PP2714-Javier Santiso (Brasil)

7/28/2019 PP2714-Javier Santiso (Brasil)

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1

Brazil and The Shifting Wealth of NationsThe Re-Balancing of the World Towards Emerging Markets

ESADE Business SchoolJavier Santiso, Professor of Economics and Director, ESADEgeoEx Director General, OECD – Director, Telefónica International.



2

The Shifting Wealth of Nations

Brazil Political Economy of the Possible

A Focus on China, Brazil and Latin America

1.

2.

3.



3

Source: OECD Development Centre, 2010 (based on Fosu, 2010 OECD Development Centre Non-Resident Fellow Working Paper).

Growth Gap between Developing/Emerging & Advanced.

-2-1012

3456

1 9 8 0

1 9 8 2

1 9 8 4

1 9 8 6

1 9 8 8

1 9 9 0

1 9 9 2

1 9 9 4

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

2 0 0 8

2 0 1 0

2 0 1 2

2 0 1 4

D i f f e r e n c e i n A v e r a g e

G r o w

t h ( % )

Global Crisis and the Shifting Wealth of Nations: An Accelerator of Transition



4

Public Debt and Growth Dynamics.

020406080

100120

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4 A

v e r a g e

% o

f G D P

Source: OECD Development Centre, 2010(based on IMF World Economic Outlook, Oct. 2009)

Emerging and Developing Advanced




5


Source: OECD Development Centre, 2010 (based on IMF data).

Reserve Holdings in USD Billion.

20%

63%

80%

37%

$0

$1.000

$2.000

$3.000

$4.000

$5.000

$6.000

January 1990 November 2009

M i l e s

d e

m i l l o n e s

Emerging and Developing Advanced Economies



6

0

200

400

600

800

1.000

1.200

1.400

1.600

1.800

2.000

1 9 8 8

1 9 9 0

1 9 9 2

1 9 9 4

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

2 0 0 8

U S D

b i l l i o n

International reserves

emerging countries

Brazil

ChinaIndia

Mexico

Russia

South Africa

0

200

400

600

800

1.000

1.200

1.400

1.600

1.800

2.000

1 9 8 8

1 9 9 0

1 9 9 2

1 9 9 4

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

U S D

b i l l i o n

International reserves

Developed countries

Germany

FranceNetherlands

Switzerland

UK

US

Source: Based on Economist Intelligence Unit, 2010.




7

0100200300400500600700800

J a n - 0 8

J a n - 0 8

F e b - 0 8

M a r - 0 8

A p r - 0 8

M a y - 0 8

J u n - 0 8

J u l - 0 8

A u g - 0 8

S e p - 0 8

O c t - 0 8

N o v - 0 8

D e c - 0 8

D e c - 0 8

J a n - 0 9

F e b - 0 9

M a r - 0 9

A p r - 0 9

M a y - 0 9

J u n - 0 9

J u l - 0 9

A u g - 0 9

S e p - 0 9

O c t - 0 9

N o v - 0 9

D e c - 0 9

D e c - 0 9

J a n - 1 0

B a s i s

P o i n t s

EM Markets: Embig weighted of Brazil, Mexico, Russia, Turkey & PhillipinesEurope Risk: Median Greece, Ireland, Portugal and Spain

Emerging Markets (big 5) Europe Risk

Public Debt and Sovereign Spreads.




8


Source: OECD Development Centre, 2010 (based on Datastream data).

Sovereign Credit Default Spreads.

