View
48
Download
1
Category
Tags:
Preview:
Citation preview
A L V A R O U R I B E V É L E Z
Latin America and the Caribbean past and future
Issues to be addressed
1. The current context of Emerging Markets and the evolution of Latin America 1980-2012
2. Latin America between two policy paths
3. The policy challenges in the region
4. Lessons from the Colombian Experience
1. The current context of Emerging Markets and the evolution of Latin America 1980-2012
1. The current context of Emerging Markets and the evolution of Latin America 1980-2012
1. Emerging economies have become engines of economic growth.
2. During the last three decades developing countries have experienced a profound transformation driven by two components: On the one hand a rapid demographic transition. Since 1980 the World
population has increased by 2.5 billion people and 95 percent of that growth has taken place in the developing World.
The other element has been a dynamic period of sustainable economic growth. In 1980 developing economies represented 33 percent of the World GDP and today that number is closed to 46 percent.
1. The current context of Emerging Markets and the evolution of Latin America 1980-2012
1. By 2050 19 of the top 30 economies by GDP will be countries that we currently describe as ‘emerging’
2. China and India will be the largest and third-largest economies in the world.
3. Eight countries – India, China, Brazil, Russia, Indonesia, Korea, Mexico and Turkey – will be responsible for most of global growth up to 2025
4. Emerging economies will account for 68% of global growth by 2030.
5. In 1980, 5% of goods were sourced globally. By 2000, this was 20%. By 2025, it will be 50%.
6. In 1980, world exports accounted for one-sixth of global GDP. Today it is a quarter. By 2030, it will have risen to a third.
7. By 2030 the urban middle class will rise to 42% of the global population. The number of people with daily income of $10 to $100 a day will rise from 1.8 billion today to 4.9 billion by 2030.
1. The current context of Emerging Markets and the evolution of Latin America 1980-2012
According to FAO: Demand for food could increase 50% by 2030
Demand for water has been projected to rise by 30% between 2000 and 2030
The International Energy Agency has said energy needs will grow by 40% by 2030. According to BP China represents 20.3% of the World Energy
Consumption (The world largest energy consumer in 2010 for the first time over the U.S)
Natural Gas consumption has experience its strongest consumption rate since 1984 (7.4%)
Coal share in world energy consumption has reached its highest level since 1970 (29.6%). China represents 49% of the world coal consumption.
In 2010 Global Biofuel consumption grew by 13.4%
1. The current context of Emerging Markets and the evolution of Latin America 1980-2012
How does Latin America fit in this panorama? Between 1980 and today some changes have occured…
1. The inflation tragedy is over: in 1985 regional inflation average was 159%, today is below 6%. This means that fiscal and monetary prudence have become policy principlkes.
2. Debt is no longer a threat: Debt to GDP ratios in the region have passed from 40% in 2002 to 20.4% in 2011
3. Between 2003 and 2011 the region experienced a growth average of 4.4%...the highest since 1967-1974
4. Democracy has expanded in the region with few exceptions…
5. Regional exports have increased 160% betwee 2002 and 2010
6. In 2011 the region faced a record number in FDI reaching almost 113 US$billion
1. The current context of Emerging Markets and the evolution of Latin America 1980-2012
Population
Close to 600 million people
Average age between 24 and
28
Per Capita Income in PPP close to
US$10.000
Poverty reduction
64% of our population is a expanding middle class.
During the last decade 40 million people have left the poverty line
Life expectancy has increased from 65 to 75 years.
Child mortality has been reduced by 50 per cent.
Literacy rates are above 94%.
Mobile phone penetration has increased by 78 per cent.
Internet access has increased by 33%
Healthcare coverage has increased by 50 percent.
water and sanitation coverage has reached 80%.
Commodities in time of Demand
10 percent of the World oil reserves.
6 percent of the World Gas reserves
Almost 50 percent of the World cooper reserves.
50 per cent of the World silver reserves.
13% of the World iron reserves
26% of the World fertile land.
24% of the World beef supply.
Bio Reserves
20 per cent of the World
Biodiversity is concentrated in
the Amazon ring.
Almost 50% of the World potable water supply.
57% of the world primary forest
Policy Changes match four range of opportunities
1. The current context of Emerging Markets and the evolution of Latin America 1980-2012
The change process and the potential for the years ahead has happen by accident and it is a consequence of the consistency, congruence and sense of urgency that a group of countries have adopted as their policy cornerstone. Brazil, Mexico, Colombia, Chile, Peru and Uruguay represent 70 per cent of the region’s population and 75% of the regional GDP.
