Bucaramanga been so successful in man- the global market trends and outlook for those indus- aging this economic transition, whereas so many other tries. Proactive industry targeting has yielded strong re- cities have not? The following main factors of competitive- sults: today Bucaramanga boasts young, innovative ICT ness stand out: companies, a thriving agro-industrial sector, advanced know-how in the oil and gas industry, increased tourist 1. High Levels of Human Capital: Metropolitan Bucara- visitation, and a healthcare industry that attracts foreign manga has some of the highest levels of human capital in visitors seeking medical treatment. Though still not Colombia – a crucial enabler of the city’s ability to adapt very numerous, Santander’s exporters are succeeding in to changing global conditions, and to transition into market niches like medical devices, precision mechanical higher value-added economic activities. Bucaramanga parts, and higher value-added confectionery. Bucaraman- has traditionally led the nation in education indicators, a ga’s cluster development strategy seems to be yielding fact attributable both to its inherited advantages, and to results, contributing substantially to job creation and proactive policies to “skill up” as a city. retention in the city. 2. Highly Effective Growth Coalition: The RCC’s 4. Favorable National Economic and Policy Context: effectiveness in mobilizing a broad growth coalition is Bucaramanga has strongly benefitted from being part one of the principal reasons for Bucaramanga’s success- of the booming Colombian economy, increasingly open ful transition into a more knowledge-intensive economy. to the outside world (notwithstanding the competitive It brings together various stakeholder groups, enlisting threats previously discussed). Dramatic improvements them in identifying growth constraints and regional in national security and massive public investments economic development priorities, formulating strategies in infrastructure have also been contributing factors. to address challenges and market opportunities, develop- Significantly, Colombia’s government provides policies ing detailed plans and responsibilities for their imple- and support tools which Bucaramanga in particular has mentation, and monitoring progress being made. The shown much skill in utilizing; these include, for example, capital access programs, R&D funding, technical assis- tance for company formalization, export assistance, and 3 For example, while not all of Bucaramanga’s apparel industry could survive low-cost foreign competition, some local firms were able to customized worker training programs. move higher up the value-added chain and compete on style, product dif- ferentiation, and other factors beyond just price. Specific support measures 5. Natural Resource Endowment: Santander has suc- ranged from introducing better financial management and machinery to cessfully avoided the “resource curse”, using its natural attending fashion shows overseas and training young fashion designers in resource endowments to support local economic and creating innovative, unique products. 9 social development priorities, rather than squander it 2. In formulating a metropolitan (or regional) eco- on grandiose projects (monuments, white elephants, nomic development strategy, prioritize among etc.), or by lining the pockets of a small elite. The region sectors to target for proactive efforts according has clearly benefitted from its oil wealth, yet it is by no to robust analytics and objective criteria, while means a “petro-state”, nor can its recent economic success also taking into consideration stakeholders’ be primarily attributed to hydrocarbons. Oil royalties input. Bucaramanga has avoided typical economic de- were used to support education, healthcare, and pover- velopment pitfalls such as chasing industry fads, by em- ty-reduction programs, helping to build up human capi- ploying an evidence-based approach to strategy develop- tal. The oil industry has also been a significant source of ment, along with a familiarity with global best practices high-wage jobs, industry clustering, workforce skills and (e.g. Michael Porter’s cluster theory, etc.). Santander’s re- know-how, and technological innovation in Santander. gional competitiveness plan was also successful because these data were used to inform discussions of regional economic priorities within the RCC, ensuring buy-in Lessons for Other Cities from key institutional actors. This helped to ensure that decisions made would actually be carried out, even in the absence of formal implementation mechanisms. Bucaramanga offers valuable lessons for other cities around the world seeking to grow their economies and create jobs, 3. Embrace globalization as a strategic opportunity, the main ones being: not a threat from which to seek protection. Bucar- amanga’s prior economic structure made it highly vulner- 1. Mobilize economic development stakeholders able to low-cost competition. Its leaders sought to help into a citywide (or in this particular case, re- local firms in existing industries to cope by innovating gional) growth coalition to work together for and competing on quality and product differentiation, residents’ shared prosperity. Such a coalition can rather than primarily on price, and to leverage existing but does not have to be led by the public sector – capacity local strengths (R&D, human capital, business acu- to undertake proactive interventions can rest in various men, etc.) to expand into new industry segments. This types of institutions. In Bucaramanga’s case, the growth approach appears to be yielding results, as Bucaramanga coalition was private sector-driven, in the form of the firms are becoming increasingly integrated into the glob- Regional Competitiveness Coalition, though it included al marketplace, while foreign companies are attracted to representatives of government. Bucaramanga demon- Santander as a suitable investment destination. strates the value of building a strong growth coalition to champion its region’s economic development and in- terests, with businesspeople and public officials success- fully acting in concert with other stakeholders. Beyond financial resources, the business community may be able to provide valuable insights into constraints to company formation and growth, leverage their knowledge of prod- ucts and markets, capitalize on global ties, and exert in- fluence on higher tiers of government to ensure critically important interventions like infrastructure upgrades. 10 4. Leverage national support programs. National incentives and entrepreneurial assistance programs (e.g. financial, technical, information, market access, cus- tomized workforce training, etc.) can materially affect economic outcomes at the city level. Bucaramanga’s firms have been highly adept at taking advantage of such programs, aided by their Chamber of Commerce and industry associations. Santandereanos have a reputa- tion nationally for being incredibly effective and timely in submitting proposals for grants and other support from the central government, and have in turn enjoyed significant support from Bogota for various economic development initiatives. 5. Use royalties from natural resources to strength- en public services and enable economic diversifi- cation, rather than just squander the proceeds. Santander has used its oil revenues to bolster education, public health, and reduce poverty, instead of building mega-monuments or flagship facilities, or losing the funds to corruption. Far from turning Santander into a petro-state, hydrocarbons have helped the development of innovative technologies, companies, and know-how directly benefiting economic growth and diversification, while also alleviating pressure on public finances. The typical pitfalls were avoided through a combination of increased transparency, an improving security situation in Colombia, public “watchdog” activities by the Chamber and other actors, and closer scrutiny and demands by the department’s citizenry at large. 11 National Context General de Participaciones (SGP)5, which allocates funds for the provision of basic public services like education, health, potable water, and sanitation. Bucaramanga’s growth has occurred in a highly favorable, and improving, national policy and mac- Dismantling barriers to trade and fostering economic roeconomic context. Colombia has made major strides growth has been a priority for national policymak- in the early 21st century, maintaining macroeconomic and ers, but in practice the need to improve security and monetary stability, prudent fiscal policies, low inflation, and ensure financial stability took precedence. Constitu- steady exchange rates, and weathering the global recession tional and legislative reforms in the 1990s were accompanied in 2008-2009 without a single year of negative GDP growth. by a gradual liberalization of the economy. At the time, key A comparatively young, highly urbanized society of nearly industries like apparel and agribusiness were still heavily pro- 50 million consumers, the country has been opening its tected by trade barriers, and generally not globally competi- economy up to the outside world, enjoying much success at tive. It was apparent that market liberalization would have to attracting foreign investors and increasing its exports. Unem- be accompanied by a modernization of Colombia’s economic ployment and poverty rates have fallen substantially, though base. However, severe internal security challenges and high more than a third of all Colombians (37.2%)4 remain poor. levels of violence meant that restoring peace remained the top policy priority in the 1990s and early 2000s. Moreover, The nation’s unique geography and traditions have like other Latin American countries, Colombia was adversely resulted in decentralized decision-making structures affected by the 1998 financial crisis. Although the crisis was and fiscal mechanisms. Colombia’s rugged topography has less severe in Colombia, it still led to an economic contraction fostered the emergence of distinctive regional cultures and in 1999. The crisis diverted the attention of national agencies, economies, and the central government has traditionally had and limited the availability of funds for strategic initiatives a less prominent role than in many countries of a comparable designed to boost competitiveness. size and level of development. The difficulty of intra-coun- try travel as well as national security issues meant that, in As the internal security and financial situation in Colombia’s individual cities and regions, local authorities the country gradually improved, there was a renewed and businesses often had to seek local solutions to various focus on market liberalization and strengthening challenges, including economic development. economic competitiveness. Colombia has been a strong proponent of free trade agreements, successfully negotiating Colombia’s institutional framework reflects the real- a range of bilateral trade and investment treaties with key ity of a decentralized, unitary republic. Key measures global trading partners. Colombia has also made significant bringing local decision-making closer to the citizen include: strides in improving its investment climate by relaxing rules on foreign direct investment, establishing investment “one • Since the passage of national legislation in 1988, mayors stop shops”, and working to address constraints like inad- have been elected by popular vote (rather than appoint- equate infrastructure and workforce skills. In parallel, the ed), improving accountability and local governance; government has dismantled entrenched monopolies, like the • Colombia’s 1991 constitution substantially decentralized state-owned oil company Ecopetrol (which still has a large the country, devolving significant responsibilities and presence in Santander Department) and opened up the coun- fiscal authority to the country’s 32 departments. Some try’s telecommunications sector to competition, resulting in 45% of annual central government revenues are trans- ferred to subnational governments through the Sistema 4 “Colombia: Economy” globalEDGE, Michigan State University: 5 Samad, Taimur, Lozano-Gracia, Nancy & Panman, Alexan- http://globaledge.msu.edu/countries/colombia/economy dra.“ Colombia Urbanization Review: Amplifying the Gains from the Urban Transition.” World Bank Publications, November 2012. 12 the emergence of multiple providers.6 These changes have To further operationalize the national competitive- had results: by 2013, FDI inflows reached $16.7 billion7, not ness agenda, in 2007 Colombia’s government enacted just into the extractives industry, but also in sectors such as legislation enabling the establishment of Regional banking, power generation, telecommunications, retail, and Competitiveness Commissions (RCCs) in each of the transportation. country’s 32 departments. Designed to foster public-pri- vate dialogue and stakeholder engagement, the RCCs were Recognizing the ability of Colombian firms to com- to include representatives from governments, universities, pete in the global marketplace as vitally import- and private-sector organizations like chambers of commerce. ant, Colombia’s government began to establish the The RCCs were tasked with creating regional competitiveness foundation for a unified national system of economic plans which would complement the national competitive- competitiveness in 2006. The competitiveness and inno- ness plan, including the use of support tools provided by the vation framework formalized the division of economic devel- central government. As part of the planning process, each opment responsibilities. At the national level, the focus was RCC was made responsible for identifying its own issues on national security, market liberalization, fiscal stability, and development priorities, as well as specific steps needed improving the business climate, and identification of priority to achieve them. Among all 32 departments in Colombia, “productive sectors” nationwide. National programs were Santander is widely recognized as having one of the most put in place to support the growth of these priority sectors, successful RCCs, both in terms of planning, and in the imple- while regional governments could apply for central govern- mentation of plans developed. ment funding to support specific initiatives furthering these sectors’ development. Today, individual national government agencies are tasked with administering specific programs de- signed to strengthen the competitiveness of the Co- lombian economy. While each agency has a clear mandate and role in some aspect of economic development, there are inevitably some overlaps in their responsibilities. A detailed list of the national agencies and their specific responsibilities is provided in the appendices to this report. 6 Officials interviewed by the Bank mission also credit the wider availability of inexpensive mobile phones with citizens’ ability to phone in incidents of violence or suspicious activity to the authorities, in turn contributing to improved security and public safety in the country. 7 “World Investment Report 2014”, UNCTAD, 2014 13 Local Context economy was adversely affected by the gradual opening up of the Colombian economy starting in the 1990s, as its tradi- tional industries lost market share to global competition. History With a disproportionate share of small and micro enterprises, Bucaramanga had few large companies outside the oil indus- Path dependency has been an important enabler of try capable of exporting. The few goods to be exported by its Bucaramanga’s recent economic success, as evidenced small firms, competing largely on price, were largely destined by its comparatively high human development indi- for the neighboring Venezuelan market. cators, low levels of inequality, high quality of life, With economic conditions worsening in the 1990s, educational attainment levels, and entrepreneurial the public and private sectors began, both individ- traditions. Bucaramanga is a mid-sized city located in ually and jointly, to focus on Santander’s economic Santander Department, a hilly agricultural region between competitiveness. Early discussions centered on struggling Bogota, the Caribbean Coast, and Venezuela. It was chosen traditional sectors, and the need to further develop more by colonists for settlement in 1622, and developed a mid- competitive industries. Plans, such as the “Metropolitan dle class of merchants early on. The region’s economy was Tecnopolis”, were formulated to foster the development of initially based on smallholder farming and cattle ranching, so science and technology through educational programs, tech- the region never developed the kind of inequality inherent to nology parks, and innovation labs. However, these strategies plantation-style farming along Colombia’s Caribbean coast. lacked long-term champions, concrete implementation plans, In the 20th century, two significant local industries and the funding necessary to carry them to fruition. While emerged in Santander: the oil industry in Barran- these early efforts would influence future regional strategies, cabermeja, and the textile and garment industry in most actors in Bucaramanga concede that substantive, effec- Bucaramanga. Under Colombia’s protectionist policies tive collaboration on economic development did not begin at the time, the textile and footwear industries flourished until the new millennium. in a closed market. Production initially consisted of simple The start of the 21st century saw positive develop- knitting and assembly, but local firms were forced to innovate ments at the national level, and more productive as early as the 1970s due to fierce competitive pressures from collaboration among key local actors. Collaboration in Medellin, the national leader in garment manufacturing, Bucaramanga increased between the public sector, private whose firms disproportionately benefitted from Colombia’s sector, and academia; but unlike in the previous decade, this protectionist measures8. time the collaboration was more fruitful. Institutions9 were One of the most transformative events came in 1948, crafted to formalize cross-sector engagement, and strategic with the establishment of the Universidad Industrial approaches to local economic development were paired with de Santander (UIS), an institution benefiting from a large concrete implementation plans and funding sources, improv- influx of academics who had fled Europe during WWII. While ing the likelihood of long-term success. many other Colombian cities established public universities, Despite improved collaboration, one external devel- UIS stood apart because of the high quality of its curricula in opment– deteriorating relations with neighboring engineering, science, and technology in particular, developed Venezuela – had a particularly detrimental effect on to support the national oil company, Ecopetrol, and its nearby Bucaramanga’s economy. When political relations be- refinery in Barrancabermeja. tween Colombia and Venezuela soured, and the late President Improved public service provision in the 1970s and Hugo Chavez restricted market access for Colombian-made 1980s resulted in an improving quality of life for goods in 2008, many of Bucaramanga’s small manufacturers Bucaramanga’s residents. For example, Santander was were irreparably hurt. They had become strongly dependent one of the first regions to provide clean water to most of its on exporting to nearby Venezuela, and with access restricted, population. The provision of quality public services, temper- SMEs had to learn to identify export opportunities in other ate climate, and relatively favorable security environment in markets, in addition to trying to cope with increased global Bucaramanga attracted new households, as workers from the competition. refinery in Barrancabermeja frequently chose to settle their families in nearby Bucaramanga. Bucaramanga’s traditional economic structure, based 9 One such new institution was Metropolitan ADEL. In 1999, the on small-scale manufacturing, was ill-suited to an Metropolitan Corporation of Planning and Development of Bucaramanga increasingly globalized economy. Successive attempts (CORPLAN) was established to promote public- private sector engagement on local economic and social development issues. Led by the Mayor of to adapt to changing circumstances in the 1990s gen- Bucaramanga, CORPLAN included the mayors of nearby municipalities, erally failed to yield the desired results. Bucaramanga’s the Chamber of Commerce, and university and industry groups. In 2000, CORPLAN wrote the region’s first cross-sector collaborative strategic plan, 8 Pietrobelli, Carlo & Olarte Barrera, Tatiana. “Enterprise Clusters Vision 2015. This plan would later influence and provide a “head start” to and Industrial Districts in Colombia’s Fashion Sector.” European Planning the creation of the first regional competitiveness plan by the RCC (Santand- Studies, Vol. 10, No. 5. (2002) Taylor and Francis Group. er Competitivo). 14 The past few years have seen a gradual, successful Instead, the departmental government focuses on creating transformation of Bucaramanga’s economic struc- a general enabling environment in which economic develop- ture. Innovation and increased productivity in existing ment can take place, and supports other institutional actors. sectors, along with a conscious shift towards new industries, has picked up pace in recent years. A small cluster of high- Bucaramanga Metropolitan Area and Its wage ICT companies began to develop, alongside growth in BPO and knowledge services, hydrocarbons, medical tourism Municipalities (Fundación Cardiovascular de Colombia- FCV10), and adven- ture tourism. As Bucaramanga began to adapt and develop The Bucaramanga Metropolitan Area (AMB) accounts new industries, the service sector replaced manufacturing as for approximately 54% of Santander’s population its largest sector, accounting for 37.9% of local GDP in 2011.11 (1.1 million people), and an even higher share of its economic output, including nearly 95% of Santander’s non-oil manufac- turing activity. AMB is made up of four individual municipal- Key Local Actors ities, each with its own popularly-elected Mayor: Bucaraman- ga (with about half the AMB’s population), Floridablanca, Piedecusta, and Girón. The Bucaramanga Metropolitan Area Department of Santander has a coordinating body with a small professional staff, re- sponsible for ensuring integrated metropolitan development and coordination for projects of area-wide significance, such Bucaramanga is the capital of the Department of as transport and mobility, water supply and sewerage, hous- Santander, one of 32 administrative units into which ing, environmental sustainability, and select other public Colombia is subdivided. With a surface area of 30,000 km2 services. The AMB coordinating body’s direct responsibilities and a population of 2.1 million, Santander is a mountainous do not include economic development, but they do enable it. region endowed with hydrocarbons and abundant water The four individual municipalities focus on addressing select resources. Besides the Bucaramanga Metropolitan area, the local economic issues, such as targeted assistance to low-in- only other sizeable city in the department is Barrancaber- come and vulnerable groups. Their involvement in proactive meja, on the Magdalena River, best known as the site of one economic development is mostly indirect, through their of Colombia’s two oil refineries. Santander is governed by a participation in the RCC. Departmental Assembly and a Governor, who is popularly elected by constituents for a single, four-year term. Regional Competitiveness Commission The devolution of power from Colombia’s central (Santander Competitivo) government since the early 1990s has resulted in the accumulation of significant administrative scope at Santander Competitivo is the creator of the depart- the departmental level. Funding for departmental pro- mental strategic plan for economic development, and grams comes from levying local taxes, national government the principal convening body for all entities involved transfers, and oil royalties.12 Colombia’s departments have in its formulation and implementation. Although es- significant discretionary authority over spending decisions; tablished in accordance with national law, the RCC has little however some national funds are specifically earmarked in the way of formal statutory authority or funding, instead for investments in health, education, and other priorities. relying on the relationship capital and prestige of its leader- There is a dedicated planning unit within the government of ship to enact meaningful interventions. Santander, which prepares a long-term regional development plan outlining key infrastructure investments and projects Santander’s RCC was the first to be established in of regional significance. However, Santander’s government Colombia, and is still one of the most successful. does not have statutory responsibility for, or engage in, “core” Bucaramanga’s efforts to establish a regional competitiveness economic development activities such as investment attrac- agenda actually preceded the national legislation enabling the tion, sector targeting, or industry-specific support programs. formation of the RCCs (see sidebar), and served as a national model. 10 In the early 1990s, Dr. Victor Raul Castillo and Dr. Franklin Ro- berto Quiroz established a non-profit medical research center to treat and Along with the Bucaramanga Chamber of Commerce, prevent heart disease. With an excellent cardiovascular surgery program on whose premises it is housed, the RCC is the princi- (performing the first open-heart surgery in Colombia), FCV is recognized as pal conduit for public-private dialogue in the region. one of the top ten research centers in Colombia. FCV has both a corporate In addition to input from stakeholders, its strategy university training program and independent air transportation service. FCV is currently building a new International Hospital within the Health is developed based on sound analytics. Santander Com- Free Trade Zone in Santander. petitivo was set up to promote engagement and collaboration 11 Aguilera Diaz, Maria: “Bucaramanga: Capital Humano y Crec- between public institutions, academia, the private sector, and imiento Económico”, No. 180. Banco de la Republica, January 2013. www. civil society, with the goal of improving public policy, devel- banrep.gov.co/sites/default/files/publicaciones/archivos/dtser_180.pdf oping sector diagnostics, and formulating a regional compet- 12 Since 2011, oil royalties (regalias) have been distributed among Colombia’s 32 departments according to a new formula. This has resulted in itiveness plan. The Commission employed analytical tools Santander’s share being cut in half, from 6.5% to 3.2% of the national total. like cluster mapping to prioritize among sectors to support, 15 Creation of Santander Competitivo ultimately choosing health, oil and gas, and tourism as the top three sectors with the most development potential. Seeking to address regional economic challenges, in Santander’s draft Regional Competitive-ness Plan August 2006 the Bucaramanga Chamber of Commerce was completed by August 2007. Santander’s was the first convened some 70-80 leaders of Santander’s business RCC to develop a plan, and discussed it with stakeholders community, academia, municipal and departmental from both government and civil society. The plan’s main government, labor unions, and local officials of na- vision was articulated as follows: tional agencies. Breaking out into 3-4 working groups/ work-shops, this seminal gathering (later named the “In 2032, Santander will be one of Colombia’s three most “Regional Competitiveness Forum”) sought to identify competitive departments, with a high quality of life and the region’s key economic and developmental priority the highest per capita income in the country, thanks areas, assess the general growth potential of individual to the dynamism of its economy achieved through its industry sectors, discuss the institutional composition productive sectors, producing innovative high value-add- of a new RCC, and nominate prominent individuals to ed goods and services while respecting the environment, serve on it. with a business climate conducive to local and foreign investment, while encouraging the region’s comprehen- Santander’s new commission gradually began to take sive and equitable development.” shape, practically simultaneously with the develop- ment of a national framework for regional economic The strategic plan was a comprehensive, but also competitiveness. In February 2007, before the RCCs a living document periodically updated. In order to were established in the departments, the new commis- achieve its goal of becoming the third most competitive sion was formalized by a voluntary agreement under department in the country by 2032, three “strategic pillars” the name of Santander Competitivo. As there was no were identified to drive economic development: cluster devel- dedicated funding for the development of the RCCs, opment; formalization and entrepreneurial development; and the Bucaramanga Chamber of Commerce offered its internationalization. These pillars were supported by four assistance, and Santander Competitivo was established cross-cutting “strategic lines” enabling them: infrastructure; in the Chamber’s office space. Martha Pinto de Hart, the development of science, technology, and innovation; a former Minister of Telecommunications in the first metropolitan integration and strengthening; and government Uribe government (2002-06), had recently returned to transparency and efficiency. Progress was systematically her native Bucaramanga and was unanimously selected tracked on an ongoing basis, and stakeholders materially to be the new organization’s first Executive Director, involved in its implementation. agreeing to serve without compensation. Non-governmental entities made up more than three Bucaramanga Chamber of Commerce quarters of the commission. Consisting of 30 members, the commission included: The Bucaramanga Chamber of Commerce is the met- ropolitan area’s principal private-sector champion of From the public sector: economic development. In Colombia, chambers of com- merce play a semi-official role, performing select public func- • The Governor of Santander tions while also acting as private membership organizations. • President of the departmental legislature The Bucaramanga Chamber of Commerce was established in • President of the Bucaramanga city council 1915 in accordance with national law, to maintain a registry • 3 City Mayors (Bucaramanga, Barrancabermeja, of local firms on behalf of the national government. Since San Gil) then, the Chamber has taken on a number of other roles and • Regional Director of workforce agency SENA responsibilities, including: From civil society (or non-governmental entities): • Providing fee-based business services to private-sector firms, including market intelligence, entrepreneurship • 13 businesspeople nominated by the Bucaraman- and management training, and technical advice. ga and Barrancabermeja Chambers of Commerce • 3 representatives of industry guilds • Serving as the advocate and organizing lead on a number • 3 members of academia of cross-cutting issues affecting the private sector, both • 1 representative from the labor union locally and in the national capital, Bogota. • 1 representative from the Santander Science & Technology Council, • Providing public oversight of municipal finances and • 1 representative from Ecopetrol government contracting processes. • 1 representative from the local development agency Adel • Developing its own in-house investment promotion agency, named Invest in Santander, as the central mar- 16 keting, recruiting, and site-selection service provider in Bucaramanga’s universities and research institutions the region. have actively promoted the development of high technology sectors, for which they are sometimes paid • In close collaboration with ProExport Colombia, pro- by national government agencies (through approved RCC viding export information and local product/service proposals), or compensated by private businesses for their promotion, helping to organize and partly subsidize services. Examples of their involvement in economic develop- company attendance at industry events abroad, staging ment activities include: conferences and exhibition fairs, and bringing guest speakers to Bucaramanga. Tellingly, the Chamber’s mot- • Ecopetrol designed courses at UIS and UNAB to improve to is ¡Vamos a competir! local human capital In the 21st century, the Chamber has been a leader of • Universities regularly partnered with SENA to improve public and private sector engagement on local com- worker training programs, including building accredited petitiveness issues in Bucaramanga and Santander. courses to train machinery operators In 2004, the Chamber of Commerce did a study on transpor- tation and connectivity. In this study, access to markets was • Provided custom research for the oil industry, cacao identified as a key competitive constraint, highlighting a clear industry, and agro-industry need for increased investment in the sector. Since large infra- structure projects are the central government’s responsibility, • University support for dedicated research centers in the Chamber lobbied based on the results of their study, petroleum and derivatives putting pressure on national decision makers and ultimately • Biomedical research for Fundación Cardiovascular getting new infrastructure investments in their region (e.g. Bucaramanga’s new Palo Negro airport, ongoing construction • Provided support tools for businesses, and services for of the Ruta del Sol highway through Santander, etc.). the Chamber of Commerce In 2008, the Chamber created a dedicated business • San Tomas partnered with ProExport Colombia to pro- development unit to provide entrepreneurial assis- vide technical assistance to firms interested in export- tance services to local firms. In line with the national ing, but still lacking the technical capacity or market Rutas Competitivas program and Santander’s own Regional know-how Competitiveness Plan, the Chamber identifies high-imapct sectors to support, then outlines steps needed to make local Established in 1948, Universidad Industrial de firms globally competitive in those industries. Bucaraman- Santander (UIS) is Bucaramanga’s flagship educa- ga’s Chamber is one of few in Colombia to employ hard data tional institution and a key player in regional eco- and very rigorous analysis to identify the highest value-add- nomic development. For decades, UIS has been working ed activities and market opportunities. For example, the with government agencies, the Chamber, and directly with Chamber has identified health, education, and transport as for-profit businesses on competitiveness issues, especially in key enabling factors for improving productivity, as well as the areas of innovation and technology commercialization. It infrastructure and English skills as two cross-cutting themes. has enjoyed close research links to the hydrocarbons indus- try, but in recent years has also developed research excellence The Bucaramanga Chamber of Commerce is primarily in a number of other, non-traditional areas. UIS plays a role funded by private resources, with some support from in Santander’s economy both through the development of the national government. The Chamber continues to technologies (which may find acceptance in the marketplace), receive administrative fees from registering new firms, but and the formation of new workforce talent. has in recent years managed to triple its income by providing additional high-value business services to members. A key The Colombian Petroleum Institute (ICP) is the enabler of the Chamber’s success has been its immense insti- largest research institution in Santander, and for tutional capacity, relying on a highly capable, dedicated staff. decades has a played an important role in the region’s economic development. ICP is the research branch of Universities and Research Institutions the oil firm (and former state monopoly) Ecopetrol, and was the only such research center in Colombia as early as the Bucaramanga is one of Colombia’s foremost educa- 1970s. ICP has a strategic vision in sync with Ecopetrol’s: to tional centers, with academic institutions especially develop scientific potential aligned with business needs, and renowned for their applied research and technology. enable commercial applications of its technologies. Ecopetrol The Santander Department is home to 15 institutions of receives R&D tax credits, funded by Colciencias. higher learning, 12 of which are located in metropolitan Bu- Guatiguara is Bucaramanga’s technology park, which caramanga itself, and one each in Barrancabermeja, San Gil, today plays a leading role in applied research and and Socorro. With a reputation as a “university town”, Bucara- technology commercialization. UIS originally developed manga attracts students from all over Colombia and abroad. the park in collaboration with Ecopetrol, receiving some funding from oil royalties, as well as resources from national 17 agencies (Colciencias) and other private-sector sources like development. The Chamber of Commerce led efforts to CETICS, ICP, and FCV. The park formally opened in 2011 as establish this FTZ in 2011 as the “Santander Offshoring and one of only two in Colombia; by 2014 it already employed Outsourcing Park”, while its Invest in Santander arm has 240 people providing contract research services, including to helped to attract firms to it. Zona Franca is privately owned firms in other countries. UIS conducts much of its research at and operated with funds from the Chamber and private Guatiguara, and encourages corporations to co-locate there. firms, but its success has been aided by public-private collab- oration, such as the dedicated bus routes established by local Zona Franca Santander transit firm Metrolínea to serve the park. Zona Franca focus- es on attracting companies in sectors like BPO, engineering, logistics, construction, and architecture. It allows only new Bucaramanga’s free trade zone is the destination of investors or corporate expansions to locate there – there is choice for large investors in Bucaramanga, and has no poaching of existing firms from the city. The FTZ offers the potential to be a major catalyst for its future security, an advanced telecommunications infrastructure, a business services center, and a flat 15% income tax rate. Its original goal was to attract five companies in its first five Example of a Foreign Investor: Arvato years in operation, but by early 2014 it already had 24 firms in industries like engineering, logistics, finance, consulting, European outsourcing firm Arvato Iberia (part of energy, and precision manufacturing. Only one of them, Ar- Germany’s Bertelsmann group) set up a delivery center vato, is a foreign firm, but it employs about a thousand people in Zona Franca in 2012, offering back-office services locally. to several European firms (mostly in Spain). Arvato operates a call center for the Spanish market, including customer service, logistics and marketing services. Analysis Arvato has cited the following factors as having influ- enced their decision to locate in Bucaramanga: Factors of Competitiveness • Flexible labor laws, which allow for work in off- peak hours As noted in the Executive Summary, Bucaramanga’s econom- • Large number of students available to work ic success cannot be attributed to any single factor, but to a • Availability of professional and qualified talent combination of them. The principal ones are listed below. • Spanish speakers with little to no accent and a very Factor 1: High Levels of Human Capital neutral tone • Physical office space (park) Metropolitan Bucaramanga has some of the highest • Proximity and accessibility of SENA and other levels of human capital in Colombia – a crucial en- Universities abler of the city’s ability to adapt to changing global • Favorable tax rate conditions, and transition into higher value-added economic activities. Bucaramanga has traditionally led • Livability, including a safe environment, good the nation across a range of quantifiable education indicators climate, nice people, presence of other foreigners. (number and quality of institutions, curricula, student enroll- ment, graduation rates, general literacy levels), as the com- More firms realizing the appeal of the investment bined result of inherited advantages and proactive policies to environment and setting up operations at Zona Franca “skill up” in order to boost its economic competitiveness. could increase competition over talent and possibly increase wages; however, Arvato understands that Bucaramanga’s exceptionally high levels of human capital are, they could share more costs if there were more firms. inter alia, attributable to the following: Arvato had been at Zona Franca for 14 months and has had no large problems, only minor issues that need to • Adequate funding for education at all levels, in part be ironed out. For instance, they noted that transport funded by natural resource royalties, but strongly sup- has been rather irregular. Their plan is to extend their ported by both the public and private sectors. operations in Colombia, but they are still not sure if this will be in Bucaramanga, depending on timing and • High-quality curricula at local institutions, with a competencies. For Arvato, the environment mattered strong focus on engineering (about a third of all grad- as much as costs. uates) and other applied fields like medicine, business, finance, accounting, and design (most others). • Entrepreneurial capacity of local firms, including general business know-how, a knowledge of products and 18 markets, and a commitment to constant innovation and priorities, formulates strategies to address challenges and adaptation. market opportunities, develops detailed plans assigning spe- cific responsibilities for their implementation, and monitors • Knowledge spillovers from existing clusters of ex- progress being achieved towards set goals. pertise into related fields, e.g. UIS’s initial training of engineers for the oil industry, who later diversified into Bucaramanga did not just involve diverse stakeholder new areas. groups in formulating economic development plans, it actually relied on them to implement the majority • Talent attraction (of students and working profession- of interventions. Private sector actors have provided signif- als) from all over the country, and from abroad, includ- icant funding support to Santander’s economic development ing the Colombian diaspora and entrepreneurs leaving initiatives, and its corporate leaders have acted as the main Venezuela. champions for the region. The implementation of specific items in the strategic plan was assigned to dedicated task • Successful utilization of national support tools and teams, made up of staff from the RCC, Chamber of Com- workforce development programs, usually in partnership merce, government agencies (national and/or local), univer- with the local office of the National Learning Service sities, individual members of the business community, and (SENA). This includes highly effective customized worker various other stakeholders. Stakeholders used their capacity, training programs, responsive to employers’ immediate resources, and relationship capital to advance the region’s needs. economic development priorities, and played a very active role in strategy formulation and implementation. • A longstanding local tradition and commitment to pri- oritizing education, and ensuring universal access to Santander’s growth coalition does not have any educational opportunities, even for the most disadvan- dedicated funding, statutory authority, or means of taged segments of society (the extremely poor, disabled, compelling entities or individuals to honor commit- internally displaced persons, and so on). ments made through the strategic planning process. Although established in accordance with national legislation, Factor 2: Highly Effective Growth Coalition the RCC has no dedicated sources of funding, and only a very small professional staff, co-located on the premises of the Proactive economic development initiatives in Bucar- Bucaramanga Chamber of Commerce. Within the RCC, there amanga were led by the private sector, with support are no formal mechanisms to ensure strategy implementa- from national and local government agencies. The tion and follow-through on commitments, and no incentives city and its surrounding region did not simply benefit from or penalties for participants in the process – although RCC engagement by the private sector; it thrived because of its and Chamber staff do monitor progress on an ongoing basis. leadership. In Colombia’s decentralized system, the national Inter-institutional cooperation and implementation are government provides a general framework for regional eco- facilitated by the fact that Bucaramanga is a mid-sized city, in nomic competitiveness, along with some support tools like which key public and private-sector officials know each other, funding, training, and technical assistance programs; the rest cross paths on an almost daily basis, and thus enjoy a web of is the responsibility of the regions themselves. Governments strong informal relationships. Peer pressure and reputations at the departmental and municipal level largely focus on the within the local community are sometimes more effective provision of enabling infrastructure like transportation and than formal provisions in ensuring adherence to what has utilities, and are also represented on the Regional Compet- been agreed. itiveness Commission in a consultative capacity. But proac- tive economic development efforts are led by private-sector Factor 3: Proactive Industry Targeting Based on actors, both within the framework of the RCC and through other, parallel tracks, such as the activities of the Chamber of Sound Analytics Commerce. Faced with the erosion of its traditional economic The principal forum for public-private dialogue and base, Bucaramanga has proactively worked towards stakeholder engagement in Santander is the Regional laying the foundations of its “next economy”, by Competitiveness Commission; its effectiveness may prioritizing certain sectors as drivers of econom- be one of the principal reasons for Bucaramanga’s ic development. This has entailed employing a rigorous successful transition into a more knowledge-inten- analytical process to identify industries in which Santander sive economy. The RCC brings together representatives of has a competitive advantage, and to understand the global various government entities, as well as local universities, the market trends and outlook for those industries. The RCC and two chambers of commerce (Bucaramanga’s, along with the its partners set about developing a strategic plan to aid these much smaller one from Barrancabermeja), industry associa- industries’ growth locally, outlining specific steps, timelines, tions (guilds), and other stakeholder groups from the private and institutional responsibilities for their implementation. sector and civil society at large. Through a structured, com- On an ongoing basis, researchers at the Bucaramanga Cham- prehensive process, the RCC engages stakeholders in identi- ber of Commerce monitor the progress made in each targeted fying growth constraints and regional economic development cluster, and feed the results into new public policy formula- 19 tion (shared with local government) and goal setting for the sion of the river port at Barrancabermeja and navigation strategic plan’s subsequent revisions. along the Magdalena River, and a possible future rail link. In addition to creating construction jobs locally, Proactive industry targeting has yielded some im- this is lowering transport costs to market for Bucara- pressive results: today Bucaramanga is home to young, manga companies. innovative ICT companies, a thriving agro-industrial sector, advanced know-how in the oil and gas industry, numerous • A rapidly-growing domestic market, with an expand- new (and well-visited) tourist facilities, and a healthcare in- ing middle class, falling poverty rates, and increased dustry that attracts visitors seeking treatment from all over demand for non-traditional products from Santander, Latin America and the Caribbean. Although still not very such as poultry. numerous, Santander’s exporters are succeeding in market niches like medical devices, precision mechanical parts, and • More liberal trade and investment with various coun- higher value-added confectionery – in markets beyond just tries around the world, as a result of bilateral and multi- neighboring Venezuela. In short, Bucaramanga’s cluster de- lateral free trade agreements and other market-opening velopment strategy seems to be working, and can be credited initiatives supported by the Colombian government. for at least a portion of the 85,000 new jobs created locally in the four-year period from 2008 to 2012. Factor 5: Natural Resource Endowment Factor 4: A Favorable National Economic Context Santander provides an example of a region success- fully avoiding the “resource curse”, using oil royalties Bucaramanga’s economy has been helped by the fact to support economic and social development prior- that Colombia as a whole has been booming economi- ities, rather than squander it on grandiose projects (mon- cally for a number of years. Bucaramanga is not a city uments, white elephants, etc.), or by lining the pockets of a that has done well in spite of the national economy to small elite. While it has clearly benefitted from its endow- which it belongs; being part of Colombia has contrib- ments, Santander is by no means a “petro-state”, nor can its uted its success. One of the world’s better-performing economic success be primarily attributed to hydrocarbons. economies, Colombia weathered the global recession of 2008- Oil revenues were used to support education, healthcare, and 09 without a single year of negative GDP growth, and annual poverty-reduction programs, resulting in the highest levels of GDP growth has remained above 4% since then. Unemploy- human capital and the lowest poverty rates of any metro area ment is falling, poverty levels have declined sharply, and the in Colombia. country’s mineral wealth and rapidly growing middle class appeal to international firms. Bucaramanga has benefitted The main specific ways in which natural resource wealth has from being part of the broader Colombian economy in the aided Santander’s economic development include: following specific ways: • Employment: Historically, the oil refinery in Barrancab- • A favorable national policy framework. Colombian ermeja has supported stable, relatively high-wage jobs for policies are pro-market and pro-growth, with a com- the region’s residents, as well as professionals from other mitment to monetary stability, competitiveness, and regions. This has supported incomes and consumption globalization. throughout the region. • Improved national security: The security situation • Skills: The oil industry’s need for engineering talent nationwide has improved dramatically in the past few has led to the establishment of high-quality educational years. While sporadic incidents of violence do occur, they programs at local institutions, in particular UIS, and the are no longer of a magnitude and frequency to substan- emergence of a more diversified skills base growing out tially deter economic activity around the country. In of the oil industry’s needs. turn, Santander is considered safer than most other • Industry clustering: Over several decades, numerous parts of the country. small manufacturers specializing in tools and equipment • Specific policy tools at the cities’ and regions’ dispos- for the refinery in Barrancabermeja emerged in Bucar- al, funded by the national government. These include amanga, over time diversifying into related industry everything from funding R&D projects at universities segments needing similar capabilities. and technical assistance for company formalization, to • Technology development: Out of the oil industry, customized worker training programs and export assis- other innovative petroleum-based technologies have tance. Bucaramanga has been relatively more successful emerged, some with commercial applications (e.g. at tapping into these sources of national government asphalt, bitumen, polymers, etc.), in turn strengthening support than many other Colombian metros. the region’s overall technological capabilities. • Massive public investment in infrastructure, in- cluding construction of the Ruta del Sol highway linking Bogota with the Caribbean coast via Santander, expan- 20 • Public finances: Royalties from natural resources13 have company formation and growth in the city, leverage their augmented the coffers of both municipal and departmen- knowledge of products and markets, and exert influ- tal governments, reducing the tax burden on residents ence on higher tiers of government to ensure critically while enabling the provision of quality public services, important interventions in the community, such as in- addressing infrastructure needs, investing in education frastructure upgrades. A strong local identity is a helpful and public health, and policies aimed at poverty reduc- but not necessary condition. tion. 2. In formulating a metropolitan (or regional) eco- nomic development strategy, prioritize among Lessons for Other Cities sectors to target for proactive efforts according to robust analytics and objective criteria, while also taking into consideration stakeholders’ Bucaramanga offers valuable lessons for other cities input. Recent economic history is littered with ex- around the world seeking to grow their economies amples of failed local strategies based on aspirations, and create jobs. Ultimately, the main purpose of these case unrealistic perceptions of external market trends, and studies is to understand what cities did well, exactly how strong “leadership” – a single-minded determination to they did it, and which lessons might be replicable elsewhere. stay the course even when the results expected do not Though each city’s circumstances are somewhat unique, materialize. Indeed, too many communities spend scarce Bucaramanga’s experience provides an example of what can resources chasing extremely unlikely prospects, rather be done to boost a city’s economic competitiveness, regardless than focusing their efforts in areas where they stand a of which particular actors undertake specific interventions. realistic chance of being successful. Bucaramanga has Key lessons for other cities from Bucaramanga’s experience avoided such pitfalls by employing a very evidence-based include: approach to strategy development, along with a familiar- ity with global best practices (e.g. Michael Porter’s cluster 1. Mobilize economic development stakeholders theories). However, even the most lucid data-driven into a citywide (or in this particular case, re- strategies may not succeed if there isn’t also sufficient gional) growth coalition to work together for buy-in from those responsible for their implementation. residents’ shared prosperity. Such a coalition can Santander’s regional competitiveness plan was so suc- but does not have to be led by the public sector – capacity cessful not just because it utilized cutting-edge diag- to undertake proactive interventions may lie in various nostic and market analysis tools, but also because those kinds of institutions. In Bucaramanga’s case, the growth hard data were then used to inform frank discussions of coalition was private sector-driven, in the form of the regional economic priorities within the RCC. Sectors ul- Regional Competitiveness Coalition. In cities where the timately selected for proactive support measures enjoyed private sector is reasonably well developed, and where the full buy-in of key institutional actors, such as the the law allows it, for-profit firms and their associations Chamber of Commerce, industry groups, universities, such as chambers of commerce or sector guilds can play and select government agencies. This went a long way a critical role in spurring economic development, from towards ensuring that what was agreed would actually convening stakeholders and formulating strategies, to get done in practice, even in the absence of any formal the implementation of plans, as well as various forms implementation or accountability mechanisms. of tangible support along the way. Besides private-sec- tor actors, effective growth coalitions can (and most 3. Embrace globalization as a strategic opportuni- often should) include government agencies, plus other ty, not a threat to seek protection from. While stakeholder groups like universities, industry associa- Colombia as a whole has been an enthusiastic proponent tions, and other elements of civil society. Bucaramanga of free trade agreements and increased cross-border demonstrates the value of building a cohesive growth investment, Bucaramanga’s economic structure (heavily coalition to champion its region’s economic development reliant on high-ubiquity, commoditized manufacturing) and interests, with businesspeople and public officials made it particularly vulnerable to competition from low- successfully acting in concert with other stakeholders. cost imports. While some degree of economic dislocation Beyond financial resources, the business community may was inevitable, Bucaramanga’s leaders sought ways of be able to provide valuable insights into constraints to adapting to new external circumstances over which they had little control. Strengthened global competitiveness of 13 Until 2011, Santander received more in royalties than most local industries was thus borne out of necessity. One way other departments, based on its status as an oil-producing region. Since to cope was by helping local firms in existing industries 2011, royalties have been redistributed more equally among Colombia’s (e.g. garments, footwear, agribusiness) to innovate and departments, with Santander’s share greatly reduced. Along with this redis- compete on quality and product differentiation, rather tribution came earmarks on how the funds may be used, with set percentag- es set aside for water supply, healthcare, education, and scientific research. than primarily on price. Another was to leverage existing Bucaramanga did not seem to be much affected by this change, however: local strengths (R&D, human capital, business acumen, while receiving proportionally less than before, increased transparency and language, etc.) to make a concerted push into new, reduced corruption have helped to keep funding levels constant for vital often highly tradable industry segments likely to drive public services. 21 tomorrow’s economy – among them, ICT, healthcare, partly because of this, and partly because of the keen tourism, and business services. This approach appears to ability of Santander’s representatives in the national be yielding very tangible results, as Bucaramanga firms government to act as a unified caucus when advocating are becoming increasingly integrated into the global on behalf of their department, Santander has enjoyed marketplace, while foreign companies are looking at significant support from Bogota for a variety of initia- Santander as a suitable investment destination in ways tives directly enabling or affecting economic develop- previously unimaginable. While internationalization is ment in the region. just one dimension of local industries’ transformation, it is arguably among the most impactful. 5. If endowed with natural resources, use the proceeds to strengthen public services and 4. Leverage national support programs. National enable economic diversification, rather than governments often provide incentives schemes and squander the funds on high-profile but ulti- other forms of entrepreneurial assistance – among them mately lower-impact projects. Santander has used financial, technical, information, market access, cus- its oil revenues to bolster education, public health, and tomized workforce training, dedicated infrastructure, reduce poverty, instead of building mega-monuments etc. – which can make a material difference to economic or flagship facilities. Far from turning Santander into a outcomes at the city level. Bucaramanga’s firms have petro-state, hydrocarbons have helped the development taken advantage of such help with much success and of innovative technologies, companies, and know-how frequency, aided by the highly-skilled professionals at its directly benefiting economic growth and diversification, Chamber of Commerce and industry associations – not while also alleviating pressure on public finances. The just by raising awareness of such programs’ existence, typical pitfalls were avoided through a combination of but also by assisting companies to access this source of increased transparency, an improving security situation support. An often-heard remark about Bucaramanga in in Colombia, public “watchdog” activities by the Chamber the national capital, Bogota, was that Santandereanos and other actors, and closer scrutiny and demands by the are incredibly effective and timely in submitting pro- department’s citizenry at large. posals for grants and other forms of support from the central government. Anecdotal evidence suggests that, 22 Appendices Bucaramanga: Key Facts and Figures Population of Metropolitan Area, millions 1.1 Population growth over 6 years (2007-2012) 4.0% Metropolitan GDP (USD billions) 12.8 Average GDP growth (2000-2010) 4.9% Employment Growth over 6 years (2007-2012) 26% Unemployment Rate (lowest in country) 7.7% Of the Average National Per-Capita Income 170% Reduction in Poverty Rate, from 33.7% to 10.3% 2/3 Gini Coefficient (second lowest in LAC region) 0.449 Source: Oxford Economics, World Bank staff estimates 23 Santander’s International Trade Santander Department, of which Bucaramanga is the capital, only ranks as Colombia’s 11th largest exporter, despite having the country’s 4th largest GDP. Santander’s annual export volume, particularly to neighboring Venezuela, has fluctuated quite a bit in recent years. However, Santander’s share of Colombia’s total exports has held fairly constant. Colombian Exports by Department Rank Description Annual 2007 Annual 2008 Annual 2009 Annual 2010 Annual 2011 Annual 2012 Aug 2013 YTD % change 2012 YTD - 2013 YTD Total Exports 29,991,332,000 37,625,882,065 32,846,326,710 39,713,336,400 56,914,939,110 60,273,618,168 38,918,204,185 -3.11 1 Antioquia 3,982,032,801 4,038,692,028 4,125,619,293 4,714,248,249 6,037,304,071 6,708,564,566 4,103,817,631 -4.89 2 Bolivar 1,139,406,966 1,397,665,143 1,263,515,194 2,445,175,450 3,759,789,935 3,599,028,737 2,484,606,293 5.25 3 Cesar 1,857,023,351 2,337,271,354 2,455,907,302 2,816,549,142 4,068,967,056 4,008,170,067 2,207,075,041 -22.25 4 Santafe De Bogota 3,003,390,082 3,585,827,600 2,878,727,733 2,822,321,792 3,275,536,414 3,289,802,507 2,173,131,709 -2.88 5 Meta 5,763,515 12,829,818 3,972,617 1,118,034,675 2,582,599,260 3,039,675,932 2,120,808,735 9.73 6 Guajira 1,544,652,768 2,343,923,638 2,865,590,394 2,578,166,701 3,699,713,462 3,544,755,920 1,855,887,751 -22.22 7 Casanare 635,860 482,317 306,983 4,141,645,108 1,885,343,066 1,988,425,379 1,579,909,389 12.24 8 Valle Del Cauca 2,144,398,947 2,286,842,833 2,072,561,349 2,206,819,407 2,466,761,581 2,283,051,473 1,391,954,902 -6.31 9 Cundinamarca 2,319,709,249 2,408,177,888 1,656,726,338 1,846,429,210 1,789,469,878 1,792,776,216 1,183,113,534 -2,53 10 Atlantico 1,178,227,624 1,313,058,130 1,088,232,971 1,050,241,772 1,107,402,321 1,241,930,010 909,666,288 14.02 11 Santander 477,469,183 615,196,978 678,949,432 448,020,789 633,534,109 713,726,447 734,017,970 52,86 12 Arauca 13,614,158 4,911,014 1,132,625 795,160,376 922,673,178 801,040,698 557,181,721 29.79 13 Cordoba 1,766,423,660 953,250,116 631,656,730 990,467,268 801,543,682 980,601,845 543,923,880 -18.64 14 Caldas 617,735,016 750,123,177 601,280,422 620,037,041 685,426,796 667,015,103 447,938,899 3.73 15 Huila 399,398,284 334,415,448 300,911,022 738,866,271 1,014,806,087 739,539,914 398,946,395 -21.34 16 Magdalena 350,011,819 344,906,388 379,535,073 375,778,772 486,623,888 558,388,831 394,100,312 18.87 17 Risaralda 404,855,511 457,481,924 470,365,500 568,427,318 680,011,123 566,280,956 301,326,767 -22.7 18 Norte De Santander 682,272,650 1,328,572,973 736,108,241 286,426,641 406,167,708 402,352,326 292,856,421 1.15 19 Boyaca 167,516,558 329,167,009 196,498,318 357,389,473 345,731,212 389,325,018 247,335,331 -19.43 20 Tolima 142,822,785 145,105,784 112,320,507 277,289,493 338,647,186 432,508,124 215,377,453 -36.13 21 Cauca 221,978,204 211,917,888 273,065,893 304,097,424 348,516,325 291,783,698 168,704,950 -12.63 22 Putumayo 11,745 75,263 122,940 1,484,301 16,141,363 4,321,217 157,423,550 n/a 23 Quindio 158,561,867 159,871,754 162,150,188 119,405,141 180,038,339 163,950,608 129,672,254 14.46 24 Narino 114,555,647 111,151,866 55,689,762 53,023,020 74,408,211 41,710,024 24,353,464 21.08 25 Sucre 90,232,379 126,756,999 86,602,072 47,839,452 47,007,668 28,400,399 16,563,503 2.93 26 Sandres Y Provid 830,591 823,607 1,434,243 3,796,65, 2,295,974 3,180,168 2,484,670 39.15 27 Choco 45,729,214 93,213,915 14,283,654 11,928,365 11,259,009 1,897,858 1,343,580 -11.46 28 Vichada 0 37,334 0 13,012 1,981,732 2,382,939 523,329 -57.54 29 Amazonas 1,200,297 80,844,720 23,958 133,465 26,594 20,775 170,211 719.29 30 Vaupes 114,312 906,084 208,577 104,531 20,677 6,973 153,039 3367.46 31 Guaviare 220,619 24,618 379 4,574 129,432 86,365 116,838 n/a 32 Caqueta 16,204 287,435 33,848 31,587 236,106 614,561 90,368 -78.64 33 Guainia 34,799 378,693 930,309 115,915 222,566 464,921 31,192 -92.68 34 Unknown 7,281,464,335 11,851,687,328 9,731,845,854 10,757,285,929 16,801,703,814 0 0 n/a Source: Departamento Nactional De Estadística-Dane Santander’s Share of Colombia’s Total Exports: 2007-Aug 2013 YTD Santander's Share of Colombia's Total Exports, 2007-Aug 2013 YTD 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2007 2008 2009 2010 2011 2012 AUG 2013 YTD Source: Departamento Nacional de Estadística –Dane 24 Santander’s Export Destinations Rank Description 2007 2008 2009 2010 2011 2012 Aug 2013 YTD % change 2012 YTD - 2013 YTD Total Exports 477,469,183 615,196,978 678,946,432 448,020,789 633,534,109 713,726,447 734,017,970 52.9 1 USA 63,791,286 64,746,916 106,024,671 159,856,010 211,159,046 213,181,134 177,131,944 20.4 2 Spain 5,960,555 8,821,101 27,923,673 57,973,473 92,807,762 96,194,187 89,226,175 45.6 3 Venezuela 166,754,786 330,429,775 340,244,777 17,378,958 23,800,192 58,944,645 83,545,000 121.1 4 Trinidad and Tobago 58,430 59,951 649,178 119,687 335,089 98,858 67,652,292 786,906.0 5 Netherlands 4,751,591 1,319,441 721,872 346,796 1,202,859 961,607 33,594,849 3,713.0 6 Canada 5,181,756 13,264,621 8,820,725 13,385,425 16,404,644 8,532,585 30,567,877 394.4 7 Ecuador 19,229,020 17,240,603 25,059,549 31,466,087 43,031,485 54,147,417 30,359,640 -19.7 8 Peru 1,126,207 1,323,384 8,079,502 12,531,720 21,008,836 35,156,790 26,157,107 18.9 9 Brazil 1,526,953 1,159,955 5,085,257 8,023,952 20,270,489 28,008,268 24,170,810 35.7 10 Germany 29,811,716 15,115,203 8,906,461 6,795,735 33,112,436 26,469,109 22,359,800 30.8 11 Chile 274,585 221,629 4,459,088 7,441,857 18,943,614 31,023,326 20,708,697 -.29 12 Mexico 4,471,309 4,781,990 12,378,203 18,513,763 26,382,518 30,170,729 20,157,383 -8.8 13 China 3,323,254 2,313,821 610,845 9,284,703 26,917,078 30,490,102 13,883,850 -31.7 14 Dominican Republic 3,403,487 1,883,214 4,010,694 3,879,732 4,996,246 12,822,158 9,901,802 33.0 15 Argentina 88,281 1,049,236 3,620,736 7,122,167 12,637,890 14,982,424 9,657,910 5.1 16 Panama 5,321,428 6,931,858 9,053,192 6,427,092 5,607,184 2,896,187 7,705,566 333.5 17 Belgium 10,456,522 9,222,700 3,882,553 3,346,549 2,401,106 1,098,899 7,327,818 733.5 18 Japan 6,152,834 8,010,745 3,817,344 2,392,360 5,860,048 2,331,968 5,032,996 197.0 19 France 2,728,723 8,855,443 5,272,651 3,211,909 2,967,025 4,683,586 4,929,448 116.4 20 United Kingdom 5,339,764 5,776,721 8,642,425 15,123,366 14,293,069 2,251,558 4,800,091 210.0 Source: Departamento Nacional de Estadística - Dane Santander’s Top 20 Export Commodities Rank HS Description 2005 2006 2007 2008 2009 2010 2011 2012 Aug 2013 Code YTD Total All Commodities 54,632,970 48,410,535 166,754,786 330,429,775 340,244,777 17,378,958 23,800,192 58,944,645 86,545,000 Total Non-Oil Exports 50,976,952 47,407,489 165,309,808 330,062,021 334,862,538 12,595,054 11,123,475 42,145,875 77,641,404 1 2 Meat and Edible Meat Offal 5,556,828 3,182,750 80,405,702 203,748,841 251,912,981 0 801,504 12,765,991 69,320,559 2 27 Mineral Fuel, Oil; Bitum Subst; Mineral Wax 3,565,018 1,003,046 1,444,978 367,754 5,382,239 4,783,904 12,676,717 16,798,770 8,903,596 3 73 Articles of Iron or Steel 329,230 256,657 1,040,780 1,168,659 1,299,234 294,897 428,066 11,314,392 5,179,074 4 84 Industrial Machinery, Including Computers 1,595,645 1,477,345 2,372,461 5,051,760 6,446,574 438,556 1,271,999 2,048,567 532,653 5 1 Live Animals 16,710,603 8,547,580 3,921,195 3,559,723 4,693,479 0 0 6,113,354 486,400 6 94 Furniture; Bedding; Lamps; Prefab Beds 126,485 1,183,031 1,120,468 428,610 34,304 10,749 128,517 1,339,171 447,305 7 87 Vehicles and Parts, Excpet Railway or Tramway 9,977,602 10,978,581 16,477,291 14,080,015 17,358,593 9,014,376 1,897,665 1,720,750 357,699 8 24 Tobacco and Manufactured Tobacco Substitutes 901,353 1,079,786 52,650 0 119,452 0 0 61,290 304,556 9 52 Cotton, Including Yam and Woven Fabric Therof 543,515 115,083 2,973,167 3,269,432 1,022,518 0 501,868 1,546,080 254,599 10 29 Organic Chemicals 4,066,579 5,379,683 5,536,783 6,078,238 2,373,836 221,442 629,208 754,959 217,411 11 55 Manmade Staple Fibers, incl. Yarns & Woven Fabrics 0 72,000 97,978 286,877 57,512 63,308 98,384 5 147,970 12 56 Wadding, Felt; Sp Yarn; Twine, Ropes 227,791 271,814 294,400 251,581 38,466 104,050 98,486 292,459 83,117 13 62 Apparel Articles and Accessories, Not Knit 1,627,279 3,493,270 13,198,353 10,480,852 2,595,082 708,721 1,712,916 1,924,294 74,145 14 48 Paper & Paperboard & Articles (Inc Pulp) 19,182 63,116 44,555 174,620 651,890 0 45,057 89,788 67,030 15 39 Plastics and Articles Thereof 28,288 115,731 896,765 1,236,601 1,381,147 59,196 322,210 208,749 46,055 16 44 Wood and Articles of Wood; Wood Charcoal 40,800 256,323 851,134 1,799,551 412,677 42,600 17,500 81,342 31,567 17 96 Miscellaneous Manufactured Articles 356 0 22,693 88,229 0 0 0 0 24,711 18 28 Inorganic Chemical; Previous & Rare-Eart 0 0 1,958,800 3,039,900 244,050 0 1,728 0 24,491 19 61 Apparel Articles and Accesories, Knit or Crochet 508,254 1,148,612 5,039,024 4,233,276 1,219,079 265,844 654,514 707,093 19,318 20 70 Glass and Glassware 10 50,816 362,193 418,071 158,616 23,268 138,967 234,841 9,679 Source: Departamento Nacional de Estadística -Dane Exports of Santander-Made Goods Exports of Santander-Made Goods, 2007-13 800,000,000 700,000,000 600,000,000 500,000,000 400,000,000 300,000,000 200,000,000 100,000,000 0 25 2007 2008 2009 2010 2011 2012 AUG 2013 YTD Santander’s Exports to Venezuela Trade with neighboring Venezuela merits separate examination, given its traditional importance to Bucaramanga’s small manu- facturers as their primary export market. Due to deteriorating political relations between the two countries, Santander’s exports to Venezuela plunged from about a third of a billion dollars in 2009, to almost nothing in 2010. Since then, there has been a slow rebound in bilateral trade between the two neighbors, benefitting Santander’s economy (mostly meat producers). Santander’s Top 20 Exports Commodities Rank HS Description 2007 2008 2009 2010 2011 2012 Aug 2013 Code YTD Total All Commodities 477,469,183 615,196,978 678,946,432 448,020,789 633,534,109 713,726,447 734,017,970 Total Non-Oil Exports 466,681,924 583,893,230 512,995,875 203,743,454 200,918,214 186,550,215 203,132,512 1 27 Mineral Fuel, Oil, Bitumen, Mineral Wax 10,787,259 31,303,748 165,950,557 244,277,335 432,615,895 527,176,232 530,885,458 2 2 Meat and Edible Meat Offal 80,405,702 204,010,878 253,611,608 2,239,854 2,398,395 12,979,187 69,638,084 3 9 Coffee, Tea, Spices 138,351,105 113,007,003 64,275,191 70,499,815 114,597,474 68,938,462 42,398,163 4 24 Tobacco and Manufactured Tobacco Substitutes 3,066,807 4,933,087 4,364,256 2,068,144 1,008,887 6,105,111 25,567,101 5 29 Organic Chemicals 11,653,856 13,005,876 12,376,885 21,186,339 9,226,414 11,011,723 11,517,559 6 87 Vehicles and Parts, Except Railway or Tramway 20,115,599 19,561,975 23,524,620 19,308,115 14,369,988 15,418,639 8,609,653 7 84 Industrial Machinery, Including Computers 8,861,326 11,337,799 13,459,060 8,336,800 11,153,917 11,718,251 6,245,452 8 73 Articles of Iron or Steel 1,297,239 1,907,861 2,697,472 640,780 2,002,771 12,536,123 5,902,127 9 18 Cocoa and Cocoa Preparations 76,012 156,408 1,800,805 3,681,029 1,463,827 2,554,764 4,715,601 10 15 Animal or Vegetable Fats, Oils & Waxes 2,610,647 4,915,325 6,113,430 13,926,102 9,452,191 1,767,734 4,563,456 11 39 Plastics and Articles Thereof 2,605,817 2,870,101 3,755,032 5,530,548 4,171,087 5,259,442 4,246,716 12 62 Apparel Articles and Accesories, Not Knit 27,530,635 22,245,040 9,474,469 7,030,915 6,440,337 6,450,059 4,002,584 13 64 Footwear, Gaiters and Parts Thereof 13,636,643 11,400,985 7,004,583 3,848,242 6,394,892 6,295,822 2,667,701 14 41 Raw Hides and Skins (No Furskins) and Leather 1,571,729 8,519,915 5,390,216 516,196 2327,289 204,798 1,656,065 15 61 Apparel Articles and Accessories, Knit or Crochet 9,844,349 8,428,151 4,406,784 3,627,888 4,179,823 3,604,234 1,652,696 16 85 Electric Machinery; Sound Equip; TV Equip; Parts 227,432 551,186 3,265,840 1,161,527 1,089,920 639,363 1,102,771 17 60 Knitted Or Crocheted Fabrics 1,849,472 2,579,686 1,745,081 1,629,072 2,056,382 1,640,365 1,002,938 18 52 Cotton, Including Yarn and Woven Fabric Thereof 6,730,275 3,269,432 1,031,854 0 508,070 1,546,080 882,179 19 17 Sugars and Sugar Confectionery 31,308 253,494 273,300 331,917 534,078 608,994 733,388 20 94 Furniture; Beddings; Lamps; Prefab Beds 1,413,486 462,245 42,603 199,865 813,867 1,670,554 650,686 Source: Departamento Nacional de Estadística -Dane Source: Departamento Nacional de Estadística –Dane Exports of Santander-Made Goods to Venezuela, 2005-13 350,000,000 300,000,000 250,000,000 200,000,000 Exports of Santander-Made Goods to Venezuela, 2005-13 150,000,000 100,000,000 50,000,000 0 2005 2006 2007 2008 2009 2010 2011 2012 AUG 2013 YTD 26 Excerpt from Santander’s Regional Competitiveness Plan Santander’s Regional Competitiveness Commission was the first one in the country to create a strategic plan for its region. In addition to being a pioneering effort, the plan and its implementation are often cited around Colombia as an example of the successful regionalization of the national economic competitiveness agenda – selecting those aspects of it that apply to a given department. The 25-year Regional Competitiveness Plan for Santander was formulated in 2007, then updated in 2012. To help make Santander the most competitive department in the country by 2032, three “strategic pillars” were identified to drive its economic development: cluster development; formalization and entrepreneurial development; and internationalization. These pillars were supported by four cross-cutting “strategic lines” enabling them: infrastructure; the development of science, technol- ogy, and innovation; metropolitan integration and strengthening; and government transparency and efficiency. Below is a closer look at these pillars and strategic lines, and how they were implemented as priorities identified in the strategic plan. 27 The implementation of each item in the strategic plan was -- Identification of priority sectors for Santander: An assigned to a specific task team, consisting of RCC and/or analysis was conducted before identifying or priori- Bucaramanga Chamber of Commerce staff, representatives of tizing key industries to ensure that initiatives accen- government agencies (national as well as local), universities, tuated competitive advantages and were adaptable the business community, and various other stakeholders, to global trends. For instance, a chart was developed as applicable. Through a multi-month consultative process, to plot each of the region’s existing industries. They specific objectives were established, to be achieved according were analyzed in terms of their existing size and to set timelines. Potential risks and resources required to strength in the region versus their competitiveness accomplish the objective, where applicable, were also includ- in the future global economy. The placement of the ed. The schematic below is an example of an action item from firms on the chart helped identify which sectors the strategic plan, this particular one focused on establishing would become priority sectors if scaled up, which an agency to attract foreign direct investment (now known sectors needed to be developed further to become as Invest in Santander, and housed within the Bucaramanga a competitive strength, which sectors needed more Chamber of Commerce): in-depth research or improvements to become more competitive globally, and which sectors needed an The research department of the Bucaramanga Chamber of overall transformation. Commerce monitors progress made on an ongoing basis, and these metrics are then fed into the next round of strategic -- Workshop for identified sectors to adopt a common plan updates. A summary of the process is below. language and framework 1. Cluster Development: The regional competitiveness b) Development Initiatives: The RCC and its partners plan established a process to identify priority sectors, worked with stakeholders to ensure a sufficient degree take steps for their further development, and improve of buy-in, without which proactive cluster development the conditions and factors affecting each sector. The strategies cannot succeed. Several analyses were RCC’s work was based on a close familiarity with Michael carried out for the development of particular clusters, Porter’s cluster theories (and he actually visited Bucara- not necessarily by outside consultants (often by the manga last year for a conference). Chamber’s or university researchers). a) Sector Awareness: Relying on the highly sophisticated -- Companies’ will to improve their cluster in-house economic research capabilities of the Bucaramanga Chamber of Commerce, a dedicated task -- Consultant services for cluster development team under the RCC umbrella worked to identify sectors of the local economy that have a strong concentration c) Business Environment: These are improvements to of existing businesses and employment, sector assets the general business environment, some of which (like R&D facilities and educational programs), and disproportionately favor the development of specific market prospects for further industry growth, both targeted industries – for example, industry-specific nationally and globally. The RCC worked to standardize training programs. the terminology used, so that all stakeholders – and -- Recognition of conditions specific to each cluster particularly companies from a given industry cluster – were referring to the same things during consultative -- Talent formation sessions. They worked with various stakeholders to explain the concept of cluster-based economic -- Public and private-sector transparency and efficien- competitiveness, and how it can be enhanced. cy 2. Formalization and Entrepreneurial Development: With rates of informality exceeding the national average, bringing businesses in Bucaramanga and Santander into the formal economy was and is a priority. Further, rais- ing firms’ productivity was seen as one of the only paths to sustained growth. Improving firms’ engagement, interaction, and community participation were also seen as important. a) Facilitation of Formalization: In collaboration with national agencies such as Findeter and local government officials, assisting companies in various industires (not just the targeted clusters) to formalize, thereby enjoying access to the financial system, export assistance, etc. in return for paying business taxes and social contributions. 28 -- Agreements with municipalities to adopt a joint from a very low base, the region’s tourism industry has strategy for formalization been developing rapidly, and now boasts 58 hotels, a new convention center in Bucaramanga, and the Chicamocha -- Simplification of procedures (inspection visits, National Park, established through public investment. building permits, establishment of a Business Ser- Chicamocha is now having a clustering effect of other vices Center in Floridablanca) tourism-related businesses (Orlando-style), including numerous adventure and nature tourism attractions and -- Carrying out a business census in 2009 an Aquatic Park. -- Building confidence among entrepreneurs -- Training programs and certification b) Productivity Improvements: The Bucaramanga -- Development of a tourism marketing plan and infor- Chamber of Commerce and its partner entities work mational materials, including a website with universities and firms across industries to help them improve their business processes, develop -- Product development, including bird-watching, his- better technological solutions, thus becoming toric sights, health tourism, and ecotourism more productive and profitable. Specific activities include training workshops, application for national -- Participation in existing international trade fairs funding for industrial restructuring, and fostering and events, and organizing tourism marketing closer collaboration with university researchers and events and workshops in Santander and abroad instructors. -- Establishment of a tourism network to research the -- Formulation and implementation of projects to market and promote the region overseas, including improve productivity in existing sectors enlisting the support of Colombians living abroad to serve as ambassadors of Santander tourism -- Transfer of technology and know-how to improve business productivity -- Establishment of a Convention Bureau to guide the short-, medium- and long-term development of c) Sustainability: The RCC and Chamber have enjoyed Santander’s tourism industry much success in tapping corporate foundations and similar funding sources for various initiatives helping b) Attracting foreign direct investment: Based on the Bucaramanga’s SMEs and environment. strategic plan’s recommendation, Invest in Santander agency was established within the Bucaramanga -- Improving Corporate Social Responsibility among Chamber of Commerce. In collaboration with the Zona Santander companies Franca Santander, local governments, and ProExport Colombia, the initiative has had some significant -- Professionalization of corporate boards successes in recent years, attracting a call center from Arvato/Bertelsmann employing over 1,000 people, and d) Entrepreneurship: The Chamber holds entrepreneurship Bucaramanga has recently been featured in several global training programs (subsidized from its own funds if site selection publications, such as the Financial Times the trainees can’t pay, such as a startup firm). While fDi Intelligence. networking in Bucaramanga has improved and there have been some angel investors supporting new business -- Preparation of a guide for international investors, ventures, there is no meaningful emergence of US-style and its dissemination VC funds. -- Modelled after Invest in Bogota, establishment of -- Promoting the creation of venture capital funds an investment promotion agency for Santander to assist existing and new investors with projects, and -- Promoting entrepreneurship clearly defining who will be in charge of it. -- Formation of an entrepreneurial network -- Creation of an environment favorable for foreign 3. Internationalization: With Colombia’s greater open- investment, including clear investment policies and ness to the outside world, international economic link- incentives, and development of a bilingual work- ages were seen as a key area of opportunity to stimulate force. growth in the local economy. Trade, logistics, FDI, and -- Identification of sectors with the greatest potential tourism were all included in the plan. to attract FDI, and targeting promotion efforts a) Promotion of international and domestic tourism: The accordingly RCC identified tourism as one of the main job-creation c) Promotion of foreign trade: The strategic plan identified engines for Santander’s next economy. Although starting exports as an obvious area of growth opportunity for 29 Santander’s companies. Various programs, funded from tation in Santander (road, air, river, urban mass transit, both national and local sources, have been put in place and tentatively rail, should the national government to assist local companies to sell overseas, such as the make progress on that front), plus electrical power gen- training at Universidad de Santo Tomas and ProExport’s eration and distribution, water resources management Formacion Programa Exportadora, which identifies new and supply, waste management, and the construction of companies that may be able to export their goods and/ affordable housing. In practice, practically all infrastruc- or services. Yet results remain fairly modest, with only ture initiatives fell outside the remit of the Commission, 370 firms actually exporting (of which about two thirds so it was up to government agencies at different levels are in the garment industry, collectively exporting just (municipal, departmental, or national) to implement US$22 million). Oil still accounts for about two thirds them. Still, these initiatives played a role in boosting of the US$1 billion in annual exports from the region, Santander’s economic development (e.g. the reconstruc- though this does not include fast-growing services tion and expansion of Bucaramanga’s airport is of vital exports like education, healthcare, tourism, and BPO. economic importance for tourism, exports of health ser- vices, precision manufacturers, and business in general). -- Exporter training programs 5. Science, Technology, and Innovation: Initiatives -- Market diversification in science, technology, and innovation (STI) are seen as absolutely critical to Santander’s efforts to build a new -- Attending trade shows and other international knowledge-based economy. The plan places a particular events emphasis on strengthening the ties between area uni- versities and the private sector, with local government -- Identification of new exportable/competitive prod- playing a convening role, and the national government ucts in the region for marketing abroad, including providing important sources of funding. those commercialized from university research a) Committee on University-Business-Government -- Annual business conference sponsored by the Mayor Cooperation (Comité Universidad Empresa Estado – of Bucaramanga (Gran Rueda Internacional de Nego- CUEES) cios – GRIN). Bringing together local producers with national and international buyers -- Dynamic engagement of most entrepreneurs taking part in CUEES d) Consolidation of logistics platforms and free trade zones: The strategic plan aims to build on Bucaramanga’s -- Institutionalizing PROMOVER as the principal strategic location between Bogota and the Atlantic coast regional event for cooperation between universities, to attract logistics and distribution facilities. Within the government, and the private sector Zona Franca as well as throughout the area, facilities are being readied to accommodate greater freight flows once -- Increasing the number of research and innovation present infrastructure upgrades are completed. A key projects carried out in partnership between business strategic priority is also attracting commercial air service and the universities to Miami, seen as a vital enabler for several development priorities. b) Funding STI initiatives: -- Taking advantage of the national policy on free trade -- Proposing projects to fund zones and logistics to develop them in Santander and its metropolitan area -- Allocating 2 % of regional GDP for investment in STI -- Supporting individual logistics projects, including by creating appropriate committees to monitor and -- Ensuring that 50% of investment in STI be by the support the entities involved private sector -- Promoting aviation and attracting major interna- c) Strengthening scientific capacity tional logistics operators involved in foreign trade -- Strengthening scientific institutions with the re- As noted above, the Regional Competitiveness Plan provided gion’s existing and emerging industries of strategic that the three pillars of Santander’s economic development importance be enabled by four cross-cutting “strategic lines”: infrastruc- ture; science, technology, and innovation; metropolitan -- Promoting a culture of intellectual property integration and strengthening; and government transparency -- Promoting the development of scientific capacity in and efficiency. children and youth 4. Infrastructure: The Regional Competitiveness Plan d) Institutional strengthening envisaged the upgrading of all major modes of transpor- 30 -- Strengthening Unired (Network of Universities and local consensus in favor of proactive economic development Research Centers of Eastern Colombia) efforts, and working collaboratively to reach that US$20,000 target in per capita GDP as soon as possible. -- Fostering collaboration between CUEES and CO- DECYT National Agencies -- Commissioning of the Guatiguará Technology Park. Several Colombian national government agencies have a -- Strengthening the local technology business incu- role in local and regional economic development, covering bators a variety of functional areas like planning, infrastructure, workforce development, scientific research and technology -- Strengthening the Bucaramanga Interactive Science development, capital access, and international trade and and Technology Park – Neomundo investment. Individual agencies are tasked with administer- ing specific programs designed to strengthen the competi- 6. Metropolitan Integration and Strengthening: The tiveness of the Colombian economy and those of its regions. elimination of administrative barriers to investment These key agencies include: and growth within Santander’s only metropolitan area is seen as a key strategic priority. Consolidation of the four National Competitiveness and Innovation Commis- municipalities of Bucaramanga, Floridablanca, Piede- sion (Comisión Nacional de Competitividad e Inno- cuesta, and Giron into a unified Bucaramanga metro- vación – CNCeI) is headed by the President of the Republic, politan area is something its Chamber of Commerce has and includes the heads of various central government agen- been advocating for some time. cies with a role in economic development, representatives of Colombia’s departments and municipalities, labor unions, 7. Efficient and Transparent State: In line with devel- universities, think tanks, and the private sector, including opments in the rest of Colombia, there is an increased industry guilds and the national association of chambers emphasis on government agencies serving the citizen. of commerce (Confecámaras). The Commission meets once a Elimination of corruption and waste, and responsiveness month to assess the status of the national competitiveness to citizens’ needs agenda. The President’s competitiveness advisor14 cites infra- structure, foreign trade, productivity, and more resources to The strategic plan’s priorities outlined above are numerous, help companies innovate and export as the top priorities for and with a variety of entities and individuals responsible for the Commission at the present time. Out of 109 current ini- their implementation. There is no dedicated source of funding tiatives to promote competitiveness, 20 have been identified for these priorities, but Santander has actually been the most as top priorities by the Commission. successful department in the country in terms of preparing timely applications for funding from national sources (chan- Financiera del Desarrollo Territorial (Findeter) is the neled through various agencies) and submitting winning country’s main public development fund and grant adminis- proposals. In addition to national funds, Bucaramanga’s trator. Findeter supports funding by financial intermediaries business community has generously contributed to economic to municipalities and companies providing public services. development initiatives, both financially through the Cham- Working through local government partners, Findeter focus- ber of Commerce, and in-kind in various ways – through es on urban and geospatial development and environmental the engagement of top executives, mentoring programs, and sustainability (e.g. through its Sustainable Cities program), utilizing their vast relationship capital in Bogota and abroad as well as the formalization of family-owned and other small to create new market opportunities for local firms. businesses. As noted, the strategic plan has no formal mechanism to Bancoldex, Colombia’s trade and development bank, pro- compel anyone to do what they commit to. There are no vides export finance and financial assistance to Colombian rewards or penalties built into the process, just the power of firms (but only formal ones – this does not cover the 43% persuasion and a sense that all have a stake in the economic of companies in the informal sector). The President’s office fortunes of their city and region. Through the Chamber, pro- develops guidelines for funding programs, like the fund for fessional associations, and other civil society organizations, the development of SMEs. the business community does not hesitate to lobby public officials to invest in their priorities, including education and Programa de Transformación Productiva (PTP), a infrastructure, especially transport. Bancoldex affiliate, supports individual companies in 20 des- ignated industry sectors, in coordination with the regions, by Progress is monitored by relying on the exceptionally strong providing technical assistance, management know-how, and research capabilities of the Bucaramanga Chamber of working to address remaining administrative impediments Commerce, as well as national benchmarking reports such to their formalization and growth. PTP’s activities represent as those from CPC and CEPEC/URosario, plus international rankings compiled by the IDB, World Bank (Doing Busi- 14 In person interview with Dr. Jaime Bueno Miranda, Senior ness), ECLAC, WEF, and others. There appears to be a strong Presidential Advisor for Competitiveness and Strategic Projects, Presidency of the Republic of Colombia, in Bogota, DC, on March 31, 2014. 