Transcript Correcting misunderstandings

Global Development Finance 2007
The Globalization of Corporate Finance in Developing Countries
THEWORLDBANK
May, 2007
Correcting misunderstandings
 Strong growth is not limited to few big
developing countries
Correcting misunderstandings
 Strong growth is not limited to few big
developing countries
 Continued strong growth in developing
countries is not reflection of de-linking, but
result of globalization
Correcting misunderstandings
 Strong growth is not limited to few big
developing countries
 Continued strong growth in developing
countries is not reflection of de-linking, but
result of globalization
 Unwinding of imbalances is already going on
Correcting misunderstandings
 Strong growth is not limited to few big
developing countries
 Continued strong growth in developing
countries is not reflection of de-linking, but
result of globalization
 Unwinding of imbalances is already going on
 Overheating might be bigger risk than global
recession
Growth in developing countries accelerated
Real GDP annual percent change
Forecast
8
7
Developing
6
5
High-income
4
3
2
1
-1
1980
1983
1986
Source: World Bank
1989
1992
1995
1998
2001
2004
2007
2009
Growth in developing countries accelerated
Real GDP annual percent change
Forecast
8
7
Developing
6
High-income
5
Developing ex.
China & India
4
3
2
1
-1
1980
1983
1986
Source: World Bank
1989
1992
1995
1998
2001
2004
2007
2009
Acceleration in all regions
GDP, per cent change from previous year
Latin-America
Caribbean
Sub-saharan Africa
South Asia
10
9
8
7
6
5
4
3
2
1
0
10
9
8
7
6
5
4
3
2
1
0
10
9
8
7
6
5
4
3
2
1
0
19802002
2003
2004
2005
2006
2007
19802002
Europe & Central
Asia
2003
2004
2005
2006
2007
East-Asia Pacific
10
9
8
7
6
5
4
3
2
1
0
2003
2004
2005
* estimate
Source: World Bank
2006
2007
2003
2004
2005
2006
2007
Mid-East North Africa
10
9
8
7
6
5
4
3
2
1
0
19802002
19802002
10
9
8
7
6
5
4
3
2
1
0
19802002
2003
2004
2005
2006
2007
19802002
2003
2004
2005
2006
2007
Acceleration has been broadly-based
Number of developing countries
80
70
60
50
40
30
20
10
0
Good performers
Strong
performers
Mediocre
performers
Poor
performers
1986-1996
1996-2006
Note: Poor performers are countries with a per capita GDP decline of 3% or more;
Laggards are countries with a per capita GDP growth between -2% and 2%;
Good performers are countries with a per capita GDP growth between 3% and 5%;
Strong performers are countries with a per capita GDP growth above 5%.
African per capita growth rates
approach levels of the 1960s
Average annual per capita income growth
2
1
0
-1
-2
Low-income
Source: World Bank
Sub-Saharan Africa
2001/6
1990s
3
1980s
1960s
4
1970s
5
Correcting misunderstandings
 Strong growth is not limited to few big
developing countries
 Continued strong growth in developing
countries is not reflection of de-linking, but
result of globalization
Developing countries’ policies have improved
percent
30
1980s
20
2002-2004
10
0
Av. Tariffs
-10
Median Inflation
Fiscal Deficit
No De-linking
Average annual percentage growth, 2002-2006
Trade
10
GDP
0
Low Income
Middle Income
High Income
Robust growth in global industrial
production
3m/3m seasonally adjusted annual rates, percentage
10
8
6
4
2
2007
2006
2005
2004
2003
2002
2001
2000
1999
Source: World Bank
1998
-10
1997
-8
1996
-6
1995
-4
1994
1993
1992
1991
-2
1990
0
Correcting misunderstandings
 Strong growth is not limited to few big
developing countries
 Continued strong growth in developing
countries is not reflection of de-linking, but
result of globalization
 Unwinding of imbalances is already going on
Rotation of sources of growth
Growth of domestic demand, annual percent change
8
7
6
5
4
2005
2006
3
2007
2
1
0
USA
Source: World Bank
Developing countries
Oil and metal prices have peaked
Index, Jan. 2000 = 100
300
Metals & minerals
250
200
Energy
150
Agricultural products
100
50
2000M1
2001M3
2002M5
Source: World Bank, Datastream
2003M7
2004M9
2005M11
2007M1
A Start to Orderly Adjustment?
Current account balance, billions US$
2007
600
2006
400
200
2008
2009
2003
0
-200
-400
-600
Oil importers
-800
Oil exporters
-1000
USA
Source: World Bank
Europe
Japan
Other HIC East Asia &
Pacific (ex
CHN)
China
Europe &
Other
Central Asia developing
importers
Correcting misunderstandings
 Strong growth is not limited to few big
developing countries
 Continued strong growth in developing
countries is not reflection of de-linking, but
result of globalization
 Unwinding of imbalances is already going on
 Overheating might be bigger risk than global
recession
Inflation is up in several countries
Consumer price inflation, year-over-year percent change
2004 Inflation
Inflation end 2006
Kenya
Paraguay
Egypt, Arab Rep.