This group of countries have common characteristics that explain their outstanding performance:
1. The strengthening of Liberal Democracy
2. The adoption of an institutional Framework in favor of foreign and national investment.
3. The construction of a sound and sustainable social safety net.
4. The expansion of export markets and the commercial integration with the World (FTA’s)
5. A public administration driven by results.
6. A sound Macroeconomic Administration driven by fiscal and monetary prudence.
7. Better regulatory environment
8. Construction of strategic infrastructure.
9. The consolidation of an innovation agenda leaded by an improvement in education.
10. A well capitalized financial sector and the constant expansion of financial services.
Today countries like Panama, Dominican Republic, Costa Rica, Salvador, Guatemala, Honduras, Belize, Paraguay, as well as most of the Caribbean States, are following that line of behavior
Policies have been the root of Latin American Changes
Building Modern
Democracies
(5 parameters)
Security
Freedoms and Private Initiative
Independent Institutions
Social Cohesion
People Participation
A dynamic Economic
transformation
Investment Target Policies
Maintaining Fiscal and Monetary transformation
Integrate commodity and knowledge based
economies.
Expand export markets
Create an Entrepreneurship culture
(Innovation agenda)
Closing Social Gaps
Improve education (quality, coverage,
vocational)
Insure Universal Healthcare
Formal Job creation
Access to Finance
Climate Change, Environment and Energy
Sustainability
Expand renewable sources
Install an energy efficiency conscience
Improve waste management
Protect the Amazon Ring
Reduce Co2 Emissions
1. The current context of Emerging Markets and the evolution of Latin America 1980-2012
Despite the changes that have been achieved some important challenges remain…
2. Latin America between two policy paths
2. Latin America between two policy paths
The regional current Political Map is a “Tale of two cities” like the Charles Dickens Book… (The ALBA and the non Alba Model)
ALBA (Leaders: Venezuela,
Ecuador, Bolivia, Nicaragua and Cuba)
Anti-U.S
Anti-Free Trade
Lack of investment Confidence
Weak institutions
Political Insecurity
Ideology driven countries
Political Polarization
Modern Democratic Center Countries (Brazil, Colombia, Peru, Chile, México, Uruguay, Paraguay,
Panamá, Republic Dominican, Costa Rica, etc)
Cooperation with the U.S
Pro Free Trade
Investment Confidence
Independent Institutions
Political Stability
State Long Term Policies and Mgt by Results
Organized Party Systems
The Democratic Center takes the lead: • Investment grade countries are in this Group: Mexico, Brazil, Chile, Colombia, Peru and Panama.• Countries with more market access through FTA’S are in this group• Countries with more FDI are in this group• Countries with more Middle Class Expansion are in this group.• Better fiscally sustainable social programs: Chile, Mexico, Brasil and Colombia.
Only the group of Countries in the Democratic Center will become the regional active participants of the Emerging Markets Boom…some of the ALBA Members will see some benefits, but without solid long term development agendas, they will face transitory profits…
Venezuela
Inflation
Reduction in oil production
Brain drain
Social conflict
Insecurity
Private initiative in Jeopardy
Bolivia
Loss of citizen support
Quality of live deterioration
Lack of private initiative.
Loss in private investment
Ecuador
Press Liberties in danger
Lack of long term private investment.
Political stability at the expense of higher
tensions.
Oil driven political power
Nicaragua
Institutional deterioration (Reelection without
constitutional authority)
Corruption
Private initiative: Uncertainty
Shameful Chavistas
2. Latin America between two policy paths
Bad policies are deteriorating the political and economic context in the ALBA Countries….
PeruHumala Challenges
Maintain Investment Confidence
(The mining royalty debate)
Improve social expenditure
targeting
Improve Labor markets
• Combat informality
• Improve productivity
Continue with International insertion
• Implement the FTA with USA
• Pacific Agenda with Colombia, Chile and Mexico.
Challenges
Fiscal and Monetary Credibility
Institutional quality
Capacity to generate
confidence
Solve Public-Private
Conflicts
Trigger FDI
Argentina
Security
Human Insecurity
Legal Insecurity
Political insecurity
Individual Liberties
Property rights at risk
Limit freedom of expression
Limit freedom of press
Independent institutions
Courts controlled by the Executive
Branch.
Independent institutions are
controlled by the Executive
father
One Party controls the Parliament
Citizen participation
Limited
Controlled
Instruments vital for political
pressure.
