Transcript Sustainable Investments in Emerging Economies

Jorge Arbache
Brazilian Development Bank -- BNDES
This presentation does not necessarily reflect the views of the Board of Directors of BNDES
Toronto, November 23, 2010
International Economic Forum of the Americas
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How can foreign investment be a driver of sustainable
growth in emerging economies?

By investing especially in sectors that:



Can rapidly increase GDP growth and create quality jobs
Foster export diversification
Stimulate domestic suppliers

By investing in greenfield businesses

By bringing in and sharing new technologies

By following the best practices in governance, social
responsibility and environmental management
2
How can the development of a comprehensive social
agenda strengthen democratic institutions in emerging
economies?

By increasing the well-being and lifting people out of
poverty, a comprehensive social agenda is likely to
contribute to strengthening democratic institutions

The emergence of the middle class will shift the
political game toward the center, reducing the risk of
sudden changes in economic policy and the chosen
political course
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Which factors are key for increasing foreign investment
in emerging economies?

Increasing domestic and regional markets

Coherence between macro and micro policies

Stable political environment

Favorable business climate (labor, infrastructure,
regulations, taxation etc)

Strategies to promote investment

Investment and trade agreements
4
South-South economic relations: great opportunities for
sustainable investment and growth in emerging
economies
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 Emerging economies growth -- a window of opportunity for
emerging economies!

Developed countries no longer the main source of global growth

China, India, Brazil and other emerging countries

Growth and increasing urbanization in China and India will
require extremely large investments in urban planning, which will
increase the demand for food and raw material
6
Emerging economies: largest component of global
growth
GDP growth: developed vs. emerging economies
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The share of emerging markets in global economy is
rising…
Share of global consumption (% of global GDP)
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…and the share of emerging markets as a destination of
emerging markets exports is rising too
Share of emerging markets as a destination of emerging markets exports
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
China – one of the main foreign investors in emerging
economies
A few examples in LAC and Africa

Sinopec’s $7.1 bn in Brazil – oil

Sinochem’s $3.1 bn in Brazil - oil

CNPC’s $1.4 bn in Ecuador – oil

Chinalco’s $2.1 bn in Peru – copper

Shunde Rixin’s $1.9 bn in Chile – iron

Several oil fields in Sudan, Angola, Eq. Guinea, Nigeria

FDI in infrastructure facilities needed to export raw material
But usually captive suppliers of raw materials of China
Chinese FDI in LAC - More than $30 bn in the last
few years!
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 A few emerging economies are focusing on selling
manufactured goods, while most others are selling
commodities



LAC: diversification of exports has fallen over time
80% of LAC’s exports to China are primary products
Africa almost 100%
 LAC has lost its competitive edge in manufacturing -- Chinese
firms have been outdoing LAC manufacturing exporters in
traditional LAC’s markets

Examples
− Central America’s apparel goods exported to US vs. Chinese
− Mexican manufacturing goods exported to US vs. Chinese
South-South economic relations resemble more and
more the North-South economic relations
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Sustainable development and investment: the
case of Brazil
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 Democratic, open society
 Brazil may grow beyond 5% p.a. over the next years
 The domestic market will make the growth in demand
feasible: basic household consumption, housing and
durable goods
 Investment will be driven by: oil & gas, electric energy,
logistics, residential construction and agribusiness
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Brazil resumed growth at expressive rates after 25 years
Brazil and the World: GDP Growth Rates ( % )
7.4
Brazil
World
5.8
4.5
4.0
3.7
3.1
3.5
2.0
1966-80
1981-2003
2004-2009
2010-2015 (*)
Source: Ipeadata and IBGE. Elaborated by APE/BNDES
(*) Forecasts based on IIF
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The domestic market is the engine of the Brazilian growth…
Breakdown of GDP Growth (% p.a.)
Domestic demand
Foreign demand (net)
Aggregate demand
7.5
6.1
5.7
5.0
2.7
0.2
2.5
1.71.1
3.2
2.7
0.7
0.5
-0.5
2002
2003
2004
2005
4.0
5.3
5.1
10.3
7.5
7.4
0.1
-0.2
-1.4
-1.4
-2.2
-0.3
-2.8
2006
2007
2008
2009
2010*
Source: IBGE Elaborated by: Ministry of Finance
*Estimates: Ministry of Finance.
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...thanks to:
 Rapid expansion of job creation and the payroll
 Expansion of credit: 46% of GDP in 2010 from 24% in 2003
 Expansion of social programs e.g. Conditional Cash
Transfer (Bolsa Família)
 Sound macroeconomic policies
 Sound financial sector
 Political stability
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There has been an expressive drop in poverty…
Evolution of Poverty (% of the population)
Poverty Indicator
(individuals in poverty/
total individuals) *
28.1
25.4
22.8
19.3
18.3
16.0
2003
2004
2005
2006
2007
2008
Source: FGV and Ministry of Finance
* Individuals in poverty refers to individuals who are in the E economic class of consumers, whose household income for the whole family is R$ 804.00, based on prices in
November 2008, according to the micro-data from PNAD
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... and an improvement in income distribution
Between 2003 and 2008, economic class C now represents a majority
in the Brazilian population.
Evolution of economic classes (% of the population)
55
54
49
40
37
30
16
11
8
2003
2008
2010*
Source: Ministry of Finance
*estimated
A/B Classes
C Class
D/E Classes
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Investment maintains a strong upward path of
growth
Forecast for Rate of Investment 2010-2014 (% of GDP)
26%
Forecast
24%
22.2%
21.4%
20.0%
22%
20%
18.7%
19.4%
18.8%
18%
16%
14%
17.3%
14.7%
16.8%
15.3%
12%
10%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: IBGE and APE/BNDES.
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Concluding remarks
 Developed economies – no longer the main source of
economic growth for emerging economies
 The South-South economic relations are becoming
increasingly more complex
 But to some extent, the South-South economic relations
are mirroring the North-South economic relations of the
past decades; in some cases, they are even worse
 Brazil’s recent growth experience – a successful case of
sustainable growth based on democratic institutions,
sound economic policies and smart social policies
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