Mauritius
Ukraine
Argentina
Uganda
Turkey
Pakistan
Botswana
Kazakhstan
India
South Africa
Barbados
Estonia
Lithuania
Morocco
Chile
Burkina Faso
-1
Source: World Bank
1
3
5
7
9
11
13
15
17
Inflation under control in the region
3m/3m seasonally adjusted annual rates, percentage
21
19
Indonesia
17
15
13
11
9
7
5
Thailand
3
Philippines
Malaysia
1
2007
2006
2005
2004
2003
Source: World Bank
2002
2001
2000
-1
Financial Flows to Developing Countries
Key trends:
 Capital flows have continued to expand in 2006, but at a
more moderate pace
 On-going shifts:
 external to sovereign borrowing in external debt market
 sovereign borrowing in domestic debt markets
 Few low-income countries have been able to gain access to
international debt market, despite favorable conditions
 Foreign aid has stalled, raising doubt about whether donors
will meet their commitments
Private capital flows have leveled off
Net private capital flows to developing countries
$ billions
$647 billion in 2006
(left axis)
700
Percent
6
Percent of GDP
(right axis)
600
5
500
4
400
3
300
2
200
100
1
0
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
More capital going to Europe / Central Asia and East
Asian / Pacific regions
Regional composition of net private capital flows to developing countries
2006
2000
Sub-Saharan
Africa
5%
South Asia
Middle East & 5%
North Africa
2%
East Asia &
Pacific
15%
Sub-Saharan
Africa
6%
East Asia &
Pacific
28%
South Asia
6%
Middle East &
North Africa
4%
Europe &
Central Asia
26%
Latin
America &
Caribbean
47%
Latin America
& Caribbean
14%
Europe &
Central Asia
42%
Regional flows only partly reflect relative economic size
Regional composition
of GDP in 2006
Regional composition of private
capital flows in 2006
Sub-Saharan
Africa
6%
South Asia
10%
Sub-Saharan
Africa
6%
East Asia &
Pacific
30%
Middle East &
North Africa
6%
Latin America
& Caribbean
25%
East Asia &
Pacific
28%
South Asia
6%
Middle East &
North Africa
4%
Latin
America &
Caribbean
14%
Europe &
Central Asia
23%
Europe &
Central Asia
42%
Equity accounts for bulk of private capital flows
Net private capital flows to developing countries
$ billions
Total in 2006
$647 billion
700
Debt
$228
billion
600
Private debt
500
FDI and portiolio equity
400
300
Equity
$419
billion
200
100
0
-100
1990
1992
1994
1996
1998
2000
2002
2004
2006
Record IPO transactions, mostly by China…
Amount of capital raised through Initial Public Offerings (IPOs)
by companies in developing countries
$ billions
Total in 2006
$71 billion
75
60
Other
Countries
$30 billion
45
30
China
$41 billion
15
0
2002
2003
2004
2005
2006
…fueling surge in portfolio equity flows
Net portfolio equity inflows to developing countries
$ billions
Total in 2006
$94 billion
100
Other regions
80
$46 billion
East Asia and Pacific
60
40
$48 billion
20
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
FDI inflows keeping pace with rapid growth…
Net FDI inflows to developing countries
$ billions
$325 billion in 2006
(left axis)
Percent
Percent of GDP
(right axis)
300
3
250
200
2
150
100
1
50
0
0
1992
1994
1996
1998
2000
2002
2004
2006e
…led by inflows to Europe and Central Asia
Net FDI flows to developing countries
Total in 2006
$325 billion
$ billions
Other
300
Latin America & Caribbean
Europe & Central Asia
250
East Asia & Pacific
200
150
$116 billion
100
50
$88 billion
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
Strong gains in bank lending…
Net private debt flows to developing countries
$ billions
Total in 2006
$228 billion
250
200
$72 billion
Short-term debt flows
Bank lending
Bond flows
Net private debt flows
150
$112 billion
100
50
$49 billion
0
1995
-50
-100
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
…dominated by Europe and Central Asia
Net bank lending to developing countries
Total in 2006
$112 billion
$ billions
Other regions
100
$45 billion
Europe and Central Asia
75
50
$67 billion
25
0
-25
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
…as net official lending continues sharp decline…
Net debt flows to developing countries
$ billions
250
200
Net private lending
Net official lending
Net debt flows
$228 billion
150
100
50
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
-$76 billion
-50
-$71 billion
-100
…with large repayments to Paris Club and IMF
Net official lending to developing countries, 1995-2006
$ billions
30
IMF
Paris Club and others
World Bank
20
10
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
-10
-20
-30
-40
-50
-$48 billion
-$25 billion
Governments meeting more of their financing
needs in domestic market
Public debt as a share of GDP in 28 emerging market economies
Percent
External
Domestic
40
30
20
10
0
1998
1999
2000
2001
2002
2003
2004
Source: World Bank staff calculations based on JP Morgan
2005
2006
Foreign participation in domestic debt markets
has increased significantly in some countries
Share of domestic debt held by nonresidents in selected countries
Percent
30
2002
2006
20
10
0
Brazil
Malaysia
Mexico
Source: World Bank staff estimates.
