connectivity for an investment and business hub in brazil
DESCRIPTION
In this report, BRAiN brings an approach more detailed and purposeful of the Connectivity pillar, as defined in the "Attractiveness of Brazil as an international investment and business hub" report, identifying the benefits for Brazil and Latin America of a higher level of connectivity.TRANSCRIPT
4 ConneCtivity for an investment and business hub in brazil
brazil has a number of characteristics that make it attractive as an investment and business hub, such as economic growth, availability of an economically active popula-tion, and a large domestic market, among others. however, connectivity in brazil, and in latin america in general, still has a lot of room for development, both within the region itself and with the rest of the world. the challenge that arises is therefore how to properly tackle the key enablers and close the region’s connectivity gaps, making it more attractive for investment and business in general.
this document is the fourth publication by brain (brasil investimentos & negócios – brazil investments & business) and explores in greater depth our understanding of “connectivity”, one of the pillars of attractiveness of a hub, as described in the report entitled “attractiveness of brazil as an international investment and business hub”, published by brain in June, 2011. in addition to offering a diagnosis of the current connectivity situation in brazil and latin america, comparing it to other parts of the world, this report also identifies the enablers that can catalyze the development of regional connectivity.
in preparing this material, brain embarked on an extensive research and analysis effort supported by the boston Consulting Group, which included interviews and workshops with experts and opinion leaders in government and the private sector. the conclusions of this study, including the proposals made throughout the effort, will establish an agenda for the dialogs brain intends to set up with the public and private spheres so that brazil may continue to develop its connectivity with latin america and the rest of the world, becoming even more attractive as an international investment and business hub.
Created in 2010, BRAiN aspires to ensure the creation of a multi-sector vision of Latin America a regional business hub with strong ties between members. Brazil should play a preeminent role within this network of hubs.
BRAiN plans to create a consensus and calls to action around this idea in all econo-mic sectors. To achieve this it currently has 13 members: ANBIMA, BM&FBOVESPA, FEBRABAN, FecomercioSP, Banco Bradesco, Banco do Brasil, Banco Santander, Banco Votorantim, BTG Pactual, CETIP, Citibank, HSBC and Itaú Unibanco.
Please go to www.brainbrasil.org for more information about BRAiN and its vision.
PrefaCe
ConneCtivity for an investment and business hub in brazil 7 6 ConneCtivity for an investment and business hub in brazil
Contents
executive summary 8
business hub connectivity and its benefits 20
trade in merchandise and services 28
investment and capital flows 48
international business expansion 64
People flows 74
international Political scenario 86
Conclusion 94
1
2
3
4
5
6
ConneCtivity for an investment and business hub in brazil 9 8 ConneCtivity for an investment and business hub in brazil
the report entitled “attractiveness of brazil as an international investment and business hub”, which brain launched in June 2011, required extensive research and data analysis, as well as numerous interviews and workshops with experts and opinion leaders in both the public and private sectors. the objective was to define and measure the attractiveness of brazil as an investment and business hub.
the result of this effort was a selection of seven pillars that constitute brain’s vision of the essential prerequisites for the creation and excellence of an attractive investment and business hub (see Exhibit 1), and an analysis of brazil’s strengths and opportunities for improvement in each one of them. this document focuses more proactively and in greater detail on the “Connectivity” pillar.
the selection of the connectivity pillar as one of brain’s main focuses is based on a very important premise, which is that the theme deserves extra effort as, by definition, it is essential for creating a hub, and because brazil and latin america lag behind in the development of this pillar when compared to other countries and regions around the world. Without the proper connections or established flows, the economic wealth of the country and region will not be used to their fullest potential, and latin america may find itself on the sidelines of the main investment and business decisions made around the world.
in addition to making a hub more attractive, high levels of connectivity normally bring with them additional benefits that spill over to the region of influence. typically these benefits take the form of economies of scale and scope, which reduce intra or extra-regional transaction costs. these benefits materialize in numerous ways: access to capital, investment and businesses, which resonate in the nation’s and region’s economic growth (see Exhibit 2).
• Access to capital: almost 50% of singapore’s asset management funds are invested in other asia-Pacific nations, and 36% of the venture capital funds used by asian companies originate in singapore;
• Investment: in the past, hong Kong was responsible for 55% of all foreign investment in China;
exeCutive summary
ConneCtivity for an investment and business hub in brazil 11 10 ConneCtivity for an investment and business hub in brazil
• Businesses: multinationals established in investment and business hubs create a virtuous cycle of innovation and development of competences and skills. a number of multinationals such as duPont, l’oreal, ibm, Cargill, ericsson and Ge have established global or regional latin american research centers in brazil;
• Economic Growth: a study by the Central bank of Chile1 shows that an integration agreement between nations can increase a country’s growth by 0.055 percentage points (p.p.) for every 1% share of the partner country in the global GdP in other words, an integration agreement with brazil, which accounts for 2.57% of the global GdP, would imply in 0.14 p.p. increase in the growth rate of a partner country.
because of the importance and the benefits of connectivity, this report will detail the current situation and the enablers of connectivity for brazil and latin america. the overall concept of connectivity will be analyzed along five main dimensions: trade in merchandise and services, investment and capital flows, international business growth, people flows and the international political scenario (see Exhibit 3).
exhibit 2the benefits of connectivity and of a hub
1. ACCESS TO CAPITAL
2. INVESTMENTS
3. BUSINESSES
4. ECONOMIC GROwTH
hub financial maturity makes it easier for businesses in the region to access world savings
a hub fosters increased foreign investment in the countries within the region
multinational decision making and r&d centers established in the hub bring innovation and attract talents to the region
finally, a hub fosters adjacent economic growth
48% of the asset management funds in singapore go to the asia-Pacific region, only 30% remain in the country
hong Kong is one of China’s most important sources of capital
Competence attraction and development cycle
solution customization
south africa drives the growth of other countries in its region - 1 p.p. increase in the country’s GdP creates up to 0.75 p.p. growth for the neighboring countries
1 source: Central bank of Chile, Working Papers (2004)
exhibit 1seven major pillars sustain the creation and excellence of an investment and business hub
5. Financial inFrastructurE
1. MacroEconoMic EnvironMEnt
2. institutional EnvironMEnt
3. talEnt and huMan capital
4. physical inFrastructurE
6. connEctivity
7. iMagE oF thE country
ConneCtivity for an investment and business hub in brazil 13 12 ConneCtivity for an investment and business hub in brazil
1) Trade in Merchandise and Services: this is a critical dimension for the various economic sectors in a hub and region, as it opens up markets and enables the development of international supply chains. large hubs such as london, hong Kong, new york and singapore were centers of trade long before they took on leading roles in the investment and business flows that characterize the globalized economy of recent decades. along this dimension, a diagnosis of the situation in latin america and brazil shows that, despite impressive growth, there is still room for trade flows to grow and expand:
• International Latin American trade flows are still only a small fraction of the global trade in merchandise: in 2009, latin america accounted for 7% of the global GdP but for only 5% of the trade in merchandise and services, while europe and asia, with 29% and 13% of the global GdP respectively, were responsible for 37% and 22% of the international trade in merchandise;
• Latin American merchandise exports and imports have grown faster than the world average. While the global trade in merchandise and services grew at a rate of 4.3% and 3.9% in 2005 and 2008 respectively, in latin america the export of goods increased 4.8% per year, and services 6.6% per year;
• Intra-regional trade in merchandise is another area with potential for growth in Latin america. in 2009, only 17% of the exports and 15% of the imports in latin america were intra-regional. in the case of asia the numbers were 42% and 48%, and in europe 67% and 50% respectively.
• Similar to the case of goods, Latin America accounts for only a small share of the international trade in services, amounting to less than 4% of the total volume of services exported and imported worldwide in 2009. that same year asia accounted for 14% of the world exports and 15% of the imports, while europe was responsible for 45% of the exports and 41% of the imports;
• As a result, Latin America was responsible for only 4% of the world’s trade in services, yet it accounts for 7% of the global GdP. in other words, latin america’s share of the global trade in services is equivalent to only 49% of its share of the GdP. for asia this proportion is 110%, and for europe 151%;
• Even though it has only a small share, the international trade in services increased faster in latin america than the global average. between 2005 and 2009 exports grew at a rate of 8.5% and imports 10.1%, while worldwide these rates are 7.5% and 7.2% respectively.
the main enablers of connectivity identified in this dimension are:
• Latin American trade terms (such as tariffs, limitations on quantities etc.), which are more restrictive than the world average, limit the region’s ability to trade in merchandise. most latin american countries have equivalent import tariffs2 that are higher than those in asia and europe: brazil, mexico and argentina have equivalent tariffs for imports of 20.3%, 18% and 9.3%, all of which are higher than the world average of 9.1%.
