Download (c) Are official and private flows complementary?

The trees and the forest
Mapping development finance towards developing
countries
Javier Santiso
Chief Development Economist & Deputy Director
OECD Development Centre
Development Finance Architecture
P a r i s

3
J u l y
2 0 0 6
1
1
Mapping the flows to developing countries
2
The trees and the forest
(a) The relative importance of aid flows
(b) Emerging economies vs developing countries
(c) Are official and private flows complementary?
3
A new development finance architecture?
2
Financial flows to developing countries
in USD million
Net Private flows to developing countries
Total net flows to developing countries
800,000
800,000
700,000
700,000
600,000
600,000
500,000
500,000
400,000
400,000
300,000
300,000
200,000
200,000
100,000
100,000
24%
9%
13%
9%
0
0
1980
1990
1995
2000
Asia
Eastern Europe
2004
1980
1990
1995
2000
2004
Latin America
Africa
X% Africa’s share of developing countries inflows
3
Source: OECD DAC, IIF, UNCTAD, World Bank 2006
Capital Inflows in developing countries, 2004
2
85 39 19.4
CIS and South Europe
180 72.3 68 29.3
Developing Asia
0.5
34
-10
28 24
Africa and
Middle East
62 41 7
Latin America
Net FDI and portfolio Investment
Remittances
ODA Disbursements
Private creditors
Source: IIF, OECD DAC, UNCTAD, World Bank 2006
Recipient Country
Donour country
4
Focus: Capital inflows in Africa
100,000
90,000
80,000
70,000
41%
60,000
50,000
40,000
0.5
37 28 24
24 0.5
30,000
65%
49%
37%
20,000
10,000
77%
0
-10,000
1980
1990
1995
2000
2004
$ bn; 2004
FDI and portfolio Investment
Remittances
X%
ODA Disbursements
Private creditors
Share of ODA in Africa’s total inflows
5
Source: World Bank, UNCTAD, IIF, OECD 2006
1
Mapping the flows to developing countries
2
The trees and the forest
(a) The relative importance of aid flows
(b) Emerging economies vs developing countries?
(c) Are official and private flows complementary?
3
A new development finance architecture?
6
Private flows to developing countries increased at a
record pace in 2005
$ billions
Percent
Percent of GDP (right axis)
500
6
$491 billion
in 2005
450
500
450
5
400
350
4
300
400
350
300
250
3
200
Portfolio
FDI
250
200
2
150
100
1
50
150
100
50
0
0
1990
1993
1996
1999
2002
2005
Bonds
Bank
0
Total net private flow s 2005
2005
Source World Bank GDF 2006
7
Development Finance according to the US:
US Total flows going to developing countries according to two sources, 2003
US Private capital
flows
7%
US Universities /
Foreign Student
Scholarships
2%
US Based
Religious
Organizations
7%
US NGOs Grants
abroad
3%
Personal
remittances
25%
Personal
remittances
44%
US Government
Other Country
assistance
1%
US ODA
19%
US Government
Other Country
assistance
2%
US Foundations
Giving abroad
4%
US ODA
14%
US Corporate
Foundations
Giving abroad
1%
US Foundations
Giving abroad
2%
US Private capital
flows
45%
US Universities /
Foreign Student
Scholarships
2%
US NGOs Grants
US Corporate
abroad
Foundations
11%
US Based
Giving abroad
Religious
6%
Organizations
5%
Total 112 $bn
Total 84 $bn
Source: USAID 2006
Sources: OECD Development Centre,
Hudson Institute 2003
8
1
Developing countries external financing
2
The trees and the forest
(a) The relative importance of aid flows
(b) Emerging economies vs developing countries
(c) Are official and private flows complementary?
3
A new development finance architecture?
9
Financial resources of emerging economies in 2004
2004
1980
250,000
250,000
200,000
200,000
150,000
150,000
100,000
100,000
50,000
50,000
0
0
Private creditors
Equity
investment
ODA
Disbursements
Remittances
-50,000
Private
creditors
Developing countries (excl emerging)
Equity
investment
ODA
Remittances
Disbursements
Emerging Economies
10
Source: UNCTAD, World Bank GEP 2006, IIF online statistics, OECD DAC 2006
Are emerging economies really emerging?
BRICS’ Share of all foreign investment stocks a century ago and now
26%
6%
74%
1913
BRIC + Mexico
Rest of the world
94%
2003
11
Source: OECD Development Centre, based on figuers from Schularick, M. A tale of two globalizations, 2006
1
Developing countries external financing
2
The trees and the forest
(a) The relative importance of aid flows
(b) Emerging economies vs developing countries
(c) Are official and private flows complementary?
3
A new development finance architecture?
12
Aid progressive distribution vs private flows
regressive distribution
Concentration Curve
1
0.8
0.6
0.4
0.2
0
.2
.4
.6
Population Ranked by GDP per cap. 2000-03
.8
Tot. ODA/OA 2000-01
nets FDI 2000-01
Natives living in OECD v. 2000
Exports to OECD 2000-01
GDP Per cap. 2000
Line 45 deg.
