Transcript PowerPoint

Europe and Latin America’s Investment
Relationship & Sovereign Wealth Funds
Prof. Javier Santiso
Vice President, ESADEgeo
Professor of Economics, ESADE Business School
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2015 A.T. Kearney FDI Confidence Index
Country ranking on
how political,
economic, and
regulatory
changes are likely
to affect foreign
direct investment
(FDI) inflows in the
coming years
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European Countries Represented
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Lesson Road Map
• Investment Relationship between Europe and Latin America
• Sovereign Wealth Funds (SWFs)
– Introduction to SWFs
– European perspective on SWFs
– The Paradox of Plenty: Norway vs. Venezuela
– Opportunities for Europe
• Writing exercise on today’s lesson
• Conclusion
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European Investment
Outward stocks of FDI, EU-27, end 2012
Source: Eurostat
Latin America = 16% of the pie
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European Investment in Latin America
Students: what’s in the news?
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Which two European countries are the largest
investors in Latin America?
1) Netherlands
2) Spain
Source: UN ECLAC
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The Case of Spain
• 2nd largest investor in Latin
America among European
countries
• Spain continues to be highly
committed to the region
Source: Invest in Spain
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Spain as a Gateway to Latin America
Why is Spain an attractive hub for doing business in Latin America?
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Common historical, cultural, and linguistic roots.
Institutional network relationships.
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Strong economic and business ties: Spanish companies
have invested in strategic sectors in Latin America.
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Good communications: Spain is a major connecting
hub for airlines.
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Latin American multinational companies are choosing
Spain for their European headquarters.
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Multinational companies are increasingly choosing
Spain for their Latin American headquarters.
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Managing Operations from Spain
The following multinational companies are managing
operations in Latin America or the EU from Spain.
Source: Invest in Spain
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Latin American Investment Destinations
• Shifting away from the US
and toward Europe
• Latin American FDI flows
towards the EU
– 2006-2009: between $2
billion and $2.5 billion
– 2010: $12 billion
• Approximate investment
between 2006-2010:
– Brazil (71%)
– Colombia (18%)
– Chile (11%)
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Latin American Investment in Spain
Companies from Latin America
(especially from Mexico, Brazil, and
Colombia) are increasingly interested
in investing in Spain
Source: Invest in Spain
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The 5 Ws of Sovereign Wealth Funds (SWFs)
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What are SWFs?
Source: The Global Context
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When were SWFs created?
Philipp Hildebrand argues
that the French Caisse
des Dépots et
Consignations (founded
in 1816) was the first
SWF.
1816
In 2005, Andrew Rozanov
was the first to coin the
term “sovereign wealth
fund.”
1953
General consensus places
the Kuwait Investment
Authority (founded in
1953) as the first of the
more modern and active
kind of SWFs.
2005
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Where do SWFs come from?
Europe is one of the major SWF investment destinations
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Why are there SWFs?
• “Dutch disease”
vs.
Source: Offshore Technology
Source: Rediff
SWFs can play the role of insulating the domestic economy from
large sources of wealth, which might otherwise cause a
distortion in the economy
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Who are SWFs?
Q1: __________ (how much money (US$)?) are in the hands of
around __________ (how many?) different SWFs.
A1: $7 trillion; 80
Q2: The top ten SWFs manage __________ (what percentage?)
of the $7 trillion?
A2: 80%
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How do SWFs invest?