2 this reflects a uniform tariff on a list of country tariffs plus non tariff measures (quotas, price control, technical restrictions, subsidies, etc.) that, if they did not exist, would keep domestic import levels constant - in other words, they would not affect the possibility of imports by domestic agents
exhibit 3Connectivity is described along five dimensions
1. TRAdE IN MERCHANdISE ANd SERVICES
increase in imports and exports
infrastructure development, as well as bilateral and regional agreements
2. INVESTMENT ANd CAPITAL FLOwS
increased investment in attractive markets
facilitate agreements, ensuring a greater supply of funding resources
3. INTERNATIONAL BUSINESS ExPANSION
Production closer to consumer and raw material markets
regional and global expansion
4. PEOPLE FLOwS
free transit for travel and tourism
simpler requirements for international contracting
5. POLITICAL SCENARIO
improve the country image abroad
Clear institutional link to other countries
• Likewise the equivalent tariffs3 imposed by other countries on latin american exports are also higher, sometimes due to reciprocity. brazil and argentina stand out in this regard, as access to other markets for their goods is strongly restricted due to equivalent tariffs of 16.4% and 12.3% respectively, while the world average is 9.1%;
• Latin America must also develop its logistics, another important enabler of the trade in merchandise. according to the World bank logistics Performance index4 (where 1 is the best score and 5 the worst), latin american nations score worse than countries in europe and most countries in asia;
3 reflects a uniform tariff that would keep the level of imports
by the exporter’s commercial partners constant
4 overall perception of a country’s performance
in logistics based on approximately one thousand interviews with international
experts; World trade indicators 2009/2010 - World bank
ConneCtivity for an investment and business hub in brazil 15 14 ConneCtivity for an investment and business hub in brazil
• Latin America is very incipient in all logistics connection modals, be they sea, river, road, railway or air, in particular intra-regionally;
• General Agreements on Trade in Services (GATS) are an enabler of the trade in services, and latin america makes only limited use of this tool to promote its service imports and exports. on average, countries in latin america have only 21 signed agreements, while european nations average 39, and asian nations 32;
• Latin America’s telecom structure, something that is essential for international operations such as call-centers, is not well integrated and in fact is considered poor by executives responding to an imd5 survey, and expensive compared to the rest of the world.
2) Investment and Capital Flows: this dimension deals with virtual flows that are essential for any modern economy; this is the dimension that best defines a hub as an intra and extra-regional center. the diagnostic of this dimension shows the following situation in brazil and latin america:
• In recent years Latin America received only a small percentage of the total Foreign direct investment (fdi) in absolute terms - not more than 7% between 2005 and 2009. although this is only a small percentage, it closely mirrored the region’s share of the global GdP, which also averaged around 7%. by comparison, the european union and asia received 33% and 17% of the fdi in 2009, thus their share of the fdi was 110% and 130% respectively of their share of the global GdP;
• Latin America is even less relevant in terms of the outflow of direct investments. In 2009, latin american countries were responsible for just 1.3% of all the outward fdi in the world, whereas the eu and asia were responsible for 35% and 13% respectively;
• When we look at portfolio investments, inward and outward volumes in Latin america are hardly relevant, accounting for less than 2% and 1% of the global incoming and outward portfolio investments between 2005 and 2009. over this same period the european union accounted for over half of the inward and outward portfolio investments, and asia for 4.4% and 3.2% respectively.
the main enablers identified for this dimension are:
• Ratification of bilateral investment agreements, which could enhance capital flows, as latin american nations are not well represented in this type of agreement compared to their european and asian counterparts. this is particularly true for brazil, with only 14 signed agreements, none of them ratified;
• Exchange regulations, given their obvious importance for intermediating investments entering and exiting the country. over the long term, a stable and agile exchange regulation will also contribute to making latin america more attractive for foreign investors;
• Another lever that can help enhance capital flows in Latin America is the implementation of local Currency Payment systems (lCs). brazil implemented such a system for its trade transactions with argentina in 2008, and is currently negotiating this same mechanism with uruguay.
5 imd World Competitiveness yearbook - score given by executives in response to the following question: Communications technology (voice and data) meets business requirements?
6 source: World investment report 2009, unCtad
7 source: World investment report 2011, unCtad
3) International expansion of businesses: flows in this dimension include both the international expansion of domestic companies as well as attracting operations and the regional, functional or even global decision making centers of companies originally from other nations. this not only attracts investment, but it especially creates high value added jobs in corporate functions that will strengthen the virtuous cycle of talent attraction. the diagnostic of this dimension shows the following situation in brazil and latin america:
• In the ranking of developing nations with the largest volume of assets abroad, the share of latin american businesses is increasing6, in 2003 they owned 14.1% of all assets abroad, and by 2008 owned 17.2%. this increase in position is the fruit of a 258.1% increase in assets held abroad in just five years, from us$ 35 billion to us$ 125 billion;
• Although starting from quite a low level, the outward flow of FDI to other parts of the world from latin america increased 87% between 1999 and 2009, compared to 72% growth in asia and -52% in europe;
• While Latin American businesses still have limited importance on the global scenario, their importance has grown in recent years, and continues to do so. among the 100 transnationals in developing nations, only nine are latin american, three of them brazilian. if we look at the ranking of the world’s 100 largest transnationals, latin america is represented by only two companies – vale and Cemex - ranked 55th and 79th respectively7;
The selecTion of The connecTiviTy pillar as one of Brain’s main focuses
is Based on very imporTanT premises: (i) The Theme deserves exTra efforT as, By definiTion, iT is essenTial for creaTing a huB and (ii) Brazil and
laTin america lag Behind in The developmenT of This pillar when
compared To oTher counTries and regions around The world
ConneCtivity for an investment and business hub in brazil 17 16 ConneCtivity for an investment and business hub in brazil
8 the 30 largest businesses in the six nations with the largest GdPs in each region were chosen, and the number of operations abroad for each business calculated. selection made from the list of largest businesses published by forbes magazine (2010). for countries that did not have 30 businesses on the list, the criteria of largest revenue was used
9 ten largest countries in each region based on GdP, ref. 2010
10 international accounting standards published by the iasb (international accounting standards board). since 2010 the iasb has worked to implement these standards to improve comparability and integration of the accounting standards of businesses in different countries
11 argentina, bolivia, brazil, Chile, Colombia, ecuador, mexico, Panama, Paraguay, Peru, uruguay and venezuela
12 represented as established organizations in each country with the right to a full vote at technical committees – only one per country
• European businesses have six times more international operations than do Latin american businesses8. if we look at the international operations of latin american businesses, they are largely within the region - 50% in other latin american Countries, while for europe and asia these percentages are 30% and 37% respectively;
• Even within the region, a comparison with Europe and Asia shows there is room for latin american businesses to expand: the average penetration of businesses from one country in the other countries9 in the region is 11% in latin america, but 17% in asia and 30% in europe;
• On a more positive note we would mention the region’s ability to attract foreign businesses. an analysis of the 360 largest businesses in each region shows that latin america attracts as many businesses as do asia and europe – between 35% and 40%, Within latin america brazil, mexico, argentina and Chile stand out.
the main enablers identified for this dimension are:
• Alignment of Latin America’s accounting standards, which is already underway as countries adopt ifrs10. in brazil specifically, the new accounting standard, governed by international rules, is already a requirement for large and/or traded companies, insurers and financial institutions. the Country also has a simpler set of ifrs accounting standards for micro, small and mid-sized businesses, with voluntary compliance. in addition several latin american countries11 constituted the Glenif (Grupo latino-americano de normas de informação financeira – Group of latin-american accounting standard settlers) to represent the region at the international accounting standards boards (iasb);
• Although homogeneous technical standards benefit international business, efforts to align these standards are still limited in latin america. fewer than 50% of all latin american countries are active members12 of the international organization for standardization (iso), while 96% of the nations in the european union are members, and 60% of those in southeast asia;
• In addition to homogeneous standards, the use of common systems and registrations can also make it easier for companies to operate in multiple nations within a region. one example is a unified patent registration system for latin america, along the lines of the european Patent office (ePo), created in 1977;
• Alignment of the region’s financial regulations, which in Latin America could be improved by adopting agreements to eliminate double taxation;
• Better access to local sources of credit, which could start with the regional integration of corporate debt markets and creating mechanisms for the international recognition of guarantees.
ConneCtivity for an investment and business hub in brazil 19 18 ConneCtivity for an investment and business hub in brazil
4) People flows: business flows do not depend merely on goods, services, capital and businesses. they also depend on easy transit for the executives and decision makers of different sectors within the hub, both to conduct business as well as to enable the installation of company decision making centers and regional headquarters. the diagnostic of this dimension shows the following situation in brazil and latin america:
• Only 3% of the world’s immigrants come to Latin America, while 5% go to Asia and 22% to europe. if we take these numbers as a percentage of the population in each region, we find that 1.1% of the population in latin america is made up of immigrants, compared to 9.4% in europe13;
• In addition to the low numbers, most of the immigration involving Latin America is intra-regional – 53% of latin american immigrants come from other countries within the region, while in europe only 27% of the immigration is intra-regional.
the main enablers identified for this dimension are:
• Immigration regulations – if we look at how hard it is to get visas for professionals moving within countries in a given region14, we find that, while the intra-regional flow of professionals is easier in latin america than in asia, it is not nearly as easy as it is within europe;
• Free residence agreements are an important tool to simplify the requirements for intra-regional flows of people, such as the mercosur fee residence agreement to which six nations have already adhered, and others may follow;
• Tourism is something else that can stimulate people flows as a whole by disclosing the image of a region internationally. however, the number of tourists who visit latin america is quite small, especially compared to europe. for example, although it has an excellent tourist and cultural image, brazil is only 38th in the list of the 60 countries that attract the most tourists worldwide;
• People flows are another important enabler for this dimension. Latin America is not well integrated with the rest of the world: there is an average of six international flights a day for every million inhabitants, 46% of them intra-regional. in asia there are three international flights a day for every million inhabitants, 9% of them intra-regional. in europe however, there are 53 international flights a day per million inhabitants, 72% of them intra-regional15.
