Banking on Development

1. Banking on Development Public-Private Roundtable Geneva, 28 February 2008 OECD Global Forum on Development Javier Santiso Director, OECD Development Centre

2. The OECD Global Forum on Development Context “Seeking solutions beyond aid” Year I: A complex development finance system (06/07) Year II: Putting ownership into practice (07/08) Ownership in Practice Banking on development Think Tanks & Fiscal legitimacy Plenary Year III: Matching instruments to needs (08/09) Year IV: Proposals for a more effective system (09/10) 3

3. Banking on Development Roundtable Geneva • Agenda • Private development finance: the new reality for developing countries • New options, more ownership? • Group discussion: Innovation and good practice in development finance • Improving the environment for private investment and development outcomes • Donor agencies and private-sector finance: Solutions beyond aid • Group discussion: Catalysing private finance: a new priority for ODA? • Messages for the Doha Conference on Financing for Development 3

4. Spotlight on Africa: Seeking Solutions Beyond Aid 1 A Public-Private Innovation Lab on Development Finance 2 2

5. Over the « hump » of debt relief Aid Source: OECD Development Centre / African Development Banks, 2008 3

6. Slow progress,despitegrowth MDGs Source: OECD Development Centre / African Development Bank, 2007 4

7. Africa: a new investment frontier? Investment • A rapidly evolving investment destination: • Lower external debt: • from 183% of gdp in 2002, to 69% in 2006 • South-South lending: • South Africa exporting capital • China investing & providing loans, direct entry into African banking sector (2007: $5bln in deals struck) • Todayprivate capital = 80% of total flows (50% in mid-80s) • Decoupling: Africa’s low correlation with other asset classes has made it an important in portfolio diversification • Real lending rates still very high: • SSA 13% • other LIC/MIC: 8%, • Developed countries: 3.5% (04). • Savings rate still very low: • SSA: 10% (SSA LIC: 5%, other SSA: 12%) • BICTS*: 28% average savings • Allocation puzzle: the poorest countries have become net exporters of capital over recent years • *BICTS: Brazil, India, China, Thailand & South Africa Source: OECD Development Centre / UNCTAD, 2007 5

8. Record investment inflows for 2007 FDI • Africa FDI 2007 : $36 billion • Highest figure on record • +20% on 2006; +200% on 2004 • FDI outflows - $8 billion 2006 • Largely due to surging extractive industry investment: South Africa and oil producing countries are still receiving the bulk of direct investment to Africa • Previously off-limit sectors opening to foreign investment: • Banking: Congo, Egypt, Nigeria • Telecoms: Botswana, Burkina Faso, Cape Verde, Ghana, Namibia • Land ownership: Morocco •  FDI inflows likely to remain strong, but unevenly distributed by sector and destination. Source: OECD Development Centre / UNCTAD, 2008 6

9. Africa still last, despite rapidly rising investment FDI Source: OECD Development Centre based on UN Comtrade, 2008 Distribution of cross-border M&A purchases in Africa by home region, 1999-2006 (US$ million) Source: OECD Development Centre / World Bank, 2008 Source: OECD Development Centre based on UNCTAD cross-border M&A database, 2008 7

10. Rising investment, unchanged allocations Investment Global Emerging Market Equity & Bond funds: Total investments and regional allocations Source: OECD Development Centre / EPFR, 2008 8

11. Well adapted to African constraints? Private Equity • Total emerging world private equity funds raised: • $21.5 billion raised in first half of 2007 • Sub-Saharan Africa 2006: $2.3 billion raised (+198%) • Average deal size 2005 $1.2 million, trending towards larger deals • South Africa: 81% of investments, Nigeria 50% of remainder(2005) • Top sectors: Transport, consumer-related investments, telecommunications/IT (2005) • Later stage funds : 75% of all in-country investments 2005 • “In-country” investments: 96% total. “Outbound ” (intra-African) investments nonetheless in strong progression. • Emerging Capital Partners: first $1 billion pan-African fund (2006) * * * * * *OECD Development Centre / African Venture Capital Association, 2007 9 Source: OECD Development Centre / Emerging Markets Private Equity Association, 2008

12. Attractive investments with low correlations Investment Source: OECD Development Centre, based on Thomson Datastream, 2008 10

13. The risks of excessive specialisation: The challenge of China and India’s rise Asia Source: OECD Development Centre, based on Comtrade data, 2008 Note: Herfindahl-Hirschmann index calculated as , where represents the market share of good j on the exports of country i in its total exports . 11

14. Herfindahl-Hirschmann Index by Destination More diversification of trading partners? Asia Note: Herfindahl-Hirschmann index calculated as , where represents the market share of country j on the exports of country i in its total exports . 12 Source: OECD Development Centre, based on Comtrade data, 2008.

15. Net Exports with Asia: growing deficit China Source: UNComtrade/OECD 14

16. Sovereign Development Funds? SWFs Can SWFs play a role on the financial architecture? Source: Dealogic, Peterson Institute of International Economics, September 2007. 15

17. Spotlight on Africa: Seeking Solutions Beyond Aid 1 A Public-Private Innovation Lab on Development Finance 2 16

18. An innovation Lab on Development Finance PPPs Public Private Partnerships with Banks and Asset Managers: • A partnership between donor agencies and banks for investment funds: Emerging Africa Infrastructure Fund . • EAIF  370 millions USD, created by the DFID and private banks (Barclays, Standard Bank). Other governments (Switzerland, Netherlands, Sweden) are now investing in this public private equity fund. • Swiss Investment Fund for Emerging Markets (Sifem), created in 2006. Initial investment of 200 millions USD. Investment fund of the State Secretariat for Economic Affairs (SECO) in long term projects for the private sector in developing countries. 17

19. An Innovation Lab on Development Finance PPPs A Public-Private Partnership Forum Some examples: • Micro-finance and remittances offer opportunities for PPPs: BBVA Foundation for Micro-finance and Remittances. • Mobile banking in South Africa  Local and firm development • Remittances  Banking accounts in Euros to avoid currency risk for money senders and encourage banking development. Information hub on Public Private Partnerships 18

20. Improving coverage: The African example PPPs Banks coverage in emerging markets is uneven (based on 10 main financial institutions) 19

21. Improving coverage: The African example PPPs Public-private partnerships could put African markets into the picture and avoid informational bias 20

22. Improving coverage: S&P and UNDP PPPs Rating agencies and multilateral institutions have successfully implemented country risk coverage in Africa 20

23. Thank you More information: www.oecd.org/dev Based on African Economic Outlook ; “Banking on Development: Private Banks and Aid Donors in Developing Countries” (OECD Development Centre Working Paper, 263, November 2007; and OECD Development Centre Policy Brief, 34, February 2008).