Source: Lambert, S et Cogneau D; L’aide au développement et les autres flux nord sud: Complémentarité ou
substitution? Centre de Développement de l’OCDE, janvier 2006
1
13
1 Mapping the flows to developing countries
2
The trees and the forest
(a) The relative importance of aid flows
(b) Emerging markets vs developing countries?
(c) Are official and private flows complementary?
3
A new development finance architecture?
14
New Flows, New Actors
 Private flows increasingly constitute a main source
of development finance
 Consequently, new flows and actors have to be
integrated into the development process
 We lack of a clear mapping of both those flows and
actors involved in development finance
 Another issue is that apart for remittances, private
flows are directed towards emerging economies
 The policy response thus varies depending on the
type of country
15
Policy Options
Low Income Countries
Emerging Economies
 Aid is still very much needed to
bridge financing needs of
developing countries
 Main challenge for developing
countries: continue the process
of alignment and aid
harmonisation to increase aid
effectiveness
 Promote other private flows to
increase their significance in
developing countries
 Other sources of development
finance are strongest in
emerging economies
 The development finance
architecture needs to
incorporate these new sources
 Major coordination /
interaction needed between
ODA actors and Non-ODA
actors of development finance
16
Policy Issues
 The issue is not only DAC Donors coordination or DAC Donors
versus Emerging Donors coordination
 As new actors and new flows are becoming increasingly relevant for
developing economies the issue is also about better coordination
and synergies between
– Official donors and private actors
– Private actors between themselves
(i.e. public private equity funds; sri investors; corporate foundations; etc.)
 Country based strategy or issue based strategy? The example of
Health Sector in Ghana.
17
Annex I: Two eras of financial integration:
Are emerging economies financial integration higher than before?
Share of international investment
stocks in 1913 and 2000
Share of world GDP (in ppp,
1990 international dollars)
30
25
25
20
20
15
15
na
Ch
i
In
di
So
a
ut
h
Af
ric
a
Br
az
il
M
ex
ico
Fr
an
ce
Ja
pa
n
Ru
ss
ia
Ar
ge
nt
in
a
an
y
G
er
m
US
Ch
in
a
a
Af
ric
In
di
a
So
ut
h
o
M
ex
ic
Br
az
il
Ar
ge
nt
in
a
Ru
ss
ia
er
m
UK
G
Ja
pa
n
0
Fr
an
ce
0
an
y
5
US
5
UK
10
10
Integration Index
16
Country’s share in world
Invesment stocks
Integration Index =
Country’s share in World
GDP
14
12
10
8
6
4
1913
2000
2
na
Ch
i
ca
Af
ri
So
ut
h
In
di
a
Br
az
il
M
ex
ico
Fr
an
ce
Ja
pa
n
Ru
ss
ia
Ar
ge
nt
in
a
an
y
G
er
m
UK
US
0
Source: Maddison (1995, 2001) ; Schularick, M. A tale of two globalizations 2006.
18
Annex I: Are emerging economies really emerging?
BRICS’ Share of all foreign investment stocks a century ago and now
26%
6%
74%
1913
BRIC + Mexico
Rest of the world
94%
2003
19
Source: OECD Development Centre, based on figuers from Schularick, M. A tale of two globalizations, 2006
Annex II: How many economies are emerging
according to Wall Street?
Emerging
countries
(29)
40
35
30
25
20
15
10
5
0
an
E
SB
C
H
Le
hm
ga
n
M
or
FT
S
St
an
le
y
I
SC
M
II F
tS
re
di
C
JP
M
ui
or
ss
e
ga
n
ns
te
r
ar
S
EM
BI
Be
C
it ig
ro
up
Other
developing
countries
(124)
International Institute of Finance: 29 countries. (chosen sample)
OECD Development Centre, based on selected major financial organisations Emrging Markets
analysis reports 2006
20
Annex II: Who are the emerging economies
according to Wall Street?
Presence frequency in
banks Analysis (n=38)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
Note: Countries most frequently analysed in selected Emerging Markets Analysis. (Citigroup, Morgan Stanley, HSBC, Lehman
Brothers, Bear Sterns, Credit Suisse, FTSE, JP Morgan, IIF) The percentage represents the average presence in their analysis.
Only countries analyzed by more than 30% of them appear on the graph.
Source: OECD Development Centre, calculation according to selected analysis reports
21
Tunisia
Israel
Pakistan
Romania
Vietnam
Taiwan
Dominican Rep
Nigeria
Morocco
Serbia
Ukraine
India
Czech Republic
African Emerging Countries
Bulgaria
Panama
Uruguay
Thailand
Egypt
Indonesia
Ecuador
South Korea
South Africa
Turkey
China
Venezuela
Hungary
Malaysia
China
Chile
Brazil
Russia
Philippines
Poland
Philippines
Peru
Mexico
Colombia
Argentina
0%
Annex II: Where are the emerging economies in
2005 according to Wall Street?
