© Kishan S Rana 2007 1

ECONOMIC DIPLOMACY:
THE EXPERIENCE OF DEVELOPING COUNTRIES
Kishan S Rana
Former Indian ambassador
Professor Emeritus, Foreign Service Institute, New Delhi
Senior Fellow, DiploFoundation, Malta & Geneva

Some developing countries have mastered their interactions with the external world to the
point where they actively pursue international economic opportunities, be it in trade,
investments, technology-driven business partnerships, tourism, off-shore banking and a
whole range of services. These countries regard globalization in benign fashion, and are
active participants in an interdependent world, be it at the World Trade Organization
(WTO) or the World Economic Forum at is annual big-splash gathering at Davos,
Switzerland. At the other extreme are the developing states that either confront severe
inadequacy of resources, or are torn by internal conflict and poor governance, leaving
them woefully dependent on foreign aid. The globalization process does nothing for
them. In between are located the majority of states, scrambling for the right mix of
structure, policy and method, to take proactive advantage of the external environment.

Economic diplomacy is the process through which countries tackle the outside world, to
maximize their national gain in all the fields of activity, including trade, investments and
other forms of economically beneficial exchanges, where they enjoy comparative
advantage; it has bilateral, regional and multilateral dimensions, each of which is
important. No longer the monopoly of state entities, the official agents ⎯ the foreign and
economic ministries, the diplomatic and commercial services, plus their promotional
agencies ⎯ now engage in dynamic partnerships with an array of non-state actors.
Indeed, such domestic collaboration is a sine qua non for effective external outreach;
abroad, in mirror fashion, the actions similarly address a wide field of foreign
stakeholders.

The Foundation of Economic Diplomacy

Globalization has expanded and accelerated economic interdependence among states. The
striking feature of the response of developing states is its remarkably uneven nature, to
© Kishan S Rana 2007 2

the point where some countries have moved to the forefront, and others have stagnated,
or slid backwards to become the victims of globalization. Diplomacy is an expression of
the governance that a country dispenses to itself in its external relationships. As with the
other forms of governance, it is rooted in the vision, efficacy, organization and the
motivation of its people and institutions, including the leaders, the officials, and civil
society at large. Why some countries perform better than others is an enigma, to which
political scientists grope for answers. Take the example of the textile preferences that the
European Community (EC) extended to the Africa, Caribbean and Pacific (ACP)
countries in the 1970s; on the basis of the levels of transformation achieved in these
underprivileged countries, the EC extended the facility of quota-free and duty-free entry.1
In the late 1980s the World Bank noted that while the generous ACP preferences were
available to almost 70 countries, the island-state of Mauritius with a population at the
time of barely 1.1 million accounted for almost 90% of the textiles that entered the EC
under this umbrella. The other countries had simply not got their act together to take
advantage of this concession, while Mauritius made it the central plank of its
development strategy.2

Let us consider the key ingredients for successful economic diplomacy.

First, economic engagement abroad involves more than the ministries of foreign
affairs, commerce and industry; it is the business units of the country,
associations of industry and chambers of commerce, the financial sector, business
schools and thinktanks, the tourism industry, and a host of domestic actors that
are both the stakeholders and the prime movers. The state agencies need to take
initiatives to create viable, innovative public-private partnerships. Some countries
have proactively reached out to these non-state actors and have co-opted them for
the advancement of economic interests abroad, through formal and informal
mechanisms. Examples: advisory groups composed of businessmen to guide
external economic outreach and FDI mobilization; official bilateral joint

1
The EC used this formula in lieu of the more common percentage of domestic value addition, no doubt
because this was convenient in the textile industry; cotton to yarn represented a level of transformation,
another was yarn to textiles, while textiles to garments also represented a level of transformation.
2
Now, having achieved middle-income country status with a per capita income of over $3000, rising labor
cost has eroded the competitive advantage of Mauritius in textiles; it is attempting to migrate to higher
value manufacture and services, while shifting its textile industry investments to neighboring countries
such as Madagascar.
© Kishan S Rana 2007 3

commissions that are actually driven by associations of business and industry;

joint eminent person groups and CEO panels to brainstorm on new opportunities;
thinktanks and scholars working with business leaders to advise on free trade
negotiations. We find that the countries that pursue inclusive home partnerships
also tend to work well with non-state actors in foreign countries.

In a few developing countries the foreign ministry is marginalized when other

agencies, be it the defense and security establishment or the economic ministries,
gain ascendance in foreign policy decision-making. One direct consequence is
that the country’s network of overseas representation is not utilized to its capacity
for the advancement of national interests.

Second, the structures of foreign affairs and external economic management need
to be integrated or harmonized. This is broadly handled in three ways. Some
twenty countries have combined foreign affairs with external trade. This is
practiced in the Caribbean (Barbados, Dominica, Grenada, Santa Lucia),
Scandinavia (Denmark, Finland, Iceland, Norway, Sweden), the South Pacific
(Fiji, Marshal Islands, Samoa, Solomon Islands, Vanuatu), and a few other
countries (Australia, Brunei, Canada, Mauritius, New Zealand and South Korea,
Swaziland).3 South Africa actively considered integrating foreign affairs and
international trade in 1997-98, but the proposal was dropped; but arrangements to
harmonize work have been implemented. The Scandinavian countries also bring
into the foreign ministry the management of their external aid (as does Japan),
which is also logical.4 Denmark has one of the best, unified structures, handling
political diplomacy, foreign trade, investment mobilization and external aid,
within a single entity. A second method is to establish a special coordination
mechanism to handle external economic work, such as ‘joined-up’ oversight as

3
Countries such as Australia, Canada and New Zealand make a distinction between trade policy issues
(which are combined with foreign affairs), and trade promotion activity, which is handled by a separate
agency, outside the MFA orbit, by specialist staff, and not by diplomatic personnel. In contrast, the
Scandinavians completely integrate trade and investment promotion, as also trade policy, into the foreign
ministry; a single set of officials handle all these tasks, and their embassies are similarly charged with the
full range of work.
4
In contrast, the UK and the US separate aid management from foreign affairs; it is hard to believe that this
contributes to efficiency.
© Kishan S Rana 2007 4

practiced by the UK, or through entrusting trade and investment promotion to

dedicated agencies, as in the case of Singapore.

