CBI by gabyion


									The total online population of this part of the study comprised the following:

Table I Response online questionnaire, five sectors
                                  Garments       Fruit and  Cut                 Home          IT       Total
                                                 vegetables flowers             decoration
Exporters                         35             58              25             43            67       228
In partner countries*             27 (4)         46 (16)         22 (8)         31 (12)       40 (8)   166 (18)
In other CBI client states        8              12              3              12            27       62

BSOs                              34             24              13             30            12       113
In partner countries*             16 (10)        19 (14)         10 (8)         14 (12)       7 (6)    66 (19)
In other CBI client states        18             5               3              16            5        47

EU importers & associations       14             15              3              11            25       68

Total                             83             97              41             84            104      409

* in brackets the number of partner countries represented

On the other hand, 100 additional in-depth interviews were held with exporters and BSOs from a
selection of priority countries – within the group of partner countries – and also with European importers,
associations as well as experts and Programme Managers from the CBI. Although statistics and trade
data are not yet available, the results of the questionnaire and interviews have been qualitatively
enhanced by means of desk research. Finally, the CBI provided a short analysis of industrial sectors.


Two-thirds of the 166 exporters from partner countries expect a drop in exports this year, with a fifth of
them expecting a drop of as much as 25% or more compared to 2008 (figure 1.1). This overall picture is
almost identical for each of the five sectors researched, although the outlook for the garments sector is
the gloomiest. 85% of exporters in this sector expect a drop in exports. Percentages for fruit and
vegetables, cut flowers and home decoration are 70%, 77% and 58% respectively. The percentage of
exporters forecasting a sharp drop in exports - of 25% or more - is the highest in the garments sector,
followed by the fruit and vegetables sector. The outlook for the IT sector is the least ominous, here ‘only’
45% of exporters expect a drop in exports. However, almost a fifth of all exporters expect a growth in
exports this year. This group is most strongly represented within the IT sector.

BSOs from partner countries are somewhat more pessimistically inclined than exporters. Hence, 71% of
them expect a drop in exports this year, although they anticipate a less critical drop than that predicted
by exporters. Concerning export growth BSOs are also less optimistic, only 11% expect growth. Half of
the EU importers in the study confirm that the crisis will have an adverse effect on doing business with
developing countries. This percentage is the same across all sectors. Importers of fruit and vegetables,
for example, are being confronted with a decline in demand for (deluxe) exotic fruit, fruit produced out of
season and fruit types which have been recently introduced.

                              Centre for the Promotion of Imports from developing countries
Figure 1.1 Forecast export development partner countries 2009 (n=166 exporters, 5 sectors)
                         Export development 2009 (vs 2008)

 25%                                                                    23%

 20%                                                                                   18%


            8%           8%


        sharp growth    growth           stable         drop         sharp drop     very sharp
          (>10%)        (1-10%)
                       (1-10%)                         (1-10%)        (11 - 25%)       drop
                                                                                      (> 25%)
Source: online survey (Feb. 09)

Export margins and workforce development
In keeping with the anticipated drop in exports, 70% of the 166 exporters forecast a drop in export
margins this year. One-fifth even forecasts a drop of 25% or more compared to 2008. BSOs hold a
similar view. Furthermore, half of the exporters expect they will have to lay off personnel as a result of
the crisis. The general expectation is that one-tenth will have to lay off as much as a quarter (or more!)
of its workforce. Once again the garments and fruit and vegetables sectors have the bleakest prospects.
The amount of redundancies in the IT and cut flowers sectors is expected to be comparatively the lowest.
BSOs from partner countries are even more pessimistic about personnel development, with the exception
of the IT sector. Here a growth in personnel is expected.

The impact of the crisis is huge. Although each sector has its own special challenges, there are a number
of common problems, the most important which have emerged from the study are:
 Lack of support from banks refusing to grant loans or introducing stricter conditions. This not only
   applies to export loans, but also to loans for working capital and investments.
 Declining demand from the most important markets, the EU and the US.
 Price pressure / smaller margins, as a consequence forced lay-offs of personnel
 Increased raw material prices, fluctuations in exchange rates.

BSOs forecast bankruptcies although the picture differs per sector. The garments and home decoration
sectors score the worst in this area. In the home decoration and the garments sectors one-fifth of BSOs
from partner countries forecast that between 11 and 40% of the sector will go under this year. The
forecast for bankruptcies in the IT sector is expected to be comparatively the lowest.

In spite of its geographical advantage, the Macedonian garments sector has lost a 1/3 of its jobs in the
last 3 months due to, among other factors, a weakened European retail market. Bangladeshi exporters
need to see their goods paid for by the 30th of the month in order to be able to pay their workers
between the 5-7th of the next month; factories are completely empty in Peru and Colombia and these are
resorting to production using leftovers aimed at the local market. Furthermore, the crisis is occurring
concurrently with growing unrest about the payment/income developments of garments workers in
various countries. Strikes are expected in Egypt, Bangladesh and Pakistan, as employers are not in a
position to pay their workers due to the lack of orders and late payments from EU buyers.

