Promoting Competitiveness in Practice - Economic Growth - usaid

antipathies and lack of trust). It is no wonder USAID missions and others find this a challenging
endeavor.
To add one more hurdle and layer of complexity, in some countries, there may be individuals or
institutions that have a vested interest in not changing the way business is done in a country.
Those who have a strong financial interest in maintaining the status quo will, no doubt, wield
their power to block a competitiveness initiative from moving forward. Hence, we see that in
environments where corruption is a concern, competitiveness initiatives often pose a direct threat
to the sources of corruption – without ever using the “c-word” – as illustrated in the box below.
Tackling Corruption through Competitiveness
Lessons from Mongolian Cashmere
Mongolian cashmere processors consistently underutilize their processing capacity because they are
unable to source sufficient raw cashmere of high enough quality. The main problem, from their
perspective, is aggressive competition from Chinese traders who also source raw cashmere in
Mongolia. During the mid-1990s, the Government of Mongolia enacted a ban on exports of raw
cashmere in order to prevent Chinese processors from accessing Mongolian cashmere. The ban was
ineffective, as Mongolia could ill-afford to police its 2,900 mile border.
The Mongolian government then instituted a tax on exports of raw cashmere. While its intent was to
keep raw cashmere within Mongolia and, hence, protect the interests of cashmere processors, the
export tax also created an incentive for extensive smuggling and corruption at the border. Some
analyses suggest that up to half of the country’s raw cashmere production was being exported
illegally in some years.
USAID’s Competitiveness Initiative in Mongolia offered a different solution to address processors’
need to access high-quality cashmere – a solution that would not depend on protective and essentially
anti-competitive measures, such as the export ban or tax, but rather, a market-based solution that
would give herders the financial incentive to sell to Mongolian processors. The Competitiveness
Initiative, in collaboration with the USAID’s Gobi Initiative, established a series of cashmere market
days that gave herders and processors the opportunity to engage in face-to-face transactions for the
very first time. Herders saw, first-hand, the premium that Mongolian processors would pay for highquality
and pure cashmere; hence, for once, they had an incentive to sell to Mongolian producers
versus across the border. Herders were able to obtain a higher price for their cashmere, and
processors were able to source the high-quality cashmere they needed. The cashmere market days
offered a win-win solution for herders and processors; however, in changing the incentives, they also
undermined a key source of smuggling and corruption.
While the focus is global, the momentum for change must be local …
The kinds of changes that we have discussed above are not changes that a donor – or any
external agent -- can make happen. Promoting competitiveness requires fundamental change
within firms; in the relationships among firms; and in the relationships between firms and their
supporting institutions (including government and academia). These kinds of changes can only
take place when firms see that it in their best interest to change and when they take ownership for
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