5) Political Scenario: Guaranteed political stability and the absence of [political] violence create an environment that is attractive to foreign investors, as to investors it represents a measure of security offered by the nation’s government and businesses. the diagnostic of this dimension shows the following situation in brazil and latin america:
• Latin America has a relatively peaceful history, which contributes to the region’s good relationships with other countries around the world. only two latin american countries had domestic conflicts of sufficient international consequence to be included in the 2010 Conflict barometer: mexico because of its drug cartel wars, and Colombia due to the civil war against the farCs. latin american countries are arising as influencers of the world political order. brazil and mexico are already among the most influential countries in the world – ranked 21st and 22nd respectively according to the 2010 soft power16 league table, which assesses the ability of states to influence the actions of others without coercion, using persuasion or attraction.
the main enablers identified for this dimension are:
• Official visits made to and by Brazil, an area where Brazil starts to stand out in a positive way. over the past five years the brazilian President in office made an average of 35 official visits a year. official visits in 2010 were double the number in 2006. by comparison, the President of south Korea made only 13 official visits and the number actually dropped between 2006 and 2010;
• International cooperative investments, in particular within the region, also contribute to a positive political scenario. brazil’s increasing relevance to international cooperation has become more noticeable, as the country’s investments in international development grew at an annual rate of 23% between 2005 and 2009, with 76% going to other countries in latin america;
• In general, Latin American nations are strong players in global multilateral organizations. the un security Council is an arena where latin america has been particularly visible: four of the 13 more active members of the un security Council (outside the permanent members) are latin american: brazil, argentina, Colombia and Panama.
based on this diagnostic, and on a map of the enablers of connectivity flows, brain intends to take action to foster the development of those dimensions that are more incipient. the objective is to strengthen intra-regional connectivity within latin america so that the region may become stronger and more representative in the global scenario, and also to strengthen brazil’s and the region’s connectivity to ensure good connections with the rest of the world and enable the gains and leverage the future uniqueness of its network.
brain welcomes all representatives and members of society interested in participating in future strategic dialogs or in working groups created to enhance the connectivity of the Country with latin america and the world and consequently the attractiveness of brazil as an investment and business hub; interested parties should contact brain at [email protected].
13 source: unCtadstat
14 includes diplomatic relations, existing bilateral and multilateral agreements, the presence of embassies and other requirements
14 based on the number of lights in the week of december 6 - 12, 2010, departures only. latin american sample made up of brazil, Chile and mexico. asia sample made up of flights from China and singapore. european sample made up of flights departing from Germany, france, the uK and russia
16 soft Power: a concept developed by Joseph nye;
a league table based on four categories: business/
innovation, culture, government diplomacy and education.
source: the Persuaders: an international ranking of soft
power; institute for Government
ConneCtivity for an investment and business hub in brazil 21 20 ConneCtivity for an investment and business hub in brazil
01 Business huB connectivity and its Benefits
that the world is increasingly connected, resulting in an even more globalized world economy, is something numerous important political and business figures the world over agree on (see Exhibit 4). exchanges between nations are growing faster than the global population and GdP, and our planet becomes more interlinked at every passing day (see Exhibit 5). Within this growing global network, however, some hubs stand out for their high level of connectivity. new york and london, for example, are both hubs of international finance and air travel for the entire world. hong Kong, for its part, stands out as the headquarters location for numerous asian multinationals. rotterdam and singapore have the busiest ports in europe and the world respectively (see Exhibit 6).
a hub, by definition, is at the center of a network or grid of connections or flows, and the larger the number of connections the more attractive the hub, as its network will be more valuable to the agents that interact with it. traditionally a hub has two types of connections: regional (intra-regional) and global (extra-regional). both are essential for the development of an investment and business hub. the first type of connection makes the region in which the hub is inserted more cohesive and the entire region more attractive for the rest of the world. the second connects the region, through the hub, to other hubs around the world and their respective regions. if a hub is unable to establish productive global connections, the region as a whole may find itself at the margin of the world’s main economic flows.
Connectivity in latin america is still limited, both within the region and between the region and other countries around the world. there is no actual established hub in the region, although some countries do stand out. a hub would benefit the entire region, for example financial transactions currently centered in the us and europe could be completed within the region itself. brazil in particular stands out as a natural candidate for a regional hub due to its booming economy, the important position it has achieved within the international community, its good outlook for growth, its important position as a commodity exporter, and the existence of globally important companies in the region. this being the case, a regulatory framework and infrastructure that simplifies exchanges between brazil and other latin american countries, and between brazil and the rest of the world, is an absolutely essential condition for this country to characterize itself as a hub.
ConneCtivity for an investment and business hub in brazil 23 22 ConneCtivity for an investment and business hub in brazil
exhibit 4the world is increasingly connected
“... it is essential to [adopt] large [global] agreements and commitments to
regulate the financial system due to an important level of globalization”
José Luis Rodríguez Zapatero, Prime Minister of Spain at that time
“This is a very important period in the world of information [...]. The entire pace of business has picked up. glo-
balization is forcing companies to do things in new ways.”
Bill Gates, Microsoft
“since 1960, the growth in trade became easier due to international treaties to reduce customs and non customs barriers to the export of manufactured goods...”
BBC News
“Globalization is not something one can hold back or turn off... it is the economic equivalent to a force of nature - like wind or water.”
Former US President Bill Clinton
“our nations [...] are growing melting pots of different beliefs, races, cultures and ethnicities. The internet, mass communication, travel, migration: the world is getting closer.”
Tony Blair, former British Prime Minister
“globalization made us a company the procures globally, not only where to sell or buy, but where to find intellectual capital - the best talents in the world and the best ideas.”
Jack Welch, former GE CEO
“That’s globalization happening. iT is creating magical tools that
enable us to manage complexity. This has been a continuous
revolution over the past 10 years, forcing us to drastically transform
our processes to serve the best interests of our clients.”
Pierre Henri Gourgeon, Airfrance
Source: Media survey; BCG analysis
Benefits of Connectivity
a high level of connectivity not only contributes to making a hub attractive, but normally brings with it other benefits as well, not only for the hub but for the entire region as well. typically these materialize in the form of economies of scale and scope, which reduce the transaction costs for the parties in a flow, be it within or between regions. these benefits are perceived in numerous ways: access to capital, investments, businesses and economic growth (see Exhibit 2 on page 11).
a more financially mature hub makes it easier for businesses in the region to access global savings. singapore, for example, successfully created a financial center for southeast asia, in which efficient and well regulated capital markets coexist with a robust financial services industry. its efficient financial infrastructure, which includes market creators, its clearance systems and settlement procedures, as well as qualified investors set high standards not only for the region, but for the entire world as well. singapore’s financial maturity attracts funds from all over the world, which contributes to the region’s long term development. almost 50% of singapore’s asset management funds are invested in other asia-pacific nations, and 36% of the venture capital funds used by asian companies originate in singapore.
exhibit 5trade in merchandise and services is growing at a faster pace than the global GdP and its population
0
1.1
2.2
1. Foreign direct investment 2. UN Department of Economic and Social Affairs – Population Division estimate 3. Total exports. Source: UNCTADStat; UN Department of Economic and Social Affairs
Total global flow of fdi1 in the world Total number of immigrants in the world2
Total value of goods traded in the world3
us$t Million people
us$t
1970 1990
1970
0
0
110
12
6
0.01
156
0.3
2.10 214
16.1
220
18
1980 1995
1980
1990 2000
1990
2000 2005
2000
2010 2010
2010
cagr
cagr global gdp
12.0%
7.6%
cagr
cagr total population
1.61%
1.35%
cagr
cagr global gdp
9.9%
7.6%
ConneCtivity for an investment and business hub in brazil 25 24 ConneCtivity for an investment and business hub in brazil
exhibit 6some hubs stand out due to their high level of connectivity, but none of them is in latin america
Largest futures and derivatives market
Regional transportation center
International financial hub
Airline hub to the world
Important headquarters locations for multinationals in the region
Trading center for goods between China and the world
Busiest port in Europe
International financial hub
Airline hub to the world
The busiest port in the
world in volume of goods
Regional financial center
There is no global hub in Latin America
chicago
nEw yorK
rottErdaM
london
singaporE
hong Kong
shanghai
being close to an investment and business hub also stimulates the entry of foreign investment in the region as a whole. a study by the university of hong Kong analyzed its role as an investment hub for the economic development of China. estimates show that in 1999, some 180 thousand Chinese projects were being funded by investments coming from hong Kong. this is about 55% of all foreign investment in the region. because of the increase in foreign investment, foreign capital companies were largely responsible for the growth in Chinese exports during the nineties, increasing their share of the country’s exports from 27% in 1992 to 59% in 2001, an average annual growth of 25.4%.
in addition, multinationals that establish operations in investment and business hubs create a virtuous cycle of innovation, and incentivizes the development of competences and skills. as they are environments that foster business, hubs offer interesting career opportunities, helping develop local talents and attracting a qualified international workforce. a number of multinationals such as duPont, l’oreal, ibm, Cargill, ericsson and Ge, have established global or regional latin american research centers in brazil, which could be a great opportunity for the region to develop and train its local talent, and attract qualified foreign labor (see Exhibit 7).
exhibit 7businesses that establish themselves in a hub create a virtuous cycle of competence and skills development
Installed a center for innovation and technology in Paulinia in 2008
The survey has to do with talent, and that is something Brazil has
Daniel Dias, IBMIn 2010, IBM opened “ibM research
– brasil” in Rio de Janeiro, its first company in South America
fragmentation was complicating its response capacity, which is now faster and more efficient
Marcelo Martins, CargillOpened its 1st center for technology
and innovation in food in latin america
Inaugurated a research center in brazil in 2008, the company’s 4th
lab outside Europe
It is important to be close to the consumer to understand demand
Serge Restlé, L’Oréal
(...) its center of innovation for latin america, the focus of which are research and development and solution customization services
Ericsson press clippings
Will invest R$ 40 million in 2011 to bring place its center of innovation for latin
america in brazil
our guidelines are to establish a headquarters wherever we will be developing new technologies to serve regional needs (Brazil and Latin America)
Fernando Rodriguez, GE
The objective of the new center is to develop new solutions faster for company clients
Ariana Bottura, DuPont
US$ 550 million invested in a global research center in Rio de Janeiro, GE’s 5th in the world,
to be finished by 2012
ConneCtivity for an investment and business hub in brazil 27 26 ConneCtivity for an investment and business hub in brazil
finally, as a consequence of all the benefits listed above, the proximity to an investment and business hub fosters country economic growth. a study by the Central bank of Chile17 shows that increased integration has a positive effect on the level of activity in the countries involved. an integration agreement can increase country growth 0.055 percentage points (p.p.) for every 1% share of the partner country in the global GdP in other words, an integration agreement with brazil, which accounts for 2.57% of the global GdP, would imply in 0.14 p.p. increase in the growth rate of a partner country related to the hub. another study18 shows, for example, that south africa drives the growth of other countries in its region: every 1 p.p. increase in its GdP results in a 0.50 to 0.75 p.p. increase in the economic growth of the neighboring countries. these studies therefore show that increased regional and global connectivity benefits the parties involved.