Social Cohesion
Class polarization
Fiscal policy is unsustainable
Venezuela
ChallengesRegional integration
Urban security
Drug consumption
Cost of money
Infrastructure
Weak Doing Business
Indicators
Foreign Policy
Brazil
The Challenges of Doing Business in Brazil
Area: 8,514,877 sq km Population: 203,429,773 (July 2011 est.) GDP: $2.172 trillion (2010 est.) GDP Composition by Sector:
Services: 67.4% (2010 est.)Industry: 26.8%Agriculture: 5.8%
Unemployment Rate: 6.7% (2010 est.)
Exports: $201.9 billion (2010 est.)
Export Commodities: Transport equipment, iron ore, soybeans, footwear, coffee, autos
Export Partners: China 12.5%, US 10.5%, Argentina 8.4%, Netherlands 5.4%, Germany 4.1% (2009)
Imports: $181.7 billion (2010 est.)
Import Commodities: machinery, electrical and transport equipment, chemical products, oil, automotive parts, electronics
Import Partners: US 16.1%, China 12.6%, Argentina 8.8%, Germany 7.7%, Japan 4.3% (2009)
Good results but there are some worriying “TO DO BUSINESS” indicators
Country DB 2011 DB 2010
Mexico 35 41
Peru 36 46
Colombia 39 38
Chile 43 53
Argentina 115 113
Uruguay 124 122
Ecuador 130 127
Brazil 127 124
Venezuela 172 170
Doing Business 2011 shows some elementes that affect Brazil as a destiny for investments (127 out of 180 in the Doing Business Report)
1. Bureaucracy2. Weak Infrastructure3. Weak Technology4. Preference to Local Companies5. Complex tax system
The Challenges of Doing Business in Brazil
Brazil in comparison to the Region best and worst performers
Indicator Brazil Chile Mexico Colombia Peru Venezuela
Starting a Business (Proceadures)
15 8 6 9 6 17
Starting a Business (Days)
120 22 9 14 27 141
Days for Construction
Permits
411 155 105 50 188 395
Hours devoted to pay taxes (Hours
per year)
2600 316 404 208 380 864
Days to enforce a contract
616 480 415 1346 428 510
Enforcing Contracts (Cost % Claim)
16.5 28.6 32 47.9 35.7 43.7
Cost to export US$ per Container
US$1730
US$745
US$1420 US$1770 US$860 US$2590
Brazil Infrastructure challenges
Brazil’s infrastructure ranks 74th out of 133 countries, even though its overall economy ranks 56th, according to a World Economic Forum (WEF) survey that asked firms to rank global competitiveness. Among the BRIC economies, Brazil’s infrastructure ranks similar to India’s (76) and Russia’s (71), but it lags China’s (46). Within Latin America, Brazil’s infrastructure ranking is near Mexico’s (69) and is significantly better than Venezuela’s (106), but it is far behind Chile’s (30);
Infrastructure spending in Brazil has been in a declining trend over the past 40 years, averaging 5.4% of GDP during the 1970s, 3.6% in the 1980s, 2.3% in the 1990s, and 2.1% in the 2000s. Some studies suggest infrastructure investment of 2.0% of GDP is needed simply to sustain the current infrastructure stock in Brazil.
Brazil must invest 4% of GDP (doubling its current investment) for 20 years to catch up with Chile, the benchmark in Latin America, according to our estimates.
To catch up with South Korea — the benchmark in Asia — Brazil would need to invest 6–8% of GDP per year.
Source Morgan Stanley
Brazil Infrastructure challenges
Challenges for infrastructure development
Improving the business environment. Brazil needs a
more stable and credible regulatory environment The
main issues are: 1) regulatory bottlenecks, 2) excessive
renegotiations of concessions, and 3) the lack of efficiency of
regulatory agencies.
Rethinking fiscal priorities. The government needs to redesign spending strategies and rethink priorities by 1)
addressing budget rigidities, 2) reducing mandatory earmarking in the budget, and 3) revisiting structural
entitlements (i.e., social security reform)
Reforming the tax system. The
government intake is close to 40% of GDP,
while companies spend on average
2,500 hours per year to prepare, file, and
pay their taxes.
Reform the Police Structure
Citizen participation in the fight against organized crime
Strengthen intelligence
Border affairs
• Drug Consumption• Assault Weapons
The security challenge
Mexico
ChileTwo situations
Characteristics
Economic Stability
Political Stability
Investor Confidence
Innovation and entrepreneurs
hip agenda.
Quality of live and
opportunities
Youth distrust in Political
Parties and in Government.
Aggressive protests
Dependant on the China
effect
EcuadorThe political condition
Economic
4.5% Fiscal deficit
Oil price has been the driving force.