Countries that do not follow this practice tend to expend a great deal of effort on
turf disputes, in relation to bilateral economic issues and on multilateral tasks
such as management of WTO affairs; they also do not utilize their overseas
diplomatic network in the best way possible for the exploitation of foreign trade
and investments. No large or medium-sized developing country has combined
foreign affairs and trade. One reason may be the institutional weight of
traditional systems that blocks experimentation. Another factor may be that in
these countries the commerce ministry fulfils a vital domestic trade management
function, and this makes a joint ministry less appealing.

Another different integration method, especially for small states, is through a

joint foreign trade negotiation mechanism, as established by the 16-member
Caricom; their single negotiator at the EU, who also handles issues relating to
preferences delivers considerable value. It is interesting that other small
countries, such as the island states of the South Pacific, have not banded together
in similar fashion.5

Third, the twin immediate priorities of economic diplomacy are export promotion
and mobilization of inward foreign investment. A range of options is available
for pursuing these tasks, which are distinct, but interconnected. Export promotion
involves helping the home commercial enterprises to seek out foreign markets;
market studies, visits by business delegations, participation in international trade
fairs, and buyer-seller meets are among the standard devices for helping
exporters, where the official agencies can play a facilitator role. Reaching out to
new markets, and developing outlets for new export products are activities in
which embassies and commercial offices can especially play a key role. In
contrast, mobilizing FDI involves, first of all, reaching out to potential foreign
investors, sensitizing them on the opportunities in the home country, and

5
The obstacle for the small states, members of the Pacific Islands Forum, is perhaps that they are separated
by vast distance and do not share economic commonalities. The small countries of other regions, such as
Southern Africa or West Africa, have also not pursued the Caricom option.
© Kishan S Rana 2007 5

thereafter undertaking targeted promotion; the former produces the catchments of

foreign enterprises interested in making investments, and the latter aims at
translating intention to action. Such ‘salesmanship’ activities by the official
agencies, of course, always hinge on close harmonization with business
associations and individual enterprises.

Fourth, the regulatory framework is squarely the responsibility of governments

⎯ assisted by business chambers, thinktanks and scholars ⎯ which aim to
create the conditions advance trade and investments. The home economic
agencies, and the diplomatic network have to proactively identify the priority
areas, and negotiate the required agreements, keeping in view the mutuality of
interests.6 The instruments available include: free trade and preferential trade
agreements, on a bilateral and regional basis; agreements that tackle non-tariff
obstacles (such as phytosanitary regulations); shipping and other transport
agreements; and investment protection and facilitation accords. A recent trend is
to address a range of such areas, usually through mutual trade-offs among the
contracting parties, through ‘comprehensive’ economic cooperation accords; they
aim at better synergy through simultaneous handling of related subjects.

Here too, smooth cooperation between the economic ministries and the foreign
ministry is a prerequisite for effective action. The countries that have combined
their foreign affairs and external trade departments are at an obvious advantage,
but those that feature effective joined-up and other cooperative formats also do
well. In addition to these institutional arrangements at home, if the diplomatic
network also plugged into the process, economic advocacy and negotiations are
handled optimally.

Fifth, we should distinguish between the economic diplomacy as it operates out

of the home capital, and the field, i.e. the network of embassies and consulates.7

6
Under the WTO doctrine, bilateral trade agreements, regional FTAs and the like, represent a derogation
from the principle of global liberalization of trade, but by the end of the 1990s, even a country such as India
that had held fast to the global doctrine, recognized that bilateral and regional arrangements are
inescapable, even while it waits for the manna of universal trade liberalization.
7
The role of consulates has shifted from consular protection and visa facilitation (as provided in the 1963
Vienna Convention on Consular Relations), to the wider promotional jobs of sub-embassies, engaged in
© Kishan S Rana 2007 6

The majority of developing states have some way to go in optimizing their

diplomatic networks to deliver full value. While these networks are exhorted to
implement a ‘whole of government’ mindset in their work, it is the foreign
ministry that is their immediate master, and thus in the best position to mobilize
them. Consequently, countries that marginalize their foreign ministries in their
economic diplomacy outreach, handicap themselves from the start.

A related issue is whether diplomatic services that are ‘integrated’, and handle all
branches of external diplomatic work (e.g. in Brazil, India) are more efficient
than the ones that treat commercial diplomacy as a separate professional branch,
handled by specialists from other agencies (e.g. in China, South Africa,
Thailand).

‘A diplomatic service that is well resourced and above all well staffed…give(s) a
state a significant increment of power and influence’.8 Singapore demonstrates
how a small state can harmonize its diplomatic machinery to punch much above
its weight class. This lesson holds lasting value.

