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Multinationals and Development in Emerging Markets

Multinationals and Development in Emerging Markets. Javier Santiso Acting Director & Chief Economist OECD Development Centre. Crédit Agricole Asset Management  Paris, 3 rd October 2007 . 1. 4. Spain and Latin America: Mutual Benefits. Conclusions: Partnerships. 2.

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Multinationals and Development in Emerging Markets

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  1. Multinationals and Development in Emerging Markets Javier Santiso Acting Director & Chief Economist OECD Development Centre Crédit Agricole Asset Management Paris, 3rd October 2007

  2. 1 4 Spain and Latin America: Mutual Benefits Conclusions: Partnerships 2 Banks and Development 3 Telecommunications and Development

  3. Latin America is crucial for Spanish firms 30% Source: OECD Development Centre, 2007; based on Annual Reports.

  4. Spanish firms contribute to Latin American growth by investing… 100 000 80 000 Millions of USD . 60 000 40 000 20 000 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 FDI to Latam Spain Sources: UNCTAD, World Investment Report 2006 and Datainvex, Ministry of Industry, Tourism and Trade.

  5. …by being a major employment creator Employees in Latin America, Spanish firms 250 000 Employees in Latin America (2005) Total of employees (2005) 200 000 131,968 Employees . 150 000 100 000 62,746 61,543 50 000 12,317 15,562 2,894 0 Iberdrola Endesa Repsol YPF BBVA Santander Telefónica Source: OECD Development Centre, 2007; based on Annual Reports.

  6. 1 4 Spain and Latin America: Mutual Benefits Conclusions: Partnerships 2 Banks and Development 3 Telecommunications and Development

  7. Private banks: Actors in economic development in Latin America Financial development by region LAC LAC Financial solidity Index: Based on the Moody’s Financial solidity index, calculated with the weighted average of bank ratings per country. Source: OECD Development Centre, 2007. Based on: Betancour, De Gregorio, Jara, “Improving the Banking System: The Chilean Experience”. BIS Papers. No. 28, 2006.

  8. Banks have arrived along with the rise of democracy in the region Brazil Chile 150000 150000 55000 55000 10 10 11 11 50000 50000 130000 130000 8 8 45000 45000 9 9 40000 40000 110000 110000 6 6 7 7 35000 35000 30000 30000 90000 90000 4 4 5 5 25000 25000 70000 70000 20000 20000 3 3 2 2 15000 15000 50000 50000 1 1 10000 10000 0 0 1998 1998 2000 2000 1996 1996 1984 1984 1988 1988 1990 1990 1992 1992 1994 1994 1984 1984 1990 1990 1986 1986 1986 1986 1988 1988 1992 1992 1996 1996 2000 2000 1994 1994 1998 1998 Consolidation of Democracy International Credit Consolidation of Democracy International Credit Mexico Argentina 100000 100000 11 11 150000 150000 11 11 90000 90000 10,5 10,5 10 10 130000 130000 80000 80000 10 10 9 9 8 8 70000 70000 9,5 9,5 110000 110000 7 7 60000 60000 9 9 6 6 50000 50000 8,5 8,5 90000 90000 5 5 40000 40000 8 8 4 4 70000 70000 30000 30000 7,5 7,5 3 3 20000 20000 7 7 50000 50000 2 2 2000 2000 1984 1984 1986 1986 1990 1990 1998 1998 1998 1998 1988 1988 1992 1992 1994 1994 2000 2000 1996 1996 1984 1984 1988 1988 1994 1994 1986 1986 1990 1990 1992 1992 1996 1996 Consolidation of Democracy International Credit Consolidation of Democracy International Credit Source: Santiso & Rodriguez. ¨Banking on Democracy: The Political Economy of Private Bank Lending in Emerging Markets¨. Working Paper WP 259 OECD Development Centre, 2007.