Investors distrust
4.5% inflation
Political
The President has concentrated more powers
Conflict with congress and with independent media will deteriorate
as the Government pushes more interventionist reforms
There is not a clear opposition figure
Urban security has been deteriorating
Bolivia: new problems arise
Economic
Populism platform loosing popular support
Fiscal superavit driven by more tax collections
Economic Growth above 4.6% driven by Gas price
Inflation close to 9%
Investors distrust with the exception of foreign governments
corporations
Political
2/3 of Congress controlled by the President Coalition
Hunting of all opposition leaders
Confrontation with Santa Cruz Governor Ruben Costas.
Next week 56 Supreme Court Judges will be elected
International
Under the influence of Chavez
Improvement in the dialogue with the U.S
International Market Distrust
Country Homicides per
100K Hab
Violence cost as % of GDP (Live years
lost due to handicapped
circumstances)
Private sector losses due to
insecurity (% sales)
Violence costs as % of
GDP
Numberof gang
members
Number of gangs
Honduras 43 1,31% 4.5% 9.6% 36.000 112
Guatemala 45 1.43% 3.9% 7.7% 14.000 434
El Salvador
58 1.99% 4.5% 10% 10.500 4
Nicaragua 14 0.96% 3.1% 10% 4.500 268
Costa Rica 8 0.58% 3.6% 2.660 6
Panamá 11 0.63% 2.5% 1.385 94
Central America: The security Drama
Violence and organized crime
Not the same stories
A region of different development stories
The 7 giants (Brazil, Mexico, Argentina, Chile, Colombia, Peru
and Uruguay)
a) 70 of the Region population.
b) 85% of the Region GDP
c) Poverty reduction
d) High levels of investment
e) Commercial integration
f) Institutional stability
Central America
a) 3% of the Region GDP (US$163 Billion)
b) 7% of the Region population (43 million)
c) Income inequality
d) Moderate investment levels
e) Low tax collections
f) Fragile energy matrix
Caribbean
a) 4% of the Region Population
b) 2% of the Region GDP
c) Tourism dependence
d) Natural disaster risks
e) Low industrial base
f) Need for long term access to markets
3. The policy challenges in the region
The China effect…
Country China Ranking
as a trading partner
Porcentage of total exports
2010
Brazil 1 15%
Mexico 4 2.2%
Colombia 3 6.2%
Chile 1 16%
Peru 2 16%
Venezuela 2 7.9%
China’s influence as a trading partner will continue to increase, thus strenghthening its political and diplomatic relations with the regional key players…
China is the destination for c.10% of LatAm exports today, and is the largest trade partner for Brazil and Chile. LatAm was also the largest recipient of announced Chinese outbound investment in 2010, focused on energy and mining.
U.S-Latin America relations The evolution of U.S Latin America Relations…from Doctrines to specific policies…
Doctrines
Monroe Doctrine
Teddy Roosevelt “BIG STICK”
Howard Taft “Pan-American Union”
FDR “Good Neighbor”
Ike Pan American Operation
Alliance for Progress
Carter “Human Rights Agenda”
Reagan Regional Cold War
Bush “War on Drugs” and trade
Clinton “NAFTA” & “FTAA”
Objectives
Protect the region from foreign invasions and strengthen the U.S influence in the hemisphere
Exercise strategic control of the region applying hard power (Military interventions in Nicaragua, DR, Haiti, etc)
Build and institutional and permanent diplomatic coordination under the U.S Leadership.
Regional support for World War II and coordination to face the Great Depression
Improve development assistance to prevent social turmoil (Creation of the IDB)
Improve development assistance to prevent the communist expansion.
Promote Human Rights policies to confront the emerging power of dictatorships in the region.
Intervention in Nicaragua, Grenada and Panama.
Fight against Drug Cartels in the region concentrated in Colombia, promotion of NAFTA and Unilateral Trade Preference Act.
Enactment of NAFTA, promotion of the FTAA (1993) and the Andean Trade Preference Drug Enforcement Act.
Policies
Bush Vs Obama and the FTA’s… (Next slide)
U.S-Latin America relations
Two administrations and its strategic approaches…
Bush: 1. FTA’s with Chile, Colombia, Peru,
Panama, CAFTA, DR.2. Actively supported the fight against
terrorism in Colombia.3. Promoted the Democratic Charter in
the OAS (Signed in Lima September 11 2001)
4. Politicaly confronted anti-democratic regimes in the region.
5. Stablished the Millenium Corporation.6. Debt Relief for Bolivia, Nicaragua,
Honduras, Haity and Guyana.