Three Phases: An Indian Example

The organization of economic diplomacy in India is both traditional and modern. From its
inception in 1947, the Indian Foreign Service has been an integrated entity, handling
political as well as economic and other forms of diplomacy.9 I believe this is functionally
rational; it suits the way different elements in external work interact with one another,
requiring unified handling. A separate commercial service is, in my view, an outdated
concept.10

almost everything but hard political work, and sometimes even some of that. In takes the consulate back to
its original commerce facilitation and representational roots of the 13th and 14th century.
8
GR Berridge, Maurice Keens-Soper, TG Otte, Diplomatic Theory from Machiavelli to Kissinger,
(Palgrave, Basingstoke, 2001), p. 3.
9
Jawarhal Nehru personally drafted the 1946 cabinet note that created the Foreign Service, on the basis that
it should perform all categories of diplomatic work. But it was not until 1966 that the Ministry of External
Affairs set up its Economic Division, which has faced obstacles from the domestic economic ministries, but
has gone over their heads to the powerful business associations, helping them with external outreach.
10
The US State Department, operating the world’s largest diplomatic network, now has five ‘cones’ within
which officials perform different roles, but this model is not used by anyone else. The US also has a
separate commercial service, a product of that country’s complex decision process that led to the 1946
Foreign Service Act.
© Kishan S Rana 2007 7

A major Indian weakness is institutional disharmony, in the shape of turf battle between
the Ministry of External Affairs (MEA) and the economic ministries, though on major
issues these agencies are able to put aside their differences.11 For instance, MEA swaps
some posts abroad with the Commerce Ministry in exchange for a several placements in
that Ministry for its officials; those holding commercial assignments abroad are
answerable to both ministries; the permanent secretary heading Commerce serves on the
MEA personnel board that selects officials for sub-ambassador level assignments abroad.
But WTO issues are handled primarily by Commerce, which also appoints the envoy
handling this subject in Geneva; MEA’s Economic Division (actually a full department
with four divisions handling Indian aid and technical cooperation with foreign countries,
plus external economic promotion and multilateral economic work) receives less than
fulsome cooperation from the Ministries of Commerce and Industry. The Finance
Ministry’s Department of Economic Affairs, which handles inbound aid as well as the
interface with the World Bank and the IMF, has even less to do with MEA. MEA does
not help matters by practicing a closed-shop policy, receiving no in-placement at its
headquarters from the economic ministries.12 In 2005 Prime Minister Manmohan Singh
created a cabinet-level ‘Trade and Economic Relations Committee’ which he chairs, for
apex-level coordination; top-down process is powerful, but it does not substitute for
better ground-level working.

In consequence, the Indian embassy network is utilized far less than it should be, both in
relation to FDI mobilization and export promotion. India laments that approved
investment proposals are often not implemented, producing a large shortfall;13 as the
embassies are the only external investment promotion agency, they should be utilized
more intensively. Unlike in China or Brazil, the volume of FDI inflow ⎯ $6 billion in
2005, up to around $10 billion in 2006 ⎯ is still not high enough to go on autopilot!

11
The Indian Ministries of Commerce and Industry are separate entities, but since 2001 they have been
placed under a single cabinet minister, while they retain their distinct identity.
12
MEA has traditionally apprehended such placement, fearing that these officials would demand
assignments abroad. A simple way exists to square this circle: pre-select the dozen odd non-MEA officials
serving abroad (against posts earmarked for them), and deploy them in MEA for a couple of years before
they go abroad; that would also shed MEA’s image of exclusivity.
© Kishan S Rana 2007 8

In a December 2005 interview a Thai diplomat described the evolution in economic

work; their ambassadors had moved from the conventional political discourse, to a
situation in the 1980s when they were asked to become salesmen; now their assigned task
was to function as ‘managers’.14 I would expand on that evolution to speak of three
distinct phases in economic diplomacy, using the Indian example.

One. India grasped the economic diplomacy nettle in the early 1970s, as a response to the
first ‘oil shock’ by the OPEC cartel, which almost overnight quadrupled crude oil prices.
As a ‘non-oil’ developing country, India was forced into heroic actions to raise the
foreign exchange resources, with primary focus on the Gulf region. By good fortune, my
first ambassadorship was in Algeria (1975-79), in that initial ‘economic salesmanship’
phase. In essence, India leveraged its political connections with the Arab countries to win
turnkey projects, consultancy assignments and contracts, for skilled as well as advanced
technical manpower. In Algeria, India’s technology expertise was unknown, but we took
advantage of opportunities to help Indian companies, public sector and private, to sign
their first twelve industrial and consultancy contracts in 1975-79; we sent over 800
doctors, besides dozens of professors and engineers. That story was replicated in Libya
and elsewhere, with the difference that many thousands of skilled workers went out.
Today, the Gulf region has a total of over three million Indian skilled workers, besides
tens of thousands of Indian professionals; they are the principal contributors to an inflow
of over $24 billion received as remittances from the Indian diaspora.15 That same
salesmanship mode was deployed to help the Indian software industry gain its first wins
in Silicon Valley and other parts of the US in the late 1980s (during my three years as
consul general in San Francisco). Many of our embassies played a similar role.

A feature of this phase was the country’s heavy dependence on foreign aid; the annual
meetings in Paris of the ‘Aid India consortium’ were a major event, and considerable

13
Typically, 30 to 40 % of approved projects are implemented (this is necessarily an evolving figure); a
variety of reasons underlie such a low rate, where inadequate Indian follow-up is one element. The current
Indian effort is to shift the bulk of FDI to the automatic approval route, by simplifying procedures.
14
Since mid-2004, Thailand’s envoys have been asked to become ‘CEO ambassadors’; initially a pilot
project limited to six embassies, this is now standard policy. It resembles the US system of designating
ambassadors as heads of ‘country teams’, to get all official agencies to work together under unified
leadership, but the Thai plan goes further and aims even at a single budget for all the overseas offices, to be
supervised by the envoy. It remains to be seen how it will work in practice, given the usual inter-ministry
contestation that is universal.
© Kishan S Rana 2007 9

effort was expended via summit level diplomacy to maximize the commitments
announced by the major donors and the international financial institutions. Through much
of the 1980s, the Finance Ministry, directly supervised by the Prime Minister’s Office,
handled this vital diplomatic effort, while MEA was relatively isolated.16