31 a national-level “bet” on specific industries as drivers of eco- Colombia’s National Learning Service (Servicio Na- nomic prosperity. cional de Aprendizaje – SENA) is the country’s workforce development agency, which works very closely with universi- INNpulsa, another key affiliate of Bancoldex, provides both ties, local and regional government, and employers to ensure funding and technical assistance to SMEs in particular, the supply of skilled workers for the jobs that need to be through direct support, matching grants, microfinance, train- filled. Most notably, SENA designs and implements (often in ing workshops, and dedicated funds aimed at fostering inno- collaboration with local educational institutions) customized vation, such as Rutas Competitivas and MiPYME’s “productive training programs needed by individual companies, usually chains” initiatives. paid for by the national government. This gives local eco- nomic developers a key competitive tool in the race to attract The Ministry of Commerce, Industry and Tourism investors. (MinCIT) also supports entrepreneurship and sectoral development, both directly and through its institutional Colciencias (Colombia’s equivalent of the National Science affiliates, such as the public-private partnership known as Foundation in the United States) provides funding for fun- the Centro Nacional de Productividad or the Fondo Nacional de damental as well as applied university research in a variety Garantias. This support can be in the form of funding and/or of scientific disciplines, helping knowledge creation and the guarantees, know-how, or simply the convening power of the commercialization of technologies. Scientific research also national government to bring together disparate institutional benefits from the legal provision that 10% of royalties from actors. MinCIT also conducts very detailed monitoring and national resources in Colombia be set aside for scientific evaluation (M&E) of the national government’s investments research. in economic development, which helps to ensure accountabil- ity and a focus on results. Testing of Standardized Research Hypotheses Department of National Planning (DNP) is responsible for Colombia’s overall National Development Plan (currently As noted in the report’s Introduction, this is the first in a for the period 2010-2014), which includes economic develop- series of case studies of economically successful cities around ment as one of its priority areas along with social and human the world. In order to ensure comparability of “teachable development. DNP has an important role in channeling moments” across all case studies, a set of standardized hy- national funding for critical enabling investments such as potheses was tested in Bucaramanga to determine the exact infrastructure to Colombia’s departments and municipali- scope for research at the metropolitan level, factors that may ties. DNP also supports select individual initiatives such as have most affected how those prerogatives were used, and the nationwide network of technology development centers the extent to which specific interventions (and how they were (Centros de Desarrollo Technologico), which foster entrepreneur- implemented) may have resulted in the economic outcomes ship and industry-academia collaboration. DNP also provides observed. assistance and sometimes funding to regions to determine their own areas of competitive advantage to target for proac- The first hypothesis tested seeks to determine to what extent tive interventions. Bucaramanga’s economic results were attributable to proac- tively picking sectors to support, the second one looks at the ProExport Colombia is the country’s trade, tourism, and strategic planning process itself and how it may have affected investment promotion agency. It follows a targeted sector economic growth, and the third one looks at the plan’s imple- strategy in both investment attraction and export facil- mentation. itation, with a particular focus on high value-added and “non-traditional” sectors of the economy, such as ICT or BPO. 1. Bucaramanga’s economic success is attributable In trade, ProExport has in place a variety of programs to to its having made strategic bets on specific support Colombian exporters (again, limited to formal firms), industrial initiatives, rather than just making including trade shows, export development missions (in- improvements to its general investment climate bound and outbound), buyer/seller match-making, and sub- in order to stimulate economic activity. Although sidizing overseas trips for Colombian firms trying to export. national and local-level improvements to the business In FDI attraction, ProExport works with Colombia’s cities and climate have helped the achievement of superior eco- regions to help them articulate their individual value proposi- nomic outcomes, proactive initiatives are likely to be the tions for international investors, set up their own investment greater part of the reasons for Bucaramanga’s success. promotion entities if interested, and to share experiences and Bucaramanga has benefitted from a favorable and best practices amongst such regional entities. ProExport also improving business climate at the national level, emphasizes investor aftercare, regularly following up with including improved security and public safety, foreign investors after the transactions are completed. ProEx- greater transparency and reduced corruption, better port maintains a network of international offices around the connectivity (telecommunications and transport), world, as well as eight regional offices throughout Colombia, greater market competition, reduced barriers to including a highly active office in Bucaramanga which covers external trade and investment, streamlined busi- part of eastern Colombia. ness regulation, and systematic efforts to formalize 32 informal companies. Local-level business climate manufacturing (such as tooling and equipment improvements include massive public investment in for the oil industry), education services, education, poverty reduction, the provision of infra- healthcare (including medical tourism), BPO, structure and public services, and simplification of and logistics. company registration procedures for entrepreneurs (one-stop). c. In pursuing its proactive economic development initiatives, Bucaramanga has pursued an Proactive economic development initiatives which integrated, three-pronged approach to are likely to have contributed to Bucaramanga’s business development: nurturing the growth of economic success include industry sector targeting, its existing firms, fostering the establishment establishment of the Invest in Santander promotion of new start-up companies, and striving to agency and Zona Franca free trade zone, estab- attract new investment from outside the region. lishment of entrepreneurial networks and support Companies in traditional sectors got assistance services, design and implementation of industry to improve their productivity, internationalize and even firm-specific (customized) worker train- (i.e. begin exporting, and perhaps investing ing programs, strengthening industry-academia abroad), and ultimately adapt to global collaboration in specific sectors, building dedicated competition. In innovative, non-traditional facilities such as research labs, a convention cen- sectors Bucaramanga provided entrepreneurial ter, and the Chicamocha National Park, as well as assistance through heavily subsidized programs upgrading the airport (to boost tourism, but also and limited incubation services. Finally, by industries dependent on time-sensitive delivery). establishing a dedicated IPA within its Chamber There are no sector-specific tax incentives; however, of Commerce, Bucaramanga has stepped up to lower business tax rates apply if investors locate in attract outside investors, bringing capital, jobs, FTZs. Beyond these proactive initiatives at the local/ know-how, and integration into global supply regional level, Bucaramanga has been exception- chains. ally successful at tapping into national sources of financial and technical support (often directed at 2. The likely trajectory Bucaramanga’s economic specific industry sectors), such as export-assistance performance was altered by specific policy inter- programs, innovation grants, entrepreneurial assis- ventions provided for in its strategic plan. Around tance, formalization programs, and infrastructure/ 2006-07, Bucaramanga started formulating its existing project funding. Ingredients of success: strategic plan for economic development. The plan was created in response to mounting external competitive a. As an economically successful city, threats (e.g. free trade agreements with more productive Bucaramanga has no single dominant economies), and an increasing awareness that Bucara- theme – its success is attributable to the manga’s economic structure would have little choice but interplay of several key factors. Probably the to undergo a transformation or face a precipitous drop most important single factor, although on its in activity. While it is difficult to prove a counterfac- own insufficient to explain this metropolitan tual (i.e. how much worse Bucaramanga’s performance economy’s success, is the comparatively high would have been in the absence of any interventions), level of human capital. This has resulted in empirical evidence from other episodes of trade-induced higher adaptability and enabled Bucaramanga’s shocks around the world suggests the drop could have transition into a knowledge-based economy.15 been substantial. By proactively working to nurture the emergence of the next economy, Bucaramanga not only b. Bucaramanga has focused its proactive avoided a contraction, but actually started to outpace its economic development efforts on developing national economy by an even wider margin than before industries producing tradable goods and the creation of a strategic plan for economic develop- services, including oil & gas, tourism, ment. food processing, ICT, high value-added Bucaramanga’s strategic planning process included: 15 For example, politically, the RCCs didn’t work; the National level a. Robust analytics to guide decision-making set up a framework but didn’t give guidance on implementation or funding and strategy formulation, based on an intimate to pay for the time of qualified professionals. The differentiators for why Santander Competitivo was one of the most successful RCCs in the country familiarity with global best practices in cluster were the support of the Chamber of Commerce and ability of professionals development theory, benchmarking, and within Santander Competitivo. This development capacity included the goal setting, relying on the superb economic ability to effectively use tools like INNpulsa and partner universities; to research capabilities of the Bucaramanga identify goals and prioritize project proposals to obtain funding; to employ Chamber of Commerce. systemic approaches to collaboration and implementation; and to utilize prior collaborative development plans that had simply lacked funding. 33 b. A structured but not highly formalized on policy priorities, but not for evaluating planning process to: trade-offs between different public investment alternatives, such as through cost-benefit -- Identify key economic development issues analyses. This is because the strategic plan Bucaramanga was facing, including the prepon- generally did not include monetary allocations derance of micro and small enterprises with for specific interventions – indeed, the RCC very few large firms, high rates of informality itself was not initially funded, and later received (inhibiting access to finance, support programs, miniscule amounts of funding (US$7,000) from and therefore growth), low capital investment the national government. The Bucaramanga and slow product innovation, heavy reliance Chamber of Commerce continues to house the on making commoditized products with low RCC on its own premises, offering operational market differentiation, low export intensity, an assistance from its own staff, as well as other excessive reliance on the neighboring Venezue- resources. Inasmuch as the strategic plan called lan market, incomplete market information, in- for specific capital investments to be made adequate transport infrastructure, the absence (e.g. for transport infrastructure), it relied of entrepreneurial networks and sector associa- on its partner entities for implementation tions, and poor knowledge of English. and funding (e.g. the national Ministry of Transport, or the departmental government). -- Identify the city’s main competitive strengths, such as high levels of human capi- 3. The level of autonomy enjoyed by Bucaramanga tal, the presence of several excellent universities and Santander in economic development (the with advanced research facilities, expertise in equivalent of the “Mayor’s Wedge”) was a sig- the oil & gas industry – including Ecopetrol and nificant factor in being able to push through its research institute, some of the best health- interventions resulting in improved economic care providers in Colombia, exceptional natural outcomes. In a decentralized country like Colombia, its beauty and tourism potential, a better security administrative units (departments and municipalities) situation than much of the country, a strategic have much fiscal power and institutional ability to make geographic location between Bogota and the At- and implement decisions at their respective levels. Polit- lantic coast, and highly engaged private sector. ical legitimacy stems from the fact that mayors and gov- ernors are popularly elected for single four-year terms, -- Formulate a vision of progress Santander as a without the possibility of reelection. Funding for local whole can make in 25 years (by 2032), includ- programs comes from taxes and oil royalties, allowing ing specific measures to address its challenges for discretionary authority over spending decisions. and to capitalize on the region’s competitive strengths. However, in Bucaramanga’s case proactive eco- nomic development initiatives were led by the c. Assembling a “growth coalition” at private sector, organized through the Chamber of the department level, under the banner of Commerce. The Chamber has been a driver of the the Regional Competitiveness Commission area’s economic competitiveness agenda – since this (Santander Competitivo). The RCC brought directly impacts its membership – in partnership together representatives of the departmental with government, academia, and other stakeholder and municipal governments, universities and groups. Characteristics: the scientific community, the private sector (the Chamber of Commerce and industry a. The Bucaramanga Metropolitan Area does not associations), labor unions, the national have a dedicated economic development oil company Ecopetrol, and the national agency as such, or even a metropolitan-level workforce training agency (SENA). Such broad government for that matter, however there are representation of diverse stakeholder groups agencies at the departmental level. from the public and private sectors, as well as academia and civil society, ensured that the -- Institutionally fragmented between four mu- strategic planning process was not captured nicipalities, the metro area has a coordinating by any specific interests, but representative body for projects of area-wide significance such of the region at large. Santander’s plan was as transport and water supply/sewerage, but a grassroots effort, not imposed from above, its responsibilities do not include economic so stakeholders have a very real sense of development. Individual municipalities tackle ownership and care about its outcomes. select local economic issues such as targeted assistance to low-income and vulnerable groups, d. Strategic decision-making and and participate in the RCC. Every elected official prioritization: Bucaramanga utilized a in recent years has been supportive of economic structured process for identifying and agreeing 34 growth in the metro area, but without having sources. Its Executive Director is an experienced specific statutory obligations for it. economic development and public policy professional, selected by and accountable to -- At the level of Santander Department, there is all the stakeholder groups participating in a planning department that largely focuses on Santander Competitivo, and has a seat on public infrastructure investments and projects the Board of the Bucaramanga Chamber of of a regional significance. It plays primarily an Commerce. The RCC utilizes the Chamber’s enabling role in economic development, and IT infrastructure and many other kinds of builds economic competitiveness issues into operational support, as needed. The Chamber’s its long-term regional development plan (but research team monitors progress made on stipulates that their development is the respon- achieving the strategic plan’s objectives, but sibility of the RCC). there are no formal performance incentives (rewards of penalties) systems in place. Still, the -- The RCC (Santander Competitivo) is the con- plan’s implementation has proceeded well even vening, policymaking, and articulation body for in the absence of such mechanisms. economic development in Santander Depart- ment (although in practice that means largely c. Santander’s strategic plan did not just metro Bucaramanga, where 95% of Santander’s involve diverse stakeholder groups in its non-oil manufacturing is located, with a similar implementation; it actually relied on them to portion of its services industries). The RCC’s implement the bulk of objectives set in the existence is provided for in national legislation, plan. For example, the private sector (including but legally it does not exist as a separate entity, the oil company Ecopetrol) provides a lot of nor does it have a dedicated source of funding. the funding, corporate leaders are Santander’s main boosters working to attract outside -- The Bucaramanga Chamber of Commerce also investors and national government funding, fulfils several economic development functions. and the universities collaborate with SENA to In addition to housing the Invest in Santander implement workforce development plans. In the IPA, it provides entrepreneurial training and case of Bucaramanga, domestic firms frequently business advisory/support services to local com- invested in improving the existing climate and panies, and partners with ProExport Colombia seemed less likely to leave in favor of other on trade promotion activities. The Chamber’s attractive business climates. President and Vice Presidents participate in specific economic development projects, such d. Labor unions are present in the consultative as hosting incoming delegations of prospective process and get to express the viewpoints and investors, and promote the city and region at interests of their membership, but in Colombia every turn in their materials and activities. they are not particularly large nor politically influential. b. Internal management: The RCC has just four full-time staff positions, paid for by a mixture of funding from private (majority) and public 35 Bibliography 1. “2013 Top 100 Outsourcing Destinations, Rankings and 7. Doing Business 2013 – Colombian Cities, The World Bank, Report Overview.” Tholons, January 2013 www.tholons. 2013. com/TholonsTop100/pdf/Tholons%20Top%20100%20 2013_Rankings%20and%20Report%20Overview.pdf. 8. Helmsing, Bert: “Partnerships, Meso-Institutions and Retrieved March 2014 Learning New Local and Regional Economic Develop- ment Initiatives in Latin America.” Institute of Social 2. Aguilera Diaz, Maria: “Bucaramanga: Capital Humano Studies, The Hague. The Netherlands. June 2001. www. y Crecimiento Económico” No. 180. Banco de la Republi- ucl.ac.uk/dpu-projects/drivers_urb_change/urb_econo- ca, January 2013. Retrieved from www.banrep.gov.co/ my/pdf_glob_SAP/ISS_Helmsing_.pdf. sites/default/files/publicaciones/archivos/dtser_180.pdf, March 2014 9. International Links and Services for Local Economic De- velopment Agencies. Received from http://www.ilsleda. 3. Bargent, James. “Bucaramanga: Colombia’s Quiet Corner org/leda/agencies-details.php?id=28. 20 March 2014. Starts to Make a Strong Case”. Nearshore Americas, No- vember 2012. Retrieved from www.nearshoreamericas. 10. Pietrobelli, Carlo & Olarte Barrera, Tatiana. “Enterprise com/bucaramanga-colombia-emerging-outsourcing-cap- Clusters and Industrial Districts in Colombia’s Fashion ital/, March 2014 Sector.” European Planning Studies, Vol. 10, No. 5. (2002) Taylor and Francis Group. 4. “Colombia: Economy.” globalEDGE, Michigan State Uni- versity. http://globaledge.msu.edu/countries/colombia/ 11. Santander Competitivo. http://www.santandercompetiti- economy. Retrieved March 2014 vo.org/. 10 March 2014. 5. Samad, Taimur, Lozano-Gracia, Nancy & Panman, Alex- 12. World Investment Report 2013. UNCTAD, 2013. andra: “Colombia Urbanization Review: Amplifying the Gains from the Urban Transition.” World Bank Publica- 13. Sectoral and regional innovation policies: http://www. tions, November 2012. mincit.gov.co/competitividad/. 6. CEPAL & GTZ. “Alianza del sector público, sector privado 14. Source: www.fedesarrollo.org.co/wp-content/up- y academia para el desarrollo productivo y la competitiv- loads/2011/08/WP-No.-32-Financial-services-in-the-Co- idad de Bucaramanga, Colombia”, 2000. Retrieved from lombia-U.-S.-Free-Trade-Agreement1.pdf www.eclac.cl/publicaciones/xml/2/6082/lcr2017e.pdf, March 2014 36 Interviews 1. In person interview with Bucaramanga Chamber of 15. In person interview with Metropolitan Area of Bucara- Commerce leadership in Bucaramanga, Colombia on manga on April 4, 2014. April 4, 2014. 16. In person interview with Guilds of Santander on April 7, 2. In person interview with Dr. Jaime Bueno Miranda, 2014. Senior Presidential Advisor for Competitiveness and Strategic Projects, Presidency of the Republic of Colom- 17. In person interview with University Rectors on April 7, bia, in Bogota, DC, on March 31, 2014. 2014. 3. Presentation by Adolfo Meisel Roca, Member of the 18. In person interview with Nivea Santarelli Franco, Chief Board of Directors, Banco de la Republica (Colombia’s Executive Officer, Zona Franca Santander on April 7, central bank), April 2014. 2014. 4. In person interview with Daniel Mitchel, Research Direc- 19. In person interview with Arvato International Company tor, Acoplasticos, on March 31, 2014. at Zona Franca Santander on April 7, 2014. 5. In person interview with Rodrigo Moreira Silva, Director 20. In person interview with private sector leaders and busi- of Business Development, Department of National Plan- ness owners in Bucaramanga on April 7, 2014. ning, in Bogota, DC on March 31, 2014. 21. In person interview with Augosto Martinez Carreno, Ex- 6. In person interview with Saul Pineda Hoyos, Director ecutive Director of Santander Competitivo and Martha of Center on Competitive Strategies (CEPEC) on April 1, Pinto de Hart, former Executive Director of Santander 2014. Competitivo on April 7, 2014. 7. In person interview with Findeter on April 1, 2014. (or 22. In person interview with Santander’s Governor’s office do we mention all three names?) on April 8, 2014. 8. In person interview with Marco A. Llinas Vargas, Vice 23. In person interview with Luis Eduardo Becerra Ardila, President, Colombian Private Council on Competitive- Universidad Industrial de Santander and Guatiguara ness on April 1, 2014. Technological Park (and staff) on April 8, 2014. 9. In person interview with Juan Mauricio Ramirez, Execu- 24. In person interview with Dr. Victor Castillo, Chief Execu- tive Vice President, Fedesarrollo on April 2, 2014. tive Officer of Fundacion Cardiovascular de Colombia on April 9, 2014. 10. In person interview with Maria del Pilar Granados Gal- vis, Director of Infrastructure and Sustainability, Pro- 25. In person interview with Juan Camillo Beltran Domin- grama de Transformacion Productiva on April 2, 2014. guez, Chief Executive Officer, Bucaramanga Chamber of Commerce on April 9, 2014. 11. In person interview with MINCIT on April 2, 2014. 26. In person interview with Andres E. Mantilla Z., Director 12. In person interview with Mayor of Bucaramanga Luis of Colombian Institute of Petroleum (ICP) on April 9, Francisco Bohorquez and top advisors on April 3, 2014. 2014 13. In person interview with Aura Pimiento, Regional Direc- 27. In person interview with Mediimplantes S.A. on April tor of ProExport Colombia on April 3, 2014. 10, 2014. 14. In person interview with Santiago Pinzon Galan, Execu- 28. In person interview with INNpulsa on April 11, 2014. tive Director, ANDI (and mention regional manager?) on April 3, 2014. 29. In person interview with Juan Carlos Gonzalez, VP for Investment, ProExport Colombia, on April 11, 2014. 37 Coimbatore, India, June 2014 Case Study 2 Coimbatore, India A Private Sector- Driven Success Story Table of contents Introduction 41 Executive Summary 42 The National and State Context 46 Local Context 48 Analysis 54 Factors of Competitiveness 54 Lessons for Other Cities 60 Appendices 63 40 Introduction T his case study of the economic success of the Indian Coimbatore is a story of private sector-driven growth, of indi- city of Coimbatore is one of six in a series of World vidual for-profit firms pursuing market opportunities which Bank case studies of successful metropolitan econo- have resulted in socially desirable economic outcomes. It also mies around the world. The World Bank’s Competitive Cities provides an example of how proactive economic development Knowledge Base (CCKB) project aims to provide city leaders initiatives can be undertaken by diverse actors, in the public with the tools and knowledge for the successful formulation and/or private sectors. and implementation of proactive economic development strategies at the city level. This report is based on primary and secondary research by the World Bank Group’s Competitive Cities Knowledge Base Coimbatore is a landlocked mid-sized city in a lower-middle team16, including two weeks spent in Tamil Nadu, India, in income country, with a manufacturing-intensive economy. June 2014, interviewing government officials in Coimbatore The city has been highly successful in improving the pros- and the state capital of Chennai, as well as members of the perity of its residents, both in absolute terms, and relative to city’s business community. The report also incorporates staff other cities in India. In fact, over the past decade Coimbatore feedback, among others, received at a review event in Wash- has had one of the best performing metropolitan economies ington, DC, in July 2014. in the South Asia Region (SAR) in terms of GDP and em- ployment growth (see “Coimbatore by the Numbers” section This report was prepared by Z. Joe Kulenovic and Drilon below). Gashi, with input and suggestions from Bertine Kamphuis, Fatima Shah, and the broader CCKB team. The joint-TTLs In Coimbatore, the role of the public sector in economic of the CCKB project are Austin Kilroy and Megha Mukim. development has been somewhat limited. Municipal gov- Overall guidance on the project has been provided by Ceci ernments in India do not have statutory responsibility for Sager, Sameh Wahba, Stefano Negri, and Somik Lall as senior economic development, instead focusing on the provision of advisors. basic public goods like infrastructure and public safety. While there is proactive industry targeting by the state government Coimbatore by the Numbers1 of Tamil Nadu, the direct effects of this on Coimbatore have 109% Increase in per capita GDP 2002-2012 been somewhat limited given the absence of state-owned 132% Increase in Gross Value Added per worker 2002-2012 enterprises in the city. 31% Total job growth 2002-2012 Average Annual Growth 2007-12 3.2% Average annual GDP growth 2002-2012 12% 222% of average national per capita income in 2012 10% Source: Oxford Economics Data (2013) and World Bank staff estimates (2014). 8% 6% 16 While the CCKB team did review prior analytical work by other World Bank staff, other international donors, consultants, and academics as 4% background materials, the findings of this case study are overwhelmingly based on fact-finding on the ground by the CCKB mission to Tamil Nadu, 2% not literature reviews of dissertations and scholarly treatises. In keeping with CCKB’s strong focus on applied economic development and the rele- vance/ replicability of each case study city’s experience and lessons for deci- 0% Bangalore Chennai Coimbatore Hyderabad Madurai Mumbai Salem sion-makers in other cities around the world, the team applied a consistent methodological framework to all the case studies, based on testing a set of -2% core standardized research hypotheses. Please see this report’s appendices for more detail. 41 GDP Employment Source: Oxford Economics Data (2013) and World Bank staff estimates (2014). Executive Summary C oimbatore provides an example of a secondary framework. The city does not have a formal economic devel- city posting strong economic results, driven opment strategy as such, a dedicated economic development largely by the actions of private-sector actors, agency, or any implementable zoning/land use regulations.17 with local government providing an enabling but There is also no permanent growth coalition in Coimbatore, not leading role. It is a private sector-driven success story, just ad-hoc self-organizing by the business community re- in which socially desirable economic outcomes have been garding specific issues affecting all, or to lobby the national or achieved through the activities of for-profit private firms state governments, mostly for investments in infrastructure. pursuing market opportunities, and their membership asso- ciations’ initiatives. Main Growth Themes Coimbatore is a mid-sized, landlocked city in a low- er-middle-income federal country, with an economic To ensure comparability with other CCKB case studies of structure heavily reliant on manufacturing, but with economically successful cities, Coimbatore was selected based some diversification over the past half-decade into on its performance during the period 2007 to 2012.18 During services, primarily information technology, infor- this time, the city experienced strong GDP and employment mation technology enabled services and business growth, outpacing both the rest of Tamil Nadu state and process outsourcing (IT/ITES/BPO). Family-owned India as a whole, although many of the conditions enabling engineering firms have been the mainstay of Coimbatore’s this growth were put in place in earlier periods. There are two manufacturing economy. Emerging sectors like logistics/dis- dominant themes to Coimbatore’s growth: tribution, food production, tourism, and healthcare are still • Organic growth of an indigenous engineering clus- in their infancy, but have some growth potential. ter: Originally home to a large textile industry—Coim- Coimbatore’s success is the result of a confluence of batore had developed a home-grown textile machinery multiple factors, some inherited, and some enabled cluster in the early-to-mid 20th century by reverse-en- through deliberate interventions, mainly by pri- gineering imported technologies. Over time, these local vate-sector actors. The city’s key economic characteristics manufacturers diversified into related industry segments include: educational attainment and vocational training requiring similar core competences and engineering ex- levels higher than the rest of Tamil Nadu and much of India; pertise, such as metal castings, pumps, valves, precision a tradition of entrepreneurship and small, family-owned tooling, and automotive components. The city eventu- “cottage” manufacturing; and diversification from traditional ally attained dominant status in India’s closed market sectors like textiles (which remains an important part of the in several individual industries, such as water-lifting city economy) and industrial machinery into precision engi- pumps (60% market share in the 1980s to below 40% neering and electromechanical components. But while the in the 1990s19). National policies also provided support. increased production of tradable goods and services is central Import substitution protected industries such as pump to Coimbatore’s success story and exports are increasing in manufacturing, and subsidies offered to farmers for importance, they remain somewhat limited in scope – most buying pumps were great incentives for the cluster’s de- products are destined for customers elsewhere in Tamil Nadu velopment. With the opening up of the Indian economy and the rest of India. Only IT and back-office services are starting in the 1990s, Coimbatore’s companies began to geared primarily towards foreign markets. 17 As we will see in the report, land acquisition was not cited as a major impediment in Coimbatore, though it remains a challenge through- Coimbatore has enjoyed the success that it has, even out India. This is a particular challenge for SEZs and again did not seem to in the absence of any discernible local government affect Coimbatore’s relative success with both public and private SEZs. interventions to spur economic development, though 18 While the period 2007-2012 ensures comparability among all within a broadly supportive national and state policy cases, CCKB draws on an economic database with figures from 2002-2012. 19 Ibid, pp. 4207. 42 export, and later became suppliers to foreign investors industry – are mostly stagnating or shrinking locally. in India (e.g. automotive OEMs in Chennai).20 In recent There is, however, visible growth in some specialized years, there has been a scaling up of existing firms’ activ- industry niches, such as medical textiles, some kinds of ities, as well as a proliferation of new start-up companies, jewelry and food products, etc. specializing in individual niches, often as suppliers to systems integrators. Crucially, the engineering firms • Emerging Sectors: These include education and health- have very strong linkages to local technical colleges and care (as tradable services, not just focused on serving vocational schools. the local population), logistics and distribution, tourism, retirees, and small ICT startups (offering, for exam- • Attraction of outside investment, especially in ICT ple, web design services). There is significant scope for and related industries: Multinational firms in sectors growth of all these industries, but very little coordinated such as ICT, BPO, ITES, and engineering services have effort to achieve this. The government of Tamil Nadu has chosen to locate in Coimbatore’s newly-built special made some progress in tourism promotion, and several economic zones, as well as outside of them (somewhat new hotels have been built by private firms. But given less common). Recruited by the SEZs’ private-sector Coimbatore district’s natural beauty and rich cultural developers (utilizing national incentive programs), the heritage, the sector remains far below its potential. The MNCs chose Coimbatore as a viable alternative to India’s city is gaining popularity among retirees from other increasingly congested, pricier Tier-1 cities starting parts of India, attracted by the low cost of living and in the mid-2000s. Coimbatore’s incumbent business salubrious climate, but the industry is still in its infancy. community lent its strong support to the arrival of the For the growth of these and other sectors like logistics, MNCs. Principal site selection considerations include the further major infrastructure upgrades will be essential availability and cost of skilled labor and land (facilities), (upgrading Coimbatore’s airport was an important step adequate infrastructure, the city’s strategic geographic in the right direction). location, a pleasant climate, good educational and health facilities, and a pro-business, conducive entrepreneurial There are no reliable, detailed data about the relative contri- ecosystem. bution of each industry segment to metropolitan value added and job creation. However, based on its own observations While the growth story documented in this case study focus- and information obtained from its membership, the local es on engineering and ICT, there are also other prominent Chamber of Commerce estimates that about 40% of new jobs sectors of the local economy: in recent years have been created at Coimbatore’s existing companies, 40% at new start-up firms, and the remaining • Traditional Sectors: Textiles remains the most prom- 20% at multinational companies setting up operations in inent of the traditional sectors, employing up to 26% of Coimbatore. Therefore, Coimbatore’s growth is multi-faceted, Coimbatore district’s residents.21 Other sectors include in that it is manifested in all three main forms of economic apparel, jewelry and precious metals, general consumer development activity (expansion of existing firms, formation goods, traditional handicrafts, construction, and food of new ones, and attraction of outside companies). production, among others. These sectors remain import- ant providers of employment for Coimbatoreans, but – Success Factors with the notable exception of the booming construction The principal factors of Coimbatore’s economic success could 20 However, the industry also faced its share of exogenous shocks, be summarized as follows: with a cut in subsidies for buying pumps, reduced demand nationally due to a downturn in the construction industry and the increased import of pumps from China, Italy and the U.S. (See: Ibid, pp. 4214). 1. Private-Sector Led Development: Coimbatore’s 21 Brief Industrial Profile of Coimbatore District 2012-2013. private sector has been the main driving force behind 43 its recent economic success, while government’s role has practically-oriented technical curricula developed in con- largely focused on the provision of infrastructure, some sultation with for-profit companies. Local engineering incentives to outside investors, and limited financial students spend part of each school day on the shop floor, and technical assistance to local firms. As noted earlier, as well as in class, which sets Coimbatore apart from oth- private-sector led economic growth in Coimbatore over er cities in Tamil Nadu and other parts of India. There are the past decade has had two principal aspects – growth also “finishing schools” for prospective MNCs employees, of the indigenous engineering industry cluster, and teaching applied skills such as customer service prac- attraction of outside investors to the city. In addition to tices, problem solving, and situational awareness. Most advancing local economic development through their Coimbatore schools use English as the main language of own business activities, Coimbatore’s for-profit firms instruction, a huge competitive advantage. have acted as the city’s main boosters and promoters, and originally established many of the technical colleges 4. Responsiveness to Market Opportunities: Coim- for which Coimbatore is known. batore’s private-sector actors have been highly adept at seizing market opportunities, presented by: 2. Supportive Ecosystem: With numerous industry asso- ciations, educational and training facilities, trade fairs, • Multinational firms’ quest for alternatives to sites in In- existing agglomerations of companies, technological and dia’s Tier-1 cities: A private for-profit Coimbatore compa- organizational know-how, and a deep specialized labor ny successfully recruited MNCs to its newly-built SEZ, in pool, Coimbatore offers an environment highly condu- the process creating thousands of new jobs and enlisting cive to company formation and growth. Industry asso- the support of the city’s established business community. ciations help cluster development through knowledge sharing, entrepreneurial training, ensuring common • Growth of the auto industry in Chennai, creating a need quality standards, organizing business development for sourcing components locally: Coimbatore’s business events, and leveraging government programs, among community was highly responsive to automotive OEMs other activities. Based on healthy cooperative competi- approaching them in search of parts for their vehicle tion among their member firms, these associations help production, quickly diversifying into automotive compo- build local capacity within their respective industries, nents and scaling up production. and recognize opportunities for industry diversification 5. A Relatively Competitive Business Climate: The and growth. In addition, the associations act as advo- value proposition is gaining importance in guiding cates for the city and its business community at the state companies’ investment decisions. Rising business costs and national levels. have led many MNCs in India to consider second-tier 3. Quality Workforce: The quality of Coimbatore’s work- cities like Coimbatore for their expansion plans. In ad- force has been perhaps the decisive factor behind its eco- dition to the cost side, such site selection considerations nomic success in recent years. Home-grown firms have favor cities like Coimbatore which are able to provide a expanded based on the ability to tap into local talent, compelling value proposition for companies, not just low while outside investors have been drawn to Coimbatore business costs. In addition to a highly-skilled, largely by the ability to hire high-caliber graduates at attractive English-speaking workforce at competitive wage levels, compensation rates. Coimbatore’s workforce quality is Coimbatore offers MNCs additional bottom-line business the result both of a highly-effective local educational advantages, including abundant land, good universities system, and a somewhat unique approach to enhancing and technical colleges, reasonably good infrastructure, the employability of graduates. The city is renowned existing business ties to local firms, strong entrepreneur- as a center for engineering, with a highly specialized ial culture, a growing local consumer market, a pleasant labor pool and historically strong linkages between climate and quality of life, and a regulatory environment private businesses and educational institutions. Many which compares favorably to many regional competitors’. of the city’s technical colleges were originally founded This had proven to be an attractive combination for by family-owned local engineering firms, today offering many companies including Bosch, Cameron, Hirotec, Denso, Rieter, Cognizant, Dell, IBM, Larsen & Toubro, Wipro, and TCS. 44 Key Lessons 4. Foster the development of a supportive entrepre- neurial ecosystem: Coimbatore’s mostly family-owned SMEs compete with each other for specific business op- As noted earlier, some of Coimbatore’s success factors, and portunities, but also band together and self-organize to the competitive advantages on which they are based, have build capacity, ensure common technical standards, fa- been developed over a number of years and even decades. cilitate exports, or lobby the government for infrastruc- While the city’s success definitely has some unique local ture upgrades. A critical role in this is played by industry aspects to it, there are still “teachable moments” that Coim- associations, which provide technical assistance to their batore’s story holds for other cities. The most notable learn- members. They know their industries and city, under- ings include: stand the competitive pressures of the marketplace, and 1. Focus on Core Competencies: A city does best when seek to help one another wherever they can. leveraging the real assets that it does have, which is ex- 5. Build up and leverage the city’s human capital actly what Coimbatore has done. This has meant capital- as a key competitive asset: Coimbatore has a long izing on the city’s reputation for engineering excellence history of highly valuing education, particularly in the and precision manufacturing – both for home-grown natural sciences and applied technologies. The city’s companies to scale up, and to attract additional inward business community originally established the vast investment. majority of Coimbatore’s technical colleges and vocation- 2. Facilitate ongoing, continuous sectoral diver- al schools, both to develop their own talent pipeline and sification by honing the development of trans- as a way of giving back to the community. More recently, ferrable skills: Coimbatore’s engineers are renowned Coimbatore’s human capital has been touted as the key for their aptitude in mechanical engineering and metal competitive advantage over similarly situated cities in manufacturing, with skillsets easily transferrable from attempting to recruit multinational firms. one industry segment to another. There is a specialized 6. Create a virtue out of necessity – turn the lack of labor pool within a small geographical radius, with ex- attention from government into a strength, in- tensive knowledge-sharing and technological exchange, stead of a competitive disadvantage: Coimbatore’s enabling Coimbatore’s existing firms to branch out into local leaders emphasized that the city had no political new product lines, and aspiring entrepreneurs to start champions or state-owned enterprises. The municipal their own companies. This diversification is the result of government’s role has largely been limited to the provi- individuals and firms pursuing concrete market opportu- sion of basic public goods and an enabling environment, nities, not some grand design to achieve it. with no concerted effort to help local firms tap into 3. Nurture close, substantive relationships between existing national or state-level support programs. Large- academia and the private sector: Coimbatore seems ly left to its own devices, Coimbatore shows what the unique in Tamil Nadu and India in its very high degree of private sector can accomplish on its own, provided basic industry-academia collaboration. Educational curricula services are taken care of and interventions by the public are practically-focused and developed in consultation sector don’t actually inhibit economic activity. with potential employers, so students graduate with rel- evant, applied skills and extensive manufacturing shop floor experience, not just theoretical knowledge. 45 The National and State Context At the state level, a number of developments and policies in Tamil Nadu have also had an impact on Coimbatore’s recent economic performance: Coimbatore has benefited from being in Tamil Nadu. City economies do not operate in a vacuum – they are part • Tamil Nadu is acknowledged as one of India’s most of a national economic system, facing specific regulatory progressive states, with economic/social indicators and provisions and macroeconomic trends. In Coimbatore’s case, infrastructure significantly better than the national the city also happens to be located in one of India’s most average, and early efforts to erase vestiges of caste-based developed and economically successful states, Tamil Nadu, discrimination in the far south of the country. India as a whole has been reaping the benefits of liberalization and macroeconomic • The state’s economy is more manufacturing-intensive reforms over the past couple of decades, with increased ex- than India’s overall, with well-established clusters of ports and investment by multinational firms in its economy. automotive, machinery, electronics, and construction Indeed, a number of policy schemes have been implemented equipment producers centered in or around the state to stimulate inward investment, particularly geared towards capital of Chennai exporting. • Emerging clusters in IT, software, ITES, BPO, and other Some national trends and policies with the most visible higher value-added services, mostly driven by foreign effect on Coimbatore’s recent economic performance include: multinationals’ investment in the state • Increased openness of India’s economy to external trade • Tamil Nadu’s Industrial Policy document, updated every & FDI few years, identifies priority sectors for the state’s eco- nomic development efforts, particularly in terms of FDI • Slowing in the rates of GDP growth, exacerbated by attraction political uncertainty (until recently) • FDI inflows have historically centered on Chennai (based • Increasingly stringent environmental regulations, such on the “parent-child” model), but more recently Tamil as rules on Zero Liquid Discharge by manufacturers; Nadu’s government has been offering more incentives to Tamil Nadu’s standards are even stricter than national invest outside the state capital ones • Support programs for home-grown MSMEs are coordi- • Continued interest of multinational firms in investing in nated with the central government, and implemented India, both to serve the expanding domestic market, and through several District Industry Centres around the as an export platform, e.g. for IT/ITES or BPO state (there is one in Coimbatore as well), providing capi- tal, power, and VAT subsidies, as well as entrepreneurial • Increased saturation and congestion in Tier-1 cities like assistance including training, a single-window clearance Mumbai, Bangalore, Pune, or Hyderabad, with rising process for administrative requirements, registration, wage levels and overall business costs; spillover growth and credit guarantees from such Tier-1 cities to more affordable, less congested but still viable alternatives like Jaipur, Indore, Ahmed- • Tamil Nadu’s urban local bodies (ULBs) formally have abad, Lucknow, and Coimbatore, which offer many of legal scope for “planning for economic and social devel- the same advantages (business facilities, highly skilled opment”.22 However, both the government and workforce) at significantly lower cost non-government interviewees did not mention • Specific national programs like the Scheme for Integrat- this function being carried out in practice. The ed Textile Parks (SITP), Software Technology Parks (STP), Coimbatore ULBs lack technical capacity (e.g. and Special Economic Zones (SEZ), aimed at attracting 70% of CCMC council members have only a international investors to the country, particularly to primary education), and are reportedly afflicted designated parks with special tax treatment and better infrastructure than surrounding areas by corruption • Support programs for MSMEs, including technical • According to state law, the main responsibilities of local assistance, capital access, export assistance and finance government agencies (the Coimbatore City Municipal (Small Industries Development Bank of India - SIDBI, Corporation – CCMC, and the District Administration) and ExIm Bank), and workforce training (National Skill include the provision of infrastructure, issuing building Development Corporation/Sector Skill Councils) permits, ensuring public safety, and revenue adminis- • 22 Memorandum of Agreement between Government of India, State Government of Tamil Nadu and Coimbatore City Municipal Corpora- tion, July 29, 2006, pp. 6-7. 46 tration; local government has therefore played only a capital subsidy, a 15% generator and low tension subsidy, supporting role in Coimbatore’s economic success a power subsidy and special subsidies for industries op- erating in economically backward areas; and, providing Institutional Actors subsidies and technical support and guidance through the New Entrepreneur-cum-Enterprise Development scheme (NEEDS), Unemployed Youth Employment ultiple institutional actors have played a role in Co- Generation Programme (UYEGP), and Prime Minister imbatore’s economic development. Several agencies of India’s national and state government have responsibilities Employment Generation Programme (PMEGP).25 for local and regional economic development activities, cover- -- NEEDS26: “first-generation” entrepreneurs, individ- ing a variety of functional areas like capital access, infrastruc- uals meeting a minimum education requirement ture, entrepreneurial training, and promoting international between the ages of 21-35 years old, are offered trade and investment. entrepreneur training, assistance in devising a busi- National government agencies include: ness plan, and access to financial institutions to set up new manufacturing and service ventures; • Ministry of Micro, Medium and Small Industries, Government of India, assists state governments in -- UYEGP27: unemployed individuals meeting a mini- India (in this case, the Government of Tamil Nadu) in mum education requirement, and between the ages their responsibility for promoting and developing Micro, of 21-35 years old, are offered a collateral free loan Small, and Medium Enterprises (MSMEs) in the state. to start a new firm. They may also be offered a 7-day The Ministry provides funding and technical assistance long training under the Entrepreneur Development programs for MSMEs. It undertakes schemes and pro- programs; grams for the following: 1) access to capital; 2) support -- PMEGP28: individuals are provided subsidies to start for technology upgradation; 3) integrated infrastructure micro enterprises; special incentives are provided to facilities; 4) testing facilities and quality certification; 5) rural entrepreneurs29. management training; 6) training for entrepreneurship and skill development; 7) product development; 8) work- • Tamil Nadu Industrial Development Corporation er welfare; 9) access to internal and external markets; (TIDCO) stimulates industrial development and lever- and, 10) cluster-development measures to promote ages capital investment by taking direct equity stakes collective capacity development.23 in firms and industrial parks.30 TIDCO and ELCOT, the Electronics Corporation of Tamil Nadu (ELCOT), a pro- • Small Industries Development Bank of India moter of IT industries in the state, have a joint venture (SIDBI) is a subsidiary of the Industries Development in TIDEL Park Coimbatore, a public sector-owned SEZ Bank of India (IDBI) with the objective of providing focused on IT and ITES.31 assistance to MSMEs and supporting their growth. SIDBI does this through a variety of loans and schemes, • Tamil Nadu Industrial Guidance & Export Pro- including: term loans to MSMEs; seed capital/soft loan motion Bureau (Guidance Bureau) in Chennai is the assistance for MSMEs; and financial support to the Single-Window Facilitation Office, the single government Coimbatore District Small Scale Industries Association point of contact for foreign investors, responsible for (CODISSIA).24 SIDBI offers the following schemes for promoting inward investment in all of Tamil Nadu. The MSMEs: national equity fund; ISO 9000 certificate refi- Guidance Bureau, within TIDCO, also leads the draft- nance; marketing support; export bill financing; vendor ing of the annual state government industrial policy. development; working capital term; and credit guarantee The organization’s coordination role in attracting MNC fund. Tamil Nadu state government agencies include: 25 Kumar, Motor and Pumps Cluster Coimbatore, pp. 9; CODISSIA 45th Annual Report, pp. 17. 26 The New Entrepreneur-Cum-Enterprise Development Scheme • District Industries Centre (DIC), a Tamil Nadu State (NEEDS) is a Tamil Nadu State Government scheme (CODISSIA 45th Annu- Government body serving as the local nodal agency al Report, p. 19). for small-scale industries (SSIs). The DIC is headed in 27 The Unemployed Youth Employement Generation Programme Coimbatore by the DIC General Manager, and by the was initated by the Chief Minister of Tamil Nadu (CODISSIA 45th Annual Commissioner of Industries and Commerce of the State Report, p. 21). 28 The Prime Minister’s Employment Generation Programme is Government in Chennai. The DIC’s main functions are: controlled by the MSME Ministry of the Government of India (CODISSIA registering SSIs; providing subsidies in the form of a 15% 45th Annual Report, p. 20). 29 DIC a project implementer only for the urban areas (CODISSIA 45th Annual Report, pp. 20). 23 Ministry of Micro, Small and Medium Enterprises, Annual 30 Tamil Nadu Industrial Development Corporation, http://www. Report 2012-2013, pp 4-5. tidco.com/bulid.html. 24 SIDBI supported CODISSIA in setting up the INTEC industrial 31 In person interview with Mr. Atul Anand, I.A.S., Managing fair complex. Director, Electronics Corporation of Tamil Nadu, ELCOT, on June 19, 2014. 47 investment involves creating infrastructure for investors Local Context to come to the state, offering fiscal incentives and land giveaways to investors, and promoting technical educa- Coimbatore has in the past few years overtaken tion to ensure the availability of workforce skills.32 Madurai to become the second most populous urban • Tamil Nadu Small Industries Development Corpo- agglomeration in the Indian state of Tamil Nadu35, ration (SIDCO) develops industrial parks—with infra- with 2.2 million residents. The city proper is administered structure facilities, work sheds and developed plots—for by the Coimbatore Municipal Corporation (population: 1.6 MSEs in Tamil Nadu, as the project implementer. SIDCO million), though much of the recent urban development has has both a raw materials supply scheme and marketing taken place outside the Municipal Corporation limits, with assistance scheme, and provides guidance to entrepre- new residential neighborhoods emerging around industrial areas on the city’s periphery, particularly on the north side. neurs.33 There are currently two SIDCO industri- Until a few years ago, single-family houses were the norm, al estates in Coimbatore District, in Kurichi and but more recently there has been a flurry of construction of Malumchipatti. Only the Kurichi estate falls multi-story apartment buildings, apparently catering to the within the Coimbatore metropolitan area.34 lifestyle preferences of the city’s younger knowledge workers in emerging sectors. Coimbatore is also the headquarters of • State Industries Promotion Corporation of Tamil the District of the same name, one of 32 into which Tamil Nadu (SIPCOT) is responsible for building large-scale Nadu state is divided administratively. industrial parks, industrial estates, and SEZs to attract investment. SIPCOT provides basic and support infra- Coimbatore is the crossroads of southern India. Lo- structure within these estates. They have not yet built cated at the foot of the Western Ghats mountains along the any such parks in Coimbatore District. Noyyal River, Coimbatore lies just 340km south of Bangalore, and less than 500km from the state capital of Tamil Nadu, Coimbatore’s Location in Southern India 32 In person interview with Mr. M. Velmurugan, I.E.S., Executive Vice Chairman, Guidance Bureau, Industries Department, Government of Tamil Nadu, on June 19, 2014. 33 Tamil Nadu Small Industries Development Corporation, http:// www.sidco.tn.nic.in/. 34 Brief Industrial Profile of Coimbatore District 2012-2013, pp. 6. 35 According to India’s 2011 Census. 48 Chennai. The area has long been the transport crossroads of Known as the “Manchester of South India”, Coim- the southernmost part of the country, with easy access to batore’s economy has been closely tied to the evolu- both its east and west coasts. Three major national highways tion of India’s textile industry. The British introduced (NH 47, NH 67, and NH 209) pass through the city, while cotton growing to the area in the 19th century, starting local Coimbatore Junction is a major hub for passenger and freight textile production. Prior to that, Coimbatore (or Kovai, as it rail traffic. used to be known) was less a city than a collection of villages. Cotton growing and ginning, and the subsequent expansion The city’s recently upgraded airport has direct inter- into other segments of the textile industry, were crucial in national flights to Singapore and Sharjah, UAE, as the development of local know-how and an entrepreneurial well as to most major Indian cities. While infrastructure class, which was to be important to the city’s later develop- in Coimbatore and Tamil Nadu in general is considered above ment. average by Indian standards, comparatively higher motor vehicle ownership rates mean that in practice congestion and In the early 20th century, local artisans learned to traffic flow remain serious challenges across the sprawling make spare parts for the imported textile machines metropolitan area. used in Coimbatore. Over time, as their skills further developed and local demand for equipment surged, Coim- batore’s mechanics learned to produce textile machinery, by History reverse-engineering imported technologies. Family-owned firms emerged in Coimbatore to produce textiles as well as the machines on which to make them. By the time India Coimbatore’s path dependency has had a tangible became independent, Coimbatore already had home-grown influence on the city economy’s ability to transition garment companies and textile machinery producers, mostly into modern manufacturing, and to tap into opportuni- family owned. Some of them (PSG, Ramakrishna, KG, Laksh- ties offered by the increased openness of India’s economy. Co- mi) are still in business today, and over the decades have imbatore has a long history of educational excellence, social evolved into diversified conglomerates involved in everything solidarity, and higher levels of human capital than nearby, from textiles to mechanical engineering to IT to real estate comparable Indian cities. It has traditionally been a magnet development. Although Tamil Nadu’s textile industry is now for seekers of economic opportunity, including the entrepre- centered on nearby Tirupur36, key functions like product neurial Naidu community, whose members formed many of design, management, training, and textile machinery produc- today’s successful firms in Coimbatore. tion are still based in Coimbatore. 36 While Tirupur was administratively part of Coimbatore during the period studied, its particular history is beyond the scope of this case study report. 49 Geography strongly influenced Coimbatore’s early collection.38 An Indian firm (headquartered in Mumbai) that development. Climatologically, Coimbatore sits in a “rain chose to locate in Coimbatore, while noting that roads were shadow”, without much direct precipitation, as most weather generally superior in South India, particularly distinguished fronts don’t make it over the Western Ghats mountain range Coimbatore’s transport connectivity, ICT infrastructure and lying between the city and India’s west coast. Water-intensive advanced support infrastructure (healthcare and education). cultivation of cotton therefore needs much irrigation, for In particular, Coimbatore’s good connectivity to business which motor pumps are used to bring groundwater up to the hubs including Chennai, Bangalore, Delhi, and Mumbai was surface. Already prior to independence, Coimbatore’s makers considered a particular advantage of the city.39 Partly this is of textile machinery diversified into producing motor pumps, due to Coimbatore’s geographic location, but mostly due to its later at one point accounting for 80% of India’s closed market. road, rail, and air infrastructure. In subsequent decades, these local producers further diver- sified into related industry segments like pressure valves, precision measurement, and process control equipment. All Key Local Actors this played a critically important, enabling role in the early development of the city’s economic and skills base. Private sector leading the way. The Coimbatore Chamber of Commerce and the city’s industry associations are the de Select Milestones in Coimbatore’s Recent facto leaders of economic development, through facilitat- Economic History ing interaction on finding market segment opportunities between member firms and industries, strengthening access Another side development of Coimbatore’s early in- and ties to national and international markets, and repre- dustrialization has been the establishment of inde- senting local firms’ interests to the city, state and central pendent charitable trusts and non-profit foundations government. While member firms compete with one another, by Coimbatore’s family-owned engineering firms. they also find opportunities to cooperate, both because they Legally, these entities have an arm’s length relationships are not direct competitors in certain market segments, and with the businesses that founded them, and have focused for the general good of Coimbatore. on funding numerous technical colleges, schools, hospitals, and clinics in Coimbatore. But in practice, these relationships Indian Chamber of Commerce & Industry Coimbatore are very close and collaborative: the for-profit firms provide (ICCI) was founded in 1929 by independent India’s first scholarships, apprenticeships, and training for students from finance minister, who was originally from Coimbatore. Today their respective affiliated educational institutions. the Indian Chamber of Commerce & Industry in Coimbatore includes 1,600 members and 90 affiliated organizations. The This last element is proving to be a key competitive Chamber is registered as a society, and maintains the broad advantage for the city, and likely a crucial enabler objective of supporting the Coimbatore region’s economic of its economic success, as will be shown later. Today development. It seeks to promote and develop business in Co- Coimbatore has higher human development indicators than imbatore through pursuing improvements in infrastructure, Tamil Nadu and India as a whole, particularly in terms of amenities and services. It does this through regular meetings educational attainment and technical skills. Importantly, and exchanges with government bodies, and by increasing ac- much of the instruction in Coimbatore’s institutions of high- cess for its members to national and international markets.40 er learning is in English, giving its workforce and edge over In addition to meeting and lobbying relevant government workers in other cities who may have primarily been educated bodies, the Chamber conducts meetings and seminars with in the local Tamil, Malayalam, Kannada, or Telugu languages, its members on industry-related issues and concerns.41 for example. The Chamber, as an association, and “association of asso- While local government was not driving Coimbatore’s ciations”, led the “One Voice for Kovai’s 10 Point Agenda”42 economic development, it has played a vital enabling initiative, articulating 10 infrastructure projects which they role for the city’s success, through the delivery of considered as being urgently needed by the city region. The essential public goods. Although this report will note that agenda is directed at both the state and central government. the Coimbatore government’s role has generally been limited Specific project proposals in the document include: with regards to proactive economic development initiatives at the local level, Coimbatore city was distinguished as the “Best Corporation” within Tamil Nadu state for its provision of physical infrastructure, and municipal capacity.37 The 38 Ibid. award recognized Coimbatore’s excellent performance on 39 In person interview with Mr. Vijay Deshmukh, Vice President, roads, education, health, solid waste management and tax Larsen and Toubro (L&T) Precision and Manufacturing, on June 9, 2014. 40 The Indian Chamber of Commerce and Industry Coimbatore, http://www.indianchamber.in/. 41 Kumar, N. Mahesh, Motor and Pumps Cluster Coimbatore, pp. 37 Coimbatore wins “Best Corporation” award, 16 August 2012, 12. http://www.thehindu.com/todays-paper/coimbatore-wins-best-corpora- 42 “One Voice for Kovai’s 10 Point Agenda”, The Indian Chamber of tion-award/article3777701.ece. Commerce and Industry Coimbatore & RAAC. 50 1. Roads – creating outer and intermediate ring roads, Confederation of Indian Industry (CII) is a national providing rail over bridges and bus and truck terminals, level body representing industry and primarily larger firms.44 and other general road infrastructure improvements; Similar to the previous associations mentioned, it plays a lobbying role to the government and conducts regular meet- 2. Coimbatore Urban Development Authority & ings and seminars with its members.45 CII was noted in the Master Plan – forming a development authority for the mission interview meetings as being a representative to the metropolitan area, as well as updating the Master Plan government of the larger conglomerates. In the case of Bosch from 1994; locating to Coimbatore, for example, Bosch first contacted CII to enquire about relocating to the region.46 3. Housing & Water for Slums – providing housing and physical infrastructure (including water supply, sewage, Southern India Engineering Manufacturers’ Associ- drainage and traffic management) for over 20,000 house- ation (SIEMA) represents, protects, and promotes Coim- holds living in Coimbatore’s 200 slums; batore’s engineering industries, which have been critical to the city’s recent economic growth. SIEMA has two overar- 4. Railway – doubling tracks, adding railway brides and ching goals: providing prosperity for its member firms, and commuter trains, and developing stations; facilitating their emergence in global commerce. SIEMA’s membership is mostly composed of pump and pump accesso- 5. Government Hospital – providing improvements to ry manufacturers, but it also includes manufacturers of elec- Coimbatore governmental hospital facilities; tric motors, monoblocks, diesel engines, castings, automobile 6. Electricity – enhancing the quality and reliability of parts, textile machinery and parts, and other engineering power supply, especially for manufacturing and agricul- products.47 tural users; Coimbatore Industrial Infrastructure Association 7. Agri-Export Complex with Cold Storage – setting (COINDIA) was created by this engineering industry up an agri-export complex to boost agricultural exports association (SIEMA) in 2005, to serve the pump, motor and out of Coimbatore; foundry cluster within the engineering sector. COINDIA acts as a Special Purpose Vehicle (SPV) and provides common 8. Water Bodies & Noyyal River – specific improve- physical infrastructure and research facilities for its cluster ments to the Noyyal River bed, the river flow and of industrial firms. It is a recipient of both national and state streams, and restoring Coimbatore region’s tanks and government funding.48 canals; SIEMA, CODISSIA, and the Industrial Development Bank 9. Heritage, Tourism & Sports – preserving Coimbatore of India (IDBI) were influential in the creation of the Small as a “heritage town”, creating recreational facilities, and Industries Testing and Research Centre (SITARC) in the conversion of land into parks in and around the city. 1986 for testing, training and development, and research in motors and pumps. SITARC is funded by the national and 10. Airport – developing airport infrastructure as well as state government of India, as well as by IDBI and UNDP.49 expanding connectivity within and beyond India. Coimbatore District Small Scale Industries Associ- ation (CODISSIA) is a development-oriented association serving the growth and prosperity of its 4,325-strong Small 44 In person interview with R.R. Balasundharam, President, Mr. Lakshminarayanaswamy, Vice-President, the Indian Chamber of Commerce Scale Industries (SSI) membership. CODISSIA represents Co- and Industry, Coimbatore, and K. Ilango, Chairman, C.R. Swaminthan, imbatore entrepreneurs at all advisory and grievance panels Co-Chair, Confederation of Indian Industry, Coimbatore, as well as other for SSIs, and conducts seminars, training programs, exhi- Coimbatore industry officials, on June 10, 2014. bitions and trade fairs for its members. CODISSIA set up a 45 Kumar, N. Mahesh, Motor and Pumps Cluster Coimbatore, permanent trade fair complex in Coimbatore, only the second pp.13. 46 In person interview with Mr. Jayamurali, Vice President – Cor- such facility in the country after the one in New Delhi, and porate Relations, KG Information Systems Private Limited, KGiSL, on June hosts annual trade fairs for several of the city’s industries. 11, 2014. Lastly, CODISSIA has existing MOUs with Coimbatore area 47 In person interview with T.C. Thiagarajan, President, the technology and engineering colleges and polytechnics, as Southern Indian Engineering Manufacturer’s Association, SIEMA, as well well as with manufacturers associations within India and as other SIEMA officials, on June 13, 2014; Kumar, N. Mahesh, Motor and Pumps Cluster Coimbatore, pp.12. abroad.43 48 In person interview with Mr. Viswanathan, President, Coim- batore Industrial Infrastructure Association, COINDIA, on June 16, 2014; In person interview with R.R. Balasundharam, President, Mr. Lakshmina- rayanaswamy, Vice-President, the Indian Chamber of Commerce and In- dustry, Coimbatore, and K. Ilango, Chairman, C.R. Swaminthan, Co-Chair, Confederation of Indian Industry, Coimbatore, as well as other Coimbatore industry officials, on June 10, 2014. 43 Kumar, N. Mahesh, Motor and Pumps Cluster Coimbatore, pp. 49 Kumar, N. Mahesh, Motor and Pumps Cluster Coimbatore,pp. 9, 11-12. 11. 51 South India Textile Research Association (SITRA) is a colleges.53 The city is particularly known for its engineering private autonomous research organization supported by the colleges, most of which have strong links to local engineering Ministry of Textiles of India. The organization provides tech- and manufacturing firms. The founding of several engineer- nical assistance on management knowhow, labor training, ing colleges and polytechnics by private, family-owned firms and cost and economic issues. SITRA provides labor training helped fulfill an industry need—creating and sustaining through the Integrated Skill Development Scheme and pro- a workforce meeting industry requirements and ensuring vides product testing facilities to test such things as yarn and continuous innovation—as well as supported the greater goal fabric. It currently has approximately 65 patents, and applies of Coimbatore’s growth and prosperity. The relatively high for government funding for research based on the industry number of engineering universities, colleges and polytech- needs and as a result of regular consultation with textile nics, which maintain close ties to the industry, has contin- industry firms. Lastly, in recognizing the industry trend of uously provided Coimbatore with a high quality workforce. moving from traditional to “technical” or “functional” tex- This has contributed to Coimbatore’s organic growth over the tiles, SITRA has created Centers of Excellence to facilitate the years and, more recently, has provided a significant part of its diversification of the industry into these new segments.50 value proposition to Indian or multinational firms choosing to locate or do business in the city. Textile Manufacturing Industry Associations. The historical importance of the textile industry and textile man- With an literacy rate of over 80% and a number of ufacturing in Coimbatore has been widely documented, but government and private educational institutions, the this industry segment has not been responsible for much of city is the educational hub of Tamil Nadu, which itself the more recent growth of Coimbatore’s economy—the main performs very well in terms of education attainment focus of this report. The interests of the industry are repre- within India. The main colleges and universities are: the sented and promoted by the South India Mills Association Government College of Technology, PSG College of Technolo- (SIMA), whereas research, as aforementioned, is carried out gy (the PSG trust colleges also include the PSG College of Arts by the South India Textile Research Association (SITRA). and Sciences, the PSG Institute of Management and others, and are affiliated with Anna University), the Coimbatore The Coimbatore City Municipal Corporation (CCMC) Institute of Technology, and universities including Bharathiar is the administrative government structure of Coimbatore University, Anna University, and Amrita University.54 In city,51 but not of the wider urban agglomeration or metro- addition to these, there are a number of industry research in- politan area. The wider area is governed by the Coimbatore stitutes such as SITARC for motors and pumps and SITRA for District Administration, which is led by the state govern- textile research, as well as other institutes like the Institute ment appointed District Collector, a career civil servant. The for Forest Genetics and Tree breeding, the Indian Council for District Collector provides a supervisory role over the CCMC. Forestry Research & Education, and the Tamil Nadu institute While Coimbatore’s city government has a mayor and mu- of Urban Studies. nicipal council, the state government-appointed municipal commissioner serves as the chief executive. The CCMC has a SEZs in Coimbatore very limited role in economic development. In broad terms, the municipal corporation’s role is in planning and land use management, urban infrastructure, social infrastructure, Special Economic Zones (SEZs) were found to play an the urban environment, heritage, and tourism.52 In terms important role in Coimbatore’s growth from 2007- of state and national level incentive schemes for firms, these 2012, helping to attract MNCs as well as firms already are usually leveraged by the firms themselves, either through operating in Coimbatore that were looking to lower the industry or business associations mentioned above, or operating costs. With their establishment endorsed by through direct cooperation with representatives of higher national law in 2005, and followed up by a Tamil Nadu state tiers of government with local offices in Coimbatore. act in the same year, there are now two SEZs in Coimbatore: CHIL, a private initiative; and TIDEL Park Coimbatore, a government venture. As of 2014, six additional private Universities initiative SEZs are in planning for Coimbatore.55 Currently, CHIL and TIDEL Park are home to firms specializing in IT Coimbatore has a nationwide reputation for being and IT-enabled services, BPO (Business Process Outsourc- an educational and industrial center, with over 150 arts and sciences colleges and about 60 engineering 53 In person interview with Mr. Jayamurali, Vice President – Cor- porate Relations, KG Information Systems Private Limited, KGiSL, on June 11, 2014. 50 In person interview with Mr. Prakash Vasudevan, 54 Other educational institutions include K.G. group colleges (the Director, the South India Textile Research Association, SITRA, on June 11, Institute of Health Sciences, KGISL Institute of Information Management. 2014. KGISL Institute of Technology, KG College of Arts & Science), GD Naidu 51 The “municipal corporation” is the administrative structure for College, Coimbatore Medical College, Coimbatore Law College, the Tamil cities in India that meet certain state-specific criteria (and the primary tier Nadu Agricultural University, Karpagam University and Avinashilingam urban local body). University. 52 “City Development Plan for Expanded Coimbatore City Mu- 55 In person interview with Mr. Jayamurali, Vice President – Cor- nicipal Corporation,” Tamil Nadu Urban Infrastructure Financial Services porate Relations, KG Information Systems Private Limited, KGiSL, on June Limited (TNUIFSL). 11, 2014 52 ing), engineering and design services, and automotive R&D. TIDEL Park was created as a joint venture of public Interviews with both CHIL and TIDEL Park officials suggest enterprises TIDCO and ELCOT, mainly for IT and ITES. that they were created at approximately the same time, with TIDEL Park Coimbatore succeeded the initial TIDEL Park in CHIL being the first to begin operations. Chennai, which was reported as having employed close to 33,000.61 The Coimbatore SEZ features firms such as Bosch However, SEZs have had mixed results throughout (Bosch has operations in both CHIL and TIDEL), which em- India.56 Only about 20 percent of approved SEZs in the coun- ploys about 1,000 at the park, and Cameron, which employs try have become operational (124 from a formally approved 50062. Bosch operates IT and ITES out of the TIDEL Park 580). Coimbatore’s advantage may derive from being located SEZ, whereas Cameron, headquartered in Houston, provides in Tamil Nadu, and benefitting from the respective enabling engineering and design services. conditions. State actions with regards to SEZs have been critical, often determining the success or failure of SEZ policy There is little evidence of clustering effects, signif- on issues such as land acquisition, for example. SEZ success icant knowledge spillovers, or other substantive has depended upon the interest of host state governments to linkages between firms in SEZ and the city’s broader establish them, state government capacity to act effectively economy. SEZs in Coimbatore appear to have contributed in providing necessary SEZ conditions and solving problems, significantly to job growth in the city in the period studied, and the willingness of citizens to go along with the policy. attracting firms with incentives, the provision of common SEZs in southern Indian states performed relatively well, and infrastructure, customs and excise duty exemptions, as well there is extreme diversity between states in India in SEZ per- as tax exemptions. However, the findings suggest that there formance.57 Explaining the particular success of Coimbatore are very limited linkages between the MNCs within either SEZs requires further study beyond the scope of this report. SEZ—a lack of both knowledge sharing and staff migration. In addition, MNCs report very limited linkages to the local CHIL was established as a speculative private-sector economy, apart from almost entirely employing local Co- investment. The SEZ was started by KGiSL group, a con- imbatoreans. So while the economic benefits are apparent glomerate offering IT, ITES services, BPO services, and higher with the extensive job creation, the longer-term effects on education,58 who recognized the opportunity for spillover the local economy—which would be facilitated by linkages growth from MNCs looking to move into Tier-1 cities. KGiSL to local firms—appear to be limited. Within CHIL, the firms promoted investment in Coimbatore, bought the land plots to reported having agreed not to pouch either other’s employ- eventually form the SEZ, and built the facilities and physical ees, negating the potential positive effects of staff migration, infrastructure—commercial offices, roads, and eventually shared experience, and learning. Faced with insufficient elec- residential housing for the SEZ employees. While this will tricity and physical infrastructure elsewhere, firms seemed to be detailed later in the report, KGiSL attracted Cognizant, co-locate within the SEZs simply for the convenience and sav- Dell, and Bosch to its SEZ, amassing 20,000 total jobs59 since ings from cost-sharing of common infrastructure. Clustering 2006. Cognizant, which currently employs 10,000 in Coim- is not helped by the fact that the foreign firms in the SEZ are batore, is looking to add space to accommodate up to 60,000 sometimes in seemingly unrelated industries (e.g. automotive employees in the next 3-5 years.60 R&D or IT call centers). 56 Saleman and Jordan, The Implementation of Industrial Parks. Some Lessons Learned in India. (See Annex 3: Learning from SEZs). 57 Ibid. (Annex 3: pp. 1, 21). 58 KGiSL manages four privately-owned colleges. 61 In person interview with Mr. S. Chandresekar, General Manager 59 Of the 20,000 jobs, 10,000 are from Cognizant, 5,000 from (Operations), and Ms. M. Gita, Company Secretary, TIDEL Park Coimbatore Bosch and the rest from Dell, KGiSL and other firms. Ltd., on June 10, 2014. 60 In person interview with Mr. Jayamurali, Vice President – Cor- 62 Cameron plans to scale up to 700 employees by the end of 2014, porate Relations, KG Information Systems Private Limited, KGiSL, on June and up to 1,000 by the end of 2015 (Discussions with TIDEL Park Coim- 11, 2014. batore resident MNCs, on June 10, 2014). 53 Analysis process control equipment, automotive components, gear- ing, grinders, and food and textile machinery. The common thread of all these industries is that they are heavily reliant Factors of Competitiveness on engineering skills and know-how, with a high degree of transferability of practical knowledge from one engineering As noted in the Executive Summary, the two main themes of industry segment to another. Coimbatore’s recent economic success have been the growth Path dependency has influenced the city’s industrial of its indigenous engineering cluster, and the upsurge of growth, but is in itself not a sufficient explanation inward investment by multinational firms, as well as a few for the economic outcomes observed. As noted earlier, large companies from other parts of India. More specifically, the growth of Coimbatore’s textile industry played a crucial the principal factors of Coimbatore’s economic success could role in the early development of its economic and skills base. be summarized as follows: This provided a foundation of engineering and corporate 1. Private-Sector Led Development. know-how in the city, paving the way for the later diversifi- cation into related industry segments like pumps and valves, 2. Supportive Ecosystem which remain important to this day. Crucially, the accumula- tion of industry expertise and overall business acumen sets 3. Quality Workforce Coimbatore apart from many cities with a similar industrial history. 4. Responsiveness to Market Opportunities The city has built on its inherited strengths, and used 5. Bottom-Line Business Advantages them as a springboard to developing new ones. Coim- batore’s traditional strength has been its foundries – metal Below is a closer look at each factor. castings manufacturers, which by some estimates today employ as many as 150,000 people in the city and its envi- Factor 1: Private-Sector Led Development rons. This expertise is critical to everything from producing industrial machinery to auto manufacturing to components Coimbatore has a highly entrepreneurial, engaged, for aircraft engines, and Coimbatore’s firms have earned socially conscious private sector, which has been the a national and international reputation for quality metal driving force behind its recent economic success. The products at competitive prices. Metal works are a mainstay local government’s role has largely focused on the provision of the local economy, and have provided a good career entry of enabling infrastructure, while the national and state point for workers without a college education, as well as for governments have provided investment incentives, as well as highly-skilled mechanical engineers. constructed one SEZ (Tidel Park) to attract outside investors. These incentives and schemes from the higher tiers of govern- Elements of diversification. So why and how have the ment are leveraged by the private sector groups, or particular city’s manufacturers been so successful at diversifying from firms. It was noted in several interviews that Coimbatore making textile machinery (which is still produced in Coim- lacks a “political champion”, necessary to both utilize such batore) into related, often higher value-added industries? This schemes and pressure higher tiers of government for more process has had a number of elements: support.63 • This industry diversification has usually been into closely Private-sector led economic growth in Coimbatore related industry segments, e.g. from manufacturing over the past decade has had two principal aspects – pumps to making pressure valves64 growth of the indigenous engineering industry clus- ter, and attraction of outside investors to the city. • The transferability of specialized skills and know-how The focus here is on the formation and growth of indigenous between industry segments has been very high manufacturers, while he latter will be covered in the section on Responsiveness to Market Opportunities. • Related technologies with multiple applications (e.g. metal casting can be used in a variety of industries, even SMEs are a central part of the city’s success story. if they do not seem similar on the surface) While there are a few local diversified conglomerates that also have engineering arms, the vast majority of Coimbatore’s en- • Entrepreneurialism within companies, whereby an gineering firms are family-owned SMEs, on average employ- engineer (often the owner’s son, for example) decides ing 50 to 100 workers, and with only about 10 to 15 custom- to make his mark by launching a new product line or ers. Individual industry segments include foundries, pumps, valves, compressors, electric motors, precision instruments, 64 Lakshmi Machine Works, initially specialized in machinery for textile spinning, set up a foundry in cooperation with a German firm, began 63 In person interview with Mr. Jayamurali, Vice President – Cor- producing castings and eventually moved into the aerospace business. The porate Relations, KG Information Systems Private Limited, KGiSL, on June conglomerate, Lakhsmi Group, also runs schools, colleges and a hospital 11, 2014; 34. In person interview with Mr. C.V. Sankar, Principal Secretary, (In person interview with Mr. Rajendran, Director of Finance, Lakshmi Industries Department, Government of Tamil Nadu, on June 20, 2014. Machine Works Limited (LMW), on June 9, 2014). 