                                  Centre for the Promotion of Imports from developing countries
Home decoration
The most important impact on the home decoration sector is the drop in exports to Europe as a result of
declining demand. Export margins are shrinking, while unemployment is rising. Importers are
increasingly placing smaller orders, choosing to first use their existing supplies. The crisis is having the
greatest impact on the lower market segment which is where most consumers are making economies.

Cut flowers
Margins are under strong pressure. Prices are declining and exporters are noticing that their European
buyers are keeping a sharp eye on price and driving a harder bargain. African exporters, who were
already renowned for their relatively cheap production, will face more difficult times as a result. Exporters
from Peru and Colombia are confronted with declining EU demand for deluxe exotic cut flowers.

Fruit and vegetables
It is difficult at present to give an indication of what the consequences of the economic crisis will be for
this sector. Production is seasonal and for many products and countries it is unclear what the harvest will
yield and how the market will react. Exporters are already reporting lower prices, harder bargaining by
importers and smaller order sizes. The first signals from the market suggest that especially the demand
for expensive exotic fruits (such as mango, pineapple, subtropical fruit, and passion fruit) and deluxe fruit
(such as avocado, sugar snaps and mange-tout) will suffer. In Europe, moreover, criticism of the high
‘carbon footprint’ (CO2 emissions through production and distribution) of fruit produced out of season is

Due to declining demand and the postponement of orders, the production capability of companies in the
technical sector (metalworking, castings and forgings, tooling, dies and moulds, parts of machinery,
automotive parts and components) is not working at full capacity (60-70% on average, sometimes no
more than 50%). Turnover has declined in value due to the low prices of raw materials. Investments are
being deferred. Shorter working hours are being introduced, but some employees are also being laid off.

Supply to auto producers is witnessing an especially sharp decline,                   although companies supplying
replacement components, are, in contrast, doing well. In general, most               industrial market segments are
detecting a decline in turnover. Not many problems are being detected                with current export orders, but
the forecast for 2009 is not high. Promotional activities are being kept on          the backburner.

Maintaining the present turnover with steady clients will be difficult for exporters. European companies
will bring in fewer external IT employees and new projects will preferably be carried out internally or
even cancelled.


Export credit
Figure 2.1 shows that the crisis has had (very) adverse effects on access to export credit for 58% of the
exporters. The percentage is much higher for exporters in the garments and fruit and vegetables sectors
(around 70%), in contrast to the percentage for the IT sector, which is lower. This general picture is
confirmed by BSOs in partner countries.

                             Centre for the Promotion of Imports from developing countries
Figure 2.1 Effect of crisis on export credit partner countries (n=166 exporters, 5 sectors)

                        Effect of crisis on access to export credit

  45%                          42%





    5%                                                                                2%
          strongly negative   negative      no effect             positive     strongly positive

Source: online survey (Feb. 09)

Garments sector
The situation in the garments sector differs per country, however it is clear that the situation in countries
such as Bangladesh, Egypt, Pakistan, Vietnam, Macedonia, Colombia and Indonesia is extremely severe.
Liquidity and access to Letter of Credits is a huge problem, just as is access to loans. Interest is high,
from 8-10% in Colombia, 14% in Macedonia to 14-18% in Bangladesh. If wages are increased in Egypt
then two-thirds of producers will be bankrupt within 6 months.

Fruit and vegetables
European buyers indicate that they have become more critical concerning advance payments, while in
contrast; reduced access to capital in developing countries is forcing buyers to pre-finance production.
This is a strong impediment to trade.

Cut flowers
Exporters are struggling with problems of financing. Banks are not lending, in order to limit risks.
Furthermore, different importers recognise the value of PSI projects. However, none of the importers
indicated being interested in a PSI project at present. One of the reasons for this is the current lack of
partners’ investment capital.

Credit lenders are scrutinising the content of an IT outsourcing project more critically than previously
before granting loans. However, loans can still be obtained for well-detailed business cases, especially
when the situation in the target market is (relatively) favourable.

Home decoration
Smaller exporters are being hit especially hard by the more stringent credit conditions.

Investments are being deferred in almost all cases; financing export orders in advance is sometimes a
problem. Payment has been delayed in certain cases, which leads to liquidity problems. Payment
conditions have worsened for producers and the conditions for financing have become very strict.

Loans for investments and working capital
It has become even more difficult for exporters to obtain loans for investments. Almost 70% of the
exporters in the online survey maintain that the crisis has had (strong) adverse affects on access to
investment capital. BSOs estimate an even higher percentage. These percentages apply to all sectors
with the exclusion of the home decoration and IT sectors, while access to investment capital is

                               Centre for the Promotion of Imports from developing countries
comparatively a little less difficult. The same percentages apply to obtaining working capital, with a
number of negative spikes for exporters in the cut flowers and garments sectors.

