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Private initiative and
financial inclusionLatin America between two models
Alvaro Uribe Velez
September 2012
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. Lessons from the Colombian Experience
Confidence
Communitary State Policies
4. Private Initiative and Financial Inclusion: The region and
Colombia
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 $100 a day will rise from
1.8 billion today to 4.9 billion by 2030.
1. The current context of Emerging Markets and the
evolution of Latin America 1980-2012
According to FAO: Demand for food could increase 50% by 2030
Demand for water has been projected to rise by 30% between
2000 and 2030
The International Energy Agency has said energy needs will grow
by 40% by 2030.
According to BP China represents 20.3% of the World Energy Consumption (The
world largest energy consumer in 2010 for the first time over the U.S)
Natural Gas consumption has experience its strongest consumption rate since
1984 (7.4%)
Coal share in world energy consumption has reached its highest level since
1970 (29.6%). China represents 49% of the world coal consumption.
In 2010 Global Biofuel consumption grew by 13.4%
How does Latin America fit in this panorama? Between 1980 and
today some changes have occured…
1. The inflation tragedy is over: in 1985 regional inflation average
was 159%, today is below 6%. This means that fiscal and
monetary prudence have become policy principles.
2. Debt is no longer a threat: Debt to GDP ratios in the region
have passed from 40% in 2002 to 20.4% in 2009
3. Between 2003 and 2007 the region experienced a growth
average of 5%...the highest since 1967-1974
4. Democracy has expanded in the region with few exceptions…
5. Regional exports have increased 160% betwee 2002 and 2010
6. In 2008 the region faced a record number in FDI reaching almost 100 US$billion
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
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
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
1. The current context of Emerging Markets and the
evolution of Latin America 1980-2012
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
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….
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 spirit
Connectivity
Our policy achievements generated a
turning point
Indicator 2002 2010
Homicides 28838 15000
Kidnappings 2882 228
Homicides per
100K Habitants
69 30
Terrorist
attacks
1645 250
Municipalities
without
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$11.0
00
US$
39.000
FDI US$2.10
0
US$ 7.000
Inflation 6.9% 2.5%
Indicator 2002 2010
Unemploymen
t
16.2% 11.6%
Health
Coverage
25.1 million 43.1
million
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
The importance of the Regional Banking system
1. Mandatory Capital Requirements: 15.9% on average Vs 14.2% in Asia
and 13% in developed economies.
2. Moderate balance sheet leverage: 9.5 times Vs 16 times in developed
economies and 10 times in Asia
3. Low levels of delinquency rates: 3.5% average Vs 4.7% in Asia
4. Provisions 165% Vs 108% Asia and 52% Developed economies
5. Banking is a concentrated business in the region 12 Banks control 69% of
the business and 70% of the profits according to Banco Sanatander.
6. As middles class expands more people will access to finance. According
to the IDB in the next 7 years credit could expand from 1.1US$trillion to
2.2US$ trillion, while savings could expand from US$2.5 Trillion to 4US$ Trillion
Credit Cards Panorama
1. Credit Card penetration in linked to the expansion of Per Capita Income:
Regional average is close to 0.5 per capita.
1. Credit Cards represent 58% of the world non cash payments.
1. In Colombia between 2002 and 2010 credit cards jumped from 3.5 million to
almost 8 million.
1. E-Commerce is increasing in the region and credit cards are the more
important on line method of payment: (IDB Figures)
• Mobile subscribers in LAC 81.6 in 100 habitants
• Fixed subscribers in LAC 15.6 in 100 habitants
• Internet Subscribers are 4.2 per 100 habitants
• Broadband subscribers 3.4 per 100 habitants
• 9.0 personal computers per 100 habitants
2. The importance of Credit Card Penetration: a) Financial culture, b) Support
consumer habits , c) Incentives for complementary products, d) Trigger of e-
commerce.
1. Challenges: a) Cost, b) penetration in the bottom of the pyramid, c)
Complementary products, etc
Four elements to expand financial
services in the Region
The role of governments for financial services
expansion and private sector development
High investment levels
Inclusive and sustainable
social policies
Middle class expansion
Sound Macroeconomic
performance
Rule of Law
Financial services in Colombia 2002-2010
Policies and
initiatives
Micro-finance
expansion.
Bank of opportunities
Consumption credit
expansion
Credit Card Penetration
Bancarization
Portfolio Quality
Indicators 2002 2010
Delinquency rates 9.5% 4%
Coverage for bad loans 80% 125%
Solvency 13.8% 15.2%
Colombian Financial Sector Penetration 2002-2010:
Quantity and Quality
Financial inclusion, quality of life and consumption….
Sales 2002 2010
Motorcycles 73.000 470.000
Refrigerators 628.000 1.4 million
Cars 56.630 300.000
Computers 500.000 2 million
Bank of opportunities: Lessons learned
Partners
Non Financial intermediaries Banks NGO’s Cooperatives
Functional elements
Non Financial Intermediaries
Saving Accounts Account opening
red tape reduction.State of the art
information systems.Differential interest
ratesMobile Banking
Principles
Do not make sustainable unsustainable projects.
Sustainable interventions for long term sustainability.
Never distort markets
Why Bank of Opportunities
Correct market failures Social and private sector improvement.
Public-Private Alliance
Government provides the regulatory framework and pro market incentives to insure sustainable and profitable financial products
Private sector expand coverage, products and services to the non financially included population.
Issues for the future
The road
ahead
Financial education
Entrepreneurial education
Angel Investment framework
Venture Capital Funds
Local Capital markets
development
Guarantee Funds for SME Development.
Knowledge Economy and
Creative Industries
development
Final Thoughts
Financial inclusion and sustainable private sector development can only take place in
Countries with socially responsible capitalism… (Good Capitalism, Bad Capitalism Framework)
State Guided Capitalism
Government guides the market
Particular industries are supported
No sustainable structure for private investors.
Uncertainty for long term investment.
Discretional regulation
Oligarquic Capitalism
State is captured by a small group of individuals.
Monopoly and oligopoly
Few families and corporations control strategic sectors.
Weak competition
Corruption
Big Firm Capitalism
Multinationals and large local corporations control the
economy.
Lack of emerging new corporations
Weak entrepreneurial spirit
Non dynamic innovation
Tailor made regulation
Entrepreneurial Capitalism
Easy to start a business
Business registration
Bankruptcy protection
Access to finance
Rule of law, property and contract rights.
Transparent taxation
Rewarding new ideas
Competition
Research and Development
Investor friendly legislation