54 innovating in some other way, helping the company he’s Based on healthy co-opetition among their member firms, in enter new markets these associations help build local capacity within their re- spective industries, and recognize opportunities for industry • Starting new firms, whereby an engineer decides to leave diversification and growth. In addition, the associations act an employer go into business for himself, manufacturing as advocates for the city and its business community at the an engineering product state and national levels. • Capital access, either from own sources (e.g. by selling Given metro Coimbatore’s modest size (about 2 mil- family land which had greatly appreciated in value), or lion people), informal relationships and networks are from external sources (usually from commercial banks, both extensive and highly effective. Economic devel- with or without government capital subsidies) opment stakeholders’ paths cross on an almost daily basis, with many companies and the executives in them belonging • Cluster development to both share costs on common to multiple local guilds and associations. Cross-membership infrastructure, and enhance industry segment linkages makes the associations’ joint initiatives more effective, and and knowledge sharing facilitates coordination among them. Some examples include: • Entrepreneurial support and training, provided by indus- • One Voice for Kovai ’s 10 Point Agenda, lobbying for infra- try associations or government (DIC or MSME) structure upgrades • Knowledge exchange within industry guilds and associ- • Partnering with national government agencies on tech- ations, including regular monthly meetings and work- nology upgradation, quality certification & skills shops • SIEMA and CODISSIA, with government and donor • The international reputation of Coimbatore’s manufac- funding, setting up SITARC for testing, training and turers for quality and precision development, and research in motors and pumps In addition to advancing local economic develop- • CODISSIA coaching new entrepreneurs and advising its ment through their own business activities, Coim- members on taxes, licensing, and exporting; conduct- batore’s for-profit firms have acted as the city’s main ing seminars, training programs, exhibitions and trade boosters and promoters. For example, private real estate fairs, and establishing Coimbatore’s permanent trade fair developers have worked to attract multinationals to invest complex. in Coimbatore, while the Chamber of Commerce and similar groups promote the city as a place to do business through • COINDIA, set up as a special purpose vehicle providing their publications, events, and inbound/outbound business common physical infrastructure and research facilities development missions. for firms in Coimbatore’s pump, motor and foundry clus- ter, was founded by SIEMA with support from state and An engaged private sector. Coimbatore’s family engineer- central government funding. ing firms have established technical colleges, schools, hospi- tals, etc. through corporate trusts/foundations, maintaining Factor 3: Quality Workforce collaborative relationships and mutually-beneficial training arrangements. This has been a key success factor – more on The quality of Coimbatore’s workforce has, by all this in the report’s Workforce section. accounts, been one of the critical factors behind its economic success in recent years. Home-grown firms Factor 2: Supportive Ecosystem have expanded based on the ability to tap into local talent, while outside investors have been drawn to Coimbatore Coimbatore offers an environment highly conducive precisely because they are able to hire high-caliber graduates to company formation and growth, with its plethora at very attractive compensation rates. Coimbatore’s workforce of industry associations, educational and training facilities, quality is the result both of a highly-effective local education- trade fairs, existing agglomerations of companies, techno- al system, and a somewhat unique approach to enhancing the logical and organizational know-how, and a deep specialized employability of graduates. labor pool. This has most notably been the case in engineer- ing-related industries, but others as well. Existing companies Coimbatore’s educational success is above all the sto- have been scaling up operations in response to business ry of excellence in various engineering fields, partic- opportunities, while many new firms have been started by ularly mechanical, electrical, electronics, ICT, and materials ambitious local entrepreneurs. science, as well as more fundamental scientific disciplines like physics and mathematics. Renowned throughout India Industry associations like ICCI, CODISSIA, SIEMA, and others help cluster development through knowl- edge sharing, entrepreneurial training, ensuring common quality standards, organizing business development events, and leveraging government programs, among other things. 55 as a center for engineering,65 Coimbatore technical schools’ were originally founded by family-owned local engineering annual output of new engineers is on a par with that of much firms, or their public trusts. While there is legally an arms’ larger Indian cities like Pune. The majority of these engineers length relationship between the schools and the companies have highly specialized, applied technical skills, and are read- that established them, there are MOUs between them regu- ily employable. Some highlights: lating their still-close everyday relations and specifying the nature of the companies’ involvement in the schools’ plan- • 10 universities in Coimbatore ning and operations. • 60 engineering colleges, producing engineers and man- Industry-academia linkages are exceptionally strong, agers and directly influence curriculum development. De- spite being corporate-funded, the educational institutions are • 30 polytechnics and industry training schools/institutes, by law required to plow any revenues back into the school, en- preparing graduates for careers such as shop supervisors hancing funding and by extension overall instruction quality. and machine operators The colleges’ technical curricula are not just highly practical- ly-oriented, they are actually developed in consultation with • “150,000 employable graduates every year”, according to local for-profit firms, and based on concrete business needs. KGiSL officials This ensures that the production of engineering talent in Coimbatore’s technical schools are considered not Coimbatore be directly relevant to the labor market, not just just among the best in India, but also internationally minting graduates for the sake of doing so. This indeed may competitive. Alumni of educational institutions based in have set Coimbatore apart from other high performing cities Coimbatore can be found at most major Indian firms, as well in the rest of Tamil Nadu.67 as many multinationals around India and abroad – often in Coimbatore has a highly successful system of voca- very senior positions. This extensive alumni network has tional training, developed largely by local actors. undoubtedly played a role in the recruitment of companies to The support provided by companies to (usually affiliated) Coimbatore.66 educational institutions also includes the provision of Another element in Coimbatore’s development of a various kinds of practical training to students, enhancing specialized labor pool with advanced engineering their employability upon graduation. For example, there are skills has been its historically strong linkages be- well-established apprentice schemes (of 1 to12 months’ du- tween private businesses and educational institu- ration), where students spend part of each school day on the tions. As noted earlier, many of the city’s technical colleges shop floor, as well as in class. Even for the more theoretical engineering degree programs, students are never far removed from actual production, with almost all spending some time in local factories learning their particular business. Of course, after graduation many students receive offers from the very companies that trained them. This is a win-win for all: graduates get jobs, companies get employees whose skills and background are already well-known to them, while the colleges can rightly claim very high placement rates for their students. Coimbatore’s technical education programs focus on providing graduates with applied job skills. This practical focus of engineering education sets Coimbatore apart from many comparably-sized cities in Tamil Nadu and other parts of India (for example, Madurai was frequently mentioned in interviews). An enabler of this practical focus Source: Location Analysis: Emerging Cities of India, Zinnov is the very fact that Coimbatore has a high concentration of LLC, 2012 local manufacturing facilities to begin with, making it much easier for students to spend time in nearby factories than in less manufacturing-intensive metropolitan economies. 65 Tamil Nadu doubled its amount of private engineering colleges in the period 1999-2005, with over 240 colleges by 2005—20 percent of the total number of such institutions in India. It was reported, however, that Quality education is not limited to technical fields; most of the states’ leading firms attract students from a fairly small number bridge programs help. Beyond engineering, Coimbatore’s of institutions in Tamil Nadu, in and around Chennai and notably in Coim- liberal arts colleges are judged as “satisfactory” by the inves- batore. See: Fuller and Narashmian, Engineering Colleges, “Exposure” and Information Technology, pp. 258-259. 66 According to multiple executives interviewed in June 2014, 67 A former vice chancellor of Anna University stated that “ninety for example Mr. Venugopal R., Vice President-Commercial/Centre Head at percent of engineering students [in Tamil Nadu], despite possessing Bosch in Coimbatore. The main rationale was that the MNCs already had adequate knowledge, are still not job-ready”. See: Fuller and Narashmian, first-hand evidence of Coimbatore graduates’ quality. Engineering Colleges, “Exposure” and Information Technology, pp. 259. 56 tors interviewed, though not necessarily better than in other • Growth of the auto industry in Chennai, creating a need comparable Indian cities. The quality of their graduates ap- for sourcing components locally. pears to be adequate for the firms’ basic staffing needs, such as in various call center/BPO/ITES functions. For specific State-level investment-attraction efforts have ben- staffing needs, private-sector employers/ offshoring firms like efited Coimbatore’s economy, sometimes in indi- KGiSL run “TechnoCampus” and “bridge” intensive training rect ways. Since the 1990s, the State of Tamil Nadu has programs, and “finishing schools” at their own expense (or targeted global “marquee” manufacturing names working with students picking up some of the cost) to make graduates on the “parent-child” model: attract an anchor investor like more employable. This teaches them skills hard to attain Ford or Hyundai, and dozens of parts suppliers (producers outside the workplace, from good customer service practices of intermediate inputs) will follow them into the state. This to problem solving and situational awareness.68 is indeed what has happened, with the Chennai area in particular attracting a virtual “who’s who” of the automotive Language. Finally, one of Coimbatore’s additional compet- world, including not just Hyundai and Ford, but also Mitsub- itive advantages – reportedly an important factor in guiding ishi, BMW, Daimler Benz, Renault/Nissan, and Caterpillar. MNCs’ investment decisions – is the prevalence of English as Yet the “majors”, as they are sometimes called, also wanted the main language of instruction in its educational institu- to diversify their supplier sources and squeeze out further tions, regardless of field of study. This makes it much easier efficiencies from their supply chains by sourcing as many for multinationals to employ local graduates, and is another components as they can from local firms in India. The Chen- area where Coimbatore fares better than many other cities in nai area, and much of the rest of Tamil Nadu for that matter, the state. And as native speakers of Tamil, Telugu, or some simply did not have enough such firms with the product other local language, workers are less likely to move away capabilities and technical know-how to supply the OEMs. from Coimbatore to other parts of India where the main lan- guage is Hindi, resulting in higher worker retention rates. Global automakers’ arrival in Chennai in the 2000s presented a unique, historic opportunity for Co- Factor 4: Responsiveness to Market imbatore’s engineering firms. Some manufacturers in Opportunities Coimbatore already had long-standing relationships with Indian automakers like Ashok-Leyland, Tata Motors, or Ma- Coimbatore’s private-sector actors have been highly hindra. Now they had the chance to supply the likes of Ford adept at seizing upon opportunities presented by the or Nissan. According to the industrialists interviewed, it was dynamic, ever-shifting marketplace. The private sector the representatives of the auto firms seeking suppliers that has also capitalized on Tamil Nadu’s aggressive investment first approached local business associations in Coimbatore promotion policy, led by the Guidance Bureau, aiming to at- to try to identify their members which could manufacture tract automotive MNCs to the state. This is again essentially automotive components like transmission casings, diesel a two-dimensional story, driven by two seemingly unrelated engines, fuel pumps, air compressors, or speedometers. Ever sets of external developments: the entrepreneurs, the Coimbatoreans rose to the occasion and gradually became integrated into the majors’ global • Multinational firms’ quest for alternatives to sites in supply chains, eventually supplying far-flung parts of their India’s Tier-1 cities69; and automotive empires even beyond India itself.70 While the opportunity in this case was external (OEMs approaching Coimbatore firms), the city’s 68 Tholons defines finishing schools as “non-formal institutions designed for short-term training programs and aimed at training the business community was quick to seize upon it. They relevant labor pool segment – particularly fresh graduates – for specialized were highly responsive, and willing to venture into lines of industries to prepare them for gainful employment. The overall goal of production that may have been somewhat different to what finishing schools is to increase the capacity of the location in supplying the they were used to, but related enough in technical and func- necessary amount of labor for an industry by addressing the individual’s tional terms that the production scale-up and shift could capacity to have and maintain a fulfilling career. Finishing Schools offer in- dustry-specific training courses encompassing technical skills and soft skills. happen. Though no firm data are available on the volume Technical skills are the specific skills sets required in an IT-BPO service line. and value of automotive shipments out of Coimbatore (in Soft skills are those which should be ensured in the labor pool across all part to protect the confidentiality of existing supplier rela- IT-BPO service lines. These common skills are not only used in the IT-BPO tionships), local manufacturers interviewed state that the space, but also applied in other professions. Such skills are not consciously number of jobs supported by this additional business runs included as target skills areas in formal academic institutions.” – Finishing Schools for the IT-BPO Industry, Tholons whitepaper, Dec 2012. “in the thousands” – not insignificant for a modestly-sized 69 “Establishing service delivery centers in Tier II locations has metro like Coimbatore. become one of the most prominent trends for most global IT-BPO service providers’ expansion activities. These service providers are pushed to search 70 In person interview with R.R. Balasundharam, President, Mr. for alternative locations outside of hectic central business districts for dif- Lakshminarayanaswamy, Vice-President, the Indian Chamber of Commerce ferent reasons such as high costs, labor pool saturation, and high amounts and Industry, Coimbatore, and K. Ilango, Chairman, C.R. Swaminthan, of competition among others.” – Tier II Locations in the Outsourcing Co-Chair, Confederation of Indian Industry, Coimbatore, as well as other Industry, Tholons, May 2014. Tholons identifies cost savings, access to new Coimbatore industry officials, on June 10, 2014; In person interview with labor pools, less competition, and incentives among the motives driving Mr. M. Velmurugan, I.E.S., Executive Vice Chairman, Guidance Bureau, companies to expand in Tier-2 cities. Industries Department, Government of Tamil Nadu, on June 19, 2014. 57 Capturing spillover growth. The other major external cost than in Tier-1 cities. KGiSL would offer them brand trend on which Coimbatore’s private sector managed to new, state-of-the-art business facilities at its new CHIL Park, capitalize so spectacularly was the increased saturation, then under construction, taking advantage of the national congestion, and costs in India’s Tier-1 cities like Bangalore, Software Technology Parks (STP) scheme; later the campus Hyderabad, Pune, and Mumbai. Following the Y2K-driven IT was expanded under another national scheme, the Special boom of the late 1990s and early 2000s, ever more Western Economic Zones program. The first and so far largest MNC companies were looking to establish or expand their presence to be recruited to CHIL was New Jersey-based Cognizant73, a in India; the fact that India’s economy continued growing major player in the outsourcing of financial and IT services, right through the global Great Recession meant that the do- and with a longstanding presence in India and Tamil Nadu mestic Indian market, too, was looking increasingly attractive (Chennai). Other well-known corporate names that followed to MNCs. But advanced business facilities with suitable in- include Dell, Germany’s Robert Bosch, and Japan’s Hirotec, frastructure were becoming increasingly scarce and pricey in a designer and supplier of assembly line solutions to most of the Tier-1 cities. Wage levels were ascendant while workforce the world’s major automakers. retention rates plummeted, and any firm wanting to put up a new facility hiring several thousand Indian workers faced an Proactive economic development can be undertaken uphill struggle. by public or private actors, ultimately with similar outcomes. Although they were performed by a private This is where a home-grown Coimbatore company, KGiSL, for-profit company, KGiSL’s actions amounted to a classic saw a stellar market opportunity. Pursuing its own commer- economic development/investment promotion function: cial interests, KGiSL managed to recruit several MNCs to business recruitment based on sound analytics, industry and Coimbatore, resulting in major economic benefits to the city firm identification and targeting, marketing, sales pitch, site and its residents. KGiSL is the real estate development and selection services, assistance with establishment and oper- services offshoring arm of Coimbatore’s KG Group conglom- ations (including local staff recruitment), scale-up/business erate, a company founded before India’s independence, which expansion, and investor aftercare. Interestingly, KGiSL got like so many other local firms got its start in the textile in- the full support of Coimbatore’s business community, even dustry. KG still makes textiles today, but it has since diversi- though there were only limited benefits in it for them (and fied into everything from IT services and HR consulting into much concern about how the MNCs’ arrival might presage a real estate, healthcare, education and even water desalina- war for talent and raise local wage levels, hurting their own tion. KGiSL had already done some outsourced work for U.S. profitability). KGiSL invited representatives from Coim- firms in the late 1990s (medical transcription), on a campus batore’s Chamber of Commerce, business associations, and originally built as a nursing school, and correctly understood leading home-grown companies to dinner with prospective that more corporate functions were likely to be offshored to investors, showcasing the entrepreneurialism and collabora- lower-cost countries like India. Seeking new business oppor- tive spirit in the city. By some accounts, this was an import- tunities in the mid-2000s, the company decided to put up a ant consideration in the MNCs’ final decisions to establish new office park as a speculative investment. operations in Coimbatore. In launching the project, KGiSL quietly acquired an addition- al 300 acres of land in the Saravanampatti neighborhood, 12 km north of Coimbatore’s city center and about the same distance from the city’s airport, for perhaps less than a tenth of what the same land would be worth today.71 The intent was to recruit some MNCs to Coimbatore – spillover growth from India’s Tier-1 cities. Plan B, if no multinationals could be attracted to the new facility, was to turn the site into a teaching hospital, on the logic that “real estate is always a good investment”.72 KGiSL staff undertook an extensive, systematic analysis of market trends and players in the offshoring world, and in particular the activities of MNCs in India. They observed that some companies had run out of room to grow in places like Bangalore or Chennai, and decided to pitch Coimbatore to these firms as a viable alternative, given its highly-educated, English-speaking workforce, available at significantly lower 71 As aforementioned, land acquisition has been one of the key problems faced by SEZs in India. 72 In person interview with Mr. Jayamurali, Vice President – Cor- 73 Cognizant currently has a staff of 10,000 in the CHIL SEZ, and porate Relations, KG Information Systems Private Limited, KGiSL, on June has expansion plans to increase this to as many as 60,000 over the next few 11, 2014. years. 58 Example of a Multinational Locating in Coimbatore: Germany’s Bosch Robert Bosch Engineering and Business Solutions Lim- • Quite a few RBEI employees in Bangalore hold degrees ited (RBEI) is the Indian subsidiary of Germany’s Robert from colleges in Coimbatore Bosch GmbH, one of the world’s leading engineering firms. RBEI is the largest development center outside of • A superior quality of life, and more multicultural than Germany, providing engineering services, design, R&D some alternative locations considered for automotive embedded systems, IT/ITES (software, support for Java, Microsoft, SAP Process), as well as • A highly favorable local ecosystem, in a part of the handling purchasing from local suppliers in India. country known for its engineering prowess Bosch’s operations in India had seen steady growth since • Existing high-quality supplier base, especially manu- the 1990s, so around 2003-04 the company started facturers of castings and forgings looking for an alternative site to grow besides its exist- • Socially conscious, entrepreneurial local companies, ing presence in Bangalore. Based on dozens of criteria, competing with one another in a very healthy way RBEI’s own research shortlisted Coimbatore, along with Jaipur in Rajasthan and Bhubaneswar in Orissa, as the • Coimbatore’s “tendency to evolve when challenges Tier-2 candidate cities being considered for expansion. present themselves”: e.g. when the city became less RBEI approached local developer KGiSL about suitable competitive in textiles, it diversified into non-textile facilities in Coimbatore; the timing proved fortuitous, industries – a very appealing trait for Bosch as the new CHIL Park was then under construction. Bosch began its Coimbatore operations in 2006 and RBEI is co-located with other multinational tenants to quickly grew its local presence, eventually moving into share SEZ physical infrastructure, but there are no linkag- three local greenfield facilities which combined now es, shared staff or knowledge among them. In that sense, employ 4,700 staff at both local SEZs (CHIL and Tidel the SEZ are not real clusters, just industrial estates. Bosch Park). Bosch plans to further expand its local presence in does have stronger linkages to local firms outside the Coimbatore to about 6,000 employees in the near term. SEZs, with its Small Engineering and Design R&D Center KGiSL has helped Bosch with identifying and recruiting and corporate purchasing managers trying to source as skilled staff for its Coimbatore operations. many components and samples as they can from local suppliers. RBEI cites the following principal factors in selecting Coimbatore for its expansion: • Proximity to Bosch’s existing facilities in Bangalore, Bosch officials interviewed state that working with gov- and a strategic location for attracting talent from ernment was not always easy or seamless, so they relied on western Tamil Nadu, Kerala, and southern Karna- the developer (KGiSL) for obtaining the needed clearances, taka permits, etc. as well as paving some roads. Local govern- ment did help with land acquisition before Bosch arrived. • Dependable supply of engineering talent, with 6 of The land belongs to the developer, with Bosch leasing it for 10 nationally-renowned colleges of interest to Bosch 99 years, as is the standard practice locally. recruiters located in Coimbatore; a highly practical focus of curricula, and strong linkages to industry 59 Factor 5: Competitive Business Climate (Bottom- their own generators, which adversely affects profitabil- Line Business Advantages) ity.74 “Saturation of Tier I cities has necessitated the growth of Tier • An entrepreneurial, business-friendly environment, still II and III cities, which is supported by talent pools, sizeable and dominated by family-owned firms but with an increasing cheaper land and real estate options, relatively lower operating presence of Indian and foreign multinational companies, costs and conducive business environments. Prominent Tier II and and a regulatory framework that compares favorably III cities such as Ahmedabad, Jaipur, Chandigarh, Visakhapatnam, with other cities in its region. Surat, Vadodara, Indore, Coimbatore, Nagpur, Bhopal, Luc- know, Bhubaneswar, and Kochi are witnessing increased interest • MNCs’ existing business ties to local Coimbatore firms by investors.” – Shveta Jain, Executive Director, Cushman & through prior joint ventures or supplier relationships. Wakefield India Indeed, Coimbatore has a well-developed network of sup- pliers of all sorts of manufactured intermediate goods, The value proposition – getting the most for the with a proven ability to quickly adapt to market opportu- investment dollar – is gaining importance not just nities and supply needed inputs. between countries, but even within India, as the above quote from industrial real estate firm Cushman & Wakefield • A growing local consumer market, with some 3.5 million shows. Rising total business costs, and especially real estate people residing in Coimbatore District, and many mil- and wage levels, has led many multinationals, including lions more within a short driving distance. home-grown Indian corporations, to seriously consider second-tier cities like Coimbatore for their expansion plans. It • A fairly mild climate by Indian standards, without many is important to note that site selection considerations are not days of extreme temperatures – Coimbatore is located in just limited to the cost side, but also focus on the quality and the tropics, but at an elevation of more than 400 meters quantity that can be had at a certain pricing point. Therefore, and fringed by mountains, providing a cooling effect. Coimbatore does indeed provide a compelling value proposi- • A comparatively good quality of life, including multiple tion for companies, not just low business costs. affordable housing options, good schools and hospitals, In addition to a highly-skilled, largely English-speaking decent cultural and entertainment options, exemplary workforce at competitive wage levels (examined in-depth in a public safety, and lower traffic congestion and ambiental previous section), Coimbatore also offers the following main pollution than many other Indian cities. bottom-line business advantages to companies considering The above advantages have favored both the estab- investing or expanding there: lishment and growth of indigenous companies, and • Abundant, inexpensive land for industrial or office use; investment in Coimbatore by outside firms, particular- pre-constructed business facilities such as call centers ly as a viable alternative to cities like Bangalore or Hyderabad. can be had on regular or 99-year leases, which provides Examples of the latter include Bosch, Cameron, Hirotec, a way around land ownership restrictions prevalent in Denso, Rieter, Ford Global Business Services, Cognizant, India. Dell, and IBM, as well as Indian multinationals like Mum- bai’s Larsen & Toubro, Wipro, and TCS. In many cases, MNCs’ • A strategic location at the crossroads of southern India, initial investment was fairly modest, then scaled up as with easy access to both coasts and a catchment area business expanded and they gained a higher confidence level that includes western Tamil Nadu, Kerala, and southern in Coimbatore’s ability to provide the workers, inputs, and Karnataka states. facilities they needed to grow. • Good universities and technical colleges, with a Lessons for Other Cities long-standing tradition of collaborating with private, for-profit firms, and the ability (not fully utilized) to Coimbatore’s economic success holds valuable lessons carry out R&D. for other cities in South Asia Region and elsewhere. • Reasonably good infrastructure, including an interna- Some of its success factors have taken decades to develop and tional airport, railroads, highways, water and sewerage, are not easily or quickly replicable. Still, some of the enabling and municipal waste treatment (recognized as a national conditions in Coimbatore could presumably be developed in best practice). The only glaring infrastructure deficiency other cities through proactive policy interventions at the local is the provision of electric power, supplied by a monop- or regional level, regardless of which specific actors undertake olistic SOE, the Tamil Nadu Electricity Board; power them. The most notable learnings include: blackouts have been a challenge throughout the state 1. Focus on Core Competencies: This may sound like a since 2008, and businesses cope with this by installing truism, but the recent history of local economic develop- 74 For more, see Figure 2.3 in Athena Infonomics, Power Sector in Tamil Nadu, pp. 8. 60 ment initiatives worldwide is littered with examples of 4. Foster the development of a supportive entre- cities following fads, attempting to be something they preneurial ecosystem: Easier said than done, but are not by targeting industries for which they do not Coimbatore’s mostly family-owned SMEs (de facto, have even the basic prerequisites – in the process often very much an Indian version of Germany’s Mittelstand ) spending vast sums on investment incentives. A city do not operate in a vacuum. They compete with each does best when leveraging the assets that it does have, other for specific business opportunities, but also band which is precisely what Coimbatore has done, even if it together and self-organize to build capacity, ensure wasn’t part of a grand vision or development strategy common technical standards, facilitate exports, or lobby devised and/or implemented by the public sector. In Co- the government for infrastructure upgrades, such as the imbatore’s case, this has meant capitalizing on the city’s recent expansion/upgrade of the city’s airport. A critical reputation for engineering excellence and precision man- role in this is played by industry associations such as ufacturing – both for home-grown companies to scale SIEMA and CODISSIA, which provide very real, hands- up, and to attract additional inward investment. Coim- on technical assistance to their members, and may be batore’s business leaders did not attempt to create a local more effective at it than government programs in other industry cluster from scratch, nor attract to the city new countries attempting to accomplish the same. They industries for which it may not have the necessary pre- know their industries and city, understand the com- requisites (e.g. semiconductors, biotechnology, aerospace, petitive pressures of the marketplace, and seek to help financial services, or some other “fashionable” sector). one another wherever and however they can. Company Instead, they made a push to expand in areas where they executives/owners also see themselves as pillars of their do excel. Outside investors did not need to be lured by community, whose duty it is to help others along. They hefty incentives, and in fact report having turned down volunteer their time and energy to make their respective offers of free land from competing locations in India.75 industries better – more modern, more competitive, and better integrated into global supply chains. 2. Facilitate ongoing, continuous sectoral diver- sification by honing the development of trans- 5. Build up and leverage the city’s human capital as ferrable skills: Coimbatore’s engineers are renowned a key competitive asset: Another apparent truism, for their aptitude in mechanical engineering and metal yet few places seem as aware of people as their greatest manufacturing. Whether producing water pumps, valves, resource as Coimbatore is, or as committed to investing or automobile transmissions, the skillsets required are in improving it. The city’s for-profit companies have a very similar and easily transferrable from one manufac- long history of highly valuing education, particularly in turing industry segment to another. There is a special- the natural sciences and applied technologies. The city’s ized labor pool within a small geographical radius, with business community originally established the vast ma- shared production inputs, extensive knowledge-sharing, jority of Coimbatore’s technical colleges and vocational and technological exchange occurring on a daily basis. schools, both to develop their own talent pipeline and as This has enabled Coimbatore’s existing firms to branch a way of giving back to their community. More recently, out into new product lines, and aspiring entrepreneurs private-sector actors attempting to recruit multination- to start their own companies. This diversification is the als to the city have touted Coimbatore’s human capital as result of individuals and firms pursuing concrete market the key competitive advantage over nearby, and other- opportunities, not some grand design to achieve it. wise similarly situated cities like Madurai. Anecdotal evidence also suggests that a number of professional 3. Nurture close, substantive relationships between Coimbatoreans had lived abroad, still maintaining close academia and the private sector: Coimbatore seems ties to their diaspora in other countries.76 unique in Tamil Nadu and India in its very high degree of industry-academia collaboration. Educational curricula 6. Create a virtue out of necessity – turn the lack are practically-focused and developed in consultation of attention from government into a strength, with potential employers, so students graduate with instead of a competitive disadvantage: Coimbatore relevant, applied skills and extensive manufacturing has no political champions in Chennai or New Delhi, and shop floor experience, not just theoretical knowledge. In has not had any leaders of national stature since India’s some ways, Coimbatore’s approach to technical training early post-independence days. The city does not have a is reminiscent of Germany’s system of vocational train- single state-owned enterprise (“Public Sector Unit”), yet ing – another manufacturing-intensive economy whose its economic growth handily outpaces many places that schools produce talent with highly applied skills. Indeed, this is something that has attracted German engineering 76 Tellingly, although Coimbatore itself is a hub for engineering giant Bosch, for example, as well as other international education, several senior executives interviewed by the mission had earned their advanced degrees abroad, mostly in the UK or US. It was apparent that firms. they were very much in sync with the latest technologies and management thinking in the West, and seemed to be on a par with their colleagues in high-income countries. Many also reported having business interests abroad, such as owning factories in the United States, or frequently trav- 75 In person interview with Mr. Venugopal R., Vice President-Com- eling to Japan to meet with joint-venture partners. The overall impression mercial/Centre Head-Coimbatore, Bosch, on June 16, 2014. was that of extremely savvy, globally-connected entrepreneurs. 61 have a lot of them. There is no concerted effort by munic- government does not actively hinder economic activity ipal officials to help local firms and individuals tap into through suffocating regulation, an onerous tax burden, existing national or state support programs for which or barriers to entry, for example. The active role played they may qualify (instead, this was done by industry as- by its chamber and industry associations is a model for sociations and other private-sector membership groups). those in other cities where there are at least the contours Government’s role has largely focused on the provision of a market-based economy (i.e. there is a reasonably of basic infrastructure, public safety, and very limited well-developed private sector). support such as export promotion or the help MSMEs receive through DICs. Beyond infrastructure provision largely “left to its own devices” economically, Coimbatore shows what the private sector can accomplish on its own initiative, provided some basic services are provided and 62 Appendices Source: Oxford Economics, 2013; World Bank staff estimates, 2014 Basic Demographic and Economic Data Coimbatore’s key industries include manufacturing, engi- neering services, transport, IT/ITES/BPO, education, and health. Textile production still has a substantial presence in Coimbatore is now the 2nd largest city in Tamil Nadu. Popula- the local economy, but has declined in relative importance in tion (millions): recent years, with much actual production moving to neigh- • Municipal Corporation: 1.6 boring Tiruppur while some functions like product design • Urban agglomeration: 2.2 and management have remained in Coimbatore. • Coimbatore District: 3.5 According to an industry profile of Coimbatore District done • Metro GDP: US$6.7 billion by the Ministry of Micro, Small and Medium Enterprises,77 most MSME employment in Coimbatore today is in manu- facturing, followed by textiles, service activities and other Coimbatore’s location smaller industry segments. Manufacturing represents 40% in India of employment among Coimbatore MSMEs (72,000 workers), Employment in Coimbatore District by Main Industry Sector, FY 2012-13 Computer related Other service Other activities activities Agriculture- industries 2% 12% based 17% 3% Manufac- Textiles turing 26% 40% Selected Indicators for 18 Indian Cities Average Average Share of Urban Population GDP Job Composite India's Agglomeration (000s) Growth Growth Growth GDP 2007-12 2007-12 Ahmadabad 6,048 1.11% 8.72% 0.52% 9.24% now employing more than textiles, at 26% (50,000 workers), Bangalore 8,022 1.48% 8.33% 2.81% 11.14% which represent more of the traditional industry in Coim- Chennai 8,321 1.42% 8.26% -0.39% 7.87% batore.78 Coimbatore 2,030 0.36% 9.33% 1.29% 10.62% Delhi 16,790 3.89% 8.72% 1.82% 10.54% Source: Brief Industrial Profile of Coimbatore District 2012-2013 Hyderabad 7,382 0.80% 9.51% 2.21% 11.72% Indore 2,082 0.18% 9.49% 1.57% 11.06% Of the large firms identified in the report, almost all em- Jaipur 2,953 0.33% 8.22% 1.52% 9.74% ploying 500 or more employees are either in the textile or Kanpur 2,885 0.20% 6.74% -0.12% 6.62% manufacturing sectors. The firm units within Lakshmi Ma- Kolkata 13,941 1.90% 6.81% 1.58% 8.39% chine Works, a conglomerate mentioned earlier in this report, Lucknow 2,800 0.20% 7.36% 0.97% 8.33% Madurai 1,420 0.25% 8.31% 0.24% 8.55% include the mills company employing 692, clothing company Mumbai 17,977 4.61% 7.75% 1.20% 8.95% employing 464, the machine tool division employing 320, Patna 1,994 0.15% 10.64% 4.23% 14.87% and electrical control systems employing 231.79 Pune 4,841 1.09% 8.60% 2.03% 10.63% Salem 893 0.16% 8.36% 0.30% 8.66% Tiruchirappalli 994 0.18% 8.25% 0.18% 8.43% Tiruppur 886 0.16% 10.26% 2.26% 12.52% 77 The industry profile may not be an exact or exhaustive analysis 18-City Average n/a n/a 8.5% 1.3% 9.9% of Coimbatore MSMEs or large firms, and it is referenced here to exemplify the general trend in Coimbatore industry employment. • 91% literacy rate is among the highest in India (74%) 78 Brief Industrial Profile of Coimbatore District 2012-2013, pp. 7-8. 79 Ibid, pp. 9-15. 63 The report also includes annual employment figures for In Coimbatore’s case, there were proactive economic newly registered firms. After a slowing down of employment development initiatives visibly contributing to the city’s growth from new firms in the years 2002-2005, each year economic success. However, they were undertaken from 2006 to the end of 2010 had more than 20,000 employ- almost exclusively by private-sector actors pursuing ees annually for these firms.80 profit motives, not city government or a dedicated local economic development agency. To the extent that there Testing of Standardized Research Hypotheses is any industry targeting by government, it is all done at the state level.81 As noted in the report’s Introduction, this is the second in a Ingredients of success: series of case studies of economically successful cities around the world. In order to ensure comparability of “teachable mo- a. As an economically successful city, Coimbatore ments” across all case studies, a set of standardized research has two dominant themes: (i) growth of its hypotheses was tested in Coimbatore to determine the exact indigenous engineering cluster; and, (ii) the scope for action at the metropolitan level, factors that may attraction of (Indian and foreign) multinational have most affected how those prerogatives were used, and firms to the city. the extent to which specific interventions (and how they were implemented) may have resulted in the economic outcomes b. Although not necessarily by design, observed. Coimbatore’s proactive economic development efforts have been focused on industries The first hypothesis tested seeks to determine to what extent producing tradable goods and services, Coimbatore’s economic results were attributable to proac- including engineering, metal components and tively picking sectors to support, the second one looks at the products manufacturing, automotive parts, ICT strategic planning process itself (if any) and how it may have and ITES, BPO, and industrial design services. affected economic growth, and the third one looks at the plan’s implementation, if applicable. c. In its proactive economic development activities, Coimbatore has de facto pursued an 1. Coimbatore’s economic success is partly attribut- integrated, three-pronged approach to able to key local actors having made strategic bets business development: nurturing the growth of on specific industrial initiatives, rather than just existing firms, fostering the establishment of making improvements to its general investment new start-up companies, and striving to attract climate in order to stimulate economic activity. new outside investment. Local companies got National, state, and local-level improvements to the busi- assistance from government and/or industry ness climate have undoubtedly facilitated the achieve- associations to establish their businesses, ment of superior economic outcomes, but proactive upgrade technologies, expand production, initiatives on the part of private-sector actors are likely export, and integrate into global supply chains. to be the greater part of the reasons for Coimbatore’s Coimbatore’s business community collaborated success. to bring new MNC investors into the city. Coimbatore has benefitted from a favorable and improv- 2. The likely trajectory of Coimbatore’s economic ing business climate at the national and state levels, performance was not altered by any specific policy including the dismantling of the erstwhile “license raj”, interventions, nor did the city have a strategic plan greater openness to external trade and investment, in- for economic development. However, individual creased market competition, and improving connectivity private-sector actors have in practice carried out (telecommunications and transport). At the local level, some actions that are typically found in such plans, the municipal and district governments have focused and would have likely been included had Coimbatore on the provision of critical infrastructure like transport produced such a document. Coimbatore has managed and water & sewerage as enablers of economic develop- to outpace its national economy even without creating an ment, as well as other, often unnoticed factors like good official strategic plan for economic development. Its prin- public safety, which reduces companies’ operating costs. cipal private-sector actors (the Chamber of Commerce, While corruption remains a concern at various levels of industry associations, individual firms) did not have a government, it does not seem to have materially affect- structured approach to economic development, nor did ed Coimbatore’s ability to deliver desirable economic they lay out a strategy as such. Rather, they organically outcomes. In addition, the simplification of procedures diversified into new industry segments in response to (single-window) for entrepreneurs is likely to have aided market opportunities and favorable macroeconomic pol- company formation and growth, and thus employment, icy, and they worked to attract Indian and multinational at the MSME level. firms to Coimbatore. 80 Ibid, pp. 6-7. 81 Tamil Nadu Industrial Policy, 2007. 64 Coimbatore’s economic development-related activities join together to prepare the One Voice for Kovai’s 10 Point have included: Agenda document. There appears to be a strong sense of solidarity and shared purpose among members of the a. Robust analytics to guide corporate decision-making business community in wanting to see their city advance and strategy formulation, based on a knowledge of global economically, and they have shown an ability and business trends and first-hand experience doing business readiness to gather in pursuit of such goals when needed, with international companies through offshoring, e.g. to lobby for infrastructure investments. supplier, or joint venture relationships. These were carried out at the level of the individual firm, rather than d. Strategic decision-making and prioritization: for the city as a whole. However, they did result in the Coimbatore did not utilize a structured process for recruitment of anchor investors in the engineering and identifying and agreeing on policy priorities, nor IT fields, helping to put the city on the site selection map for evaluating trade-offs between different public and raise its visibility – amounting to de facto economic investment alternatives, such as through cost-benefit development marketing as well as business recruitment/ analyses. The Chamber of Commerce and industry expansion. associations advocate for specific forms of government support from the state and national governments (e.g. b. No structured or formal planning process to: airport expansion or more reliable electric power supply), but this is not based on evaluating the relative merits of • identify key economic development issues facing Coim- one form of support over another. batore, such as inadequate infrastructure, lack of access to finance, fairly low export intensity, tough interna- 3. The level of autonomy related to economic develop- tional competition for its principal products, or lack of ment in Coimbatore (the equivalent of the “Mayor’s government transparency and accountability. However, Wedge”) was not a significant factor in the city’s through regular meetings within and among local indus- improved economic outcomes. Local government try associations and chambers of commerce, the busi- bodies in India have a limited role in interventions ness community did put together a lobbying document, aimed at fostering economic growth, although they One Voice for Kovai’s 10 Point Agenda, which mostly do play an important enabling role through the pro- focuses on addressing infrastructure deficiencies and vision of critical public goods such as infrastructure is the closest thing Coimbatore has to a strategic plan. and public safety. The public sector has not undertaken This document was the product of ad-hoc discussions be- proactive interventions – through plans, strategies, or in tween members of more than a hundred business groups practice – to spur economic development. and non-governmental organizations, not an organized process. a. There is no dedicated local economic development agency in Coimbatore, nor an economic development- • identify the city’s main competitive strengths, such related department of government. The role of as engineering excellence, good universities and tech- government bodies, particularly the Coimbatore City nical colleges, relatively high levels of human capital, a Municipal Corporation and the District Administration, very engaged private sector, highly competitive business is limited to providing local public goods in physical and costs, good public safety and security, and considerable support infrastructure. Moreover, there are no economic tourism development potential. Many of these strengths development agencies at higher tiers of government, (e.g. Coimbatore’s reputation in engineering and manu- apart from the Tamil Nadu Guidance Bureau, which is facturing) are simply taken as a given, and not necessari- the state agency for investment promotion. ly used as part of any coordinated marketing or business development strategy for the city. a. Low financial and administrative autonomy: Although India initiated • formulate a vision of progress that Coimbatore can a decentralization reform effort under make, including specific measures to address its chal- Constitutional Amendment 74, the country lenges and to capitalize on its competitive strengths. is generally characterized by low level There is a Vision Tamil Nadu document at the state level, of decentralization from national and but nothing for the city. More recently (i.e. falling outside state government to local government, or the scope of this case study’s time period), the Municipal urban local bodies.82 The reform effort has Corporation has prepared a new City Development Plan, witnessed municipal government moving but it is still in draft form as of June 2014. beyond responsibilities in traditional local public goods – yet the interview findings c. Coimbatore did not assemble a “growth coalition” do not suggest Coimbatore municipal as such at the metropolitan level, which would bring together representatives of local government, universities, private-sector businesses, labor unions, and 82 In the wider India context, there has not been a significant other stakeholders in economic development. However, increase in the volume of municipal spending noting the lack of increased fiscal autonomy. See: Mathur, Om Prakash. Municipal Finance Matters. the Chamber of Commerce and industry associations did PowerPoint Presentation at World Bank. June 2, 2014. 65 government’s involvement in economic perform well in its main infrastructure functional development. Amendment 74 outlined responsibilities. The CCMC beat out 11 competitors in that state governments could assign up Tamil Nadu State to receive the highest state municipal to 18 government functions to urban corporation honors. It won out due to its performance on local bodies, 16 of which were reportedly roads and sewage management, but, more importantly in transferred to urban local bodies in Tamil terms of management, for its high levels of tax collection Nadu.83 While the function for “planning and the implementation of an e-government system. for economic and social development” is reported as having been transferred to a. Roles: The district administration ULBs, the mission interlocutors, including provides licenses and approvals, the local government chief executive, did administers revenue, and acts as a not suggest a municipal role in economic “pass-through mechanism”. A range planning and implementation.84 of economic development functions, including entrepreneurial training, skill b. Funding: Municipalities in India, development, business advisory services, including municipal corporations in large trade promotion, are played by the District urban areas, have low municipal spending Industries Center and local chapter of the ability and limited fiscal powers more Ministry of MSME. Additional functions generally.85 The institutional ability to such as branding, government lobbying make and implement decisions at the (on behalf of local firms), business cluster city level is shared by the Municipal development and entrepreneurial support, Corporation’s elected officials as well are carried out by the city’s industry as the state government appointed associations. Municipal Commissioner and lower level commissioners. • Enabling environment: Coimbatore’s inclusion in the national JnNURM scheme provided additional infra- c. A well-defined geographical remit: structure funding along with national government mon- Political legitimacy and accountability itoring of the implementation of decentralization in the appear to be hampered by having both city, local government capacity, and how this reflects on state and local government leadership at urban planning, This provided a greater impetus for the the city level, with the main executive city to develop an initial city development plan (2006), a power holders appointed by higher tiers of follow-up city development plan due to be released later government, and not elected by the city’s in 2014, and an update to the 1994 master plan. constituents. While the Coimbatore City Municipal Corporation is the primary • Monitoring & evaluation: The most recent Coim- urban-tier local body in Coimbatore batore city development plan, a draft copy of which was (and the only municipal corporation in provided to the mission team, includes a vision and the metropolitan area), it does not have development strategy projected to 2045. However, its functional authority beyond the city main focus is on land use and the provision of municipal limits. The Municipal Corporation Mayor services. The vision, strategy, and implementation frame- is popularly elected to a five year term work do not go into adequate detail, and do not suggest and yet ostensibly only a figurehead in any mechanisms for thorough assessment of implemen- Coimbatore. The Municipal Commissioner tation against objectives. is the local government’s chief executive and is appointed for a fixed, renewable c. Private sector and stakeholder involvement in term. The District Administration, implementation: Given the absence of an economic whose responsibility extends across the development strategy for the city and government’s metropolitan area, does not perform limited role in economic development more generally, the economic development functions. Coimbatore City Municipal Corporation only identifies government stakeholders as part of its consultations b. Efficient internal management: While interview for the upcoming city development plan. The private findings suggest a low level of capacity for the sector plays the leading role in Coimbatore’s economic Coimbatore government, the CCMC seemed to development, yet is no structured forum or channel for dialogue between public and private sector actors. 83 Memorandum of Agreement between Government of India and Details: State Government of Tamil Nadu and Coimbatore City Municipal Corpora- tion. JnNURM. pp. 6-7. • Coimbatore’s for-profit firms pool their (limited) finan- 84 In person interview with Ms. Latha, Municipal Commissioner, cial and in-kind resources to help market and promote Coimbatore Municipal Corporation, in Coimbatore, India, on June 17, 2014. 85 Mathur, Om Prakash. Municipal Finance Matters. PowerPoint the city as a business and tourism destination. Presentation at World Bank. June 2 2014. 66 • Industry associations actively work to integrate local • Coimbatore’s private-sector firms are actively engaged in small and medium-sized businesses into multinationals’ workforce development, having established educational global supply chains. institutions and now collaborating with them by en- abling students to spend time on the factory shop floor. • Senior corporate leaders, both at home-grown firms and those based elsewhere, act as the city’s public champi- • Given the prevalence of SMEs in Coimbatore, trade ons and utilize their relationship capital to secure more unions do not play a prominent role in the city’s econom- investment and business opportunities for Coimbatore ic development. and its companies. • There is no permanent “growth coalition” as such, al- though stakeholders do self-organize on an ad-hoc basis in response to specific issues and opportunities. Night Lights Patterns of Southern India, 2012 Source: NASA 67 Spatial Development over Time Coimbatore in 2006: Coimbatore in 2014: 68 69 Interviews 1. In person interview with Om Prakash Mathur, Senior 14. In person interview with Prof. Dr. G. James Pitchai, Fellow, Institute of Social Studies, in Washington, D.C., Vice-President, Bharathiar University, in Coimbatore, on June 5, 2014. India on June 12, 2014. 2. In person interview with Mr. S. Rivandra, Vice President, 15. In person interview with Dr. P. Tamizhselvan, Associate IL&FS Clusters, in Chennai, India on June 8, 2014. Professor, Tamil Nadu Institute of Urban Studies, in Coimbatore, India, on June 12, 2014. 3. In person interview with Mr. Vijay Deshmukh, Vice Pres- ident, Larsen and Toubro (L&T) Precision and Manufac- 16. In person interview with S. Periyasamy, Deputy Director, turing, in Coimbatore, India on June 9, 2014. Textiles Committee, in Coimbatore, India, on June 13, 2014. 4. In person interview with Mr. Rajendran, Director of Finance, Lakshmi Machine Works Limited (LMW), in 17. In person interview with Mr. Sathianandan, General Coimbatore, India, on June 9, 2014. Manager & Regional Head, and Mr. Ananthakrishnan, Deputy General Manager, Small Industries Development 5. In person interview with R.R. Balasundharam, President, Bank of India, SIDBI, in Coimbatore, India, on June 13, Mr. Lakshminarayanaswamy, Vice-President, the Indian 2014. Chamber of Commerce and Industry, Coimbatore, and K. Ilango, Chairman, C.R. Swaminthan, Co-Chair, Confed- 18. In person interview with T.C. Thiagarajan, President, the eration of Indian Industry, Coimbatore, as well as other Southern Indian Engineering Manufacturer’s Associa- Coimbatore industry officials, in Coimbatore, India, on tion, SIEMA, as well as other SIEMA officials, in Coim- June 10, 2014. batore, India, on June 13, 2014. 6. Discussions with Coimbatore entrepreneurs at Industri- 19. In person interview with Mr. Palanivel, Deputy Direc- al Trade Fair Coimbatore, INTEC 2014, in Coimbatore, tor, MSME Development Institute (Branch of Ministry India, on June 10, 2014. of MSMEs of India), in Coimbatore, India, on June 14, 2014. 7. Discussions with TIDEL Park Coimbatore resident MNCs, in Coimbatore, India, on June 10, 2014. 20. In person interview with Mr. Viswanathan, President, Coimbatore Industrial Infrastructure Association, COIN- 8. In person interview with Mr. S. Chandresekar, General DIA, in Coimbatore, India, on June 16, 2014. Manager (Operations), and Ms. M. Gita, Company Secre- tary, TIDEL Park Coimbatore Ltd., in Coimbatore, India 21. In person follow-up interview with Mr. Jayamurali, on June 10, 2014. Vice President – Corporate Relations, KG Information Systems Private Limited, KGiSL, in Coimbatore, India, 9. In person interview with Mr. Prakash Vasudevan, Direc- on June 16, 2014. tor, the South India Textile Research Association, SITRA, in Coimbatore, India, on June 11, 2014. 22. In person interview with Mr. Venugopal R., Vice Presi- dent-Commercial/Centre Head-Coimbatore, Bosch, in 10. In person interview with Mr. Jayamurali, Vice President Coimbatore, India, on June 16, 2014. – Corporate Relations, KG Information Systems Private Limited, KGiSL, in Coimbatore, India, on June 11, 2014. 23. In person interview with Mr. Hayama, Director and Pres- ident, and Mr. Narayanan, Vice President, Hirotec India, 11. In person interview with Mr. Ramachandran, President, in Coimbatore, India, on June 16, 2014. and Mr. Babu, Honorable Secretary, Coimbatore District Small Industries Association, CODISSIA, in Coimbatore, 24. In person interview with Ms. Archana Patnaik, District India, on June 11, 2014. Collector, Coimbatore District Administration, in Coim- batore, India, on June 17, 2014. 12. In person interview with Mr. A.V. Vardharajan, Chair- man, Sandfits Foundries Private Limited (former Pres- 25. In person interview with Ms. Latha, Municipal Commis- ident of CODISSIA), in Coimbatore, India, on June 11, sioner, Coimbatore Municipal Corporation, in Coim- 2014. batore, India, on June 17, 2014. 13. In person interview with Mr. Asokan, Joint Director/ 26. In person interview with Mr. K. Ilango, Chairman, General Manager, District Industries Centre, in Coim- Confederation of Indian Industry, Coimbatore, in Coim- batore, India, on June 12, 2014. batore, India, on June 17, 2014. 70 27. In person interview with Mr. Albert Stephen, Branch 31. In person interview with Ms. Mabhumathi, General Manager, Centre for Monitoring Indian Economy, in Manager, State Industries Promotion Corporation of Chennai, India, on June 18, 2014. Tamil Nadu, SIPCOT, in Chennai, India, on June 19, 2014. 28. In person interview with Mr. Nanjundi Karthick Krish- nan, Senior Consultant, and Ms. Anupama Ramaswamy, 32. In person interview with Mr. Atul Anand, I.A.S., Man- Senior Consultant, Athena Infonomics, in Chennai, aging Director, Electronics Corporation of Tamil Nadu, India, on June 18, 2014. ELCOT, in Chennai, India, on June 19, 2014. 29. In person interview with Mr. S. Krishnan, I.A.S., Prin- 33. In person interview with Mr. A. Jayaraman, Senior cipal Secretary, Planning, Development and Special Vice-President & Company Secretary, and Mr. D. Selva Initiatives Department, Government of Tamil Nadu, in Pandian, Assistant Vice President, Tamil Nadu Urban Chennai, India, on June 19, 2014. Infrastructure Financial Services Ltd., in Chennai, India, on June 20, 2014. 30. In person interview with Mr. M. Velmurugan, I.E.S., Executive Vice Chairman, Guidance Bureau, Industries 34. In person interview with Mr. C.V. Sankar, Principal Department, Government of Tamil Nadu, in Chennai, Secretary, Industries Department, Government of Tamil India, on June 19, 2014. Nadu, in Chennai, India, on June 20, 2014. 71 Bibliography “Power Scenario in Tamil Nadu: A Comparative Analysis”. Athena “Memorandum of Agreement between Government of India, State Infonomics India. 2011. Government of Tamil Nadu and Coimbatore City Municipal Corporation.” Coimbatore Corporation Tamil Nadu: JnNURM “Brief Industrial Profile of Coimbatore District 2012-2013.” Govern- Scheme. 29 July 2006. http://jnnurm.nic.in/wp-content/up- ment of India, Ministry of MSME. 2013. http://dcmsme.gov.in/ loads/2010/12/Coimbatore_MoA1.pdf. Retrieved July 2014. dips/IPS%20coimbatore%202012_t.pdf. Retrieved July 2014. “Ministry of Micro, Small and Medium Enterprises. 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Retrieved July 2014. 72 73 Case Study 3 Kigali, Rwanda Leveraging national policies strategically 76 Table of Contents Introduction 78 Executive Summary 80 National Context 82 Local Context 85 Analysis 86 Factors of Competitiveness 86 Conclusion 90 Lessons for Other Cities 91 Appendices 92 77 Introduction T he case study of the economic success of Kigali, ing exceptional levels of economic growth that go beyond the capital city of Rwanda, is the third in the modest recovery growth (see figure below). This begs the series of World Bank case studies of successful question: How? And, importantly, what can other cities metropolitan economies around the world. The World learn from Kigali’s example? Bank’s Competitive Cities Knowledge Base project aims to provide city leaders with the tools and knowledge for the Indeed, the story of Kigali’s economic success pro- successful formulation and implementation of effective eco- vides a useful learning experience for other cities nomic development strategies at the city level. No single case around the world, because like many other cities, study will provide a recipe for success for other city leaders, Kigali is: but each case study in the series will offer insights and strate- gies for cities with similar conditions, factors and challenges. 1. A capital and primary city Kigali was selected as a case study because, between 2. Located in a country with a strong, proactive national 2007 and 2012, the city experienced exceptionally government high rates of economic growth. As part of the city selec- 3. Lacking inherited natural advantages (i.e. landlocked tion exercise, cities in the Sub-Saharan Africa region were and small) ranked according to the amount by which they exceeded the average national growth rates86. The intent was to identify 4. Recovering from conflict and needing to rebuild both the competitive cities, or cities that had “outperformed” their city and the economy national economies in terms of GDP and job growth. These outlier cities were of great interest; as understanding how Yet unlike other cities, Kigali has experienced ex- these outlier, competitive cities were able to achieve high traordinary economic growth; attributed in part to levels of growth (when cities with the same set of macro- the successful leveraging of national level strategies, economic conditions and national policies had not) could as well as to improvements to local government ca- offer lessons to others interested in potential strategies and pacity and the attractiveness of the city, including: effective levers that can be utilized at the municipal level to improve economic growth. Further, Kigali has not had access to many of the advantages that other cities in the region enjoyed. As the nation’s capital, Kigali has benefitted from nation- al attention and assistance (especially for infrastructure development) and its ability to attract talent from around the country. However, Kigali lacks many inherited advantages that other cities and countries within the region enjoy; like abundant land and natural resources, cheap energy, transport linkages, a flagship university or anchor investments. Above all, Kigali (and Rwanda) suffered from years of instability and violence, which culminated in the 1994 Rwandan Genocide. Yet less than 20 years after the genocide, Kigali is experienc- 86 The City of Kigali ranked in the top 20 cities in the region for outperforming the national rate of growth; top 3 for capital cities in the region; and the top 3 for cities in natural resource poor countries in the Source: World Development Indicators, World Bank region. 78 1. Creating a conducive environment for business and improving the ability of firms to operate (e.g. obtain a construction permit, access finance, etc.); 2. Building up local government capacity with international exchanges and external experts that assist staff with the learning and implementation of new tools to improve local capacity in prioritized areas (e.g. tax collection) 3. Increasing the relative attractiveness of the city by im- proving unique liveability factors (e.g. cleanliness, safety) and marketing widely and clearly investment opportuni- ties within the city. Kigali: Key Facts and Figures 1,060,267 Population of Metropolitan Area 24.7% Population growth (2007-2012) $1.46 bn Metropolitan GDP 2012 (billion, USD) 9.70% Average Annual GDP growth (2007-2012) 6.12% Average Annual Job growth (2007-2012) $1,380 GDP per capita (USD) Source: Oxford Economics City of Kigali Timeline 79 Executive Summary A s the capital and primary city, the City of create a role for itself by leveraging national level programs Kigali benefitted from national policies that and playing up its own competitive strengths to promote improved governance and the business envi- growth. The city’s actions can be grouped into 5 key areas of ronment. Since 2000, Rwanda has been steadily implement- intervention, Kigali: ing reforms to promote stability and economic growth in the country. As the capital city and center of economic activity 1. Improved the city’s business environment: The City in the country, Kigali benefitted significantly from these of Kigali proactively undertook an assessment of the en- improvements. Specifically, Kigali has benefitted from 3 main abling environment according to the World Bank’s Doing factors: Business survey (adopting this “best practice” from the national level). This assessment included feedback from 1. National Economic Planning and Implementation: the private sector, through the newly established Kigali National level plans outlined strategies and set goals Investors Forum, and concluded with the implementa- according to short, medium and long-term horizons to tion of specific reforms to address identified constraints. improve implementation, as well as agency coordination. Targeted strategies were also developed to promote the 2. Built up capacity within local government: Under- growth of key economic sectors, and ultimately help the standing that high capacity staff are necessary for a country achieve middle-income status by 2020. high-functioning municipal government, Kigali incorpo- rated capacity building opportunities into problem-solv- 2. Improved Safety and Good Governance: Efforts to ing exercises. The city utilized learning exchanges that improve safety had far-reaching impacts on economic involved sending key personnel to other cities to learn growth, including: increasing local business activity, specific skills (like tax collection systems, or economic attracting the diaspora community and other profession- planning), and bringing these same experts back to al talent (to relocate to Kigali), and expanding foreign Kigali to assist with the implementation of these new investment and opportunities for tourism in the country. skillsets and ideas. Governance reforms like performance contracts, the zero tolerance policy on corruption and decentralization have 3. Addressed bottlenecks and constraints for the further improved the accountability and performance of private sector: The city engaged regularly with the government officials. private sector to better understand constraints to doing business. Through these engagements, the city 3. Enacting Key Reforms to Improve the Ability to identified access to finance and land ownership as two Do Business: Rwanda prioritized the improvement of key constraints for local firms. The city then addressed the business environment and has been a top reformer these constraints by helping firms (and small producers) according to the World Bank’s Doing Business survey. to organize as cooperatives and co-locate operations; Notable improvements include land reform (through the providing groups with land titles for the new properties. Land Tenure Regularization Program), that encouraged Further, the city worked with financial institutions to private land ownership and freed up land markets; and provide these same land titles as collateral and subse- the centralization of investment promotion activities quently helped increase access to finance. within one agency- the Rwanda Development Board (RDB). 4. Accentuated its unique liveability appeal: Kigali is attractive to both domestic and foreign residents because The City of Kigali created a niche for itself in terms of of both inherited (climate, low corruption efforts by na- economic development. The Mayor’s Wedge, or amount of tional government) and constructed factors (cleanliness, autonomy over economic development, is relatively small in safety). The city’s “clean appeal” evolved from cleaning Kigali. However within this wedge, the city still managed to initiatives that began shortly after the Genocide; but 80 keeping the city clean became a tradition that individual good investment climate and government commitment residents took pride in and promoted through monthly (signaled by the completion of infrastructure projects in neighborhood clean ups. Further, residents began con- line with the long-term vision), the plan has successfully tributing to local security services, in order to maintain attracted numerous new investments by foreign and the safe climate they had come to expect. Investors and domestic investors. foreign businesses took note of this liveability, and have cited Kigali’s liveable environment- including cleanliness, In sum, the City of Kigali enjoyed high rates of safety, low corruption and low traffic- as a key factor in economic growth in terms of GDP and job growth, their decisions to live, work and invest in the city (espe- because of a combination of both inherited and con- cially when compared to other cities in the region). structed factors. As the capital city, Kigali benefitted from national level economic planning (including proactive sector 5. Marketed city appeal to investors and key actors to targeting), improved safety and governance, and business en- attract new investment: Through designing an award vironment reforms. However the city also contributed to its winning urban plan that demonstrates a long-term own growth by supplementing and replicating national level vision for economic prosperity, Kigali has caught the eye efforts at the city level, and capitalizing on its competitive of numerous investors. The Kigali Conceptual Master advantages. This included: improving the municipal business Plan (and later the Kigali City Master Plan- KCMP) has environment and the ability of firms to operate, pro-actively been used as a promotional tool to demonstrate viable building up local government capacity, and improving and opportunities for investment in the city. Paired with a marketing the relative attractiveness of the city. 81 National Context Yet national planning was not limited to developing long-term visions, but was applied to short and medi- um term goals as well. In order to break long-term visions Kigali’s economic success is in large part due to na- into manageable and perhaps “implementable” pieces, the tional level improvements. Growth in Kigali has chiefly government created medium (Economic Development and been a result of policies implemented at the national level. Poverty Reduction Strategy Papers, EDPRS) and short-term These policies have focused on promoting stability and eco- plans (annual action plans) to set targets, measure progress nomic growth; including improvements to economic plan- and improve accountability. The plans were implemented ning, governance, the ease of doing business and macroeco- strictly with dedicated funding, and both, national agencies nomic policy (e.g. stable currency, prudent debt management, and local governments, were held accountable for meeting and inflation under control). While national-level policies targets through performance contracts. On the whole, Rwan- have been good for growth in many parts of the country, Ki- da’s success has not been due to the long-term vision itself, gali has benefitted significantly as the majority of investment but rather due to the country’s ability to transform (and and high-skilled jobs have landed in the nation’s primary city. implement) a long-term vision into short-term action plans, The following section describes the national environment to that were backed by funding and accountability mechanisms. serve two related objectives: (1) to illuminate major national level factors that contributed to economic growth in Kigali and, (2) to explain how Kigali has leveraged these national level efforts to promote further growth. The President’s Office developed targeted strategies aimed at the growth of key sectors. In order to usher Rwanda’s national government has contributed to the country into middle-income status in only 20 years, a Kigali’s impressive success through 3 main factors: clear plan for economic prosperity had to be developed. In the early 2000s, the Ministry of Commerce conducted an 1. National Economic Planning and Implementation analysis of economic constraints and opportunities across different districts. This analysis fed into the development of 2. Improved Safety and Good Governance national strategies that promoted investments in sectors with 3. Enacting Key Reforms to Improve the Ability to Do the highest potential for growth. The selected sectors were Business diverse, including: • Agriculture, where the majority of Rwandans worked; Factor 1: National Economic Planning and Implementation • Tourism, an industry with potential and existing firm capacity (see pg. 9); and Rwanda utilized national level plans to set goals, out- line strategies, and coordinate among agencies. One • ICT, where leaders understood Rwanda would have to of the most prominent plans is Vision 2020. Led by President develop capacity in order to cultivate a tertiary industry Kagame in 2000, this was the first long-term plan that clearly that could support a larger middle class (see pg. 10). established national level priorities, most notably, the goal of transforming Rwanda into a middle income country by the year 2020. 82 Proactive Sector Targeting: The Tourism Sector proved as national policy. The strategy included an action plan, which was incorporated into the action plans of indi- The national government identified tourism as a vidual actors (like the RDB’s yearly action plan), along with high potential sector very early on. Rwanda had al- dedicated funding to ensure implementation. ways enjoyed demand for tourism services because of the natural beauty of its volcanos and lakes, and the presence Results: Today, tourism is the largest generator of foreign of rare gorilla families. However years of violence and insta- exchange in the country. bility weakened demand. After security was restored in the early 2000s, the demand for tourism services surged and Proactive Sector Targeting: The ICT Sector tourists returned in high numbers. Unlike in the tourism industry, there was no exist- The national government devised a strategy in light ing capacity in ICT when the sector was prioritized in of the constraints that Rwanda faced in the tour- the early 2000s. The decision to promote the ICT sector was ism industry. Rwanda would be unable to compete with made in response to existing constraints, rather than exist- safari tours in Kenya and Tanzania given their experience ing capabilities. According to President Kagame, because of in the market and the lack of domestic capacity to handle the country’s limited natural resources, Rwanda would need large numbers of tourists. The Government decided to cre- to make its people the country’s greatest resource. The future ate a niche in the market: promoting high-end tourism for ICT sector would be largely dependent on high levels of human unique “gorilla experiences” that would result in fewer tour- capital which the national leadership intended to develop as ists without compromising on revenues, because of the high part of the country’s long-term economic growth strategy. priced permit fees mandated by the government. The first priority was an environment conducive to the A second niche was developed in light of Kigali’s ICT industry. Fiber optic cables were installed and made ac- unique advantages in the tourism industry; for Meet- cessible. The telecommunications industry was liberalized and ings, Incentives, Conferences and Events (MICE) Tourism. mobile-cellular telephone subscriptions jumped from 33.4 per Kigali enjoyed several unique characteristics in the region 100 inhabitants in 2010 to 63 per 100 inhabitants in 2013 including low traffic congestion, high levels of safety, clean- (Rwanda Ministry of Youth and ICT, “MYICT” report). Broad- liness (i.e. tidy streets) and a central location in Africa. The band internet coverage was extended, and Rwanda displaced hosting of conferences and events seemed like a natural fit Ghana to become the country with the fastest broadband in- for these assets and would give Kigali a competitive edge in ternet speed in Africa (according to the latest statistics from this market over other large cities in the region that lacked Ookla’s NetIndex). these factors (e.g. Nairobi). Another priority was improving human capital by im- Therefore, the government, seeking to further its proving domestic education programs and attracting competitive advantage in multiple sectors, promot- foreign educational institutions. The Government of ed multi-lingual capacity among residents through Rwanda approached Carnegie Mellon University (CMU) to de- education, requiring schools to teach in both French and velop a Center of Excellence in Rwanda that would address the English. The Government also attracted private sector in- lack of professional capacity in science and technology. While vestors, through tenders and Requests for Proposals (RFPs), the University was not looking for opportunities in the region to build hotels and a conference center; choosing “leading” at the time (it already had campuses in Qatar and China), it investors like the Radisson and Marriott (hotel groups) found itself attracted to the quality of life, safety and the com- with the expectation that other industry actors would soon mitment of political leaders in Rwanda. The Government had follow. offered a lucrative deal, underwriting all costs of the program so that the University could maintain the quality and cost of The decision to target the tourism sector was part its degree program. Both parties agreed to the terms and as of a larger, participatory process. Private sector play- of 2014, the Carnegie Mellon University Campus in Rwanda ers engaged with government officials and communicated graduated its first class of 22 students with Master’s Degrees their interests in growing the tourism sector in Rwanda. in Science and Technology (equivalent of a degree from the The sector might have been small in the late 1990s, but the main campus in Pittsburgh, PA). players were long-established and relatively sophisticated, which helped increase their ability to influence decision The Government hopes to build a competitive ICT makers. sector that will help address issues of youth unem- ployment and the need to develop globally competi- In 2002, the tourism industry was chosen deliber- tive tradable services. Despite the improvements outlined ately as a focus for proactive targeting. At that time, above and efforts made to attract new firms, challenges still the RDB hired a consulting firm and organized a working remain: like a limited domestic consumer market and pref- group to develop an action plan. The working group con- erence for expats in technology or high capacity roles within sisted of 80-120 people, made up of both private sector Rwanda. The national government’s investment in the ICT in- and government actors. The decisions that were made (and dustry continues in the present day with the understanding voted on) by the working group were taken to the Nation- that benefits will most likely be realized over the longer term. 83 al Cabinet by the Ministry of Trade and Industry to be ap- Factor 2: Improved Safety and Good Governance tor compliance across government sectors. As further proof that the policy was to be taken se- Efforts to improve safety have had far-reaching im- pacts on economic growth. Following the genocide there riously; several key officials have been removed was a period of stabilization and recovery in the late 1990s. from office and received prison terms for their The need to restore safety and stability, and the need to re- offenses. build institutions and trust was critical. It took until the early 21st century for improvements in safety to affect directly • Decentralization: Decentralization of authority and economic activity. responsibility to the district level was carried out in 2001 to improve participation at the local level and improve The ability to promote a safe environment for doing accountability of local government officials. Decentral- business is no small feat in the region. In Rwanda, ization happened in two phases: Initially 11 provinces improved security enables shopkeepers and venders to stay (plus the City of Kigali) were established. In the sec- open later and store cash and supplies without fear. This is ond phase, the 11 provinces were consolidated into 4 also true for female vendors and shop-keepers, encouraging provinces (plus the City of Kigali). Each district became women to play an important role in the economy. Expatri- responsible for its own development plan which includ- ates identified safety in Rwanda as a unique feature in the ed economic and social goals. These district level plans region, with ripple effects on the economy that have not only were then integrated into the medium term national impacted existing firms, but also expanded the economy, for plans (the EDPRS). Performance contracts were also example: implemented at this time, which led to improvements in planning, target-setting, and outcomes at the local level. • Improved safety has encouraged the return of refugees and members of the diaspora community, most of whom Factor 3: Enacting Key Reforms to Improve the have resettled in Kigali, creating a denser urban agglom- Ability to Do Business eration and consumer market with demand for services and housing. Apart from proactively targeting specific sectors, the national government made investments to improve • Improved safety has allowed the tourism industry to the business enabling environment, including: flourish. • Doing Business Reforms: The national leadership • Improved safety has increased the attractiveness of prioritized improving the overall business environment. Rwanda to foreign investors. Using the World Bank’s Doing Business evaluation tool as a guide, the government made key improvements, Governance reforms have improved the accountabil- resulting in the World Bank recognizing Rwanda as one ity of government at the national and local levels. Reforms and policies designed to improve the effectiveness of the top reformers in both 2010 88 and 201189 (in of governance and service delivery have included specific 2014, Rwanda would move up to 32nd place90). measures like: • Land Registration: Land ownership has not always • Performance contracts: Performance contracts – been clear in Rwanda (especially after the 1994 Geno- based on the precolonial Rwandan tradition of Imihi- cide and the return of large numbers of refugees) and go- are signed between local Mayors (or Governors) and land registration processes used to take up to 2 years. the President at the beginning of the formers’ terms. However, the Land Tenure Regularization Program that The contracts bind the Mayors to agreed-upon economic became law in 2005 (and was implemented in 2007) and social targets based on the needs of the districts addressed these problems and other land disputes, by and the national priorities. Internal government audits improving the land registration process, encouraging are conducted to measure performance against targets private ownership of land and freeing up land markets. each year, and additionally, Mayors must read aloud in The program led to a real estate and construction boom, Parliament their progress on each of the targets. These and subsequent increases in job creation. testimonies are broadcasted through television and so- cial media to ensure local constituents are informed. • Centralizing investment promotion within one agency, in 2009, the Rwanda Development Board • Zero tolerance policy on corruption: The President has been a champion of the zero-tolerance approach to 88 World Bank, Doing Business, “Most Improved in Doing Business corruption. To improve implementation of the policy, the 2010,” 2010, accessed 1 August 2014. Ombudsman Office was created in 200487 to moni- 89 World Bank, Doing Business, “Most Improved in Doing Business 2011,” 2011, http://www.doingbusiness.org/reforms/top-reformers-2011> 87 Hitchen, Jamie, “Rwanda: Corruption will not be tolerated,” accessed 1 August 2014. The Foreign Report.com, 4 January 2013 http://www.theforeignreport. 90 World Bank, Doing Business, “Ease of Doing Business in Rwan- com/2013/01/14/rwanda-corruption-will-not-be-tolerated/, accessed 11 da,” 2014, accessed 4 August 2014. 