Given the importance of connectivity for creating a hub, and the benefits a hub and its connectivity can bring the country and region, this report will address and analyze these themes in greater detail. in other words, connectivity in brazil and latin america will be assessed by analyzing five dimensions: the trade in merchandise and services, investments and capital flows, international business expansion, people flows and the international political scenario (see Exhibit 3 on page 13). for each dimension we will diagnose the current situation, listing the enablers of connectivity, and discuss some of the opportunities for action that will enable brazil and latin america to improve their connectivity, both within the region as well as with the rest of the world.
to make it easier to understand this report, latin america will be compared to other regions – europe and the expanded southeast asia – so as to make the analyses submitted relative (see Exhibit 8). unless otherwise stated, for the purpose of this analysis the regions considered include the following places:
1. Argentina, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, the Falkland Islands, Guatemala, Guiana, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Surinam, Uruguay and Venezuela. 2. Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Rumania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom. 3. Cambodia, North Korea, South Korea, China, Singapore, Philippines, Hong Kong, Indonesia, Laos, Macao, Malaysia, Myanmar, Thailand, Taiwan and Vietnam. 4. Nominal GDP in 2010 (US$ in PPP) 2. Actual growth between 2005 and 2010 (2005 prices). Source: EIU
latin aMErica1
us$4.7 trillion
21
2 main(spanish e portuguese)
548 million
20 million
7 time zonesuTc-2 - uTc-8
total GdP4
sites
languages
inhabitants
Km2
time zones
EuropE (Eu27)2
us$16.3 trillion
27
dozens of languages 23 in the european union
499 million
4.4 million
3 time zonesuTc - uTc+2
ExpandEd southEast asia3
us$9.4 trillion
15
more than a dozen languages
3.4 billion
14 million
4 time zonesuTc+5 - uTc+8
increased complexity
exhibit 8latin america will be compared to europe and asia
17 source: Central bank of Chile, Working Papers (2004)
18 source: imf Working Paper – arora and vamvakidis (2005) – analyzed data for 1960 - 1999
mulTinaTionals esTaBlished in invesTmenT and Business huBs creaTe a virTuous cycle of innovaTion and developmenT of compeTences and skills. as They are environmenTs ThaT fosTer Business, huBs offer inTeresTing career opporTuniTies, noT only To develop local TalenTs BuT also To aTTracT a qualified inTernaTional workforce
• Latin America: argentina, bolivia, brazil, Chile, Colombia, Costa rica, ecuador, el salvador, the falkland islands, Guatemala, Guiana, honduras, mexico, nicaragua, Panama, Paraguay, Peru, surinam, uruguay and venezuela.
• Europe: austria, belgium, bulgaria, Cyprus, Czech republic, denmark, estonia, finland, france, Germany, Greece, hungary, ireland, italy, latvia, lithuania, luxembourg, malta, the netherlands, Poland, Portugal, rumania, slovakia, slovenia, spain, sweden and the united Kingdom.
• Expanded Southeast Asia: Cambodia, north Korea, south Korea, China, singapore, Philippines, hong Kong, indonesia, laos, macao, malaysia, myanmar, thailand, taiwan and vietnam.
ConneCtivity for an investment and business hub in brazil 29 28 ConneCtivity for an investment and business hub in brazil
a hub must have an environment that enables and promotes the international trade in merchandise, essential for the different productive sectors of the economy, opening up markets and enabling international supply chains. large hubs such as london, hong Kong, new york and singapore were centers of trade long before they took on leading roles in the investment and business flows that characterize the globalized economy of recent decades.
in addition to the trade in merchandise, enabling international trade in services is also important for a hub, as services have become increasingly important all over the world. this is true for a wide range of activities: highly specialized professional services such as management consulting, advertising, legal counsel and auditing, technical services such as engineering and construction, and outsourcing, which ranges from processes (bPo) through call centers. historically defined as a residual sector, one that merely completes manufacturing industry and agriculture, in recent decades services have been the fastest growing economic activity in the world. advances in information and communication technology have expanded the scope of operations that can be traded overseas. it is also the sector that contributed the most new jobs, and generally requires better qualified labor. a resilient and diversified economy must have an international service sector that will support the region’s projection and create benefits for the different economic sectors, and for society as a whole.
02 trade in merchandise and services
Trade in merchandise
international trade in merchandise has existed throughout most of human history, but grew in importance over the past centuries – economically, socially and politically. Progress in manufacturing industry and transportation, globalization, the emergence of multinational corporations and outsourcing, all had a major impact on fostering trade, which includes any object that is useful to a consumer and that is sufficiently scarce to have some economic value. this category includes basic materials - those that have not been processed such as wood, intermediaries, which are raw material for other industries such as steel and cement, consumer goods, those used by the end consumer such as food, apparel and household appliances, and capital goods, meaning equipment and the facilities required to produce other goods. to create a hub it is important that a country play an important role in the international trade in merchandise, both as an exporter and as an importer. such a role, however, requires a robust logistics infrastructure that can carry the country’s goods to its markets and destinations with maximum speed, quality and efficiency, and at the lowest possible cost.
latin america saw its extra-regional trade in merchandise increase faster than the world average. While worldwide the volume of merchandise exported and imported increased at annual rates of 4.3% and 3.9% respectively, between 2005 and 2008 the export of merchandise from latin america increased 4.8% per year, and imports 6.6% per year (see Exhibit 9). it was the second fastest growing region in terms of exports, second only to asia, whose exports increased 7.3% a year over the same period. latin america led the world in terms of the growth of its imports, surpassing even asia, whose imports increased 6.5% a year. despite high growth, the international flow of latin american merchandise is still relatively small compared to global trade, especially when compared to it’s share of the world GdP. in 2009, latin america accounted for 7% of the global GdP but for only 5% of the trade in merchandise and services (see Exhibit 9), while europe and asia accounted for 29% and 13% of the global GdP respectively, and for about 37% and 22% of the international trade in merchandise.
intra-regional trade in merchandise is another area with potential for development in latin america, both in absolute terms and as a percent of its GdP. in 2009, only 17% of latin america’s exports and 15% of its imports were intra-regional, numbers that climb to 42% and 48% respectively for asia, and 67% and 50% for europe (see Exhibit 10). intra-regional trade in latin american goods is also quite small compared to the GdP, accounting for only 3% of the region’s GdP in 2009, while in asia intra-regional trade in merchandise accounted for 16% of the GdP, and in europe for 19%.
extra-regionally, on the other hand, latin america actually stands out for its trade in goods: in 2009, 83% of latin america’s exports and 82% of its imports involved countries from outside the region. in europe, only 33% of the exports and 50% of the imports involved countries from outside the region, and in asia these percentages were 58% and 52%. mexico and brazil stand out from the european nations, with a volume of extra-regional trade equivalent to 17% and 11% of their GdP respectively, (see Exhibit 11). among asian nations, China stands out as over half its GdP is the result of extra-regional trade in goods. in europe in general, extra-regional trade in merchandise remained below 5% of the country GdPs.
ConneCtivity for an investment and business hub in brazil 31 30 ConneCtivity for an investment and business hub in brazil
latin american intra-regional exports of merchandise are not very relevant...