Regulations International Finance Corporation
Although not specifically referred to, it appears from the study that the export business community in
partner countries is not familiar with the regulations – such as GTFP – of the International Finance
Corporation (IFC). These were not mentioned by a single respondent. This should be more effectively
brought to the attention of exporters.


In total, half of the exporters and BSOs in the partner countries also see opportunities at this time of
crisis. However, the picture differs per sector and the target market. Figure 3.1 illustrates this in greater
detail. Common to all sectors is that a large number of both exporters and BSOs see this period as the
right moment to diversify: to engage in new markets and market segments. Renewal and innovation are
key concepts here. In addition, the crisis is forcing businesses to take a new and critical look at their own
(cost) efficiency. Furthermore, the low-wage benefit means that the time is now ripe for attracting
European customers. The low price of oil, and the subsequent drop in airfares which is forecast will allow
exporters of fresh produce (cut flowers, fruit and vegetables) an opportunity for better profit margins.

Figure 3.1 Opportunities for partner countries arising from crisis (n=166 exporters and 66
BSOs from partner countries, 5 sectors)

   100%                                  Opportunities arising from crisis

    90%                         85%                                                    Exporters


    60%                                                                         56%

             49%                                                50%
    50%            45%
    30%                                                                   26%


            Average         IT          Home              Garments      Fruit &              Cut
                                        Decoration                      Vegetable            Flowers

Source: online survey (Feb. 09)

By sector

As many as 88% of IT exporters see new opportunities. 85% of the BSOs in this sector who were
interviewed were of the same opinion. It is clear that the KPMG survey taken in February 2009 reveals
that the economic developments in recent months have reinforced the necessity of developing new and
cost-effective outsourcing locations. European companies are focused on lowering expenditure, both in
the short-term and in the long-term. IT service personnel who were employed in heavily hit sectors such
as banking and insurance state that they will be concentrating their attention on sectors such as defence
and government, where investment levels have remained virtually constant. Furthermore, there is the
likelihood of a shortage of trained personnel in Europe, as European companies are forced to lay off

                             Centre for the Promotion of Imports from developing countries
employees in order to cut costs. Considering the fact that there was an existing shortage of trained IT
workers, companies will increasingly be looking abroad.

Home Decoration
58% of exporters in the Home Decoration sector see new opportunities, although the BSOs in this sector
are considerably less optimistic. The principal opportunities for exporters are to be found in the middle
and high market segments, where consumers are still opting for a unique product of high quality. Profit
margins are also generally higher in these segments. The importers who were interviewed indicate that
they are looking for trustworthy suppliers, who are regularly to be found at trade fairs, are innovative,
and who are clearly knowledgeable about the European market. Importers are now investigating
alternatives to China in order to diversify their purchasing.

A number of garment manufacturers described their fields of new opportunity during the interviews. They
can now be more flexible with regards to smaller orders, as their factories are presently empty.
Additionally, there are new opportunities for acquisition as European buyers are now more open towards
new suppliers.

Fruit & vegetables
No concrete opportunities have been detected to date. A number of importers describe finding new
markets and efficiency improvements as opportunities.

Cut flowers
Of those respondents who see opportunities, most mention finding new markets, product development
and the reduction of regular costs. Companies in Ethiopia and South Africa view the devaluation of their
currencies as an opportunity to improve their competitiveness.

New opportunities are arising in the replacement market, as low price for relatively high quality again
becomes important. Market segments such as agricultural machinery offer potential for growth.

Corporate social responsibility and sustainable production
50% of the BSOs who were interviewed voice the expectation that the crisis will have a (very) adverse
effect on CSR policy within their sector. The expectations are the bleakest in the garments and fruit and
vegetables sectors. In total, two-thirds of the BSOs expect that the crisis will have a (very) adverse effect
on their exporters’ sustainable production. This poor average score is further distorted by the relatively
high score of the (non-producing) IT sector. The expectations are therefore even more sombre than they
at first appear.

In spite of the many sector specific requirements, a generic picture can be drawn up. An analysis of each
respondent’s answers reveals a list of requirements. In order of priority:
   Easier access to credit / setting up of export fund
   Government support
   EU market information (including market access requirements)
   Support for attendance at trade fairs / other matchmaking-activities
   Assistance with operational management (efficiency, logistics, modernisation production,
    technological know-how)
   Lowering of import duties / removal of trade barriers
   Knowledge concerning:
             o Diversification, finding new/niche markets, product development (design)
             o Innovation / R&D
             o Finding new customers / marketing campaigns

                             Centre for the Promotion of Imports from developing countries

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