84 (RDB): The RDB was established to fast track priority -- Provincial Coordination Committee, which exam- investments in Rwanda, specifically investments in tar- ines and coordinates matters of the province (in- geted sectors outlined in Vision 2020. The RDB actively cludes the Governor, Permanent Secretary, Depart- reaches out to investors and provides country-wide ment Coordinators, District Representatives, etc.) investment information. Specialized packages are devel- oped for investors in priority sectors, including no/low -- Provincial Permanent Secretary, who ensures the taxes, free imports on goods to do business, etc. The RDB coordination of administrative and technical ser- has a clear mandate and collaborates with provincial and vices92 district governments by dividing responsibilities: the RDB handles investment attraction and incentives; while • Districts: Each province in Rwanda is subsequently the local governments handle the provision of land and broken up into districts, with over 30 districts nation- project facilitation (e.g. construction permits). wide. Districts are considered the local government unit, and have typically been the recipient of decentralized authority and responsibility. Districts are governed by district leaders (who are elected to 5 year terms) and district councils. While the City of Kigali is a province administrative- ly, it is unique in that it represents 3 districts within the same metropolitan area. Therefore the City of Kigali has special administrative powers, like having its own bud- get, which makes its authority and responsibilities a blend of both the provincial and district level. Kigali is made up of 3 districts that comprise the Metropolitan Area (see map Local Context on right), and receives funding through local tax collection and budget allocations from the National Government. The Kigali is the capital and primary city of Rwanda. In City of Kigali’s government has a Mayor, 2 Vice Mayors, a 2012, the City of Kigali accounted for approximately 10% of city council, and a “supervising role” for the minister of local Rwanda’s population (over 1 million people), and approxi- government, although the Mayor takes the lead on city-level mately 20% of the nation’s GDP91. Since the 1990s, the city’s initiatives. However, in terms of economic planning, the population has grown quite rapidly; from a population of “Mayor’s wedge” is relatively small, with investment pro- 235,000 in the early 1990s, to over 600,000 just 10 years motion, proactive sector targeting and economic planning later. At present, Kigali is the largest city in Rwanda and largely carried out at the national level. accounts for the majority of the country’s urban population, making it a center for the country’s industrial, service and administrative activities. In March 2001, Rwanda began to decentralize au- thority to the local government level. In Rwanda, local government is broken down into 4 units: provinces, districts, sectors and cells. • Provinces: Rwanda is currently divided into 4 prov- inces plus the City of Kigali. While the City of Kigali is relatively smaller than the other provinces in terms of population, it is more drastically small in terms of land, accounting for only 730 km2 (compared to an average of 6,000 km2 among the other 4 provinces). Provinces are expected to help execute central government plans, as well as supervise and coordinate among the districts under their administration. The provinces are each gov- erned by a: -- Governor, who ensures adherence to laws, imple- mentation of programs, and promotes development within the province. 91 Oxford Economics Data 92 Ministry of Local Government, Rwanda 85 Analysis Factor 1: Improved the Business Enabling Environment Factors of Competitiveness The City of Kigali sought to improve the business environment after witnessing Rwanda’s success on the World Bank’s Doing Business rankings. As mayor of While national level factors contributed significant- the city (2006-2011), Dr. Aisa Kacyira observed that national ly to the city’s economic success, Kigali’s ability to level efforts to improve the Doing Business environment had capitalize on national strategies gave the city an been met with great success, improving Rwanda’s reputation additional edge. The majority of foreign investment ends as well as the ability of firms to operate. She decided to reach up in Kigali because of the availability of human capital and out to the World Bank to set up a city level analysis of the infrastructure. Even sectors based elsewhere in the country business environment, which was then carried out in con- have contributed to the city’s economy; for instance, most junction with the RDB. tourists that come to Rwanda for gorilla tourism tend to spend a night or two in the capital before continuing on to City leaders coupled this analysis with formalized their destinations. Yet apart from these primary city advan- platforms for stakeholder engagement to understand tages and national policy improvements, Kigali has, within better the constraints to doing business. Dr. Aisa cre- its relatively small policy wedge, created a niche for itself in ated the Kigali Investors Forum, the first organization that promoting private sector growth and the attractiveness of the formalized stakeholder engagement. The Forum provided a city. platform for private sector investors who had purchased land (or were currently building) to express issues or highlight In the following section, the key initiatives under- constraints that were preventing them from completing their taken by the City of Kigali will be described. These projects and starting their businesses. include: The city implemented reforms to address key con- 1. Improving the business enabling environment; straints. The Doing Business assessment and the Kigali 2. Building up capacity within the local government; Investors Forum highlighted “inefficiency and lack of coor- 3. Addressing bottlenecks and constraints for the private dination between agencies regarding construction permits” sector; as major constraints to doing business. This information led 4. Accentuating its unique liveability appeal; and to the establishment of the City of Kigali’s One Stop Shop, in 5. Marketing its appeal to investors and key actors in order 2010, that housed all of the agencies that needed to approve to attract new investment. construction permits under one roof. Investors would have one place to apply for (and be granted) all necessary approv- als, and receive a construction permit within 30 days. Accord- ing to a study on comparative advantage by the Ministry of Proactive piloting of projects Commerce, this level of follow through was typical in Kigali. The city was proactive in learning from others and in imple- Although economic development strategies were fre- menting reforms. quently developed at the national level, the City of Kigali was proactive in implementing best practices. In 2011 In sum, the city improved the business enabling envi- the City of Kigali piloted an electronic platform for con- ronment by: struction permits (supported by the IFC and the African Development Bank). Kigali decided to invest in its own 1. Identifying best practices at the national level and apply- electronic platform for construction permits because it ing these at the city level; wanted to reduce red tape even further and had learned of Nairobi’s success with the electronic system. The city 2. Using expert assistance to help conduct assessments of initiated the project and provided funding from the major constraints; municipal budget. At present, Kigali’s success with the electronic permit system has encouraged its adoption in 3. Formalizing stakeholder engagement to promote regular other Rwandan cities. While the effects of the electron- feedback from the private sector; and ic platform are not captured as part of this study, it is testament to the city’s continual focus on learning and 4. Addressing identified constraints by implementing ap- piloting. propriate reforms (e.g. One Stop Shop). 86 Factor 2: Built Up Capacity within Local In sum, the city successfully improved its capacity by: Government 1. Capacity building alongside problem solving: the city Improving the capacity of local government required did not use experts that solved problems and left, but more than just attracting top talent, but building instead improved the capacity of local staff by facilitating capacity through technical learning exchanges and learning opportunities in key technical areas. the use of expert consultants. Mayor Theoneste Mutsin- dashyaka (2001-2005) wanted high level professionals on his 2. Using exchanges to not just share ideas, but implement staff. Early in his term as Mayor, he began to employ gradu- actions: Kigali again exhibited follow through, bringing ates from leading local universities. As the country’s capital, in experts to help not only with the design of new ideas, Kigali found it easy to attract talent from around Rwanda. but with the implementation of these ideas as well. However the Mayor knew that he needed more than just recruitment programs to build capacity. Factor 3: Addressed Bottlenecks and Constraints for the Private Sector The Mayor facilitated learning and training opportu- nities in priority areas. Mayor Mutsindashyaka reached The City of Kigali promoted the private sector by out to John Street, the then Mayor of Philadelphia, and engaging with the business community and address- facilitated an exchange program between the two cities in the ing identified constraints to growth. Two examples areas of economic planning and tax collection, both of which of these efforts include providing assistance to individual had become priority areas due to a lack of capacity among cooperatives and SMEs through land title programs, and staff. Vision 2020 had just been released and economic working with financial institutions to improve access to planning was encouraged among local governments. Yet there finance. During Mayor Mutsindashyaka’s term in office, more was little or no capacity within Kigali to design an economic than 90% of investment was local, and was directed mostly plan. Additionally, the city continued to be largely dependent into construction and rebuilding the city. The city maintained on central government transfers and lacked the capacity to close relations with the business community; and through increase tax collection rates. informal feedback loops, was able to understand specific bottlenecks and constraints to growth. The partnership with the City of Philadelphia became an opportunity to address these shortcomings. The The city provided land and land titles to small and City of Kigali financed a month-long visit for key officials informal firms, encouraging their growth and from the departments of Urban Planning and Finance to formalization. A key constraint for firms was access to work with officials in Philadelphia. Following which, officials land, especially among small firms. Many firms leased their from Philadelphia came property and only when they had paid 40% of the property to Kigali, accompanied value did they receive the title to the property. This meant Both outputs were not suc- that many firms lacked collateral and subsequently, access to cessful; in fact, years later by GTZ-financed con- sultants, to assist with finance. The city addressed this constraint in two ways; 1) the the KEDS plan was all but city encouraged the formation of cooperatives by providing forgotten. The KEDS plan was the implementation of land to SMEs in physical clusters; and 2) these firms (and never fully implemented, but lessons learned. As a re- sult, Kigali developed the newly-formed cooperatives) were provided with land titles for it did help to improve planning their new property. The computer titling system (developed capacity over time. National Kigali Economic Develop- ment Strategy (KEDS) in from training exchanges explained under Factor 2) not only officials testified that each improved the tax collection capacity of the government, but input from the City of Kigali 2003; and adopted new software to improve land provided formal evidence of property ownership as well. to the EDPRS plan was better than the last. titling and tax collection The city addressed the lack of access to finance for in the city SMEs and cooperatives. City officials went to meet with fi- The improved tax collection capacity in the city in- nancial institutions to better understand the lending risks to cluded a computer titling system, which helped raise small businesses. During this meeting, the City of Kigali was tax revenues from 20% to 85%. This meant that the City requested to underwrite loans for the SMEs, as SMEs were of Kigali was able to finance more activities through own-tax considered high-risk borrowers (mostly because they lacked revenues, providing it with greater leeway over project design collateral). Instead, the cash-strapped city cleverly offered to and decisions. At one point, tax experts in Kigali provided provide land titles (from the newly developed computerized training workshops to country-wide officials; their audience titling system) as collateral instead of underwriting the loans. even included staff from the national Rwanda Revenue This helped extend finance to previously credit-constrained Authority. groups, while at the same time allowing the city to avoid direct involvement in individual lending. 87 In sum, the city successfully addressed bottlenecks to es could invest in the upkeep and care of major throughways. growth by: Individual residents began to take pride in their city, and contributed to the upkeep; for example, all residents spend 1. Engaging with private sector stakeholders to understand the last Saturday of every month cleaning alongside their constraints; neighbors (referred to as Umuganda). Residents also pay into community funds for local security forces to maintain the 2. Helping small firms to obtain affordable land while also secure environment they have come to expect. promoting physical clusters, cooperatives, and business registration (through land titles). Kigali has benefitted from these small, but import- ant, advantages; most notably, by attracting foreign 3. Finding a market based solution to improve access to investors. Investors and foreign businesses began to take finance without becoming the direct provider of loans or note of Kigali’s liveable environment and cited cleanliness, putting the city financially at risk by co-signing loans. safety, minimal corruption and low traffic as key factors in their decisions to invest and to stay (e.g. place staff in * The private sector continues to be underdeveloped country). Kigali also stands out against its competitors (i.e. in Kigali, and the strategies explained above have cities in neighboring countries in the region), providing a in no way provided a cure for or fully addressed the stark contrast from issues related to violence, corruption, problem. The policies and interventions did have an impact, and even untidiness and traffic congestion. These liveability as access to finance has steadily increased over the decade factors have given Kigali desirable attention, and the city has and land rights and land markets have become more trans- continued to play upon this advantage to make the most of parent (improving the business enabling environment). How- its position. ever there is still much work to be done within the private sector to address bottlenecks that discourage the cultivation In sum, Kigali leveraged its unique factors to increase of a thriving business community. its overall attractiveness, by: Factor 4: Accentuated its Unique Liveability 1. Identifying and understanding its unique advantages Appeal and investing further in areas within their administra- tive remit (e.g. paying cleaning cooperatives, enhancing One of the reasons that Kigali is attractive to both security) domestic and foreign residents is because if offers a liveable environment - it offers safety, cleanliness, 2. Integrating efforts with community engagement: low traffic, minimal corruption and pleasant weather. community buy-in helped residents to take pride in the Several of these factors are not under the control of the city. cleanliness93 of the city and keep the cleaning tradition For instance, the minimal corruption and high levels of safe- alive. ty that Kigali enjoys are mostly a result of efforts undertaken at the national level. Factor 5: Marketed City Appeal to Investors and Key Actors to Attract New Investment Yet some of these factors can be attributed to the city, and have given Kigali a unique competitive The City of Kigali hired consultants to help develop advantage within the region. The efforts to make Kigali an urban plan for the city (the KCMP) in 2007. In a “clean city” started during the recovery period, when the response to the growing popularity of urban plans, the City city’s first Mayor after the Genocide, Rose Kabuye (1994- of Kigali decided to develop a Master Urban Plan that would 1998) was tasked with rebuilding the city. Kigali was in ruins, plan for the long-term growth and development of the city and while rebuilding institutions was important, Mayor in accordance with the city’s long-term vision. The hired Kabuye decided that the city needed to be cleaned in order for consultants developed a Portland-style model for the city, business activity to resume. Kabuye hired women heads of planning for mixed-use space and incorporating public spaces household who were eager to find work and had them begin into the development of the city. The planners even used the to clean the streets of the city. The women were paid with Kigali Investors Forum to incorporate stakeholder feedback food rations from the World Food Program and each day, in the design process. The KCMP was submitted to, and won, more women showed up to clean. international planning awards that further improved the circulation of the plan and its notoriety. Eventually the city rebuilt its markets and invested in infrastructure, but the tradition of keeping the city clean has remained. The city began to take pride in the cleanliness of its streets and became acutely aware that 93 It is imperative to acknowledge that cleanliness is not this had become a positive distinction from other cities in the synonymous with competitiveness. The incentive behind the “clean region. Thus, long after the recovery period, Kigali main- city” strategy was the need to put things in order after the conflict in order tained its focus on keeping the city clean. Donors like the to allow business activity to resume and private sector growth to take-off. World Bank provided funding for garbage trucks, coopera- Once active, the cleanliness efforts built off other existing actors (including tives were hired to maintain clean streets, and even business- those inherited, from the national level and the city level) to increase the attractiveness of the city over other markets. 88 After the KCMP was completed, individual district plans 3. Dissemination: the plan has been marketed to external needed to be developed for each of the 3 districts in Kigali, audiences via the internet and through conferences and and external consultants from Singapore were invited to events. assist with the planning. This subsequent Kigali City Mas- ter Plan differed slightly from the previous KCMP; it had a 4. Collaboration: while the city is in charge of the strategy Singapore style model that focused on industrial growth and and larger infrastructure projects, many of the high- development and was intended to accommodate larger num- lighted investments are executed by the private sector bers of people in the metropolitan area. (buying and developing mixed-use living spaces, etc.). The City of Kigali used this Master Plan for more 5. Signaling intent: the government has simultaneously than urban development, but as a marketing tool to invested in public infrastructure projects in accordance attract new investors. The city used the KCMP actively as with the Master Plan that signal commitment and mutu- a marketing tool and promotional piece at external events. In al investment in the long-term vision. fact, according to the RDB, most investors that have inquired about Kigali already knew about the KCMP and many of the * It is important to note that there are some mixed opportunities for investment in the city. opinions regarding the Master Plan. This includes concern regarding the large amount of developed office space In sum, the city boosted successfully interest and in- (questioning the supply in relation to existing demand), and vestment in the city through the Master Plan because the demands on investors after their investments are sunk to of: make changes or alterations to their properties. This report does not confirm or deny these statements, nor does it make 1. Design: the plan was designed well with engagement predictions regarding the feasibility of the plan, but high- from stakeholders; international awards give the plan lights the importance of the use of the Master Plan as a tool further credibility. for communicating and marketing a long-term vision for the city (as well as subsequent investment opportunities within 2. Communication: the plan helped Kigali to demonstrate the city). commitment to a long-term vision and opportunities for investment within the city. 89 Conclusion The City of Kigali enjoyed a rapid increase in jobs and GDP because of a combination of both national and municipal level factors. At the outset, it is clear that Kigali did well because of Rwanda’s national level improvements. As the country’s capital it benefited immensely from national policies that unlocked constraints to investment and private sector growth. Rwanda is one of the world’s 10 fastest grow- ing economies94 and Kigali, as the center of economic activity in the country, is growing quickly as a result. However, as explained above, Kigali’s growth cannot be attributed solely to national level policies, as the city focused on supplement- ing national level efforts with those of its own. However, Kigali still has a long path ahead of it, with numerous challenges that remain unaddressed. Kiga- li’s success is remarkable because of the high rates of growth despite a (relatively recent) turbulent history. However, the country is still considered a low income country (with GDP per capita rates of only $1,380 in 2012), and despite the ef- forts highlighted above, there are several issues that remain. For instance, many local private sector firms still struggle to remain competitive and few, if any, have had international success. Further, despite Kigali’s “liveable” traits, the city lacks sufficient affordable housing for local residents. Thus, Kigali has not yet become a middle income country, but the strategies and policies that it has used have helped it to grow at remarkable rates. According to investors, what attracted them most to Kigali was: • Good business environment, commitment to reforms • Increasingly attractive market- few monopolies, clear land rights and investment opportunities • Cleanliness and safety that set it apart within the region • Lack of corruption (and overall good governance) And why investors ultimately invested in Kigali was because: • Responsive professionals in key offices (RDB, Kigali One Stop Shop) • National and city plans signified a long-term commitment and clear opportunities to invest 94 The Economist, “Africa’s Impressive Growth”, 6 January 2011 http://www.economist.com/blogs/dailychart/2011/01/daily_chart, August 5, 2014. 90 Lessons for Other Cities 3. Cities can build upon their unique advantages to increase the attractiveness of their city. Cities must identify factors that set them apart, especially Kigali is a relatively small capital city in a low income from competitor cities, so as to effectively accentuate country; its exceptional success can offer lessons to these advantages. While Kigali may have struggled from other cities with similar conditions and challenges. its location in a landlocked country and/or its compara- These could be other capital cities; cities in countries with tively small labor force (compared to other East African strong, proactive national governments (i.e. with a small capital cities); it had a unique appeal for foreign visitors. mayor’s wedge); cities that lack inherited natural advantages; If offered a safe, clean and minimally congested environ- and cities recovering from conflict that need to rebuild their ment with a strong rule of law and a central location in city and economy. While this case study does not certify that the region. Learning how to maintain these comparative Kigali’s success will be permanent, it does offer lessons for advantages and market them to outsiders was critical to other cities in how it achieved such rapid growth: the city’s success. 1. Cities with relatively small administrative 4. City leaders can develop and market a long-term remits, regarding economic development, can vision for their city. Laying the foundation for growth leverage national level policies and resources. is important (i.e. improving the business environment), Capital cities typically benefit from greater international but cities need to then advertise their potential to in- exposure, increased attention from the national level, vestors. This is especially critical in low income cities or and the presence of government offices (i.e. additional those that are recovering from conflict, as the city might employment opportunities). However, both capital and need to address its image abroad. Apart from address- non-capital cities can leverage the national level fac- ing badly needed reforms, cities that lay out a future tors available to them, and subsequently, benefit from plan for the city and demonstrate commitment to this additional financial resources and technical assistance. vision (e.g. building outlined infrastructure) can further Further, if cities have limited resources, they can not induce investors by restoring confidence in the city’s only benefit from additional resources, but maximize future growth. For example, Kigali improved its business the efficiency of resources by finding ways to comple- environment and liveability indicators, but relied on the ment national level strategies. Ways in which to leverage KCMP to outline investment opportunities and market national level policies and resources include: the city to investors. -- Adopting best practices at the national level and 5. Even if not the city’s core competitive advantage, modifying or piloting these practices at the local cities can improve liveability factors to make level; their city a more attractive place to work and live: Although Kigali saw exceptionally high returns on this -- Building off of proactive sector targeting at the investment because of its regional context, most cities national level by prioritizing local interventions that stand to gain at least moderately from improvements support the growth of nationally targeted sectors in liveability. Increasingly, liveability factors like clean- (e.g. creating a conducive environment for the liness, safety and low congestion matter to high-skilled growth of nationally targeted sectors, or the devel- workers. A recent article by McKinsey argues that cities opment of a liveable, attractive environment for new can promote cluster growth when they encourage talent firms and/or universities). (people, companies and universities) to agglomerate in -- Tapping into available resources through requests their cities,95 and cities that have more productive and or proposals (or integration into local planning) higher educated professionals have performed better for national funding and/or technical assistance than their counterparts in terms of economic growth programs; and and incomes96. The City of Kigali’s efforts to enhance and build upon the liveability factors in their city might seem 2. Cities can, independently of national training superfluous, but the ability to attract top talent could programs, improve the capacity of local staff. create a far greater impact than anticipated on the city’s Cities can independently take measures to improve level of competitiveness. staff capacity. If local resources or experts are in short supply, then staff exchange learning programs can be an extremely effective way of improving staff capacity. These programs are more effective when 1) designed to 95 Kirchherr, Julian; Scherf, Gundbert; and Suder Katrin; “Creating Growth Clusters: What role for local government? “ McKinsey Quarterly, July 2014 address low-capacity areas (e.g. tax collection capacity in http://www.mckinsey.com/insights/public_sector/creating_growth_clus- Kigali); 2) paired with clearly detailed objectives and spe- ters_what_role_for_local_government?cid=other-eml-nsl-mip-mck- cific staff members to receive training; and 3) exchanges oth-1408, accessed August , 2014. incorporate the implementation phase as well as the 96 Moretti, Enrico, “The Key to Economic Success? Geography,” Spe- learning phase (e.g. bringing experts back to Kigali to cial to CNN, 9 October 2012, http://globalpublicsquare.blogs.cnn. com/2012/10/09/the-key-to-economic-success-geography/, accessed help staff implement new tax collection tools). August 7, 2014. 91 Appendices Trade Data Top 5 Rwandan Exports from 2011-2013 Description ANNUAL 2011 ANNUAL 2012 ANNUAL 2013 TOTAL ALL COMMODITIES 417,342,133 505,743,450 620,468,875 Ores, Slag And Ash 164,606,856 135,744,126 222,066,076 Coffee, Tea, Mate & Spices 129,093,746 157,780,898 113,170,511 Mineral Fuel, Oil Etc.; Bitumin Subst; Mineral Wax 20,524,239 51,273,041 49,982,884 Beverages, Spirits And Vinegar 6,049,501 12,608,545 25,722,247 Dairy Prods; Birds Eggs; Honey; Ed Animal Pr Nesoi 150,424 468,403 24,239,331 Top 5 Countries for Rwandan Exports from 2011-2013 Description ANNUAL 2011 ANNUAL 2012 ANNUAL 2013 TOTAL ALL PARTNER COUNTRIES 417,342,133 505,743,450 620,468,875 United Rep. Of Tanzania 1,213,482 164,772,763 255,422,897 Dem. Rep. Of The Congo 58,487,857 109,125,039 134,910,710 Uganda 6,830,550 68,354,093 86,688,168 Kenya 57,969,238 94,759,804 82,895,522 Burundi 7,981,409 13,336,492 20,442,812 Interviews 1. In person interview with Kabera Godfrey, Director Gen- 6. In person interview with Eugenia Kayitesi, Executive Di- eral for Development Planning, Ministry of Finance and rector, Institute of Policy Analysis and Research (IPAR), Economic Planning (MINECOFIN), in Kigali, Rwanda on in Kigali, Rwanda on 12 June 2014. 9 June 2014. 7. In person interview with Yvette Mukarwema, Chief 2. In person interview with Dr. Bruce Krogh, Director of Operations Officer, Private Sector Federation (PSF), in Rwanda Campus, Carnegie Mellon University, in Kigali, Kigali, Rwanda on 12 June 2014. Rwanda on 10 June 2014. 8. In person interview with Ashani Chanuka Alles, IFC 3. In person interview with Yoichiro Ishihara, Senior Econ- Program Leader, International Finance Corporation, in omist, Rwanda Office of World Bank, in Kigali, Rwanda Kigali, Rwanda on 13 June 2014. on 10 June 2014. 9. In person interview with Sebastien Manzi, Acting Direc- 4. In person interview with Amb. Yamina Karitanyi, Head tor of Economic Statistics, National Institute of Statistics of Tourism and Conservation Department, Rwanda in Rwanda, in Kigali, Rwanda on 13 June 2014. Development Board (RDB), in Kigali, Rwanda on 11 June 2014. 10. In person interview with Esther Mutamba, Director General, Rwanda Housing Authority (under Ministry of 5. In person interview with Dusenge Emmanuel, Senior Infrastructure), in Kigali, Rwanda on 13 June 2014. Engineer, ICT Infrastructure Department, in Kigali, Rwanda on 12 June 2014. 11. In person interview with Kyazze Edward, Head of Hous- ing, Urban Planning & Development Division, Rwanda Housing Authority (under Ministry of Infrastructure) in Kigali, Rwanda on 13 June 2014. 92 12. In person interview with Sally Murray, Country Econo- da Revenue Authority, in Kigali, Rwanda on 17 June mist, International Growth Centre, in Kigali, Rwanda on 2014. 13 June 2014. 23. In person interview with Philip Lucky, Senior Informa- 13. In person interview with Rugamba Egide, Director tion Officer, Investment Promotion and Implementation, General, Planning, Monitoring & Evaluation, Ministry of Rwanda Development Board (RDB), in Kigali, Rwanda on Local Government (MINALOC) in Kigali, Rwanda on 16 17 June 2014. June 2014. 24. In person interview with Felix Manzi, Investor Inquiries 14. In person interview with Nizeyimana Alphonse, Vice & Information Officer, Investment Promotion and Imple- Mayor for Economic Development, City of Kigali, in mentation, Rwanda Development Board (RDB), in Kigali, Kigali, Rwanda on 16 June 2014. Rwanda on 17 June 2014. 15. In person interview with Norbert Kamana, Director of 25. In person interview with Lt Col (rtd) Rose Kabuye, Chair- General Planning, City of Kigali, in Kigali, Rwanda on 16 person (former Mayor of City of Kigali), GreenLeaf Ltd., June 2014. in Kigali, Rwanda on 17 June 2014. 16. In person interview with Patrick Arinawe, Urban Plan- 26. In person interview with Vinay Gorajia, President, Man- ner, City of Kigali, in Kigali, Rwanda on 16 June 2014. aging Director, Akagera Business Group (ABG), in Kigali, Rwanda on17 June 2014. 17. In person interview with Paul Rugambwa, Energy Swap Coordinator, Ministry of Infrastructure (MININFRA), in 27. In person interview with Dr. Aisa Kirabo Kacyira, Assis- Kigali, Rwanda on 16 June 2014. tant Secretary General and Deputy Executive Director (former Mayor of City of Kigali), UN Habitat (Nairobi), in 18. In person interview with Claude Albert Meutchehe Nairobi, Kenya on 18 June 2014. Ngomsi (PhD), Technical Advisor, Support to Urban Development in Rwanda, in Kigali, Rwanda on 16 June 28. In person interview with Theoneste Mutsindashyaka, 2014. Executive Secretary (former Mayor of City of Kigali), Regional Center on Small Arms, in Washington, D.C. on 19. In person interview with Donna Rubinoff (PhD), Senior 22 June 2014. Advisor to the City of Kigali, in Kigali, Rwanda on 16 June 2014. 29. Phone interview with Neema Ndunguru, Project Manag- er, Investment Climate Facility for Africa (ICF), African 20. In person interview with Professor Nelson Ijumba, Dep- Development Bank, on 26 June 2014. uty Vice Chancellor, Academic Affairs and Research, Uni- versity of Rwanda, in Kigali, Rwanda on 17 June 2014. 30. Phone interview with Folkert Castelein, Private Foreign Investor, on 1 July 2014. 21. In person interview with Annie Kairaba, Director, Rwan- da Initiative for Sustainable Development, in Kigali, 31. Phone interview with Didier Sagashya, Deputy Director Rwanda on 17 June 2014. General of Lands and Mapping (former Director of Gen- eral Inspection Unit, City of Kigali), Rwanda Resource 22. In person interview with Agnes Kanyangeyo, Deputy Authority, on 25 July 2014. Commissioner, Planning & Research Department, Rwan- 93 Gaziantep, Turkey, September 2014 Case Study 4 Gaziantep, Turkey A City Exports Its Way to Prosperity Table of Contents Introduction 97 Executive Summary 98 National Context 103 Local Context 108 Analysis 122 Factors of Competitiveness 122 Lessons for Other Cities 126 Appendices 127 96 Introduction T his case study of the economic success of the Turkish The other dimension of Gaziantep’s success focuses on the city of Gaziantep marks the fourth in a series of World city’s approach to economic development – supportive local Bank case studies of successful metropolitan econo- government working in partnership with the city’s business mies around the world. The World Bank’s Competitive Cities community to identify and address key impediments to Knowledge Base (CCKB) project aims to provide city leaders growth. Significantly, the private sector is involved both in with the tools and knowledge for the successful formulation making decisions about economic development issues, and in and implementation of proactive economic development implementing solutions. The city’s growth coalition provides strategies at the city level. The focus of the case studies com- a stellar example of diverse actors working together. ponent is to document not just what successful cities have done right, but how they have done it. This report is based on primary and secondary research by the Bank’s CCKB team, including two weeks spent in Turkey, Gaziantep is a mid-sized city in an upper-middle income in August and September 2014, interviewing government country, with a highly manufacturing-intensive economy. officials in the national capital, Ankara, and in Gaziantep The Gaziantep metropolitan area has been highly successful itself, as well as members of the city’s business community. in improving the prosperity of its residents, both in absolute The report also incorporates Bank staff feedback received at terms, and relative to other cities in Turkey. In fact, over the an internal review event in September 2014 in Washington. past decade Gaziantep has had one of the best performing metropolitan economies in the Europe and Central Asia This report was prepared by Z. Joe Kulenovic, Austin Kilroy, Region (ECA) in terms of GDP and employment growth. It and Can Selcuki, with input and suggestions from the broad- has also emerged as Turkey’s sixth-largest city, and the top er CCKB team. The fact-finding World Bank mission to An- destination for internal migrants after Istanbul. kara and Gaziantep in August-September 2014 included the three co-authors, as well as Jose-Guilherme Reis and Stephen Gaziantep’s success story is one of export-driven economic Karam from the Bank’s Turkey CMU. The co-TTLs of the growth. The city’s manufacturing sector scaled up from very CCKB project are Austin Kilroy and Megha Mukim. Overall modest beginnings to become one of Turkey’s top industrial guidance on the project has been provided by Stefano Negri, centers, all within a couple of decades. This case study will Sameh Wahba, and Somik Lall as senior advisors. attempt to document how and why they have done so, in the process overtaking much more established production centers in Turkey. 97 Executive Summary With one of the fastest growing metropolitan econo- • Third, Gaziantep offers a social environment that mies in the world, Gaziantep is a city which has liter- favors entrepreneurial activity and business ally exported its way to prosperity. Its economic success growth. The city is recognized throughout Turkey for story is dominated by indigenous light manufacturing firms, its distinctive local culture and identity, work ethic, which now sell their products in some 175 countries around and tradition of multicultural tolerance and inclusion. the globe. Some top-level numbers are simply astonish- Although socially conservative, Antepians are renowned ing: Gaziantep’s population has grown from just 600,000 as risk-takers, hardworking, and exceptionally commer- as recently as 1990, to about 2 million inhabitants today; cially-minded. A career as an industrialist is valued much merchandise exports increased tenfold in just eleven years, more than a cushy bureaucratic job, for example, and from $620 million in 2002 to $6.2 billion in 2013. Prosperity profits are largely reinvested locally. is plainly evident in the city’s streets, and Gaziantep remains a magnet for tens of thousands of newcomers each year. This • Fourth, Gaziantep provides a stellar example of once quiet corner of Turkey has emerged as an international effective stakeholder engagement (or public-pri- manufacturing hub, and increasingly a tourist destination as vate dialogue – PPD) and collective action for well. economic development. The city’s private sector is well developed, with significant institutional capacity What are the reasons for this phenomenal economic and funding, but also a keen interest in shaping the city’s performance? As is often the case, there isn’t just one rea- development. Since at least the late 1980s, Gaziantep’s son for the city’s success, nor is its story necessarily a simple, business leaders have had the ear of city government, linear one. Rather, several elements have combined to create and particularly of Mayor Celal Doğan, who instituted a the conditions and outcomes now worth examining: series of pro-business initiatives and greatly enhanced the city’s functionality and livability during his 15 • First, Gaziantep has benefitted from a confluence years in office. Although informal relationships remain of several favorable exogenous factors, among important, the institutional framework for this engage- them the liberalization of Turkey’s economy and its ment is provided by the City Council, a sort of metropol- greater openness to trade, modest decentralization of itan parliament in which government and stakeholders authority from the central to city governments, geopolit- come together to discuss issues and formulate recom- ical developments in the region, and the city’s geographic mendations, including on economic development. Its location astride vital trade routes. While other Turkish greatest accomplishment seems to be just facilitating cities enjoy many of the same advantages, Gaziantep’s dialogue, which otherwise might not happen. On the industrialists and leaders have skillfully leveraged them whole, local government in Gaziantep has been a valu- for commercial advantage. able partner to business, without seeking to dominate economic development, nor does it directly benefit from • Second, local leaders have prioritized ensuring business growth through increased fiscal receipts, for a business environment conducive to company example. Collectively, Gaziantep’s business and elected growth. In addition to lobbying the central government leaders have also been able to leverage their political for national investment climate improvements, succes- influence in Ankara, acting as champions for the city and sive mayors and business leaders have worked together securing central government support for such economic to streamline bureaucracy, reduce the administrative development priorities as transport, Organized Industri- burden on companies, and provide adequate infrastruc- al Zones, technology development, and capital access and ture for production and market access. Being in South- export assistance for SMEs. In fact, in Turkey Gazian- eastern Anatolia, Gaziantep also benefits from compara- tively low business costs, including land and labor. 98 tep is known as a city that regularly punches above its commodities, a longtime mainstay of Gaziantep’s economy, weight politically 97. also remained prominent. But until economic liberalization took hold nationally starting in the 1980s, Gaziantep’s devel- • Fifth, Gaziantep has in recent years emerged as opment was quite unremarkable, and many comparable cities a regional hub for Southeastern Anatolia. As the in Turkey did better economically. largest, safest, best connected, and economically most prosperous city in its part of Turkey, Gaziantep now acts Gaziantep is largely a self-made city; its growth as the commercial, logistical, and educational center for a began to really take off in the late 1980s. Although vast hinterland with millions of people. It has overtaken Gaziantep has enjoyed much success in leveraging nation- previous rivals for this role, and now hosts the regional al support programs, it has not had any SOEs except for a offices of various national and international organi- cement factory in the 1960s. Its success story is ultimately zations, consular offices, donors and relief agencies, one of local entrepreneurs courageously (sometimes foolhar- international fairs and buyers’ expos, as well as one of dily?) entering new industry segments, and through trial and Turkey’s largest universities with thousands of inter- error finding their niche in an often crowded marketplace. national students and faculty. There are multiple daily Proudly calling their city “the reverse-engineering capital of flights to Turkey’s main cities, as well as those in other the world”, Gaziantep’s industrialists eagerly learn from their countries (about 10% of total enplanements at GZT are competitors, attempt to reproduce the same goods at lower international). price, then try to undersell them in the marketplace. Turkey’s era of protectionism and import substitution did not favor But it was not always thus; Gaziantep’s road to such an approach; it was only when market-oriented policies industrialization has been anything but rapid, and took hold that the entrepreneurial energy of Antepians was path dependency is only one, minor part of its success fully unleashed. They were at last free to succeed or fail! Sig- story. With the area’s arid land ill-suited to intensive agricul- nificantly, failure does not seem to carry the societal stigma ture, early on Antepians learned to earn a living by making that it does, for example, in some European countries. and trading things. Over the centuries, an artisanal tradition developed, in everything from making shoes to Turkish Gaziantep’s stellar growth has been driven by home- rugs. Initial capital accumulation for industrial development grown (and often family-owned) companies, with came from two main sources: cotton-growing (and later very little foreign direct investment or new start-up textile-producing) landowners, and merchant families. Some activity. Of the three traditional pillars of private-sector of Gaziantep’s family-owned companies (including large economic development and job creation – attraction of out- conglomerates like Sanko and Naksan Holdings) trace their side investment, growth of existing firms, and new company beginnings to this era. Industrialization essentially began formation – Gaziantep’s story is almost exclusively a tale around the middle of the 20th century, with the introduction of expansion by its existing manufacturing firms, plus the of mechanized weaving in making clothes and rugs, as well ancillary growth accompanying it (e.g. retail trade, dining and as the small-scale production of spare parts for imported hospitality, transport, public services, etc.). agricultural machinery and vehicles. Processing agricultural The city’s manufacturing-led growth has had a very clear sectoral dimension: a handful of manufacturing 97 For all its purported lack of interest in public service, Gazian- industries account for the lion’s share of the observed tep has often been well represented in the national government. Indeed, increase in output, employment, and exports. They its current Metropolitan Mayor, Ms. Fatma Şahin, was previously the Minister of Family and Social Policies in the cabinet of then-Prime Minister include carpets, garments and fabrics, footwear, construction Erdoğan. In addition, members of Turkey’s parliament (the Grand National materials, food, mechanical & industrial goods, chemicals, Assembly) from Gaziantep are reportedly able to effectively caucus together plastics & packaging, and automotive parts. Production is in supporting their province, regardless of party affiliation, when its vital overwhelmingly focused on tradable goods, which are sold all interests are at stake in Ankara. 99 over Turkey as well as in foreign markets. Gaziantep’s manu- remains a highly centralized country99. Ankara sets facturing firms usually sell products under their own brands, broad parameters for regional economic develop- but sometimes also as sub-contractors for better-known ment, and provides some support programs through global ones. Production machinery is still largely imported, its local arms (the provincial administration, KOS- although more recently more of it has been made locally. GEB, TUBITAK, GAP, etc.). National policies directly affecting Gaziantep’s observed performance have Despite the phenomenal growth in trade numbers, included the establishment of Organized Industrial Gaziantep’s exports are not diversified either in Zones, the provision of trunk transport infrastruc- terms of the product mix, or in terms of destination ture, funding for education and research/ technol- markets. Carpets, clothing & textiles, and food products ogy development, tax incentives (based on a 6-tier account for more than two thirds of their total value. Geo- system of regions), and entrepreneurial and export graphically, Gaziantep’s exporters have a very strong focus on assistance. Crucially, Gaziantep has been very suc- (highly volatile) Middle Eastern markets; Iraq alone accounts cessful at tapping into national support programs, for more than a third of Gaziantep’s total exports. While the and in implementing projects. city has been able to exploit its geographic proximity, cultural affinity, and market familiarity to grow export sales, it is also Gaziantep’s Metropolitan Municipality has been highly vulnerable to adverse developments in the region, such supportive of economic development initiatives in as those happening now. the city, but has left specific business decisions up to the private sector. By law, the city government is primar- Gaziantep’s is not yet a knowledge-based economy. ily responsible for urban planning, water supply, and urban Its manufacturers’ performance in terms of product diver- transport. In addition to infrastructure provision, its main sity and ubiquity 98 is still quite modest, trailing not just the instrument in support of economic development is land industrial cities of western Turkey, but also fellow Anatolian allocation, a tool Mayor Doğan’s administration (1989-2004) Tigers like Konya and Adana. Simply put, Gaziantep produces first started using to foster industrial growth – before the a smaller range of products than cities like Bursa or Kocaeli, authority to do so was even devolved from the central to local and they tend to be of a more “commoditized” nature, i.e. governments100. Other specific city-level interventions have highly price sensitive and easily produced elsewhere. This included sister city partnerships, and urban regeneration/ re- makes them highly vulnerable to even lower-cost competition development efforts, clearing out slums and upgrading public from places like China. Still, this is actually an improvement amenities like parks, eventually paving the way for tourism over years past. Gaziantep’s producers initially competed only development. There are also three district municipalities in on price, but gradually got more sophisticated and started Gaziantep, with responsibility for housing, education, and also paying attention to product quality. More recently, they poverty alleviation, including assistance to the disadvantaged are becoming increasingly aware of the need to innovate, and refugees. investing in R&D and new production methods. However, industry-academia linkages are still in their infancy. Gaziantep’s two business Chambers, of Industry (GSO) and Commerce (GTO), respectively, have played Gaziantep’s success is not the result of implement- a prominent role in Gaziantep’s economic success, ing a proactive economic development strategy and form the core of a citywide “growth coalition”. which would prioritize the development of particu- GTO is the mandatory membership organization for all busi- lar sectors, nor was there a formal document which nesses, while GSO only includes firms with over 10 employ- would determine these priorities and plan how to ees who produce what they export. Separated from each other implement them. Planning for sector development as well in 1989, in practice there is some overlap in membership and as regional economic development has traditionally been un- responsibilities between the two. Both entities have large dertaken by the central government. More recently, some re- professional staffs, budgets, and political influence, but are sponsibilities have been devolved to 26 regional development by law required to be politically neutral. They both advocate entities. The one covering Gaziantep (along with neighboring on behalf of business interests, act as promoters for the city, Kilis and Adiyaman provinces) is the Silk Road Development and work with government and other institutional actors on Agency. Through extensive stakeholder consultation, it has matters of citywide significance, their leaders being among identified development priorities and put together a strategic Gaziantep’s most effective champions. They also implement plan for the region, including numerical targets and monitor- various donor-funded project (such as by the EU) and provide ing indicators. But having started operations only in 2010, assistance to their members in areas like inter-company this agency can be expected to play more of a role in Gazian- collaboration, entrepreneurial development, market informa- tep’s future economic development than it has in the period tion, business contacts, and export assistance. In addition, covered by our case study (until 2012). Despite some devolution of decision-making for eco- nomic development to its cities and regions, Turkey 99 For example, only about 6% of corporate tax payments to central government are returned to Gaziantep’s metropolitan municipality, according to former Mayor Doğan. 98 According to an analysis in the Turkey Urbanization Review, The 100 Following lengthy court battles in the 1990s, national legisla- World Bank, May 2014. tion later caught up with the situation on the ground. 100 GSO initiated the establishment of Organized Industrial is ensuring stakeholder buy-in and their solid commit- Zones just outside the city. ment to act on the city’s behalf, i.e. process. Productive public-private dialogue and collaborative partnerships Gaziantep’s Organized Industrial Zones (OIZs) have can achieve meaningful results, over time helping to put been an important, and likely vital, ingredient in the a city on a higher growth trajectory. metropolitan economy’s export-driven success. Lo- cated 15 kilometers northwest of the city, the OIZs host more In Gaziantep’s case, business and government have than a thousand companies employing over 100,000 workers. had a collaborative relationship since the late 1980s. Bringing together businesses previously scattered geograph- Successive Metropolitan Mayors have shown a will- ically, the OIZs offer: quality infrastructure (energy, waste- ingness to listen to business leaders and address their water treatment); expedited permitting/one-stop service needs, inasmuch as it fell within the city’s remit/scope centers; the clustering of similar firms; and an efficient, less to do so. Land was allocated, permits issued, slums bureaucratic private-sector regime. Four OIZs are currently in cleared, roads built, uninterrupted water supply pro- operation, one is under construction, and a sixth one (larger vided, and public spaces spruced up, all enhancing the in size than the previous five combined) is planned for a city’s livability and overall business environment. For location southwest of the city, and thus closer to ports on the its part, Gaziantep’s private sector and its institutions Mediterranean. Based on a national law, OIZs exist all over like the Chambers acted as the city’s public champions, Turkey, but have been much more successful in Gaziantep developing the city’s brand, building hotels, lobbying than the government-run ones in Adana or Mersin, primar- Ankara for support, establishing Organized Industrial ily because of their private-sector characteristics: they were Zones, and most importantly – exporting and creating initiated by the Chamber of Industry (GSO), forming a new jobs. For its part, academia sought to introduce concrete legal entity which acquires land, allocates it to firms, and can forms of engagement with private-sector firms, such as withdraw it again if land is not used productively. Firms con- internships and sponsored research. This ability to work tributed to the OIZs’ construction, and later become share- together for the benefit of the city is a process that can, holders. The OIZs are run by 5-member management boards. over time, be emulated elsewhere, of course adapted to While some of Gaziantep firms’ growth might have happened local circumstances. anyway without the OIZs, it is clear that by providing critical infrastructure and conducive regime not available elsewhere 2. Successfully leveraging of available national sup- in the city, the OIZs have played a key enabling role in help- port tools, as well as of a city’s own endowments, ing Gaziantep companies to expand, export, collaborate with can provide a meaningful boost to its economic similar adjacent businesses, and benefit from other effects performance. Of course, it is not as simple as just usually associated with geographic agglomeration (knowledge taking funds from the central government, but rather spillovers, the development of a specialized labor pool, etc.). capitalizing on the opportunities that national programs and policies – domestic as well as foreign – may create. So What? Summary of Insights for Other Cities from On the endowment side, every city has something going What Gaziantep Did Right for it – location, market access, climate, natural beau- ty, mineral wealth, demographics, culture, language, Key lessons from Gaziantep: history, name recognition – that can facilitate economic development efforts and help its private sector create 1. If the city has a well-developed private sector, jobs. Endowments are not destiny: success is possible involve it substantively in the city’s economic de- even with very modest endowments. The key is to work velopment. Also engage other stakeholders, and with whatever a city has, however modest it may be, to bring them into an effective citywide growth co- enhance its residents’ prosperity. And a city can skillfully alition. Elected officials often think of for-profit firms utilize national support tools to take advantage of the as sources of funding – and they certainly can be. But endowments it does have, in order to improve economic business leaders can be so much more than cash cows: by outcomes. engaging in dialogue with government, academia, and other stakeholders, they can identify impediments to Gaziantep provides an example of a city successfully company growth and job creation, and provide concrete leveraging its relatively modest endowments (geography, suggestions on how to address them. They can also history, strong local identity and culture) for economic provide access, publicity, and international reach that growth and job creation. While no structured process public officials may lack. Executives often have immense for identifying key competitive assets was observed in relationship capital, brand equity, entrepreneurial know- Gaziantep, there appears to be broad consensus among how, and resources that can be put to use on behalf key stakeholders and even the general public about of the city. Meanwhile, the need for institutionalizing what it is that Gaziantep is endowed with that could industry-academia linkages is well documented, bene- help it advance and prosper. The city and its businesses fitting both educational institutions and companies. All have also shown great skill at identifying, often with this public-private dialogue may but does not necessarily the Chambers’ help, applicable national programs (like have to result in the formulation of written strategy financial, technical assistance, infrastructure, export documents and implementation plans – what matters 101 facilitation) that could be of use to them, and accessing Gaziantep does not have all these elements working in them to expand production and sales. Indeed, despite its favor, but there is compelling evidence that it has its comparatively low levels of human capital, Gaziantep embraced internationalization as part of its economic has shown a strong capacity to design and implement development agenda – even though it doesn’t actually various kinds of projects and initiatives. This is undoubt- have a written strategy document as such. Historically, edly a process that could be replicated elsewhere in a the city has always been ethnically and linguistically more deliberate, structured manner. diverse, with a tradition of tolerance – the Syrian border is only half an hour’s drive away. During his 15 years 3. Cities can use intentional internationalization as in office, Mayor Doğan embarked on an aggressive a valuable pillar of a broader economic develop- internationalization program, including establishing ment strategy. The first thing that comes to mind in sister city relationships, inbound and outbound trade the context of “international” is of course exports. But a development missions, and directly contacting potential city being international means so much more than just foreign investors (e.g. Volvo Trucks) to set up production selling goods and services abroad. Internationalization in his city. Gaziantep University now teaches a variety as a pathway to economic development has been shown of courses in English, cognizant of the opportunities to improve economic outcomes, and ensure more con- this opens for its graduates. And the two Chambers have sistent and sustainable performance at the firm level101. exceptionally well developed relationships with coun- Besides trade, internationalization entails the promotion terparts in many different countries, helping Gaziantep of foreign direct investment, joint ventures, and other firms get in touch with potential clients and partners collaborative cross-border business relationships. En- abroad. It is difficult to quantify exactly how much all abling such commercial linkages is the “soft” infrastruc- this has helped the city’s global commerce, but it has ture for this – sister city relationships, academic and clearly played a role. educational exchange, consulates, bi-national chambers of commerce, foreign language instruction and cultural centers, proximity to international border crossings (overland, seaports, airports), direct air links, and so on. In demographic terms, having an ethnically diverse population or significant concentrations of expatriates can also be beneficial. 101 For example, according to the U.S. Department of Commerce, firms in the United States that export on average grow 15% faster, pay 15% higher wages, and are 12% more profitable than comparable companies which do not, and are also more likely to show market resilience during economic cycles or exogenous shocks. The specific numbers vary across countries, but most follow this general pattern. 102 The National Context FDI inflows increasing thirteen-fold in about a decade, albeit from very low initial levels. The country ranks 44th in the 2013 World Economic Forum’s Global Competitiveness Index, Belonging to the large, increasingly open Turkish and 69th in the Bank’s Doing Business ranking for 2014. The economy has been highly beneficial for Gaziantep’s principal remaining obstacles for investors include bureau- growth and job creation. With a population of 75 million cratic and regulatory uncertainty. The Government’s Tenth and a GDP exceeding US$800 billion, Turkey is one of the Development Plan 2014-18 aims to address these constraints world’s largest economies. Driven both by surging domestic through series of legal initiatives, including new income tax demand and increased global commercial ties, the country legislation, a new commercial code, and a new patent law. has seen dramatic gains in income and living standards For domestic firms, there is a need to further streamline the over the past decade, with nominal GDP more than tripling, regulatory burden for firms with more than 50 employees, as and official poverty rates falling from 16.7% in 2003 to there is some evidence of a “missing middle” in the Turkish 5.1% in 2011, according to World Bank data. Across a range economy (large and small firms prosper, but not mid-sized of other economic and social indicators, Turkey has made ones). great strides in improving its global standing. Nowadays an upper-middle-income economy, Turkey has added about five million new jobs over the past five years, helping to reduce its Regional Economic Development in Turkey nationwide unemployment rate into the single digits, despite a rapidly expanding labor force. As an OECD member and Uneven growth and population shifts westward pres- candidate for EU membership, Turkey has enjoyed free trade ent a myriad of challenges. Turkey’s economic success with the European Union since 1996, and has benefitted over the past decade is attributable to its macroeconomic from miscellaneous EU pre-accession funding and technical stability and liberalization, greater openness to foreign trade assistance schemes. and investment, sectoral support programs, and regional development policies. But, for a variety of economic, social, Turkey’s GDP growth has slowed recently, due to and security reasons, there has been a decades-long shift external as well as structural factors. While Turkey’s of population from the country’s less developed east to the economy has been one of the better performers among already densely-populated west. This has resulted in all the the G20 economies, significant macroeconomic challenges usual challenges accompanying rapid urbanization, including remain – among them, a large current account deficit and congestion, pollution, and the need to generate ever more external financing needs, a depreciating currency, significant jobs for newcomers to cities. inflationary pressures, relatively high interest rates, and a large informal sector. Going forward, its economic growth is A rising tide lifts all gulets – but some rise higher expected to moderate to just 2% this year, driven by a com- than others. Persistent regional disparities in income levels bination of financial, political, and structural factors. Over and economic opportunities have long been an area of fo- the medium term, the World Bank anticipates GDP growth of cused interventions by the national government, with mixed about 4%.102 success. Cognizant of the need to rebalance economic activity from the industrialized west of the country to the less devel- An improving business climate has provided a boost oped east, Turkey’s successive governments have instituted a to Turkish entrepreneurs, as well as foreign inves- series of measures to address this, including targeted regional tors. Turkey has made numerous business climate improve- incentives schemes, massive infrastructure investments, and ments at the national level, resulting among other things in technical assistance and financial support programs for com- 102 Turkey Partnership: Country Program Snapshot, The World Bank Group, April 2014. 103 panies. For example, for investment incentives103, the country cities into their surrounding hinterlands)106. Tiger cities are is divided into six tiers of regions, with the most developed perceived to have seized new opportunities opened to them areas (Istanbul, Kocaeli, Bursa, Izmir, Ankara…) getting the by liberalized trade and economic regulations. least support (tier-1), and provinces in the country’s east and southeast (Van, Batman, Diyarbakır, Şanlıurfa, Mardin…) Thus, Anatolian Tigers are associated with the idea qualifying for the highest level of incentives, tier-6. Gazian- of local entrepreneurialism. For instance: “When asked tep province is in the middle of the pack, designated as a what makes Gaziantep a model city, many entrepreneurs and tier-3 area – by far the most developed one in that part of the local opinion leaders made statements which included phras- country: es such as ‘entrepreneurialism’, ‘competitive, hard-working people’, ‘successful without direct help of the state’, ‘standing Anatolian Tigers on their own feet’, and ‘cooperation and solidarity’”107. A well-known case study of economic development in Kayseri was titled “Islamic Calvinists”, denoting an analogy made by “Anatolian Tigers” denotes a number of fast-grow- Kayseri’s former Mayor and by the head of one of its busi- ing cities in the Anatolian landmass of Turkey. These ness associations to a ‘Protestant work ethic’ in the city: “No cities have become renowned in Turkey and further afield personal waste, no speculation, reinvest your profits.”108 A as something of an economic miracle, given their location book written about Kayseri by its former Mayor was titled in historically poorer and unindustrialized regions of the ‘The Self-Made City’109. country. Productivity growth has been faster than in the advanced western provinces of Turkey. Relatively unproduc- Entrepreneurs in Anatolian Tigers apparently suc- tive micro firms have grown into more productive SMEs104. ceed also because of ‘industrial district’ dynamics. Between 1997 and 2009, the number of Turkey’s largest one ‘Industrial districts’ usually refer to places in which there thousand firms rose by 15 in Gaziantep, 18 in Kayseri, 11 in exists a mutual reinforcement between business, cultural Kahramanmaraş, 12 in Konya; while it fell by 105 in Istan- values, social structures and local institutions. This pattern bul and fell by 37 in Izmir105. Some of these cities appear to has been observed consistently in highly successful economic have stabilized in recent years, with the notable exception of regions, such as northern Italy and southern Germany in the Gaziantep. 20th century, or the pioneers of the industrial revolution in England in the 19th century110. Common features of these The rise of Anatolian Tigers during the 1980s coin- districts include: “a life ethic based on self-help, entrepre- cided with neoliberal policy reforms in Turkey. This neurship, and a sense of local belonging; a regular flow of temporal correlation caused many scholars and policymak- bottom-up innovations generated by the industrial atmo- ers to interpret the rise of Anatolian Tigers as “a successful sphere; a culture of emulation resulting from the mobility of model of local entrepreneurialism, which replaced the state’s labor between firms.” active involvement in economic development.” The “organic” rise of the Tigers has been contrasted with state-led attempts Is it accurate to frame the success of Anatolian Tigers at regional development in Turkey, which according to some wholly as a story of a liberal laissez-faire state with analyses of economic outcomes have been largely unsuccess- dynamic entrepreneurs? Some economic historians have ful (or at best have managed to decentralize metropolitan argued that deliberate agency in economic development is Number of Firms in Turkey’s Top 1000 Exporters, by City 2007 2009 2011 2013 Adana 15 15 17 22 Ankara 42 52 45 46 Bursa 57 52 48 50 Denizli 29 22 23 24 Diyarbakir 1 1 1 2 Erzurum 0 0 0 0 Gaziantep 33 49 63 67 Istanbul 535 492 475 453 Izmir 63 67 66 70 Kahramanmaraş 6 8 8 10 Kayseri 12 11 10 13 Konya 5 6 4 6 Sanliurfa 2 2 0 1 Trabzon 11 9 11 9 Van 1 0 0 0 (Source: TIM, 2013: 95) 103 Detailed, up-to-date information on investment incentives in Turkey is available at http://www.invest.gov.tr/en-US/investmentguide/ 106 Gazici & Hewings, 2004. investorsguide/Pages/Incentives.aspx 107 Beyırbağ, 2007: 126. 104 Chapter “Enterprise: Lessons in harnessing structural change 108 ESI, 2005. for integration and inclusion” in World Bank, 2014. 109 Karatepe, 2001. 105 Figures drawn from TEPAV, 2014a: 13. 110 Marshall, 1890. 104 indeed a key part of the Anatolian Tigers’ story, but that one incentives to Kahramanmaraş as a Priority Development must look for it at the local level rather than the national Area from 1968 onwards, and from foreign trade incen- level111. Thus Tiger cities could be examples of ‘entrepreneur- tives from the 1980s onwards. ial local governance’. We examine this theme more closely in our exposition of the development story in Gaziantep specif- • Kayseri has become specialized in furniture, textiles and ically—where it seems that entrepreneurs’ success has been metal industries since the 1980s. One of the notable fea- boosted by state incentives, and that development has also tures of its local economy is a subcontracting production been facilitated by quasi-state organizations such as the City model with substantial inter-firm cooperation. Orga- Council or cross-over organizations such as the Chambers of nized Industrial Zones were established, and Kayseri was Commerce and Industry. also granted status as a priority development areas. A special summary of this case is given in the box below. In the remainder of this section, we overview a few Anatolian Tiger cities and draw out some of the similarities and differ- • Gaziantep has been described using the analogy of a ‘ca- ences between them112: thedral in the desert’ (or—in more evocative terms—as ‘the Paris of Anatolia’) for its function as a commercial • Denizli is located in the hinterland of the larger city of and industrial center for the relatively underdeveloped Izmir. Its productive activities are specialized in rela- Southeastern Anatolian Region. Its industries are orient- tively simple manufactured products such as towels and ed both to regional export markets (especially northern bathrobes, and it is oriented towards international mar- Iraq) and to international destinations. kets. Development of its industries has stemmed from a history of weaving and artisanal activities; these consti- The salient features of the city profiles given above can be tuted a base of local knowledge for textile industries, and summarized in the following table. also created opportunities from capital accumulation. Firms in Denizli have received a number of industrial National Government Support Programs incentives, including the establishment of an Organized Industrial Estate and provision of cheap industrial plots At the national level, responsibility for different with infrastructure. aspects of economic development is shared among several government agencies, including the Ministries • Çorum‘s industries are specialized in bricks and some of Economy, Development, Transport/ Maritime/Commu- textiles. Development has been largely based on indige- nications, Foreign Affairs (trade), the Prime Ministry, and nous entrepreneurs. Firms in Çorum may have been less specialized agencies like the Investment Support and Promo- successful in reaching international markets owing to tion Agency (ISPAT) and the Regional Development Admin- the underdevelopment of inter-firm networks in the city. istration – Southeastern Anatolia Project (GAP). Over the • Kahramanmaraş has grown from its traditional agricul- past few years, central government has tried to pursue a more tural industries to become industrialized in metal tools, regional approach to strengthening economic competitive- machinery and textiles (including yarn, weaving, dye, ness through the establishment of 26 regional development and ready-to-wear clothing). Firms have benefited from agencies, each with responsibility for a few provinces. Salient features of Turkey’s Anatolian Tigers Product specializations Market orientation Provenance of Recipient of largest firms substantial (proportion and destina- state incen- tion of exports) tives Denizli Textiles such as towels and [tbd] Indigenous to city Yes bathrobes Çorum Bricks and other earthen- [tbd] Indigenous to city Not much ware. Kahramanmaraş Wood products, metal tools [tbd] Indigenous to city Yes and machinery. Kayseri Furniture, textiles and 29% to MENA; 39% to Indigenous to city Yes metal industries. Europe. Gaziantep Textile industries such as 58% to MENA; Indigenous to city Varies by period machine-produced carpets. 22% to Europea. Foodstuffs. a Figures drawn from TEPAV, 2014a. 111 Beyırbağ, 2007. 112 This section is summarized from Özaslan, 2005: 135-137. 105 ‘Islamic Calvinism’ in Kayseria • Sugar. There are 20,000 sugar beet growers around Kayseri producing for the Kayseri Sugar Factory, which makes annual Kayseri is an ‘Anatolian Tiger’ in central Turkey that has contracts with farmers and provides technical support on pro- become a leader in several industries. It is the home for two of duction. Turkey’s sugar industry can compete with cane sugar Turkey’s largest furniture manufacturers and retailers; a firm that from the tropics only because of tariff barriers—cane sugar in produces one percent of the world’s denim; and a large and success- the tropics is produced at half the cost. ful sugar refinery. One single district of only 20,000 inhabitants (Hacilar, approximately 10 km from the center of Kayseri) has a In addition to state intervention, key factors in Kayseri’s modest appearance but is the home of families who have built 9 development story appeared to be: fast-growing local mar- out of Turkey’s top 500 companies. Thanks to its economic success, kets; and the use of OIZs. Kayseri’s population grew from 65,500 in 1950 to approximately 600,000 in 2005. • Markets. State investments in state-owned enterprises in Kayseri boosted the city’s population and created a growing Kayseri’s leading industries are homegrown and have local market for consumer goods such as furniture and textile rather humble roots. For example, the conglomerate Boydak products. This growth provided a receptive market and testbed Holdings, which comprises 41 companies including Turkey’s two for local production. most famous furniture brands (Istikbal and Bellona) and Turkey’s largest cable factory, was established by a villager from Hacilar who • OIZs. In 1956, the Kayseri municipality established its first left primary school after only one year. He became an apprentice in industrial zone and required craftsmen to relocate there, a small carpentry workshop, then later opened his own workshop partly through fear of fire. Spatial concentration was a catalyst producing wooden doors and windows, and subsequently moved for the exchange of new ideas and technologies between those to Kayseri’s first industrial zone in the late 1950s, and has grown entrepreneurs. In 1959, one of the carpenters began producing steadily since then. Another carpentry apprentice in the industrial upholstered furniture using dried grass as stuffing, and then zone began specializing in sofas and armchairs, opened a retail moved on to foam rubber. In the early 1960s, another compa- outlet, and founded Ipek, which has become one of Turkey’s largest ny moved on to metal furniture (spring mattresses, bedsteads furniture producers and employs 2,500 staff. The company Orta and frames) drawing on metalworking skills introduced to Anadolu was founded in 1953, and after some difficult years in the Kayseri by state-owned enterprises such as the aircraft factory. early 1980s, now develops 300 denim prototypes annually, of which In the late 1970s, after a trip to furniture fairs in Europe, the 100 are sold to the world’s leading jeans brands such as Wrangler Boydak brothers moved from manual production to mecha- and Diesel. nized production—and, similarly to the previous technological innovations—other firms soon followed suit. These leading firms did not necessarily build on any innate comparative advantage or endowments in Kayseri—but Lastly, the role of capable entrepreneurs should not be rather are path dependent, created by Kayseri’s particular underestimated. For example, despite the conducive environ- history including heavy state intervention. The evolution of ment described above, the textile firm Orta Anadolu was on the the following major industries in Kayseri demonstrates this trend: verge of bankruptcy in the early 1980s. Its turnaround came when new management cut the workforce in half and shifted production • Textiles. Kayseri’s textile industries grew out of the na- to produce quality denim. They recruited an engineer from Levi’s tionwide state-owned enterprise Sumerbank, which opened US denim supplier to instill upgraded production techniques, and Turkey’s largest cotton mill in Kayseri in 1935—and trained worked for six months of experimentation to meet Levi’s product the engineers who became part of a new firm Orta Anadolu in specifications on weight, color and tension. Another individual 1953, which has subsequently become one of Turkey’s most from the same supplier assisted with marketing, and was the first profitable companies. Total employment in textiles in Kayseri in Turkey to produce a fabric catalogue. The firm is now one of the is now estimated at over 10,000 people. most profitable firms in Turkey. • Furniture. Kayseri has no obvious comparative advantage in However, this spirit of entrepreneurship has apparently the production of furniture, given that the forest areas of the not always been present. An anthropologist working in Central Black Sea are far away, and transport costs within Turkey are Anatolia in the late 1980s described how “villagers must work, but relatively high—yet it has become the manufacturing centre they do not like to; work in any form is looked down upon. It is not for Turkey’s two largest furniture brands, and home to a total seen as a way of learning about life, or as an affirmation or fulfill- of 3,500 companies in the furniture sector, employing 40,000 ment of the self. Certainly the meaning of life is not conceived in people. The rapid growth of Kayseri’s upholstered furniture terms of work. The exemplary human activity is to sit; the very sector has been aided by the presence of a strong local textile oturmak has both meanings [to sit and to live].” Hence, despite en- sector. trepreneurs’ own claims that there is something in the blood, it may be more realistic to imagine that a culture of entrepreneurship has • Metal products. Large public sector investments have taken root over time, accompanying the growth of firms. included repairshops for aircraft and tanks, which contributed to the development of qualified labor and subsidiary indus- tries such as metal production. State procurement has also played a role: after Turkey’s first cable factory was established a The observations in this Box are the authors’ interpretations of the in the early 1970s by a resident of Hacilar, the firm’s business full case study of Kayseri published in ESI, 2005. increased most quickly during the 1980s owing to major public investments in Turkey’s infrastructure. During the 1990s the firm transitioned to produce fibre-optic cables and has become a major exporter, employing 2,500 staff. 106 National support programs which to varying degrees may • Customs Duty Exemptions have played a role in Gaziantep’s economic success include • Tax Reduction but are not limited to: • Social Security Premium Support (Employer’s Share) 1. Regional Incentives: In 1968, Gaziantep was incorpo- • Income Tax Withholding Allowance rated into the Privileged Development Areas (Kalkinma- da Oncelikli Yoreler – KÖY) program, granting its firms • Social Security Premium Support (Employee’s Share) lower tax rates or tax exemptions for investments, lower • Interest Rate Support labor insurance premiums, and/or cheaper energy. Priv- ileges were withdrawn in 1973, then reinstated 1978- • Land Allocation 1980. Tellingly, the number of industrial enterprises in • VAT Refund Gaziantep increased during those periods. After 1980, Gaziantep was left outside of KÖY, no longer receiving 4. Incentives for SMEs: These incentive programs are these incentives and subsidies. More recently, Gaziantep administered by the local offices of the national SME also benefitted from support under the Southeastern development agency, KOSGEB, providing SMEs with Anatolia Project (Güneydoğu Anadolu Projesi – GAP), but technological, financial and organizational support. eligibility is limited due to its relative affluence compared Firms in Gaziantep have received proportionally more with other provinces in the GAP region. of these than in other comparable locations, as they are distributed on relatively technical grounds. KOSGEB 2. Export Incentives: As part of Turkey’s national indus- initially supported only manufacturers, but has since trial export policies, state and international credits on 2010 supported services providers as well. Firms em- preferential terms were provided by national or interna- ploying from 1 to 150 workers may benefit from KOS- tional funds, as well as by banks. Gaziantep’s exporters GEB support, as long as they belong to KOSGEB’s SMEs have reportedly taken advantage of most of these pro- Membership System. KOSGEB provides subsidies for the grams, with up to two thirds of firms having benefitted following activities: from some type of support, most often directly support- ing exporting activity. Currently, Turkish government • Consultancy, tests and general testing/analysis for CE support for exports is provided for the following: marking • Technology research and development • R&D activities • Information networks and e-business • Capital support for product development projects • Local economic research • Environmental costs • Machinery and equipment ıntended for use in common • Market research • Training • Training • Identifying overseas markets, • Employment • Overseas business trips for export purposes • Participation in overseas fairs at a national level • Opening and running an overseas office/store, and the promotion of a brand name • Individual participation in overseas fairs • Creation of Turkish brands in overseas markets, and • Participation in overseas exhibitions establishing a “Made in Turkey” image • Participation in locally organized international special- ized industry fairs • Participation in overseas fairs • Participation in locally organized KOSGEB fairs 3. Investment Incentives: Turkey’s new investment in- • Project support provided for export orientation centives system came into effect in 2012. It treats foreign • Branding and promotion and domestic investors equally, and they are eligible for four different categories of incentives schemes: General, • Business development centers Regional, Large-Scale, and Strategic Investment incen- • New entrepreneurs tives. Depending on the individual scheme, eligibility • The recruitment of qualified personnel for incentives is dependent on region (of which there are • Computer software six tiers in the country – Gaziantep is in tier 3), sector, strategic importance, and size of investment. Specific • Patents - useful models - industrial designs support instruments include113: • Infrastructure and superstructure project support • VAT Exemptions In addition to financial subsidies, KOSGEB provides entrepreneurial training (more than 5,000 entrepre- 113 Detailed, up-to-date information on investment incentives in neurs trained in Gaziantep in the past two years), as well Turkey is available at http://www.invest.gov.tr/en-US/investmentguide/ technical assistance and know-how, and product devel- investorsguide/Pages/Incentives.aspx 107 opment and testing at its own facilities. KOSGEB also ad- attracted by its political stability and economic opportunities ministers donor-funded support schemes such those as – the city now ranks second only to much-larger Istanbul as from the EU. While there are no sectoral eligibility crite- a destination for internal migrants. Many current residents ria for these support programs, priority is given to firms of Gaziantep have moved there from the east of the country, and products with export potential, greater innovation to escape unrest and violence – it is the first “safe” major city and R&D capacity (determined through evaluations in moving westward from Turkey’s volatile southeast. Howev- collaboration with Gaziantep University), environmental er, there are also some 80,000 residents who have moved sustainability, and greater brand-building/awareness for there from Istanbul115, so it is clear that Gaziantep’s appeal is Gaziantep and Turkey in general. economic as well as security-based. In all, about two-thirds of the population of Gaziantep Province was born there, while about a third have moved in from elsewhere. The Local Context With a long tradition of trading with its sister city Aleppo and other Syrian cities just across the border, Gaziantep is Turkey’s sixth largest city and one of Gaziantep has taken in large numbers of refugees the fastest growing metropolitan areas in the world. from that country’s ongoing armed conflict. The vast It was ranked #9 globally for growth in the decade 1999-2009 majority of the 300,000 or so Syrians now living in Gazian- by the Wall Street Journal.114 As recently as the 1970s, Gazian- tep province are staying with friends and relatives, some tep had a population of only about 120,000 people. By 1990, have opened shops and restaurants, and their children attend that had increased to 600,000. Today the city’s population Turkish schools. Only about a tenth of them are housed in stands at 1.54 million, not counting approximately 300,000 refugee camps, and the Turkish government refers to the Syr- Syrian refugees – a nearly threefold increase in less than 25 ians as “guests”. Recognizing that their “temporary” stay in years, and more than ten times the levels of the 1970s. By Turkey is likely to be an extended one, efforts are being made 2030, Gaziantep’s population is forecast to reach 3 million to integrate them into Gaziantep’s social fabric. This is not people. The population of the entire 9-district Gaziantep without its challenges, but this is where Gaziantep’s tradition Province now stands at 1.85 million, 89% of whom live in of tolerance, coexistence, and hospitality clearly comes into urbanized areas. The province’s population density is 270 play. persons per km2, nearly three times the national average for Turkey, and about on a par with Bursa Province, though still Gaziantep’s History only a tenth of Istanbul’s. Administratively, the city of Gaziantep consists of Gaziantep is one of the oldest continually inhabited three individual districts, falling under a unified cities in the world, with a documented history going metropolitan government trying to cope with the back some 5,600 years. Located in southeastern Turkey effects of all this runaway growth. Gaziantep Met- near the Syrian border, it is a landlocked city lying some ropolitan Municipality (Gaziantep Büyükşehir Belediyesi) is 200 kilometers from the Mediterranean coast. About half of made up of three district municipalities: Şahinbey (popula- Gaziantep Province’s total area is mountainous, while 27% tion 817,000), Şehitkamil (694,000), and Oğuzeli (30,000). consists of plains. Climatically, the city sits at the confluence Although Şahinbey is home to the largest number of people of the continental and Mediterranean climate zones, as well within the city, most jobs, especially those at the four Orga- as at the crossroads of commerce and cultures. It is a mul- nized Industrial Zones currently in operation, are actually tilingual society, with speakers not just of Turkish but also located in Şehitkamil. This creates substantial challenges, Arabic, Kurdish, and nowadays foreign languages as well. most notably in transportation and congestion, as well as the provision of adequate infrastructure for all the new Gaziantep has little in the way of natural resources, residents. Much of the city’s explosive growth has happened as its land is dry and ill-suited for agriculture; this in an unplanned, haphazard manner, putting pressure on has played a prominent role in shaping the city’s land markets, housing markets, and public services. Squatter mindset and culture. Besides the famous pistachios for settlements sprung up throughout the metropolitan area, which the city (Ayintab, later Antep) was named, there are with construction taking place wherever land was available some olive trees and other Mediterranean cultures like cheaply, with little if any regard to zoning rules or municipal grapes/raisins and lentils, able to survive in such arid or infrastructure. semi-arid conditions. However, the vast majority of other agricultural commodities have to be brought in from sur- The reasons for Gaziantep’s torrid demographic rounding areas. The lack of natural endowments has forced growth are complex, and include local, national, and Antepians to be self-reliant – early on, they had to learn to international factors. In addition to high birth rates (70% make a living by making things and trading them, rather of Gaziantep’s population is under the age of 35), the city than growing or mining stuff out of the ground. Over the has been a magnet for migrants from other parts of Turkey, centuries, this has played an important role in shaping local 114 http://s.wsj.net/public/resources/documents/wsj_DecadeTer- 115 http://www.gso.org.tr/userfiles/file/Sayfalar/Ekovizyon2014. ror091220.pdf pdf 108 attitudes and economic aspirations, helping the city develop Gaziantep’s artisanal traditions provided a solid some intangible assets, including its much-vaunted “entre- foundation for entrepreneurial development during preneurial mindset”, i.e. the ability to identify and tap into the first half of the 20th century. With a long tradition opportunities. of rug-weaving, Gaziantep saw the introduction of its first carpet-making co-operatives in the 1930s; technology was Geography has played a crucial part in Gaziantep’s still very basic, e.g. carpet coloring was still done by hand. path dependency. Proximity of cotton-growing areas (such Drawing on traditional family-based cloth production know- as neighboring Urfa) fostered the early development of a how, a local weaving industry started to develop in the 1930s, cotton ginning and spinning industry, initially by hand, later upgrading to mechanized weaving in the 1950s, which mechanized. Over time, this has evolved into Gaziantep’s gave a boost to textile and carpet production. Processing of modern textile, clothing, and carpet industry, and has played agricultural commodities, mostly grown in nearby regions, a pivotal role in the development of industrial and mechan- took off in the 1940s, laying the foundations of Gaziantep’s ical know-how locally. The city has also for decades had a food industry. Construction of the Birecik Bridge across the commodities exchange where agricultural commodities are Euphrates River in the 1950s linked Gaziantep with Urfa, traded, though they are actually grown elsewhere – early evi- reducing transportation costs and time to regional markets dence of its status as a regional commercial and business hub. in southeastern Turkey. Antep’s original prosperity was based on small-scale Modern industrialization in Gaziantep had very mod- cloth and leather production, as well as trade; its est beginnings. In the 1960s, fabric and related production economy suffered badly after trade links with neigh- switched from traditional to contemporary technology, vastly boring countries were cut. Antep was a very prosperous expanding output and enhancing capital accumulation. Small trading city in Ottoman times, belonging to the Aleppo businesses began to emerge locally in the repair and small- district – then the empire’s third largest commercial center scale production of spare parts for vehicles and agricultur- after Istanbul and Cairo. The Ottoman Empire’s dissolution al machinery. But in other respects, Gaziantep remained hit Antep particularly hard, as it was severed from its natural relatively unremarkable among Turkish cities in terms of its commercial area across what had now become an internation- development. Except for a cement factory in the 1960s (since al border. The separation of Syria (as a French-administered closed), the city has not had any state-owned enterprises. territory) from Turkey also resulted in significant population Cold-war tensions meant that legal cross-border trade with shifts, with many Turks from Aleppo moving 60 miles north Syria (a Soviet client state) remained miniscule, although to Antep, and Arabs moving in the opposite direction. Many some contraband trade did actually benefit the local economy families, of various ethnicities, continued to have relatives and capital accumulation. on the other side of the border. In addition to dramatic demographic losses in the First World War and physical The development of Gaziantep’s human capital, destruction in the Turkish War of Independence in the 1920s, particularly in terms of acquiring modern produc- Antep’s economy suffered a severe blow with the departure tion methods and management know-how, was a of the city’s Jews and Armenians, who had constituted its very gradual process before the 1980s. A prosperous merchant, entrepreneurial class116. Renamed Ghazi Ayintab entrepreneurial class began to emerge in the city, based not (“Antep the Heroic”), later simplified to Gaziantep, the city just on trading but also on production. They began to send nevertheless embarked upon a swift economic recovery in the their sons to study abroad at Western universities, who would 1920s and 1930s. later bring fresh ideas and innovative approaches to the city. 116 According to Mr. Adil Sani Konukoğlu, Chairman of Sanko Holdings and current President of the Gaziantep Chamber of Industry (GSO), during this period the city lost up to 80% of its industrial know-how. It was the single greatest setback for its economy in modern times. 