...the same being true for intra-regional imports
exhibit 10latin american imports and exports within its own region are smaller than comparable trade in europe and asia
Importance of intra-regional exports
intraregional exports/ total region imports
Importance of intra-regional imports
intraregional imports/ total region imports
2007 20072008 20082009 2009
1. Excludes Belize, Costa Rica, El Salvador, Guatemala, Guiana, Honduras, Panama and Surinam 2. Excludes Cambodia, Macao and VietnamNote: All values are nominal. Source: Unctad Online handbook of statistics, Eurostat, International Trade Center, domestic statistics institutes; BCG analysis
asia2latin america1 europe
17% 18% 17% 16% 16% 15%
42% 41% 42%48% 46% 48%
68% 68% 67%
77%73%
50%
...but the region could be an even more important player in world trade
exhibit 9latin america has the potential to increase its share and importance in the global trade of merchandise
Latin America’s share of the tradein merchandise is growing faster than global trade...
asia otherseurope latin america
Global exports
Global imports
Share of the GDP and of the international trade in merchandise
2005
2005
2006
2006
2007
imports
2007
2008
gdp
2008
2009
Exports
2009
us$ t
% 2009
volume of imports - us$ t
12.4
12.6
16.1
16.5
14.0
14.2
12.1
12.4
10.5
10.8
cagr‘05-’08
% Ft/ % gdp1
cagr‘05-’08
2.9%
71%
2.7%
7.3%
77%
6.5%
4.8%
164%
6.6%
3.8%
127%
3.5%
4.3%
3.9%
1. Mean relevance of the % exports and imports over the relevance of the GDPNote: All values are nominal, differences in global imports and exports ay be the result of imprecise data and differences in accountingSource: Unctad Online handbook of statistics; BCG analysis
37
29
37
23
13
20
5
7
5
35
51
38
Enablers of the trade in merchandise in Latin America
in order to enhance its connectivity, latin american can act on a number of enablers that will allow it to increase its share of the global trade in merchandise, especially within countries in the region. here there are two main factors limiting latin america’s connectivity: major tariff and non tariff restrictions on imports and exports, and institutional and logistics difficulties.
trade terms that are more restrictive than the global average limit latin america’s connectivity. equivalent import tariffs19 in latin america are generally higher than those imposed by countries in asia and europe; brazil, mexico and argentina have import restrictions above the global average. restrictions in european countries like france, Germany, italy and the united Kingdom are below the global average. additionally, equivalent tariffs20 imposed by other countries on goods coming from latin america are also quite high. here again brazil and argentina stand out due to the very strong barriers their goods face in other markets, while these same european nations face restrictions that are equivalent to the world average. this same analysis reveals Chile to be the most open nation in latin america, with limited restrictions on imports from other countries, and relatively free access for its goods in markets abroad (see Exhibit 12).
19 this reflects a uniform tariff on a list of country tariffs plus non
tariff measures (quotas, price control, technical restrictions,
subsidies, etc.) that, if they did not exist, would keep domestic import levels constant - in other
words, they would not affect the possibility of imports by
domestic agents
20 reflects a uniform tariff that would keep the level
of imports by the exporter’s commercial partners constant
ConneCtivity for an investment and business hub in brazil 33 32 ConneCtivity for an investment and business hub in brazil
BRAZIL ARGENTINA
MEXICO BRAZIL
ARGENTINA CHILE
CHILE MEXICO
SINGAPORE INDONESIA
SOuTH kOREA SOuTH kOREA
CHINA CHINA
INDONESIA SINGAPORE
FRANCE FRANCE
GERMANy GERMANy
ITALy ITALy
uk uk
20.3 16.4
18.0 12.3
9.3 8.3
5.0 5.1
19.7 12.7
10.0 9.8
9.8 9.2
7.5 6.5
9.1
9.1
9.1
9.1
6.4
6.4
6.4
6.4
world mean3: 8.5
lEssrEstrictivE
lEssrEstrictivE
MorErEstrictivE
MorErEstrictivE
world Mean3: 9.1
equivalent import tariffs are lower in asia and europe
Tariffs for latin american exports are also the highest
Restriction in the import of goods (06-09)
Equivalent tariff = tariffs + non tariff import restrictions1 Equivalent tariff = tariffs + non tariff export restrictions2
Restrictions on access to other markets (06-09)
asialatin america europe
1. This reflects a uniform tariff on a list of country tariffs plus non tariff measures (quotas, price control, technical restrictions, subsidies, etc.) that, if they did not exist, would keep domestic import levels constant - in other words, they would not affect the possibility of imports by domestic agents. 2. Reflects a uniform tariff that would keep the level of imports by the exporter’s commercial partners constant. The mean tariff is calculated based on the value of the imports for each product and the demand elasticity of the partner’s imports or, in other words, its sensitivity to price fluctuations 3. Mean weighted by each country’s share of world tradeNote: import and export indicators include tariffs from preferential trade agreementsSource: World Trade Indicators 2009/10 – World Bank
exhibit 12Commercial restrictions more severe than the world average limit latin american connectivity in terms of the trade in merchandise
exhibit 11mexico and brazil surpass european nations in the intensity of their extra-regional trade
% country gdp
EXPORTS
IMPORTS
Total country extra-regional trade divided by the country GDPasialatin aMErica
-25
35
5
-5
4.8%
3.1%
-1.7%
GERM
ANy
3.1%
1.3%
-1.8%
FRAN
CE
2.4%
1.2%
-1.2%
ITAL
y
53.9%
30.5%
-23.4%
CHIN
A16.9%
8.1%
-8.8%
MEX
ICO
5.6%
-2.5%
3.1%
SOuT
H kO
REA
11.3%
6.1%
-5.2%
BRAZ
IL
2.7%
1.5%
-1.2%
SING
APOR
E
2.3%
1.3%
-1.0%
CHIL
E
1.0%
-0.6%
INDO
NESI
A
1.6%
1.0%
-0.5%
ARGE
NTIN
A
1.5%
EuropE
3.1%
1.1%
-2.0%
uk
Source: World Trade Indicators 2009/10 – World Bank
penetration of the extra-regional international trade in merchandise in country economies
latin america has a history of attempts to develop free trade agreements, but has not been successful if compared to europe, with a number of signed agreements, or southeast area, where import duty free trade is in the initial stages of implementation (see Exhibit 13).
unasul, the combination of the two main free trade agreements in latin america – mercosur and the andean Community – is far behind the agreements signed by southeast asian countries (asean) and further still from the european union. unasul includes only 57% of the countries in latin america, or 75% of the region’s GdP. asean covers 67% of the region, equivalent to 82% of the GdP. the european union is a far broader agreement covering all of the countries in the region, and thus all of its GdP.
ConneCtivity for an investment and business hub in brazil 35 34 ConneCtivity for an investment and business hub in brazil
integration agreements also differ in terms of maturity, with unasul being the newest and the european union the most longstanding and consolidated, having eliminated tariff barriers in 1992, and with numerous agreements with other regions. asean has succeeded on the economic front through its asean free trade area (afta); the six oldest members eliminated import tariffs in early 2010, and afta has free trade agreements with nations outside the region such as China, australia and new zealand.
exhibit 13limited or nonexistent free trade agreements also keep latin america from reaching its full integration potential
southEast asia EuropElatin aMErica
13
unasul: the result of the merger of MErcosur and can
asEan-china Free trade area
European Economic area: Eu + 3 countries (nor, isl and liE3)
12 members57% if the countries in la
11 members67% of sE asia
30 members100% of the European community
block gdp $ 3.5t75% of la’s gdp
block gdp $ 7.7t82% of the sE asia gdp
block gdp $ 16.3 t100% of the European community gdp
tariff free trade to be implemented
nuMErous intEgration activitiEs, but thE Main
agrEEMEnt is still incipiEnt
concEntratEd intEgration EFForts in thE Final
iMplEMEntation phasE
nuMErous agrEEMEnts nEgotiatEd; thE Eu is MorE consolidatEd and
broadEr in scopE
tariff free trade in the final stages of implementation2
tariff free trade implemented
the block as a whole has no agreement with
any other countries
4 agreements between the block and other countries
the Eu has 19 agreements with other countries
2 16number of agreements1
name
Geographic reach
economic reach
integration with other regions
status
1. Number of internal multilateral free trade agreements 2. Within ASEAN tariffs have been eliminated for 99% of all goods Within ASEAN-China, tariffs on 90% of the products have been eliminated in 7 countries Another four should join them by 2015 3. Norway, Iceland and Liechtenstein. Source: Official site of the European Union External Action (http://eeas.europa.eu/) , UNASUL (http://www.pptunasur.com/) e ASEAN (http://www.aseansec.org/), worldtradelaw.net, IMF (www.FMI.org)
Mai
n ag
reem
ent
ConneCtivity for an investment and business hub in brazil 37 36 ConneCtivity for an investment and business hub in brazil
institutional and logistic enablers are also major obstacles to latin america’s international and even intra-regional trade. according to the World bank’s doing business21 report, latin american countries are the hardest to do business in, with brazil being the worst on the list of countries in the report. the perception of the region’s logistics is also negative22, behind only indonesia, the worst country on the list (see Exhibit 14). latin america performs poorly along almost all logistics dimensions, in particular the inefficiency of its customs processes, the poor quality of its infrastructure and transportation, and the difficulty securing competitive shipping rates. of all the logistics dimensions, the least critical in latin america is punctuality (see Exhibit 15).
latin america is also not well integrated when it comes to the global flow of goods shipped by sea; the world’s 25 largest ports handle 65% of the world’s transshipments, and only 9% are handled by ports along the east Coast of south america (see Exhibit 16). in addition, maritime flows of latin american cargoes are currently decentralized. the consolidation of these flows in a small number of ports in the region would bring clear economic advantages such as an increase in capacity, the ability to handle more and larger vessels, economies of scale regarding the investments made, and the consolidation of a well designed and planned regional infrastructure. examples such as rotterdam in europe and shanghai in China show how large ports can contribute to a region’s global connectivity.
at the same time, limited connections to other modals also limits trade within latin america. the rail density in latin america is less than half that of europe - 205 km compared to 426 km for every million inhabitants. overland connections in latin america are small in number and poor in quality. the absence of investment, differences in gauge size, missing connections and management problems are just some of the factors that limit the use of railroads to ship goods in the region. the situation is not much better for road transportation, which is where most government investments are made. road transportation faces problems such as poor maintenance, major congestion, safety issues and highways used for urban traffic, which further limit integration in latin america.