Two. By the time I reached Germany in 1992-95, on my final assignment, India had
matured into the second, ‘economic networking and advocacy’ phase, though
salesmanship continued; on the ground, the two phases telescoped into one another. The
Economic Reforms that India launched in 1991 ⎯ which many have viewed as no less
than a second independence movement, freeing the economy from self-imposed shackles
of statism and the ‘license raj’ ⎯ gave salience to efforts to maximize exports, mobilize
FDI, and assist Indian companies to access technology, besides improving the flows of
inward aid, and of foreign tourists. This involved reaching out to the new diplomacy
actors, both the agencies of government as well as the non-state actors, at home and
abroad. Indian economic diplomacy is better in its coordination with the latter, i.e. the
non-state agents, the principal business organizations, CII, FICCI, and ASSOCHAM; the
economic thinktanks, the NGOs that are active on international economic issues, and the
media. While MEA regained for itself a central role in external economic diplomacy,
coordination among official agencies remained patchy. When good collaboration takes
place, it hinges on individuals, rather than institutional arrangements. Thus India’s strong
negotiation posture at the WTO is not sufficiently backed with matching advocacy at the
key bilateral capitals; nor is investment promotion activity sufficiently harmonized,
producing the ‘approved-but-not-implemented’ limbo described above.

At the same time, new initiatives in regional economic arrangements have come from
MEA. A few, such as BIMSTEC and IBSA show considerable promise, while others
such as IOC-ARC have been withered on the vine.17 MEA is the lead coordinator on each
of these, marshalling cooperation with other agencies, state and non-official.

15
My observations on India’s diplomatic system, and examples drawn from personal experience with
economic and other forms of diplomacy are narrated in Inside Diplomacy (Manas, New Delhi, 2000).
16
I observed this first-hand as a member of Prime Minister Indira Gandhi’s staff in 1981-82.
17
BIMSTEC is a cross-regional network established by Thailand and India in 1997, and includes
Bangladesh, Myanmar, Sri Lanka, with Bhutan and Nepal joining a couple of years back; it aims to create a
free trade area. IBSA came into existence in 2003, when Brazil, India and South Africa decided to build on
their proximity on international economic issues, to build closer trade and transport links; it held its first
© Kishan S Rana 2007 10

Three. The priority is ‘regulatory management and resource mobilization’, i.e.

negotiation of FTAs,18 energy access agreements, and regional diplomacy via innovative
new groupings. One characteristic of this phase is an awareness of the country brand,
leading to efforts to build an image of modernity. These tasks require domestic coalitions
building, where the competence of each agency, official and private, is respected, to work
together to advance economic interests abroad. India does not have, as yet, ‘public
diplomacy boards’ where the foreign ministry takes the lead in suggesting unified action
to autonomous agencies, such as those covering the public media, culture, education and
tourism.

The key task is to reach out to the varied partners, and harmonizing their sectoral interests
with national priorities. Such coordination cannot be imposed by right or dictate; it
emerges when the other agencies see the foreign ministry as bringing value to their direct
interests. The foreign ministry is the logical center point of such efforts, because it has no
sectoral agenda of its own. The forte of the foreign ministry is its control of the totality of
the external inter-state dialogue, of course, under the oversight of the head of government
and his staff.

An outstanding example is India’s very first bilateral FTA, signed with Sri Lanka in
1999.19 In contrast, in relation to other trade regulation arrangements, the inter-ministry
coordination has been uneven, and sometimes notably absent. India shows the complexity
of economic management; with policy-making fragmented, and the Ministry of External
Affairs confined to a small role, the operation of economic diplomacy goes out of synch
with political objectives.20 Yet, positive examples also exist; in the search abroad for

summit meeting in Brasilia in October 2006. IOC-ARC is a group of Indian Ocean rim states that want to
expand mutual cooperation, but it seems to have lost steam, though it has a secretariat in Mauritius,.
18
India had an ‘ideological’ bias that viewed regional and bilateral FTAs as a derogation from the principle
of multilateral universality of trade liberalization under the GATT/WTO formula; its first FTA was signed
with Sri Lanka in 1999. It has been a singular economic and political success, and India has since signed
similar agreements with Thailand and Singapore, and is negotiating other FTAs, including one with
ASEAN.
19
See Rana, ‘Economic Diplomacy in India: A Practitioner’s Perspective’, International Studies
Perspectives, (2004) 5, (66-70).
20
In December 2005, on the eve of the first enlarged ‘East Asia Summit’ (where Australia, India and New
Zealand joined the Asean + 3 leaders), the Indian Commerce Minister presented the first draft of India’s
negative list for the Asean-India FTA that is under negotiation. The list of items that were to be kept out of
the free trade regime ran to 1414 items, and as the Malaysian Trade Minister pointed out, included toilet
© Kishan S Rana 2007 11

energy sources, Indian embassies have frequently played a proactive role in helping state
and private enterprises in pursuing opportunities.21

Other Examples

Let us turn to some other examples, to reflect on the manner in which economic
diplomacy operates in different situations.

A number of medium and small countries in Africa and Asia with fragile economies
have remained mired in conventional diplomacy, some of them observing the forms of
international discourse, but without coherent pursuit of national objectives. Appointments
as envoys are seen as sinecures for failed politicians and retired generals;22 professional
diplomats are under-trained, and when sent on assignment overseas, are often
demoralized and inactive. A change factor in some of these countries is the public sector
reform imposed by the IMF and the World Bank, as part of the ‘structural adjustment
program’, in the highly indebted countries facing default in their international payment
obligations. Episodic evidence suggests that performance management norms and
business plan systems brought into foreign ministries produce superficial changes without
improving the management of diplomacy or external projection.