  9. Banks have arrived along with the rise of democracy in the region Guatemala 2500 10 2000 8 1500 6 1000 4 500 2 0 0 1984 1986 1988 1990 1992 1994 1996 1998 2000 Bolivia Uruguay 3000 10 9000 12 11 8 7000 2000 10 6 5000 9 1000 4 3000 8 0 2 1000 7 1998 2000 1984 1986 1988 1990 1992 1994 1996 1984 1986 1988 1990 1996 1998 2000 1992 1994 Peru 22000 6.3 5.8 17000 5.3 12000 4.8 7000 4.3 2000 3.8 1998 2000 1996 1984 1986 1988 1990 1992 1994 International Credit Consolidation of Democracy International Credit Consolidation of Democracy International Credit Consolidation of Democracy International Credit Consolidation of Democracy Source: Santiso & Rodriguez. ¨Banking on Democracy: The Political Economy of Private Bank Lending in Emerging Markets¨. Working Paper WP 259 OECD Development Centre, 2007.

  10. …and the strengthening of economic freedom Brazil 165000 165000 6.5 6.5 145000 145000 6.0 6.0 125000 125000 5.5 5.5 105000 105000 5.0 5.0 85000 85000 4.5 4.5 65000 65000 4.0 4.0 45000 45000 3.5 3.5 25000 25000 3.0 3.0 2003 2003 2004 2004 1985 1985 1990 1990 2000 2000 2001 2001 2002 2002 1995 1995 International credit EFW Index Argentina Venezuela 105000 105000 7.5 7.5 30000 30000 7.0 7.0 7.0 7.0 95000 95000 6.5 6.5 6.5 6.5 85000 85000 25000 25000 6.0 6.0 6.0 6.0 75000 75000 5.5 5.5 5.5 5.5 20000 20000 65000 65000 5.0 5.0 5.0 5.0 55000 55000 4.5 4.5 4.5 4.5 15000 15000 45000 45000 4.0 4.0 4.0 4.0 35000 35000 3.5 3.5 10000 10000 3.5 3.5 25000 25000 3.0 3.0 1990 1990 2004 2004 1985 1985 1995 1995 2003 2003 2000 2000 2001 2001 2002 2002 2004 2004 2003 2003 1985 1985 1990 1990 1995 1995 2000 2000 2001 2001 2002 2002 EFW Index International credit International credit EFW Index Chile 60000 60000 8.0 8.0 50000 50000 7.5 7.5 40000 40000 7.0 7.0 30000 30000 6.5 6.5 20000 20000 6.0 6.0 10000 10000 5.5 5.5 0 0 5.0 5.0 1995 1995 2000 2000 2003 2003 2004 2004 1985 1985 1990 1990 2001 2001 2002 2002 International Credit EFW Index Note: EFW corresponds to the EconomicFreedom of the World Index (EFW Index, Source: Freedom House Index) Source: Santiso & Rodriguez. “Banking on Democracy: The Political Economy of Private Bank Lending in Emerging Markets”. Working Paper WP 259 OECD Development Centre, 2007.

  11. Democracy and economic stability:the case of pension reforms in Chile Evolution of Latin American Pension Funds (% of GDP) 70 Return to Democracy 60 50 % 40 30 20 10 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Periods ARGENTINA BOLIVIA COLOMBIA COSTA RICA CHILE EL SALVADOR MEXICO PERU URUGUAY Source: Javier Santiso, Latin America’s Political Economy of the Possible. Cambridge, Mass., MIT Press. 2006.

  12. External Bank Assets (abroad) . Index 1983=100 . The Spanish banks’ market share continues to be the most important in Latin America Source: Bank of International Settlements, 2007. Source: Bank of International Settlements, 2007.

  13. Ecuador Dominican Republic 1800 3000 Workers’ remittances Workers’ remittances 1600 Foreign Direct Investment Foreign Direct Investment 2500 1400 Aid for Development Aid for Development 2000 1200 1000 Millions of U$ Millions of U$ 1500 800 1000 600 400 500 200 0 0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 1998 1999 2000 2001 2002 2003 2004 2005 2006 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 El Salvador Mexico 3000 30000 Workers’ remittances Workers’ remittances Foreign Direct Investment Foreign Direct Investment 2500 25000 Aid for Development Aid for development 2000 20000 Millions of U$ Millions of U$ 1500 15000 1000 10000 500 5000 0 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 1996 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 1987 1988 1989 1990 1991 1992 1993 1994 1995 An example of Public-Private Partnerships: Remittances Remittances, Aid and Foreign Investment, selected countries Source:International Financial Statistics (IMF), Datastream and OECD. 2007.