While brazil has taken a number of quite positive initiatives to address its infrastructure bottlenecks, the fact remains that to even come close to solving any of them will require the completion of major works. as examples we have the revamping of the santos and são sebastião ports, and the construction of one of the world’s largest bulk export terminals in maranhão. important railroad projects are also in the design or construction phase, such as the são Paulo ring railroad (ferroanel), ferrovia leste-oeste (east-West), nova transnordestina (northeast) and ferrovia norte-sul (north-south).
exhibit 14institutional and logistics enablers – or more specifically the lack thereof - are major barriers to regional trade in latin america
BRAZIL MEXICO
ARGENTINA CHILE
MEXICO ARGENTINA
CHILE BRAZIL
INDONESIA INDONESIA
CHINA CHINA
SOuTH kOREA SOuTH kOREA
SINGAPORE SINGAPORE
ITALy ITALy
FRANCE FRANCE
GERMANy uk
uk GERMANy
129 2.0
118 1.9
51 1.9
49 1.8
122 2.2
89 1.5
19 1.4
1 0.9
1.4
1.2
1.1
0.9
78
31
25
5
lEssrEstrictivE
lEssrEstrictivE
MorErEstrictivE
MorErEstrictivE
it is harder to do business with/in latin american countries...
...and the logistics performance of latin american countries is also poorer
Difficulty doing business1
Position in the Doing Business ranking Infrastructure rating - min.: 0 max. 5
Logistics performance indicator2
asialatin america europe
1. This indicator measures the ease of doing business in a country based on 7 indicators, 3 of them part of the World Trade International base (opening a business, respect for contracts and closing a business) - league table of 183 nations; 2. This reflects the overall perception of a country’s logistics performance, based on ~1,000 interviews with international expertsSource: World Trade Indicators 2009/10 – World Bank
21 this indicator measures the ease of doing business in a country based on 7 indicators, such as opening a business, respect for contracts and closing a business - league table of 183 nations
22 overall perception of a country’s performance in logistics based on approximately one thousand interviews with international experts
ConneCtivity for an investment and business hub in brazil 39 38 ConneCtivity for an investment and business hub in brazil
exhibit 15the logistics performance of latin american countries is poor in almost all dimensions
ARGENTINA 2.0
CHILE 2.1
MEXICO 2.0
BRAZIL 1.7
INDONESIA
CHINA 1.5
SOuTH kOREA 1.4
SINGAPORE 0.9
ITALy 1.3
FRANCE 1.1
uk 1.1
GERMANy 0.9
global mean: 2.3
logistics competence4
min:0 / máx:5
MEXICO 1.7
ARGENTINA 1.9
CHILE 1.7
BRAZIL 1.6
INDONESIA 2.2
CHINA 1.5
SOuTH kOREA 1.2
SINGAPORE 0.9
ITALy 1.2
FRANCE 1.0
uk 0.9
GERMANy 0.8
global mean: 2.1
Tracking and control5
min:0 / máx:5
CHILE 1.2
MEXICO 1.3
ARGENTINA 1.2
BRAZIL 0.9
INDONESIA 1.5
CHINA 1.1
SOuTH kOREA 1.0
SINGAPORE 0.8
ITALy 0.9
FRANCE 0.6
uk 0.6
GERMANy 0.5
global mean: 1.6
punctuality6
min:0/máx:5
MEXICO 2.5
BRAZIL 2.6
ARGENTINA 2.4
CHILE 2.1
INDONESIA 2.6
CHINA 1.8
SOuTH kOREA 1.7
SINGAPORE 1.0
ITALy 1.6
FRANCE 1.4
uk 1.3
GERMANy 1.0
global mean: 2.4
customs1
min:0 / máx:5
ARGENTINA 2.1
CHILE 2.3
MEXICO 2.1
BRAZIL 1.9
INDONESIA
CHINA 1.0
SOuTH kOREA 1.4
SINGAPORE 0.8
ITALy 1.3
uk 1.1
FRANCE 1.0
GERMANy 0.7
global mean: 2.4
infrastructure2
min:0 / máx:5
CHILE 2.2
MEXICO 2.3
BRAZIL 2.1
ARGENTINA 1.9
INDONESIA 2.2
CHINA 1.7
SOuTH kOREA 1.5
SINGAPORE 1.1
ITALy 1.8
FRANCE 1.7
GERMANy 1.3
uk 1.3
global mean: 2.2
international shipping3
min:0 / máx:5
1. Customs: efficiency of the customs clearance process; 2. Infrastructure: quality of the trade and transportation infrastructure; 3. International shipping rates: ease of obtaining competitive rates; 4. Logistics competence: quality of the logistics services; 5. Tracking and control: ability to track and recover shipment; 6. Punctuality: frequency with which cargo arrives to its destina-tion on time. Source: World Bank Logistics Performance Index (LPI) 2010
asialatin america europe
insTiTuTional and logisTic enaBlers are also major oBsTacles To laTin america’s inTernaTional, and even inTraregional Trade. according To The world Bank’s “doing Business” ranking, laTin american counTries are harder To do Business in, wiTh Brazil Being The worsT in The group
2.52.5
ConneCtivity for an investment and business hub in brazil 41 40 ConneCtivity for an investment and business hub in brazil
Busan
Hong KongSalalah
GioiaTauro
Jedah
Algeciras
exhibit 16
Kingstom
Freeport
AntwerpRotterdam
BarcelonaPiraeus
damieta dubai/Khor Fakkan
Port Klang
Singapore
Kaohsiung
Shangai
Tanjung Pelepas
Malta
Hamburg
Manzanillo
65% of global transshipments are concentrated in the world’s 25 largest ports, and only 9% happens in ports along the East Coast of South America
Note: The width of the arrows reflects volume transported. Source: Drewty Shipping Consultants
low density ocean freight flows are a challenge for commercial integration in latin america
illustration of the global transshipment flows
23 Wto, the General agreement on trade in services (Gats): objectives, coverage and disciplines. www.wto.org, accessed in sept., 2011
Trade in services
according to the World trade organization (Wto), services is the fastest growing segment of the global economy and accounts for two thirds of the global output (GdP), for one third of global employment and nearly 20% of global trade23. services are an important driver of growth, in particular for developing nations, where in many cases they are already a major contributor to the GdP. nations are increasingly aware that an efficient service sector, supported by a sound domestic regulatory system, is an integral part of economic growth.
ConneCtivity for an investment and business hub in brazil 43 42 ConneCtivity for an investment and business hub in brazil
latin america has only a very limited share of the global trade in services - less than 4% of the total in 2009. that same year asia accounted for 14% of the global exports and for 15% of the global imports, and europe for 45% and 41% respectively. looking at latin america’s share of the global trade in services, and comparing it to its share of the global GdP, one finds that the region has a significant potential to increase its role in the global trade in this type of trade. in 2009, latin america accounted for 7% of the global GdP, but for only 4% of the global trade in services. in other words, latin america’s share is equivalent to only 49% of its share of the global GdP. in asia this proportion is 110%, and in europe 151 (see Exhibit 17). based on these proportions, it is fair to say that there is significant room to increase latin america’s trade in services.
although in absolute terms latin america may not be a very representative player in the international trade in services, it is growing at a rate that exceeds the world average. between 2005 and 2009, service exports from latin america grew 8.7% and imports 10.1%. Worldwide, these numbers were 7.5% and 7.2% respectively (see Exhibit 17). only asia surpassed latin america, with service exports growing at 9.9% over this same period, although latin american imports grew faster than other regions, with asian imports growing at 9.1%, followed by europe with a 5.9% growth.
Enablers of the trade in services in Latin America
latin america can act on two main levers to improve its connectivity through international trade in services: ratification and scope of General agreements on trade in services (Gats), and better telecommunications infrastructure for the region.
Gats, created by the Wto, were the first multilateral agreement covering services, and works as a model that countries can subscribe to, to the extent of their individual interests, regulating all sorts of measures that the Wto must enforce regarding non discrimination, transparency and domestic regulation of the international trade in services. Gats cover all sorts of services, with the exception of government services, and sets the requirements for the trade in services with regards to transborder services, the consumption of services abroad, and the commercial presence of persons of one member state for the purposes of providing a service in the territory of another member state. the Gats sets some general obligations regarding domestic regulation, the recognition of diplomas, monopolies, safeguards, payment and subsidies, as well as specific measures such as access to markets, stipulating measures that one member cannot impose to restrict its market, such as limiting the number of suppliers allowed, the value of the transactions or the volume of services provided. each member defines the service sectors and detailed criteria of its commitments and obligations to set the parameters of liberalization within its territory.
exhibit 17latin american trade in services is growing, but is still only 49% of its share of the global GdP
2005 2005 EXPORTS IMPORTSGDP2006 20062007 20072008 20082009 2009
2.62.5
45% 41%
15%
4%
40%
14%
3%
38%
51%
7%
13%
29%
2.92.7
3.5
3.2
3.9
3.7
3.43.3
latin america’s share of the tradein services is growing faster than the world mean...
