Multinationals and Development in Emerging Markets

Multinationals and Development in Emerging

Markets

Crédit Agricole Asset Management

Paris, 3rd October 2007

Javier Santiso

Acting Director & Chief Economist

OECD Development Centre

2

Spain and Latin America: Mutual Benefits1

Banks and Development2

Telecommunications and Development3

Conclusions: Partnerships4

3

Latin America is crucial for Spanish firms

Share of sales in Latin America

0%

10%

20%

30%

40%

50%

60%

RepsolYPF

GasNatural

Iberdrola Endesa Santander Telefónica BBVA

20042005

30%

Source: OECD Development Centre, 2007; based on Annual Reports.

4

Spanish firms contribute to Latin American growth by investing…

Sources: UNCTAD, World Investment Report 2006 and Datainvex, Ministry of Industry, Tourism and Trade.

0

20 000

40 000

60 000

80 000

100 000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Mill

ions

of

US

D .

FDI to Latam Spain

5

…by being a major employment creator

Source: OECD Development Centre, 2007; based on Annual Reports.

Employees in Latin America, Spanish firms

2,894 12,317 15,562

62,74661,543

131,968

0

50 000

100 000

150 000

200 000

250 000

Iberdrola Endesa Repsol YPF BBVA Santander Telefónica

Em

plo

yees

.

Employees in Latin America (2005)

Total of employees (2005)

6





7

0

20

40

60

80

100

120

140

160

180

200

Chile

Phillipin

es

Bra

zil

Colo

mbia

Mex

ico

Mal

aysi

a

Kore

a

USA

Spai

n

Ger

man

y

Fran

ce

%

Private Credit/ GDP

Stock Market capitalization/ GDP

Private banks: Actors in economic development

in Latin America

0

20

40

60

80

100

120

Chile

Colo

mbia

Core

a

USA

Esp

aña

Filip

inas

%

Financial Solidity Index

Private Bonds/ GDP

Source: OECD Development Centre, 2007.Based on: Betancour, De Gregorio, Jara, “Improving the Banking System: The Chilean Experience”. BIS Papers. No. 28, 2006.

Financial development by region

Financial solidity Index: Based on the Moody’s Financial solidity index, calculated with the weighted average of bank ratings per country.

LAC LAC

8

Banks have arrived along with the rise of democracy in the region

Brazil

50000

70000

90000

110000

130000

150000

1984

1986

1988

1990

1992

1994

1996

1998

2000

1

3

5

7

9

11

International Credit

50000

70000

90000

110000

130000

150000

1984

1986

1988

1990

1992

1994

1996

1998

2000

1

3

5

7

9

11

Consolidation of Democracy

Chile

10000150002000025000300003500040000450005000055000

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

0

2

4

6

8

10

10000150002000025000300003500040000450005000055000

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

0

2

4

6

8

10

Source: Santiso & Rodriguez. ¨Banking on Democracy: The Political Economy of Private Bank Lending in Emerging Markets¨. Working Paper WP 259 OECD Development Centre, 2007.

Mexico

50000

70000

90000

110000

130000

150000

1984

1986

1988

1990

1992

1994

1996

1998

2000

2

3

45

6

7

89

10

11

50000

70000

90000

110000

130000

150000

1984

1986

1988

1990

1992

1994

1996

1998

2000

2

3

45

6

7

89

10

11

Argentina

20000

30000

40000

50000

60000

70000

80000

90000

100000

1984

1986

1988

1990

1992

1994

1996

1998

2000

7

7,5

8

8,5

9

9,5

10

10,5

11

20000

30000

40000

50000

60000

70000

80000

90000

100000

1984

1986

1988

1990

1992

1994

1996

1998

2000

7

7,5

8

8,5

9

9,5

10

10,5

11

International Credit Consolidation of Democracy

International Credit Consolidation of Democracy International Credit Consolidation of Democracy

9

Peru

2000

7000

12000

17000

22000

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

3.8

4.3

4.8

5.3

5.8

6.3

Guatemala

0

500

1000

1500

2000

2500

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

0

2

4

6

8

10

Bolivia

0

1000

2000

3000

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

2

4

6

8

10

Uruguay

1000

3000

5000

7000

9000

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

7

8

9

10

11

12

Source: Santiso & Rodriguez. ¨Banking on Democracy: The Political Economy of Private Bank Lending in Emerging Markets¨. Working Paper WP 259 OECD Development Centre, 2007.