Top 4 Investment Sectors:
• Financial Services
• Real Estate & Construction
• Commodities
• Infrastructure
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European Perspective on SWFs
Group 1 (Pros): Discuss the benefits of SWF investment in Europe
from the European perspective
Group 2 (Cons): Discuss the drawbacks/concerns of SWF
investment in Europe from the European perspective
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The Paradox of Plenty:
Norway vs. Venezuela
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Two natural paradises…
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“Blessed” by nature…
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With very different outcomes
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Key Indicators
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Norway’s Resources
• Largest holder of crude oil and natural
gas reserves in Europe (U.S. EIA)
• 3rd largest oil-exporting nation in Europe
(Norway)
• World’s 3rd largest natural gas exporter
in 2014 (after Russia and Qatar) (BP)
• Supplies around 20% of Western
Europe’s gas needs (Norway)
Source: U.S. EIA
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Venezuela’s Resources
Source: OPEC
•
Contains some of the largest oil and natural
gas proven reserves in the world (U.S. EIA)
•
Owned 25% of OPEC proven oil resources in
2014 (OPEC)
•
3rd largest exporter of crude oil to the United
States in 2013 (U.S. EIA)
•
World’s 9th largest exporter and 12th largest
producer of petroleum and other liquids in
2013 (U.S. EIA)
•
Venezuela’s oil revenues account for about
95% of export earnings. The oil and gas sector
is around 25% of GDP. (OPEC)
•
2nd largest natural gas reserves in the
Americas, behind the United States. Much of
the natural gas is used to bolster production in
its mature oil fields. (U.S. EIA)
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The SWFs
Norway
Venezuela
• Government Pension Fund Global (GPFG)
• Macroeconomic Stabilization Fund (FEM)
• Market value of about $900 billion
• Market value of about $1 billion
• Owns 1.3% of the world’s listed companies
• In 2003, the government withdrew $6
billion to cover the fiscal budget
• Taken a deliberate decision to give
preference to investments in European
companies and to penalize stakes in North
American, especially U.S., companies
• One of the world’s most transparent SWFs
and with the best corporate governance
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Differences in Outcomes
Source: Invest in Spain
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Opportunities for Europe
Groups:
1.
2.
3.
4.
Real Estate
Infrastructure
Private Equities
Human Capital
Brainstorm: What are Europe’s
potential opportunities (related to SWF
investment) in each of these fields?
Note: the information on the following four slides comes from:
López, Diego. "The Major Role of Sovereign Investors in the Global Economy: A European
Perspective." In The Global Context: How Politics, Investment, and Institutions Impact European
Businesses, edited by Javier Solana and Angel Saz-Carranza, 86-109. Barcelona, Spain:
ESADEgeo, 2015.
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Real Estate
• “Since the mid-70s, sovereign
investors have poured over $65
billion into the European
property markets”
• Largest investors:
–
–
–
–
ADIA
Qatar Investment Authority (QIA)
Kuwait Investment Authority (KIA)
Government of Singapore
Investment Corporation (CIC)
– SAFE
• Eyeing European secondary
cities
Opportunity for “European financial
institutions holding large portfolios of
non-core real estate assets and/or those
in need of liquidity”
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Infrastructure
• Previously, foreign investors were banned from
acquiring European airports, ports, and highways
• The financial crisis changed it all
• Non-European sovereign entities now own (but do
not operate) some of the main European
structural assets, including:
Source: The Global Context
–
–
–
–
–
Airports
Power & utilities conglomerates
Nuclear energy companies
Highway operators
Telecoms
“Opportunity for European governments, not only to raise money from the privatization of
established companies, but also from developing infrastructure project where the financial muscle of
sovereign investors and the operational expertise of their partners can add an even greater value”
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Private Equities
• Generally associated with Small and Medium Enterprises (SMEs), i.e., the
backbone of the European economy (European Commission)
– 99 out of every 100 non-financial businesses in Europe are SMEs
– 2 of every 3 employees are employed at SMEs
– 58 cents in every euro of value added are produced by SMEs
“The acquisitions of sovereign investors in
European healthcare…could be one of the
main industries of focus in the next few
years, in addition to the always-preferred
industrial products and consumer-related
European companies.”
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Human Capital
• Thousands of skilled professionals—especially young graduates—have left
the continent since 2008
• “This brain drain may be a blessing in disguise for Europe if, as in the case of
China and Russia, it is reversed, luring executives back to their home
countries after having gained an invaluable experience investing in the global
markets.”
“The new focus of sovereign investors on
direct investments, alternative assets,
and new geographies can represent an
opportunity for European economies.”
Source: European Commission
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Three-minute Paper
Please write for 3 minutes about what you have learned in today’s
session and why the information is important for EU businesses.
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Conclusion
Questions?
This powerpoint presentation and the matching teaching plan were developed as a part of the Jean Monnet project MEKBiz (Mainstreaming EU Knowledge
in Business Studies and Strategy), hosted by ESADEgeo – Center for Global Economy and Geopolitics and partially funded by the European Commission.
“The European Commission support for the production of this publication does not constitute an endorsement of the contents which reflects the views only
of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein.”
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