The tiny, reclusive Himalayan kingdom Bhutan (population 675,00023) would hardly
come to mind as notable for its economic diplomacy. But it is of interest on two counts.
One of its few resources is its latent hydropower capacity. Since 1974, it has utilized its
privileged relations with India to implement three major hydro projects, Chukha I,
Chukha II and Tala (completed in 2006), producing nearly 2000 MW of power, all it sold
to electricity-deficient India, earning for the country over 50% of its Gross National
Product. Contrast this with Nepal, with a potential hydropower capacity of over 80,000

seats; it became clear that the list had not been screened by either the Ministry of External Affairs or other
agencies. Yet, safeguarding the interests of domestic industry and agriculture is a vital issue, one that has to
be handled with finesse and sensitivity, without over pitching one’s demands.
21
Rana, ‘Economic Diplomacy in India’, p.68.
22
A few years back, out of nearly a score of Ugandan ambassadors abroad, only one was a professional
from the Foreign Ministry. Several Central American countries also reserve the majority of such
appointments for those connected politically. In contrast, a law in Brazil requires that only professionals
from the foreign ministry be appointed as envoys abroad.
23
This is the official figure based on a 2005 census, though other estimates place the total population much
higher, at about 2 million.
© Kishan S Rana 2007 12

MW; since the controversial Kosi project of the 1950s, it has not added a single KW of
new power export capacity, owing to inhibitions in its relationship with India.24 Bhutan is
also notable for the measured pace at which it has opened itself to high-end tourism, with
a strict quota on the numbers permitted entry, to avoid disruption to its traditional cultural
and societal fabric.

In Brazil, the Ministry of External Relations, still known by its old location name in Rio
de Janeiro, Itamaraty, enjoys a primacy that counterparts in most developing countries
envy. Itamaraty has always monopolized external negotiations; the professional
competence of its diplomats, their mastery of foreign languages and their experience
served as mutually reinforcing elements. As new subjects entered the international
dialogue, it added new departments; observers have called its economic diplomacy
‘surprisingly agile and dynamic’.25 The increasing technicality of subjects has prompted
the Itamaraty to hand over some responsibilities to the Commerce Ministry specialists,
and shift its economic diplomacy management to a multi-agency mode. A Trade Council
based in the Presidency carries out policy harmonization. In the early 1990s, when
Mercosur was established as the regional integration mechanism and WTO replaced
GATT, Itamaraty was reorganized in consonance with this regional and global economic
paradigm (it handles all FTA negotiations); it is one of the few countries represented at
WTO by its foreign minister. The diplomatic service handles commercial work abroad.

China presents a very different picture. Until its breakup in 2002, the powerful ministry
MOFTEC26 handled all external economic activities (its successor is the Commerce
Ministry plus other agencies). As before, the Foreign Ministry does not handle field-level
external economic promotion, which is carried out by a separate commercial cadre.
Coordination is implemented out through the party mechanism, which is very effective
on strategic issues; a series of thematic ‘leading small groups’, under the supervision of
the Politburo, bring together top party leaders and the key ministers for decision-making.
Paradoxically, in relation to the issues of detail the system is less efficient. Inter-ministry

24
Many Nepalese have rightly seen the trans-border multipurpose Kosi project as grossly unbalanced in its
distribution of benefits. That legacy, plus a suspicious mindset toward India, has inhibited movement on
any other hydro project, despite countless rounds of discussion, summit encounters, interim accords and
memoranda. For India this represents a huge failure of its diplomacy.
25
Luiz F Lampreia and Ademar S da Cruz, ‘Brazil: Coping with Structural Constraints’, Justin Robertson
and Maurice A East, eds. Diplomacy and Developing Nations, (Routledge, London, 2005), p. 108.
26
The acronym stood for the Ministry of Foreign Trade and Economic Cooperation.
© Kishan S Rana 2007 13

coordination takes place primarily at levels of vice-ministers; inter-ministry meetings at

varying lower levels, the norm elsewhere, are unknown. Overseas, while the Commerce
Ministry specialists handle trade promotion, economic policy remains with the diplomats.
Chinese embassies are now moving to active advocacy on behalf of their companies,
borrowing the methods that the others have long pursued.

The tiny island state of Mauritius has been surprisingly innovative on external economic
issues affecting its vital interests (e.g. combining foreign affairs and trade; textiles
exports, see above). In the 1970s it played a leading role in working out the sugar
preferences given to the ACP countries by the European Community under the 1976
Lomé Convention; this has brought windfall gains to the producing states of Africa, the
Caribbean and the Pacific.27 In the mid-1980s Mauritius persuaded India (originally home
to 70% of its inhabitants) to give it exceptional treatment in a double taxation avoidance
agreement, exempting Mauritian registered companies from capital gains tax; after the
launch of India’s economic reforms this has provided a bonanza, with around 25% of the
FDI flowing into India using the ‘Mauritius route’, to minimize tax liability.28 Mauritius
also persuaded China (the origin of 3% of its population) to sign a similar treaty. Another
instance of sound economic management is the targeted mobilization of FDI focused on
the service industry, value-added manufacture, and offshore banking, to diversify away
from the increasingly uneconomic textile and sugar production sectors.