109 While the infusion of new management talent has boosted Anatolian neighbors119. Gaziantep does outperform many Gaziantep’s human capital levels, the city continues to trail cities in eastern Turkey in terms of product diversity and the national average to this day in some key indicators like ubiquity, and it may be able to produce what some other cities educational attainment (i.e. the percentages of its workforce can’t or don’t. with formal degrees – technical, specialized, master’s, etc.). The economies of Gaziantep and Turkey began a In the 2000s, Turkey’s so-called “zero problems significant transformation in the 1980s. Then-Prime policy” towards its neighbors did away with visa Minister Turgut Özal initiated measures to liberalize Turkey’s requirements for visitors from many countries in the largely statist economy, including the privatization of some region, including Syria. Syrians were now able to come SOEs and greater openness to foreign trade and investment. across the border to Gaziantep to shop or catch a flight, and These new opportunities were seized upon by enterprising business ties further expanded. Gaziantep firms expanded Anatolian businessmen, including ones from Gaziantep, in- their presence in Iraq, particularly its Kurdish region, which vesting in new production facilities and buying some SOEs117. grew to become Gaziantep’s top export market. Exports of New companies entered market segments previously held by (still comparatively low-tech) products also grew to developed highly-protected large firms from western Turkey, and many markets, but those continued to account for a much smaller firms began to export for the first time. Product quality was share of Gaziantep’s total exports than Middle Eastern ones. poor, as Gaziantep producers competed primarily on price. Deteriorating conditions in those countries are now a cause for major concern in the city. Gaziantep firms did not transition from trade to production in the 1980s; that process had begun in prior Contemporary Gaziantep’s economy is at a cross- decades, as the city already a long tradition of craftsman- roads: its traditional manufacturing industries like carpets, ship and textile production. However, the 1980s saw many garments, footwear, construction materials, food, plastics, family-owned firms in Gaziantep venture into completely etc. continue to see strong exports, but innovation is low and new industries, eventually emerging as large, diversified competition in those industries ever fiercer. Tentative steps conglomerates making everything from clothing to carpets to are being made to develop emerging sectors like tourism, lo- medical supplies to construction equipment. In addition to a gistics, healthcare, and education, but the process is slow and national policy framework that created an opening, Gazian- made more difficult by adverse political developments in the tep firms were also able to draw upon their profound knowl- region. However, awareness seems to be increasing among edge of products (being traders) and neighboring markets Gaziantep’s business community that the old growth model (being a border city). With most of Turkey’s exports to Europe may not take them much further into the future. and other developed markets being made in western Turkey, Gaziantep producers focused on emerging opportunities in the Middle East, which to this day takes the lion’s share of their exports. Gaziantep’s exporters continued to grow and scale up in the 1990s. Management skills and contemporary product awareness continued to increase, and with them product quality. But given the high ubiquity and low diversification of Gaziantep’s products (and therefore its industry base), the long-term sus- tainability of this expansion was questioned as recently as 2000, with some economists deem- ing that “the economies of Denizli, Gaziantep and Kayseri are based on traditional industries with no high technology base or high level of skill acquisition.”118 While Gaziantep has made much recent prog- ress, its product mix is still far less diversified than those from cities in western Turkey like Bursa or Izmir, and about on a par with its Source: Turkey Urbanization Review, 2014 117 “Gaziantep: Story of an economic boom on the historical Silk Road”, Today’s Zaman, November 27, 2011. www.todayszaman.com/ national_gaziantep-story-of-an-economic-boom-on-the-historical-silk- road_264012.html. 118 Özcan, 2000: 229. 119 Turkey Urbanization Review, The World Bank, May 2014. 110 Key Local Actors • Water Supply: Provision of drinking water outside the metropolitan area Gaziantep Provincial Governorate (Gaziantep Valiliği) • Public Safety and Security: Policing the entire province Provinces are the 81 administrative units into which • Education: Construction and maintenance of primary Turkey is divided. Home to 1.85 million residents, Gazian- and secondary public schools tep Province is consists of nine municipal districts, including the three making up the Gaziantep metropolitan area. Four • Agricultural Services: Experimental farms, provision of districts that make up the neighboring province of Kilis used seeds and fertilizers to be part of Gaziantep Province, but were carved out into a separate province in 1994. As the local representatives of • Health & Social Services: Construction of health centers, the Turkish state, Provincial Governorates are headed by hospitals, and social centers Governors. Governors are rotated between different provin- cial postings every few years, and are seldom natives of the Gaziantep Metropolitan Municipality (Gaziantep province in which they serve. The Governor is appointed, Büyükşehir Belediyesi) not elected, and is the highest ranking civil servant in the province. Answering directly to Ankara, Governors are re- Turkey’s highly centralized political system does sponsible for coordinating the provision of public services in not provide much autonomy or administrative scope the province, so the local branches of all national ministries at the local level121. Though decentralization mea- serve under the provincial Governor. sures in 2004 transferred some authority to mayors for managing public services like urban planning, Turkey’s central government provides the legal transport, water and sanitation, waste management, framework for local and regional economic develop- social services, sports and cultural facilities, and ment and, through the Governorate, carries out its responsi- environmental protection122, in fiscal terms cities bilities for selecting industrial sites, land acquisition, and the remain highly dependent on transfer payments from establishment of industrial zones, as well as the provision of the central government. Some remaining structural state guarantees essential for financing investment projects shortcomings in the decentralization process include: by the Municipality. To accomplish this, the Governor is expected to maintain close dialogue with key local stake- • Municipalities’ low fiscal autonomy, relying on Ankara holders, in particular members of the local business commu- for two thirds or more of their operating budgets nity – a relationship which has not always been smooth in • Limited borrowing ability: by law, Turkish municipalities’ Gaziantep’s recent political history120. Apart from this, the debt levels may not exceed 150% of their total annual Provincial governorate is responsible for public services only revenues indirectly related to economic development, including: • Under-development of bank financing mechanisms for • Public Works: Construction and maintenance of roads municipalities outside the metropolitan area • As a general rule, local authorities have little fiscal incen- 120 “A businessman interviewed cited Governor Bilgin on his tive to foster economic development and job creation, approach to the entrepreneurs: The governor emphasized that if anything happens to the business people in Gaziantep, he would be the first to pro- apart from the political imperative of winning elec- tect them, and the bureaucrats serving under him could not - and will not tions123. be allowed to - do anything to create obstacles in front of the entrepreneurs. Interestingly, the general secretary of the GSO noted that the bureaucrats Covering the city’s three districts, the Metropolitan who are responsible for services related to the economy and industry would Municipality is Gaziantep’s city government, one of be isolated by the business community if they adopted a negative approach to local entrepreneurs. … In cases where the governor adopted a more only 16 such bodies in Turkey. the Metropolitan Munici- prudent approach, the local bourgeoisie took a combative stance against pality is responsible for urban planning and the provision of the governor. Governor Erhan Tanju, who served between Güler and the major public services in the city. It also shares some of these current governor, chose to pursue such a policy. He openly declared that responsibilities with the three individual district administra- everyone had to do their business, and that he could attend the meetings tions that comprise the city. The Metropolitan Municipality he had to, but had no time for personal (one-to-one) relations (Yorum 2001 (8)). According to Hüseyin Toprak, the editor of the journal Yorum, has primary responsibility for making Gaziantep a well-func- the governor’s approach annoyed certain business people, industrialists, mayors, and certain chambers (even certain directors of the local branches 121 http://www.migm.gov.tr/en/PDF/GeneralInformation.pdf of the bureaucracy), who were used to having a close relationship with the 122 Regulated by national legislation: “Law of Metropolitan Munic- higher echelons of the bureaucracy.176 Not surprisingly, Governor Tanju ipalities No 5216” (BüyükĢehir Belediye Kanunu) and the “Law of Munici- was replaced by the current governor in less than two years. Normally, the palities No 5393 (Belediye Kanunu), as well as complementary regulations governors who develop positive relations with the representatives of the and bylaws. local bourgeoisie tend to stay in their office for longer periods. For example, 123 According to former Gaziantep Metropolitan Mayor Celal the governor preceding him had served 6 years. The governor’s weight in Ga- Doğan, interviewed in September 2014, cities reportedly get back only 6% ziantep’s political-economy is very much affected by the nature of relations of the value paid in business taxes to Ankara by companies in their jurisdic- with the business community of Gaziantep.” – Beyırbağ, 2007: 202. tion. 111 tioning, livable city, able to attract new residents and invest- from leftist towards market-oriented (neo)liberalism. The ment. Its specific areas of responsibility include: infrastruc- Mayor’s often-repeated slogan was that he was “the mayor ture (especially water supply and transport), urban planning, of the whole city, not just his own (social-democratic) party”, environmental protection, heritage preservation, public hy- and made a point of treating all citizens equally, irrespective giene and health, and the coordination of public investments of ethnicity (this while elsewhere in the country Kurds and across the city. The municipal administration’s Educational Turks were shooting at each other). Many people moved Unit also has an indirect role in economic development, to Gaziantep from Turkey’s troubled southeast during this through its mandate to carry out needs assessments/employ- period, including entrepreneurs with lots of know-how and er surveys of workforce skills needs investment capital. The Metropolitan Municipality’s total budget in 2011 Mayor Doğan made economic development a top was YTL 335 million (€163 million equivalent at the time). priority for the city. Early in his term, he convened 115 Approximate breakdown of revenue sources in 2011: small manufacturers, pledging that the city would supply all the infrastructure they need as long as they continue pro- • Central government transfers: 73% duction, creating jobs. He also asked Gaziantep’s citizens for sacrifices – for example, residential users paid more for water • Service fees: 24% use than industrial ones, because industrial growth was so • Local taxes: 3% vitally important to the city (in essence, cross-subsidies and preferential utility rates as a form of economic development The Metropolitan Municipality does not provide incentive). Doğan’s proactive interventions to strengthen services to the Organized Industrial Zones, as they Gaziantep’s economy can be summarized as follows: lie outside its jurisdiction. However, successive Metropol- • Physical Infrastructure: Mayor Doğan understood itan Mayors have strongly supported the OIZs’ development that a lack of adequate infrastructure was perhaps the through advocacy and influence on other tiers of government, greatest impediment for local businesses to expand and as well as partnerships with the Chambers and other pri- create jobs. In addition to providing uninterrupted water vate-sector actors. supply and roads, the Municipality intervened in specific instances to ensure that markets can function and Gaziantep’s most senior elected official is the Met- companies can do what they do best – with impressive ropolitan Mayor. Elected for a five-year term in office, the results125. Land allocation was one of the key instru- Mayor heads the municipal administration and is its chief ments at the Mayor’s disposal. Initially, the city was executive. While the Mayor does not have direct responsibil- willing to help any company to obtain land if it promised ity for economic development – nor does the Metropolitan to create jobs; as Gaziantep became more prosperous, the Municipality get higher tax revenues if economic develop- Municipality began to prioritize land allocation for busi- ment occurs in the city – successive mayors have understood nesses focused on high value-added activities (though the importance of job creation for their public approval and this selection appears to have been random, without any re-election prospects. Gaziantep’s mayors have traditional- systematic criteria). ly enjoyed much political influence in Ankara124, and since the late 1980s have had much improved relations with the • Pro-Business Environment: Doğan sought to cut red city’s business community, collaborating quite effectively to tape and streamline bureaucratic procedures that were advance the city’s economic development. stifling business growth in the city. One of his proudest accomplishments was slashing the city bureaucracy, Mayor Celal Doğan, a self-described “free market from 2,700 employees to only about a hundred, largely socialist who believes in limited government”, was through attrition – his view was that the Municipal- first elected to that office in 1989, and subsequently ity’s job was not to provide jobs for political cronies. re-elected in 1994 and 1999. Mayor Doğan’s 15-year He also lobbied the national government in Ankara, to term in office was truly transformational on a number of whom had direct access, for specific nationwide busi- levels, including a doubling of Gaziantep’s population, and ness-friendly reforms. He didn’t see it as the city’s job through this its emergence as one of Turkey’s largest cities. to pick winners or losers, just to “create an enabling It was during this period that Gaziantep resolved some of it environment, in which everyone feels like a citizen, that most acute infrastructure bottlenecks (e.g. having running water only one day a week in the early 1990s), so industrial production really began to take off. The Doğan years coincid- 125 For example, municipal housing developments sought to curb ed with a change in composition of the Municipal Council rent-based speculation, by acquiring land from the central government, towards stronger representation of the business community, having development plans prepared, and then selling the land to devel- and a shift in Gaziantep’s overall ideological atmosphere opers, especially housing cooperatives. And artisan workshops previously located in the inner city were relocated to a new Gaziantep Trade and In- dustry Center (Gaziantep Ticaret ve Endüstri Merkezi – GATEM) especially 124 The current Mayor, Fatma Şahin, was a minister in the national for small businesses, located outside the city; the process was successful government; former mayor Doğan was a close friend of Turkey’s Prime because it was done collaboratively between the Municipality and the lead- Minister (later President) Suleyman Demirel. ership of Gaziantep’s esnaf and artisan chambers. 112 they can succeed”. 126 This resonated rather well with ing the establishment of a biofuel plant using pistachio Antepians’ instinctive entrepreneurialism, and won him residue, in collaboration with the Technology Transfer a lot of support127. Office at Gaziantep University. • Quality of Life: Gaziantep was not a particularly ap- • Urban transformation: With 60% of the city con- pealing or livable place a quarter of a century ago, given sisting of scattered settlements that largely ignore any its severe water shortages, lack of transportation and urban or spatial planning rules, Gaziantep is continuing connectivity, and almost no enabling “soft” infrastruc- the urban transformation begun under Mayor Doğan. ture for business, such as decent hotels. Doğan engaged Wherever possible, shantytowns are being retrofitted in some very activist placemaking, including signifi- with basic infrastructure, structures are being brought cantly expanding the city’s parks and green surfaces, up to earthquake code or demolished, and green spac- tackling environmental issues, and clearing out slums es expanded and upgraded. A stated objective of these and dilapidated structures not just to make way for new initiatives is to make the city livable, and attract invest- development, but also to make the city a more attractive ment and tourism128. place to live and visit. It was in the Doğan era that efforts to develop Gaziantep as a tourist destination began in There is some similarity between the role of the earnest. Mayors in Gaziantep and in Kayseri—another Ana- tolian Tiger city. In Kayseri, one of the most vocal former • City Promotion: Mayor Doğan was a tireless advocate Mayors—Sukru Karatepe, from 1994 to 1998—focused on and salesman on behalf of Gaziantep’s economic devel- delivering a basic enabling environment for business and opment. He organized trade fairs, inbound and outbound development, plus proactive initiatives to support businesses. trade delegations (in cooperation with the Chambers), Karatepe focused the Municipality’s work on balancing the worked to persuade investors to come to his city, and municipal books, and on ensuring the efficient delivery of established sister-city agreements with cities in other municipal services. He reduced the number of municipal em- countries. ployees and privatized municipal services. He also engaged in more active industrial support, such as taking business- Doğan’s successors have largely continued this ap- men from Kayseri to Europe to introduce them to potential proach, irrespective of party affiliation. In particular, business partners. the past decade or so has seen stepped-up collaboration between the Municipality and private-sector leaders, as well The Municipal Council is Gaziantep’s main represen- as the institutionalization of this collaboration in the form tative and appropriations body. Elected for five-year of the City Council. Examples of the city’s accomplishments terms, Municipal Council members meet three times a year over the past decade include: to decide on such issues as the budget, housing plans, recon- struction programs, tax rates, and fees for municipal services. • Development of a light rail (tram) system: The first A variety of municipal standing committees, appointed by phase of Gaziantep’s light rail network (Gaziray) was the Mayor and municipal department directors or selected opened in 2010, with 19 stations and a total length of 21 by municipal council members from among themselves, deal kilometers (15 km from Gar to Burç, and 6 km between with financial issues and decide on the appointment and pro- Gaziantep University and Akkent). Currently, the light motion of municipal personnel. During the 1990s, there was rail system transports about 12 million passengers per a shift in the composition of the council from highly educated year, helping alleviate congestion and pollution, while managers and professionals (coming from the public sector, increasing mobility. The construction of a third, 8 km- generally with a lower- or middle-class background) to busi- long tram line with eight stops, is planned, for a total rail nessmen and other wealthier but less well-educated individ- network of 29 km. uals. The share of council members with university degrees declined from 70% in 1989-1994 to 56% in 1994-1999, and • Prioritizing environmental sustainability: Gazian- to just 35.3% in 1999-2004129. tep has been among the first Turkish cities to treat its wastewater, and is planning for further water supply up- District Municipalities grades, as current supply is inadequate for its exploding population. With the assistance of the Agence Française Gaziantep’s metropolitan area covers three district de Développement (AFD), Gaziantep has had a Climate municipalities130 – Şahinbey, Şehitkamil, and Oğuzeli. They Change Action Plan prepared, prioritizing ecological work together with the Metropolitan Municipality to ensure urban planning and energy-efficient buildings, and fund- the provision of public services for residents. Their main areas of responsibility of district municipalities include: 126 In-person interview with former Mayor Doğan, September 2014. 127 On a somewhat contrarian note, Doğan was often criticized for 128 Interview with Gaziantep Metropolitan Municipality technical not responding to the clientelist demands of grassroots businesspeople, staff, August 2014. and instead working only with a narrower set of big names. His image was 129 Bulut, 2000: 36-38. of a leader distanced from populist demands, always project-oriented, and 130 District municipalities are directed by national legislation in working closely with the powerful names of the city. – Beyırbağ, 2007: 199. “Municipality Law No:5393” (“lu Belediye Kanunu”). 113 • Public Works: Maintenance of the districts’ secondary Board, who share the conclusions with the Assembly. The roads Assembly meets once every two months; the Executive • Sanitation: Garbage collection Board meets once a month; and the sub-committees meet approximately once a week or once a fortnight. The • Land: Land management and expropriation, urban Council’s discussions on key issues affecting Gaziantep development control may help explain the pattern observed by many outsid- ers about Gaziantep, that Antepians “speak with one The District Municipalities are headed by mayors, mind”. with significant budgets and large professional staffs. Their role in economic development is primarily • Chair as a city ‘champion’. The Chairs of the Council focused on land development and allocation. In recent years, have been influential figures in the city—before, during District Mayors have prioritized redevelopment, urban and after their tenures (for example: the current Chair regeneration, and the beautification of public areas in order of the City council was previously President of the GTO to enhance residents’ quality of life and attract tourists. The for 22 years. The prior Chair from 2006 to 2014 was also District Municipalities have also taken the lead in helping Rector of Gaziantep University and continues as such). to cope with the influx of refugees from the Syrian conflict, According to interviews with the Chairs, they used their providing emergency assistance and helping them better role to set a frame for the City Council to be an advisor to integrate into Turkish society. the Municipal Municipality in the sense that it should be supra-political and rise above conflicts. Hence the Chairs City Council have been leaders while trying to avoid provocation and partisanship. The City Council provides an institutional framework for stakeholder engagement in Gaziantep. Gaziantep’s • Parallel governance structure to the Metropol- City Council is the main consultative body in the metropol- itan Municipality? As noted above, City Councils itan area, bringing together representatives of government, could be perceived as de facto metropolitan parliaments, business, universities, and civil society including journalists which run alongside the Municipality’s elected officials and unionists. Formally, the Council has a purely advisory and technical staff. As such the City Council could be role, but its structure facilitates the interaction of a large considered as a check and balance on the actions of the number of stakeholders on key issues of interest to the city. Municipality, to scrutinize its actions and maintain The Council seems to have played a catalytic role in engaging timely progress. A priori, there could be a risk of the City stakeholders in city development, more for its role in foster- Council becoming only a forum for lobbying of other ing substantive dialogue and information exchange than for bodies. On the information collected so far, the positive its role in coming up with formal recommendations. Organizational structure of Gaziantep’s City Council Gaziantep is relatively unusual in Turkey in its effec- tive use of a City Council structure. National legisla- tion enacted in 2006 provides for the establishment of City Councils as de-facto metropolitan parliaments; but collabo- ration among Gaziantep stakeholders predates this national legislation, and was established in the 1990s. During discus- sions with the previous Chair of the City Council, we were informed that Antalya and Bursa also have good examples of City Councils. What factors make the City Council different and effective in Gaziantep? • Broad and deep membership, combined with well-defined institutional structure. As shown above, the assembly has 225 members drawn from a wide variety of Gaziantep’s main stakeholder groups. Sub-committees are assigned to work on issues of partic- ular importance131, and then report back to the Executive 131 These issues appear to be defined rather broadly; we were told they include: infrastructure and transportation; disaster and crisis man- agement; environment; education; culture & arts, industry & trade; popular culture of Gaziantep; healthcare; tourism; the EU and foreign relations; small shopkeepers and businesses; historical and cultural heritage; ethnic councils of migrants; social life in Gaziantep; international visibility; and local press and media. 114 and constructive tone set by the Chair may be one of the • Gaziantep Chamber of Industry (Gaziantep main ways in which that risk has been mitigated. Sanayi Odası – GSO): GSO has 3,650 members, and employs 44 staff. Its largest technical department is its The City Council is relatively cheap to run, and lever- industry department, which has 7 staff. GSO’s activities ages a small permanent staff of only three people. include: knowledge production, including research and Their work is mainly concerned with organizing meetings; surveys in Gaziantep’s main sectors; acting as an inter- while the University Rector was Chair, he also leveraged locutor for international companies seeking contacts; university staff to provide research on technical topics that information on legal practices and procedures relating could inform the City Council’s discussions, and for addition- to foreign trade. GSO offers a companies database of all al administrative support. firms in individual sectors133, and hosts a World Bank Library information center, which is administered by The City Council structure is not fixed, and continues TEPAV. News articles on its website are posted approxi- to be reformed under its new Chair to formalize the mately daily, and each one is viewed approximately 400 role of decision-makers. The current Chair of the City times on average. It has 27 sub-committees, focusing Council has established an Executive Board of 16 members, more intensively on narrower ranges of products134. which includes more formal decision makers—including the Presidents of the GTO, GSO, Commodities Exchange, What effect have GSO and GTO actually had on indus- Exporters Association, the heads of all major political parties, trial development in Gaziantep? GSO’s Secretary Gener- and contributions from all former Mayors of Gaziantep. al responds by analogy: “Would you be the hero if you’re the The Chair told us that his decision to reform the Council’s one that gives the order to shoot, or if you are the one that institutional structure stemmed from a feeling that “the shoots? Actually it is more of a symbiosis: courageous entre- common mindset is not sufficient: despite the presence of preneurs compete in every market, and we support them.” 135 significant reports and efforts, the City Council has failed to In practice, it seems that GSO and GTO have an impact on address some of the more fundamental problems of the city”. industrial development in two main dimensions: Hence his intention under the revised structure was to bring in more decision makers and attempt to make the Council 1. At the national and provincial level, GSO and recommendations more actionable. GTO advocate and lobby on behalf of firms in Gaziantep for practical solutions that will benefit Chambers of Commerce and Industry a large number of firms. According to the GSO and GTO themselves, their approach is different from most The Gaziantep Chambers of Industry and Commerce other chambers in Eastern and Southeastern Turkey, seem to be markedly more successful than similar whose interactions with the state mostly emphasize Chambers in other nearby cities. Membership rates of requests for state subsidies; in contrast, both the GTO the Chambers are higher in Gaziantep than in other major and the GSO argue that when they go to Ankara or to cities132; and the activities of the Gaziantep Chambers have a local government, they bring along their own clearly become more professionalized. Both used to be part of a uni- stated solutions and alternatives136. GSO and GTO have fied Chamber of Commerce and Industry (GTSO), founded in become credible interlocutors137. 1891. The two chambers split in 1989, and Gaziantep is now one of 16 cities in Turkey where the chambers of commerce 2. At the firm level, GSO and GTO work to solve in- and industry are separate organizations. dustry-level problems and to facilitate industrial growth. Some tangible examples of the impact of this • Gaziantep Chamber of Commerce (Gaziantep Ti- work include the following. First on the part of GTO: caret Odası – GTO): GTO has more than 18,700 mem- bers (of which 15,270 currently active), and employs 61 • Industry research and collective services for their staff. GTO’s activities include: legal obligations such as members. GTO conducts research on the problems that the registration of firms; industry and market informa- firms often experience in certain sectors, on sector-wide tion; assistance with government relations; research on constraints, and on opportunities to assist firms. For promising investment areas; expert appraisal services on property and machinery; information on international 133 The database is available only in Turkish, and displays simply trade; assistance with export documentation and certifi- the name of the firm plus its main products. 134 For example: “Carpets, rugs and floor covering”; “ Pastry and cation; training on ISO 9001 2008 Quality Management baking products”; and “Shoes, slippers, leather and leather products”. System; and vocational training. It has 41 sub-commit- 135 Interview in Gaziantep, August 2014. tees, which focus more intensively on narrower sectors 136 Beyırbağ, 2007: 171. and meet once a month. 137 According to a former President of GTSO: “The chamber presi- dents used to be ranked 45th on the official ceremony list. ... But, yesterday we met the Prime Minister (Recep Tayyip Erdogan of the AKP) at the air- 132 According to data from 2002, the following percentages of port. We had breakfast together. We explained our problems ... It used to be executives of industrial enterprises were members of the professional the same with the previous governments, too. All doors are open to us now. Chambers: Adiyaman 75%; Batman 89%; Diyarbakir 82%; Gaziantep 89%; The MPs are asking us to arrange appointments with the Prime Minister, on Mardin 50%; Sanliurfa 71%. Figures are from Paksoy quoted in Beyırbağ, their behalf. Now chambers have become more influential than the minis- 2007: 180. ters.” – Beyırbağ, 2007: 229. 115 example, the following process was conducted in the was to ensure “that even the simplest consumer knows clothing sector: about Gaziantep, just as everyone knows about the Great Wall of China or the Eiffel Tower.”139 GSO argued that (a) GTO research found that Gaziantep firms were every firm should produce at least one branded product, not producing in line with fashion trends, and that as a means to increasing profitability of its production. individual firms were going to visit potential buyers without having done sufficient ‘homework’ before- • State incentives: Applications for state incentives by hand. For example, firms were travelling to Poland firms in Gaziantep are channeled through GSO or (more with a range of sample clothes which did not match recently) the Silk Road Development Agency, which the sizes of Polish customers. It also found that implicitly also gives GSO an ability to embody strategic firms were individually employing tailors and weav- priorities in its use of this role. ers, despite the cost savings that firms could have obtained if they shared those employees between GSO and GTO came into being in an environment firms. in which firms in Gaziantep, like most firms, are in competition with each other and do not “naturally” (b) GTO recruited a fashion designer to work with collaborate. Gaziantep is renowned for its local patriotism several firms, and deepened its market research to and solidarity; but according to a former President of the help firms understand what was of most commercial GTSO, “the solidarity which exists in Gaziantep is a solidarity interest to their buyers. which competition brings, caused by the [fact] that everyone is in competition. Gaziantep is not a city [which] thinks, acts (c) GTO also acted as an intermediary for potential buy- collectively”140. Soren Hjorth, the former EU coordinator of ers, in order to reduce the transaction costs for those the Business Centre Project hosted by the GTO, claimed that buyers of dealing with several smaller suppliers. it is remarkably difficult to bring entrepreneurs together in Buyers could still choose between firms—and thus joint projects. One reason for this may be the nature of Ga- the firms continued competing on quality in order ziantep’s industries, which even today are generally focused to satisfy the buyers—but GTO provided a platform on relatively simple products that do not require intense through which the buyer could efficiently deal with collaboration and innovation between component suppliers multiple possible suppliers. and producers141. • Creation of GTO branch offices in Erbil (Iraqi Until the 1980s, Gaziantep firms had not fully insti- Kurdistan) and Aleppo (Syria)138 , thus helping to tutionalized their major forums for collaboration. In foster exports from Gaziantep to those places. The offic- 1980, for example, it was observed that among the chambers es provide services to firms in Gaziantep to assist them of industry in Turkey, “notably absent are the Bursa and finding local contacts in Iraq and Syria, and to conduct Gaziantep chambers, which have been in the process of orga- due diligence on the counterpart companies in those nization since the early 1970s but have yet to be established. places to determine if they are reliable. The difficulties encountered in the organization of these two chambers, in part, stem from the ongoing struggle between • Lobbying and organization for the establishment of commercial and industrial interests.”142 GTSO (a combined organized industrial districts (as well as small industry Gaziantep Chamber of Commerce and Industry) did exist estates); establishment of the GAP exporters union in during the 1980s, and predominantly represented SMEs who Gaziantep; establishment of an electricity distribution were engaged in cross-border trade to regional markets and company; establishment of gas distribution company for services to the local economy; industrial producers were in the city; establishment of Gaziantep University (GAZÜ) the minority of its members143. As industrial producers grew and the opening of departments and vocational schools during the late 1980s, the pressure grew to break away from related to dominant economic activities of Gaziantep. GTSO, spurred by a feeling that an association of “barbers, carpenters, and the car maintenance sector” could not possi- On the part of GSO: bly represent manufacturing interests144. • “Trademark City” project: This initiative accom- Two important turning points followed, which funda- panied Gaziantep’s shift from being an intermediate mentally changed the course of inter-firm relations goods producer to a producer of final products. It aimed in Gaziantep: at increasing the quality and profit rates of products, meanwhile defining “Made in Gaziantep” as a trademark and a sign of high quality. The project won ‘Best Uncon- ventional Project Award’ in the 2005 World Chambers 139 Interview in Gaziantep, August 2014. Competition (organized by the World Chambers Federa- 140 According to Mustafa Geylani, former President of GTSO and tion and the International Chamber of Commerce). The former President of the Assembly of GTO. GSO Secretary General mentioned that the project’s goal 141 Eyiiboglu, as cited in Beyırbağ, 2007: 128. 142 Öncü quoted in Beyırbağ, 2007: 132. 143 Beyırbağ, 2007: 133. 138 The Aleppo branch is currently closed. 144 Beyırbağ, 2007: 162. 116 • The first turning point came in 1989 with the es- employment of 100,000 workers146. A new wave of GSO tablishment of GSO, which split away from GTSO. projects was launched, including ‘Active Industries’ A group of industrialists within GTSO resolved that (2000) which reconfigured GSO’s structure to include their needs were not being met by the joint organiza- member representation and business counseling; the tion, and broke away from it. GTSO then became simply Export Campaign (2001) which aimed to increase GTO. The new GSO began representing larger enterpris- exports of SMEs through research and mentorship; and es, boosted by the application of state incentives and the Quality Campaign (2003) which provided training credits, and was oriented to regional export markets as on ISO 9000 certification. More recently, projects have well as national markets (linking with industrial firms included Smart Industries (2009), promoting quality, in Denizli, for example) plus international markets branding, R&D, and innovation. (especially the European Union). During the 1990s, GSO focused on executing its legally designated functions, with the gradual addition of collective services. The Meanwhile, GTO has also changed over time, espe- legal functions included a responsibility for processing cially in becoming more professional and providing paperwork for certain legal permits, the registration of collective services. GTO was the first Chamber in Turkey firms, and record-keeping on behalf of the state. The to hire staff via an entrance exam, externally supervised by collective services included the establishment of contacts Gaziantep University. GTO’s annual information booklets with international organizations (including the German are of a higher quality and more frequently updated than the Technological Collaboration Organization, GTZ) and local branch of the Ministry of Trade and Industry. In 2003, professional consultancy firms. GTO moved into a large modern building designed to serve not only as its headquarters but also to host social and cultur- • The second turning point came around 1998, as al activities in Gaziantep147. GSO broadened its focus from legal functions to become a service institution relying on knowl- It could be observed that GSO and GTO are in a kind edge and qualified experts. These changes were of “friendly” competition, given the overlap in their prompted by a study and report produced by GTZ, which activities. For example, GTO is nominally oriented towards was commissioned by GSO. GTZ already ranked GSO commerce, but also provides industry information and as one of the four top chambers in Turkey in terms of appraisal services on property and machinery. And GSO is effectiveness, organizational efficiency, and political nominally oriented towards industry, but also provides infor- influence. GTZ argued that GSO should prioritize mem- mation on legal practices and procedures relating to foreign ber-oriented services rather than lobbying services, and trade. This duplication and overlap may have contributed to should focus also on coalition building with key local the improvement of organizational and professional compe- actors. tencies of both chambers. The GTZ report also advised on GSO’s relations One final salient characteristic of GSO and GTO has with other organization in Gaziantep. It recom- been their institutional continuity. GSO’s current mended that “GSO, to increase its influence, is not to Secretary General in 2014 has been in his position since the isolate itself from others but to collaborate with them. founding of GSO in 1989. The current President of GSO is GSO should try to establish dialogue and should try one of only four Presidents since 1989 (which also included to create a consensus by working with other social his father). Since 1989 there have been only three Presidents groups and institutions to come up with a medium term of GTO (one of whom was President for 22 years), and one reform program which will be attractive to most of the President of the Exporters’ Association. This continuity constituency. [It] should be honest with the people. [It] marks a contrast with GTSOs in neighboring cities—for should stay in dialogue with MPs and party leaders, and example in Urfa, where management apparently changes improvement of its position should be maintained with- frequently, and thus involves a frequent “reinventing of the out prioritizing any party. ... GSO, to be able to be more wheel”148. This continuity could of course have led to intran- influential in the TOBB, has to enter into collaboration sigent or turgid organizations; but given the external changes with other chambers of industry, [and] should concen- and pressures on GTO and GSO described above, it seems trate on issues of strategic importance”145. In essence, instead to have led to longer-term initiatives focused on ben- GTZ advocated that GSO should build a growth coalition efitting many firms rather than distributing personal favors. in Gaziantep formed from multiple actors. Indeed, GSO’s current President in fact also heads one of Tur- GSO encapsulated this new approach in a Vision docu- 146 Interview with Adil Sani Konukoğlu, President of GSO, Septem- ment that it formulated in 1998, which set its objectives ber 2014. (and ambitious objectives for Gaziantep more widely) 147 According to Mesut Ölçal, head of the GTO since 1984: “GTO works as the elder brother of the civil society organizations in Gaziantep, to be achieved by 2005. These included the objective of ahead of them, showing them the way, transferring to them information reaching US$3 billion in exports by 2005, and formal and knowledge, sometimes solving the problems that such organizations cannot solve by themselves.” – Beyırbağ, 2007: 171. 148 Interview with Kürşat Göncü, Secretary General of GSO, August 145 GTZ, 1998 translated in Beyırbağ, 2007: 164. 2014. 117 key’s largest firms (Sanko Holdings), and is part of a dynastic tional institutions around the world, and often hosts visiting business family; he has in essence acted as a “champion” for faculty. Many courses are completely taught in English (e.g. firms in Gaziantep. engineering, architecture, medicine), enabling students to better integrate into the global economy. There are some Other sectoral or professional organizations have 2,000 students from more than 80 countries studying there, also contributed to Gaziantep’s economic success, and more recently there has been an influx of Syrians, both though it is difficult to assess the magnitude of those students and faculty; GU tries to help them and integrate contributions. They include: Syrian scholars into its own teaching programs. It also pro- vides psychological counselling, art therapy, and other social • Gaziantep Development Foundation (Gazinatep services to Syrians living in refugee camps. Geliştirme Vakfı – GAGEV) In line with Gaziantep University’s decision to prior- • Southeastern Anatolian Exporters Association (Güney- itize the development of industry-academia linkages, doğu Anadolu İhracatçi Birlikleri – GAIB) a technology transfer office (TargeT) and a technolo- gy park (TeknoPark) have been established adjacent • Chamber of Shoe Manufacturers to its campus. Early efforts in the 1980s and 1990s to foster collaboration between private industry and the Uni- • Other sectoral Associations? versity were not successful, as there did not seem to be either capacity or commitment to the process. Turkish laws in the Gaziantep University (GU) and Technology 1980s strongly emphasized fundamental rather than applied Commercialization research, but more recently the pendulum has been swinging Originally established in 1973 as an extension of in the opposite direction. Ankara’s Middle East Technical University (METU), The Gaziantep University Technology Development Gaziantep University became independent in 1987. Zone (Gaziantep Üniversitesi Teknoloji Geliştirme METU had reportedly been attracted by Gaziantep’s repu- Bölgesi Kurucu ve İşletici – TeknoPark) was estab- tation for entrepreneurial dynamism, and saw it as a good lished in 2008 with a €7 million grant from the European location for its satellite branch, something it didn’t set up Union, along with GTO, GSO, and Gaziantep Metropolitan often outside of Ankara. More recently, Gaziantep University Municipality as minority shareholders. This science and has seen dramatic growth in student intake, now up to about technology park focuses on commercializing technologies 9,000 annually; its total student body exceeds 40,000, mak- developed at Gaziantep University (especially its Faculties of ing it one of the largest academic institutions in the country. Engineering and Medicine). Key focus areas include electrical and mechanical engineering, information technology, soft- GU is trying to step up its engagement with the ware, design, consulting, biotechnology and medicine (orlgan local community, especially private industry. Turkish transplants, pedagogic illnesses, pharmacology, personalized universities have traditionally not been very open to the medicine), food, machinery, and textiles. Stated targets for community – the current Rector calls it a “glass wall between the next five years: industry and academia” 149. Since taking over six years ago, he has made it a priority to address this, especially in terms of • Establishment or attraction of more than 200 qualified sharing knowledge generated at GU with the public. Univer- companies sity researchers used to expect the business community to come to them if needing new solutions or technologies, but • Employment of over 4000 qualified R&D and software now there is an emphasis on building partnerships – often development staff “over a cup of tea”. Some scholars already have very active R&D relationships with businesses, and they are the ones • Development of advanced technologies with a value most involved in technology transfer. With “social sensitivi- added of more than USD1 billion ty” training for its students already in place, GU is currently implementing over 300 projects in partnership with public • will provide benefits beyond import substitution exports agencies, private for-profit firms, or NGOs. Mutually benefi- of cial engagement is further fostered through internships and “business counsellors” for students, as well as industry input • Contribution to increase exports or reduced imports into curricula design. Finally, GU is represented on the city with an annual value of more than USD100 million council, and works with KOSGEB to evaluate SMEs’ applica- An ongoing debate at GU has been whether Te- tions for support programs. knoPark should focus on assisting existing business- es, or starting new ones? A consensus seems to be emerg- The University has prioritized developing interna- ing that it should probably try to do both. TeknoPark often tional ties. It has relationships with many leading educa- deals with old-school Gaziantep manufacturing firms, who don’t know how to do R&D, or even to assess their needs. 149 Interview with Prof. Dr. Mehmet Yavuz Çoşkun, Rector of Traditionally, there has been no intermediary in Gaziantep Gaziantep University, August 2014. 118 to facilitate this interaction. However, with the younger Organized Industrial Zones (OIZs) generation of managers educated abroad taking over, this is gradually improving. More than 100,000 workers are employed in Gazian- tep’s Organized Industrial Zones. The OIZs cover a land GU’s Technology Transfer Office (Gaziantep Üniver- area of 43 square kilometers, and are located 15 kilometers sitesi Teknoloji Transfer Ofisi – TargeT) was estab- north-west of the city. The OIZs host approximately 1,060 lished in 2013, after a lengthy consultative process firms; and when the most recent OIZ was recently built, it between GU and business leaders, in particular the was oversubscribed with applications from around 1,500 two Chambers, which culminated in a strategy paper. firms for new plots. A summary of the main features of Ga- Financial support came from Turkey’s national scientific ziantep’s five OIZs is shown in Table 1 below. agency, TUBITAK, which provided a recurring YTL1 million per year grant, for ten fiscal years, as part of its national Have OIZs been a cause or symptom of Gaziantep’s technology support targets for the universities. Its main areas economic success? OIZs have grown in size and number of activity include: as Gaziantep’s firms have grown. Have OIZs actually helped those firms to grow? The table below summarizes the factors • Raising awareness about technology development that make it easier for firms to do business. • Office of Sponsored Research OIZs provide an enabling environment for Gaziantep’s industrial enterprises • Fostering industry-university collaboration How have some of the usual pitfalls of industrial • Management of intellectual property (patent application zones been avoided in Gaziantep? We highlight here and protection) two main characteristics: close private sector involvement (to configure the Zones relevantly); and land regulations to • Technology commercialization and entrepreneurship incentivize production (and mitigate the risk of speculation). On the whole, Gaziantep University has primarily (a) OIZs are formed in response to, and in collaboration helped the city’s past economic success through the with, local private sector firms education and training of successive generations of graduates, but much less so through the development One of the distinctive features of OIZs in Gaziantep of new technologies transferred and successfully is the way in which the Zones have been configured to commercialized by local industry. However, as the level cater towards emerging industry needs. This could be of engagement continues to increase and industry-academia one of the key features that differentiates OIZs in Gaziantep linkages deepen, GU and its affiliates can be expected to pro- from less successful Zones in Turkey and elsewhere in the vide a more significant contribution to Gaziantep’s transition world. In particular: to a knowledge-intensive economy. Both TeknoPark and TargeT will be important facilitators in this process. • The first OIZ (1969) was opened in the first wave of OIZs in Turkey, and was relatively generic in nature. • The second OIZ (1987) was established to meet demand from scattered small-scale enterprises across the city. It comprises relatively small parcels, and served the purpose of formalizing the SMEs and facilitating those firms to upgrade their operations150. Table 1: Gaziantep’s OIZs have evolved and become ever larger and more popular 1st OIZ 2nd OIZ 3rd OIZ 4th OIZ 5th OIZ 6th OIZ Under Year founded 1969 1987 1994 1998 2012 preparation Total area (m2) 2.1 million 4.5 million 5.4 million 11.7 million 19.3 million 40 million Number of firms 147 274 270 109 373 t.b.d. [Not yet Forecasted Employment 22,000 36,000 34,000 28,000 completed] 50,000 Electricity consumption [Not yet 38.5 million 87 million 117 million 57.5 million t.b.d. (Kwh per month) completed] 150 This information was gathered from the current General Direc- tor of the OIZs. 119 Five existing OIZs cover a large land area to the north-west of the city; a sixth OIZ will be built 35 kilometers to the south of the city. 120 • The third OIZ (1994) was rather similar in nature to the who apply. Once the OIZ has at least two-thirds of its mem- second, though with slightly larger land parcels and a bers with a construction certification, the Municipality and larger total area. Governor’s Office drop off the Management Board of the OIZ, and the Board is drawn from the OIZ firms themselves151. • The fourth OIZ (1998) responded to the impressive This process is arguably better than the state-led process progress made by carpet-making firms, and was specially observed in some other countries, where the configuration of configured to host those carpet-making firms plus small- Zones is prescribed by government sometimes without much er firms producing related products and intermediate interaction with target firms. However, on paper, this process goods for carpet-makers. is the same as the process for all OIZs in Turkey—so presum- • The fifth OIZ (construction began in 2013) will combine ably the structure of OIZs in Gaziantep cannot be claimed to space for large firms with additional plots for smaller account for their success. firms who remain in other areas of the city. (b) Land regulations are configured to incentivize production • The sixth OIZ (now being planned) will be as large as all the previous Zones put together, but will be located 35 Land regulations are configured to ensure that land kilometers away from Gaziantep to the south. Pur- is used for production rather than for speculation. portedly this is partly because of a shortage of land in Title deeds are issued in return for a fee, but are transferred Gaziantep (though we could not confirm this, given the to the owner only once the enterprises enter operation. The large areas of open land close to the city), and also to OIZ reserves a right to reclaim the land if the firm fails to facilitate more convenient transportation from the OIZ enter production in a specified time period. to the newly renovated port in Hatay. A settlement zone for 50,000 is also being planned next to the OIZ. Further, in order to reduce barriers to ownership, OIZ land can be purchased in instalments over the OIZs appear to have been configured successfully course of 5-10 years. For example, a carpet-making firm owing to a close interaction between the GSO, Munic- purchased 10,000 m2 of land at US$ 55 per square meter. It ipality and the Governor’s office during their forma- paid 30 percent of the price upfront, and is now scheduled tion. GSO initiates the process, and a special Provincial legal to pay the remaining 70 percent over the next four years in entity is established (sometimes called the Special Provincial installments every three months. Entity, which is the responsibility of the Governor’s office. The SPE buys land either from private owners or Treasury, parcels up the land, and allocates the parcels to those firms 151 In the case of Gaziantep, where the GSO and GTO are separate, the GTO is also a member of the Management Board. Benefits to firms How Industrially-serviced land Plots and premises (priced at approximately US$55 per m2). Plots are serviced with electricity connections, wastewater treatment (removing Serviced infrastructure the need for firms to invest in preliminary treatment themselves), and connec- tions to the natural gas grid. One-stop service centers located in the OIZs (for paperwork connected with Business enabling environment water supply, electricity, asphalting roads, etc) Clustering of firms in OIZs. Knowledge spillovers (For example, the 4th OIZ consists almost completely of carpet manufacturers) Firms making repeat investments benefit from interest subsidies, VAT reduc- Lower costs for repeat investments tions, and customs tax support. 121 Analysis -- Although not particularly consistent or targeted, the Turkish government’s regional development policies have helped Gaziantep, through initiatives Factors of Competitiveness such as GAP, Turquality, small business and export promotion programs, and infrastructure upgrades Gaziantep has enjoyed the economic suc- strengthening the city’s commercial access to mar- cess it has for a variety of reasons. There were kets. clearly some things the city did right, while in other -- Turkey’s economic liberalization, move away from instances it benefitted from external factors favor- import substitution, and the lowering of trade bar- ing its growth, but over which it may have had little riers (including through free trade agreements and or no direct influence. Accordingly, these exogenous the customs union with the EU) has benefitted cities success factors are separated out into a distinct like Gaziantep, with high concentrations of produc- category. ers/exporters. Factor 1: Exogenous Factors • EU Pre-Accession Funding and Support: In addi- tion to duty-free access for Turkish goods since 1996, Gaziantep’s success has in no small measure the European Union has provided a range of support been enabled by developments which it could programs and tools to Gaziantep institutions as part of do little to affect directly, including national Turkey’s preparations for eventual EU membership. For trends and policies, geopolitics, and its historic example, Gaziantep University’s Technology Transfer legacy. However, the city did skillfully capitalize on Office was set up with EU funds; in the early 2000s, an some of these to improve its own prosperity. EU-Turkey Business Development Center was established • Geography and History: Gaziantep has traditionally in collaboration with the Gaziantep Chamber of Com- been a gateway city, located at the crossroads of regional merce (GTO), providing consultancy and training for commerce – a multicultural, multilingual place where local SMEs; and Gaziantep was one of three pilot regions people come to do business with one another. Antepians for the EU’s Small Enterprise Loan Program (SELP), later have leveraged this endowment by forging closer links expanded to 49 provinces throughout the country. These with counterparts in other countries, strengthening oth- and similar EU initiatives have helped local economic er aspects of internationalization like sister city partner- development through capacity-building and the provi- ships and educational exchange, and lobbying Ankara for sion of funding. better transportation links that aid commerce. Although • Geopolitical Developments: More so than many other many other Turkish border cities enjoy similar advan- Turkish cities, Gaziantep is directly affected by what hap- tages (e.g. Antakya, Urfa), they have not been nearly as pens in the highly unstable Middle East. In addition to successful as Gaziantep in leveraging them to further its location close to the Syrian border, its trade patterns economic growth. are heavily oriented towards that region, rather than • National Trends and Policies: Numerous individual Europe as is the case with western Turkey. Armed con- developments and trends come into play, but a few stand flict in Iraq and Syria, in particular, affected Gaziantep’s out in terms of impact: exporters, as these are their largest markets. Yet Ante- pians excel at finding opportunities even in adversity, -- The strong performance of Turkey’s broader econ- managing to continue trading with various parties even omy over the past decade has created a macroeco- as the region descended into violence and disorder152. nomic environment conducive to company growth. Gaziantep is also the principal staging post for interna- tional relief efforts in the region, serving as a base for aid -- Turkey has very high rental-to-homeownership workers, journalists, etc., benefiting the local economy. ratios, enabling high labor mobility; not being tied down by a home that has to be sold makes it easier for citizens to move elsewhere in search of security or economic opportunities. -- Decades of unrest and violence in Turkey’s southeast 152 For example, as part of the compensation to neighboring coun- tries for the international sanctions against Iraq in the 1990s, Gaziantep have precipitated an exodus of people westward. was able to get funding and equipment (pipes) from South Korea, used Gaziantep is the first sizeable “safe” city on their to upgrade its own municipal infrastructure, according to former Mayor way, and many have chosen to settle there. This has Dogan who arranged it. After the fall of Saddam Hussein, the Gaziantep greatly increased the city’s population and labor Chamber of Commerce (GTO) set up a representative office in the capital of pool, but also brought in entrepreneurs with ideas Iraqi Kurdistan, Erbil, to facilitate bilateral commercial exchange and par- ticipate in the reconstruction boom in that entity. And even as violence has and capital to invest. escalated in neighboring Syria, Gaziantep firms have continued to export food, consumer products, spare parts, and basic necessities to all sides in that conflict. 122 Factor 2: Favorable Business Environment a massive tunneling and road-building project that will shorten the trip by about a hundred miles, or 160 km. Over the past quarter century or so, Gaziantep’s political and business leaders have made improving • Labor: Although Gaziantep’s human capital is below na- the city’s business environment a top priority. The tional levels, local firms do have at their disposal a large business environment (cost/quality tradeoffs and regulation) pool of appropriately skilled light manufacturing work- has a direct bearing on companies’ bottom-line profitability, ers. Rapid population growth also means that the labor and for Gaziantep’s firms this has been an important factor force continues to expand. In the recent past, Gaziantep in enabling them to grow. Since the late 1980s, the city’s busi- firms have primarily raised output by throwing more ness environment has progressively become more conducive labor and machinery into production; the transition to a to company investment and growth. Led by a self-described knowledge economy has barely begun, and as it gathers “free market socialist” Mayor, Celal Dogan, the Metropol- momentum human resource constraints may become an itan administration prioritized the provision of enabling impediment. For the time being, however, there is plenty infrastructure, quality of life issues, simplified regulatory of available labor to meet local production needs, and it and bureaucratic procedures, and enacted other measures is cheap. to encourage local firms to produce, export, and create jobs. Specific business environment characteristics playing a role Factor 3: Conducive Social Environment in Gaziantep’s robust economic performance include: Gaziantep’s economic development has benefitted • Cost-Competitive Business Location: Gaziantep from the city’s strong sense of local identity, toler- has “Anatolian” (i.e. relatively low) production costs, ance of diversity, and entrepreneurial culture. Com- including wage levels significantly lower than in western panies do not operate in a vacuum from the rest of society. Turkey153. Where a firm is founded and expands can decisively shape its corporate culture, outlook, market performance, and work • Land Availability: Although local land prices have in- practices. In Gaziantep’s case, the cultural milieu has been creased substantially in recent years, there is still ample particularly conducive to business growth, drawing on high availability of inexpensive industrially-serviced land, local levels of social capital. Some characteristics: especially in the Organized Industrial Zones, at much lower cost than in western Turkey. • Strong Identity: Gaziantep is a city with a distinctive identity (“micro-level nationalism”) within the broader • Regulatory Environment: Turkey as a whole has made Turkish nation, a strong local culture, and shared sense significant improvements in recent years to streamline of community155. These have been effectively leveraged its administrative procedures for business. Gaziantep’s for the benefit of local businesses. leaders too are well aware of the need for a simple, pre- dictable regulatory environment, and have instituted a • Social Inclusion: Gaziantep’s multicultural society is less bureaucratic one-stop administrative process in the generally tolerant and welcoming towards newcomers. OIZs (expedited permitting/one-stop service centers, a People from almost anywhere can reportedly become streamlined and efficient private-sector regime). accepted as Antepians if they adopt the local values, traditions, and sense of belonging to the community156. • Adequate Physical Infrastructure: Gaziantep Many Antepians actually have relatives in neighboring currently has four operational OIZs, a fifth one under countries. construction, and a sixth one – larger in surface than the previous five combined – in planning stages154. The • Traditional: This is a highly conservative society, with OIZs offer energy (electricity and natural gas), advanced exceptionally strong family ties, and remnants of feudal wastewater treatment facilities, as well as the clustering social structures and relationships157. Together with the of similar firms. Local firms also enjoy easy access to residents of other “Anatolian Tiger” cities, Antepians are domestic and international markets, with further up- grades under way. The city’s airport now handles nearly 155 Some of the statements on this topic heard by the Bank mission include “Antepians eventually come home wherever they may go.” and “Peo- two million passengers per year, nearly a tenth of them ple of Gaziantep think with one mind.”. international, and close to 21 million tons of air cargo. 156 The absence of armed conflict or terrorist activity has attracted Gaziantep is one of the few cities in southeastern Turkey numerous low-skilled workers from farther east, fleeing political instability with direct rail service to the OIZs. And highway access and violence, but also entrepreneurial capital seeking safety. More recently, to maritime ports in Hatay is being improved through the war just across the border in Syria has resulted in some 300,000 refu- gees coming to Gaziantep; most of them do not live in camps, but are being integrated into Turkish society. 157 For example, companies often treat their employees more 153 Average wage rates for workers and engineers in Gaziantep are as family (e.g. giving them financial assistance when they marry, have $590/month and $850/month, respectively. children, etc.) than as hired hands. Firms therefore enjoy high employee 154 Located in Polateli, some 35 km south of Gaziantep, on the loyalty and exceptionally low turnover rates – a worker may spend an entire border with Kilis Province. Significantly, the newest OIZ will be only about working lifetime in just one firm. More recently, there has been increased a hundred kilometers from the Mediterranean port of Dörtyol in Hatay competition for the best workers, and talent poaching among competing Province, also being upgraded at present. employers. 123 sometimes referred to as the “Islamic Calvinists” given Much of the interaction among key economic develop- their focus on hard work, savings, and still underdevel- ment actors in Gaziantep takes place through infor- oped consumerism. mal channels, as business leaders, industry associations, and government officials all generally know one another, and • Entrepreneurial Culture: Gaziantep residents are successful outcomes largely depend on their inter-personal recognized throughout Turkey as practical, hardworking, relationships and ability to work together. entrepreneurial, results-focused, and risk takers. The city enjoys a reputation as a “place that gets things done”. The Gaziantep City Council provides an institutional Traditionally self-reliant and without any SOEs to pro- framework for this engagement, as the de-facto citywide vide employment, Antepians also differ from the rest of parliament where the most important issues are discussed. Turkish society in being much less ken on public-sector The City Council has an influential but purely advisory role. jobs; from an early age, parents instill in their children Its assembly has over 300 members, 80% of whom from the the virtues of entrepreneurship and profit-seeking, private sector or NGOs, and just 20% from government agen- rather than bureaucratic stability. Perhaps uncoinciden- cies. The City Council has several thematic working groups tally, recent financial data reveal that Gaziantep has which periodically issue recommendations, some of which the highest rates of indebtedness relative to household pertain to economic development. income than any other metropolitan area in the country. This willingness to venture into the unknown is one of Business leaders tend to be highly engaged in local the defining traits of Gaziantep’s business culture, and issues, and often band together to lobby the national certainly one enabler of economic success. government. Collectively, Gaziantep’s business and elected leaders have been able to leverage their political influence in Factor 4: Stakeholder Engagement (Public-Private Ankara, acting as champions for the city and securing central Dialogue) government support for economic development priorities. Gaziantep has been much more successful than other Factor 5: Regional Hub comparable Turkish cities in fostering substantive collaboration between government, the private Gaziantep has emerged as a regional hub in recent sector, academia, and other segments of civil so- years, being the main base for various business ciety, and translating this into tangible economic and policy initiatives in Southeastern Turkey. It has outcomes. The city has a permanent growth coalition which overtaken rival Anatolian cities to assume this role, and now brings together the main local actors in economic develop- hosts the regional offices of various national and internation- ment, who discuss issues, develop and implement strategies, al organizations, consular offices, donors and relief agen- and act as Gaziantep’s champions. This is enabled by an cies, international fairs and buyers’ expos, as well as one of exceptionally well-developed private sector, whose for-profit Turkey’s largest universities with thousands of international firms compete fiercely with one another for specific com- students and faculty. Higher value-added activities (such as mercial opportunities, yet also maintain the ability to come the commodities exchange, or the headquarters of large hold- together on matters of common interest to their industry, or ing companies) are now concentrated in Gaziantep, providing to the city as a whole. not just jobs but jobs of an increasing skill level and sophisti- cation. From trade and logistics to healthcare and education, Stakeholder engagement (or Public-Private Dialogue – PPD) Gaziantep is rapidly emerging as the de facto business capital in Gaziantep has been observed in two principal forms: of Southeastern Turkey. • Direct: This occurs primarily at the individual indus- Being a regional hub confers some natural economic try level, and includes the provision of entrepreneurial advantages. Once a critical mass of population, economic assistance and training, peer learning and knowledge exchange networks, technology upgradation schemes, product testing facilities, trade fairs, trade development missions, direct business recruitment, marketing assis- tance, client development, and capital access. • Indirect: In areas where public-sector support may be needed, Gaziantep’s growth coalition seeks to influence public policy and bring about particular interventions, e.g. by lobbying for infrastructure investments, export assistance, regulatory and business climate improve- ments, skills development, capital access, and other support program. All four dimensions of the so-called “PPD Diamond” are well represented in Gaziantep: 124 activity, and amenities is reached, regional centers tend to over the world, from Atlanta and Denver in the United States, further siphon off activities from rival cities, and assume a to Perth in Western Australia or Auckland in New Zealand. more prominent ranking in the national hierarchy of cities. Gaziantep now appears to have “arrived” in that respect, and As centers of economic opportunity, they attract ever more is cementing its status as the largest, safest, best connected, migration, as has indeed been the case over the past couple of and economically most prosperous city in its part of Turkey. decades in particular. Being the “natural” site for many kinds This also helps place branding, with increased name recogni- of activities feeds on itself, over time cementing the hub’s tion and international profile. lead over other cities in the region. Examples abound from all 125 Lessons for Other Cities be more important than producing formal documents; indeed, meaningful results can be achieved by working together informally and utilizing stakeholders’ external Gaziantep holds valuable lessons for other cities influence and relationship capital. around the world seeking to grow their economies and create jobs. The ultimate purpose of these qualitative case 4. Make internationalization an integral part of studies is to understand what a city did well, how they did it, the city’s economic development strategy, formal and which lessons might be replicable elsewhere. While every or not. An orientation towards international markets, city’s circumstances are to some extent unique, Gaziantep’s ex- tolerance of ethnic and linguistic diversity, and building perience provides an example of what can be done (regardless bridges across borders can really make a difference to a of who actually does it) to boost a city’s economic competitive- city’s economy. Leveraging historical, cultural, and family ness and outcomes. ties abroad is an obvious – but often overlooked – way to do this. As a border city, Gaziantep welcomes foreigners, Key lessons for other cities from Gaziantep’s experience: reinforces existing international ties, and establishes new ones. Gaziantep’s exporters would not have been nearly 1. Capitalize on endowments for economic success: as successful without such ties in Syria and Iraq, for Gaziantep provides an example of successfully capital- example, which remain their top markets even amid the izing on its endowments (geography, history, culture) to current turmoil. enhance its economic growth and prosperity. As Ga- ziantep shows, endowments are not destiny: success is 5. Leverage national support programs. National possible even with very modest endowments. Every city governments often institute incentives schemes and other has something going for it which can be used to advance forms of assistance to businesses – whether they be finan- its development. The key is to understand the city’s com- cial, technical, market access, infrastructure, or whatever petitive assets, however modest they may be, then with – that can make an important difference to a city’s eco- whatever the city has to enhance prosperity. Gaziantep nomic outcomes. Gaziantep’s firms have taken advantage didn’t have much, but it made the most of it, and other of such help whenever the opportunity arose, led by its cities can as well. highly skilled and sophisticated business chambers and industry associations – who not only raise awareness of 2. Never neglect the importance of having a business support programs, but also assist companies in accessing environment conducive to growth. Constant im- them. The city has also successfully implemented projects provements to the local business environment, however financed from a variety of sources, including international incremental, are an important enabler of long-term eco- ones like the European Union’s accession funding. nomic performance. Improving the business environment is therefore an economic development imperative. Unless 6. Encourage the development of a local identity and you are a business location with seemingly unassailable brand, and make an effort to act in concert when advantages (e.g. Silicon Valley, Wall Street), you need to advocating on behalf of the city. This is perhaps also compete on “mundane” factors like cost and regula- toughest to achieve intentionally, as not every city has tion. Since the 1980s, Turkey as a whole has come a long as distinctive a local culture or sense of shared identity way from having a closed system with rigid regulations as Gaziantep does. However, it is still important to build and labor rules to a much more liberal, outward-looking awareness of what a city stands for, and how it wants to economy eagerly tapping into global opportunities. For its be perceived. This is beneficial for its ability to influence part, Gaziantep went beyond national policies in trying outsiders such as the national government, while also to create a enabling environment for local firms to thrive being good for business. Gaziantep’s political and business and expand. A city cannot easily change national rules, leaders have managed to find ways to set aside mutual but should act to improve those within its own remit. differences and present a unified voice when advocating on behalf of the city – whether in Ankara, or when trying 3. Mobilize economic development stakeholders to to drum up international business opportunities. A con- support the city’s prosperity by forming a growth scious initiative to develop a “Made in Gaziantep” brand coalition. In any city with a reasonably developed has won international recognition and awards, so that for-profit sector, and where the legal and political frame- nowadays the city has emerged as a well-known leader in work allows it, the role of the private-sector actors can be areas like carpet production, select kinds of foods, and its critical. Enlisting the involvement of for-profit firms, but rich cultural heritage. also other vital stakeholders like universities, chambers of commerce, industry associations, and other elements of In sum: know who you are as a city, and how you’d like civil society, can provide tremendous impetus to a city’s the world to perceive you. While every city has different economic development. Gaziantep demonstrates the val- circumstances and combinations of competitive strengths and ue of building an effective growth coalition to champion weaknesses, ultimately it is important to have a clear under- economic development and advance the city’s prosperity, standing of who you are and what your value proposition is as a with industrialists and other businesspeople. successfully location, both on the national and international stage. acting in concert other stakeholders. In this, process can 126 Appendices Basic Economic Data Select Gaziantep General Indicators Indicator Value Year Total population, Gaziantep Province 1,844,438 2013 Total population, Gaziantep Metropolitan Municipality 1,844,438 2013 Illiteracy rate, population aged 6+ 4.74% 2012 Population with a higher education, aged 15+ (college/license/master/PhD) 7.5% 2012 Labor Force Participation Rate 45,4 2010 Unemployment Rate 13,4 2010 Number of manufacturing establishments 2,420 2013 Patent applications 120 2012 Patent approvals 7 2012 Total foreign trade, USD billion 10.6 2012 Total exports, USD 6.5 2012 Number of exporting firms 1,270 2012 Drinking S ol id Sewerage Water Waste Population coverage by municipal services, 2010 70 97 100 Source: TUIK 127 Municipalities in Gaziantep Province Adıyaman Province Gaziantep Hatay Province Kilis Province SYRIA Selected Gaziantep Tourism Indicators 2010 2011 2012 Total Number of Visitors to Gaziantep, of which: 349,969 449,098 555,632 Domestic 299,444 377,098 454,389 Foreign 50,525 72,574 101,243 Total Number of Overnight Stays, of which: 531,518 681,53 831,665 Domestic 446,780 562,127 665,006 Foreign 84,738 119,403 166,659 Source: TUIK 128 Industrial Structure of Gaziantep’s educational attainment of the workforce is below the Turkish Economy average. However, there appears to be increasing awareness among businesspeople, particularly the younger generation The number of companies from Gaziantep included on the now taking over the reins at many family-owned firms, of the Istanbul Chamber of Commerce’s Top 1000 Companies in need to innovate in existing product segments (e.g. develop- Turkey list increased from 31 in 2008 to 50 in 2012. The city’s ing stain-resistant and flame-retardant carpet fabrics), as well economic structure is fairly well-balanced between modern as to move into entirely new industries (e.g. solar panels). and traditional industries, but manufacturing undoubtedly forms the mainstay of Gaziantep’s contemporary economy. Emerging sectors include tourism, logistics, healthcare, and education (as tradable services). With the steady growth of its Key manufacturing industries include carpets, textiles, tourism sector, Gaziantep has attracted investment in hotels, garments, footwear, construction materials, food, mechani- restaurants, retail and other tourist infrastructure, as well as cal & industrial goods, chemicals, plastics & packaging, and traditional artisanal craft workshops producing copper, leath- automotive parts. Textile production still has a substantial er, and other products. Overall, there is “full employment”: presence in the local economy, but has declined in relative despite the massive influx of new residents, firms are mainly importance in recent years. Most manufacturing is not in grappling with a shortage of workers. knowledge-based or R&D-intensive industries, and formal Distribution of Gaziantep Firms by Size, 2013 Number of Employees % of All Firms Less than 10 56 Less than 50 32 Less than 250 10 More than 250 2 Sectoral Distribution of Firms in Gaziantep’s Organized Industrial Zones Sector % of All Firms Textiles 45 Food 25 Plastics 7 Electronics 8 Other 15 Gaziantep’s Share of Turkey’s Total Production Capacity Gaziantep as % of Product National Total Machine-made carpets 94 Leather slippers with rubber soles 93 Polypropylene yarn 92 Non-woven fabric 80 Carpet tufting 68 Acrylic yarn 65 Fancy yarn 58 Plastic slippers with rubber or plastic soles 50 Chocolate cocoa products 50 Cotton yarn 46 Semolina 56 Sweaters and pullovers made from artificial fibers 45 Sacks and bags 44 Nuts (pistachios, walnuts, chickpeas, almonds) 30 Polyethylene bags 19 Women’s leather shoes 12 Men’s leather shoes 12 129 Air Cargo Handled at Gaziantep Airport, Metric Tons  Interna- Year Domestic Total tional 2008 5,420 2,592 8,012 2010 9,838 2,123 11,961 2012 13,133 3,674 16,807 Source of all data in tables: TUIK Foreign Direct Investment in Gaziantep A total of 256 companies with foreign origin are operating in Gaziantep, according to GTO: Source: Gaziantep Chamber of Commerce (Gaziantep Ticaret Odası – GTO) 130 International Trade The number of companies from Gaziantep in TİM (Turkish Exporters’ Union) Top 1000 Exporters List increased by near- Gaziantep’s economic engine is largely export-driven: $6.2 ly one half between 2008 and 2012, to 71. There are a total billion was exported in 2013, representing a tenfold increase of 1,270 companies with documented export sales, as well as from just $620 million in 2002. Gaziantep companies export 172 importing companies. to 164 destination countries, with a strong concentration on markets in the Middle East, particularly Iraq and Syria158. In A modern fair center was built in 2007, with an enclosed fact, Gaziantep alone accounted for a fifth of Turkey’s total 15,000m2 exhibition area, plus 90,000m2 of open-air exhibi- trade with Iraq, which accounted for more than a third of the tion space. In 2013, there were 14 fairs from various sectors city’s total worldwide exports. organized. Selected Trade Statistics Gaziantep’s Foreign Trade 2009-13, US$ Millions Exports by Province, 2013 2009 2010 2011 2012 2013 Rank Province US$ Millions Exports 3,260 3,888 4,929 5,879 6,473 1 Istanbul 63,800 Imports 2,126 3,430 4,782 5,054 6,658 Total Trade 5,386 7,318 9,711 10,933 13,131 2 Bursa 12,856 Source: Gaziantep Chamber of Commerce (GTO) 3 Kocaeli 12,725 Gaziantep’s Top Export Destinations (in US$ Millions) 4 Izmir 8,917 5 Ankara 7,271 Rank Destination Market 2012 2013 % 6 Gaziantep 6,473 Change 7 Manisa 4,033 1 Iraq 2,372 2,330 -1.8 2 Saudi Arabia 302 301 -0.3 8 Denizli 3,083 3 Libya 204 281 37.7 9 Sakarya 2,240 4 Syria 54 278 411.3 10 Hatay 2,083 5 United States 212 231 9.0 6 United Kingdom 146 150 2.5 Source: Gaziantep Chamber of Commerce (GTO) 7 Germany 164 144 -12.4 8 Italy 96 137 42,4 Gaziantep Firms Among Turkey’s Top 1000 Exporters 9 Russia 124 119 -3.6 10 Africa 144 108 -24.6 Rank City 2008 2009 2010 2011 2012 % of Tur- key Total Source: Gaziantep Chamber of Commerce (GTO) in 2012 1 Istanbul 503 492 483 475 464 46.4 Gaziantep’s Top Export Products, 2013 2 Gaziantep 48 49 53 63 71 7.1 Product US$ Millions 3 Izmir 65 67 66 66 61 6.1 Cereals, Pulses and Oily Seed Products 1,581 4 Kocaeli 47 41 44 62 56 5.6 Machine-Made Carpet 1,497 5 Ankara 48 52 47 45 50 5.0 Textile and Raw Materials 1,075 6 Bursa 55 52 55 48 44 4.4 Chemical Products and Substances 716 7 Denizli 28 22 27 23 24 2.4 Forestry Products and Substances 716 Forestry Products 372 8 Adana 15 15 17 22 22 2.2 Steel 317 9 Manisa 18 20 20 14 20 2.0 Vegetable and Fruit Products 137 10 Kayseri 11 11 12 12 14 1.4 Machinery and Appliances 131 Source: Turkish Exporters’ Union (TIM) Ready-Wear Clothes 127 Leather and Leather Products 104 Source: Gaziantep Chamber of Commerce (GTO) 158 However, not all members of Gaziantep’s business community consider this to be as central or as permanent: “Syria is not that important to Turkey economically. The middle classes have less to spend, and the in- dustry is not that developed… Northern Iraq is where the real money is for Gaziantep. … Iraqi Kurdistan is industrializing rapidly and they are buying our goods to do so. … We are an industrial city now, so we primarily export to other industrial economies.” – academic and industrial interviewees in Gaziantep http://cjophillips.wordpress.com/2012/08/06/notes-from-tur- key-gaziantep/ 131 Testing of Standardized Research port for given industries, but no comprehensive formal Hypotheses strategy tying them into an integrated initiative.159 As noted in the report’s Introduction, this is the fourth in a Ingredients of success: series of case studies of economically successful cities around the world. In order to ensure comparability of “teachable mo- a. As an economically successful city, Gaziantep ments” across all case studies, a set of standardized research has one dominant theme: the spectacular hypotheses was tested in Gaziantep to determine the exact growth of its home-grown, largely family- scope for action at the metropolitan level, factors that may owned manufacturing firms, through a process have most affected how those prerogatives were used, and of organic cluster development. Predominantly the extent to which specific interventions (and how they were located inside OIZs and overwhelmingly implemented) may have resulted in the economic outcomes focused on exports, these manufacturers have observed. accounted for the lion’s share of employment growth over the past decade. The first hypothesis tested seeks to determine to what extent Gaziantep’s economic results were attributable to proactive- b. Gaziantep’s proactive economic development ly picking sectors to support, the second one looks at the efforts have been focused on helping the growth strategic planning process itself (if any) and how it may have of industries producing tradable goods and affected economic growth, and the third one looks at the services, including carpet manufacturing, plan’s implementation, if applicable. textiles, food processing, chemicals, plastics & packaging, and tourism. 