Industry Concentration and Supply Chains in CEFTA 2006 Rainer Lanz Private Sector Development Division, OECD SEE IC Sarajevo, 25 April 2012

Outline Motivating Questions Industry Concentration Supply Chains Conclusions and Discussion

Motivating Questions Industry Concentration Supply Chains How is manufacturing distributed over space in CEFTA? What is the size and hence importance of different manufacturing industries? Relative Concentration: How are industries distributed over space compared to manufacturing? What are the most important supply chains in CEFTA economies? What is the position of CEFTA economies in supply chains? How important are intra-CEFTA versus extra-CEFTA supply chains? Next Generation RCI Sector Competitiveness Trans-national Clusters Regional Supply Chains

Industry Concentration

How is manufacturing distributed over space in CEFTA?

Manufacturing Concentration in CEFTA Economies Serbia and Croatia account for 73% of turnover and 58% of employment in CEFTA Manufacturing in CEFTA – Turnover: 42.5 bn EUR – Employment: 1.07 m Shares of CEFTA Parties: (by turnover) Albania 1.2 bn BIH 4.2 bn Croatia 14.0 bn Kosovo * 0.6 bn fYR Macedonia 3.6 bn Moldova 1.5 bn Montenegro 0.6 bn Serbia 16.8 bn

Manufacturing Concentration in CEFTA: Map Absolute concentration of manufacturing in CEFTA (based on turnover)

Manufacturing Concentration in CEFTA: Top 10 Regions The top 10 regions in CEFTA concentrate 43% of turnover and 27% of employment. Top Regions of Manufacturing Agglomeration (by turnover, EUR) Belgrade SRB 4.6 bn Zagreb (city) HRV 2.9 bn South Backa 2.0 bn Skopje MKD 1.8 bn Primorje-Gorski Kotar 1.7 bn Sisak-Moslavina 1.3 bn Zenicko-Dobojski BIH 1.0 bn Podunavlje Istria Zagreb (county)

What is the size and hence importance of different manufacturing industries?

Industry Specialisation of CEFTA 2006: Top 5 Industries The low tech food and beverages industry is the leading manufacturing sector in CEFTA, with the basic metals industry a distant second. Top Manufacturing Industries (by turnover, EUR) 15 Food and Beverages Low Tech 11.8 bn 28% Belgrade (SRB), South Backa (SRB), Zagreb – city (HRV) 27 Basic metals Medium 3.5 bn 8% Podunavlje (SRB), Skopje (MKD), Hercegovacko-Neretvanski (BIH) 28 Fabricated metal products 3.4 bn Zenicko-Dobojski (BIH), Belgrade (SRB), Hercegovacko-Neretvanski (BIH) 24 Chemical Products High Tech South Banat (SRB), Zagreb – city (HRV), Belgrade (SRB) 23 Petroleum Products 2.8 bn 7% Primorje-Gorski Kotar (HRV), Sisak-Moslavina (HRV), Skopje (MKD)

Relative Concentration: How are industries distributed over space compared to manufacturing?

Relative Concentration of Manufacturing Industries in CEFTA Top 6 industries which are the most concentrated relative to overall manufacturing Food products is the largest industry in CEFTA and is therefore not surprisingly concentrated in a similar way than manufacturing

Within or between country concentration? Differences in the distribution of turnover between single industries and overall manufacturing are mainly observed within countries rather than between countries.

Supply Chains

What are the most important supply chains in CEFTA economies?

CEFTA Exports of Manufacturing Industries (2009) Top 3 Exporting Industries: Textiles Food Products Basic Metals

CEFTA Exports: Intermediate and Final Goods Top 3 Exporting Industries for Intermediates (Value): Basic Metals Chemical Products Coke and Petroleum Products

What is the position of CEFTA countries in supply chains?

Supply Chains and Revealed Comparative Advantage Revealed comparative advantage (RCA) captures relative trade specialisation dividing an industry market share by the manufacturing market share for exports (or imports): Market share of country c in world exports in industry k Market share of country c in world exports in manufacturing An RCA higher than 1 implies that country c has a RCA in industry k. For example, CEFTA has a RCA in exports of intermediate food products, if its share in world exports is greater in intermediate food products than in overall manufacturing.

