The Global Economy, Emerging Markets and Geopolitical Risk:

Where We Are and Where We Are Going

Remarks by Alvaro Uribe Velez

October 2011

3 Issues to be covered

1. The emerging markets revolution (10 Minutes)

2. Latin-Americas great opportunity (15 Minutes)

3. Some lessons from the Colombian Experience (15 Minutes)

The Emerging markets Revolution

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

The new reality

Relevant facts are changing the world

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

Distinguished trend analysts and multilateral agencies have expressed that:

The emerging markets revolution = More demand for resources

• 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%

País PIB, precios corrientes US$

PIB per cápita, precios corrientes

US$

Población Millones

Territorio Millones de

KM2

Argentina 370.269 9.138 40.159 2.767

Brasil 2.090.31 10.816 193.253 8.512

Chile 203.232 11.827 17.19 0.757

Colombia 285.511 6.273 45.512 1.42

México 1.039.12 9.566 108.267 1.973

Perú 152.83 5.171 29.5 1.285

Venezuela 284.067 9.960 29.183 0.912

China 5.878.26 4.382 1.341.41 9.561

India 1.537.97 1.264 1.215.94 3.287

Indonesia 706.735 3.015 234.77 1.904

Malasia 237.959 8.423 28.251 0.333

Tailandia 318.85 4.991 63.878 0.513

Filipinas 188.719 2.007 94.0 0.300

Corea del Sur 1.007.08 20.590 48.9 0.09

Rusia 1.465.08 10.437 140.367 17.075

Polonia 468.539 12.300 38.0 0.313

Hungría 128.96 12.879 10.013 0.09

República Checa 192.152 18.288 10.5 0.07

Turquía 741.853 10.398 71.341 0.779

Egipto 218.466 2.788 78.336 1.000

Suráfrica 357.259 7.157 49.912 1.226

EAU 301.88 59.716 5.0 0.08

Marruecos 103.482 3.248 31.8 0.447

Nigeria 216.803 1.389 156.051 0.924

Vietnam 103.574 1.173 88.257 0.331

3 Elements to consider

Dramatic Changes since

1980Opportunities Challenges

Latin America in the path to progress

Where does the Region fits in this panorama

A new Regional Reality

1. The inflation tragedy has disappeared: in 1985 regional annual inflation rate was 159%, in 1990 1.81%, 8.2% in 2010

2. Fiscal Prudence has become a core principle: Between 2002 and 2010 debt to GDP ratio has passed from 40% to 20.4%

3. Per Capita GDP continues to expand: Per capita income grew steadily by 4% between 2003 and 2007

4. Poverty continues to drop: The regional poverty index passed from 49% in 2002 to 33% in 2008

5. Democracy has triumphed in the region: a dictatorial regime in Cuba and a Dictocracy in Venezuela are the exception

6. Exports are booming: Between 2002 and 2007 exports grew by 145%

7. FDI is flowing at a very rapid pace: in 2008 the region reached the record number of 97US$ billion in FDI

Luis Alberto Moreno the IDB President has expressed that we are witnessing the Latin American Decade

Posibbilities

Population

Poverty Reduction

Commodities in time of demand

Bio Reserves

Population

• Commentators continuously talk about Chinas transformation and praise its effort for becoming the World second largest economy; and by being able to allow 400 million people come out from the poverty trap.

• However in our region a silent process of change has also occurred and today Latin America and the Caribbean is an active contributor to the Emerging Nations Revolution:

– In the last three decades our region has increased its population by 240 million people and today counts with almost 600 million habitants

– Our average age variates between 26 and 28 years while Asia’s average is close to 34 years

– Our per capita GDP in purchasing power is close to ten thousand dollars while in the rest of emerging economies is close to six thousand dollars

– In 2020 one out of 12 persons will be from our region

Poverty Reduction

1. 64% of our population is part of an expanding middle class

2. During the last decade 40 million people have left the poverty line

3. Between 1980 and 2010 we have experienced an outstanding improvement of our social indicators:

• 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

• And water and sanitation coverage has reached on average 80 per cent in the region

Commodities in time of demand

• Latin America and the Caribbean is a region with a vast number of natural resources that will help the World attend great part of the demand patterns

– We count with:

• 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

• Approximately 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

• 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:

– The strengthening of Liberal Democracy

– The adoption of an institutional Framework in favor of foreign and national investment

– The construction of a sound and sustainable social safety net

– The expansion of export markets and the commercial integration with the World (FTA’s)

– A public administration driven by results

– A sound Macroeconomic Administration driven by fiscal and monetary prudence

– Better regulatory environment

– Construction of strategic infrastructure

– The consolidation of an innovation agenda leaded by an improvement in education

– 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

The roots of change

Regional disparities

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

Regional Challenges

Challenges

Modern Democracies

Economic Transformation

Closing Social Gaps

Environment and Sustainable

Energy

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

THE COLOMBIAN EXPERIENCE

Social Cohesion

Investment with

fraternity

Democratic Security

Confidence

Colombia transformation agenda was based in a pure Democratic Center Platform aimed to restore confidence with

three pillars

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

IncentivesAccess 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

The Colombian Achievement

• Between 2002-2010 Colombia:– 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

– 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

The Strategy and results in the Government

agenda between 2002 and 2010

Indicator 2002 2010

Homicides 28838 15800

Kidnappings 2882 282

Homicides per 100K

Habitants

69 34

Terrorist attacks

1645 250

Municipalitieswithout mayors

presence

350 0

Municipalities without police

158 0

Security

Indicator 2002 2010

Average Economic Growth

2.1% 4.3%

GDP per Capita

2377 5300

Invest % GDP

16.5% 26%

Exports US$11.000

US$ 39.000

FDI US$2.100

US$7.000

Inflation 6.9% 2.5%

Social

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

Colombia has become a regional player and has become a dynamic market for international investors

The Colombian case demonstrate that other nations can produce change and take advantage of the new economic opportunities derived from the Emerging Markets century

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