Multinationals and Development in Emerging Markets Javier Santiso Acting Director & Chief Economist OECD Development Centre Crédit Agricole Asset Management Paris, 3rd October 2007 1 Spain and Latin America: Mutual Benefits 2 Banks and Development 3 Telecommunications and Development 4 Conclusions: Partnerships 2 Latin America is crucial for Spanish firms Share of sales in Latin America 60% 50% 2004 2005 40% 30% 30% 20% 10% 0% Repsol YPF Gas Natural Iberdrola Endesa Santander Telefónica BBVA Source: OECD Development Centre, 2007; based on Annual Reports. 3 Millions of USD . Spanish firms contribute to Latin American growth by investing… 100 000 80 000 60 000 40 000 20 000 0 1995 1996 1997 1998 1999 FDI to Latam 2000 2001 2002 2003 2004 2005 Spain Sources: UNCTAD, World Investment Report 2006 and Datainvex, Ministry of Industry, Tourism and Trade. 4 …by being a major employment creator Employees in Latin America, Spanish firms Employees . 250 000 Employees in Latin America (2005) Total of employees (2005) 200 000 131,968 150 000 100 000 61,543 50 000 2,894 12,317 62,746 15,562 0 Iberdrola Endesa Repsol YPF BBVA Santander Telefónica Source: OECD Development Centre, 2007; based on Annual Reports. 5 1 Spain and Latin America: Mutual Benefits 2 Banks and Development 3 Telecommunications and Development 4 Conclusions: Partnerships 6 Private banks: Actors in economic development in Latin America Financial development by region 200 Private Credit/GDP 180 Stock Market capitalization/GDP 160 120 120 100 100 80 % 140 % 80 60 Financial Solidity Index Private Bonds/GDP 60 40 40 20 20 Filipinas España USA Corea Colombia France Germany Spain USA Korea Malaysia Mexico Colombia Brazil Phillipines Chile LAC Chile 0 0 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. 7 Banks have arrived along with the rise of democracy in the region Brazil Chile Consolidation of Democracy Mexico Consolidation of Democracy 8,5 40000 8 30000 7,5 20000 7 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. 2000 9 50000 1998 9,5 60000 1996 2000 1998 1996 1994 1992 1990 1988 1986 50000 10 70000 1994 70000 10,5 80000 1992 90000 90000 1988 110000 11 1986 130000 100000 1984 11 10 9 8 7 6 5 4 3 2 1984 Consolidation of Democracy Argentina 150000 International Credit 0 International Credit 1990 International Credit 2 2000 2000 1998 1996 1994 1992 1990 1 1988 50000 1986 3 1984 70000 4 1998 5 1996 90000 6 1994 7 1992 110000 8 1990 9 1988 130000 10 1986 11 55000 50000 45000 40000 35000 30000 25000 20000 15000 10000 1984 150000 8 Banks have arrived along with the rise of democracy in the region Guatemala Peru 4 4.3 500 2 3.8 0 0 Consolidation of Democracy International Credit Consolidation of Democracy Bolivia Uruguay Consolidation of Democracy 8 7000 11 6 5000 4 3000 8 2 1000 7 10 International Credit 2000 1998 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. 1996 1994 9 1990 2000 1998 1996 1994 1992 1990 1988 1986 1984 0 12 1988 1000 9000 1986 2000 10 1984 3000 International Credit 2000 1000 1998 4.8 1996 6 1994 1500 1992 5.3 2000 1998 8 1992 International Credit 1996 1994 1992 1990 1988 1986 1984 2000 5.8 1990 7000 10 2000 1988 12000 2500 1986 17000 6.3 1984 22000 9 …and the strengthening of economic freedom Chile Brazil 7.5 125000 5.5 40000 7.0 105000 5.0 30000 6.5 85000 4.5 20000 6.0 65000 4.0 45000 3.5 10000 5.5 25000 3.0 EFW Index 2004 2003 2002 EFW Index Venezuela 30000 7.0 6.5 25000 6.0 5.5 20000 5.0 4.5 15000 4.0 International credit 2004 2003 2002 2001 3.5 1995 10000 1990 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 1985 2004 2003 2002 2001 2000 1995 1990 105000 95000 85000 75000 65000 55000 45000 35000 25000 1985 2001 International Credit EFW Index Argentina International credit 2000 1995 2004 1990 5.0 1985 0 2000 International credit 2003 50000 2002 6.0 2001 145000 2000 8.0 1995 60000 1990 6.5 1985 165000 EFW Index Note: EFW corresponds to the Economic Freedom 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. 10 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 ARGENTINA EL SALVADOR 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Periods BOLIVIA MEXICO COLOMBIA PERU COSTA RICA URUGUAY CHILE Source: Javier Santiso, Latin America’s Political Economy of the Possible. Cambridge, Mass., MIT Press. 2006. 11 The Spanish banks’ market share continues to be the most important in Latin America 40 External Bank Assets (abroad) Consolidated claims in Latin America (% of total) . 35 35 30 20 10 10 9 6 5 4 2 2 Japan 12 15 France 20 Germany Canada Netherlands United Kingdom Others United States 0 Spain % 25 Source: Bank of International Settlements, 2007. Index 1983=100 . Source: Bank of International Settlements, 2007. 12 An example of Public-Private Partnerships: Remittances Remittances, Aid and Foreign Investment, selected countries Ecuador 1800 3000 Workers’ remittances Foreign Direct Investment Aid for Development 1400 1200 1000 800 600 2000 1500 1000 400 Source: International Financial Statistics (IMF), Datastream and OECD. 2007. 