  14. Remittances have a significant impact on the financial structure of receiving countries Bank deposits and Remittances Flows Correl. : 0.62 Correl. : -0.1 Correl. : 0.69 Correl. : 0.98 Source: OECD Development Centre, 2007. Based on: IMF Balance of Payments, 2007.

  15. 1 4 Spain and Latin America: Mutual Benefits Conclusions: Partnerships 2 Banks and Development 3 Telecommunications and Development

  16. Telecommunications in Latin America Source: OECD Latin American Economic Outlook 2008; Based on ITU, World Telecommunications Database

  17. Latin America is the emerging region with the highest investment in telecommunications Source: Information and Communications for Development 2006, World Bank. Source: OECD Latin American Economic Outlook 2008, OECD Development Centre; based on PPI Database from the World Bank.

  18. Allowing the take-off of private investment and successful privatization Note: Includes only countries with available data, for Latin America (Argentina, Belize, Bolivia, Brazil, Chile, El Salvador, Guatemala, Guyana, Mexico, Panama, Peru, Trinidad and Tobago, and Venezuela). Source: OECD Latin American Economic Outlook 2008, OECD Development Centre, based on PPI Database, World Bank.

  19. Telephone access has dramatically increased… Source: OECD Latin American Economic Outlook 2008, OECD Development Centre; ITU, World Telecommunication Indicators Database, 2006.

  20. In particular because of mobile coverage Source: OECD Latin American Economic Outlook 2008, OECD Development Centre.

  21. Telefónica Both operate, no leader Telmex/América Móvil Others Competition in Latin America within this sector has favoured the access Leaders in fixed telephone Operators mobile phone Source: OECD Latin American Economic Outlook 2008, OECD Development Centre.

  22. Quality has also improved substantially… Source: OECD Latin American Economic Outlook 2008, OECD Development Centre.

  23. The use of TICs has increased firms’ profitability

  24. 1 4 Spain and Latin America: Mutual Benefits Conclusions: Partnerships 2 Banks and Development 3 Telecommunications and Development

  25. Conclusions: Examples of Partnerships for Development Partnerships with Banks and Asset Managers: • ¿Why not picture a partnership between the National Co-operation agency and banks to create an investment fund (Public Private Equity) in Latin America following the model of the Emerging Africa Infrastructure Fund? http://www.emergingafricafund.com/ • This fund, with 370 million USD, was created by the British Co-operation agency (DFID) and private banks such as Barclays and Standard Bank. Other governments (Switzerland, Netherlands, Sweden) are also investing in this fund today. • Why not envisage a French Investment Fund for Emerging Markets driven by the French Co-Operation agency? In 2006, the Swiss government created the Swiss Investment Fund for Emerging Markets (Sifem), with an initial investment of 200 million USD, to manage and promote investments of the State Secretariat for Economic Affairs (SECO) in long term projects for the private sector in developing countries.

  26. Conclusions: Examples of Partnerships for Development Partnerships with Banks and Telecoms: • Micro-finance and remittances offer opportunities for private-public partnerships for France. Financial actors in Latin America are carrying out ambitious projects (see for instance BBVA Foundation for Micro-finance or the development of remittances markets). • Mobile banking had a spectacular peak in South Africa with a significant impact on local individual and corporate development: with banking actors and telecoms in Latin America, France could promote bancarization through the mobile in Latin America. It could be a remittances’ channel. • Regarding remittances, why not favour bank accounts in euros in Latin America and avoid the currency risk for the money senders, at the same time encouraging bancarization in the receiving country?

  27. Thank you! Contact:javier.santiso@oecd.orghttp://www.OECD.org/dev/

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