Obama: 1. FTA’s with Colombia and Panama
took almost 3 years to be ratified.2. Actively supported the fight against
terrorism in Colombia.3. Political diplomacy with anti-
democratic regimes in the region.4. Timid speech against Drug Cartels in
the region. 5. Cautious attitude towards the
security crisis in Mexico and the U.S share of responsibility
4. Lessons from the Colombian Experience
Security
28.837 homicides
2882 kidnappings
69 homicides per 100.000 habitants
1645 terrorist attacks
350 mayors out of their municipalities
158 municipalities without police
Economy
Average Economic Growth 1994-2001: 2.1%
GDP per Capita: US$2377
Investment as % of GDP: 16.5%
Exports: US$11.975 million
FDI: US$2.100 million
Inflation: 6.99%
Fiscal balance: -3.2%
Social
Unemployment: 16.2%
Health Coverage: 25 million Colombians.
Pension affiliates: 4.5 million
Poverty: 57%
Education Coverage: Primary 97%, High school: 57%, University: 24%.
Mobil Phone Lines: 4.6 million
Internet coverage: 1.9 million
Ten years ago Colombia was a fragile state…The Colombian Paradox: a long and stable democracy in a
permanent threat from terrorist groups, drug dealers and organized crime…
Colombia faced a Confidence Deficit
The elusive quest for peace
Many governments exhausted all their political capital
attempting to reach peace through political dialogue…the
result was military strengthening from illegal armed groups and a rapid growth in their criminal
activities (68% thought the country was going in a
negative track)
Terrorist Groups (Guerrillas and
Paramilitaries) had created a sense of defeat in the Colombian people.
Fear impacted in the Colombian people
Mindset
The lack of investment
The drain of human capital
The sense of danger in Colombian roads.
The expansion of massive kidnappings created an
emotional domino effect
Building Confidence became our priority
We introduced a comprehensive policy framework…
Social Cohesion
Investment with
fraternity
Democratic Security
Confidence
Security as a Democratic Value
Security for all
Confront all criminal
organizations
Security without
martial law
Security with freedoms and human rights
protection
Security in coordination
with the people
Investment Target
Security:
Human
Legal
Political
Sound Macroeconomics
Incentives
Access to markets
Competitiveness factors:
• Infrastructure• Regulation• Connectivity• Logistical
chain
Social Cohesion
Highest quality in education
Universal healthcare
Access to Finance
Stable Jobs and entrepreneurial
spiritConnectivity
Our policy achievements generated a turning point
Indicator 2002
2010
Homicides 28838
7400
Kidnappings 2882
123
Homicides per 100K Habitants
69 16.3
Terrorist attacks 1645 250
Municipalitieswithout mayors
presence
350 0
Municipalities without police
158 0
Indicator 2002 2010
Average Economic
Growth
2.1% 4.3%
GDP per Capita
2377 5300
Invest % GDP
16.5% 24.6%
Exports US$11.000
US$ 39.000
FDI US$2.100
US$7.000
Inflation 6.9% 2.5%
Indicator 2002 2010
Unemployment
16.2% 11.6%
Health Coverage
25.1 million 43.1million
Pension affiliates
4.5 million 7.1 million
Poverty 57% 38%
Education coverage (Primary, Hs,
University)
97%57%24%
100%79.4%35.5%
Mobile phone users
4.6 million lines
41 million
lines
• Reached the highest economic growth in more than 20 years.
• The largest education, health and connectivity coverage in its history.
• The largest poverty reduction in Colombian history
• The biggest FDI rates in history
• The lowest violence records in 30 years
• Expanded the middle class
• Highest exports in Colombian History.
• Paramilitary groups dismantled
• FARC structure severely dismantled
• Per Capita income more than doubled
Colombia’s current challenges
Security
Maintain Macro-Vision and Micro-Management
Continue dismantling all terrorist organizations
Continue dismantling drug cartels apparatus.
Strengthen Citizen Security agendas with
local authorities
Economic
Face new trends of currency appreciation
Maintain and increase FDI flows (Security,
incentives and stability rules)
Fiscal Policy to face new countercyclical challenges
Increase tax collections
Expand new trade markets through FTA’s
Social Cohesion
Fight labor informality and create quality jobs
Insure education and health quality
Expand vocational training coverage
Create Entrepreneurial Family Transfers
program
Political
Judicial reform.
Strengthen Democratic Center
Improve local institutional capacity
New law implementation (Victims and land)
Prevent the emergence of populist movements
One final thought: The politics of Confidence
The region requires a DEMOCRATIC CENTER PLATFORM based on three pillars: Democratic Security
Investment with fraternity
Social Cohesion
These were the pillars embraced by Colombia to make a change and are the pillars to face the challenges ahead in many countries.
Without security there is no investment and without investment there are no resources for a strong social agenda.
www.alvarouribevelez.com
Recommended