Singapore has harnessed economic diplomacy as a major instrument in its transformation

from a sleepy entrepôt in 1965 at the time of its separation from Malaysia and
independence, devoid of a hinterland or resources, to a thriving economy, enjoying
Asia’s highest per capita GDP. Singapore’s legendary Economic Development Board
(EDB) has played a key role; together with its Irish counterpart it is arguably the best
among investment mobilization agencies, specializing in targeted pursuit of investors.29 A

27
In the 1970s, when sugar prices reigned higher than the guaranteed price offered by the EC, Mauritius
played a key role in persuading the producing countries to take a long view; in consequence these countries
have enjoyed high profits in the ensuing years of much lower world prices for this commodity. The
preferences are now under phase-out, under the WTO regime.
28
The Indian tax authorities have long attempted to close this loophole (especially to block domestic
investors who illegally route investments through Mauritius in ‘round-tripping’ deals), but the island state
has blocked this on the basis of kinship and close political ties. It was reported in January 2007 that the
Chinese have pushed through a partial revision of this concession, and India is attempting the same.
29
See Chan Chin Bock, Heart Work: Stories of How EDB Steered the Singapore Economy from 1961 to the
21st Century, (Singapore Economic Development Board, Singapore, 2002).
© Kishan S Rana 2007 14

comparable role in promoting exports of products and services has been played by
International Enterprise Singapore (IES, formerly known as the Trade Development
Board). The hallmark has been: an inclusive approach that mobilizes all stakeholders on a
‘team Singapore’ formula; long-term vision and thinking outside-the-box (witness its
investments in technology parks in China, India and elsewhere, ‘growth triangles’ with
Malaysia and Indonesia, utilizing their hinterland); astute regional and trans-regional
diplomacy (for example the ASEM dialogue linking ASEAN and the EU); and an
exploitation of best practices in diplomacy and HR management.30

Thailand’s economic diplomacy, like its international profile, looks unspectacular, even
conventional. But as befits its centrality in South East Asia ⎯ as a country sharing 4863
km of land frontiers with four neighbors ⎯ it has specialized in regional diplomacy.
ASEAN came into being at its initiative in 1967, at a time when most of the five original
members had irredentist claims against one another. Thailand since moved ahead with
concrete regional economic actions, notably: the 1992 Greater Mekong Sub-region
(GMS) that brings in China into collaboration with Cambodia, Laos, Myanmar, Thailand,
and Vietnam, with scores of projects funded by the Asian Development Bank and other
agencies totaling over $10 billion, to improve transport infrastructure and trade;
BIMSTEC (see above); and the ambitious Ganga-Mekong Project, still largely on the
drawing boards, to develop transport and other linkages between the basin states of these
two great river systems. In 2004 Thailand advanced the concept of the ‘CEO
ambassador’, first as a pilot project and thereafter passed into law, which mandates that
its envoys abroad are to exercise full control over all the representatives of ministries and
agencies located abroad, to function as chief executives to advance Thai interests. This
was a pet notion of former Premier Thaksin Shinawat, but it is unlikely that a related
move, to impose a unified budget for the entire gamut of offices abroad, to be controlled
by Thai envoys, will be implemented. Other countries will watch the dénouement with
interest.

Looking to the collective experience of the 130 developing countries of the G-77, a rough
economic diplomacy typology of finds them in several clusters: those that have remained
moored in conventional methods, only implementing slow change; those that have

30
See Kishan S Rana, ‘Singapore’s Diplomacy: Vulnerability into Strength’, The Hague Journal of
Diplomacy, Vol.1 No.1, March 2006
© Kishan S Rana 2007 15

identified a niche, to focus actions on that chosen sphere; those that have adapted
themselves to new opportunities with structural changes and clear actions; and those that
have moved to the forefront with cutting edge techniques and continual reform. Of course
the real world does not respect such neat categorization, but this approach allows us to
focus on the points along the learning curve where these countries are located.

Economic Diplomacy Typology

Traditional Niche-Focused Evolving Innovative

Foreign Trade Handled by the Promotion Some coordination Joined-up, and

and Investment Trade Ministry; concentrates on the between Trade and other cooperative
Promotion little involvement identified niche Foreign Ministries; arrangements
of MFA contestation also
likely.
Policy Limited role for Good internal Inter-ministry or Institutionalized
Management MFA, frequent turf coordination cabinet level management,
battles coordination; strong teamwork
tending towards
improvement
Role of Non- Episodic, depends Variable Set procedures, Harmonization
State Actors on personalities strong networking with all
stakeholders
Economic Aid: Handled by Limited Networking ‘Graduated’ out
Recipient economic coordination between the aid of aid receipt, or
agencies, seldom management close to that stage
coordinated with agency and MFA
MFA
Economic Aid: May not be an aid May not be an aid Modest program, Expanding
Donor donor donor usually covering program, run by
technical MFA in harmony
cooperation with trade
promotion
agencies
Commercial Often handled by a Limited focus on Cooperative Well-coordinated
Work commercial cadre, commercial arrangements, activities, role
outside MFA promotion, outside often integration of model in range of
control the niche area political and activities
economic work
Investment Handled by Active use of MFAs and Strong team
promotion domestic agencies, embassy network embassies work effort, based in
limited role of the actively with home institutional
diplomatic system agencies, often at arrangements
individual
initiative
Regional Usually reactive Focused on Active Innovative,
diplomacy role preferred niche exploitation of
area potential
© Kishan S Rana 2007 16

Economic Diplomacy Management

We observe that in many developing states a progression has taken place in the
diplomatic process, countries moving up the value chain, and improving performance in
the economic and other arenas. Let us consider the principal ingredients of this change.