0

200400

600

M a

A p

M a J u

J u l A u

S e

O c

N o

D e J a

F e

B a s

i s P o i n t s

South Africa Greece

0

100

200

300

400

M A M J u J u A S O N D J a F

B a s

i s P o

i n t s

Morocco Ireland

0

50

100150

200

250

M a r -

0 9

M a y -

0 9

J u l -

0 9

S e p -

0 9

N o v -

0 9

J a n -

1 0

B a s

i s P o

i n t s

China Italy

0

100

200

300

400

500

600

700

M a r - 0 9

M a y - 0 9

J u l - 0 9

S e p - 0 9

N o v - 0 9

J a n - 1 0

B a s

i s P

o i n t s

Indonesia Hungary



9



0500

100015002000

2500300035004000

M a r -

0 9 M a y -

0 9 J u l - 0 9

S e p -

0 9 N o v -

0 9 J a n -

1 0

B a s

i s P o

i n t s

Argentina Iceland

050

100150200250300350400450500

M a r -

0 9

M

a y - 0 9 J u l -

0 9 S e p -

0 9 N o v -

0 9 J a n -

1 0

B a s

i s P o

i n t s

India Spain

050

100150

200250300

M a r - 0 9

M a r - 0 9

A p r - 0 9

M a y - 0 9

M a y - 0 9

J u n - 0 9

J u l - 0 9

J u l - 0 9

A u g - 0 9

S e p - 0 9

S e p - 0 9

O c t - 0 9

N o v - 0 9

D e c - 0 9

D e c - 0 9

J a n - 1 0

F e b - 1 0

B a s

i s P

o i n t s

Saudi Arabia United Kingdom

0100200

300400500

M a r

A p r -

M a y

J u n

J u l - 0 9

A u g

S e p

O c t -

N o v

D e c

J a n F e b

B a s i s

P o

i n t s

Brazil Portugal



10


0

$50,0 Billion

$100,0 Billion

$150,0 Billion

$200,0 Billion

$250,0 Billion

2008 2009

China Mobile AT&T

0

$1,0 Billion

$2,0 Billion

$3,0 Billion$4,0 Billion

$5,0 Billion

$6,0 Billion

$7,0 Billion

2008 2009

Tata Motors GM

0$20,0 Billion$40,0 Billion$60,0 Billion$80,0 Billion

$100,0 Billion$120,0 Billion

$140,0 Billion$160,0 Billion$180,0 Billion$200,0 Billion

2008 2009

Petrobras Royal Dutch/Shell

0

$20,0 Billion

$40,0 Billion

$60,0 Billion

$80,0 Billion

$100,0 Billion

$120,0 Billion

2008 2009

Itau Unibanco BNP Paribas


Market Capitalization.



11


$0

$50$100

$150

2007 2008 2009

M i l e s d e m i

l l o n e s

Vale S.A. Rio Tinto

$0

$50

$100

$150

$200

2008 2009

M i l e s d e m i l

l o n e s

China Con. Bank JP Morgan

$-

$2

$4$6

$8

2008 2009 M i l e s d e m

i l l o n e s

Bradesco BBVA

$-

$50

$100

$150

$200

2008 2009

Gazprom E.On




12

Global Crisis & Shifting Wealth of Nations: An Accelerator of Transition

OECD Development Centre, 2010 (based on Dealogic data).

IPOs in 2009: Largest 20 Asian vs. Total European.

$33.735 bill ion

$7 bill ion

$0

$5

$10

$15

$20

$25

$30

$35

$40

LARGEST 20 Asian IPOs TOTAL European IPOs (147)

M i l e s

d e m

i l l o n

e s



13

A Cognitive Crisis:The View from the South



14




15




16

0%

5%

10%

15%

20%

1 9 9 0 1 9 9 1

1 9 9 2 1 9 9 3

1 9 9 4 1 9 9 5

1 9 9 6 1 9 9 7

1 9 9 8 1 9 9 9

2 0 0 0 2 0 0 1

2 0 0 2 2 0 0 3

2 0 0 4 2 0 0 5

2 0 0 6 2 0 0 7

2 0 0 8

Emerging/Developing Share of World Outward

FDI flows

Source: OECD Development Centre, 2010 (based on IMF data)

A Cognitive Crisis:Rising South-South Linkages



17

New Investors are Emerging in Latin America:The Example of ADIA and Sovereign Wealth Funds

Source: Based on ADIA Annual Report, 2010.

ADIA’s Investment Portfolio by Countries• In March 2010: Previ, the pension fund

for Banco do Brasil SA employees,signed a memorandum of understanding with the sovereignwealth fund of Qatar to study apartnership in businesses in Brazil.

• Previ has also had talks on possible

partnerships with the sovereign wealthfund of China.

• In 2010, Singapore Temasek is staringinvestment operations in Brazil andMexico, two countries where the SWFopened offices in 2009.