Banks have arrived along with the rise of democracy in the region



10

…and the strengthening of economic freedom

Source: Santiso & Rodriguez. “Banking on Democracy: The Political Economy of Private Bank Lending in Emerging Markets”. Working Paper WP 259 OECD Development Centre, 2007.

Note: EFW corresponds to the Economic Freedom of the World Index (EFW Index, Source: Freedom House Index)

Brazil

25000

45000

65000

85000

105000

125000

145000

165000

1985

1990

1995

2000

2001

2002

2003

2004

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

25000

45000

65000

85000

105000

125000

145000

165000

1985

1990

1995

2000

2001

2002

2003

2004

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

International credit EFW Index

Chile

0

10000

20000

30000

40000

50000

60000

1985

1990

1995

2000

2001

2002

2003

2004

5.0

5.5

6.0

6.5

7.0

7.5

8.0

International Credit EFW Index

0

10000

20000

30000

40000

50000

60000

1985

1990

1995

2000

2001

2002

2003

2004

5.0

5.5

6.0

6.5

7.0

7.5

8.0

Argentina

2500035000

45000

5500065000

7500085000

95000105000

1985

1990

1995

2000

2001

2002

2003

2004

3.03.54.04.55.05.56.06.57.07.5

International credit

2500035000

45000

5500065000

7500085000

95000105000

1985

1990

1995

2000

2001

2002

2003

2004

3.03.54.04.55.05.56.06.57.07.5

EFW Index

Venezuela

10000

15000

20000

25000

30000

1985

1990

1995

2000

2001

2002

2003

2004

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

International credit EFW Index

10000

15000

20000

25000

30000

1985

1990

1995

2000

2001

2002

2003

2004

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

11

0

10

20

30

40

50

60

70

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23Periods

ARGENTINA BOLIVIA COLOMBIA COSTA RICA CHILEEL SALVADOR MEXICO PERU URUGUAY

Return to Democracy

Evolution of Latin American Pension Funds (% of GDP)

Democracy and economic stability:the case of pension reforms in Chile

%

Source: Javier Santiso, Latin America’s Political Economy of the Possible. Cambridge, Mass., MIT Press. 2006.

12

The Spanish banks’ market share continues to be the most important in Latin America

Consolidated claims in Latin America (% of total)

35

20

1210 9

64 2 2

0

5

10

15

20

25

30

35

40

Sp

ain

Un

ited

Sta

tes

Oth

ers

Un

ited

Kin

gd

om

Net

her

lan

ds

Can

ada

Ger

man

y

Fra

nce

Jap

an

%

Source: Bank of International Settlements, 2007. Source: Bank of International Settlements, 2007.

External Bank Assets (abroad) .

Index 1983=100 .

13

An example of Public-Private Partnerships: Remittances

Source: International Financial Statistics (IMF), Datastream and OECD. 2007.