...but the region could be even more relevant in terms of services
Global exports Global imports Share of the GDP and internationaltrade in servicesvolume exported - us$ t volume of imports - us$ t
1 1
20
40
60
80
100
2 2
3 3
4 4cagr‘05-’08
cagr‘05-’08 % Ft /
% gdp1
6.8% 5.9%
151%
9.9% 9.1%110%
8.7% 10.1%49%
7.3% 7.6%
76%
7.5% 7.2%
1. Mean of the indicators of export and import relevance: % exports / % region GDP and % imports / % region GDP, respectively. All compared to the world total. Note: All values are nominal. Source: Unctad Online handbook of statistics; BCG analysis
asia latin americaeurope others
ConneCtivity for an investment and business hub in brazil 45 44 ConneCtivity for an investment and business hub in brazil
latin america has a chance to increase its connectivity using the Gats. each latin american country has an average24 of 21 signed Gats, while in asia the average is 32 and in europe 39. the sectoral scope of the commitments is also far broader in europe and asia. as a rule, only 37% of latin america’s commitments in each sector have been signed, with major gaps in segments such as education, healthcare, transportation and culture. europe and asia, on the other hand, have signed an average of 71% and 58% of their sector commitments respectively (see Exhibit 18).
latin america’s telecom structure, which is essential for international operations such as call-centers, is not well integrated, further limiting regional and global connectivity. although internet penetration in latin america is above the world average, most executives answering an imd25 survey believe the business communications infrastructure to be generally poor. numerous intra-regional data routes go through a number of countries, oftentimes outside the region, reducing the speed of online services, worsening the quality of the connections, increasing the risk of interruptions and driving up the cost of such services. as a consequence, prices for telecom services are very high, even within the country and region. a call from brazil to Colombia, for instance, can cost more than a call from brazil to China26. this makes it hard to grow operations with major potential such as call centers, and for companies that centralize and outsource data research, such as evalueserve in Chile, to establish themselves in the country.
asia, we find that, if stimulated by intrinsic economic characteristics or the regulatory environment, the volume of inward investment may be larger than the country’s or region’s proportionate share of the GdP. in the european union, which received 33% of all inward fdi in 2009, the ratio between this and its share of the global GdP was 110%. asia received 17% of all inward fdi in 2009, or 130% of its share of the global GdP.
24 average weighted by the GdP for each country
25 imd World Competitive-ness yearbook – score given by executives in response to the following question: Communications technology (voice and data) meets business requirements?
26 international direct dial rates charged by brazilian telephony operators, ref. 2011
braZ
il
exhibit 18Gats in force in latin america, europe and asia
% commitments signed by sector2
latin america
Number of signed GATS1 commitments per site
Serv
ices
finan
cial
Trav
el a
ndto
urism
Busin
ess
se
rvic
es
Cons
truct
ion
and
engi
neer
ing
Serv
ices
envi
ronm
enta
l
Recr
eatio
n an
d cu
lture
Dist
ribut
ion
Educ
atio
n
Tran
spor
tatio
n
Heal
thca
re
Tele
com
MEx
ico
Ecua
dor
vEnE
ZuEl
a
argE
ntin
a
colo
Mbi
a
pEru
urug
uay
chil
E
boli
via
para
guay
MExico 100% 80% 60%75% 0% 0% 44%83% 40% 80% 50%Ecuador 67% 20% 20%50% 60% 100% 33%67% 20% 0% 25%
vEnEZuEla 67% 100% 40%75% 40% 0% 22%83% 0% 0% 0%argEntina 100% 80% 40%100% 0% 0% 0%50% 60% 0% 0%
braZil 67% 80% 20%25% 0% 0% 44%33% 60% 0% 0%coloMbia 67% 80% 20%50% 0% 25% 0%67% 0% 0% 0%
pEru 67% 0% 20%50% 40% 0% 22%50% 40% 0% 0%uruguay 67% 0% 20%75% 20% 0% 11%67% 0% 0% 0%
chilE 100% 0% 20%75% 0% 0% 11%50% 0% 0% 0%bolivia 67% 0% 20%50% 60% 0% 0%0% 0% 0% 25%
paraguay 67% 0% 0%75% 0% 0% 0%0% 0% 0% 0%
213
37%Mean for the region3
30
22 2119
1714 14
12 119
5
1. From the WTO website: “The General Agreement on Trade in Services (GATS) is the first and only set of multilateral rules governing international trade in services. It was developed in response to the huge growth of the services economy over the past 30 years and the greater potential for trading services brought about by the communications revolution.” 2. Each sector has 3 to 9 sub-sectors that require specific commitments (e.g.: financial services has 3 sub0segments - Insurance, Banking and other financial services) 3. Means weighted by country GDPsSource: WTO trade in services database
> 0 and ≤ 50% > 50%= 0
49 53 55 58 67 70 81 83 87 11537ranK
ing
MorE closEd
MorEopEn
ConneCtivity for an investment and business hub in brazil 47 46 ConneCtivity for an investment and business hub in brazil
> 0 and ≤ 50% > 50%= 0
exhibit 18Gats in force in latin america, europe and asia
% commitments signed by sector2
Serv
ices
finan
cial
Trav
el a
ndto
urism
Busin
ess
se
rvic
es
Cons
truct
ion
and
engi
neer
ing
Serv
ices
envi
ronm
enta
l
Recr
eatio
n an
d cu
lture
Dist
ribut
ion
Educ
atio
n
Tran
spor
tatio
n
Heal
thca
re
Tele
com
% commitments signed by sector2
Serv
ices
finan
cial
Trav
el a
ndto
urism
Busin
ess
se
rvic
es
Cons
truct
ion
and
engi
neer
ing
Serv
ices
envi
ronm
enta
l
Recr
eatio
n an
d cu
lture
Dist
ribut
ion
Educ
atio
n
Tran
spor
tatio
n
Heal
thca
re
Tele
com
Esto
nia Eu
aust
ria
lith
uani
a
slov
Enia
cZEc
h rE
publ
ic
hung
ary
slov
aKia
bulg
aria
swEd
En
Finl
and
pola
nd
roM
ania
cypr
us
Mal
ta
Estonia 67% 100% 40%75% 100% 50% 56%83% 80% 100% 100%Eu 67% 100% 20%75% 60% 100% 78%100% 80% 80% 50%
austria 67% 100% 40%75% 80% 100% 44%100% 80% 60% 75%lithuania 67% 100% 40%50% 60% 100% 78%83% 80% 80% 50%slovEnia 67% 100% 40%50% 20% 100% 56%83% 80% 60% 50%
cZEch rEpublic 67% 100% 40%75% 0% 75% 44%83% 60% 100% 0%hungary 67% 0% 20%50% 40% 50% 78%83% 60% 80% 100%slovaKia 67% 100% 40%75% 0% 75% 44%83% 60% 100% 0%
poland 67% 100% 40%50% 0% 25% 11%50% 40% 80% 25%
bulgaria 100% 80% 20%50% 20% 100% 44%67% 80% 60% 25%
roMania 67% 80% 20%75% 0% 25% 22%50% 60% 0% 0%
swEdEn 67% 100% 20%75% 60% 100% 33%100% 60% 0% 0%
cyprus 67% 0% 20%0% 0% 0% 0%50% 0% 0% 0%
Finland 67% 60% 20%75% 40% 50% 67%100% 80% 0% 0%
Malta 67% 0% 0%50% 0% 0% 11%0% 0% 0% 0%
393
71%Mean for the region3
42 41 40 40
3532 32 32 31 30 29
2319
6 5
1. From the WTO website: “The General Agreement on Trade in Services (GATS) is the first and only set of multilateral rules governing international trade in services. It was developed in response to the huge growth of the services economy over the past 30 years and the greater potential for trading services brought about by the communications revolution.” 2. Each sector has 3 to 9 sub-sectors that require specific commitments (e.g.: financial services has 3 sub0segments - Insurance, Banking and other financial services) 3. Means weighted by country GDPsSource: WTO trade in services database
6 9 11 13 25 29 30 32 33 38 39 48 56 102 113ranK
ing
MorE closEd
MorE opEn
thailand
viEtnaM
viEt
naM
chin
a
caM
bodi
a
sout
h Ko
rEa
thai
land
Mal
aysi
a
sing
apor
E
hong
Kon
g
indo
nEsi
a
Mac
au
Mya
nMar
china
caMbodia
south KorEa
Malaysia
singaporE
hong Kong
indonEsia
Macau
MyanMar
100%
67%
67%
100%
67%
67%
67%
67%
67%
67%
0%
100%
100%
100%
100%
60%
100%
100%
40%
80%
0%
0%
60%
60%
40%
40%
40%
40%
60%
60%
20%
0%
0%
100%
50%
75%
75%
75%
50%
75%
50%
75%
50%
50%
100%
0%
20%
0%
20%
40%
20%
20%
0%
0%
0%
100%
100%
100%
75%
100%
0%
0%
0%
0%
0%
0%
100%
67%
44%
56%
56%
22%
22%
22%
11%
0%
33%
83%
83%
67%
83%
67%
83%
67%
83%
67%
17%
0%
80%
80%
100%
80%
20%
0%
0%
20%
0%
0%
0%
80%
100%
60%
0%
60%
0%
0%
0%
0%
0%
0%
100%
0%
25%
0%
0%
25%
0%
0%
0%
0%
0%
213
58%
1. From the WTO website: “The General Agreement on Trade in Services (GATS) is the first and only set of multilateral rules governing international trade in services. It was developed in response to the huge growth of the services economy over the past 30 years and the greater potential for trading services brought about by the communications revolution.” 2. Each sector has 3 to 9 sub-sectors that require specific commitments (e.g.: financial services has 3 sub0segments - Insurance, Banking and other financial services) 3. Means weighted by country GDPsSource: WTO trade in services database
50
3634
3028
21 2018
15
5 5
1 19 27 35 42 51 54 57 65 112 114ranK
ing
MorE closEd
MorE opEn
europe asiaNumber of signed GATS1 commitments per site Number of signed GATS1 commitments per site
Mean for the region3 > 0 and ≤ 50% > 50%= 0
ConneCtivity for an investment and business hub in brazil 49 48 ConneCtivity for an investment and business hub in brazil
03 investment and capital flows
stimulating and channeling international investment and capital flows is a vital part of what makes up a hub. simplifying the flow of capital from abroad to the country and region greatly benefits the economy and expands the availability of funds for all sectors - either through capital markets or through the banking system. in parallel, facilitating investments abroad increases the options available to domestic savers. in short, a regulatory and institutional environment that facilitates the entry and exit of funds allows a country to truly act as a hub, attracting investment from all over the world, some of which can be steered to other nations in the region and facilitating local and regional investments abroad.
an environment that facilitates capital flows also simplifies and stimulates direct investment. this makes it easier for the region’s businesses to expand internationally, while at the same time attracting multinational investments in the country and region, creating jobs and strengthening the economy.
in absolute terms, over the past few years latin america has received only a small percentage of the outward foreign direct investment (fdi) – less than 7% of the total between 2005 and 2009. although small, this percentage closely parallels the region’s share of the global GdP, also something around 7% (see Exhibit 19). in 2009, the ratio between latin america’s share of inward fdi and its share of the global GdP was 100%. however, if we look at other regions such as the european union and southeast asia, we find that, if stimulated by intrinsic economic characteristics or the regulatory environment, the volume of inward investment may be larger than the country’s or region’s proportionate share of the GdP. in the european union, which received 33% of all inward fdi in 2009, the ratio between this and its share of the global GdP was 110%. asia received 17% of all inward fdi in 2009, or 130% of its share of the global GdP.
