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