-3-

# ComRarative Profitabilities of the Domestic and International Markets

6. About one-fourth of the sample projects were projected to export a significant share of their output (including one 100% Export Oriented Unit), and 6 other projects (one-tenth of the sample) would export a marginal share (5% to 10%). Only half of the significant exporters show a favorable (i.e., below or close to 1) ex-factory to export (FOB) price ratio (the Nominal Protection Coefficient, or NPC) _2/_ for their output. O.her significant exporters (mostly in chemical and associated industries) have ur.favorable domestic/FOB price ratios, ranging between 1.4 and 2.3 (Annex I). The marginal exportets have output NPCs ranging between 1.14 and 1.84. Among the non-exporters, a group of 8 potential exporters (see para. 9) have favorable output NPCs below or marginally above 1 (0.80 to 1.14), and all other non-exporters (half or the sample) have price ratios ranging between 1.20 and 1.94.

7. Production costs per unit of output were determined for each project, on a full cost basis as well as on a marginal basis (i.e., before depreciatian, interest and administrative overheads). Profitability of the domestic market (as percent of output prices) was determined over the full production cost (i.e, domestic price minus full unit production cost). The full cost profitabi.ity and the marginal profitability (over the marginal production cost) were computed for exporters and non-exporters, as % of t'he international price (FOB in cases of export, CIF otherwise). The results, detailed in Annex I, are summarized below:

**Table 1:** Craprative Profitabitity ofDamstic **wnd** Internatiowal Markets

|Export<br>Category<br>**(X)**|Sawipi<br>Expor<br>Share<br>JS<br>Outpu|t to<br>t<br>CS)|Output<br>FuLl Cost Profitability<br>I()<br>MPC<br>Dom_stic<br>Internationa<br>Lice<br>PricC|<br>Marginal<br>L<br>Profitability<br>of Intnlt<br>Price|
|---|---|---|---|---|
|None|53<br>0||1.55<br>11.2<br>41.2|-12.2|
|Potentias|14<br>0||1.00<br>14.7<br>12.2|38.5|
|Marginat|10<br>8.|0|1.39<br>0.7<br>*24.9|1.3|
|Significant|<br>23<br>45.|9|1.42<br>16.4<br>13.0|15.5|
|OveraLt|100<br>11.7||143<br>12.9<br>-24.6|3.6|
|Note:<br>Unless<br> <br>Source:<br>Anne<br>8.<br>The<br>not appea<br>output<br>pr<br>exporters<br>explanati|<br>otherwise<br>specified,<br>aLL<br>x I<br>projected price<br>r to constitute th<br>ice ratio is sim<br>and exporters.<br>on,<br>between these|indic<br>compe<br>e exp<br>ilarl<br>The<br>two c|ators<br>in this and folLowing<br>tablee<br>**are**simple<br>(ur<br>titiveness,<br>as measured by the Ou<br>lanatory factor for the decision t<br>y high (1.4 to 1.5) for the cate<br>only difference, which may ca<br>ategories is the marginal cost pr|eighted)<br>**avcrag".**<br>tput NPC, does<br>o export. The<br>gories of non-<br>rry the full<br>ofitabilitv<br>of|
|internati|onal prices: -12%|for|non-exporters,<br>+15% for signific|ant exporters.|
|Moreover,|CCS income incre|ases|the marginal cost profitability|of significant|

- _2/_ The economic mechanlsms by which these price ratios (NPCs) are generated are not analyzed in this note. Suffice to say here that NPCs are the result of the various effects of import Quantitative Restrictions and tariffs relative to the degree of domestic competition and supply/demand balance permitted by the regulatory policies.