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Presentation to Acer Group, Inc. Topics in Emerging Financial Markets: Direct Investment Alan Jaffe • Yelena Leyderman Alex Raytburg • Elina Stunis Hourly Compensation Growth: Historical Trends 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 1975 1977 1979 1981 Taiwan 1983 1985 1987 Mexico 1989 1991 1993 1995 Portugal 1997 1999 2001 Sri Lanka 2003 Hourly Compensation Growth: Other Factors The Next 5 Years Projections Methodology Growth Taiwan 11.80% 2003 Wage $9.15 Mexico 0.96% $1.92 Sri Lanka 2.28% $0.53 Portugal 5.56% $7.18 Compound Growth Rate Calculation Comparison with the United States In 1998 US Labor Cost was $18.56 By 2003 it will rise even higher Exchange Rate Issues Union Strength, Labor Specialization Logistics Labor Productivity: “Real Wage Rate” Economic Statistics: Competitiveness Rankings Country MICI Ranking * 1999 1998 Competitiveness Ranking ** 1999 1998 1997 Portugal 29 33 27 26 29 Mexico 34 39 31 32 32 Sri Lanka 50 43 48 39 48 * These rankings are based on counties’ infrastructure, education, and technological progress Notes ** The overall ranking is based on the country’s economic conditions, such as government savings rate, reliability of banking sector and the overall stability of the economy. Economic Statistics: At a Glance Growth Rates (% ) Sri Lanka Mexica 5.0 4.5 4.0 3.5 Portugal 3.0 2.5 2.0 1.5 1.0 0.5 0.0 P opu r Labo n lat io Portugal Notes Mexico GD P Sri Lanka Agriculture Industry Services Trade policies in Portugal are likely to be brought in alignment with the common EU rules. Trade policies in Mexico follow NAFTA policies. Exchange Rates: A Time Series Analysis Since 1990, the situation was very different for the four sample currencies. Rate MXN: Currency Crisis 350.0 250.0 PTE/XEU SLS 150.0 TWD 50.0 1990 Notes 1993 1996 Mexico experienced a significant devaluation in 1994-95 Portugal joined the European Union and has hitched its hopes to the Euro Taiwan tracked Portugal rather closely throughout the period And Sri Lanka has steadily eroded relative to the USD 1999 Political Risk: Rankings Rating (10/98) Corruption Socioeconomic Conditions Internal Conflict Country 80 Law & Ethnic Bureaucracy Order Tensions Quality Taiwan 50 75 100 67 84 75 91 Portugal 84 67 100 84 100 75 68 Mexico 50 84 58 33 84 75 59 Sri Lanka 67 84 25 50 17 50 In Sri Lanka, “…The Tigers have been waging a bloody guerilla campaign to establish a homeland for the island Tamil Hindu minority. This conflict has claimed 61,000 people and displaced more than a million of the country’s 19 million inhabitants…” Political Risk (Continued) Degree of political stability (elections, party agendas) Civil wars or guerilla activity Respect for law and order (functioning court system) Strong tradition of civilian government (no juntas in recent history) Anti-foreign feelings Overall “feel” of the nation... Numerous Factors Have to Be Weighed Properly Political Risk Wage Growth Productivity Investment Decision Economic Factors Trade Barriers Corruption Infrastructure/ Communications Analysis of the Various Aspects of the Decision Decision Factors Breakdown Economic & Financial Labor & Productivity Wage Growth GDP Growth ~25% Trade Barriers Financial Markets Ties with Clients ~50% Productivity Growth Population Growth Political & Social ~25% Domestic Tranquility Corruption Faith in Government Key Objectives: Safety of Investment Returns on the Investment Long-Term Future of the Investment Foreign Policy And the Winner Is…