• Opportunities also for major OECDmultinationals: Santander raisedEmirates funding from its listedsubsidiary in Brazil.



18

Brazil tops the FDI destinationahead of Germany, France, Russia or Mexico



19

Brazilian multinationals are becoming global investors and the2010s will show more investment abroad



20

Source: OECD Development Centre, 2010 (based on IMF data)

$-

$2$4$6

$8$10$12$14

E x p o r t s

+ I m p o r t s

*data available for Q1-Q3 only

South-North Trade South-South Trade

1990= 25% of Southern Trade

2009=40% of Southern Trade

A Cognitive Crisis:Rising South-South Linkages



22




1.

2.

3.



23

Source: OECD Development Centre calculations (based on the IMF's IFS database, Penn World Tables 6.2 and the World Bank's WDI database).

Latin America experiences a major shift towards possibilism :The region became more open and exposed to exogenous shocks



24

.

Source : OECD Development Centre calculations based on World Bank GDF and WDI databases,

ECLAC Economic Indicators and Statistics database (BADECON), IMF IFS database, Institutional Investors and Datastream database.

Latin America experiences a major shift towards possibilism :… but the region built significant macro policy resilience



25

Source : Based on OECD, IMF, and National Ministries of Finance (Peru and Chile).

Latin America experiences a major shift towards possibilism :…fiscal and monetary policy became more effective and

sustainable



26

Source : based Datastream, 2010

EMBI spreads(basis points)

Latin America experiences a major shift towards possibilism :…fiscal and monetary policy became more effective and credible



27

The very same year of the OECD globalcrisis, Brazil gets the investment grade

The very same year of the global cr isis inOECD countries, Brazil gets a record of 5USD billion of FDI inflows

Brazilian Growth in 2008-2010: Leading The Latin America Pack



28

9 Middle classes representmore than 50% of total

population, 10 pp morethan 5 years ago.

9 20 millon of people

(10% of the population)have reached levels of 7500 USD income over the past 5 years.

9 Young brazilians andwoman are the bulk of new incorporations.

Brazilian Growth in 2010: Leading The Latin America Pack



29

Global EconomicsCommodities and Strategy Research End2009

Year in which Brazil will catch up with…

Estimated in2003Estimated in 2009

20252020

20312027

20362029

Italy France Germany

Brazil will catch up sooner thanexpected OECD countries

Brazilian Growth in 2010-2030: Leading The Latin America Pack

Source: Based onGoldman Sachs, 2010.

http://www.davemanuel.com/images/logo_goldman_sachs.gif



30

Public spending a on education and performance in PISA b

Argentina

Brazil

Chile

Colombia

Finland

Korea

Lithuania

Macao ‐China

Mexico

PortugalSpain

Uruguay

300

400

500

600

0 5.000 10.000 15.000 20.000 25.000

A v e r a g e p e r f o r m a n c e

Public spending per pupil in primary and secondary education in equivalent USD

Notes: a) Public spending is calculated as average of available data since 2000. b) Countries performance average on the PISA science scale

Source: OECD Development Centre 2008 based on PISA 2006 Science Competences for Tomorrow’s World and OECD and UNESCO World Educational Indicators, UNESCO's Institute of Statistics database.

Education spending per pupil is still five times lower in Latin America than in OECD countries... But quality is as big a problem as quantity

Brazil still have challenges ahead (as Latin America)



31

Income inequality before and after taxes and transfers(Gini coefficient, around 2000)

Brazil still have challenges ahead (as Latin America)

Source: Based on OECD Development Centre, 2010.



32

The Middle Class Bonus: Strong Supports for Democracy

Source: Based on OECD Development Centre, 2010.



33




1.

2.

3.



34

-5

0

5

10

15

% oya

Latin America, US, and China GDP

95 97 99 01 03 05 07 09 11

China

Latin

US

Latin America’s economic fate is increasingly tied to China

Source: based on JP Morgan, 2010.