2000 2001 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 1999 1998 1997 1996 1999 1998 1997 1996 1995 1994 1993 1992 1991 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 0 1991 0 1990 5000 1990 10000 500 1989 1995 15000 1989 1000 20000 1988 Millions of U$ 1500 1988 Workers’ remittances Foreign Direct Investment Aid for development 25000 2000 1987 2001 30000 Workers’ remittances Foreign Direct Investment Aid for Development 2500 Millions of U$ Mexico 1987 3000 2000 El Salvador 1994 1993 1992 1991 1990 1989 1988 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 0 1987 500 200 0 Workers’ remittances Foreign Direct Investment Aid for Development 2500 Millions of U$ 1600 Millions of U$ Dominican Republic 13 Remittances have a significant impact on the financial structure of receiving countries Bank deposits and Remittances Flows BRAZIL 900 3500 3000 800 100 1998 MEXICO Bank deposits (assets) Remittances (entry) Remittances (entry) 140000 25000 1800 120000 400 200 2005 2004 2003 2002 2001 2000 1999 Source: OECD Development Centre, 2007. Based on: IMF Balance of Payments, 2007. Millions of dollars Correl. : 0.98 20000 0 1998 0 10000 40000 5000 0 0 2005 Correl. : 0.69 500 60000 2004 1000 600 2003 800 15000 2002 1500 80000 2001 1000 2000 1200 2000 20000 100000 1999 2500 Millions of dollars 1400 Millions of dollars 1600 3000 1998 3500 Millions of dollars 500 0 ECUADOR Bank deposits (assets) 1000 2005 0 2005 2004 2003 2002 2001 2000 1999 0 1998 Correl. : -0.1 200 500 0 1500 300 2004 1000 2000 400 2003 Correl. : 0.62 5000 2500 500 2002 1500 600 2001 10000 3000 700 2000 2000 Millions of dollars 4000 3500 2500 15000 Remittances (entry) 1000 Millions of dollars 20000 Millions of dollars Bank deposits (assets) 4000 Millions of dollars Remittances (entry) 25000 1999 Bank deposits (assets) C0LOMBIA 14 1 Spain and Latin America: Mutual Benefits 2 Banks and Development 3 Telecommunications and Development 4 Conclusions: Partnerships 15 Telecommunications in Latin America Suscribers and users per 100 inhabitans 50 40 30 20 10 Mobile Fixed Internet users 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 0 Broadband Source: OECD Latin American Economic Outlook 2008; Based on ITU, World Telecommunications Database 16 Latin America is the emerging region with the highest investment in telecommunications FDI on telecoms towards Latin America Millions of dollars FDI in telecommunications, per region 6% 25 000 4% 3% 7% 20 000 15 000 10 000 56% 24% 5 000 Central and Eastern Europe South East Asia South Asia Middle East and North Africa Sub-Saharian Africa 19 9 19 5 9 19 6 9 19 7 9 19 8 9 20 9 0 20 0 0 20 1 0 20 2 0 20 3 0 20 4 05 0 Latin America Source: OECD Latin American Economic Outlook 2008, OECD Development Centre; based on PPI Database from the World Bank. Source: Information and Communications for Development 2006, World Bank. 17 Allowing the take-off of private investment and successful privatization Telephone density and privatization Telephone density (año 0=100) 400 300 200 100 0 -7 -6 -5 -4 -3 -2 -1 0 1 3 2 4 5 6 7 Years (0=privatization) Latin America OECD 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. 18 Telephone access has dramatically increased… Telephone lines per 100 inhabitants Chile Argentina Brazil Uruguay Colombia Mexico Venezuela Ecuador Costa Rica Panama Dominican El Salvador Guatemala Paraguay Bolivia Peru Honduras Nicaragua Cuba Haiti 1990 1995 2000 2005 0 20 40 60 80 100 Source: OECD Latin American Economic Outlook 2008, OECD Development Centre; ITU, World Telecommunication Indicators Database, 2006. 19 In particular because of mobile coverage Mobile coverage Venezuela 94% Chile 93% Brazil 90% Argentina 86% Mexico 81% Uruguay 80% El Salvador 77% Guatemala 71% Colombia 69% Peru 68% Nicaragua 64% Panama 56% Source: OECD Latin American Economic Outlook 2008, OECD Development Centre. 20 Competition in Latin America within this sector has favoured the access Líderes en telefonía fija Leaders in fixed telephone Telefónica Telmex/América Móvil Both operate, no leader Other s (4) (1) (5) Operaciones de telefonía Operators mobile phone móvil Telefónica América Móvil Millicom Source: OECD Latin American Economic Outlook 2008, OECD Development Centre. 21 Quality has also improved substantially… Installation of telephone line Months, by company 72 49 40 18 0.4 1994 2005 Peru (TdP) 0.4 1990 2005 Argentina (TASA) 0.15 1998 2005 Brazil (TeleSP) 0.13 1990 2005 Chile (CTC) Source: OECD Latin American Economic Outlook 2008, OECD Development Centre. 22 The use of TICs has increased firms’ profitability Company Indicator Not using TIC Using TIC Difference Sales Growth (%) 0.4 3.8 3.4 Employment growth (%) 4.5 5.6 1.2 Profitability (%) 4.2 9.3 5.1 Investment Rate (%)a -- -- 2.5 Re-investment rate (%)a -- -- 6.0 5 288 8 712 3 423 78.2 79.2 1.0 Labour productivity (US$) Total Factor Productivity (%) a Being truncated variables, median rates are not provided. Source: Information and Communications for Development 2006, The World Bank 23 1 Spain and Latin America: Mutual Benefits 2 Banks and Development 3 Telecommunications and Development 4 Conclusions: Partnerships 24 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. 25 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? 26 Thank you! Contact: javier.santiso@oecd.org http://www.OECD.org/dev/ 27