First, the decision process in diplomacy management is more plural and often better
coordinated than before; some countries are more efficient at this than others. We saw
this in the examples given above. The city-state Singapore, consistently managing to
punch above its weigh-class, shows how much mileage sound policy management can
produce.31 Several devices are available, when we consider the practices of other
countries. One, in and out personnel placements; the diplomatic establishments working
as hermetically sealed establishments are the losers. It also makes sense to send officials
to work in business enterprises, and de-mystify the perception of these partners towards
the official agencies. Two, a need for transparent networking with all the home partners,
on the premise that the foreign ministry and its overseas network is at their service, for
the advancement of their agendas. The foreign ministry becomes an external coordinator
not by right or decree, much less by self-proclamation; it has to earn that recognition.
Embassies abroad need a ‘whole government’ mindset in the way they handle their
tasks.32 This is far harder this than it sounds; it is the foreign ministry’s partners that will
make the judgment. Three, lateral entry, where people join and leave the foreign ministry
at different levels, is becoming customary in post-modern countries where job rotation is
the norm. But as the UK saw a few years back while trying to recruit consuls general for
the US, even top economic jobs do not attract the needed high-grade talent. Developing
countries do not face job churn, and for them lateral entry is even less workable. What
can be borrowed from the West another concept ⎯ better use of locally engaged staff.
Singapore and Australia have shown the way.33 Four, cabinet level coordination is fine,

31
See Leifer, Michael, Singapore’s Foreign Policy: Coping With Vulnerability, (Routledge, London,
2000); Rana, ‘Singapore’s Diplomacy: Vulnerability into Strength’, The Hague Journal of Diplomacy,
Vol.1 No.1.
32
This was one of the conclusions of the March 2005 Wilton Park on diplomacy; a fine report on the
conclusions of that workshop is available at the Wilton Park website.
33
Recently Australia replaced their trade commissioners in the US with local staff, on the premise that
Americans would know how best to sell to their own market; developing countries might reason that
© Kishan S Rana 2007 17

but it is at working levels that decisions are implemented. Barring exceptions, this is
often a weak point.

Second, trade policy management now brings a range of concerned non-state actors into
the process, beyond the trade chambers and industry associations (who are obvious, often
very vocal stakeholders); these include the domestic thinktanks, academics, NGOs, and
even the media. Policy choices become easier when autonomous public policy thinktanks
exist in sufficient numbers; in most developing countries they are growing, in spread and
competence. This is especially visible on the issues relating to WTO; regional and
bilateral FTAs especially require the participation of business, as stakeholders directly
affected by the decisions taken by the representatives of government. For instance, Indian
officials now recognize that they hastily accepted some arrangements during the Uruguay
Round in the early 1990s, without full grasping the implications, because business
partners and the industry associations were not present. The large developing countries
have been unenthusiastic over alliances with the international NGOs that seemingly
support the developing world, but do not always understand the complex motivation, and
the diplomacy dynamics, in these countries.

Third, even in these relatively advanced countries, capacity building remains an issue.
Few officials, even in foreign ministries, have received training in negotiation technique,
though this is beginning to change. A similar situation is encountered in the middle tier of
developing states. This needs careful handling, since foreign ministries and trade
ministries are sensitive to external advice, the more so in the large developing states. In
many developing countries there is need for greater weight to in economics in induction
training in the diplomatic services, as well as more, high-quality mid-career training
programs for officials from the foreign ministry and its economic counterparts.

Training programs conducted jointly for officials of the foreign and economic ministries,
where representatives of business also join, are ideal, covering international negotiations,
intercultural management skills and other craft skills.

besides local knowledge, the commercial secretary would also need knowledge of the home country. But
the general case for better use of local staff is incontestable.
© Kishan S Rana 2007 18

Fourth, the regional diplomacy practiced by some of these countries is remarkable. In

China, the provinces are important actors in regional diplomacy, addressed at the
countries that adjoin them.34 Thus, Liaoning and Shandong provinces play the lead role in
relation to South Korea; Yunnan does the same with the Greater Mekong Sub-region
project (GMS), as noted above; consider the putative group BCIM, also actively
promoted by China, which addresses a different cluster, Bangladesh, India and Myanmar.
China is currently a member of some 40 regional and neighborhood networks, most of
them with an economic focus. We noted above the regional diplomacy practiced by
Thailand, and the emergence of a trans-continental entity, IBSA, covering Brazil, India,
and South Africa, plan to double mutual trade in four years to reach $10 billion, and is
pursuing a free trade agreement.35 In most regions similar integration in trade and other
fields is driven by economic logic, with added political and security benefits.

One interesting dimension of this new diplomacy is that foreign ministries often lead it,
acting in concert with trade and other economic ministries; we observe this in relation to
APEC, and in other groupings. Indirectly this inculcates ‘transgovernmentalism’, i.e. the
system’s capacity to work jointly.

Fifth, sub-national entities emerge progressively as autonomous external economic

actors. We noted above how this works in China, where most inward FDI approvals are
handled by the provincial governments; in India, the recent shift to automatic approval
channels has produced a like effect, and competition among states to attract big ticket
projects. Similarly, the large developing countries (e.g. Brazil) send out increasing
numbers of provincial level business delegations. The next step would be for some of
them to establish their own marketing offices abroad, following the lead of developed
states such as Canada, Germany, and the US. Some Indian states have ventured to
establish ‘partner state’ relations with foreign counterparts.36

Economic Promotion in the Field

34
See David M Lampton, ed. The Making of China’s Foreign & Security Policy in the Era of Economic
Reforms, (Stanford University, Stanford, 2001).
35
Such an FTA would effectively link Mercosur, with SACU, the customs union that covers several
countries in Southern Africa, and India (the South Asia FTA is still under implementation).
© Kishan S Rana 2007 19

Economic promotion carried out in the field by large and medium sized developing
countries shows congruent features.

First, FDI investments for many of the large developing countries now takes a two-way
character, though inflows remain much larger than the outflows (in India 2005 saw about
$5 billion as inflows, and almost $2 billion as outflows, as investments in oilfields abroad
and in manufacturing; during 2006 FDI outflow jumped to nearly $7 billion). China’s
foreign investments have attracted even greater notice, in hydrocarbons, as well in some
technology-dominated sectors. Further, inflows into Brazil and China have matured to the
point where the work of mobilizing new investments is less important than facilitation,
working with investors to overcome obstacles. India, which has lagged behind in FDI
inflow volume, remains concerned with investment mobilization; this is a high priority
activity for its embassies.