1. Gaziantep’s economic success is partly attributable to key local actors having made strategic bets on c. In its proactive economic development specific industrial initiatives, rather than just activities, Gaziantep has not pursued an making improvements to its general investment integrated, three-pronged approach to climate in order to stimulate economic activity. business development: nurturing the growth National and local-level improvements to the business of existing firms, fostering the establishment climate have facilitated the achievement of superior of new start-up companies, and striving to economic outcomes, but proactive initiatives on the part attract new outside investment. The main of public-private growth coalitions are likely to account focus of support efforts has been on existing for at least part of Gaziantep’s success. local companies, who get assistance to locate in OIZs, expand production, upgrade and test Gaziantep has benefitted from an improving business technologies, and export. climate at the national level, including greater openness to external trade and investment, free trade with the 2. The likely trajectory of Gaziantep’s economic European Union and selected other trading partners, and performance was altered by specific policy improving connectivity (especially transport). At the lo- interventions, such as the establishment of OIZs, cal level, the municipal and provincial governments have but the city did and does not have a formal strategic focused on the provision of critical infrastructure like plan for economic development. However, private- roads, natural gas, and water & sewerage, reducing com- sector actors, or public-private coalitions of actors, panies’ operating costs and improving residents’ overall have in practice carried out many actions typically quality of life. The establishment and proliferation of found in such plans. Gaziantep has managed to outpace Organized Industrial Zones (OIZs), in particular, has its national economy even without creating an official been a crucial enabler of local company growth across strategic plan for economic development, at least prior to sectors and size bands. 2010. Its principal private-sector actors (the Chambers of Industry and Commerce, associations, for-profit firms In Gaziantep, proactive economic development initia- and high-profile individuals as champions) did not have tives have visibly contributed to the city’s economic a structured approach to economic development, but success. They were undertaken by private-sector associa- they did produce some internal strategy documents (e.g. tions (especially chambers) in collaboration with city and on how to reach specific export targets). They largely provincial government, often utilizing national support followed their commercial instinct and experience in tools and mechanisms. In the recent past, industry deciding on priorities, and engaged in a consultative targeting has occurred on a largely ad-hoc basis, usually process to set priorities. through the collaborative actions of the key local actors. There are various declarative documents pledging sup- 159 Starting in 2010, however, the Silk Road Development Agency has been set up to support the economic development of Gaziantep and two neighboring provinces through an integrated regional effort. Though this activity falls outside the timeframe of this analysis, it can be expected to make a measurable difference in the coming years. 132 Gaziantep’s economic development-related activities than 300 members, only 20% of whom from government have included: agencies, and the remaining 80% from the private sector or civil society at large. It has several thematic working a. Some analytics to guide decision-making and tactics groups issuing recommendations, some on economic (less so strategy formulation), based on a knowledge of development. There is a strong sense of common local global business trends and first-hand experience doing identity and shared purpose among members of the business abroad. These were carried out at the level of the business community in wanting to see their city advance Chambers or individual firms, rather than for the city as economically, and come together in pursuit of such a whole. However, they did result in de facto economic goals when needed, e.g. to lobby for improved transport development marketing, recruitment, and assistance infrastructure or the establishment of a new OIZ. for business expansion and exports. No structured or formal planning process was employed to: c. Strategic decision-making and prioritization: Gaziantep has utilized a somewhat structured process -- Identify key economic development issues facing for identifying and agreeing on policy priorities, Gaziantep, such as infrastructure deficiencies, rel- primarily within the chambers’ sectoral working groups atively low levels of human capital and innovation, and City Council’s thematic working groups. No rigorous tough international competition for its manufac- process for evaluating trade-offs between different public turers’ principal products, or turmoil in key export investment alternatives, such as cost-benefit analyses, markets (Syria, Iraq). However, through regular has been observed at the local level. Administratively, meetings within and among local actors such as the Turkey is a highly centralized country, so local City Council, Chambers of Commerce and Industry, government is highly dependent on fiscal transfers associations, and other entities, the community did from Ankara. The Chambers of Commerce and Industry formulate ad-hoc agendas in response to the most advocate for specific forms of government support from pressing needs, and concrete steps to address them. the national government (e.g. airport expansion or a new highway), but this is not based on evaluating the relative -- Identify the city’s main competitive strengths, merits of one form of support over another, mainly the such as its favorable geographic location, vast outcome of discussions. production capacity and know-how, well-developed trading links, a very engaged private sector, highly 3. The level of autonomy related to economic competitive business costs, and decent tourism de- development in Gaziantep (the equivalent of velopment potential. However, consensus appears to the “Mayor’s Wedge”) was a factor in the city’s already exist among most stakeholders about what improved economic outcomes, particularly the city has going for it – these are largely referred to after decentralization measures in 2004. Local as facts or articles of faith. government bodies in Turkey (both municipal and provincial) are able to undertake limited -- Formulate a vision of progress that Gaziantep interventions aimed at fostering economic can make, including specific measures to address growth, especially through the provision of critical its challenges and to capitalize on its competitive public goods such as transport and water supply, strengths. A document entitled Competitiveness land allocation, slum clearance and tourism Agenda for the GAP Region was released by the “place-making”, and establishment of sister- Southeastern Anatolia Development Project (GAP) city partnerships. The public sector has undertaken in 2007, and a Regional Plan 2010-2013 prepared by various proactive interventions – through plans, the Silkroad Development Agency, but both of these individual initiatives, and in practice – to spur economic were geographically broader than just Gaziantep development in Gaziantep. Province. The Gaziantep Metropolitan Municipality also has a Strategic Plan 2010-2014, but its focus a. There was no dedicated local economic is on the provision of public services, thus much development agency in Gaziantep, nor an economic broader than just economic development, although development-related department of government, some key economic indicators are also monitored during most of the period covered by this case study. and tracked. However, starting in 2010 with the establishment of the Silk Road Development Agency as a regional planning, b. Gaziantep assembled a “growth coalition” at coordination, and promotion body for three provinces the metropolitan/provincial level, bringing together including Gaziantep, a more structured approach has representatives of local government, businesses been adopted, and it can be said that Gaziantep now chambers, industry associations, universities, civil does have a dedicated economic development society groups (e.g. women, youth, the disabled) and agency. This entity has not been in existence long other stakeholders in economic development. The enough for it to have materially affected Gaziantep’s institutional framework for the stakeholder engagement observed macroeconomic performance, but going is provided by the City Council, with an influential but forward it can be expected to play a more substantial purely advisory role. The Council’s assembly has more 133 facilitating role as the city’s (and Turkey’s) economy gies for its three-province region, including Gazian- strive to transition to higher income status and greater tep. The plan provides for the tracking of a variety knowledge intensity. of indicators and sets some numerical targets both in terms of process and implementation, some of -- Low financial and administrative autonomy: which are sector-specific. The planning process Although Turkey has implemented some decen- reveals a familiarity with global best practices in ev- tralization reforms, it remains a highly centralized erything from benchmarking to stakeholder consul- country with restricted administrative scope for tative workshops and techniques to ensure broader local government.. participation. There are some mechanisms for the thorough assessment of implementation against ob- -- Funding: Municipalities in Turkey, including met- jectives, but this process is still in its formative years ropolitan municipalities in large urban areas, have and it is too soon to draw any profound conclusions low municipal spending ability and limited fiscal about its effectiveness. powers more generally. For example, Gaziantep Met- ropolitan Municipality gets nearly three quarters of c. Private sector and stakeholder involvement in its budget through fiscal transfers from the national implementation: Gaziantep’s City Council provides a government. structured framework and forum for dialogue between public and private sector actors. Gaziantep Metropolitan -- A well-defined geographical remit: Gaziantep’s Municipality engages with stakeholders, who play a vital Metropolitan Municipality is the primary urban-tier role in Gaziantep’s economic development. Details: local body in Gaziantep. However, it does not have functional authority beyond the city limits, e.g. in -- Gaziantep’s for-profit firms partner with govern- the OIZs. The Mayor is popularly elected to a five ment, but also pool financial and in-kind resources year term, while the provincial Governor is appoint- to help market and promote the city as a business ed from Ankara and heads the local branches of all and tourism destination. national agencies. -- Senior corporate leaders act as the city’s public b. Efficient internal management: The Gaziantep champions and utilize their relationship capital to Metropolitan Municipality, as well as the individual secure more investment and business opportunities district municipalities, seem to perform very well in for Gaziantep and its companies. their core functional responsibilities. -- Gaziantep’s private-sector firms are actively engaged -- Roles: The Metropolitan Municipality is primarily in workforce development (ahi tradition), primarily responsible for urban planning, transport, water through on-the-job training. However, skills and hu- supply, urban regeneration and redevelopment, busi- man capital levels remain below the national average ness licenses and approvals, some aspects of land for Turkey – yet apparently sufficient for existing allocation, clearing out slums and upgrading public industry needs. Challenges are likely to come up as amenities like parks, and helping tourism develop- the city’s firms try to move into more knowledge-in- ment efforts. A range of other economic develop- tensive, higher value-added industry segments and ment functions, including entrepreneurial training, products. skills development, business advisory services, and export assistance are played by the local office of -- Trade unions have not been observed play a promi- KOSGEB. Additional functions such as branding, nent role in the city’s economic development. government lobbying (on behalf of local firms and/ or the city as a whole), business cluster development -- There is a permanent “growth coalition” of business and entrepreneurial support, are carried out by the and government leaders, as well as instances of city’s business chambers and industry associations. stakeholders self-organizing on an ad-hoc basis in response to specific issues and opportunities. -- Enabling environment: Local government in Ga- ziantep (both municipal and provincial) has worked to ensure the availability of critical infrastructure needed by local businesses (including OIZs), as well as to streamline administrative and bureaucratic procedures. Additionally, the OIZs have a more busi- ness-friendly, private-sector regime which makes things simpler and less onerous for firms. -- Monitoring & evaluation: The Silkroad Develop- ment Agency’s Regional Plan 2010-2013 includes a vision, sets of goals, and individual thematic strate- 134 Interviews In Ankara (August 25-27, September 4-5) 5. Silkroad Development Agency/Invest in Gaziantep (IKA): Sezen Genc, Head of Planning, Programming, and 1. Republic Of Turkey, Ministry of Development: Umut Coordination Unit; Abdulmenap Ertaş, Head of Program Gür, Head of Department of Industry; Serkan Valandova, Management Unit; Utku Ali Riza Alpaydin, Head of Pro- Head of Department of Regional Competitiveness motion and Cooperation Unit; Vakkas Koca, Coordinator of Gaziantep Investment Support Office 2. Invest in Turkey – Investment Support and Promotion Agency (ISPAT): Muhittin Aslan, Senior Project Director; 6. KOSGEB Gaziantep Service Center Manager Mahmut Muhiddin Keskin, Project Director; Taha Yasin Saran, Project Director 7. Gaziantep Organized Industrial Zone (OSB): Özer Öz- can, General Director 3. KOSGEB (Small and Medium Enterprises Development Organization): Ahmet Merih Ozyilmaz, Head of Depart- 8. Gaziantep Chamber of Commerce (GTO): Eyüp Bartik, ment; Ömer Pak, Head of Department; Imran Gezinti, President; Figen Çeliktürk, Deputy Secretary General; Head of Department N. Sezin Darwish, Expert SME & Foreign Relations Department 4. Regional Development Administration – Southeastern Anatolia Project (GAP): Muhammed Adak, Vice Pres- 9. Gaziantep Chamber of Industry (GSO): Adil Sani Ko- ident; S. Yasar Yetkin, General Coordinator; Ahmet nukoğlu, President and Chairman of the Board, Sanko; Tokdemir, Coordinator; Tolga Erogan, Advisory Commit- Kürşat Göncü, Secretary General tee Member, Utilization of Renewable Energy Resources and Increasing Energy Efficiency in Southeast Anatolia 10. Southeast Anatolian Exporters Union (GAİB): Serdar Region Aydoğan, Department Manager 5. United Nations Development Programme (UNDP): 11. Gaziantep University (GAUN): Prof. Dr. Mehmet Yavuz Murat Gürsoy, Programme Specialist and Advisor; Pelin Çoşkun, Rector; Prof. Dr. Türkay Dereli, Vice President Rodoplu, Regional Competitiveness Specialist 12. Technology Transfer Office (Gaziantep Üniversitesi 6. Economic Policy Research Foundation of Turkey (TE- Teknoloji Transfer Ofisi – TargeT): Ekrem Tekin, General PAV): Güven Sak, Managing Director; Günes Asuk, Chief Manager; Sedat Öztürk Economist; Ussal Sahbaz, Program Manager; Dr. Janam- itra Devan, Advisor to the President 13. Gaziantep Teknopark: Assist. Prof. Dr. Deniz Vuruşkan, General Manager 7. Turkish Exporters Assembly (TIM) – Ankara 14. Syria Recovery Trust Fund: Hamit Doğan, Office Man- 8. Former Mayor of Gaziantep, 1989–2004: Celal Doğan ager In Gaziantep (August 26-September 4) 15. 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Hewings (2004), Regional convergence World Bank (2014), Stepping Up: Turkey’s Transformation and Policy and the economic performance of peripheral areas in Turke y, Review Lessons in Integration and Inclusion. of Urban & Regional Development Studies, 16(2), pp.113-132, July 2004. http://onlinelibrary.wiley.com/doi/10.1111/j.1467- 940X.2004.00082.x/abstract GTZ (1998), Gaziantep sanayi odasi strateji ozet raporu, 10 August 1998, mimeo obtained from GSO 136 137 Case Study 5 Changsha, China Modern manufacturing 140 Table of Contents Introduction 142 Executive Summary 144 National Context 146 Local Context 148 Analysis 151 Factors of Competitiveness 151 Conclusion 159 Lessons for Other Cities 160 Appendices 162 141 Introduction T he case study of the economic success of Chang- Many other cities in China had exceptional growth sha, China, is the fifth in the series of World too; Changsha was selected as a relevant city from Bank case studies of successful metropolitan which others could learn, not necessarily because it economies around the world. The World Bank’s Compet- was unique. This report in no way distinguishes Chang- itive Cities Knowledge Base project aims to provide city lead- sha as the top performing city in China during the period ers with the tools and knowledge for the successful formula- in question. In fact, as the graph below shows, many other tion and implementation of effective economic development provincial capital cities in central and western China also ex- strategies at the city level. No single case study will provide perienced tremendous growth in the same period. Changsha a recipe for success for other city leaders, but each case study was selected for its consistent high levels of growth, but also in the series will offer insights and strategies for cities with because of its relevance as a non-coastal, Tier 2 (secondary) similar conditions, factors and challenges. city that lacks natural resources and strategic advantages (e.g. proximity to borders or trade routes). Like the other cities Changsha was selected for this case study because graphed below, Changsha indeed benefitted from national between 2007 and 2012, Changsha experienced ex- level policies, as well as its status as a provincial capital. How- ceptionally high rates of growth in GDP and employ- ever given that it lacked significant inherited advantages and ment, even for China. As part of the city selection exercise, instead offered evidence of proactive strategies from which cities in the East Pacific region were ranked according to the other cities could learn, Changsha’s success story was selected amount by which they exceeded the average national growth for further investigation. rate. Cities from China dominated the rankings; with dis- tinctions between Chinese cities difficult to make as growth Changsha’s relevance derives in some ways from its in terms of GDP and jobs sometimes differed by only one drawbacks, which many other cities around the world hundredth of a point. The decision was made to select one may also face. Specifically, Changsha is: representative Chinese city (not necessarily the best perform- ing city as that qualification would be hard to substantiate) • A landlocked, secondary city (and provincial capital) for inclusion in the series of case studies. GDP Growth Rates of Major Provincial Capitals in Central and Western China 142 Source: Oxford Economics Data • Located in a country with a strong, proactive national government • Located in a country with numerous Tier 1 and Tier 2 cities with which it may be said to compete for private sector investment and human capital • A city that was largely dependent on 1-2 industries, but sought economic diversification Despite these drawbacks, Changsha has experienced extraordinary growth, attributed in part to being well-po- sitioned to capitalize on national trends and policies, as well as strategic interventions by the municipal government. The latter fall under three headings: • Nurturing the development of key industries by promot- ing the competitiveness of firms • Utilizing inter-agency coordination mechanisms to suc- cessfully diversify the economy • Developing and acquiring higher levels of human capital through vocational degree programs and talent attrac- tion programs Changsha: Key Facts and Figures 12.82% Average annual GDP growth (2007-2012) 1.10% City GDP as ratio of National GDP 7.15m City population (4.5m in core city) 3.83% City population annual growth (2000-2010) 1.37m Total migrant population 6.64% Migrant population annual growth (2000-2010) 6.05% Annual average job growth (2007-2012) 12 Total number of industrial parks Source: Oxford Economics Data; 2000 and 2010 Population Census 143 Executive Summary C hangsha is a mid-size (for China), secondary National and provincial level policies and trends city that has grown its economy by nurturing positively impacted the city. The national government and diversifying its core industries, and sys- has pursued a policy entitled “The Rise of Central China” tematically building human capital. Changsha lacked which promotes investment in the region; as well as provides the advantages of other Chinese cities in the coastal provinc- funding and key infrastructure investments, such as the es, whose promotion of higher value added manufacturing High Speed Rail (HSR), to improve connectivity. The national benefitted from strong transportation linkages and external government has also indirectly supported the growth of the connectivity, as well as high levels of human capital. However construction machinery industry (the leading manufacturing Changsha has managed to expand its manufacturing base, industry in Changsha). First, by installing a national research both attracting and fostering the growth of firms that have institute in Changsha in the 1950s that generated knowl- become globally competitive. Outside manufacturing, the city edge in the area of construction machinery; and second, by is home to one of China’s most dynamic media companies, al- developing a national stimulus plan in 2009 (post global beit largely as a result of provincial actions. The city’s success financial crisis) that triggered a construction demand boom is, of course, in part due to endowments and national and domestically. This demand drastically improved revenues for provincial factors. Yet the city’s own government has been an construction machinery firms in Changsha from 2009-2012. important catalyst for growth, effectively addressing peren- Finally, as Hunan’s capital, Changsha was a beneficiary of nial problems such as inter-agency cooperation, government provincial policies and initiatives; particularly the devel- support for local businesses, and improvements to human opment of Hunan TV, a dynamic media company that has capital levels. provided significant jobs in the city. Like other Chinese cities, Changsha has grown under Above all, the municipal government strategically unique conditions, which have both created and intervened to capitalize on these national trends and eliminated problems for city leaders. Authority is highly location advantages. The municipal government made decentralized in China regarding local economic development deliberate investments to improve the city’s competitiveness, and municipal government leaders are therefore responsi- prioritizing the growth of existing firms as well as the attrac- ble for implementing strategies that will stimulate growth tion of new firms. The three most effective areas of interven- locally. Leaders have historically had clear, prioritized GDP tion included: and tax revenue targets that were determined by the central government; which have consequently simplified the problem Nurturing the development of key industries by pro- of competing objectives. Further, unlike other cities, the mu- moting the competitiveness of firms nicipal government in China has rights over all or almost all land in the city, which it can lease or use as collateral to fund The municipal government actively supported the growth of local infrastructure. Cities are also part of China’s elaborate key industries, and in particular, the construction machinery system of inter-governmental learning, which promotes industry. The most unique government initiatives were in- piloting reforms and adopting best practices. These unique tended to promote firms that could be globally competitive by conditions have given the municipal government some providing market information to firms, promoting sourcing unique degrees of freedom. On the other hand, they have from top global input suppliers in lieu of local procurement created incentives towards sprawling land use (biased against requirements, and support for R&D and attraction of top density), and fiscal dependency on land leases, which may talent to the city. Through promoting individual firm compet- leave the city exposed during a property slump. itiveness, the government has consciously and unconsciously cultivated a fierce competition between local firms. The con- struction machinery industry in Changsha has accounted for over 100,000 direct jobs, generated worker training programs and contributed significantly to municipal tax revenues and 144 increased incomes that have improved welfare as well as the city sought to attract high level talent both domestically competitiveness160. and abroad; leveraging national talent attraction programs and initiating municipal programs of their own to effectively Utilizing inter-agency coordination mechanisms to target, recruit and compensate new talent willing to relocate successfully diversify the economy to the city. Simultaneously, the city addressed existing pools of talent through the regulation and promotion of vocational To mitigate the risk of dependency on its core industry degree programs; seeking to increase employment through (construction machinery), the municipal government di- the development of specialized “in-demand” skillsets. Both versified the economy by attracting new industries, like the strategies have been successful, with vocational schools automobile and automobile parts industry. The government teaching applicable skills and talent programs attracting utilized effective inter-agency coordination mechanisms, thousands of high level “talents” to the city. called “Leading Groups”, to coordinate investment attraction and investor aftercare across various departments and levels In sum, Changsha’s exceptional economic growth in of government. Many cities find investment attraction hard 2007-2012 was a result of both national and munici- to execute in practice, with investments frequently getting pal level factors, but the latter predominated. Nation- stuck due to government departments working in silos. al level factors provided the city with significant potential, However the Leading Group helped the city to avoid these while actions by the municipal government leveraged and silos, by providing a framework with clear roles, reporting furthered this potential. In the absence of the national fac- requirements and accountability mechanisms. At the same tors several of the city’s actions would have generated some, time, the city was disciplined in letting go of industries that if lower levels of growth; while the national factors without were not competitive, or competitive only in the presence of the city’s actions would, at best, have left it anonymous, and permanent subsidies. The city’s successful diversification of at worst, synonymous – with Detroit. the economy has reduced the city’s exposure to the down- turn of the construction machinery industry in 2012, with new industries providing substantial, counterbalancing tax revenues. Developing and acquiring higher levels of human capital The city placed a high and sustained priority on human capital and developed a two pronged approach in order to im- prove upon existing levels of human capital in the city. First, 160 It should be noted that the rapid growth of this construction machinery industry during 2007-2012 was largely dependent on the construction demand boom domestically because of the national stimulus plan post 2008 global financial crisis. This leads to huge infrastructure investments in many cities across China which in turn creates a big problem in municipal debt management. Since municipal debt management is not a unique problem faced by Changsha only, and there are many reports that try to address this problem, this case study focuses on the local economic development actors and address what these actors did well that contribute to the success of Changsha. Particular attention was paid to initiatives that were uncommon and/or carried out in a unique manner that could be of interest or assistance to other cities. This by no means indicates that other cities should clone exactly the same industrial growth model. 145 National Context However, this national growth has not simply bene- fitted cities; cities have been key contributors to Chi- na’s growth. The national government166 has decentralized National Framework authority regarding the promotion of economic growth to bring about economic reform; and as the Chinese population Changsha’s economic success occurred within a becomes more urbanized, cities are responsible for promot- highly favorable national macro-environment. In the ing GDP growth and job creation for increasing numbers of last three decades China has achieved a growth record that citizens. Municipal and provincial level leaders are ultimately may be a “once in humanity” event161). In terms of macro- evaluated on the economic performance of their delegated economics, the inflation rate was relatively well-managed region, with clear GDP targets that hold them accountable when compared to other emerging economies (see graph), for initiatives and reforms undertaken during their time in the pegged exchange rate regime provided exporters some office. The national government provides guidance in the degree of certainty in managing their export incomes, and form of national strategies that outline areas for reform or in- the domestic investment rate was consistently high, with an creased attention (that can have funding attached); however annual average of 40% of GDP over the last 30 years. China it is the responsibility of local leaders to carry out initiatives has become the second largest economy in the world, and has that fit under the umbrella of national policy. In doing so successfully lifted more than 500 million people out of pover- local leaders have coped with a population influx unique in its ty in the last 3 decades162. During the period of 2007-2012, scale: as of 2007, the number of people living in urban areas China’s GDP rose from $3.49 trillion USD to $8.23 trillion in China was about 45%; just five years later, this number USD, with average annual GDP growth around 10%163. The increased to 52%167 (an increase of over 100 million people). poverty headcount ratio at $1.25 a day was approximately Yet, approximately 130 Chinese cities recorded annual GDP 6.3% in 2011, down from 12.3% in 2008164. growth of over 10% during this same period (2007-2012)168. Chinese cities have operated with a unique degree of fiscal and political autonomy in their objectives. The distinctive political environment in China has created both opportunities and challenges for economic growth, and at the municipal level, this has resulted in a set of unique conditions that differentiate Chinese cities from their counterparts. The national government has both knowingly and unknowingly eliminated many of the governance challenges that cities typically face. Several of the factors behind these unique Inflation Rate of BRICS Countries in the Past Three conditions, like strict accountability to GDP targets and the Decades165 Communist Party of China - as opposed to constituents- have subsequently created challenges of their own. This report in no way values the elimination of municipal governance problems over all else, but simply seeks to highlight the unique scope condi- tions relevant to Chinese cities. These common problems and how they are relaxed in Chinese cities are illustrated in Table 1. 161 Pritchett, Lant & Summers. Lawrence H., “Asia-phoria Meets Regression to the Mean”, National Bureau of Economic Research, Working Paper No. 20573, 2014. 162 “China 2030”, World Bank Group and the Development Re- search Center of the State Council, the People’s Republic of China, 2013. 163 World Development Indicators, The World Bank Group 166 The National Government also represents the Communist Party 164 World Bank Poverty and Inequality Index, The World Bank of China (or CPC) Group 167 World Development Indicators, The World Bank Group 165 World Development Indicators, The World Bank Group 168 Oxford Economics Data 146 Table 1 Common Problems Eliminated Problems Many cities struggle in terms of generating revenue or cap- Chinese cities own almost all of the land in their jurisdic- turing the value created by local public goods tion and have influence over local bank branches to mone- tize and borrow as needed Many cities struggle to address competing demands by Chinese cities have nationally mandated targets: maximize constituents, while city leaders can be further burdened by GDP (and economic growth) and avoid social unrest competition between political parties City leaders can lack information about best practices re- Chinese cities are part of an elaborate system that fosters garding institutions and policies; leaders are not necessarily learning through think tanks, seminars & conferences, in competition with other cities networking, competition between cities, and rotating local leaders to take up positions across the country The political party system can be contentious: causing dis- Chinese politics are heavily influenced by CPC party poli- connect between administrations, additional incentive sys- tics, and strong city leaders are rewarded with promotions tems for city leaders within the party from a domestic construction boom following the 2009 Despite these, at times, favorable conditions for mu- national stimulus. nicipal leaders, it cannot be said that Chinese cities are gifted with double-digit growth “by default”. Factor 1: The national policy of the “Rise of Central High-performing Chinese cities have developed use- China” in 2004 prioritized the growth of cities and ful institutions and strategies that can offer valuable provinces in central China. This policy was similar to a lessons to others. Chinese cities have become highly adept greater emphasis on western development and investment at fostering conditions for growth, and despite operating in a (i.e. “Go West” policy), in order to address rising income unique environment (as outlined above), the individual strat- inequality and an overreliance on the eastern coastal region egies and interventions undertaken have relevance across for economic growth. Under the “Rise of Central China”, cities borders. Chinese cities have become skilled at integrating in central China have benefitted from transportation infra- best practices and experimenting with reforms through pilot- structure improvements and additional incentives for foreign ing new policies and initiatives. As city leadership in China is investors in targeted sectors, both of which were intended to ultimately evaluated on economic performance, leaders have highlight the region’s advantages, such as a centralized loca- honed their strategies, creating highly effective internal man- tion, an unsaturated market and abundance of cheap land agement structures and fostering the development of globally and labor. Alongside the shift in China’s growth drivers from competitive industries. How the cities have done this (not exports to domestic demand, the large-scale investments in necessarily why) can offer key insights to other cities looking transport infrastructure for goods helped to turn a locational to improve the effectiveness of their own interventions. disadvantage – being away from the coast – into an advan- tage, with rapid transit times to multiple domestic markets. National Level Factors that Impacted Changsha’s Growth Factor 2: National transportation investments for the movement of people, like the High Speed Rail Apart from the national framework provided to all (HSR), have improved connectivity between cities. The cities, Changsha was specifically well-positioned for HSR is intended to connect all provincial capital cities (i.e. growth in 2007-2012 due to several national policies Changsha); offering passengers drastically reduced commut- and trends, including: ing times between cities throughout the vast country. This improved connectivity has subsequently increased the acces- 1. The national policy of the “Rise of Central China” and sibility of cities in central China that would otherwise suffer promotion of investment and economic growth in the from locational disadvantages. Changsha has specifically central provinces benefitted from its position at the intersection of three high 2. External connectivity linkages through national speed rail lines, which improve connectivity to major coastal infrastructure projects like the High Speed Rail (HSR) cities like Guangzhou (2 hours away) and Shanghai (5 hours away).The impact of this rail line is most apparent in the 3. Inherited knowledge in the area of construction presence of high levels of human capital, as people are more machinery (due to the placement of a national research willing to relocate to Changsha due to its improved connec- institute in Changsha in the 1950s), which benefitted tivity to major cities, and even hometowns. 147 Factor 3: Changsha inherited a national research Local Context institute in the 1950s that was focused on generating knowledge in the construction machinery industry. This institute would facilitate the emergence of Zoomlion, one of the top firms in the industry globally; as well as the construction machinery cluster more largely, complete with input suppliers and competitor firms. While the presence of the national research institute in no way guaranteed the suc- cess of future firms (as will be discussed in the next section), its presence is acknowledged in order to distinguish Chang- sha’s inherited advantages from those of other Chinese cities. The construction machinery industry in Changsha would benefit further from decisions made at the national level in 2009, when the national stimulus catalyzed a domestic construction demand boom. This jump in domestic demand had a large impact on the industry, and top national firms like Sany and Zoomlion (both located in Changsha) nearly doubled their sales and number of employees as a result. This period of industry growth (2009-2012) directly coincided with the period of analysis of this case study series (2007- The City of Changsha: 2012), thus explaining part of the city’s exceptional economic growth during this time. However, the demand was princi- • Scale: Home to over 7 million people and an area of pally in construction, which would not have automatically led 12,000 km2 (see image169), the City of Changsha is over to growth in Changsha were the city not the home of firms 3,000 years old, and today, is the capital city of Hunan already competitive in construction machinery. Province. Changsha is made up of six districts, two coun- ties and one county-level city. In the core of the city, the While unable to account for the entirety of the city’s population is about 4.5 million; with migrants making success, these national government factors were up about 1/3 of the population (equivalent to 1.5 million instrumental to Changsha’s growth. The prioritization people). In 2012, Changsha’s GDP reached 640 billion of the region by the national government, the provision of yuan (~ 102 billion USD) up from 245 billion yuan (~32 infrastructure to address constraints to competitiveness billion USD) in 2007. (i.e. location), and the establishment of an industry specific knowledge institute, (and subsequent national stimulus pack- • Governance: The city is governed by a Secretary General age), all contributed to the city’s competitiveness during the and Mayor, in addition to an Executive Vice Mayor and 7 period of analysis. In the end, however, none of these factors Vice Mayors. The Mayor is appointed to 5 year term (and would independently trigger growth; Changsha’s success a maximum of 2 terms) by the local CPC committee(s). was largely dependent on the city’s ability to leverage each of The CPC is responsible for establishing reporting hierar- these factors and effectively collaborate at the municipal gov- chies for the various tiers of government, and ultimately ernment level in order to promote the development of several asserts control over the appointment as well as disciplin- competitive industries. ing and dismissing of appointees. • Responsibility: The Municipal Government of Chang- sha is in charge of administering affairs within their jurisdiction and reports to the provincial government. There are approximately 283 cities with municipal gov- ernment authority in China (some cities in China have specialized authority due to designation as autonomous regions or centrally governed cities) and 31 of them are provincial capitals. It is the responsibility of the munic- ipal government to provide almost all public services as well as economic planning for the city (including business development support; provision of infrastruc- ture, water and electricity; provision of basic education, social welfare services and health services, etc.). The city of Changsha, specifically, manages twelve development 169 Hunan Provincial People’s Government Website http://eng- hunan.gov.cn/AboutHNprovince/Facts/GeographicalLocation/201310/ t20131028_941840.htm, October 5, 2014 148 zones and 39 municipal government departments, in- mandates frequently overlapping. Such overlaps and cluding the General Office, the Commission of Industry blurred responsibilities were not considered a cause for and Information Technology, Education Commission, concern, possibly because China’s governance framework Finance Bureau, and the Commerce Bureau. places greater weight on whole-of-government outcomes (growth, employment and social stability) than on differ- • Fiscal Resources: Taxation on business and profits from entiated functional processes. land leases account for a large part of local revenues. Most of the tax incomes, such as those from personal • Fiscal Resources: China is a very centralized country income and business income, are shared with higher in terms of fiscal resources. For example, 75% of the tiers of government. Conversely, however, municipalities business income taxes that are collected locally have receive fiscal transfers from the central government for to be sent back to the central government, while local local government spending. Finally, a unique and im- governments (including province, city, county, town, and portant mechanism that Chinese cities have been using village governments) share the remaining 25%. In the to finance public programs and infrastructure projects is case of the city of Changsha and Hunan province, Hunan through setting up a special purpose vehicle company to province has the authority to decide the tax sharing borrow credit against future land values. With these po- mechanism with Changsha (such as what percentage of tential local fiscal resources in mind, in 2012, Changsha the local taxes Changsha retains). Since Changsha has a achieved a balanced budget, with a small surplus170. This bigger tax base, it typically has more fiscal income than enables Changsha (financially) to invest in pro-business other cities in the province. initiatives that promote firm growth. While the key focus of this case study was analyzing Hunan Province: strategies and initiatives undertaken by city level agencies, it is imperative to note that several inter- • Scale: Changsha is the capital of Hunan province; a ventions undertaken at the provincial level also had a province of over 200,000 km2 and 72 million people171. large impact on the city’s success. Like all cities, Chang- Located in central China, Hunan province is made up of sha does not operate in a vacuum; both national and provin- 13 cities and 1 autonomous prefecture. The provincial cial level policies and initiatives contributed to the high levels GDP reached 2.2 trillion yuan172 in 2012 (350 billion of GDP and job growth in the city. For instance: USD), up from 1.3 billion yuan in 2009173. Apart from being known as a historical rice and cotton producer, a The Cultural Industry: Alongside construction machin- growing industrial base, and the home of the popular ery, Changsha is also home to a thriving cultural industry. television network Hunan TV, Hunan is also the birth- Primarily dependent on Hunan TV (a television station), the place of several national leaders, including Zeng Guofan industry employs about 20,000 people in the province and and Chairman Mao Zedong. 10,000 in the city of Changsha. Hunan TV is a provincial SOE, and like Zoomlion, was granted significant autonomy • Governance: The province is governed by a Secretary that made its success ultimately dependent on 2-3 top, effec- General, a Governor, an Executive Vice Governor, 5 Vice tive managers. Similar to other firms in Changsha, Hunan Governors, and an Assistant Vice Governor. Similar to TV credits its success to a strong talent attraction program, appointments at the city level, Governors are appointed effective managers, and a flexible structure that promotes by the local CPC committee(s). The Secretary General competitiveness as well as the belief that state owned assets is first in command, leading the provincial committee should maintain their value (and be regularly evaluated).This that governs the Province. The Governor follows the industry was not featured in this case study because, de- Secretary General as second in command. There are 23 spite Hunan TV’s success (3rd largest station nationally after provinces in the country, all of which report to the State National CCTV and Shanghai TV, and highest viewing ratio), Council (the institutional body that delineates respon- the SOE has largely received support from the provincial sibility between the central government and provincial government, with very little support from the municipal gov- government). ernment. However, its popularity generally helps Changsha’s image and reportedly makes it more attractive for talent. • Responsibility: The responsibilities at the provincial level include administering economic, social and cultural Improved Access to Finance: The Chinese central gov- affairs within the province. The provincial government ernment has made significant efforts to promote access to can also implement local laws and decisions made by the finance for businesses. As the Chinese banking and finance provincial people’s congress and CPC standing commit- sectors are both regulated by central government agencies, it tee. The division of responsibilities among the province was under their authority that special purpose policy banks and municipal government is not always clear-cut, with and insurance companies designed to promote exports were established. The provinces, however, had to attract banks and insurance companies to open branches within their jurisdic- 170 Changsha Bureau of Finance Website, 2013 171 Hunan Provincial People’s Government website tion. In Hunan’s case, the provincial government facilitated 172 ibid the opening of a branch of the Export-Import Bank of China 173 ibid (a non-profit financial institution) in 2006. Access to this 149 branch subsequently improved access to finance for numer- The Private Sector and External Stakeholders: ous businesses, most especially, the construction machin- ery firms. Given the high cost of heavy machinery, buyers The private sector in Changsha was not actively engaged in frequently required loans to make purchases. When foreign the formation or implementation of economic development buyers were unable to get favorable loans from their home strategies. The private sector was responsible for starting up countries, they were instead able to get low interest rate loans key leading firms in the city, like Sany, a leading firm in the from the Export-Import Bank. This helped the construction construction machinery industry. The private sector also col- machinery industry to increase sales worldwide, increasing laborated through the Changsha Enterprise Association for their exports and reducing their dependence on domestic Foreign Investment, a 600 member nonprofit organization sales (prior to the domestic slowdown). that advocates for policies that support private sector inter- ests and serves as a representative of private sector interests Both the success of the cultural industry and the presence of to the local government174. While the Association has served the Export-Import Bank promoted the economic success of the interests of its members, its role has been more limited to the city. Both were driven by the province, though in oth- lobbying and advocacy efforts regarding specific city regula- er countries such initiatives may be possible for cities (the tions (e.g. traffic regulation). “mayor’s wedge” having a different scope in each country). However provincial government support did not end there; there were numerous occasions in which the provincial gov- ernment made itself available to support the initiatives of the municipal government. Examples of such support are noted in the Factors section below. 174 It must be acknowledged that the Association was initially sup- ported and funded by the government. Today, the Association is formally independent from the government. 150 Analysis and Zoomlion, not by foreign investment or newly attracted industries (favored pathways to growth in many other cities). Factors of Competitiveness The construction machinery industry was not an ear- ly priority for the government. In fact, leading firms started up independently of significant public sector Changsha’s municipal government was the main support. Both Sany and Zoomlion developed without gov- catalyst in initiatives that took advantage of ernment intervention or preferential policies. Despite Zoom- exogenous and inherited opportunities. The municipal lion being an SOE, the firm received minimal assistance government made deliberate public investments to improve during its startup; receiving a loan of only .5 million RMB, of the competitiveness of local industries and transition which half had to be deposited as collateral. Even early sup- (and diversify) the city’s economic base by attracting new port, like land within industrial parks, was offered to other industries and high level talent. The most effective initiatives firms outside of the construction machinery industry as well. (promoting growth) have been grouped into three categories The government did not select individual firms or industries of intervention: as local champions, but allowed firms to demonstrate capabil- ity to compete before receiving more tailored support. 1. Nurturing the development of key industries by promot- ing the competitiveness of firms The two leading firms, Sany and Zoomlion have developed a fierce competition that has encouraged 2. Utilizing inter-agency coordination mechanisms to suc- increases in innovation and productivity. While both cessfully diversify the economy firms developed in Changsha in the 1990s, they have had different trajectories and different ownership structures that 3. Developing and acquiring higher levels of human capital have markedly set them apart. For instance: through vocational degree programs and talent attrac- tion programs • Sany is a private sector firm, currently ranked #1 na- tionally and #6 globally in the construction machinery Factor 1: Nurturing the development of key industry. Established in 1989 by 4 engineers in Hunan industries by promoting the competitiveness Province, Sany relocated to Changsha in 1994 to take (and competition) of local firms advantage of the city’s resources. During the peak of the construction demand boom in 2011, Sany enjoyed 60% Since the late 1990s, the municipal government in Changsha annual growth, contributed 40% of district tax revenue, has actively supported the growth of the construction machinery and accounted for about 5% of city GDP. Annual oper- industry, both consciously and unconsciously facilitating a fierce ating income (i.e. profit) reached 2.6 billion RMB (~430 competition among the leading firms. Initiatives undertaken by the million USD) in 2009 and 6.9 billion RMB (~1.1 billion government to support this industry were centered on the premise USD) in 2012, almost tripling in 3 years. As of 2014, of building globally competitive firms; the most notable initia- Sany employed about 13,000 people in Changsha and tives included: providing support in the form of access to market 18,000 within Hunan Province. In the face of the current information and linkages to top global suppliers, and support for slowdown, the company is focusing on the provision of R&D and attraction of top talent across all firms in the industry. value-added services alongside its machinery. Furthermore, the city took steps to support firms, without dispro- portionately promoting the growth of specific firms over others • Zoomlion is a SOE, ranked #7 globally in the construc- (even when some of the firms were SOEs). tion machinery industry. Zoomlion has direct roots in the Construction and Machinery Research Institute (the What Did the Industry Look Like? aforementioned National Research Institute). In 1992, the Vice President of the Institute wanted to start a Changsha’s successful industrial sector developed company using the knowledge generated from research, from homegrown, local firms. After market reforms in although at the time, he was not sure in what area spe- the late 1970s, Changsha’s growth began to pale in compar- cifically the company should focus. He went on to found ison to that of coastal cities in China. Located in a province Zoomlion and became the SOE’s first President. In the that relied chiefly on agricultural production, Changsha had late 1990s, Zoomlion was listed on the Shenzhen stock become a center for trading, manufacturing and services exchange, and today, the firm has diverse shareholders (with primary, secondary, and tertiary industries contrib- using a limited liability corporation structure, with only uting 12.96%, 42.93% and 44.11% to GDP respectively175 in a 16% provincial government stake. Annual operating in- 1998). It was not until the early 2000s that Changsha’s man- come was approximately 2.8bn RMB (~460 million USD) ufacturing sector began to take off; with significant growth in 2009 and 8.9 bn RMB (~1.4 billion USD) in 2012. As in industrial output initiated by homegrown firms, like Sany of 2014, Zoomlion employs nearly 20,000 people in the city. In the face of the current slowdown, the company has adopted a different strategy than Sany, diversifying 175 Hunan Provincial Bureau of Statistics 2004. ular, it has invested heavily in agricultural equipment, 151 betting that rural land reforms will spark widespread In the middle years (late 1990s/early 2000s), support mechanization in China. shifted to in-kind resources, such as land and tax credits. The city provided space for both Sany and Zoomlion Other construction machinery firms in Changsha include in the different industrial parks, placing the firms in separate Sunward, CHTC Jove, Rullong Heavy Industries, Zhongli areas, where they could have access to improved infrastruc- Machinery, Dingli Tech, and AVIC Landing Gear176. Sunward ture and park management staff (to troubleshoot problems). is the most prominent and is rapidly moving into global mar- In terms of in-kind resources, firms could receive tax credits kets, e.g., for advanced tunneling equipment. It is sometimes for providing in house training; as long as this training had grouped with Sany and Zoomlion as “the three musketeers”. been government certified (e.g., Sany Technical School is one The combined number of jobs in Changsha from all firms in of only 9 city government-certified vocational degree pro- the construction machinery industry (including Sany and grams in the city). Tax credits and matching of funding were Zoomlion) is estimated at 100,000.177 also available to firms to support R&D, new investments or international acquisitions. What Did Support for the Industry Look Like? In recent years (2005-present), the municipal gov- Changsha’s dominance in construction machinery ernment has supported the transition into higher was not automatic. Other Chinese cities tried to nur- value added production. Support has included help access- ture the same industry, sometimes with more sub- ing national and provincial level programs to tap into funds stantial, if superficial, advantages. In the early 1990s, intended for R&D projects and high level talent attraction. Changsha was one of many cities in China with the potential For instance, both Sany and Zoomlion attracted high level to develop a construction machinery cluster, but the city talent by utilizing national talent attraction programs that differentiated itself by not imposing a local procurement provided funding (i.e. research grants, compensation and/ requirement, and providing support in the form of the provi- or settlement allowances) for top talent willing to relocate sion of market information instead. Other Chinese cities had internationally or nationally. The provincial government also firms in the construction machinery industry; for instance, invested in a design center, made accessible to all firms, to en- Caterpillar had established a joint venture and technology courage innovation across the industry. The center has been transfer agreement with Xugong in Jiangsu province (where particularly active in helping connect Sany to international the firm still exists today, but is a distant third to both Sany designers, and to enable its own cultural connection with and Zoomlion in domestic and global markets). acquired companies in the West (e.g., Italy). The cities support The city and prov- Unintentional Competitors? in the “early stage” ince’s long-term What was absent from (mid-1990s) focused support of the government support for the In the early 2000s, the govern- on providing infor- industry left firms ment tried to broker a merger mation, especially industry? well prepared to of a weaker, almost bankrupt relating to global take advantage • Local procurement require- SOE with an existing firm. The component suppli- of the post-crisis ments deal was first offered to Sany ers. Some competitor investment surge in (refused) and then to Zoomlion cities, like Xiamen, China (i.e. national • Promotion of a single com- (who accepted). Only after this imposed local input stimulus). Support pany acquisition was Zoomlion of requirements that also helped mitigate a comparable size and scale to diminished the quality the “bust”, or drop in • To our knowledge, a “bail Sany- and the two have been and ultimately, the demand, as the firms out”, when the industry fierce competitors ever since. competitiveness of are currently reorient- struck trouble local firms. In contrast, ing their strategies, Changsha not only per- but profitable despite mitted but encouraged firms to import top quality inputs by a ~30% drop in sales. Instead of shielding firms from market commissioning an analysis of top international suppliers. The competition, government initiatives enabled local firms municipal government helped further by making connections to be competitive globally, promoting high quality inputs, between firms and global industry players; helping them to access to basic resources, and market access, and innovation secure invitations to industry events, like trade shows. capacity178. Today, Sany Group Ltd. ranks among Forbes “Top Chinese Enterprises”, exports to 110 countries and has 30 subsidiaries worldwide; Zoomlion is similarly expanding 176 KPMG. “Changsha, Gateway to Inland China; Changsha Invest- ment Environment Report 2013.” https://www.kpmg.com/CN/en/Issue- sAndInsights/ArticlesPublications/Documents/Changsha-Gateway-to-In- land-China-201305.pdf, 2013. 178 Many economists have expressed concerns about other types 177 Construction Shows. “Development of Changsha Construction of support, including the high levels of debt and cuts in interest rates to Machinery Industry.” 21 February 2013 http://www.constructionshows. support large SOEs. This report did not focus on such issues and therefore com/development-of-changsha-construction-machinery-industry/216986, cannot confirm or deny any such issues in Changsha. The primary focus of November 14, 2014. this report was what the City did well. 152 overseas and in 2012 had a 27% jump in overseas sales (just 2. Changsha was cost competitive in terms of logistics, as domestic demand was in decline) . labor and land (due to municipal improvements atop inherited advantages) What Was the Impact of the Industry on the City? 3. There was significant market demand; Changsha The construction machinery industry had a signifi- boasts high per capita income levels and high rates of cant economic impact on the city, providing critical consumer spending, while the central region of China tax revenues, technical training for worker develop- more largely has a relatively unsaturated market and ment, jobs and increased incomes. The industry reached high levels of growth predicted in the next ten years. 194.7 billion yuan in industrial output in 2012179 (a 6.6% increase from 2011) and accounted for 24% of the City’s total 4. There was some existing capacity for supply, albeit industrial output value in 2011. In terms of employment, the small and of doubtful competitiveness; including a top two firms alone (Sany and Zoomlion) employ over 30,000 few automobile parts factories and spillovers from skills people in Changsha, smaller firms like AVIC Landing Gear developed for workers in the electronics industry. employ about 3,000180, and most total industry employment estimates are around 100,000. Taking into account the indus- These factors were understood intuitively and via try multiplier of 5181, and assuming a 2.25 million size labor market-testing rather than through extensive desk force (50% labor participation rate of a 4.5 million population analysis. The city’s strategy for automobile manufacturing size core city), employment from this industry cluster rep- was based on some analysis, albeit of uncertain robustness resents over 20% of total Changsha job opportunities. and with extremely aggressive targets. Moreover, the strat- egy for other industries has been somewhat less successful, Factor 2: Utilizing inter-agency coordination for example, the city’s selection of the electronics industry. mechanisms to improve investment attraction Although a single electronics firm has created a large number of jobs producing screens for the iPhone, there has not been The government of Changsha successfully diversified the city’s eco- the growth of a cluster of firms such as in the automobile in- nomic base by attracting new industries, like the automobile indus- dustry. In fact, a large MNC left when its tax benefits expired try. The city used effective interagency coordination mechanisms, (see text box). It is debatable whether this should be seen as a called “Leading Groups” to coordinate investment attraction efforts blemish, since this meant, in practice, applying a market test across departments and industrial parks management structures. rather than a consultant test. Such tests however may only be This diversification ultimately reduced the city’s exposure to the feasible at a smaller scale for cities with greater constraints construction downturn and helped Changsha to avoid the fate of on fiscal action. other largely one industry dependent cities (e.g., Detroit). Firms like Fiat and Sumitomo were attracted to What Did Investment Attraction Look Like? Changsha, citing cost competitiveness, capacity and market opportunities as key reasons behind their de- The municipal government prioritized the attraction cisions to invest. However firms were further attracted by of new industries in order to reduce the city’s depen- incentives offered; such as preferential tax policies, availabil- dence on the construction machinery industry for ity of funding (e.g. tax credits for high-tech R&D activities), jobs and tax revenue. The city quickly set its sights on the and locational advantages in industrial parks where input automobile industry as it offered a large number of jobs for suppliers could be co-located with component parts produc- lower skilled workers, and despite the city’s efforts to improve ers. Park and management offices could more easily address levels of human capital, there were still numerous lower labor supply needs (conducting regular recruitment events). skilled workers seeking employment in the city. While numerous parks exist in China offering similar pref- erential treatment, the firms interviewed highlighted the The city had a number of factors in their favor for attentiveness and attraction coordination by the municipal attracting the automobile industry: 1. The automobile industry was a nationally prioritized sector, so proactively targeting this Letting Key Firms in the Electronics Industry Leave industry was in line with the interests of provincial It is important to note that not all attraction efforts were and national level officials (The city did not target all met with success. In the electronics industry, LG was nationally prioritized sectors, the municipal government attracted but left when nearby city Wuhan offered more only targeted those for which they felt they had capacity; attractive incentives. Changsha did not try to compete for instance, they dismissed the textile industry). with Wuhan or initiate a race to the bottom. Instead, the government maintained that preferential policies should expire and focused its efforts on industries in which it had 179 Changsha Commerce Bureau, “Invest in Changsha”. 2013. a competitive advantage. The electronics industry still ex- http://www.csinvest.gov.cn/jjcs_cssyscy_1.asp, 15 October 15, 2014. ists, but compared to the automobile industry is small and 180 ibid 181 Each job directly in the industry supports another 5 jobs city- highly concentrated in one firm. wide 153 government as one of the key factors in their decision to parks are funded by land sales, leases and service fees, invest. with net surpluses contributed back to the municipal budget. Historically, the parks were held to individual The automobile industry’s entrance was well-timed; targets that promoted quantity (number of firms and just as the downturn in the construction machinery jobs) over quality. However, of late, this has been chang- sector began the preferential tax policies expired ing; clear directives (and correspondingly lower targets) for the automobile industry. In one county, tax revenues have been given to parks, like the Changsha High-Tech from the construction machinery industry had accounted Industrial Development Zone, to prioritize quality182 for 30% of the tax base and fell to just 10% after the drop in over quantity. demand. Increasing tax revenues in one industry essentially counterbalanced falling tax revenues in another industry, The “Leading Group for an open economy” works to mitigating the impact of individual industry cycles. promote high-quality investment attraction ef- fectively across municipal departments and park How Did the Government Successfully Manage Invest- organizing committees; creating a framework that ment Attraction? clearly establishes roles, reporting requirements and accountability. This specific Leading Group is headed by The municipal government utilized Leading Groups to the Mayor and supported by a dedicated office that draws effectively coordinate investment attraction efforts on personnel and resources from the Bureau of Commerce. and investor aftercare. Leading Groups are temporary There are approximately 30 departments (across the munici- committees that are convened for a specific initiative (like in- pal, county and park government structures) that are formal vestment attraction) in order to both coordinate among var- members of the Leading Group, their respective roles delin- ious departments as well as keep top level officials informed eated in a concise 4-5 page document. The Leading Group of progress and/or problems. Leading Groups were in no way draws on the management structure of each individual party, unique to Changsha, but are a common mechanism used ensuring that problems move efficiently up existing channels. across China by government officials. It should also be noted that not all leading groups are successful. Those that are set Reporting requirements for members of the Leading up for an initiative falling into the city’s prioritized area and Group ensured that investor problems are dealt with are overseen by the mayor himself tend to be more effective. in a timely fashion (see graphic on next page). Depart- ments can voluntarily bring up problems, but the Leading Leading Groups coordinated not only different Group mechanism is intended to catch problems routinely, departments but different levels of government, through reporting: including municipal departments and industrial park management: 1. Each week, designated officers within parks call their assigned investor to check if any problems or concerns • Municipal Government Level: All municipal employ- have emerged. Problems can be addressed immediately ees have a shared objective of achieving GDP growth within the park management structure (if possible). Only targets, for which city leaders are ultimately assessed on unsolved problems are listed in the monthly report. achieving. Departments are individually evaluated on specific initiatives that contribute to GDP growth and 2. Each month, the municipal departments, park tax revenues (which provide further funding for initia- organizing committees and county governments submit tives designed to promote growth). However, like many a monthly report to the Leading Group office on progress other cities, individual departments can suffer from and problems with investments in their jurisdiction. If working in silos, and can have difficulties cooperating on reports indicate a problem or delay, then the Leading inter-agency matters. The personnel evaluation system Group office will address this problem with the reporting tracks, to some extent, responsiveness to others’ prob- party immediately. If the problem persists, then it will lems. However on its own, the municipal governance be brought up at the quarterly meeting of the Leading structure had no incentive system or coordination mech- Group (see #4). anism (before Leading Groups) to address these issues. 3. Each quarter, within parks, directors and senior • Industrial Parks: All of the parks in the city have inde- management meet with all investors to address issues pendent management structures called “organizing com- and discuss prospective problems. Problems that cannot mittees”. Each declared park is over 100 km2 (although be resolved are taken to the Leading Group quarterly zones are built incrementally in phases of 10-15 km2), meeting (see #4). and contains factories, roads residential, retail, and even schools and hospitals. Formally the organizing commit- 4. Each quarter, the Vice-Mayor chairs a meeting for tee is considered an independent government, ranked “core” members of the Leading Group. Only problems a half-level up from the county level. The organizing and changes in policy are addressed at this meeting, committees are large enough to address many of their own problems internally, and small enough that internal 182 “Quality” refers to promotion of start-ups, and high tech R&D coordination between departments is relatively easy. The and higher value added production by firms. 154 indicative of the trend to raise problems (not approvals) Further, performance evaluations are conducted at all levels. to high-level officials’ attention. The municipal departments and parks each have annual performance evaluations that measure industrial output 5. If problem is still not adequately addressed, then and annual revenue (industrial parks) and contributions to the Leading Group office brings the matter to the Mayor, GDP and tax revenue (municipal departments). But at a more who calls a subset of the Leading Group (of concerned detailed level, these evaluations incorporate organizational departments) to solve the problem. Additionally, responsiveness and contributions to prioritized initiatives. problems can be set aside for the semi-annual plenary sessions of the Leading Group, held for particularly What Was the Impact of the Leading Group? intractable problems (and shifts in policy). While the Leading Group for an open economy is not Finally, measures to improve accountability at the necessarily unique to Changsha or even the time individual and department level were incorporated period in question, it undoubtedly helped the city to into the framework. All personnel are required to handle attract new industries. As a result of coordination mech- problems that are brought to their attention or they must anisms and efforts to improve investment attraction and be officially handed off to another department. Even if the investor aftercare, the city attracted new firms in emerging request is brought to a department that is not the best suited industries, like automobiles, electronics and biomedicine. to assist, that department is required to handle or “hand-off” These new industries contributed to economic growth and the request to the appropriate department. While focal points diversification, increasing tax revenues and resilience to exist for each investor, no focal point is designated as the sole industry specific downturns. point of contact, ensuring that the investor may contact any department or personnel that they desire. A response of “not my mandate” is considered unacceptable, and to monitor this, it is required that requests brought to specific individuals are tracked in personnel files (and firm concerns are likely to resurface…). Industrial Output by Industry (2012)183 Construction Machinery Industry 194.7 billion yuan (30.96 billion USD) Automobiles and Parts 31.1 billion yuan (4.95 billion USD) Cultural and Creative Industry 125 billion yuan (19.88 billion USD) New Materials4 123.9 billion yuan (19.7 billion USD) Biomedical 19.8 billion yuan (3.15 billion USD) 155 183 KPMG 2013 Specifically, the automobile industry supported city utilized the Leading Group mechanism (called the Lead- resilience after the downturn of the construction ing Group for Talent Attraction) to coordinate tasks, such as: machinery industry. In 2008, industrial output in the au- tomobile industry was only 14.7 billion RMB184, but by 2012, • the identification of existing firms, areas of research and industrial output had more than doubled to 31.1 billion RMB emerging industries in which new talent was needed; (an increase alone of 26.6% from 2011185). Firms working in the automobile industry include Bosch, Lizhong Automobile • the leveraging of national level programs and funding; Design, Sumitomo Rubber, Hitachi, BYD, GAC Fiat, etc.186. At and present, a new Volkswagen plant is under construction that • the implementation of recruitment efforts both domesti- will increase the production capacity in the city by 300,000 cally and overseas. cars in 2016187. At the national level, Changsha made aggressive use Factor 3: Developing and acquiring higher levels of national programs designed to recruit high level of human capital research talents. For instance, the 1,000 Talent Attraction program, which started in 2009, accepts applications from The municipal government of Changsha placed a high and sus- candidates who have resettled in China and are willing to tained priority on human capital; seeking to ultimately increase stay for up to 3 years. The National Central Organizing Com- incomes and GDP growth through higher levels of human capi- mittee evaluates applicants against specific criteria and pro- tal. Higher levels of human capital in Changsha contributed to vides compensation for approved “talent” as compensation improvements in productivity and innovation at existing firms, and/or a resettlement allowance. The municipal government attraction of higher value added sectors and the growth of new used this program- and compensation package- both to mar- firms in emerging industries. Senior officials all listed invest- ket the city to individuals (to encourage them to resettle in ment in human capital as their first priority, well above physical Changsha) and for utilization by its top firms, like Sany and infrastructure. However, building human capital is much easier Zoomlion, who recruited high level talents with the knowl- said than done, and beset with market and institutional failures. edge that funding could be individually applied for through Changsha’s strategies for improving levels of human capital in the the national program. Both Sany and Zoomlion reported that city have been centered on two approaches: talent attraction and several of their most important senior researchers in their vocational training. expanding R&D centers were attracted through the program. What Challenges and Advantages did Changsha Inherit At the municipal level, the city independently at- regarding Human Capital? tracted talent by developing municipal attraction Although home to numerous universities, Changsha programs. Municipal Program 313, for example, which did not inherit any significant advantage in terms of began in 2009, was implemented by the Talent Attraction an abundance of high level human capital. In fact, brain Leading Group. The program utilized diaspora networks over- drains were common to the central and western regions of seas to promote and attract new applicants to the program, China, with top level talent migrating both domestically and as those with stronger connections to the city could be more internationally. Nationally, large Tier 1 cities in the eastern easily convinced to resettle or stay in Changsha. Diaspo- (or coastal) provinces, like Beijing, Shanghai, Guangzhou and ra networks were also used as a low-cost marketing and Shenzhen attracted top talent with their highly ranked uni- outreach tool, helping to advertise and identify individuals versity degrees, and/or more attractive incomes and lifestyles. in targeted industries that could be recruited. The program enjoyed such success that the Leading Group has plans to What did Talent Attraction Programs Look Like? develop a follow on attraction program. Changsha has leveraged national and provincial level What did Vocational Training Look Like? programs as well as developed municipal programs to attract highly talented individuals both domestically The municipal government in Changsha certified and and abroad. In order to improve levels of human capital provided funding to eligible vocational schools. Higher within the city, the municipal government sought to attract vocational degree programs are degrees available to high new talent. Similar to efforts to promote new investment, the school graduates that complete 3-4 years of vocational train- ing at specialized schools. These programs are ubiquitous in China; intended to address unemployment and increasing demands for skilled labor in specialized fields. However, 184 KPMG. “Changsha National Economic and Technical Develop- unlike other cities, Changsha has managed to address many ment Zone, Investment Environment Report 2009”. 21 October 2014. porting high levels of satisfaction with local schools and the 185 KPMG 2013 availability of skilled labor. The city achieved these outcomes 186 ibid by: imposing high barriers to entry, stimulating competition 187 The Wall Street Journal. “Volkswagon Readies New China Facto- through transparent performance reporting, providing fund- ry”. 13 May 2013. 10 November 2014. 156 The city imposed high barriers to entry for vocational program for new hires and had its program certified by the degree programs,188 improving the quality of supply. municipal government (Sany Technical School). While not Each program must be certified by the central government available to all citizens, the training was of exceptionally high in order to operate. This is the case even for public schools, quality and would improve the competitiveness of workers. where operated by the local municipality. The certification Instead of receiving direct funding from the government, the requirements are steep (e.g. evaluated against a list of 50 firm received tax credits, further incentivizing the provision indicators), but not impossible for schools of good quality. of high quality trainings – as well as potential spillovers. The certification only takes place once every five years which minimizes the administrative burden on local government. Finally, the city improved linkages between vocation- Schools that fail are given a second chance to reform, with al programs and firms, promoting desired outcomes specific guidance to help them do so. The result was compar- like improved curriculums and employment. The parks atively few post-secondary vocational schools. Within the made frequent linkages between vocational programs and city’s remit (i.e. senior vocational schools administered by the firms, helping firms address their needs for skilled labor. municipal government, not the provincial or national govern- Some firms identified vocational schools on their own, due ment), there are only 9 senior vocational schools which confer to increased transparency measures regarding performance a 3-year associate degree (some also award a 4-year college by the government. Cooperation between schools and firms degree), and 6 of these schools are privately administered. varied; in some cases, schools signed cooperation contracts This small number of schools helps to facilitate the flow of with firms to provide tailored curricula. In exchange, firms information about schools’ quality (i.e. less schools to keep would host internships or recruit from these programs. These track of), both among potential students (or their parents) agreements were not exclusive; in fact, it was not uncommon and among potential employers. for firms to sign 30+ agreements to ensure a variety of skills were developed to meet their needs. Competition between schools was stimulated by im- proved transparency regarding performance and the The government also facilitated linkages between promotion of new providers. For instance, the average vocational schools and firms in order to promote em- score on the national exam of the incoming class of students ployment after graduation. The municipal government for each school is made publicly available; which reflects the provided funding for on-site career placement offices within caliber of the school and can influence future applicants schools and organized job fairs, while the talent service cen- and firms looking to recruit or co-develop curriculums. The ters within industrial parks held regular job fairs to connect employment rates of recent graduates are also made publicly students with hiring firms. Due to these efforts, Changsha available, which serves as an indicator to the government, generated optimal outcomes like high rates of employment firms and students about the applicability of the curricu- among graduates and minimal “skill mismatches”. lum, quality of the institution, and overall responsiveness of the school to needs of firms. These are measures that are What was the Impact of these Efforts? typically taken across China, and often at the provincial or The municipal talent attraction program alone has successful- national level (however, there is little reason to believe cities ly attracted 102 “high level talents” and 17 start-ups in just elsewhere could not undertake them within their jurisdic- 3 years. Through national programs, Changsha has recruited tion). Finally, the city promoted private sector vocational more than 10,000 professionals between 2009-2011,189 and training programs, which was not necessarily the norm in has earmarked 30 million RMB to fund future attraction China. This conversely reduced barriers to entry and allowed programs. Key “talents” are helping to further diversify the more, potentially competitive, training providers to enter the economy, leading cutting edge 3D printing companies and market, reducing the likelihood of a monopoly. Encouraging starting up firms in the emerging biomedical industry. private sector providers thereby stimulated competition, as the threat of new entrants (or degree programs) kept all In terms of vocational training, interviewed firms reported schools competitive. that skilled labor has been relatively easy to find, and noted that this had been a key factor in their decision to invest. Changsha provided funding for public and private One MNC explained that they were so satisfied with the schools, with the provision of funding linked to the skills in Changsha that they planned to bring higher value number of students enrolled. In doing so, the gov- added production to their operations in the city. Factory-floor ernment both rewarded high quality institutions observation confirmed that the largest firms were execut- and incentivized schools to respond to the needs of ing advanced production techniques, and that attrition students. For example, Sany developed a worker training and poaching were relatively low among higher-value firms (otherwise were dependent on benefits and where companies 188 Vocational degree programs differ from vocational training ranked in terms of pay scales). programs. There are thousands of vocational training programs across China; mostly private sector run and lightly regulated, these programs attract students for short training courses (e.g. English classes). Vocational degree programs are multi-year training programs; increasingly regulated by the government, these offer planned curriculums that develop specialized skillsets. 189 KPMG 2013 157 158 Conclusion Changsha’s economic growth in the period of 2007- 2012 was not due to efforts by the municipal gov- ernment alone, nor was it a result of the exceptional success of one industry. The city’s success is due to a com- bination of factors, including inherited advantages, national and provincial level policies, and municipal government initiatives. While only the most unique and constructive factors are noted in this report190, these factors have positive- ly impacted the city, contributing to the competitiveness of firms and the growth of the economy. The most significant growth was in the manufactur- ing industry, which overtook the services sector in terms of contribution to GDP since 2003 (see excerpt below from the KPMG Investment Environment Report, 2013).191 In 2012, growth in the manufacturing industry had increased from 2012 by about 278.5 billion CNY (about 46.5 billion USD). This was primarily led by key industries such as: construction machinery, automobiles and parts, household appliances, electronics, biological medicine and advanced ma- terials. In terms of jobs, the construction machinery industry alone accounted for over 100,000 jobs in Changsha192, and with a multiplier of 5, indirectly created about 500,000 jobs (over 20% of the city’s labor force). In sum, while inherited and national level factors provided the city with both an increasingly competi- tive location (centrally located with improved exter- nal connectivity) and an industry-specific knowledge base; success was ultimately dependent on the city’s efforts to leverage these factors in order to take advantage of economic opportunities. National level factors were insufficient to trigger growth independent of municipal interventions. It was the municipal government that leveraged advantages, providing support to firms across industries and employing effective inter-agency coordination mechanisms that improved the efficiency and responsive- ness of government agencies. These measures helped the city to develop globally competitive industries and successfully attract new firms and talent – further diversifying, strength- ening and ultimately, growing the economy. 