16%
36%
Latin America
CIS and East Europe
Asia
24%
Africa and Middle East
24%
22
Source: OECD Development Centre, calculation based on major investment banks analysis, 2006
Annex III: Remittances flows are particularly strong
towards low-income countries…
Billions of Dollars
Nigeria
Share of GDP
2.8
10
Yemen, Rep.
United States
3
Kiribati
Colombia
3.2
Vietnam
3.2
Portugal
3.2
Egypt, Arab Rep.
3.3
Bangladesh
3.4
Brazil
3.6
Pakistan
3.9
Serbia
4.1
Morocco
4.2
6.4
Germany
6.5
Belgium
6.8
Spain
6.9
Albania
11.7
Nicaragua
11.9
Tajikistan
12.1
Samoa
12.4
Lebanon
12.4
Dominican Rep.
13.2
Philippines
13.5
15.5
16.2
EI Salvador
Serbia and Montenegro
17.2
Jamaica
17.4
20.4
Jordan
Philippines
11.6
France
Bosnia and Herzegovina
12.7
18.1
China
India
25.8
Moldova
21.7
15
24.8
Lesotho
21.3
10
22.5
Haiti
Mexico
5
11.7
Honduras
United Kingdom
0
11.3
Nepal
20
27.1
Tonga
25
31.1
0
5
10
15
20
25
30
35
Source: Based on OECD and The World Bank (2006)
23
The central issue for developing countries:
Transaction costs … but not in all countries
Remittances costs in Mexico
Remittances costs in Latin America *
(%, for 200 USD)
(%, 200 USD)
10.6
* From USA; 2004
Source: PEW Hispanic Center
24
Average
Ecuador
Peru
El Salvador
Colombia
7.9
7.3 7.3 7.3 6.9
6.4 5.8
5.6 5.4
Nicaragua
Bolivia
Venezuela
2004
Haiti
7.3
Jamaica
7.4
Cuba
Rep.
Dominicana
Source: Pew Hispanic Center
2002
2001
2000
8.1
2003
9.2
Guatemala
8.9 8.6
8.2
Honduras
11.3
México
12.1
13.0
The central issue for all developing countries: How
to capitalize remittances’ bonanza?
Uses of remittances in Mexico in 2004
% of total
78.0
7.0
5.0
Consummer Education Savings
Goods
4.0
Others
1.0
1.0
Investment Households
Source: Fomin y Pew Hispanic Center
25
Annex III: Credit worthiness and higher access to
capital can be reached through remittances…
Debt as % of Exports (2004)
.
Indebtedness Classification according to Remittances
500
Ratio Debt/Ex ports
-3.9%
Ratio Debt/(Ex ports + Remittances)
-9.3%
400
-5.5%
300
-17 .2%
-24.5%
200
-3.4%
-3.5%
-7 .6%
100
0
Argentina
Peru
Brazil
Colom bia
Ecuador
Chile
Venezuela
Mex ico
Source: OECD Development Centre, 2006.
Based on: “Economic Implications of Remittances and Migration”. World Bank, 2006.
26
…which could have a positive effect on sovereign
credit ratings
Potential Improvements in Credit Rating
through Remittances
Determinants of Sovereign Credit Ratings
Explanatory Variable
Constant
Dependent Variable
Rating Moody's Rating S&P
3.408
-0.524
(1.38)
(-0.22)
A AA
GDP per capita
1.027
(4.04)
1.458
(6.05)
AA
GDP growth rate
0.130
(1.54)
0.171
(2.13)
A+
-0.630
(-2.70)
-0.591
(-2.67)
0.049
(0.82)
0.097
(1.71)
0.006
(0.54)
0.001
(0.05)
External debt / Exports
-0.015
(-5.36)
-0.011
(-4.24)
Developed country (dummy)
2.957
(4.18)
2.595
(3.86)
CC C+
Default since 1970 (dummy)
-1.463
(-2.10)
-2.622
(-3.96)
CCC -
49
0.905
1.325
49
0.926
1.257
Fiscal balance / GDP
Current account balance / GDP
No. observations
Adjusted R2
Standard error
A+
Potential S&P with Remittances
A
ARating (S&P)
Inflation rate
S&P Rating (May 2006)
BBB+
BBB
B BB
BB+
BB +
BB
BB+
BB
BB+
BB
BB
BB-
BB -
B+
B
B
BCCC+
C
Chile
Mexico
Brazil
Colombia
Peru
Venezuela Argentina Ecuador
Note: T-statistics are in parentheses. Parameters estimates that are
significant at the 5% are indicated in bold.
Source: OECD Development Centre, 2006.
Based on: Rowland, P. “Determinants of Spread, Credit Ratings and Creditworthiness for Emerging Market
Sovereign Debt: A Follow-Up Study Using Pooled Data Analysis”. Banco de la Republica de Colombia, 2005.
27