What is a Country’s Position in Supply Chains? No RCA in imports of intermediates but RCA in exports of final goods RCA in imports of intermediates and in exports of intermediate goods RCA in imports of intermediates and in exports of final goods First Stage Intermediate Stage Final Stage Low Tech Industries First Stage Intermediate Stage Final Stage BIH HRV MKD MDA MNE SRB Food, Beverages and Tobacco First Stage Intermediate Stage Final Stage ALB SRB BIH HRV MKD MDA Textiles, Leather and Footwear First Stage Intermediate Stage Final Stage BIH HRV MNE SRB ALB Wood and Products of Wood

Examples of Potential Intra-Industry Supply Chains First Stage Intermediate Stage Final Stage BIH ALB SRB HRV Pulp, Paper, Printing and Publishing Medium-Low Tech Industries: First Stage Intermediate Stage Final Stage ALB MKD SRB MNE BIH Basic Metal Products First Stage Intermediate Stage Final Stage HRV ALB BIH MKD SRB MDA Fabricated Metal Products Medium-High Tech Industries and ICT: First Stage Intermediate Stage Final Stage BIH Motor Vehicles Other Transport Equipment Chemicals and chemical products ICT First Stage Intermediate Stage Final Stage

How important are intra-CEFTA versus extra-CEFTA supply chains?

CEFTA Manufacturing Exports (2009)

CEFTA Exports: Intra- vs. Extra-CEFTA Top 3 Industries (Value): Intra-CEFTA: 1. Food Products; 2. Chemical Products; 3. Basic Metal Extra-CEFTA: 1. Textiles; 2. Basic Metals; 3. Food Products Overall Shares for Manufacturing Exports: Intra-CEFTA: 28% Extra-CEFTA: 72%

CEFTA Exports of Intermediates: Intra- vs. Extra CEFTA Shares Overall Shares for Manufacturing Exports of Intermediates: Intra-CEFTA: 29% Extra-CEFTA: 71%

Conclusions How is manufacturing distributed over space in CEFTA? Manufacturing activity is highly agglomerated, i.e. the top 10 regions (out of 102) in CEFTA concentrate 40% of the manufacturing activity What is the size and hence importance of different manufacturing industries? Low and medium-low tech industries account for about 80% of manufacturing activity, e.g. Food and beverages account for 28% of manufacturing turnover Relative Concentration: How are industries distributed over space compared to manufacturing? Industry concentration occurs mainly within countries rather than between countries

Conclusions What are the most important supply chains in CEFTA economies? Medium-low tech industries, i.e. basic metals What is the position of CEFTA economies in supply chains? Entire supply chain: Food products as well as Basic metals (first and intermediate stage) and fabricated metal products (intermediate and final stage) Intermediate and final stage: Textiles, Wood products and cork, Paper and publishing No specialisation in medium-high tech industries and ICT

Conclusions How important are intra-CEFTA versus extra-CEFTA supply chains? Extra-CEFTA exports dominate accounting for 71% of intermediate exports For Food products, beverages and tobacco, intra- and extra-CEFTA supply chains are of similar importance For Basic metals and Fabricated metal products, intra-CEFTA supply chains account close to one third of intermediate exports For Paper products and publishing, and Wood products and cork, intra-CEFTA supply chains account for 26% and 34% of intermediate exports.

Thoughts for Discussion Common interests and scope for cooperation of regional working groups will vary by sector Not to forget: Importance of inter-industry linkages and supply chains Services are often significant inputs for manufacturing production and hence crucial for sector competitiveness Is extra-CEFTA trade of higher quality than intra-CEFTA trade? Where is more value added incorporated? Where do SEE countries have the potential to “move up the value chain”? Between sectors or along stages or functions within a given sector?

Thank you for your attention! Rainer.Lanz@oecd.org