190 For example, many critiques note the questionable high levels of debt among cities and SOEs. 191 KPMG 2013 192 “Invest in Changsha” 159 Lessons for Other Cities 3. Improving cross-silo coordination by elevating problems (not approval processes), under disci- plined monitoring and accountability mechanisms Changsha, a mid-sized, provincial capital city in central (e.g. Leading Groups). Whether through permanent China, recorded very high absolute, and relative, growth in agencies or temporary leading groups, inter-agency coor- terms of GDP and employment growth in 2007-2012. While dination can be improved by developing institutions that this case study does not certify that Changsha’s success was clearly designate responsible parties for specific issues, unique nationally, or that its success will be permanent, it hold members accountable for resolving issues, require does offer lessons for other cities (particularly for those out- group members to meet at frequent intervals to “catch” side China, but also within) in how Changsha achieved such unsolved issues, and elevate problems that cannot be rapid growth as a national Tier 2 (or secondary) city: adequately solved to the next level. Monitoring success, in terms of the issues resolved vs. unresolved, further 1. Firms become competitive, as a result of inter-firm increases accountability among individual parties. competition and strong management capabilities. Evaluating firm competitiveness is critical to the identification, and subsequent prioritization, of pillar 4. Regulating and promoting competition among vo- industries. Initiatives to promote competitiveness cational training facilities helps cities to address com- include: mon quality control problems in terms of relevant skill development. By requiring that all programs be certified in order to operate, and undergo regular evaluations to -- SOEs: Decentralizing authority to top managers, re- maintain certification, cities can better regulate the type ducing support and government shares, and selling and number of degree programs available. The certifi- SOEs that cannot compete (sale of bankrupt SOE to cation of schools is not intended to limit providers and Zoomlion). allow schools to develop monopolistic positions; in fact, -- Private Firms: Different levels of assistance are competition among schools is promoted by encouraging offered in the early, mid and later stages in order to private and publicly managed schools to administer pro- both avoid choosing winners and help those firms grams. Further, cities can better recommend and provide with potential to compete globally. In the early linkages to private sector firms more cost effectively by stage- offering market information to all firms; in using verifiable statistics on performance to monitor the middle stage- offering industrial park land to school quality and desired outcomes. firms that have demonstrated growth and job cre- ation; in the later stage- providing support for R&D, 5. Attracting new talent as well as new investment with tax credits to those demonstrating higher-val- improves the ability of cities to develop competitive ue added production. industries. Cities with large populations can struggle to convert human resources into human capital, but talent -- Foreign Firms: Enforcing the termination of prefer- attraction programs can contribute to this conversion, ential policies (e.g. tax breaks) after the introductory as part of a larger, multi-pronged approach to improve period and letting firms go that are uncompetitive human capital. Best practices in talent attraction are or refusing to operate without excessive support (i.e. similar to those in investment attraction: Target individ- avoiding a “race to the bottom”). uals in prioritized areas that could further contribute to the competitiveness of existing or emerging industries; 2. Investing in information flows; both public and provide limited preferential treatment (resettlement private can have a high impact, multiplier effect as a packages for stay of 3 years or more); and utilize diaspora public good- especially for start-ups. networks as a low cost outreach tool as well as to attract individuals willing to make long-term investments in the -- The provision of market information can be a city (and not leave for the next attractive package). relatively cost-efficient way to provide support to multi-firm industries. -- Allowing market information to become publicly available- for example publishing test scores of incoming students as an indicator of school qual- ity- helps to inform consumers and consequently, promotes the success of the most competitive among firms (and schools). 160 6. Leveraging national level programs can increase the resources available to municipalities to implement new programs and initiatives. In the case of Changsha, the city successfully leveraged national level programs for talent attraction and strategically selected a nationally prioritized industry for its investment attraction efforts (e.g. automobiles). This not only saved the city money, as funding was available at the national level to support ini- tiatives (e.g. funds to compensate certified “talent” that relocated to the city) but reduced the need for the city to duplicate administrative efforts as well. Changsha even encouraged local firms to take advantage of national level programs, helping lead firms to attract thousands of new employees. Of course, these interventions relied on several conditions that were present in China, and while we cannot know if these same interventions would be as effective in other envi- ronments, we can identify a few of the scope conditions that boosted the effectiveness of interventions in this case: 1. Availability of financial resources: For instance, attracting foreign talent can require compensation or resettlement allowances, and the city must have additional funds available for these purposes (without otherwise draining funds for key services or vulnerable groups). 2. Performance on cross-department initiatives: Interagency coordination efforts were undeniably supported by the fact that personnel had existing incentives to focus on cross-department outcomes (e.g., with the city’s growth affecting all officials’ promotion prospects to a greater or lesser extent). 3. Reliable, Nationally Standardized Tools: Vocational degree programs had high barriers to entry, but those that were in operation were of high quality. How did the government successfully develop a barrier to distinguish high quality from low quality programs? The municipal government had appropriate certification standards to distinguish programs as well as significant authority to mandate curriculums. In terms of standards, the government relied on available tools- such as nationally standardized test scores for high school students (which were almost impossible to manipulate)- to measure the quality of existing institutions. 161 Appendices global markets as well. Higher value-added new industries also start emerging, such as cultural and creative industry in the services sector and Testing of Standardized Research Hy- biomedical industry. potheses 2. While Changsha had strategic plans for long- As noted in the report’s Introduction, this is the fifth in a term economic and social development, such as series of case studies of economically successful cities around the widely-quoted “five-year” plans, its policy the world. In order to ensure comparability of “teachable mo- interventions were largely planned and driven ments” across all case studies, a set of standardized research by opportunities identified by the market. The hypotheses was tested in Changsha to determine the exact municipal government strategically planned and scope for action at the metropolitan level, factors that may intervened in industries that can effectively capitalize have most affected how those prerogatives were used, and on market trends and location advantages (e.g. the the extent to which specific interventions (and how they were automobile and construction machinery industries). implemented) may have resulted in the economic outcomes If certain firms (even key firms) were proven to be observed. “outdated” in the market, the municipal government was ready to let these firms leave the city.193 The first hypothesis tested seeks to determine to what extent Changsha’s economic results were attributable to proactive- a. In general, strategic plans in Changsha (and ly picking sectors to support, the second one looks at the China) listed out general economic and social strategic planning process itself (if any) and how it may have targets and can be served as a guidance to affected economic growth, and the third one looks at the identify prioritized sectors or interventions. plan’s implementation, if applicable. However, the wordings of these strategic plans are usually “vague” which left some space 1. Changsha’s recent economic success is attributable and flexibilities for local governments in to its having made strategic bets on specific terms of how they would design and plan to industry initiative, rather than just improving achieve the targets. For the case of Changsha, their general investment climate. Before making bets the Five-year Plan of 2001-2005 specified that on specific industries or firms, the government did not Changsha should target to have the industry select individual industries or firms as local champions, sector to be the main pillar of its local economy. but allowed firms to demonstrate capability to compete The Five-year Plan of 2006-2010 emphasized before receiving more tailored support. the need for Changsha to grow its industrial a. Changsha is particularly well-known for its clusters and helped firms to move up the value construction machinery industry. The two chain. Changsha was traditionally strong in anchor firms in this industry, Sany (a private the consumer services sector, but within a firm) and Zoomlion (an SOE) ranked #6 and 10-year timeframe (2001-2010), its economic #7 respectively globally in the construction structure transitioned from a consumer services machinery industry. They are global firms dominated one to an industry sector dominated producing tradable goods —their products one, with some “star” industrial companies and export to over 100 countries and these two cluster well-known not only in the domestic firms both have subsidiaries worldwide. market but also internationally. However, the analytics (or the existence of it), the • Other major industries in Changsha are new detailed planning process are little known materials and automobiles & parts. While to the general public. they are not as prominent as the construction machinery industry, they help diversify the b. There is no prominent “growth coalition” city’s economic structure, enlarge the city’s tax at the city level: while private sectors’ concerns base, and create job opportunities. and problems are regularly communicated to government officials, and academics are b. New business and industries appeared, hired by government as advisors, there is not together with the continued growth of existing a systematic mechanism to convene them to firms. While Sany and Zoomlion grew rapidly become a growth coalition. from local homegrown firms to globally competitive firms in a matter of two decades, 193 For example, a renowned multinational firm used to produce other new start-ups in the same industry also CRT TV screens in one of the industrial parks in Changsha. When the appeared. Some late-comers, such as Sunward, incentive package expired and the firm threatened to leave Changsha, the are said to be even more technologically municipal government did not engage in “race to the bottom” competition advanced than the already established firms to match the incentive package to keep the firm. The firm eventually left and these new firms are rapidly moving into and the factory space was turned into producing touch screens of smart- phones. 162 c. While clearly there are strategic a. In general, Chinese cities enjoy a relative prioritization in different public investment high degree of fiscal and political autonomy alternatives, the process of this decision is not compared with other cities globally. The transparent and is little known to the public. Provincial Development & Reform Committee, Commerce Bureau of Changsha, Commission d. In Chinese cities, including Changsha, fiscal of Industry and Information Technology of transfers from the central government, taxation Changsha, and the Management Offices of on business, as well as profits from land leases various industrial parks in the city are the account for a large part of local revenues which major government entities to set and achieve are used to finance city-level interventions. economic targets. However, it should be noted As the heavy use of special purchase vehicle that since city leadership in China is heavily companies to finance infrastructure projects evaluated on the city’s economic performance, is being discouraged in recent years, public- city leaders—not only the mayors but also private partnerships (PPPs) are becoming leaders in all departments—have the incentives more and more popular. This provides viable to work together towards achieving economic funding sources for Changsha. Changsha targets. In general, all government entities has maintained a balanced budget with a small have well-defined roles, autonomy, funding and surplus in recent years. geographic remits. 3. Local government bodies in China played a huge b. The Changsha municipal government utilized role in the implementation of interventions aimed Leading Groups, inter-agency coordination at fostering economic growth. The public sector has mechanisms, to coordinate the implementation undertaken proactive interventions – through plans, of interventions. Leading Groups are infrastructure provision, and enterprise support – to temporary committees that are convened for a spur economic development. Changsha government specific initiative in order to coordinate among utilized Leading Group mechanisms to mitigate inter- different departments and different levels of agency coordination failures, leveraged national and government. There is also a specific reporting provincial level programs and developed local programs mechanism in place that allows issues identified to bring about the optimal outcomes of these proactive or raised by firms to be addressed in a timely interventions. fashion. If they are not resolved within the designated time frame by the responsible government departments, these issues will be ultimately taken to the mayor for mediation and resolution. c. There is very limited private-sector or other stakeholder involvement in implementation. 163 Interviews 1. In person interview with Huang Bin, Deputy Director, 9. In person interview with Municipal Department Development Research Center and Shen Bing, Division of Science & Technology in Changsha, China on 12 Chief of Urban Research, National Development and September 2014. Reform Commission, in Beijing, China on 9 September 2014. 10. In person interview with Municipal Department of HR & Social Security in Changsha, China on 12 September 2. In person interview with the Mayor and Municipal 2014. Government of Changsha (Mayor Hu Henghua, Secretary General Ling Qinjie, Director of Changsha 11. In person interview with SANY (Director and Group Vice Foreign Affairs Office Du Zhongta, Director of Changsha President, Public Relations Manager, R&D Director) and Finance Bureau Zhang Min, Deputy Director of Changsha Economic & Technical Development Zone Changsha Development and Reform Commission Hu Liaison Office in Changsha, China on 15 September Shengguo, Deputy Director of Changsha Research Office 2014. Tang Shuguang) in Changsha, China on 10 September 2014. 12. In person interview with Zoomlion (Director of the Finance Department) in Changsha, China on 15 3. In person interview with Municipal Departments of September 2014. Changsha (Foreign and Overseas Chinese Affairs Office of Municipal Government, Finance Bureau, Commission 13. In person interview with Changsha Enterprise of Industry and Information Technology, Commerce Association for Foreign Investment in Changsha, China Bureau, Science and Technology Bureau, Human on 16 September 2014. Resource and Social Security Bureau, China Council 14. In person interview with Vice President of the Hunan for the Promotion of International Trade Changsha Broadcasting System in Changsha, China on 16 Branch, Administration for Industry and Commerce) in September 2014. Changsha, China on 10 September 2014. 15. In person interview with the Changsha University 4. In person interview with National Industrial Parks of Science & Technology in Changsha, China on 16 of Changsha (Changsha Economic and Technical September 2014. Development Group, Administrative Committee of Changsha National High-Tech Industrial Development 16. In person interview with Chang Wei, Deputy Director Zone, Changsha High-Tech Zone Innovation Service of the Hunan Provincial Department of Science & Center, Xiangjiang New Area, Changsha Finance Bureau) Technology in Changsha, China on 17 September 2014. in Changsha, China on 11 September 2014. 17. In person interview with Municipal Department of 5. In person interview with He Jian, Senior Manager, Education, in Changsha, China on 17 September 2014. Finance & Accounting, Bosch Automotive Products Co., Ltd. in Changsha, China on 11 September 2014. 18. In person interview with Municipal Talent Attraction Committee in Changsha, China on 17 September 2014. 6. In person interview with Masahiko Tanaka, Senior General Manager, HR & GA, Sumitomo Rubber Hunan 19. In person interview with Hunan Provincial Development Co., Ltd (Dunlop) in Changsha, China on 12 September & Reform Committee, in Changsha, China on 17 2014. September 2014. 7. In person interview with Joe Wu, Human Resource 20. In person interview with Huna Provincial Department of Department, Project Manager, and Chen Ye, Manager, Commerce and Hunan Provincial Finance Department in Business Management Division, GAC Fiat Automobiles Changsha, China on 17 September 2014. Co., Ltd in Changsha, China on 12 September 2014. 21. In person interview with Zhuzhou CSR in Changsha, 8. In person interview with Municipal Bureau of Commerce China on 18 September 2014. in Changsha, China on 12 September 2014. 22. In person interview with Hunan Development Research Center in Changsha, China on 18 September 2014. 164 165 Tangier, Morocco, December 2014 Case Study 6 Tangier, Morocco Leveraging Maritime Commerce to Accelerate Economic Growth Table of Contents Introduction 169 Executive Summary 170 The National Context 174 Local Context 181 Analysis 194 Factors of Competitiveness 194 Lessons for Other Cities 195 Appendices 197 168 Introduction T his case study of the economic success of the Moroc- Tangier provides an example of a successful secondary city can city of Tangier marks the sixth and final report in an administratively highly centralized (though gradually in a series of World Bank case studies of successful de-centralizing) country, which successfully leveraged a ma- metropolitan economies around the globe, under the Bank’s jor national economic development initiative to reinvent its Competitive Cities Knowledge Base (CCKB) project. Tangier is own economic structure, integrate into global value chains, the sole representative city for the Middle East/North Africa significantly improve its human capital, create local employ- (MENA) Region. ment opportunities, and thus enhance the overall economic prosperity of its residents. Tangier’s success has been enabled The CCKB project aims to provide city leaders with the tools by the Moroccan government’s strategic decision to better and knowledge for the successful formulation and implemen- integrate the northern regions with the rest of the country, tation of proactive economic development strategies at the and to jump-start these areas’ development by making major city level. All six cities in this series have been studied using a investments in physical infrastructure and human capital. uniform methodology, testing a set of standardized research None of the positive outcomes observed were inevitable; hypotheses (provided as an appendix to this report) to under- indeed, a number of factors and local actors came together stand the cities’ economic success over the decade from 2002 to successfully translate this national initiative into robust to 2012, as well as any prior decisions or additional factors economic results at the local level. that may have influenced economic outcomes over the period studied. The study’s scope is limited to this timeframe in This report is based on primary and secondary research by order to ensure the comparability of findings. In functional the Bank’s Competitive Cities Knowledge Base team, includ- terms, its focus is only on economic development (particu- ing two weeks spent in Morocco in December 2014, inter- larly job creation), not related though interesting topics like viewing government officials in Tangier, as well as members national competitiveness or municipal service provision. of the city’s business community. The mission also met with representatives of national government agencies and busi- Tangier is a mid-sized port city in a lower-middle income ness associations in the administrative capital, Rabat, and country, with a relatively highly manufacturing-intensive the country’s main business hub, Casablanca. The report also economy and an expanding tourism sector. Tangier has incorporates internal Bank staff feedback received during enjoyed much success in recent years in improving its resi- April 2015. dents’ prosperity, and in many respects has made significant progress in catching up with Morocco’s other leading cities This report was prepared by Z. Joe Kulenovic, with input and such as Casablanca and Rabat. Indeed, over the past decade, suggestions from Karim Amri, Marie Cerceau, Philippe de Tangier has had one of the better performing metropolitan Meneval, Andrea Liverani, and the broader CCKB team. The economies in the MENA region in terms of GDP and employ- co-TTLs of the CCKB project are Austin Kilroy and Megha ment growth. Mukim. Overall guidance on the project has been provided by Stefano Negri, Sameh Wahba, and Somik Lall as senior advisors. 169 Executive Summary The Moroccan port city of Tangier provides an ex- a megacity, with all the accompanying challenges this brings, ample of a secondary city successfully leveraging a even as more peripheral regions stagnated and continued to major national economic development initiative to see an exodus of residents in search of jobs and opportuni- accelerate its own growth, and to move towards a ties. With the accession of the present monarch in 1999, the more diversified economic structure. This is a process national government’s adopted essentially a twofold response which has been underway for well over a decade now, with to these challenges: accelerate the construction of physical highly visible results on the ground. But Tangier’s success is infrastructure to better connect the country’s regions to its not the story of a city content to just sit back and wait for the core, and devolve some decision-making authority to the national authorities to make things happen; local actors and regional and local level. institutions proactively seized upon this once-in-a-lifetime opportunity to remake their local economy, crate jobs, and As the 21st century began, the Moroccan government achieve a higher quality of growth. made a far-reaching strategic decision to make Tang- ier an alternate “pole” driving Morocco’s economic Tangier is one of the world’s oldest and perhaps best growth, in addition to the country’s traditional business hub known cities, harking back to Phoenician and Roman of Casablanca. Tangier already had a reasonably well-devel- times. Over several millennia of recorded history, the city oped local manufacturing sector, and its strategic location at had been ruled by many powers before its reintegration into the doorstep of the European Union as well as at the inter- an independent Morocco in 1956. But given its location at the section of major global maritime routes provided inherent northernmost tip of Africa, the Tangier-Tétouan region re- advantages that could not be ignored. Much of Morocco’s mained relatively isolated from the rest of Morocco for nearly maritime passenger traffic with the EU, for example, passed another half century after independence. Road and rail con- through the port of Tangier. The national government there- nections were inadequate, air links expensive and infrequent, fore decided to build a brand new seaport complex and logis- and domestic longshore shipping underdeveloped. Getting tics hub some 35 km east of the city of Tangier itself, directly products to markets in other parts of the country was more across the Strait from Gibraltar and Algeciras in Spain, and challenging than just shipping them across the Strait of to properly connect them to the rest of Morocco via modern Gibraltar to Europe, less than ten miles away. Even in the transport infrastructure. The stage was thus set for a chain of absence of free access to European and other foreign markets, events which would end up transforming Tangier’s economy Tangier managed to develop a local textile and leather indus- and turn it into a major success story after decades of relative try, in addition to its more traditional economic mainstays stagnation. such as fishing and food processing. These local industries have always had an export component, even if it wasn’t dom- Construction of the new seaport (called Tanger-Med) inant during the era of economic autarky. In the final decades proceeded in parallel with major upgrades to north- of the 20th century, the city increasingly became a magnet for ern Morocco’s road and rail connectivity. Improvements rural migrants from villages throughout northern Morocco, to the country’s transport infrastructure on this scale were even though the economic opportunities it could offer were unprecedented. Port construction unfolded in several phases, comparatively limited. It remained a regional center without eventually including multiple deepwater container terminals, greater aspirations. roll-on–roll-off (RO-RO) facilities, a hydrocarbons storage fa- cility, and a massive passenger ferry terminal. Railroads were For decades, Morocco’s economic growth was cen- extended from the main national network right into the Tan- tered on its mid-Atlantic coast between Kénitra in the ger-Med port itself, enabling the rapid intermodal transfer of north and El Jadida in the south, especially on the core containers, bulk cargo, and motor vehicles. Modern multilane Casablanca-Rabat axis, while the country’s geographically highways were built not just connecting the port complex to remote regions remained poorly connected and economically regional population centers such as Tangier and Tétouan, but isolated. In particular, Greater Casablanca was fast becoming also connecting the entire north of the country to centers of 170 economic activity in the central Casablanca-Rabat area, and cleanliness, transportation access, and the deployment of beyond. For the first time in history, Tangier-based producers renewable energy are all seen by local leaders as critical eco- came to enjoy efficient access to domestic markets. nomic development issues (for tourism as well as investment attraction), not just citizens’ quality of life concerns. To maximize the development impact of this massive infrastructure investment, in 2002 the Moroccan Tangier and Morocco have successfully capitalized on government established the Tanger-Med Special some geographic, historical, cultural, advantages to Agency (TMSA). This umbrella entity brings together the foster local and regional economic growth. Lying less Port Authority and multiple free trade and logistics zones. than ten miles from the southern shores of the European It works closely with various other local actors involved in Union gives Tangier unrivalled access to the world’s largest trade, investment attraction, workforce development, and common market. At the same time, the city’s location astride regional decision-making. As a leading economic develop- a shipping route handling a fifth of the world’s maritime ment-focused agency, it has sweeping powers in key areas commerce presents major opportunities to participate in such as land acquisition and allocation, as well as direct global value chains. Tangier also enjoys a reputation as a access to senior national decision-makers in Rabat. Among cosmopolitan, tolerant place, and its people have the ability other things, TMSA has served as an important transmission to conduct business in multiple languages. The city’s pleasant channel for articulating local needs to the national govern- climate, without extremes of heat or cold, is highly conducive ment. to tourism development. National and local leaders have suc- cessfully leveraged these advantages to market the city both The relocation of Tangier’s freight traffic to the new nationally and internationally, attracting investment, trade Tanger-Med port has enabled the redevelopment of flows, and tourists. the city’s old seaport, renamed Tanger-Ville, into a tourism- and fishing-focused maritime facility, along Multiple planning documents, and their implementa- with high-end retail and residential developments. tion, have contributed to Tangier’s economic success. The free trade zone previously located inside the port area The national government has produced national five-year has been decommissioned, its businesses relocated to new plans focused on economic and social development, which areas outside the city core. A wall cordoning off the port from were in turn complemented by regional development plans. its city has been torn down. New terminals for larger cruise The Tangier-Tétouan region and municipalities in it have also ships and pleasure craft are under construction. Implement- produced a number of other planning documents, some with ed in several phases, the port’s conversion is still ongoing. assistance from European partners. However, it is difficult to In 2010, a sister organization to TMSA called SAPT (Société gauge precisely how much of a role each of these individual d’Aménagement pour la Reconversion de la Zone Portuaire strategies has had; ultimately the implementation of deci- de Tanger) was established as a public-private partnership to sions made at the national level in Rabat may have mattered coordinate all these activities, and to serve as a focal point for the most. the transformation at the heart of the city’s waterfront. SAPT has also played an important role in ensuring stakeholder Tangier does not have a focal economic development buy-in, particularly from some relatively small but socially organization, but several entities from both the and politically important constituencies like fishermen. public and private sector have a role in fostering in- vestment and job creation in the city. These include: the Tangier has worked hard to reconcile its dual ambi- regional governorate (Wilaya); the central and regional/local tions to simultaneously serve as a manufacturing hub offices of national agencies (e.g. for workforce development, and a leading tourist destination. This was achieved tourism, territorial development); the Urban Community through extensive stakeholder consultation and visionary (i.e. elected city government); TMSA and SAPT; the Regional transportation planning, by measures that included the Investment Center (CRI); the Agency for the Promotion and above-mentioned port redevelopment, relocating manufac- Development of the North (APDN); institutions of higher turing firms outside the city core to newly-built, designated learning, especially Abdelmalek Essaâdi University; the facilities with adequate infrastructure, designating prime Chamber of Commerce, Industry and Services; the General locations as “tourist” zones while reserving the flexibility to Confederation of Moroccan Enterprises (CGEM); the Tang- rezone areas as needed, and encouraging foreign investment ier Industrial Zone Association (AZIT); and various other in industrial plants and tourism. After decades of neglect private-sector groups and associations. In a very real sense, and uncontrolled urban sprawl, special attention was paid to these entities form a de-facto growth coalition, even if the ex- environmental protection and mobility. Tangier has been, for act mechanisms for its activities are not necessarily formal- example, the first Moroccan city to achieve 100% coverage ized. With about a million inhabitants, Tangier is not a huge of urban households with vital municipal services like water city; most key decision-makers know each other personally and sewerage, according to the city’s current Mayor.194 Prior- and interact on a regular basis. There appears to be a very ities such as environmentally sustainable development, flood high level of social capital, aided by the conscious efforts of control, the preservation of green spaces, beach and seawater key local actors to build up mutual trust and work together for results. 194 In person interview with Mr. Fouad El Omari, Mayor of the Urban Community of Tangier, on December 4, 2014. 171 What are the reasons for Tangier’s economic success? the completion of Port Tanger-Med enabled local firms Its recent exemplary performance is attributable to a combi- to further integrate into global value chains, upgrading nation of factors: their technologies and workforce skills, and enabling growth in new, higher value-added segments like auto- • First, Tangier has benefitted immensely from be- motive and aerospace, gradually transforming the local ing part of a stable, rapidly expanding Moroccan economy. economy. The country has made tremendous strides in recent years, liberalizing its economy, removing barriers • Sixth, Tangier’s ability to attract outside firms to external trade and investment, and enabling its firms’ has been helped by its generally adequate lev- closer integration into global supply chains. As men- els of human capital at highly competitive wage tioned earlier, some devolution of decision-making for levels, as well as successful labor market inter- economic development to the regional and local levels, mediation programs and efforts. Having workers as well as national sectoral development policies and with the appropriate skills sets, or the ability to quickly support tools, have provided strong impetus to economic attain them, has been an important factor in attracting growth and job creation in the Tangier-Tétouan region. investment. Where existing skills were insufficient, the national workforce agency ANAPEC stepped in, working • Second, Tangier has benefitted from a strate- with employers, the local university, and training provid- gic national focus on northern Morocco. After ers to develop workforce training programs addressing decades of stagnation, the Moroccan government has these needs. made development of the country’s northern areas a key priority, making unprecedented investments in trans- • Seventh, beyond wages Tangier offers some other port infrastructure, funding various local initiatives, very tangible bottom-line business advantages, working to attract catalyst investments, and encouraging which have been an important consideration for international business and tourism through marketing, outside investors. Morocco’s national business climate promotion, and other enabling activities. has been rapidly improving in recent years, and Tangier has lower logistics costs than the rest of the country due • Third, Tangier’s success has been helped by signif- to its proximity to Europe and new state-of-the-art infra- icant local capacity to further the city’s economic structure and facilities. Tangier (and Morocco) offer reli- development, including high-quality human resources able power supply and other infrastructure, but at lower and capable leadership at key government agencies, land costs and operating costs than competitor sites in officials’ ability to constructively work together, effective southern Europe. Yet it is not a “low-cost” location as stakeholder engagement, adeptness at utilizing national such, but rather offers a compelling value proposition tools and capitalizing on initiatives to foster local job cre- in terms of cost-quality and time-to-market tradeoffs. ation, knowledge of products and markets, and the use Tangier enjoys a particular advantage in attracting firms of internationalization as a deliberate economic develop- serving the European market, which need quick turn- ment strategy, among other things. around times (e.g. aerospace components or fast fashion). • Fourth, Tangier’s recent economic success has So What? Summary of Insights for Other Cities from been facilitated by inherent geographic, histori- What Tangier Did Right cal, and cultural advantages, and successful local efforts to build upon and expand them further. Some valuable lessons from Tangier include: The city’s location along major shipping routes, its prox- imity to Europe, pleasant climate, diverse topography, 1. If implemented correctly, major national rich cultural heritage, and tradition of multiculturalism, initiatives really can have a transformative diversity, and tolerance, have all been successfully lever- effect on local and regional economies; but local aged to attract visitors and investors alike. In addition, capacity is essential. Successful city economic residents’ ability to function in multiple languages gives development is seldom a matter of pouring vast it an edge over most comparable locations when seeking resources into a flagship project and just hoping it to attract international commerce and tourism. Tangier pays off – a “build it and they will come” approach. is a safe, welcoming city. Indeed, more often than not, such an approach results in little more than ribbon-cutting ceremonies • Fifth, Tangier had a relatively diversified econom- for what ultimately end up being white elephants. ic (particularly manufacturing) base even before Beyond the obvious matter of financial, economic, and the national government’s transformative infrastructure environmental sustainability, the project’s broader investments. It was home to sizeable local production ecosystem – the economic, institutional, political, and in sectors such as machinery, metal works, chemicals, societal milieu in which the capital investment occurs apparel and leather goods, handcrafts, and food process- – can determine whether it accomplishes more than ing. Local firms had existing know-how to later adapt just its immediate goals, such as living up to traffic and become suppliers to major foreign manufacturers flow forecasts and delivering the benefits originally like Renault. The new opportunities brought about by anticipated. Truly transformative initiatives are planted 172 in “fertile ground”, where local actors and institutions 3. Globalization can be a highly effective element can skillfully leverage them to accomplish quantum of a city’s economic development strategy. If leaps in economic outcomes. Such a thing happened done with some forethought, going international can be in Tangier with the construction of the new port of among the most beneficial things a city can proactively Tanger-Med: local know-how and entrepreneurial do for its residents’ long-term prosperity. Cities do not energy were mobilized to use the new facility as a means set (national) trade policies, have no ability to impose of integrating into global value chains, in the process tariffs on imports, or restrict foreign competitors increasing residents’ shared prosperity. from the local market. But what they can do is take full advantage of what their national frameworks Why has Tangier been successful at leveraging a major allow (including through free trade deals, bilateral national initiative where so many other cities have investment treaties, and open skies agreements) to failed? The answer is a multi-faceted one, and includes a attract investors from abroad to their communities, as combination of path-dependent and subjective factors. well as to help home-grown firms better integrate into Tangier is fortunate to be located where it is, and to be global value chains. Once a critical threshold is reached, endowed with all the natural advantages it has. But local a city’s globalization often gains momentum of its own. actors exhibited a phenomenal grasp of global business Gradually – but perhaps irreversibly – Tangier appears to trends and market opportunities, and managed to col- have gone down this path. laborate with one another to make these external factors work in the city’s favor. They have also been exception- • Tangier is an obvious poster child for the benefits of ally skilled at making good use of the tools provided by globalization at the city level. Indeed, Tangier was the national government, such as investment incentives global long before being global became “cool”. In its and workforce development programs. Highly effective former heyday as a “free international city”, Tangier information feedback loops and responsiveness from was comparatively prosperous, hosting an eclectic mix higher tiers of decision-makers complete the picture of of people from many different countries, speaking a how success can be achieved under such circumstances. multitude of languages. This was followed by several “closed” decades, in which this port city no longer played 2. Engaging diverse stakeholder groups in the the role of commercial hub, contributing to its relative city’s economic development efforts early on, stagnation. Finally, in the new millennium Tangier and finding ways to bring them into an effective appears to have come full circle: it is now once again a growth coalition – whether formal or not – is an bustling port and export-oriented production center, important enabler of success. The CCKB team’s with rising employment and incomes. The leaders of prior work on case studies of economically successful today’s Tangier do not seek protection from the global cities has revealed a consistent pattern: involving private economy – they embrace it. Foreigners are not seen as a for-profit firms and their associations, educational threat, they represent an opportunity – not just to seal institutions, civil society groups, quasi-public entities commercial deals, but to spread worldwide an awareness as well as various tiers of government dramatically of Tangier’s business acumen, natural beauty, welcoming increases the probability of a city achieving its desired people, and rich cultural heritage. The Mayor shuttles to economic outcomes. Tangier very much confirms this international trade fairs inviting firms to invest in his pattern, its diverse stakeholder groups successfully city, while the local leadership rolls out the welcome mat partnering with government to accomplish shared goals to business and leisure visitors alike. Existing foreign and adequately respond to the once-in-a-generation investors are bringing in their suppliers, and telling the opportunity the city was presented with. This is much international business community of how profitable more than a “consultative” process or “iterative dialogue” their Tangier operations are. Once again, the Tangerois – it entails different entities’ substantive participation are improving their multiple language skills, and the the decision-making process, stakeholders’ shared city is attracting the attention of global business. This sense of ownership of those decisions, and shared appears to be Tangier’s natural condition, and a role responsibility for implementing what has been agreed. it plays exceptionally well. It is something other cities National governments can build ports and roads and could indeed learn from. offer incentives, but they cannot substitute for the entrepreneurial energy of individual businesspeople, or the inter-personal relationships within a community that are so vital to getting things done on the ground – and by extension, to ensuring successful economic outcomes at the city level. 173 The National Context The new millennium also saw a much greater open- ness of the Moroccan economy to the outside world. Free trade agreements were concluded with the US, EU, During much of the 20th century, Morocco’s economic Turkey, and various Middle Eastern and African countries, performance was quite lackluster. Pursuing statist, au- visa requirements abolished or relaxed for visitors from many tarkic policies like import substitution and the protection of nations, and open skies agreements concluded, enabling favored domestic industries, the country was essentially stag- low-cost international air travel. Rather than just cater to a nant as measured by various economic and social indicators. closed domestic market, Moroccan firms began to enjoy more It was leapfrogged by comparable economies, both in its own success in international markets, especially by exporting fish- region and elsewhere around the world, in terms of growth in eries, olives and olive oil, fruits, and later higher value-added per capita GDP, literacy levels, and various other measures of products like autos, aerospace, and pharmaceuticals. The development. Indeed, growth in economic output was barely investment climate has been improving, with Morocco seeing keeping pace with demographic increases. Economic opportu- gradual but substantial improvements in international Doing nities were limited, and many Moroccans sought a better life Business-type rankings. Among other measures, relaxing by emigrating abroad, particularly to European countries like rules on foreign ownership, establishing investment “one France and Spain, with whom Morocco has enjoyed long- stop shops”, and stepping up proactive investment promo- standing historical, cultural, and linguistic ties. tion activities all contributed to increasing FDI inflows into Morocco, particularly into sectors like finance, telecoms, In the 20th century, Morocco’s economic growth was transport, manufacturing, offshoring (services), and tour- geographically extremely uneven. The country’s mid-At- ism/hospitality.195 lantic coastal plain between Kénitra in the north and El Jadida in the south, and especially its central section between Over the past decade, the Moroccan economy has the commercial capital of Casablanca and Morocco’s admin- been one of the better performers in the Middle East istrative seat, Rabat, attracted the lion’s share of investment, and North Africa region. Reforms begun in the 1980s jobs, and internal migration. In particular, Greater Casablan- and 1990s, and accelerated in the early 2000s, have not ca’s population surged, in just a few decades becoming one of just helped Morocco’s economy become more competitive, the largest cities in Africa, with all the attendant challenges but also more resilient in the face of external shocks. After that come with being a megacity. Roughly half of Morocco’s several years of healthy GDP expansion in the early 2000s, industrial production, and most of its higher value-added Morocco managed to weather comparatively well the global industries, came to be concentrated in the Casablanca area. “great recession” of 2008-09, without seeing its economy Meanwhile, Morocco’s more peripheral regions stagnated, contract in any single year. Since then, growth has picked up continuing to experience outflows of residents in search of again: after expanding by 2.7% in 2012, Morocco’s GDP grew jobs and opportunities. Housing shortages were severe in by a more robust 4.4% in 2013, and is on track to post annual various Moroccan cities, and transport infrastructure both growth rates in excess of 4% over the next few years, accord- within and between major urban centers wholly inadequate. ing to World Bank forecasts. In current dollar terms, the size The country’s northern areas, with their historical legacy of of the country’s annual economic output more than doubled having been administered (by Spain) separately from the rest in a decade, reaching US$104 billion in 2013. Meanwhile, of Morocco prior to independence in 1956, were particularly also from 2003 to 2013, per capita income also more than isolated – logistically, economically, and in some respects doubled, posting growth of 104%, according to data based on socially. Integrating Morocco’s diverse regions was therefore the World Bank’s Atlas method.196 emerging as a critical imperative for the national economy, and for public policy in general. Morocco’s export-driven growth in the 21st centu- ry has been led by a handful of sectors as principal The accession of His Majesty King Mohamed VI in earners of foreign currency, in particular tourism, 1999 marked the beginning of a new era for Morocco. food/seafood, and fertilizers. Tourism has been an Reforms already underway were accelerated and deepened, in important part of Morocco’s recent prosperity, capitalizing on the process dramatically transforming Moroccan society in the country’s natural attractions and rich cultural heritage to just a few short years. Major strides were made in improving draw millions of visitors, boosting both export earnings and educational outcomes, addressing longstanding gender is- sustaining jobs. Agriculture and food processing also remain sues, and chronic housing shortages throughout the country, a mainstay of the economy, accounting for some 15-20% of particularly in rapidly-growing cities. Domestic state-owned Morocco’s GDP and a disproportionately large share of em- monopolies were dismantled and privatized, and foreign ployment in rural areas. Exports of agricultural products and investors welcomed in, both to foster market competition seafood are vitally important to the nation’s economy, as are and to ensure the introduction of new technologies and ways phosphates for use as fertilizer. But unlike many other coun- of doing things. More responsibility was devolved to sub-na- tional units of government (regions, prefectures, provinces, 195 See Morocco’s improving performance in the World Bank’s and municipalities) across a range of functional areas; this www.doingbusiness.org annual rankings. process of decentralization is still ongoing. 196 All macroeconomic data: The World Bank: Global Economic Prospects, December 2014; and World Development Indicators, March 2015. 174 tries in the region, Morocco is not endowed with (proven) oil To jump-start the country’s economic development, and gas deposits, and in fact imports most of the hydrocar- the Moroccan government launched a series of sec- bons it consumes. This in turn has provided some impetus toral strategic plans in the mid-2000s. Designed to for the development of renewable energy sources like wind speed up the development of strategic sectors like agricul- and solar, relying on the natural resources which the country ture, fisheries, energy, and logistics, as well as promising in- does have in abundance. By inviting global leaders in those dustries like automotive and aerospace, these strategies were technologies into its energy market, Morocco’s policy has also developed with substantial input from the private sector. The been to foster the development of a nascent local renewable plans were to be implemented both directly by the govern- energy industry, gradually building up local capabilities while ment, and through innovative public-private partnerships, minimizing environmental impacts. thus ensuring stakeholder buy-in and long-term sustainabil- ity, while enabling the government to focus more on its core Morocco has made great strides in reducing unem- regulatory functions ployment in recent years, but is now prioritizing further raising its levels of human capital as a vital Morocco’s industrial strategy was dubbed “National enabler of competitiveness. Growth in labor-intensive Pact for Industrial Emergence” (or simply “Emer- industries like tourism has helped to bring down the nation- gence” ), released in 2005, then revised in 2009. The wide unemployment rate, which has remained in single-digit strategy was aimed at revitalizing and strengthening the territory for much of the past decade. However, finding competitiveness of Morocco’s existing industrial base, as suitable jobs remains a challenge, particularly for urban grad- well as identifying and supporting new promising sectors uates and women. Indeed, female participation in Morocco’s in which the country may have a competitive advantage. labor force is still only around 26%, compared to about one Collectively, the seven industrial sectors selected for proac- half in other comparable economies at a similar stage of de- tive support were expected to account for 70% of near-term velopment. Still, the unemployment rate for both women and industrial growth in Morocco, increase GDP by an additional youth has been steadily declining, with some regional varia- MAD 90 billion, and result in the creation of 400,000 new tions within the country. Crucially, while formal educational jobs by 2015.197 attainment has improved dramatically, there continues to be some disconnect between the “fundamental” knowledge with Emergence was a comprehensive document, based on which students are graduating, and real-world skills needed robust analytics. The original plan, as well as its sub- by prospective employers. Morocco’s government is well sequent revision, utilized a systematic process to identify aware of this, and has taken concrete measures to gradually the country’s competitive strengths in specific industries transition from a traditional, French-influenced model of and their individual segments, taking into account broader largely theoretical education, towards more applied, practi- global business and macroeconomic trends, benchmarking cally-focused curricula. Modern workforce development and Morocco relative to the competition, and coming up with labor market intermediation programs seek to ensure a better specific interventions to capitalize on market opportunities. match between skills and employer needs, also aligned with Among other things, these include an incentives framework, national sector development priorities. the construction of new physical facilities like seaports and upgrades to existing infrastructure, and instituting training Far from being complacent about recent economic programs for targeted industries. While led by the Ministry results, Morocco’s national government is actively of Industry, Trade, and New Technologies, a plethora of other working to identify and address remaining develop- national government agencies have had a role in the plan’s de- mental challenges in a structured, systematic way. velopment and implementation – and at the regional level, in While recent growth has been impressive, national policy- collaboration with other tiers of government and private-sec- makers are highly cognizant of the need for further progress tor partners. on modernizing Morocco’s economic structure, diversifying its exports, attracting more foreign investment, continuing to Emergence set numerical goals for each of the seven improve the business climate and infrastructure, and raising sectors targeted as “growth engines” for Morocco’s the levels of human capital. For example, agriculture contin- industrial development: ues to account for a disproportionately large share of Moroc- co’s economy and employment base. Exports have been in- • Automotive Industry: Creating an industrial base creasing at a rapid clip, but much of what the country exports which includes both final auto assembly, and an expand- has until fairly recently largely consisted of low value-added ing network of automotive component suppliers. The goal agricultural products and fisheries. There is an awareness was to create some 70,000 to 80,000 direct jobs in the that Moroccan producers can no longer compete in the global industry, with an annual value added of MAD 10 billion. marketplace primarily on price, yet technological innovation is only gradually beginning to gain traction. Policymakers are well aware of the dangers of falling into a middle-income trap, rolling out a series of nationwide initiatives aimed at 197 “Pacte National pour l’Emergence Industrielle 2009-2015”; and laying the foundation for the “next economy”. “Programme Emergence – Une politique volontariste et ciblée au service de l’Essor de l’Économie Nationale”, presentation by Salah Eddine Mezouar, Minister of the Economy, November 2005. 175 • Aerospace: The goal was to create 10,000 aerospace-re- • Textiles and Leather: Carving out profitable market lated jobs (mostly in aerospace components manufactur- niches such as fast fashion and co-contracting, with a ing) and generate an additional MAD 3 billion in value goal to create 50,000 jobs and more than MAD 5 billion added. in value added. • Electronics: Focus on specialty electronics and inte- Progress on achieving these goals is monitored on an ongoing grated circuits, related to the other targeted sectors, aim- basis, and inter-institutional effectiveness ensured through a ing to create more than 10,000 jobs and MAD 5 billion formalized consultative process.198 in new value added. Besides these seven industrial sectors, there are • Business Process Outsourcing/Offshoring: Capital- additional, separate multi-year strategic plans for izing on Morocco’s multilingual workforce (particularly the development of other priority sectors, as men- workers speaking French and/or Spanish), the goal was tioned above. More specifically, Morocco’s government has to create 100,000 new jobs, generating over MAD 15 formulated dedicated strategic plans for the development of billion annually. agriculture (Maroc Vert), the retail and distribution sector (Plan Rawaj), aquaculture and fisheries (Plan Helieutis), tour- • Food Processing: The objective was to develop special- ism (Vision 2010, then Vision 2020), the energy sector, and lo- ty production in 8 to 10 agro-industrial niches, aiming gistics (Stratégie Nationale de Développement de la Compétitivité to create an additional 6,000 jobs and more than MAD 5 Logistique), as well as upgrading the country’s ICT capabilities billion in value added. (Maroc Numeric 2013), which plays an enabling role by cutting across various sectors of the country’s economy. • Seafood Processing: Production of higher value-added halieutics and export of frozen products, helping to sup- A schematic of the different national sector development port an additional 35,000 Moroccan jobs and more than plans in Morocco is provided below. MAD 3 billion in value added. 198 Note: we don’t have enough information on the functioning of national mechanisms in this area, nor exactly who does what, how, and accountable to whom. Perhaps the WB team in Rabat can expand on this? 176 Moroccan Sector Development Plans Urban and Regional Economic Development in Morocco: Framework and Key Actors Source: Stratégie Nationale de Développement de la Compétitivité Logistique, 2010 Comparatively speaking, Morocco is not yet a highly urbanized country. While there has been a massive shift of Tangier’s economic success is in part the result of people from the countryside to the cities, today only 57% of the successful localization of national sector devel- Morocco’s 33 million people live in urban areas, a much lower opment strategies and application of support tools. proportion than in other countries at a similar level of devel- While national in scope, all of the above plans also have opment. Its system of cities is dominated by the economic implications at the local level, and have to varying degrees powerhouse of Greater Casablanca, along with the nearby contributed to the recent economic outcomes observed in administrative center of Rabat. Outside the central coastal Tangier. Reasons for their relatively more successful imple- plain, inland cities like Marrakesh, Fez, and Meknes are also mentation in Tangier are manifold, and range from strong sizeable population centers, while Agadir serves as the hub local capacity and social capital/interpersonal relationships, for the country’s southern regions. Tangier is the largest city to broader global economic trends favoring the city. in the northern part of the country, and its region is one of 16 units into which Morocco is divided. 177 Investment Incentives: An Indispensable FDI Responsibility for the economic development of Mo- Attraction Tool rocco’s regions and cities is shared among a range of institutional actors. As the diagram above shows, there At the national level, the Moroccan govern- is a complex web of institutional relationships and funding ment offers a comparatively generous system of flows between different tiers of government. Economic de- investment incentives. While multinational firms velopment – meaning the creation of economic opportunities seldom set up operations in a country only or primar- and especially jobs – is not the domain of any one entity, but ily due to incentives, these can undoubtedly help to necessitates the involvement of a multitude of institutional influence their final locational decision. Morocco has actors at the national, regional, super-regional, and city/ developed an effective incentives toolkit to help it com- local level. Safeguards and feedback loops are built into the pete for discretionary projects. There are two main sets process, so that the disparate entities are bound to work of investment incentives: together to accomplish results. National government agencies with regional responsibilities and a role in Tangier’s economic General: Investment Promotion Funds (IPFs): To success include but are not limited to the following: qualify for financial support from the national govern- ment (via approval by an “investment commission”, Morocco’s Investment Promotion Agency (Agence proposed projects must meet at least one of five criteria: Marocaine de Développement des Investissements (i) invest a minimum of MAD 200 million (about US$ – AMDI): AMDI was created in 2008, in the context of 20 million); (ii) create at least 250 jobs; (iii) promote the Morocco’s new national industrial strategy, to spur foreign transfer of technology and/or know-how; (iv) contrib- investment into the seven targeted sectors. As the country’s ute to environmental sustainability/green growth; and FDI promotion agency, AMDI works to brand and market (v) be in a targeted geographic region/province. If these Morocco globally as an investment destination, but also to criteria are met, the government may reimburse the in- generate investment leads and provide business recruitment, vestor for up to 20% of land costs, 5% of infrastructure expansion, and retention services to multinational firms. costs, and 20% of the cost of workforce training. Invest- Leads are generated through a combination of in-house ments are also exempted from VAT and import duties research, subscriptions to standard FDI databases, and refer- for the first three years on goods and materials need for rals from existing investors, land developers, site selectors, or the project. These incentives apply to all sectors except other “multiplier” organizations such as professional services real estate. firms. A key stated objective is the diversification of Moroc- co’s FDI inflows beyond traditional markets like France and Sector-Specific Incentives: There are also sector-spe- Spain, to include more investment from other European and cific incentives for targeted industries through the Has- North American countries, Japan, and large emerging-coun- san II Fund, with a minimum size threshold of MAD 10 try multinationals. The agency has offices in several key FDI million, and may include dedicated training subsidies source markets around the world, and runs a multilingual of up to US$3,000 per worker annually. With a few investment promotion website. It also works very closely with exceptions (e.g. cross-regional projects like telecommu- local and regional authorities, particularly for the provision of nications infrastructure), incentives applications are hands-on site selection services, as well as in implementing processed through regional investment commissions, its excellent program of investor aftercare.200 AMDI has at then passed on for evaluation by technical committees its disposal a standard toolkit of highly-effective investment the national investment promotion agency (AMDI), or incentives that can be deployed to seal FDI deals (see box). the Ministry of Industry (for Hassan II applications). National Agency for the Promotion of Employment and Skills (Agence Nationale de Promotion de l’Emploi et des Compétences – ANAPEC): ANAPEC is Morocco’s Morocco as a whole is presently in the midst of a tran- principal labor market intermediary, seeking to match up sition from a highly-centralized political and eco- job seekers with employer needs. The agency has a network nomic structure to a more polycentric one. As already of offices all over Morocco, and a sophisticated online tool mentioned, the nation’s decision-making and economy have that enables job seekers to explore and identify the kinds of traditionally been dominated by the Rabat-Casablanca core. functional roles in which they might perform well, as well as A series of political and legal reforms in recent years have connect with specific openings, both in Morocco and abroad sought to devolve some decision-making authority to the (employers in other countries can seek out Moroccan job ap- regional and local level.199 plicants through ANAPEC). In addition, ANAPEC organizes 199 Reflective of the lingering influence of French administrative traditions in Morocco, this has been both a process of “deconcentration” 200 At the beginning of each year, AMDI staff put together a list of and of “decentralization” (in the strict sense of the word). The distinction is 40-50 foreign companies in Morocco. Then they visit their facilities on-site, more than just a sematic one. See, for example, Decentralization and Local discuss their satisfaction with how their investment in Morocco is working Governance in MENA: A survey of Policies, Institutions, and Practices, the out, and focus on addressing any concerns or problems they may have World Bank, 2007, and Decentralisation et Deconcentrations Administrative: encountered. Progress towards achieving the objectives stipulated in incen- Instruments de la Proximite Administrative, Abdallah Harsi, Faculte de Droit tives agreements is monitored within a 3-year window, and assessments de Fes, 2005. made about their effectiveness. 178 job interview workshops for job seekers and employers, and It is important to distinguish between general skills forma- provides assistance to employers in defining their human re- tion, and customized (“ à la carte”) training. Both at the na- source needs. An innovative program helps prospective entre- tional and local levels, OFPPT partners with representatives preneurs (particularly recent graduates, school drop-outs, the of industries and employers, labor unions, other government very young, unemployed, or self-employed) to define and op- agencies involved in economic development, and civil society erationalize their entrepreneurial ideas, thus encouraging the groups (for women, persons with disabilities, youth, char- formation and growth of new businesses. Finally, ANAPEC is itable foundations, etc.). Such entities are represented on involved in retraining and continuing education, taking part OFPPT’s Board (Conseil d’Administration), and are consulted in 3-sided agreements with employers and training providers in the design of OFPPT’s general training curricula. At the (e.g. OFPPT, or private education centers). These customized national level, OFPPT’s steering committee meets with repre- training agreements stipulate that, by a particular deadline, sentatives of professional associations and other stakeholders workers will be trained to acquire the specific skills needed every six months, while at the regional level meetings are by the employer, and that they will be guaranteed jobs once held on an ongoing basis year-round. OFPPT’s national and they do acquire those skills; ANAPEC picks up the cost of the regional Organs de Gouvernance are the consultative mecha- training.201 nisms for private industry to provide feedback on their skills needs (but not all industries are represented in all regions). In Tanger-Tétouan, ANAPEC also carries out labor market Universities do not participate in designing the agency’s cur- studies in various targeted sectors, often working directly ricula, but university graduates sometimes seek out addition- with companies in them, to understand the firms’ future al training by OFPPT to obtain usable workplace skills, while staffing needs, and by extension to project the region’s overall conversely people without formal degrees can use training skills and training needs in the years to come. ANAPEC received from OFPPT to count towards such degrees in the interfaces with other government agencies and key stake- future. OFPPT also works hand in hand with AMDI to ensure holders through a dedicated mechanism called CRAM (Comité that foreign companies can get suitably-skilled workers for Regional d’Amélioration de l’Employabilité), which among others the jobs they want to create or retain. includes representatives of the Wilaya, CRI, professional associations, and the university. CRAM’s role is to analyze Maroc Export: Morocco’s export-promotion agency was the studies and action plans prepared by ANAPEC, and to created in 1979, under the name of “Moroccan Center for Ex- validate or correct its estimates of training needs antici- port Promotion”, to facilitate the exporting of manufactured pated for each sector. CRAM has four specialized sector goods, agricultural products, and fisheries. Until a few years commissions: automotive & aerospace; transport & logistics; ago, the functions of promoting exports and inward FDI were offshoring; and tourism. On the whole, this model has been combined under the same entity, but now FDI is handled by a highly successful, with the Tangier office regularly reaching separate agency, AMDI. Administratively under the Minis- its ambitious annual job placement and skills development try of Foreign Trade (the Trade Minister is its Chairman of goals, thereby playing an important enabling role in compa- the Board), Maroc Export now has 88 employees, all based nies’ efforts to establish local operations. in Casablanca. It does not have any field offices around the country, instead partnering with CGEM, local chambers of Office of Professional Training and Employment commerce, and sector associations to organize export-related Promotion (Office de la Formation Professionnelle et de workshops for Moroccan firms. Each year, Maroc Export par- la Promotion du Travail – OFPPT): OFPPT is Morocco’s ticipates in about 140 promotional events around the world, main public provider of vocational training, ensuring that on average assisting 700-800 Moroccan companies from 20 the sectors targeted for proactive economic development sectors, in some 40 targeted export markets. The agency’s efforts have an adequate supply of qualified workers with the sector priorities are aligned with national sector development skills needed by employers. OFPPT’s sector priorities close- plans (currently, about 60% of the companies supported are ly adhere to those in the Emergence plan, i.e. with a strong in priority sectors). Maroc Export supports the export oper- emphasis on automotive, aerospace, offshoring, tourism, ations of Moroccan companies through the following kinds logistics, and other targeted sectors. With more than 320 cen- of specific activities: market intelligence203, risk analyses, ters and 7,100+ instructors all over Morocco, OFPPT delivers organizing and subsidizing204 attendance at international over 90% of the country’s publicly-supplied training. OFPPT trade fairs/exhibitions, promotional campaigns, branding, works closely with ANAPEC, which often funds its training and holding trade-related road shows and capacity-building activities.202 The two agencies also share a database of people trained at the local level, facilitating the matching of skills available with those actually needed. 203 Maroc Export staff carry out country and sector studies, as well as event-specific analyses, mostly in-house. On rare occasions when additional highly specialized product or country knowledge is needed, they 201 Examples of this include ANAPEC’s agreement with AMICA (the contract such analyses out to specialized consulting firms. Quality intelli- automotive industry association) to train 20,000 employees with the specif- gence is seen as absolutely critical to market success. ic skills needed by 2017, and another agreement with local SMEs in Tangier 204 Maroc Export covers up to 80% of the cost of Moroccan firms’ to train workers for social jobs under a “Solidarity Economy” initiative. attendance at trade shows, with differential tariffs for B2B events. Higher 202 ANAPEC matches workers with jobs, analyzes market needs, rates of support are provided for exporting to non-traditional markets, and pays for worker training, but does not actually carry it out – OFPPT which is a priority. In addition, as of this year, large companies that draw in does. The two agencies have complementary but distinctive roles. SMEs as suppliers get a 5% discount on services. 179 workshops within Morocco. The goal is to help 200 new com- deciding what its own developmental priorities should be, panies each year. while CNT made sure they were aligned with each other and with the national branding and promotion efforts. Aggressive Maroc Export maintains a database of all companies in marketing campaigns were undertaken abroad, particularly Morocco which export products. In 2013, Tanger-Tétouan in European and Middle Eastern markets, including atten- ranked second only to Greater Casablanca among Moroccan dance at trade fairs and other standard tourism promotion regions, accounting for 12% of Morocco’s total merchandise channels. exports. There were 646 exporting companies in the region, only 16 of which participated in Maroc Export’s programs. Moroccan Logistics Development Agency (Agence Broken down by sector, those firms cover: agribusiness (4 Marocaine de Développement de la Logistique – AMDL): companies), leather and plastics (3 each), textiles (2), and AMDL is a dedicated agency under the national Ministry one firm each in the seafood, automotive, electronics, and of Equipment, Transport, and Logistics focused on improv- water treatment industries. In terms of export value, the top ing the efficiency of the country’s logistics sector as a key sector by far is automotive, skewed by exports from the vast enabler of economic competitiveness, as well as the creation Renault factory. of employment opportunities for Moroccans by capturing higher value-added activities in the global logistics industry. National Tourism Confederation (Confédération Na- In Tangier’s case, that meant capitalizing on the flow of cargo tionale du Tourisme – CNT): through the Strait of Gibraltar. Logistics was identified as one of the main sectors to target for regional economic develop- Founded in 1995, CNT is a private-sector industry associa- ment efforts. To this end, AMDL has worked with APDN, the tion affiliated with CGEM, focused on promoting tourism as Wilaya, TMSA, and other key local and regional actors to en- a major engine of the Moroccan economy. It also serves as the sure that they got the appropriate support from the national umbrella organization for all of Morocco’s Regional Tour- government in developing MedHub and related logistics ism Councils, which are represented on its Board (including facilities, as well as the accompanying infrastructure, around two delegates from Tanger-Tétouan). CNT works to set the the port of Tanger-Med, and that the Stratégie Nationale de strategic direction on major cross-functional projects in the Développement de la Compétitivité Logistique mentioned earlier tourist industry, working closely with the Moroccan govern- would be successfully implemented in the region. ment, particularly the Ministry of Tourism. Tourism already supports about a fifth of all jobs in the country, and has been Ministry of Economy and Finance an important pathway out of poverty for many Moroccans. As the country’s tourism offering grows and diversifies, one • Geographic and balanced growth have been the main of the priorities for CNT is also to ensure that hospitality-re- issue in Morocco in the last decades lated establishments can find the workers with the appropri- • The “region level”, the SMEs and education have been ate skills. supported to make sure that the strategic decisions are Morocco’s national tourism strategy documents (Vision 2010, successfully implemented followed by Vision 2020) sought to significantly boost visita- • Two trends: sector diversification and geographic diver- tion to the country as a whole, as well as to develop Morocco’s sification global tourism brand beyond just Marrakech. The initial na- tional goal was to raise the number of foreign visitors to Mo- • Tangier was well known for its cultural elite, its rich civil rocco from 4.4 million in 2001 to 10 million by 2010 (nearly society and its energy potential (wind) fully accomplished, at 9.3 million!), then to double that again Haut Commissariat au Plan to 20 million by 2020. In addition to raising tourism’s share of the country’s total GDP to 20%, the planning documents • All the data required regarding Tangier economic and also envisaged tripling accommodation capacity and reve- demographic development available in the HCP website: nues from the industry, while becoming the first “sustain- growth contribution, employment, consumption, sectors able” tourist destination in the Mediterranean region. From (automotive, buildings, etc.) the national perspective, ensuring the balanced growth of tourism in all of Morocco’s regions was both an economic and • Two Specific studies are tackling the informal sector political imperative. To that end, Morocco’s tourism planning issue (98-99, 2007-2012) process was collaborative and inclusive. Officially launched by HM King Mohamed VI, the Vision documents were formulat- MedZ ed jointly by the national government, CNT, the 16 Regional • MedZ is developing two tourist areas in Tangier Tourism Councils, private-sector tourism businesses, and stakeholders at large. Road shows were held all over Morocco • This public entity relies on an agreement signed with the to solicit stakeholder input and ideas about tourism develop- Ministry of Interior and the Ministry to have access to ment. Morocco’s regions sought to identify their particular the land strengths and weaknesses, and understand what might be • Offshoring has become an important sector in Morocco needed for the Visions’ effective implementation. Contract as it represents 2.5% of GDP, MAD 2 billion of invest- Programs were signed among the key actors, with each region 180 ments and 70,000 jobs. The objective is to double these , the region consists of two Prefectures (Tanger-Assilah figures by 2020. and M’diq-Fnideq) as well as five Provinces (Chefchaouen, Fahs-Anjra, Larache, Ouazzane, and Tétouan). Together Other Entities with its neighboring region of Taza-Al Hoceïma-Taounate, this area of northern Morocco has a combined population • Ministère des Affaires générales et de la Gouvernance of 4.9 million, just under half of whom (47.8%) live in urban – CNEA. In 2009 the government formed the Nation- areas, compared with Morocco’s overall urbanization rate of al Committee for the Business Environment (Comité 58.8%. Approximately one million people reside within the National de l’ Environnement des Affaires, CNEA). The Tangier metropolitan area itself. While it has made substan- CNEA was tasked with improving Morocco’s competi- tial advances in economic development in recent years, the tiveness and creating an optimal environment for inves- Tanger-Tétouan Region remains slightly less affluent than tors by fast-tracking new business laws to simplify doing Morocco as a whole, with a per capita income of MAD 21,682 business, primarily targeting administrative bottlenecks in 2012 (or 85.4% of the national average). • Ministère de l’Intérieur / DGCL Located just ten miles from Europe, Tangier is influ- • Wali / DPAT enced by its geography to a greater extent than most • Ministère de l’Industrie, du Commerce et des Nouvelles other cities. Situated at the crossroads of global commerce, Technologies where continents and civilizations meet, it has traditionally been a maritime, outward-looking city. In an earlier, autarkic era, Tangier’s location in a remote corner of the African conti- nent was a distinct disadvantage, implying isolation from the Local Context mainstream of its national economy and a marginal eco- nomic role. In the globalized marketplace of the 21st century, Tangier is the largest city and principal center of however, the situation is exactly reversed: Tangier is now a economic activity in northern Morocco. Tangier is natural gateway, the place where worlds come together and the capital of Morocco’s Tanger-Tétouan Region, which had where cross-border business gets done. This narrative will 3.033 million inhabitants and an estimated GDP of nearly trace Tangier’s evolution from stagnant economic backwater US$ 8 billion in 2012. Covering a surface of 11,570 km2 to booming entrepôt and manufacturing hub within a very brief time span. Tangier’s position on the Strait of Gibraltar 181 History city’s longstanding competencies like handicrafts and artisan production, but attained more of an industrial scale over time. At the time, this was largely low-technology, labor-in- Tangier is one of the world’s oldest and perhaps best tensive production, but it did help to build basic local capaci- known cities, harking back to Phoenician and Roman ty, business acumen and workforce skills, accumulate capital, times. Over several millennia of recorded history, the city and hasten development of the city’s indigenous industrialist was ruled by many world powers, then for several decades class. Geographically, this production was centered on the enjoyed the status of a free “international city” not adminis- old seaport, site of a TFZ, and later on the AZIT industrial tered by any individual country. It developed a reputation as a zone located outside the city’s historic core. At the same time, multicultural, tolerant place, where people of many different other traditional mainstays like fishing and food processing nationalities and religions came together to do business with retained their importance. one another, but also to avoid the constraints often encoun- tered in their countries of origin. The mild climate attracted The accession of a new Moroccan monarch in 1999, artists and writers from all over the world, who moved there combined with evolving external circumstances, set to create some of their masterpieces. International banking in motion a chain of events that would end up trans- and insurance flourished as enablers of international com- forming Tangier’s economy during the first decade merce, with multiple languages being spoken. Located in the of the 21st century. As noted earlier, before the turn of very heart of the city, Tangier’s port was an important hub for the millennium, Morocco’s economic growth was extremely commerce, but at times also for illegal activities. uneven geographically, heavily dominated by the central Casablanca-Rabat core. With the accession of HM King Moroccan independence in 1956, and Tangier’s rein- Mohamed VI in 1999, rebalancing the country’s economic tegration with its hinterland, reoriented the city’s growth, both geographically and across sectors, emerged as economic activities. International commerce diminished an overriding policy priority for the central government, and in importance, as European and other countries erected national sector development plans (outlined in a prior section barriers to imports, while Morocco itself embarked on a path of this report) were drawn up and implemented. of import-substitution and related economic policies fashion- able at the time. Tangier went from being an international The strategic decision to make Tangier an alternate trading city to a minor regional production center within Mo- “pole” driving Morocco’s economic growth was made rocco, vastly eclipsed by the country’s Casablanca-Rabat core. at the highest levels of national government, and Internal migrants from impoverished rural areas of northern strongly endorsed by the new King himself. Various Morocco naturally gravitated to Tangier as the main popula- agencies at different tiers of government were involved in tion and economic center in that part of the country, result- operationalizing this decision, in consultation with organiza- ing in significant population growth over time. tions representing the private sector such as: CGEM (the Gen- eral Confederation of Moroccan Enterprises); the Chamber of Tangier was relatively isolated both geographically Commerce, Industry and Services; and various sector guilds/ and economically during the second half of the 20th industry associations. As far as development of northern century. Given its location at the northwestern tip of Africa, Morocco is concerned, national interventions to accomplish Tangier remained quite isolated from the rest of Morocco this were undertaken in two principal ways: for nearly half a century after independence. Road and rail connections were inadequate, air links pricey and highly • Through massive investments in physical infrastruc- regulated, and cross-strait links with Spain still relatively ture, including but not limited to the construction of underdeveloped, although the frequency of passenger ferry new roads, railways, a brand new mega-seaport on the services between the two countries did rise over the years, Strait of Gibraltar, and enhanced municipal infrastruc- resulting in a gradual increase in tourist visitation and ture for the provision of basic services.205 Additionally, especially in transit traffic through the city. High logistics significant funds were allocated to the con- costs and administrative obstacles were a real detriment to the competitiveness of local producers: access to consumer struction of tens of thousands of new housing markets elsewhere in Morocco was slow and inefficient, while units in the Tanger-Tétouan Region, helping to trade barriers and bureaucratic restrictions in practice limited at least partly alleviate the shortage of suitable how much could be produced and traded internationally. dwellings endemic in many Moroccan cities. Even during the “closed economy” years, compa- Public funding (including budget and debt nies in Tangier managed to build up manufacturing financing) and donor funds were used to cata- know-how and enhance knowledge of products and lyze even greater resources from domestic and industrial processes. Despite the lack of free access to international private-sector investors, through a European and other foreign markets, or ways to easily reach variety of PPPs and other modalities common in the majority of Moroccan consumers, Tangier still managed to develop a local textile and leather industry, as well as 205 A figure of US$17.8 billion over the period 2008-2014 is production in chemicals and selected metal and mechanical provided by www.tangerfreezone.com, but that includes infrastructure manufacturing industry segments. These largely built off the investments beyond just the Tanger-Tétouan Region. 