35



-40

-20

0

2040

60

-50-25

02550

75100

Export growth; oya %

Latin America (ex Mexico): Commodity rally is driving exports higher

Total commodity price index, oya %

99 01 03 05 07 09

Commodity

prices

Export growth



36



0 5 10 15 20 25

ChilePeru

Brazil ArgentinaVenezuela

ColombiaMexico

Ecuador

%Exports to China as a share of total exports

2005

2009



37



Latin America: Exports profile (% of total exports)

Total Exports(%GDP) Commodity Exports Exports to US Exports to China Exports to EU

Argentina 18,2 59,7 6,7 7,1 19,0

Brazil 9,7 55,4 10,2 13,2 22,2

Chile 30,5 74,8 11,3 23,1 22,1

Colombia 14,3 56,9 39,9 2,9 14,3

Ecuador 25,5 80,9 33,4 0,9 14,6

Mexico 26,2 20,9 80,6 1,0 4,9

Peru 21,2 77,7 18,9 15,8 23,3

Venezuela 14,8 99,9 35,4 7,5 7,4

Latin America* 18,9 47,8 40,1 7,5 14,0

* GDP-weighted average



38



80

85

9095

100

105110 90

100110

120

130

Terms of trade indices; index 1996=100Latin America and China's term of trade are highly correlated

Inverted scale

95 97 99 01 03 05 07 09

Latin Am eri ca term s of trade

China term s of trade



40



0

0,2

0,4

0,6

0,8

0 0,1 0,2 0,3 0,4 0,5 0,6

Coefficient of conformity

C o e

f f i c i e n t o

f s p e c

i a l i z a

t i o

M exico

Korea

Thailand

Turkey

USJapanBrazil

Colombia Argentina

VenezuelaPeru

Chile

China's export structure differs from Latin America's (except Mexico)



41



0

50

100

150

US$ bn

China imports by region

97 99 01 03 05 07 09

EU

Latin Am eri ca

North Am erica



42

Latin America not yet a major destination of China’s FDI


24

68

10

1214

Share of global FDI inflows; %

Latin America is not attracting as much FDI as other regions...

70 75 80 85 90 95 00 05 10



43

Latin America not yet a major destination of China’s FDI


0

10

20

30

40

50

Chinese direct investments in specific regions; US$ bn

… But it has the potential to attract more FDI inflows from China

2003 2004 2005 2006 2007 2008

Asia

Latin Am erica Afr ica



44


Recent Chinese bilateral loans to Latin America

Country Year Institutions Amount(US$ bn) Instruments

Argentina 2009 Government 10,0 Currency swap

Brazil 2010 CDB1

and Petrobras 10,0 Credit line3

Ecuador 2010 Exim Bank of China andEcuador Government

1,7 Credit line linked tohydroelectric project

Ecuador 2009 PetroChina and PetroEcuador 1,0 Credit line

Venezuela 2010 PetroChina and CBD,PDVSA, Bandes, Govt

20,0 Credit line

Venezuela 2008 CDB1

and Bandes2

8,0 Credit line

Bilateral Loans to Latin America are Setting New Links with China



45

Indra Nooyi (India):CEO of Pepsico

Vikram Pandi t (India): CEO of Citibank.

Carlos Ghosn (Brazil): CEO of Renault Nissan.

Eduardo Leite (Brazil): Chairman of Baker& McKenzie.

Nitin Nohria (India): Dean of Harvard Business School.

Lakshmi N. Mittal (India): Chairman and CEO of Arcelor Mit tal .

Sergey Mikhaylovich Brin (Russia): Co-founder of Google.

Carlos Brito (Brazil): Chairman and CEO of ABInbev.

Tidjane Thiam (French-Ivorian): CEO of

Prudential.Paolo Rocca ( Italian-Argentinean): Chairmanand CEO of Tenari s

More and more

Multionationals mixing OECD and EM DNA’sMore and more

CEOs of Top OECD multinationals and BS

Alber to Weisser (Brazili an): Chairman and CEOof Bunge

Sunil Kumar (India): Dean of Chicago BusinessSchool.

Mohamed El Erian (Egypt): CEO of PIMCO.

Conclusion: Emerging Markets Leaders At the Top of OECD Multinationals and Business Schools

PP2714-Javier Santiso (Brasil)

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