Indonesia
Zambia
Poland
Hungary
Major shift in the composition of external debt…
External debt as a share of GDP in developing countries
Percent
Corporate
40
Sovereign
30
20
10
0
1994
1995
1996
1997
1998
1999
2000
2001
Source: World Bank Debt Reporting System
2002
2003
2004
2005
2006
…as more companies based in developing
countries active in global capital markets
Foreign capital raised by developing-country companies
$ billions
350
Syndicated bank loans
300
Bond issues
250
Equity offerings
200
150
100
50
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
External borrowing by corporations concentrated in
Europe / Central Asia and Latin America
External borrowing by corporations in developing countries
$ billions
300
Other regions
East Asia and Pacific
250
Latin America and the Caribbean
Europe and Central Asia
200
150
100
50
0
2002
2003
2004
2005
2006
Corporate bond issuance exceeding sovereign
bond issuance by wide margin
External bond issuance by developing countries
$ billions
140
Corporate
120
Sovereign
100
$88 billion
80
60
40
$43 billion
20
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
Private capital flows concentrated in the
largest economies
Share of private capital flows and GDP in the 20
largest developing countries
Percent
100
88
84
81
75
Top 6-20
countries
50
Top 5
countries
25
0
Private debt flows
Equity flows
GDP
Half of FDI inflows in 2006 went to 5 countries…
Net FDI inflows to developing countries
Total in 2006
$325 billion
$ billions
300
Other
$73 billion
Top 6-20 countries
250
Top 5 countries
$92 billion
200
150
100
$161 billion
50
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
…similar for syndicated bank lending
Loan commitments to developing countries
$ billions
Total in 2006
$218 billion
Other borrowers
200
$57 billion
Top 6-10 borrowers
Top 5 borrowers
150
$46 billion
100
50
$115 billion
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
Few developing countries access international debt markets
Percent
Proportion of developing countries that issue bonds and
borrow from foreign banks in each year
100
75
Bank lending
50
25
Bond Issuance
0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Scaling up in aid has stalled…
Net Official Development Assistance (ODA)
disbursements by DAC donors
Percent
$ billions
Debt relief
100
ODA less debt relief / GNI
(right scale)
0.3
75
0.2
50
ODA less debt relief
(left scale)
25
0.1
0
0
1990
1992
1994
1996
1998
Source: OECD Development Assistance Committee (DAC)
2000
2002
2004
2006
…raising doubts that donors will meet commitments
ODA allocated to Sub-Saharan Africa in real terms ($2004)
$ billions
$50 billion in 2010
(commitment)
50
40
$32 billion in 2005
(incl. debt relief)
30
20
$24 billion in 2005
(excl. debt relief)
10
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: World Bank staff calculations based on OECD Development Assistance Committee (DAC).
Remittance flows continue to expand…
Migrant remittance flows
$206 billion
$ billions
200
Migrant remittance flows / GDP
Percent
Middle-income countries
Low-income countries
4
150
Low-income countries
3
100
2
50
1
0
0
2000
2001
2002
2003
2004
2005
2006
Middle-income countries
2000
2001
2002
Source: World Bank staff estimates.
2003
2004
2005
2006
…volume comparable to aid in low-income countries
Middle-income countries
Low-income countries
$ billions
$ billions
150
125
150
Migrant remittance flows
Official development assistance
125
100
100
75
75
50
50
25
25
0
0
2000
2001
2002
2003
2004
Migrant remittance flows
Official development assistance
2005
2006
2000
2001
2002
Source: World Bank staff estimates.
2003
2004
2005
2006
Managing the financial risks ahead
 Possibility of abrupt adjustment
 Risk of sudden shift in investor sentiment
consequences most severe in vulnerable countries with:
 excessive credit growth,
 impending inflationary pressures,
 sizeable current account imbalances, and
 exchange rate appreciation.
 Risk may be under-priced in some equity and debt markets
Sharp increase in some emerging market equity
prices could be a sign of asset overvaluation
MSCI equity price index (Jan. 2000 = 100)
Latin America
320
280
EM Europe
240
200
EM Asia
160
Global
Composite
120
80
40
0
2000M1
2001M1
2002M1
2003M1
2004M1
2005M1
2006M1
2007M1
Record-low bond spreads in uncharted territory
JP Morgan EMBI Global Bond Spreads
Basis points
1600
1400
1200
1000
800
600
400
200
1
1
1
1
1
1
20
07
M
20
06
M
20
05
M
20
04
M
20
03
M
20
02
M
1
20
01
M
1
20
00
M
1
19
99
M
1
1
1
1
19
98
M
19
97
M
19
96
M
19
95
M
19
94
M
1
0
Managing the financial risks ahead
 Difficult to assess new risks that have evolved
Much uncertainty about:
 Structured financial products
 Hedge funds/private equity
 Exposures of multinational corporations
 Foreign participation in domestic debt markets
> Accentuate or dampen volatility in financial
markets during a downturn in the credit cycle?