Investment promotion remains a key task for embassies, regardless of the stage of
economic development. Of course, the work content evolves, but in the best systems, the
entire embassy team, including the ambassador, is engaged in this activity. Other sectors,
science & technology, education, media promotion and even culture work feeds into and
interacts with economic outreach.

Second, trade promotion also remains a high priority, with the difference that in
addition to a search for new markets and the promotion of new export products, the
embassy networks are also engaged in policy issues, e.g. potential trade agreements and
FTAs, and the related anti-dumping negotiation tasks.

Some question whether the embassy networks of the larger developing states should
persist with promotion work, on the argument that services of consultants and other
agencies are more efficient, and affordable by most home enterprises. But ground
evidence, including the experience of Western countries, shows that while the content of
promotion work evolves, embassies remain engaged in such tasks. For the smaller
countries basic help with market studies, hosting small buyer-seller meets at the embassy,
and reaching out to the economic entities and individual enterprises in the target country

36
China has been relaxed in permitting such external activity by its provinces, but India such actions push
the envelope of center-state relations; economics is thus also helping in shifting the federal power balance.
© Kishan S Rana 2007 20

remains vital, simply because home exporters lack the means to sustain such actions on
their own.

Three, integrating economics into mainstream diplomacy promotion is easier when a

single service handles all the work segments, than when commercial work is handled by a
separate cadre. It also makes sense to use the entire team in a foreign capital for
economic promotion, on a task force basis (Thailand has attempted this with its ‘CEO
ambassador’ policy). The ambassador carries sizable leadership responsibility, vis-à-vis
official as well as private business representatives in his country of assignment.37

Embassies abroad necessarily work with a range of domestic actors in their promotion
work in the target country. Through these actions, they become for the foreign ministry a
conduit for better links with the economic ministries and with non-state entities. Foreign
ministries often underestimate this home role of embassies, in part because this is a new
and evolving situation.

Brand Image

The home country’s image underpins most diplomatic activities. Wally Olins writes in a
brilliant monograph that nations need new images because ‘a changing reality is leaving
perceptions far behind’.38 This is especially true of developing and transition states,
which have seen dramatic change, but this is underestimated abroad. Country branding is
about ‘presenting a nation or region in a powerful, attractive and differentiated way’;
however ‘branding works when it projects and reinforces a changing reality — but it can
be counterproductive if isn’t rooted in fact.’ The key is to use a central idea that is
powerful and simple, capturing the country’s unique qualities.

There is no aspect of external relations, bilateral, regional or global, that is not affected
by ‘image’. Foreign ministries, embassies, and diplomats are considered responsible for
the projection of a ‘correct’ image of their country — even if in reality their capacity to
radically or immediately influence their country’s image perception abroad is limited. But

37
See Rana The 21st Century Ambassador, (DiploFoundation, 2004 and OUP India, 2005)
38
Wally Olins, Trading Identities: Why Countries and Companies are Taking On Each Others’ Roles
(Foreign Policy Center, London, 1999).
© Kishan S Rana 2007 21

proactive diplomacy demands that serious and constant attention be paid to the country
image. Diplomacy theorist Brian Hocking has written of a survey of 200 US Fortune 500
companies, in which 72% said that national image was significant to external purchase of
goods and services, adding that ‘company brands interact with national identities in
concrete ways’. 39

Consider the way some of these countries have worked. China used image consultants in
marketing Beijing as the venue for the 2008 Olympics, and Shanghai did the same in
presenting itself as a ‘world city’. The successful tourism destination countries make
focused use of branding. Poland recently invited Olins to help re-fashion its overseas
image. South Africa has long been an accomplished practitioner of country branding.
Brazil attaches weight to this too, and has a special unit in the office of the minister of
foreign relations that oversees image activities. In 2006, Pakistan was reported to be
working with foreign advisers to improve its image.

In the mid-1990s India created a ‘brand equity fund’ of Rs.5 billion (then equal to $130
m.), only to find that it’s Commerce Ministry was unable to disburse any money. In 2003
the operational management was handed over to the Confederation of Indian Industry
(CII), as a public-private partnership. It helps Indian companies to build their product
image in export markets, and in the process burnishing the country image; the India
Brand Equity Fund also carries out other promotional activities overseas.40

Image building is a dimension of public diplomacy; the latter encompasses culture, the
media, education and all the different activities through which publics, abroad and at
home, are influenced in relation to a country’s foreign policy. What is missing in most
developing countries is a sustained and coordinated image management effort, mobilizing
all the agencies that contribute to the way the country is perceived. Developing countries
do not as yet have the kind of ‘public diplomacy boards’ that exist in France and the UK,
headed by the chief mandarin of the foreign ministry, which bring together the authorities
handling the state media, tourism, education, culture and others that contribute to this
image. While this subject takes us quite far from economic diplomacy, suffice it to say

39
Brian Hocking, Diplomacy of Image & Memory: Swiss Bankers and Nazi Gold (Diplomatic Studies
Program Discussion Paper No. 64, University of Leicester, April 2000).
40
The website of this fund is www.ibef.org
© Kishan S Rana 2007 22

that public diplomacy is closely connected with the pursuit of external economic
interests.

Conclusions

In sum, developing countries are at diverse stages in their pursuit of economic diplomacy.
Like all other states, they can gain much from mutual learning, and analyzing the best
practice models. Traditionally, foreign ministries have not looked to one another, or
carried out bench-marking, but this is one of the new tricks that this old profession is now
beginning to absorb, in efforts to adapt to the era of globalized diplomacy.

-----------

[Published as: ‘Economic Diplomacy: The Experience of Developing Countries’,

The New Economic Diplomacy: Decision Making and Negotiations in
International Relations, eds. Nicholas Bayne and Stephen Woolcock, (Ashgate,
London, 2nd Edition, 2007), pp. 201-20.]