Remittances, Aid and Foreign Investment, selected countries

Ecuador

0

200

400

600

800

1000

1200

1400

1600

1800

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Million

s o

f U

$

Workers’ remittancesForeign Direct Investment

Aid for Development

Dominican Republic

0

500

1000

1500

2000

2500

3000

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Million

s o

f U

$

Workers’ remittancesForeign Direct InvestmentAid for Development

El Salvador

0

500

1000

1500

2000

2500

3000

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Million

s o

f U

$


Aid for Development

Mexico

0

5000

10000

15000

20000

25000

30000

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Million

s o

f U

$


Aid for development

14

Remittances have a significant impact on the financial structure of receiving countries

C0LOMBIA

0

100

200

300

400

500

600

700

800

900

1000

1998

1999

2000

2001

2002

2003

2004

2005

Millions

of dollars

0

500

1000

1500

2000

2500

3000

3500

4000

Millions

of dollars

Bank deposits (assets) Remittances (entry)

BRAZIL

0

5000

10000

15000

20000

25000

1998

1999

2000

2001

2002

2003

2004

2005

Millions

of dollars

0

500

1000

1500

2000

2500

3000

3500

4000

Millions

of dollars


MEXICO

0

20000

40000

60000

80000

100000

120000

140000

1998

1999

2000

2001

2002

2003

2004

2005

Mill

ions

of do

llars

0

5000

10000

15000

20000

25000

Mill

ions

of do

llars


ECUADOR

0

500

1000

1500

2000

2500

3000

3500

1998

1999

2000

2001

2002

2003

2004

2005

Millions

of dollars

0

200

400

600

800

1000

1200

1400

1600

1800

Millions

of dollars


Source: OECD Development Centre, 2007. Based on: IMF Balance of Payments, 2007.

Bank deposits and Remittances Flows

Correl. : 0.62

Correl. : 0.69

Correl. : 0.98

Correl. : -0.1

15





16

Telecommunications in Latin America

Suscribers and users per 100 inhabitans

0

10

20

30

40

50

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Mobile Fixed Internet users Broadband

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

FDI on telecoms towards Latin America

Millions of dollars

0

5 000

10 000

15 000

20 000

25 000

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

FDI in telecommunications, per region

56%

24%

7%

6%4% 3%

Latin America Central and Eastern Europe

South East Asia South Asia

Middle East and North Africa Sub-Saharian Africa

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.

18

Allowing the take-off of private investment and successful privatization

Telephone density and privatization

0

100

200

300

400

-7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7

Years (0=privatization)

Te

lep

ho

ne

de

nsi

ty (

añ

o 0

=1

00

)

Latin America OECD

Source: OECD Latin American Economic Outlook 2008, OECD Development Centre, based on PPI Database, World Bank.

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).

19

Telephone access has dramatically increased…

Telephone lines per 100 inhabitants

0 20 40 60 80 100

HaitiCuba

NicaraguaHonduras

PeruBolivia

ParaguayGuatemalaEl SalvadorDominican

PanamaCosta Rica

EcuadorVenezuela

MexicoColombiaUruguay

BrazilArgentina

Chile

1990

1995

2000

2005

Source: OECD Latin American Economic Outlook 2008, OECD Development Centre; ITU, World Telecommunication Indicators Database, 2006.

20

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.

21

Competition in Latin America within this sector has favoured the access

Operaciones de telefonía móvil

Millicom América Móvil

Telefónica

Líderes en telefonía fija (4) (1) (5)

Telefónica

Both operate, no leaderTelmex/América

MóvilOthe

rs


Leaders in fixed telephone

Operators mobile phone

22

Quality has also improved substantially…

Installation of telephone lineMonths, by company

72

0.4

49

0.4

40

0.1518

0.13

1994 2005 1990 2005 1998 2005 1990 2005

Peru (TdP) Argentina (TASA) Brazil (TeleSP) Chile (CTC)


23

The use of TICs has increased firms’ profitability

IndicatorUsing 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

Labour productivity (US$) 5 288 8 712 3 423

Total Factor Productivity (%) 78.2 79.2 1.0a Being truncated variables, median rates are not provided.

Source: Information and Communications for Development 2006, The World Bank

Not using TIC

Company

24





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

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?

Conclusions: Examples of Partnerships for Development

27

Thank you!

Contact:

[email protected]

http://www.OECD.org/dev/

Documents

Multinationals and Development in Emerging Markets