Banking on Development

Javier SantisoDirector, OECD Development Centre

Geneva, 28 February 2008

OECD Global Forum on Development

Public-Private Roundtable

ContextContext The OECD Global Forum on Development

3

“Seeking solutions beyond aid”

Year I: A complex development finance system (06/07)

Year II: Putting ownership into practice (07/08)Ownership in PracticeBanking on developmentThink Tanks & Fiscal legitimacyPlenary

Year III: Matching instruments to needs (08/09)

Year IV: Proposals for a more effective system (09/10)

GenevaGeneva Banking on Development Roundtable

3

Agenda

I.Private development finance: the new reality for developing countries

II.New options, more ownership?

Group discussion: Innovation and good practice in development finance

III.Improving the environment for private investment and development outcomes

IV.Donor agencies and private-sector finance: Solutions beyond aid

Group discussion: Catalysing private finance: a new priority for ODA?

V.Messages for the Doha Conference on Financing for Development

Spotlight on Africa: Seeking Solutions Beyond Aid1

A Public-Private Innovation Lab on Development Finance2

2

AidAid Over the « hump » of debt relief

Source: OECD Development Centre / African Development Banks, 2008

3

MDGsMDGs Slow progress, despite growth

Source: OECD Development Centre / African Development Bank, 2007

4

InvestmentInvestment Africa: a new investment frontier?

Source: OECD Development Centre / UNCTAD, 2007

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)

Today private 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

5

FDIFDI Record investment inflows for 2007

Source: OECD Development Centre / UNCTAD, 2008

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, NigeriaTelecoms: Botswana, Burkina Faso, Cape

Verde, Ghana, NamibiaLand ownership: Morocco

FDI inflows likely to remain strong, but unevenly distributed by sector and destination.

6

FDIFDI Africa still last, despite rapidly rising investment

Source: OECD Development Centre / World Bank, 2008

Source: OECD Development Centre based on UN Comtrade, 2008

1999 2000 2001 2002 2003 2004 2005 2006

World 3117 3199 15524 4684 6427 4595 10509 17569

Developed economies 2534 2380 14964 3668 3156 4571 9564 7173

Developing economies 583 819 559 1016 3270 2024 476 9721

Africa 52 769 520 809 569 1849 360 746

Latin America 373 - - 67 166 - - 125

Asia 158 50 39 141 2536 175 116 8850

Distribution of cross-border M&A purchases in Africa by home region, 1999-2006 (US$ million)

Source: OECD Development Centre based on UNCTAD cross-border M&A database, 2008

7

InvestmentInvestment Rising investment, unchanged allocationsGlobal Emerging Market Equity & Bond funds:

Total investments and regional allocations

0

10

20

30

40

50

60

0

20

40

60

80

100

120

140

160

180

US$

bill

ion

GEM Equity

Assets all funds (left-hand scale)

Asia

Latin America

Emerging Europe

Africa

0

10

20

30

40

50

60

0

5

10

15

20

25

30

US$

bill

ion

GEM Bonds

Source: OECD Development Centre / EPFR, 2008

8

Private Private EquityEquity

Well adapted to African constraints?

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)

2003 2004 2005 2006

$3.4 bln $6.4 bln $25 bln $33 bln

*OECD Development Centre / African Venture Capital Association, 2007

*

*

*

*

*

Source: OECD Development Centre / Emerging Markets Private Equity Association, 2008

9

InvestmentInvestment Attractive investments with low correlations

Source: OECD Development Centre, based on Thomson Datastream, 2008

10

AsiaAsia The challenge of China and India’s rise

Source: OECD Development Centre, based on Comtrade data, 2008

n

np

HH

n

jj

11

1

1

2

Note: Herfindahl-Hirschmann index calculated as , where represents

the market share of good j on the exports of country i in its total exports .

iijj Xxp /

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

Vene

zuel

a

Ecua

dor

Chile

Pana

ma

Boliv

ia

Peru

Para

guay

Hon

dura

s

Guy

ana

Uru

guay

Colo

mbi

a

Cost

a Ri

ca

Mex

ico

Gua

tem

ala

Braz

il

Export Concentration in Products for Latin AmericaHerfindahl Hirschman Index

2001 2006

0.00.10.20.30.40.50.60.70.80.91.0

Ango

la

Chad

Nige

ria

Cong

o

Mal

i

Nige

r

Moz

ambi

que

Alge

ria

Zam

bia

Cam

eroo

n

Ghan

a

Gam

bia

Nam

ibia

Côte

d'Iv

oire

Sene

gal

Zim

babw

e

Keny

a

Sout

h Af

rica

Tuni

sia

Mor

occo

Export Concentration in Products for AfricaHerfindahl Hirschman Index

2000 2005

The risks of excessive specialisation:

11

AsiaAsia More diversification of trading partners?

Source: OECD Development Centre, based on Comtrade data, 2008.

n

np

HH

n

jj

11

1

1

2

Note: Herfindahl-Hirschmann index calculated as , where represents

the market share of country j on the exports of country i in its total exports .

iijj Xxp /

Herfindahl-Hirschmann Index by Destination

12

ChinaChina Net Exports with Asia: growing deficit

Source: UNComtrade/OECD14

SWFsSWFs Sovereign Development Funds?

15

Can SWFs play a role on the financial architecture?

Source: Dealogic, Peterson Institute of International Economics, September 2007.

Spotlight on Africa: Seeking Solutions Beyond Aid1

A Public-Private Innovation Lab on Development Finance2

16

PPPsPPPs An innovation Lab on Development Finance

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

PPPsPPPs An Innovation Lab on Development Finance

18

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

PPPsPPPs Improving coverage: The African example

19

Banks coverage in emerging markets is uneven(based on 10 main financial institutions)

Source: OECD Development Centre 2008, from investment bank emerging market research publications (Citibank, Credit Suisse First Boston, Deutsche Bank, Dresdner Kleinwort, Goldman Sachs, JP Morgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, UBS, Standard Bank South Africa, Renaissance Capital) and emerging market indices (MSCI EM, EMBI Global, IIF).

PPPsPPPs Improving coverage: The African example

20

Public-private partnerships could put African markets into the picture and avoid informational bias

Source: OECD Development Centre 2008, from investment bank emerging market research publications (Citibank, Credit Suisse First Boston, Deutsche Bank, Dresdner Kleinwort, Goldman Sachs, JP Morgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, UBS, Standard Bank South Africa, Renaissance Capital) and emerging market indices (MSCI EM, EMBI Global, IIF).

PPPsPPPs Improving coverage: S&P and UNDP

20

Rating agencies and multilateral institutions have successfully implemented country risk coverage in Africa

Note: Countries most frequently analyzed by Emerging Markets analysts or covered by leading financial institutions. Based on OECD Development Centre database using 10 selected investment banks. See more on Santiso, J. Nieto, S. “In Search of a Better World: Financial Markets and Developing Countries”. OECD Dev Policy Insight No.37, 2007.

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).