182 high-income countries, but at the time relatively wanted to attract, nor was there adequate landside access for new to Morocco. such an expanded volume of commerce, given that the port was boxed in by the old Medina and other cultural monu- • Support for increased economic activity, both ments, as well as high-density urban housing. In consultation through proactive efforts to recruit outside investors, with local stakeholders, Morocco’s government therefore and through support programs for existing local firms decided to construct a brand new seaport facility some 35 km to better adapt to the global marketplace, including east of the city, directly across the Strait from Gibraltar and participation in global value chains. These activities were Algeciras in Spain. closely tied in with the aforementioned national sector development strategies, and comprised investment Begun in 2002, construction of the new seaport incentives (including land), capital access programs, complex (named Tanger-Med) was one of the largest the provision of technical advice and guidance, export infrastructure projects in African history. It entailed assistance, as well as dedicated workforce development a multi-billion dollar investment in civil works to transform and labor market intermediation programs – achieving a a pristine stretch of northern Moroccan beach just 14 km very high impact. from Gibraltar into a deepwater harbor (18-meter draft) with two separate container terminals, and an adjacent 250-ha While prioritizing Tangier as a driver of Morocco’s logistics hub/free zone and intermodal services zone (called economic development was ultimately a political de- MedHub) directly behind the port. Beginning operations cision, it was based on sound economic rationale and in 2007, Tanger-Med’s first phase (Tanger-Med I) is one of robust analytics. Not only was there tremendous potential the largest intermodal facilities on the Mediterranean, as for the north to achieve catch-up growth, but favorable exter- well as Africa’s biggest container port, with an initial annual nal developments such as new free trade agreements and the capacity of 3.2 million TEUs. Right next to it a passenger increase in shipping activity through the Strait of Gibraltar ferry terminal was constructed, with 8 berths able to handle presented new opportunities for Morocco to seize a greater up to 50 departures per day and 7 million Africa-Europe share of higher value-added activities related to international passengers and 700,000 trucks per year, roll-on–roll-off commerce. This would best be accomplished by becoming a (RO-RO) facilities with a capacity of one million vehicles, and major transhipment hub on the Strait, through which more a hydrocarbons storage facility. Finally, a further expansion than a quarter of the world’s seaborne cargo was already currently under construction and planned to be completed by passing – right outside the city of Tangier. These market 2016 (Tanger-Med II) will add two more container terminals, opportunities were identified through a structured process at more than doubling the port’s capacity to over 8 million both the national and local levels. TEUs. Container terminal operations have been tendered out under 30-year concessions to specialized entities with vast The introduction of ever-larger oceangoing freight experience and global commercial networks: APM Terminals vessels meant that brand new terminals were needed (part of the Maersk Group), and the Italian-German EURO- to accommodate them, which Tangier (and Morocco) GATE-Contship consortium (consisting of MSC, CMA-CGM did not have in the early 2000s. Upgrading Tangier’s and Comanav). Today Tanger-Med is connected to 56 ports in existing port, located in the center of town and home to 40 countries. Container traffic at Tanger-Med has been rising an existing free trade zone mostly producing textiles and rapidly in recent years to surpass 2.5 million TEUs in 2013, seafood, was deemed impractical. The old in-town port would while total cargo traffic reached 35 million tons, thus already never be able to accommodate the large container ships (and making Tanger-Med the country’s second-largest hub for especially future post-Panamax sized ones) which Morocco maritime traffic after Casablanca. The Port of Tanger-Med I, with Algeciras (Spain) and Gibraltar visible across the Strait 183 Recent Developments and Their obligations and involving various international donors and Significance private, for-profit concessionaires. Tangier’s improved transport infrastructure simulta- Given that Tanger-Med was designed from the outset neously accomplished multiple, but related economic to be more than just a gateway for the movement of and political objectives, with far-reaching impacts: freight and people, it forms part of an interconnect- ed regional system of industrial and logistics zones. • Northern Morocco’s better connectivity and integration Unlike other seaports in the country, which are managed with the rest of the country; by the national port operator Marsa Maroc, Tanger-Med has a unique governance regime, under its own dedicated • More efficient market access (domestic as well as inter- Tanger-Med Special Agency (TMSA). In line with Morocco’s national) for Tangier-based producers and exporters, sectoral and regional development priorities, TMSA oversees conferring a meaningful cost advantage and ease of an integrated network of six industrial and free zones located participation in global value chains; within an 80-km radius of the port of Tanger-Med itself. Its • Greater attractiveness of the Tanger-Tétouan Region to value proposition for potential investors includes the offer of foreign investors, due to lower transport costs and short- an “integrated industrial platform”, with efficient production er shipment times; and logistics, ease of market access, large labor pool, and low operating costs. • Easier and cheaper access for foreign tourists, enabling increased visitation to the city and region by leisure The motivation for undertaking such a massive infra- travelers, in turn helping to bolster the local tourism structure investment of nationwide significance and industry. impact went beyond just improving the efficiency of Morocco’s transport sector. Tanger-Med was envisaged The construction of Tanger-Med I and the infrastruc- under Morocco’s logistics sector strategy, and was to be used ture upgrades associated with it de-facto trans- as a catalyst for the economic development of the entire formed Tangier from an isolated, minor regional Tanger-Tétouan Region, and northern Morocco as a whole. center into one of the best connected, most cost-com- Besides the transshipment of containers from one vessel to petitive business locations on the Mediterranean. another, the intent was to capture a share of higher val- An ultramodern mega-seaport, efficient landside access, ue-added logistics services along both east-west and north- and improved air connections managed to turn Tangier into south shipping routes, attract international investors to one of the region’s best connected business locations in a Morocco as a platform for production and export, and boost time span of only a few short years – a feat seldom observed local producers’ competitiveness by lowering transport costs. in local economic development. Multinational firms, site selectors, bilateral and multilateral collaborative bodies, the Construction of the new seaport complex proceeded business press, and even academics… all of a sudden, Tang- in parallel with major upgrades to northern Moroc- ier began to appear on their radar screens as a very serious co’s road and rail connectivity. Railroads were extend- contender for all sorts of operations. The city came to be seen ed from the main national network right into the port of for what logically it should have been all along: a “near-shore” Tanger-Med itself, enabling the rapid intermodal transfer hub only a few miles from southern Europe yet outside the of containers, bulk cargo, and motor vehicles. Upgraded EU’s legal regime, offering a good quality of life, duty-free infrastructure and new rolling stock resulted in less conges- access to the single EU market, an inexpensive yet reasonably tion, higher average track speeds, and enhanced safety along skilled workforce, competitive land, energy, and other general northern Morocco’s railroads. Plans were announced to build business costs, and a national government committed to at- Africa’s first high-speed passenger railroad (Ligne à Grande tracting (and, when needed, incentivizing) FDI. Tanger-Med Vitesse, or LGV, modeled after France’s TGV) which, when thus managed to become an example of what has often been completed in the next couple of years, will reduce travel times attempted, but seldom successfully accomplished – a project between Tangier and Casablanca to only about an hour and a serving as a catalyst for urban and regional economic devel- half. Modern multilane highways were built not just con- opment. The reasons for this success are both external and necting the Tanger-Med port complex to regional population location-specific, with more detail below. centers like Tangier and Tétouan, but also to the country’s main Casablanca-Rabat axis. Finally, the facilities at Tangier’s Infrastructure upgrades were accompanied by the Ibn Battouta Airport were substantially upgraded in 2008, successful local implementation of national sector tripling its passenger capacity just as open skies agreements development strategies, starting in the early to mid- with EU and other countries enabled greater frequency of 2000s. As noted earlier, Emergence and other national plan- air services by low-cost carriers in particular. To finance ning documents had identified the sectors with the highest these unprecedented improvements to northern Morocco’s potential to drive Morocco’s economy forward. The national transport infrastructure, its national government utilized a strategies were successfully operationalized at the local level combination of funding mechanisms, including issuing debt in some industries already present in Tanger-Tétouan, or with clear advantages to take root there: 184 • Transport and logistics breaks207, export assistance and market informa- tion, and the identification and addressing of • Automotive industry-specific administrative and regulatory • Aerospace issues. Technology transfer programs are still in their infancy, but national legislation has in • Agri-business, including seafood processing recent years moved towards making it easier for • Textiles and leather research/educational institutions to collaborate with private for-profit businesses. A variety of • Electronics and mechanical engineering institutions, both public and private, are in- • Services offshoring (BPO/ITES, including customer volved in local needs assessment and the imple- support) mentation of national support programs, among them the Chamber of Commerce, CGEM, AZIT, • Tourism TFZ, sector associations, Abdelmalek Essaâdi How was national sector targeting implemented at University, Maroc Export, ANAPEC, as well as the local level? Five broad categories of sector-specific in- various other local and regional government terventions were observed in Tanger-Tétouan, each of which bodies, as appropriate in each situation. has likely played some role in scaling up economic activity in those targeted industries. They include: • Integration of local firms into global supply chains: In essence, achieving this entails establishing • Investment promotion: Carried out in partnership linkages between the previous two categories of inter- between national and local entities, this includes the ventions – attracting international companies to Tangier, identification of potential investment targets in each then helping them develop a local supplier base among sector, and outreach activities to inform them about the existing Tangerois firms. Unlike what the CCKB team business potential of Morocco and Tangier more specif- has observed in some other countries, very few interna- ically. Via the web, through AMDI’s network of interna- tional investors in Tangier have formal supplier develop- tional offices, referrals from existing investors, and other ment programs, and the process is as reliant on ad-hoc common channels, MNCs were contacted and relation- relationship building as it is on any systematic approach. ships built to understand their locational needs in terms However, economic logic and global competitive pres- of further expansion, very much in line with global sures drive the MNCs to source locally as many interme- best practices in investment promotion. Credible leads/ diate inputs into their production processes as they can, prospects were referred to CRI as the focal point for thereby minimizing transport costs, delays, and supply processing them, often also involving TMSA, the TFZ, chain risks. In the automotive industry, for example, the Wilaya, Tangier Mayor’s office, or any other entity building up local capacity and know-how has actually whose participation may have been needed or beneficial been easier than might be expected, given its specific to bring in a specific investor. A shared understanding of segments in which Tangier has emerged as a player – au- inward FDI being critical to Tanger-Tétouan’s develop- tomotive seats and fabrics, wiring harnesses and cables, ment and prosperity seems to have been present among steel stamping, plastic injection and sealing, steering all the key actors, at both the national and local/regional wheels, A/C and safety systems, etc. All these build on levels.206 Tangier’s accumulated expertise in more traditional industries like textiles, chemicals, and metal works, so • Entrepreneurial support programs: Besides the transition to producing what carmakers like Renault attracting outside investors, growth in targeted sectors need, for example, has proceeded fairly smoothly. An im- can be given added momentum by implementing pro- portant intermediation role was played by AZIT, TMSA, grams aiming to help existing firms scale up and create and TFZ management, keen on strengthening the link- jobs, as well as by fostering the growth of new ones. In Tangier’s case, this has included the assessment of industry-specific needs, development of managerial and 207 For example, although SMEs account for 95% of all firms in technical know-how, product and process improvement, Morocco, capital access remains a serious challenge for many of them, and therefore an impediment to establishing and scaling up productive activi- various technical certification programs and standards, ties. To address these financing gaps, the central government has instituted language instruction, capital access programs and tax several programs, including grants, loans, and credit guarantees, such as: the Moukawalati bank loan guarantee program; the Imtiaz program, which covers a portion of firms’ start-up costs; and the Moussanada program, providing cash grants to strengthen firms’ strategy and organization. While these capital access programs are not restricted to the targeted sectors, by supporting company formation and growth they likely provide support to the Moroccan economy’s most dynamic and vibrant segments, which are 206 Based on interviews and extensive discussions with the staff of likely to include the sectors targeted under Emergence and other strategic these organizations in December 2014. plans. 185 ages between their tenants and the multinational firms elsewhere in Morocco. However, Tangier’s unique geographic being brought in. advantages, quality infrastructure, the relative abundance of industrially-serviced land in the region, and workforce avail- • Sector-specific infrastructure: The provision of ability and cost likely played the determining role in attract- industry-specific physical facilities, including suitable ing investors to the city and its surrounding region. Incen- industrially-serviced land, dedicated railroad terminals, tives may have served as deal “sweeteners”, but do not appear ro-ro facilities, gantry cranes, storage facilities, cruise to have been the key driver of MNCs’ decisions to locate there ship berths, yacht marinas, beaches and nature pre- in the numbers or on the scale that they have. serves, road spurs and connectors, upgraded fiber-optic links, fish processing areas, waste disposal and materials Since Tanger-Med I began operations in 2007, there recycling, flood control and prevention, etc. has helped to has been an upsurge in foreign investment into the create the enabling conditions and environment needed Tanger-Tétouan Region. While as early as the 1990s mul- by firms in the targeted sectors, locally-grown ones as tinational firms had begun looking more closely at northern well as outside investors. Depending on the specifics, Morocco as a viable nearshore business location – very close these interventions may have been undertaken by the to Europe, but outside the EU – it was the inauguration of local branches of national agencies (coordinated through the new port of Tanger-Med that really opened the floodgates the Wali’s office), as well as by municipal authorities or to foreign investment, by enabling much faster, less costly the different entities under the TMSA umbrella. Advoca- market access. In industries ranging from plastics and pack- cy for such interventions is often channeled through the aging to metal products and fast fashion, the Tangier area’s Chamber of Commerce and/or CGEM, in a feedback loop bottom-line business advantages became hard for MNCs to stretching back to the national government agencies in ignore. Development of a network of industrial free zones in Rabat. the area, offering one-stop processing, fiscal incentives, and efficient logistics services, further solidified Tangier’s value • Dedicated workforce development programs: proposition. Morocco as a whole has made tremendous strides in raising its levels of human capital, prioritizing improved The arrival of French automaker Renault to the basic education as well as greater female enrollment and Tangier area in 2012 provided a tremendous boost to attainment. In terms of specific skills needed by target- Morocco’s FDI attraction efforts, and in particular ed sectors, mechanisms (called Organs de Gouvernance) to development plans for the country’s north. On 280 exist at both the national and regional levels for private hectares of land donated by the Moroccan government, Re- industry to provide feedback to OFPPT, ANAPEC, and nault established what will upon full buildout be the largest the universities about their particular skills needs. automotive plant on the African continent, producing some ANAPEC periodically funds studies of sectoral work- 400,000 vehicles per year. Located in Melloussa, in between force needs, and partners with the universities or other the port of Tanger-Med and the cities of Tangier and Tétouan, accredited entities on delivering the training needed. HR the plant offers easy access to all of them (and the region’s managers’ and sectoral professional associations in Tan- vast labor pool) via brand-new multilane highways. A dedicat- ger-Tétouan have the chance to express their needs and ed rail link from the Renault plant directly to the new seaport concerns through four dedicated sectoral commissions enables easy loading and offloading of automotive compo- (automotive/aerospace, transport/ logistics, offshoring, nents and assembled vehicles. At present, entire engines are and tourism). There is much flexibility in designing local shipped to the plant via Tanger-Med from Renault’s Europe- training programs that are actually relevant to what an plants for installation into locally-assembled vehicles, but employers seek. In addition to this general training for that is expected to change over the next few years, as more jobs in individual sectors, the Moroccan government also content is sourced locally. funds customized training programs (called “ formation à la carte”) tailored to the needs of individual employers. The Renault plant is expanding, helping to develop a Utilizing a combination of these various tools and in- local supplier base and auto industry know-how. The struments, Tangier has been able to produce the work- vehicles produced at Melloussa now comprise about 35-40% force talent needed by local and incoming companies Moroccan-made content, but the plan is to gradually increase alike. This has undoubtedly been a critical element in the that share of local content to 60% or more, as local suppliers city’s economic success story. build up technical capabilities and expand their own pro- ductive capacity. In addition, so far 12 Tier-1 suppliers from While Tanger-Tétouan effectively utilized standard abroad have followed Renault to Morocco, setting up oper- national incentives schemes in its investment at- ations in proximity to their key customer. Officials inter- traction efforts, there is no firm evidence that MNCs’ viewed at the Renault plant also hinted at plans to establish decisions to locate there were primarily motivated a sister Nissan plant alongside the existing one at Melloussa, by incentives. The above-mentioned industries qualified with outward signs (Nissan logos) already in place. While for standard national incentives schemes (including in free Renault already has a leading 40% share of the domestic zones); the World Bank mission did not find any additional Moroccan auto market (including another JV assembly plant subsidies or incentives offered at the local level not available in the Casablanca area), more than 90% of Renault vehicles 186 produced at Melloussa (mostly under the Logan brand) are Demand for skilled and semi-skilled labor surged destined for export through Tanger-Med. With an initial with the opening of the Renault plant and related capital investment of US$1.5 billion, Renault directly em- facilities; instituting workforce development pro- ploys 5,500 workers at the site, with another 30,000+ jobs gram(s) that would address these needs was abso- supported indirectly (at component suppliers, etc.) through lutely essential. In 2011, a dedicated training institute the plant’s multiplier effect in the local economy. In a very – l’Institut de Formation aux Métiers de l’Industrie Automobile real sense, this single investment project has helping propel de Tanger Med (IFMIA) – was established adjacent to the Tangier into FDI’s major league. Renault factory then under construction in Melloussa. In line with the approach outlined in Emergence208 and funded by Tangier’s quest to become a regional automotive Morocco’s national government (specifically, the Ministry of production hub did not begin or end with attracting Employment and Vocational Training, as well as the Ministry the Renault factory. Even in the early 2000s, foreign of Industry, Trade and New Technologies) in collaboration automotive firms started to produce components in Morocco with the Agence Française de Developpement (AFD) but for installation at European assembly plants. Then, Renault’s operated by Renault, IFMIA was established to fill the talent arrival provided an even more compelling reason to be in pipeline needed by expanding automotive production in the Tangier. The region’s free trade zones are home to some lead- region, for jobs at Renault itself but also at the facilities of its ing auto suppliers, among them: electronics maker Delphi Au- components suppliers. Specific applied skills taught include tomotive, with 4,900 local employees; Lear Automotive, with stamping, welding, riveting, assembly, hydraulics, pneumat- 2,500 employees; Japanese air conditioning maker DENSO ics, electrics, materials handling, servo systems, mechanics, Thermal Systems, employing 120 Tangerois; and chemicals robotics, forklift operations, sanding, painting, logistics, and giant Dupont, supplying paint colors for vehicles, with 25 so on. The skills attained through this training program are local employees. The Moroccan government has ambitious also applicable to related industries like aerospace, whose plans for further auto cluster development, and is actively skills needs are somewhat comparable in functional terms. working to attract a second major automaker’s assembly plant On the whole, this program has been a stellar success, and is to Tanger-Tétouan, which would further solidify Tangier’s indicative of the kinds of vocational and customized training status as a leading automotive production hub in its part of programs which Tangier (and more generally, Morocco) have the world. To this end, another 300 hectares have been set utilized to ensure the availability of skills sets critical for aside for a free zone dedicated to the auto industry, called industrial development. It is another important factor in the Tangier Automotive City (TAC), adjacent to Renault’s plant at city’s recent success. Melloussa. While only one part of TAC is operational (the rest is still under construction), there has been strong interest The relocation of Tangier’s freight traffic to the new from components manufacturers, and a handful of automo- Tanger-Med port has enabled the redevelopment of tive firms (e.g. Spanish firms Turbo Cadiz and Europac, and the city’s old seaport, renamed Tanger-Ville, into a Electrical Components International from the U.S.) have tourism- and fishing-focused maritime facility, along already set up operations there. with high-end retail, entertainment, and residential developments. To coordinate these activities, a dedicated Renault’s production plant at Melloussa 208 For more detail, see http://www.emergence.gov.ma/Forma- tion/Pages/InstitutsEcolesSpecialisees.aspx 187 organization called SAPT (Société d’Aménagement pour la of neglect and uncontrolled urban sprawl, special attention Reconversion de la Zone Portuaire de Tanger) was established was paid to environmental protection and mobility. Tangier in 2010. The free trade zone previously located inside the port has been, for example, the first Moroccan city to achieve area was decommissioned, its businesses relocated to a new 100% coverage of urban households with vital municipal area outside the city core, while a wall cordoning off the port services like water and sewerage, according to the city’s from its city was torn down. Implemented in several phases, current Mayor.209 Priorities such as environmentally sustain- the port’s multifaceted conversion process is still ongoing. A able development, flood control, the preservation of green new harbor for fishing vessels is being constructed outside spaces, beach and seawater cleanliness, transportation access the old port area, which will enable fish processing facilities (including public transit), and the deployment of renewable to be relocated away from the port’s main tourist areas. At energy are all seen by local leaders as critical economic devel- present, new terminals for larger cruise ships and pleasure opment issues (for tourism as well as investment attraction), craft are also under construction, which will be followed by not just citizens’ quality of life concerns. the construction of upscale housing, office space, three ho- tels, a convention center, a retail complex with cinemas, and These proactive “place-making” initiatives set the eventually even a hanging cable car system (téléférique) which stage for Tangier to be more than a transfer hub will transport visitors and other passengers between this new for tourists traveling between Spain and Morocco. leisure port and tourist attractions in the city’s old Medina. In addition to having the nation’s fourth busiest passenger Much of this development will be funded by private conces- airport at Ibn Battouta, Tangier’s twin maritime passenger sionaires or public-private partnerships. gateways (Tanger-Med and the old port at Tangier-Ville) account for about one fifth of all tourist arrivals to Morocco, Tangier has worked hard to reconcile its dual (and or close to two million visitors per year. This presented a clear sometimes seemingly contradictory) ambitions to si- opportunity to try to get them to spend some more time in multaneously serve as a manufacturing hub as well as the city and its environs, rather than just pass through. But a leading tourist destination. This was achieved through a systematic, focused approach to promoting tourism in the extensive stakeholder consultation and visionary transpor- region was needed. With the involvement of both local and tation planning, by measures that included the above-men- national actors, such an approach was indeed developed. tioned port redevelopment, relocating manufacturing firms outside the city core to newly-built, designated facilities Tanger-Tétouan’s tourism promotion efforts have with adequate infrastructure, designating prime locations as been closely tied in with Morocco’s nationwide tour- “tourist” zones while reserving the flexibility to rezone areas ism sector strategies. The national Vision 2010 and Vision as needed, and inviting/encouraging foreign investment in 2020 planning documents described earlier were developed both industrial plants and the tourism sector. After decades collaboratively, in a process involving the Moroccan govern- The Atlantic Ocean near Cap Spartel, where it meets the Mediterranean, just outside the Tangier city limits 209 In person interview with Mr. Fouad El Omari, Mayor of the Urban Community of Tangier, on December 4, 2014. 188 ment, CNT, the 16 Regional Tourism Councils, private-sector firms, and stakeholders at large. In addition to boosting the numbers of visitors to the country, a key objective has been to develop Morocco’s tourism brand beyond just Marrakech, which had already become globally known for its cultural treasures. The Vision documents sought to ensure the bal- anced growth of tourism across Morocco’s regions, while also emphasizing its economic and environmental sustainability. The regional plan for Tanger-Tétouan took inventory of the region’s tourism assets, and identified prior- ity areas for development. Tangier-Tétouan is generally greener than much of North Africa, and its pleasant climate is reminiscent of coastal California’s, without extremes of heat or cold. With literally millennia of recorded history and the sites to document it, Tangier is a cultural gem. Local authorities are working to further increase the area’s attrac- tiveness to visitors both by emphasizing its natural beauty and ecotourism potential, and by developing large-scale tourist resorts and attractions. The current hotel capacity in Tangier-Tétouan exceeds 13,000 beds, but plans are afoot to more than triple this to 40,000 beds by 2020. Indeed, the region’s existing hospitality infrastructure has seen dramat- ic growth over the past few years, with many international hotel chains moving in. It is planned that the city of Tangier itself will be the locomotive driving the development of the whole region’s tourism industry, building on its transport ad- vantages as well as its lure as a cultural destination, centered on its historic Medina. With about a million nights spent by tourists in Tangier hotels each year, the city now ranks as the fourth most-visited Moroccan city after Marrakech, Agadir, and Casablanca. 189 Key Local Actor spirit – whish ensures that Tangier’s business environment is a hospitable one, going beyond just what is provided for by national legislation and available incentives schemes. Tangier does not have a single, focal economic devel- The analytics local teams employ are robust, systematic, and opment organization, but several entities from both timely. Going beyond a general (and highly generic) “open the public and private sectors do have a role in foster- for business” marketing message, which almost every city ing economic growth and job creation in the city and and country strives to put out nowadays, Tangier focuses on its surrounding region of Tanger-Tétouan. These in- setting realistic, attainable goals, and tries to get all of its key clude: the regional governorate (Wilaya), which has a coordi- actors on board to make it happen. nating and oversight role over the work of most other public entities in the region; the central and regional/local offices of Below is a closer look at some individual entities with a role in national agencies (e.g. for workforce development, tourism, Tangier’s economic development. territorial development, etc.); the Urban Community (i.e. Tangier’s elected city government); the Agency for the Pro- Wilaya of Tangier (Regional Governorate): The motion and Development of the North (APDN); the Regional Regional Governorate is headed by the Wali (Governor), as Investment Center (CRI); TMSA; the Port Redevelopment the personal representative of the Moroccan King in the Agency (SAPT); institutions of higher learning, especially Tanger-Tétouan Region. In this role, the Wali’s office over- Abdelmalek Essaâdi University; the General Confederation of sees and coordinates the work of all public-sector entities Moroccan Enterprises (CGEM); the Chamber of Commerce, under its jurisdiction. Ongoing administrative reforms in Industry and Services (CCIS); the Tangier Industrial Zone Morocco are striving to devolve more institutional scope to Association (AZIT); and various other private-sector groups the individual regions, in this case meaning to the Wilaya, to and industry associations. undertake interventions of a local and regional significance. Importantly, high institutional capacity within the Wali’s Tangier and its region have what in practice amounts office itself (in terms of human resources, technical know- to a regional growth coalition, even if that coalition’s how, and capability to implement complex projects), has been structure and inter-institutional relationships are a vital enabler of the transformative events and economic not always formalized, or codified in legislation. The outcomes observed in recent years.210 The Wilaya is institu- key actors confer with each other regularly, and act in concert tionally represented on the governing bodies of many other to advance the city’s economic development agenda. Thus, in local public entities, and gets a say in their general priorities a very tangible sense, the above entities form a de-facto re- and spending decisions. By law, the Wali is also simultane- gional growth coalition, even if the exact mechanisms for its ously the Prefect of the Tanger-Assilah Prefecture within the activities are not necessarily formalized. With about a million region, the vast majority of whose population resides within inhabitants, Tangier is not a huge city, and even its surround- the city of Tangier itself. ing region has not much over three million residents. Practi- cally all key decision-makers know each other personally and Urban Community of Tangier: The Urban Community interact on a regular basis. Issues are discussed and some- is Tangier’s city government, headed by an elected Mayor times vigorously debated within these meetings. There isn’t and City Council. Its administrative remit does not extend a formal mechanism for resolving differences, but in practice beyond the Tangier city limits, but because of the urban core’s consensus is usually reached on most important matters, role as the business hub of the entire region, it has a greater and problems that cannot be solved locally are brought to the economic significance than its limited territorial jurisdiction attention of national authorities. On the whole, there appears would imply. Within the 1,195 km² encompassed by Tangier’s to be a very high level of social capital, resulting less from a city limits, there were 974,000 residents in 2014, making sense of shared identity than the awareness that these ini- Tangier Morocco’s third most populous city after Casablanca tiatives are essential for Tangier’s future, and the conscious and Fès.211 The city government has statutory responsibil- efforts of Tangier’s key players to build up mutual trust and ity for the provision of regular municipal services as well work together for results. 210 For example, in meeting with Tangier’s incumbent Wali, Mr. Local government and business leaders in Tangier are Mohamed El Yaacoubi, it was very apparent to the Bank mission that this forward-looking and globally savvy. Tangier’s leaders – was not just a routine administrator who ensures that the apparatus of gov- from the Wilaya and the Mayor’s office, to TMSA and CGEM ernment is humming along as usual. Rather, the Wali takes a keen personal – appear to have their finger on the pulse of global business interest in the intricacies of economic development, including engineering solutions to transport and mobility challenges, the relocation of specific in a much more direct way than in many other compara- facilities to ensure compliance with environmental safeguards, catering bly-sized cities. Tangier is not New York or Singapore, but its to the locational needs of foreign investors, capitalizing on broader global business and political leaders are engaged in promoting their business trends to benefit Tangier’s economy, and so on. A “let’s get it done” city’s development and global commerce in very hands-on, approach seemed to permeate the implementation of almost every initia- practical ways, from the identification and targeting of poten- tive. While it is hard to judge based on just a few meetings, the Wali may well be representative of a new generation of local leadership in Tangier that tial investors to taking part in trade and investment promo- is dynamic, capable, and unequivocally committed to enhancing economic tion missions. There is also an almost limitless readiness to opportunities and the quality of life for area residents. listen to and address the concerns of investors – a “can do” 211 http://www.h24info.ma/maroc/le-surprenant-classement- des-villes-les-plus-peuplees-du-maroc/31608 190 as for urban planning, as required by national law. It is not into Tanger-Tétouan Region, registers new companies, and administratively tasked with “core” economic development provides entrepreneurial assistance to existing firms. It is functions like job creation, simply with creating an enabling AMDI’s principal local partner for administering national environment for it to occur. However, in practice Tangier’s incentives programs, as well as providing traditional site city government takes a much more active role in fostering selection services to foreign investors. Just like AMDI nation- economic development, undertaking a series of highly-bene- ally, CRI makes sure that certain criteria are met in order ficial interventions that transcend its immediate administra- to qualify for incentives (in terms of capital investment, job tive scope. These include: “place-making” (improvements to creation, and the nature/technological level of each proposed quality of life, making the city more attractive to residents, investment). CRI provides incentives to companies in the visitors, and investors); investment promotion events, both manufacturing, services, and tourism sectors, but not in inbound and outbound, touting Tangier as an attractive place real estate or agriculture (as those sectors are aided by the to do business; building sister-city relationships and other departments housing and agriculture, respectively). In 2013, forms of international cooperation; and working to improve for example, CRI processed about 540 investment projects, a Tangier’s overall business environment, e.g. by simplifying significant increase from the 450 processed the previous year. administrative procedures and making sure that available Proposed projects are reviewed and approved (or not) in con- infrastructure is adequate for businesses’ needs.212 sultation with the Tangier City Council and the Wali’s office. CRI also provides investor aftercare services, in coordination Agency for the Promotion and Development of the with AMDI. Significantly, CRI does not engage in investment North (Agence pour la Promotion et le Développement promotion, and is by law precluded from “poaching” or divert- du Nord – APDN): APDN is an agency dedicated to the ter- ing investments from other Moroccan regions. Finally, CRI is ritorial development of the northern third of Morocco (there responsible for registering new businesses in Tanger-Tétouan, are two sister agencies for the country’s central and southern and provides financial assistance to existing Moroccan or for- parts), under the direct authority of the Prime Minister. Cov- eign firms already operating in the region seeking to upgrade ering an area of 35,973 km2 that extends along more than or expand their production. 100 km of Atlantic coastline and nearly 300 km of Mediterra- nean coastline, the North has about five million inhabitants. Tanger-Med Special Agency (TMSA): The Moroccan APDN oversees the territorial and social development of government established the Tanger-Med Special Agency in two of Morocco’s 16 regions: Tanger-Tétouan, and Taza-Al 2002, as a dedicated entity to maximize the development Hoceïma-Taounate. It includes 11 prefectures and provinces impact of its huge investment in a new seaport and landside (Tanger-Assilah, Fnideq-M’Diq, Tétouan, Fahs Anjra, Chef- infrastructure. TMSA is an umbrella organization bringing chaouen, Ouezzane, Larache, Al Hoceïma, Taounate, Guercif, together the Tanger-Med Port Authority with an “integrated and Taza), which are further divided into 29 urban and 216 industrial platform” consisting of multiple free trade and rural districts. APDN was created in 1996 at the urging of logistics zones throughout northern Tanger-Tétouan Region. (and with assistance from) the European Union, as a regional The intent was to connect Morocco to global value chains, body to coordinate development activities and funding for and to create the right conditions for international investors that part of Morocco, including halting illegal ones (smug- to want to locate in Tangier. TMSA represents the Moroccan gling contraband, narcotics, immigration, etc.). APDN’s focus State in all interactions pertaining to the Tanger-Med port is on five main areas: opening up the North to development, and industrial platform, and has sweeping powers in key ar- education, electricity, water, and health. In addition to chan- eas such as land acquisition and allocation. With direct access neling funding and carrying out or commissioning studies, to senior national decision-makers in Rabat, TMSA has also it assists local communities in preparing their own develop- served as an important transmission channel for articulating ment plans, seeks to address intra-regional disparities and local needs to the national government. As a leading regional ensure inclusive development, and build local capacity for economic development agency, TMSA brings together various project implementation. APDN is a vital venue for ensuring actors involved in trade, investment attraction, workforce dialogue and collaboration across multiple jurisdictions in development, and regional decision-making, many of which northern Morocco, and a key conduit for development fund- have representation on TMSA’s Board. Given all this, TMSA ing, from Moroccan as well as donor sources. and its subsidiaries have played a pivotal role in Tangier’s economic success over the past decade. Regional Investment Center (Centre Régional des Investissements – CRI): CRI facilitates foreign investment Tanger-Med Port Authority (TMPA): The Tanger-Med Port Authority (TMPA) is a subsidiary of TMSA, respon- 212 Development of the seminal Tanger Metropole plan was led by sible for the construction and maintenance of the port’s the city government, for example, in consultation with other pertinent gov- infrastructure, development of the broader port complex, ernment agencies and key stakeholder/civil society groups. It provides an and the overall international promotion of Tanger-Med. In integrated approach to infrastructure, environmental conservation, urban coordination with TMSA, TMPA also undertakes long-term regeneration and redevelopment, tourism, education, health, sports, and various other local priorities for Tangier, including some that directly per- planning for the port’s expansion, as well as of its landside tain to economic development and job creation. Enacted in 2013 and with access. Tangier is the only major Moroccan port to have its implementation slated to be completed by 2017, however, it falls outside the own port authority, rather than be managed by the national immediate time scope of this case study and will not be examined in detail ports agency, Marsa Maroc. Originally much of the port’s in this report. 191 traffic consisted of the transshipment of containers, but now government, meetings are held on an ad-hoc basis whenever the export and import of goods from and into Morocco are needed, and relations with the Wali and other key officials are gaining in importance as a share of the port’s total business very good. In the recent past, AZIT has sought and obtained volume, especially since the opening of Renault’s factory those officials’ help with addressing specific problems like at Melloussa. TMPA strives to ensure the port complex’s dealing with Customs or individual ministries in Rabat. seamless operational integration with the other elements of Presently, there are 116 firms operating in AZIT, employing the Tanger-Med industrial platform, a function that will only approximately 30,000 workers, with a particular concentra- gain in importance as the port expands further to overtake tion in the textile/leather, chemicals, agribusiness, optics, nearby Algeciras, Spain, in total container capacity. and construction materials sectors. The zone is oversub- scribed, meaning that more firms would like space there if it Tanger Free Zone (TFZ): Like TMPA, the Tanger Free were available; however, there is no additional space available Zone Company is a TMSA subsidiary, operating the six for further growth. facilities that make up the Tanger-Med industrial platform, on some 3,000 hectares of land zoned for industrial use. The Port Redevelopment Agency (Société d’Aménagement company is 51% owned by TMSA, while the remaining 49% pour la Reconversion de la Zone Portuaire de Tanger of its shares are held by institutional investors in the pri- – SAPT): Established as a public-private partnership and vate-sector – primarily banks, pension funds, and insurance sister agency to TMSA, SAPT serves as the lead entity tasked companies, both Moroccan and foreign. The Tangier Free with the transformation of the city’s waterfront following Zone (TFZ) itself is just one of the six industrial or free zones the relocation of cargo and most passenger ferry services in Tanger-Tétouan Region operated by this holding compa- to nearby Tanger-Med. SAPT’s Board includes all the main ny. TFZ’s creation actually predates the establishment of actors involved in this project: the Ministry of Economy and TMSA and the new seaport: the legal framework for a Tanger Finance, the Hassan II Fund, APDN, the Wilaya, Tangier City Free Zone was put in place back in 1995. TFZ was officially Council, and so on. SAPT has a contractual relationship with established in 1999 as a one-stop shop for investors, and wel- other entities involved in the project (such as road construc- comed its first industrial tenant in 2000. TFZ offers a range tion firms), committing to who will do what by when. As of incentives and fiscal exemptions typically found at zones noted earlier, the project to redevelop and repurpose the old designated for export-oriented production. Located very close port in the Bay of Tangiers from an industrial quasi-waste- to Tangier’s Ibn Battouta Airport, TFZ today employs nearly land into a tourist attraction is neither a simple nor inexpen- 50,000 workers at more than 500 companies, which have to sive one, but is now seen by the majority of stakeholders as date invested more than US$2.6 billion into local produc- vital to Tangier’s economic future, and is proceeding ahead of tion facilities. The vast majority of them are in four sectors: schedule and within budget. It entailed moving the compa- automotive, aerospace, agribusiness, and textiles (especially nies located in the old free zone at the port to TFZ; a special fast fashion). Officials interviewed at the facility cite its task force was created at SAPT to support those firms in strategic geographic location, quality infrastructure, and the administrative and logistics process. SAPT played a key favorable business environment as the top reasons for TFZ’s role in ensuring stakeholder buy-in for the project, particu- success to date. Its management employs standard economic larly from some relatively small but socially and politically development research and recruitment techniques to identify important constituencies like fishermen. SAPT officials cite potential investment leads, and to bring those companies to as the key success factor for their project: “Do consultations, TFZ to set up or expand operations. make promises, and make the promises come true to restore people’s confidence in the public officials.” Tangier Industrial Zone Association (Association de la Zone Industrielle de Tanger – AZIT): Operational Chamber of Commerce, Industry, and Services (CCIS): since 1990, AZIT is Tangier’s oldest industrial zone, and In Morocco, chambers are quasi-public institutions, funded still one of its most successful. Originally set up as a way of by a 0.1% “professional tax” levied on businesses locally, coping with the risks of factory facilities being located in a which is then funneled back to Tangier’s CCIS by the national floodplain outside the city center, AZIT’s role has evolved to Ministry of Finance. CCIS performs multiple functions, some include facilities management (e.g. utilities, industrial waste of which are directly related to Tangier’s economic develop- collection/disposal, and of course flood control), emergency ment: services (health, police, fire protection), human resources (e.g. training for operations and maintenance of machines), and • Promotion of Tangier as a business location, including advocacy on behalf of industrial firms, often in collaboration preparing and disseminating informational materials, with CGEM and other partners. Legally, AZIT is a non-prof- organizing events and missions (inbound and outbound), it association in which firms own the land, but contribute facilitating joint ventures, and fostering other linkages financially and have differing numbers of votes based on the with partner entities abroad. surface area each of them occupies (i.e. smaller firms pay less, larger ones more and get a greater say in governance). AZIT’s • Entrepreneurial support to Tangier firms, including General Assembly meets every year to discuss key issues, but not limited to capacity building (for production, and elects its governing committee (Bureau) every three exporting, etc.), professional development and training, years. While there is no formal consultative mechanism with assistance with administrative procedures and compli- ance (e.g. business taxes, certificates of origin, etc.). 192 • Member services, including advocacy and intermedi- UAE has about 60,000 enrolled students, half of whom are ation vis-à-vis government agencies, conciliation and in Tanger itself, and the remainder in the Tétouan area. With arbitration in commercial disputes, and provision of more than 800 professors, UAE’s main areas of instruction market information. include: science & technology; law & economics; business; engineering; languages; and medicine & pharmacology. It is CCIS works very closely with the Wilaya, the Tangier Mayor’s governed by a University Council, consisting of senior univer- office, and national agencies on measures to improve the sity faculty (UAE president, deans, professors), the president overall business climate (e.g. by simplifying administrative of the Regional Council of Tanger-Tétouan, representatives procedures), assist corporate relocations within the region of CGEM and CCIS, seven representatives of “productive due to changing zoning regulations (e.g. moving polluting sectors” (i.e. private for-profit firms), and three other external factories and slaughterhouses outside the urban core and appointees. Membership of the Council’s thematic working areas designated for tourism development), and various other groups is flexible, and varies according to the topic being initiatives directly affecting its members. addressed. Crucially, private-sector employers are now able to provide more feedback in curriculum design. General Confederation of Moroccan Enterprises (Con- fédération Générale des Entreprises du Maroc – CGEM): In terms of “core” economic development activities, UAE CGEM is a nationwide private membership organization ded- is prioritizing ever-closer links with private industry and icated to furthering the interests of Moroccan business and labor market intermediaries like ANAPEC. University-based creating a prosperous economy through private-sector initia- research and technology commercialization are not yet highly tive. CGEM’s local chapter, CGEM Nord, covers the regions developed in Morocco, and the universities continue to lack of Tanger-Tétouan and Taza-Al Hoceïma-Taounate, and has sufficient financial autonomy in this, but there has been approximately 150 members, most of whom are in the fol- gradual progress in making commercializing research easier. lowing sectors: automotive, aerospace, logistics, textiles and UAE has 15 patents pending, and hopes to get more com- leather, and agribusiness. In addition to advocating on behalf panies interested in its R&D capabilities. Informally, there of business interests and promoting cooperation among already are some relationships between university professors different entities involved in the region’s development, CGEM and Tangier’s for-profit firms, who occasionally hire the uni- Nord commissions specialized studies (e.g. on workforce versity to conduct tests on materials, and similar activities needs in targeted industries), facilitates the attraction of at its research labs. UAE leadership envisage an increasing foreign investment, assists local member companies in im- role for it in Tangier’s industry cluster development, closely proving their business processes and upgrading technologies, aligned with Morocco’s national cluster development strat- provides input into Maroc Export’s program design at the egies. Already, the university is home to four “competency national level, and organizes seminars and learning events centers” (i.e. centers of excellence) directly relevant to those for members (e.g. on economic, social, legal, and tax topics). clusters: renewable energy, electronics and telecommuni- Examples of recent accomplishments include: creation of a cations, marine sciences, and logistics. All of them provide “Regional Center for the Business Environment” in collabo- strong impetus to the development of specialized know-how ration with CRI, focused on improving local administrative in the region, and clearly aid targeted cluster growth. UAE procedures; agreement to keep the port open 24 hours per has a technology incubator in Tétouan (though not yet one in day; separation of export and import flows inside the port; Tangier), as well as a women’s business incubator, created in creation of MEADs (magasins et aires de dédouanement), as 2013 in partnership with AFEM (the Moroccan association areas with expedited port and customs procedures, reducing of women business leaders), which is already yielding results goods’ time to market; and enabling Moroccan firms to pay in terms of building entrepreneurial capacity and creating each other in dirhams, instead of euros, inside TFZ. CGEM employment opportunities. Finally, the university has enthu- leaders regularly meet with the Wali and other public-sector siastically embraced internationalization, adopting the EU’s representatives every month. However, there are now fewer Bologna degree system, and participating in the Erasmus such meetings than before, indicative of there being fewer and Tempus programs. It has partnerships with educational problems to jointly address! institutions in many different countries, and its faculty speak multiple languages. Abdelmalek Essaâdi University (UAE): The region’s only major public university was formed in 1989 through the merger or two prior educational facilities in Tangier and Tétouan, centered on the liberal arts and science & technolo- gy. To this day, UAE has had a strong – and increasing – focus on providing “professional” educations which aim to prepare graduates for jobs, rather than just advancing knowledge for its own sake. Since the global great recession, Moroccan universities as a whole have been moving in this direction, emphasizing tangible skills to facilitate graduates’ employ- ability. For example, national legislation has since 2008 mandated that IT, foreign language, and entrepreneurship modules be integrated into all university programs. Currently 193 Analysis • Responsiveness to local needs and concerns, articulated through multiple public- and private-sector channels. Factors of Competitiveness • Funding a variety of local initiatives, from the Factor 1: Conducive national policy context and environmental cleanup and urban redevelopment to the support mechanisms: The broader Moroccan economy has restauration of historic sites and cultural events. made tremendous strides over the past few years, including substantive measures to liberalize the economy, remove bar- • Marketing and promotion of northern Morocco as a riers to external trade and investment, and enable Moroccan business location and tourist destination, particularly in firms’ closer integration into global supply chains. Specifical- EU countries. ly: • Attraction of catalyst investments, such as the • Macroeconomic stability and performance, with Renault plant just outside Tangier, including the active fairly consistent national GDP growth, exchange rate participation of all national actors in making it happen. and price stability, formal job creation, and poverty reduction. • Encouragement of cross-border cooperation be- tween Moroccan cities/regions and those just across the • General business climate improvements, reflected Strait in Europe. in Morocco’s steadily improving performance in annual Doing Business and similar rankings. Factor 3: Significant local capacity to further the city’s and region’s economic development, includ- • Opening up various sectors of the economy to compe- ing: tition and market dynamics, including privatizing some large previously state-owned monopolies. • High levels of stakeholder engagement through con- sultation, participation, and building up of social capital • Greater openness to the world economy, including and trust as enablers of results on the ground. through numerous bilateral and multilateral free trade treaties and open skies agreements, and the attraction of • Proven ability of various local actors (city, region, pri- FDI vate sector, university) and the local representatives of national entities to work together to set and achieve • Some devolution of decision-making for economic shared goals. development to the regional and local levels, and the in- stituting of effective feedback mechanisms for alert- • Ability and willingness to articulate Tangier’s needs to ing national decision-makers to local issues and needs. national decision-makers, and to advocate on behalf of the city. • National sectoral development policies, putting in place incentives and mechanisms to promote the rapid • Skillfully taking advantage of national initiatives growth of industries targeted for proactive economic de- to foster local job creation. velopment efforts. Although these policies were national in scope, their practical operationalization has strong • Making good use of national support mechanisms, geographic implications. such as financial incentives, export assistance, and work- force development and training programs. • Instituting highly effective national support tools (e.g. investment incentives, workforce training programs, • Capitalizing on external growth opportunities export assistance) available to firms at the local level. and global trends to attract trade and investment. Factor 2: Strategic national focus on northern Mo- • Knowledge of products, markets, and “how business is rocco: Besides nationwide policies to improve the business done” worldwide. climate, prioritize specific industry sectors, and accelerate • Flexibility and responsiveness to investors’ needs, economic growth, the Moroccan government has made including a demonstrated readiness to engage with them development of the country’s northern areas a key priority. to address their specific concerns. Examples include: • Proactive initiation of global ties, and use of interna- • Unprecedented investment in physical infrastruc- tionalization as a deliberate economic development ture to better integrate the north with the rest of the strategy (inbound and outbound missions, cultural country, and to facilitate international commerce and exchange, language instruction, etc.). travel. 194 Factor 4: Geographic, historical, and cultural ad- • Generally adequate levels of human capital at highly vantages, which have greatly facilitated Tangier’s recent competitive wage levels across a range of industries (au- economic success: tomotive and aerospace components, garments, medical supplies, construction materials). • Tangier’s strategic geographic location at the cross- roads of major global shipping routes, and its proxim- • Successful labor market intermediation through ity to business partners and markets in the European the national workforce agency ANAPEC, and its highly Union. effective collaboration with employers, the local univer- sity, and training providers (e.g. OFPPT) to design, fund, • A highly attractive geographic setting (mountains, and implement both general and customized workforce beaches, pristine ecosystems, temperate Mediterranean training programs. climate). Factor 7: Bottom-line business advantages: Be- • A rich cultural heritage favoring the development of sides competitive wage levels, Morocco in general and tourism. Tangier in particular offer some compelling locational advantages to firms in several industries. The overall cost • Place-making: targeted efforts to improve the city’s of doing business is highly competitive, and the busi- livability for residents and attractiveness to visitors and ness climate much improved in recent years, in every- investors. thing from tax treatment to regulation. There is ample availability of industrially-serviced land, allocated either • Tangier’s history and tradition of multiculturalism, for free, or on highly favorable terms. Power (including diversity, tolerance, and multilingualism: in part due from renewable sources) is abundant, logistics capabil- to its long history of global engagement, Tangier has a ities have dramatically improved, and Morocco’s free reputation as an exceptionally open-minded place. Local trade agreements with many countries enable duty-free residents are able to function in multiple languages, and market access. While wage levels are higher than in making conscious efforts to learn additional ones. “low-cost” producers like Vietnam or Bangladesh, the • Political stability and security: Morocco is an oasis technological sophistication of local firms and the qual- of stability in a sometimes turbulent region, and Tangier ity of Morocco’s workforce make it a logical nearshoring is safer than many comparably-sized cities. Foreigners location for European markets in particular. Given its are made to feel welcome. location right across the Strait from Europe, Tangier has been able to attract firms needing quick turnaround Factor 5: A relatively diversified economic base: times, either as direct investors, or in supplier relation- Even before the national government initiated the ships.213 massive infrastructure investments which would end up having a truly transformative effect, Tangier already had a fairly diversified metropolitan economy, albeit with a Lessons for Other Cities strong manufacturing focus. Local production spanned sectors as varied as machinery, metal works, chemicals, Tangier’s economic success has been enabled by favorable ex- apparel and leather goods, handcrafts, and food process- ternal developments, especially the Moroccan government’s ing, plus fishing and some tourism. Construction and decision to prioritize the development of the country’s north- real estate have also traditionally been important in this ern regions. Yet local actors skillfully seized the opportuni- coastal city. All this meant that Tanger companies had ties this offered, improving both the quantity and quality of at least a basic level of manufacturing know-how to later economic growth. While some aspects of Tangier’s experience become suppliers to major foreign investors like Renault. are quite unique, it does still hold some “teachable moments” The new opportunities brought about by the completion for other cities. Key learnings include: of the port of Tanger-Med enabled local firms to become better integrated into global value chains, upgrading 1. Recognize a unique major opportunity when it their technologies and workforce skills. Significantly, presents itself, and take advantage of it: This may this process enabled growth in new, higher value-add- sound like an obvious thing to do, but recent economic ed industry segments like automotive and aerospace, development history is littered with examples of once- gradually transforming the sectoral mix of local manu- in-a-lifetime opportunities which were squandered due facturing firms. to unrealistic expectations, failure to take appropriate actions or follow through, and not seizing the initiative Factor 6: Workforce skills and talent formation: under highly favorable circumstances. Tangier’s leaders Having workers with the appropriate skills sets, or the correctly understood that the establishment of the ability to quickly attain them, has been an important factor in Tangier’s ability to attract outside firms, partic- ularly foreign ones. Two elements stand out in particular: 213 In some ways, Morocco’s role vis-à-vis the EU market resembles that of Mexico relative to the US. Tangier is geographically and linguistical- ly perfectly positioned to take advantage of the opportunities this presents. 195 Port of Tanger-Med and the massive investments been quite limited. Tangier has been successful in such accompanying it would offer a unique chance to put the endeavors for the following principal reasons: city on the map of international business in previously unimaginable ways, and in the process to remake a. A longtime tradition of being an the city’s economy and greatly enhance its residents’ “international” city, embracing different prosperity. Operational plans were made and adhered cultures, languages, and tolerating to, partnerships forged, mutual suspicions and egos set diversity; aside, and an inordinate amount of effort put into jointly promoting the city as a business and tourist destination. b. Tangier’s geography at the crossroads of trade routes, making it a natural gateway 2. Follow global business trends, understand their and commercial entrepôt; local implications, prioritize among business prospects, and create a compelling value c. Infrastructure, both physical (TFZs, proposition for each audience: With the advent of seaports, airport, hotels, fiber optics, Tanger-Med, the city and its leaders could easily have electric grids, pipelines) and “soft” jumped onto any number of fads so common in the (foreign consulates, banks, cultural world of economic development, chasing after whatever institutions, human linkages) necessary for industry or segment may be in vogue at the moment. international commerce; Instead, by employing robust analytics to identify d. An existing concentration of international specific business prospects, then tailoring its marketing companies from various countries; message to specific audiences, Tangier has been able to attract the attention of investors and visitors alike. e. A critical mass in some industries (e.g. Like Morocco as a whole, Tangier has prioritized sectors automotive, aerospace, fast fashion, where it believes it has a competitive advantage, then biomedical equipment, tourism), making it sought to attract and help grow firms in those industries. a credible partner for foreign firms; The city and its region have relied on available national support tools, and also enlisted the participation of local f. Supportive, active local and government and business leaders to help raise the city’s regional leadership committed to international visibility. internationalization. 3. Help existing businesses and workers adapt 5. Nurture productive public-private dialogue and and integrate into the global division of labor collaborative relationships between government, and industry value chains, through improved academia, and the private sector; to build up technology and skills: Even before Tanger-Med, mutual trust and willingness to collaborate, companies and workers in Tangier had a solid level of go for attainable but visible early wins: This is a industrial know-how, in some ways fairly typical of perennial theme in local economic development, and a middle-income economy. This made them suitable can often be THE deciding factor of whether strategies candidates to become suppliers to the multinationals, are successfully implemented and results achieved. In and to staff their new local factories – but with some Tangier’s case, stakeholder involvement occurred early degree of upgrading of skills and technologies. Tangier’s in the process – basically, as the national government’s economic development leaders worked with private- decision to prioritize the North’s development was rolled sector firms, aided by CGEM and the Chamber, to out, various local actors from the public and private upgrade local firms’ technological capabilities and sector were invited to participate in operationalizing industrial processes so they could become Tier-2 and what this means on the ground, identifying the issues eventually even Tier-1 automotive and aerospace that matter most to them and to provide suggestions on suppliers, for example. Meanwhile, the national addressing them. The business community’s and citizens’ workforce agency, ANAPEC, worked with employers to input was solicited, stakeholder buy-in ensured, and identify specific skills gaps, then establish structured relations of trust and collaboration forged. After years curricula or customized training programs to address of apparent neglect, government leaders were able to them. These and similar interventions have literally establish credibility and gain the trust of small business brought Tangiers into the global economy. owners, for example, by addressing some of their most pressing needs like wastewater treatment and adequate 4. Pursue internationalization as a deliberate electrical capacity. This process was by no means linear economic development strategy: It has become or easy. It took much proactive effort on behalf of local rather fashionable for cities to “go international”, their government and business leaders in particular to work mayors globetrotting in search of trade and investment together for the betterment of their community as a opportunities. But beyond the intercontinental whole. handshakes and gift exchanges, translating such initiatives into tangible commercial partnerships has 196 Appendices Basic Demographic and Economic Data 197 Morocco’s International Merchandise Trade Morocco’s Total Trade Rank HS Commodity 2007 2008 2009 2010 2011 2012 % Code change 2011- 12 Total Trade 46,257,737,267 62,627,661,227 46,950,989,823 53,143,673,256 65,912,871,561 66,206,965,988 0.4 Top Moroccan Exports Rank HS Commodity 2007 2008 2009 2010 2011 2012 % change Code 2011-12 Total 14,607,345,603 20,305,697,979 14,068,939,695 17,764,791,387 21,649,934,076 21,417,184,362 -1,1 1 85 Electrical Machinery and Parts 2,090,050,417 2,530,708,534 2,004,497,760 2,632,490,784 3,172,823,856 2,834,799,027 -10.7 2 31 Fertilizers 869,601,599 1,427,289,276 699,709,227 1,561,944,751 2,317,995,172 2,416,815,298 4.3 3 62 Apparel Articles and Accessories, Not Knit 2,518,027,805 2,509,509,115 2,242,953,402 2,142,621,955 2,280,071,538 2,256,836,754 -1.0 4 25 Salt; Sulfur, Earth & Stone; Lime & Cement Plaster 794,275,089 2,402,301,839 638,854,478 1,173,944,490 1,699,373,970 1,739,410,317 2.4 5 28 Inorg Chem; Prec & Rare-Earth Met & Radioact Compd 1,102,683,787 2,999,373,601 1,021,930,339 1,663,483,382 2,147,923,635 1,676,182,097 -22.0 6 27 Mineral Fuel, Oil; Bitumin Subst; Mineral Wax 557,149,945 850,126,847 503,893,142 588,117,757 939,921,986 1,234,594,124 31.4 7 87 Motor Vehicles and Parts 160,983,086 203,241,342 224,292,087 245,345,889 426,211,960 990,949,125 132.5 8 61 Apparel Articles and Accessories; Knit or Crochet 962,855,905 868,190,866 804,212,456 828,150,754 957,859,768 932,403,040 -2.7 9 03 Fish, Crustaceans & Aquatic Invertebrates 837,101,083 996,830,707 805,232,357 768,140,754 893,278,291 907,526,976 1.6 10 07 Edible Vegetables & Certain Roots & Tubers 458,504,900 554,989,701 592,918,825 600,857,103 741,086,537 672,1973513 -9.3 11 16 Edible Preparations of Mean, Fish, Crustaceans 488,272,283 611,989,701 634,759,734 614,196,497 535,617,514 671,559,450 23.1 12 08 Edible Fruit & Nuts; Citrus Fruit or Melon Peel 457,518,918 651,691,002 516,330,570 575,177,881 743,440,424 601,504,267 -19.1 13 64 Footwear, Gaiters and Parts Thereof 338,731,584 363,660,455 357,291,545 351,855,511 382,633,474 307,307,334 -19.7 14 88 Aircraft, Spacecraft, and Parts Thereof 31,578,746 72,078,583 147,655,819 207,862,673 219,868,548 296,311,768 34.8 15 71 Natural Pearls, Precious Stones and Metals; Coins 106,498,766 138,055,331 155,399,168 373,015,311 351,682,107 274,997,088 -21.8 16 84 Industrial Machinery, Including Computers 128,599,470 152,849,453 196,872,482 237,047,348 249,838,084 246,937,135 -1.2 17 63 Textile Art Nesoi; Needlecract Sets; Worn Text Art 43,281,490 44,537,066 122,755,973 224,808,179 271,124,635 240,933,438 -11.1 18 26 Ores, Slad and Ash 201,286,031 156,810,295 149,123,928 210,709,077 221,488,493 240,614,494 8.6 19 74 Copper and Articles Thereof 137,066,367 138,777,792 114,116,076 230,520,479 405,998,565 231,269,897 -43.0 20 20 Prep Vegetables, Fruit, Nuts or Other Plant Parts 159,833,408 218,792,532 194,393,747 199,168,666 203,387,920 188,971,555 -7.1 Moroccan Imports Rank HS Commodity 2007 2008 2009 2010 2011 2012 % change Code 2011-12 Total 31,650,391,664 42,321,963,248 32,882,050,128 35,378,881,869 44,262,937,485 44,789,781,626 1.2 1 27 Mineral Fuel, Oil; Bitum Subst; Mineral Wax 6,328,335,832 9,441,624,701 6,745,220,670 8,133,360,204 11,179,793,974 12,356,543,727 10.5 2 84 Industrial Machinery, Including Computers 3,299,362,348 4,632,941,211 4,020,294,631 3,816,352,051 4,095,689,577 4,113,120,858 0.4 3 87 Motor Vehicles and Parts 2,206, 476,494 3,111,550,194 2,704,980,348 2,800,719,843 2,753,524,077 3,317,029,467 20.5 4 85 Electric Machinery and Parts 3,136,349,877 3,479,311,912 2,791,594,288 2,963,324,975 3,468,141,398 2,894,491,222 -16,5 5 10 Cereals 1,730,393,491 2,258,198,662 1,109,432,749 1,408,250,509 2,141,688,042 2,221,803,869 3.7 6 39 Plastics and Articles Thereof 1,222,503,470 1,359,627,094 1,141,938,373 1,257,057,849 1,620,915,817 1,667,257,567 2.9 7 72 Iron and Steal 1,396,643,233 2,181,294,546 1,207,907,961 1,180,404,839 1,582,973,360 1,413,450,026 -10.7 8 25 Salt; Sulfur; EArth & Stone; Lime & Cement Plaster 427,525,930 1,730,672,087 259,049,531 452,346,086 898,837,032 909,913,298 1.2 9 73 Articles of Iron or Steel 538,829,764 772,523,020 593,562,821 587,191,390 760,544,021 847,025,526 11.4 10 48 Paper & Paperboard & Articles (Inc Papr Pulp Artl) 431,937,860 529,282,598 507,545,912 545,136,273 675,477,467 661,204,898 -2.1 11 28 Inorg Chem; Prec & Rare-Earth Met & Radioact Compd 274,452,361 408,883,556 290,917,588 406,506,945 643,564,634 640,987,013 -0.4 12 15 Animal or Vegetable Fats, Oils & Waxes 397,404,983 618,047,176 470,066,322 452,713,947 687,106,726 632,909,681 -7.9 13 52 Cotton, Including Yarn And Woven Fabric Thereof 792,767,278 774,400,398 568,893,818 623,805,435 756,301,272 622,329,660 -17.7 14 55 Manmade Staple Fibers, Incl Yarns & Woven Fabrics 476,146,867 518,088,517 445,539,902 457,096,090 601,751,236 616,330,765 2.4 15 19 Sugars and Sugar Confectionary 249,375,767 299,098,961 435,983,334 401,058,005 606,884,754 603,019,913 -0.6 16 23 Food Industry Residues & WAste; Prep Animal Feed 255,945,775 355,349,756 245,138,316 390,918,090 530,513,379 601,136,752 13.3 17 44 Wood and Articles of Wood; Wood Charcoal 531,009,463 579,275,235 478,418,600 498,924,445 577,599,455 527,923,158 -8.6 18 29 Organic Chemicals 435,302,491 465,730,442 389,582,241 449,977,880 511,870,308 494,443,484 -3.4 19 30 Pharmaceutical Products 320,297,454 386,621,222 470,635,945 502,813,907 567,806,790 494,201,279 -13.0 20 74 Copper and Articles Thereof 366,340,704 376,185,396 284,152,345 360,729,987 485,729,961 447,819,837 -7.8 Source: www.wisetrade.org, data from UN Comtrade 198 Testing of Standardized Research Ingredients of success: Hypotheses a. As an economically successful city, Tangier As noted in the report’s Introduction, this is the sixth and has two dominant themes: (i) leveraging last in a series of case studies of economically successful cities its new port to attract investment and create around the world. In order to ensure comparability of “teach- jobs; and, (ii) the successful implementation able moments” across all case studies, a set of standardized and localization of national sector development research hypotheses was tested in Tangier to determine the strategies. exact scope for action at the metropolitan level, factors that may have most affected how those prerogatives were used, • and the extent to which specific interventions (and how b. Tangier’s proactive economic development they were implemented) may have resulted in the economic efforts have been overwhelmingly focused on outcomes observed. growing industries producing tradable goods The first hypothesis tested seeks to determine to what extent and services, including auto assembly and Tangier’s economic results were attributable to proactive- automotive parts, aerospace, agribusiness and ly picking sectors to support, the second one looks at the seafood production, garments and leather, strategic planning process itself (if any) and how it may have transportation and logistics, and tourism. affected economic growth, and the third one looks at the • plan’s implementation, if applicable. c. In its proactive economic development 1. Tangier’s economic success is largely attributable to activities, Tangier has to some extent pursued key national actors having made strategic bets on a three-pronged approach to business specific industrial initiatives, and their successful development: nurturing the growth of existing local implementation, rather than just making firms, fostering the establishment of new improvements to Morocco’s general investment start-up companies, and striving to attract climate in order to stimulate economic activity. new outside investment. Of the three pillars, Ongoing national and local-level improvements to the the attraction of outside investors has been by business climate have facilitated the achievement of far the most visible and impactful, followed by superior economic outcomes, but proactive initiatives on assistance to existing local companies to scale the part of the national government have contributed up their production, acquire new know-how much to Tangier’s success – in particular, the and upgrade technologies, and to integrate into construction of a brand new mega-port close to the city, global supply chains, in particular by becoming as well as accompanying landside infrastructure and an suppliers to foreign investors with operations integrated system of multiple free trade and industrial in the city or its immediate surroundings. zones. Formation of new businesses has seen an uptick • recently, but remains by far the smallest of the three pillars. Tangier has benefitted from a favorable and improving national business climate, Morocco’s increasing openness 2. The likely trajectory of Tangier’s economic to external trade and investment (particularly through performance was dramatically altered by a single multiple free trade agreements), greater market compe- policy intervention, the central government’s tition, upgraded municipal infrastructure, improving decision to build a new seaport. The city did educational outcomes, and dramatically better transport not have its own strategic plan for economic connections, domestic as well as international. Tangier’s development, but key local actors successfully regional and municipal governments have coordinated implemented national sector strategies. Tangier’s the local implementation of national sector strategies, principal private-sector actors (the Chamber of in collaboration with stakeholder groups like business Commerce, General Confederation of Moroccan membership organizations, private-sector partners, and Enterprises, and industry associations) closely universities, while also ensuring the provision of critical cooperated with government agencies on implementing infrastructure and political support for economic devel- national economic development plans. Separate planning opment and job creation in particular. documents were established for the development of the two regions of northern Morocco covered by APDN, but In Tangier’s case, proactive economic development their scope is broader than just economic development initiatives clearly and directly contributed to the city’s and jobs, and includes broader social development. economic success. They were undertaken by an informal coalition of national government, regional/local public Tangier’s economic development-related activities have agencies, and private-sector actors and their associations. included: 199 a. Robust analytics to guide national sector strategy analyses, with the exception of 2013’s plan Tanger formulation, based on realistic assessments of Morocco’s Metropole, but even in that case it is limited. The competitive position, and knowledge of global business implementation of national sector strategies was trends. At the local level, the region’s main investment discussed locally on an ongoing basis, but without promotion entity (TMSA) also used state-of-the art evaluating the relative merits of supporting one sector market analyses to identify potential investment leads, over another. market the Tanger-Med “integrated industrial platform” to them, and follow up with other site selection services. 3. The level of autonomy related to economic development in Tangier (the “Mayor’s Wedge”) b. A structured or formal planning process to: was not a significant factor in the city’s improved economic outcomes. Local government bodies in • identify key economic development issues facing the Morocco have a limited role in undertaking direct Tangier-Tétouan Region, such as inadequate infrastruc- interventions aimed at fostering economic growth, ture and connectivity, workforce skills gaps, lack of although they do play an enabling role through the access to finance, technological obsolescence in certain provision of municipal infrastructure and place- industry segments, and administrative impediments making (improving the quality of life for residents to business formation and growth. Through regular and visitors) , as well as through the Mayor’s meetings between the Wilaya, the Mayor’s office, other role as Tangier’s emissary and cheerleader at public agencies, and industry associations and cham- international events. The public sector has undertaken bers, potential coordination failures were overcome, and proactive interventions to spur economic development stakeholder buy-in for important initiatives ensured. and job creation, but this was mostly done by national agencies and their local/regional representatives, • identify the city’s main competitive strengths, such coordinated through the Wali’s office. as favorable geographic location, competitive business costs, existing expertise in selected industry segments, a. Tangier has multiple entities with economic political stability and security, and enormous tourism development responsibilities, but no single development potential. dedicated local economic development agency or government department serving as its focal • formulate a vision of progress that Tangier can make, point. In addition to national agencies in Rabat including specific measures to address its challenges whose actions directly affect Tangier’s development, and to capitalize on its competitive strengths. There are economic development responsibilities at the local various planning documents at the national level, while level rest with: the Wilaya (coordination and oversight the city’s own vision document, Tanger Metropole, was of all national agencies’ activities within the region); published in 2013, just outside the time period covered the Mayor’s office (public representation and advocacy, by this case study (2002-2012). sister city and other international liaisons, provision of municipal infrastructure); APDN (strategic planning, c. Tanger-Tétouan assembled an informal “growth financing, international cooperation); TMSA (investment coalition” at the regional level, bringing together promotion, management of the mega-port and network representatives of public-sector agencies, private- of FTZs); SAPT (old port conversion and urban sector businesses and their membership organizations, redevelopment); CRI (processing investment projects Abdelmalek Essaâdi University, fishermen’s groups, and administering national entrepreneurial support and other stakeholders in economic development. programs); Abdelmalek Essaâdi University (research, There is no overarching institutional mechanism for technology development, and talent formation); this engagement, but there are multiple channels AZIT, the Chamber, CGEM, and industry associations for interaction focused on specific issues or sectors (articulating private-sector needs and constraints to (development of workforce skills needed by aerospace growth, partnering with national ministries in program firms, or payment in Moroccan dirhams instead of implementation); and the Regional Tourism Council euros within the TFZ, for example). On the whole, there (planning and advocating on behalf of the tourism appears to be a strong sense of shared purpose among industry, capacity building). the Tangerois in wanting to see their city and region advance economically, and their leaders have shown a • Low financial and administrative autonomy: readiness to advocate on their city’s behalf both with Although the Kingdom of Morocco has been gradually the national government in Rabat, and on the broader moving towards a less centralized administrative and international stage. fiscal structure, in comparative terms the country is still characterized by a low level of decentralization of au- d. Strategic decision-making and prioritization: thority from national government to regional bodies or At the local level, Tangier did not utilize a structured elected municipal entities. National plans call for greater process for identifying and agreeing on policy priorities, devolution over the next few years. nor for evaluating trade-offs between different public investment alternatives, such as through cost-benefit 200 • Funding: Municipalities in Morocco, including those in is largely the result of decisions made in Rabat, and large urban areas, have relatively low municipal spending interventions undertaken by the national government ability and limited fiscal powers. Elected officials at the and its local representatives. Still, the Wilaya and city level do have some institutional scope to make and other public-sector entities have endeavored to implement funding decisions, but for larger, more trans- include diverse stakeholder groups in operationalizing formative initiatives may in practice need the agreement national strategies at the local level, and especially in of the Wali, who is appointed by Morocco’s King. devising concrete ways in which to capitalize on the unprecedented opportunities for local and regional • A well-defined geographical remit: The Urban Com- economic development presented by investments in munity of Tangier is the primary urban-tier local body in physical infrastructure. Details: the Tanger-Assilah Prefecture, but it does not have func- tional authority beyond Tangier’s city limits. The Mayor • Among other channels, public-private dialogue is facili- is popularly elected to a six-year term and is the local tated by CGEM through its consultative forum called the government’s chief executive. The Wali is simultaneously Competitiveness Commission, which brings together its the Prefect of the Prefecture in which the Wilaya’s seat is members with government agencies, meeting about once located, in this case Tangier. a month b. Efficient internal management: Interview findings • Chambers and industry associations actively work to suggest a significant level of capacity for the Tangier integrate local small and medium-sized businesses into government, seeming to perform well in its main multinationals’ global supply chains. functional responsibilities. While job creation as such is not a core function of the Urban Community, its • Senior corporate leaders, both at home-grown firms and leadership and staff have been strongly supportive of those based elsewhere, act as the city’s public champi- all pertinent economic development initiatives, and ons and utilize their relationship capital to secure more have gone beyond just what they are legally required to investment and business opportunities for Tangier. provide. Local governance in Morocco is still evolving, so future years will likely result in expanded scope for • Tangier’s private-sector firms actively collaborate with economic development interventions at the city level. the government and educational institutions to design and implement workforce development programs that • Roles: As noted earlier, multiple entities in Tangier have correspond to industry needs. some responsibility for the city’s and region’s economic development. While the institutional framework for • Trade unions do not play a prominent role in the city’s economic growth and job creation is quite fragmented, economic development, but they are represented in in practice it appears to be working rather well, achieving training curriculum development at the national level the main set objectives like attracting outside investors through OFPPT’s Board. and helping local firms’ growth by integrating into global • There is no formal citywide growth coalition as such, but value chains. One possible explanation for why this is stakeholders are involved in an iterative dialogue with the case could be the existence of a shared awareness various tiers of government on an ongoing basis. among key local decision-makers that these interven- tions are absolutely critical to developing the city, and pulling large numbers of Tangerois (as well as newcom- ers) out of poverty. But that may not be the full story. • Enabling environment: Tangier’s Urban Municipality and Wilaya, in collaboration with a range of national and local entities (including private-sector ones), have worked to ensure the availability of critical infrastructure need- ed by local businesses, and to streamline administrative and bureaucratic procedures. • Monitoring & evaluation: Sector strategies are devel- oped nationally, and include mechanisms for assessing the progress being made in their implementation. Other plans, such as those prepared by APDN and the new Tan- ger Metropole, also provide for some tracking of progress being made, though not necessarily in a structured and comprehensive way. c. Private sector and stakeholder involvement in implementation: Tangier’s recent economic success 201 Interviews Bibliography Conducted by the CCKB Mission to Morocco (Decem- 1. Oxford Business review, 2014 Annual report on Morocco ber 1-12, 2014) Regional studies and regional directory on Tangier-Tétouan, Tangier Haut Commissariat au Plan, http://www.hcp.ma/ 1. Mr. Mohamed El Yaacoubi, Wali of Tanger-Tétouan Ministry of Economy and Finances, http://www.finances.gov. Region ma/fr/SitePages/Home.aspx 2. Mr. Fouad El Omari, Mayor of Tangier Ministry of Industry, http://www.mcinet.gov.ma/Pages/de- 3. Mr. Ouanaya, President, Société d’aménagement pour la fault.aspx reconversion de la zone portuaire de Tanger Ville Tanger Med Port Authority, http://www.tmpa.ma/ 4. Mr. El Hadi, Chairman of the Management Board of Tanger Med Special Agency (TMSA) 5. Mr. Tazi Riffi, General Director of Tanger Free Zone (Footnotes) 6. Ms. Najlaa Diouri, General Director of Tanger Med 1 The figures and chart on this page are based on Oxford Econom- 7. Mr. Rachid Houari, Director, Port Tanger Med 1 ics Data (2013) and World Bank staff estimates (2014). 8. Mr. Hassan Abkari, Director, Tanger Med Passenger Port 2 Figures drawn from TEPAV, 2014a. 9. Mr. Hartmut Goeritz, Managing Director, APM 3 The observations in this Box are the authors’ interpretations of Terminals the full case study of Kayseri published in ESI, 2005. Rabat 4 “New materials” typically serve as raw materials for manufac- 1. Mr. Aziz Ajbilou, Secretary General, Ministry of General tures (e.g. steel pipes, diversified chemicals, etc.) Affairs 2. Mr. Benchrifa, Wali, Director-General of Local Governments (DGCL) 3. Mr. Afirhat, Governor, Direction du Patrimoine (DPAT) 4. Ms. Ibtissam Kaifouf, Head of Division of Cooperation and Partnership, Ministry of Industry, Trade and Investment. 5. Mr. Ali El Yaacoubi, Head of Market Research and Acting Investment Promotion Manager, Moroccan Investment and Development Agency (AMDI) 6. Mr. Tazi, Director of Moroccan Agency for Logistic Development (AMDL) 7. Mr. Chafiqui, Director of Research and studies, Ministry of Economy and Finances 8. Mr. ELYAZHI, MEDZ Casablanca 1. Ms. Zahra Maafiri, Director-General, Maroc Export 2. Mr. Hassan Sentissi El Idrissi, President, Moroccan Exporters’ Association of (ASMEX) 3. Mr. Ali Ghannam, President, National Tourism Council (CNT) 202 203 Funding for the companion papers and the main report was provided by CIIP Competitive Industries and Innovation Program Financed by in partnership with www.theciip.org Find the companion papers and the companion papers at www.worldbank.org/competitivecities