ConneCtivity for an investment and business hub in brazil 51 50 ConneCtivity for an investment and business hub in brazil
although they are the main destinations of fdi in latin america, brazil, mexico, argentina and Chile are still behind nations in europe, with brazil receiving the largest share in the region, or 2.2% of the total average inward fdi between 2007 and 2009. China of course was the star of the analysis, receiving 6.2%, followed by the united Kingdom, which received 6.1% of the inward fdi. despite the limited flows of fdi going to Chile and singapore, both nations stand out in the analysis of inward fdi weighted by the country’s share of the global GdP. the percent of fdi sent to Chile, for example, was three times that country’s percentage share of the global GdP. singapore received a share of fdi that is four times its share of the global GdP (see Exhibit 20).
% of total Fdi received by the country
exhibit 19latin america attracts an amount of fdi that is proportional to its GdP, while europe and asia attract more
in absolute terms, latin america receives five times less fdi1 than europe
Share of the world’s inward FDI
however, the % follows the region’s share of the global gdp
1. Foreign direct investment 2. Cambodia, North Korea, South Korea, China, Singapore, Philippines, Hong Kong, Indonesia, Laos, Macao, Malaysia, Myanmar, Thailand, Taiwan, Vietnam 3. Excludes Puerto Rico. Source: UNCTADStat
2005 2006 2007 2008 2009
1.7
1.31.6
1.11.3
1.0
100
80
60
40
20
0
Eu
southEast asia2
latin aMErica3
other
26.0
7.1
15.9
50.9
40.3
5.1
10.7
44.0
43.9
6.5
17.1
32.5
ratio (% inward Fdi/% global gdp)
Share of inward global FDI weighted by country share of the global GDP
2005 2006 2007 2008
2.5
2.0
1.5
1.0
0.5
0.0
Eu
southEast asia2
latin aMErica3
% Fdi = % gdp
europe and southeast asia receive a proportionately larger share of fdi compared to their economies
2009
42.2
4.8
12.9
40.2
49.6
6.9
13.1
30.3
latin america has not advanced as much when we look at the region’s share of the world’s outward fdi. in this case, its share is not only low in absolute terms, but also as a percent of its GdP (see Exhibit 21). in 2009, latin america accounted for only 1.3% of the world’s outward fdi, equivalent to only 20% of its share of the global GdP. the eu and asia accounted for 35% and 13% respectively of the outward fdi, or 120% and 90% of each region’s share of the global GdP.
0.37 0.43
1.280.86
0.43
0.460.25
0.50
1.26
inward Fdi/world total (%)1
exhibit 20although the main latin american fdi destinations get a small share of the global fdi, it is significant when compared to their GdP
latin american economies are behind europe in world share, while china leads
latin american nations uniformly get an amount of inward fdi close to their share of the gdp, with chile standing out from the rest
EuropEan union
EuropEan union
southEast asia
southEast asia
latin aMErica
latin aMErica
inward FDI weighted by GDP - largest in each region
2.17
3.03
bra
bra
chn
chn
dEu
dEu
MEx
MEx
Kor
Kor
Fra
Fra
arg
arg
idn
idn
uK
uK
chl
chl
sgp
sgp
ita
ita
6.21
2.74
4.48
0.95
1.87
6.05
1.33
4.24
1. Mean for the past three available years (2007-2009). Source: UNCTADStat
inward FDI as a percent world total - largest GDPs in each region
0
0
1
2
2
3
4
4
6
5
8
0.50
% Fdi =
% gdp
ratio (% inward Fdi/% global gdp)1
0.820.84 0.840.73
ConneCtivity for an investment and business hub in brazil 53 52 ConneCtivity for an investment and business hub in brazil
latin american countries’ share of outward fdi has been rather irrelevant, with Chile standing out, but still with only 0.42%. european nations stand out in outward fdi. on average, france, Germany, the united Kingdom and italy jointly accounted for almost 30% of the outward fdi between 2007 and 2009. in asia, China and singapore stand out, with 2.7% and 3.4% respectively of the average outward fdi between 2007 and 2009. looking at share of outward fdi weighted by country share of the GdP, Chile again stands out in latin america, as its share of outward fdi is 1.5 times its share of the global GdP. singapore stood out in asia, with a situation very similar to Chile. france and the uK lead the list, as their share of outward fdi was almost twice their share of the global GdP (see Exhibit 22).
outward Fdi/world total (%)
exhibit 21latin america accounts for only a small share of outward fdi, both in absolute and relative terms
latin america’s share of outward fdi is of relatively little relevance
Share of the world’s outward FDI
latin america’s share is also small in relative terms
1. Cambodia, North Korea, South Korea, China, Singapore, Philippines, Hong Kong, Indonesia, Laos, Macao, Malaysia, Myanmar, Thailand, Taiwan, Vietnam 2. Excludes Puerto Rico Source: UNCTADStat
2005 2006 2007 2008 2009
2.3
1.2
0.8
0.4
0.2
100
80
60
40
20
0
Eu
southEast asia1
latin aMErica2
othEr
21.6
7.6
68.6
39.8
7.9
49.3
35.1
1.0
1.9
1.3
3.1
2.2
7.1
56.8
43.0
7.6
47.6
50.9
12.5
35.3
ratio (% outward Fdi/ % global gdp)
Share of outward global FDI weighted by country share of the global GDP
2005 2006 2007 2008
2.5
2.0
1.5
1.0
0.5
0.0
Eu
southEast asia1
latin aMErica2
2009
0.15
1.11
0.91
0.56
0.30
0.00
3.35
0.880.37
0.070.42
outbound Fdi as a percent of world total1
ratio (% inward Fdi/% global gdp)1
exhibit 22even compared to their GdP, latin american and asian nations have only a small share of outward fdi
european nations are significantly ahead of latin america and southeast asia in outward fdi
europe’s share of outward fdi is larger than its share of the global gdp; chile and singapore stand out
EuropEan union
EuropEan union
southEast asia
southEast asia
latin aMErica
latin aMErica
Outward FDI weighted by GDP - largest in each region
0.060.23
0.13
1.47
bra
bra
chn
chn
dEu
dEu
MEx
MEx
Kor
Kor
Fra
Fra
arg
arg
idn
idn
uK
uK
chl
chl
sgp
sgp
ita
ita
2.68
0.36
6.61
9.65
2.06
3.42
8.02
1.70
1.46
1. Mean for the past three available years (2007-2009). Source: UNCTADStat
Outward FDI as a percent world total - largest GDPs in each region
0.0
0
0.5
2
1.0
4
1.5
6
2.0
8
2.5
10
% Fdi =
% gdp
% iEd = % pib0.9
ConneCtivity for an investment and business hub in brazil 55 54 ConneCtivity for an investment and business hub in brazil
latin america’s position is even worse when it comes to portfolio investments. the volume of incoming and outgoing portfolio investments in latin america is very small, especially compared to europe, accounting for less than 2% and 1% of the world’s inward and outward portfolio investments respectively between 2005 and 2009 (see Exhibit 23). between 2005 and 2006 the european union accounted for more than half of the world’s inward and outward portfolio investment stock, while asia’s share was 4.4% and 3.2% respectively - definitely larger than latin america, but quite timid compared to europe.
% world portfolio % world portfolio
exhibit 23latin american and asian nations also account for only a small share of the inward and outward flow of portfolio investments
latin america and southeast asia get only a small share of inward portfolio investments
Share of the world’s inward portfolio investment stock
latin america and southeast asia also have only a small share of the outward
portfolio investment stock
1. Cambodia, North Korea, South Korea, China, Singapore, Philippines, Hong Kong, Indonesia, Laos, Macao, Malaysia, Myanmar, Thailand, Taiwan, Vietnam Note: Portfolio investment stock, non flows. Source: CPIS (Coordinated Portfolio Investment Survey) - IMF
2005 20052006 20062007 20072008 20082009 2009
100 100
80 80
60 60
40 40
20 20
0
Eu Eu
southEast asia1
southEast asia1
latin aMErica
latin aMErica
othEr othEr
43.3 45.9
51.1
1.7 0.32.7
1.7 0.42.9
1.8 0.43.5
1.3 0.43.1
1.9 0.53.64.0
51.0
42.1 44.4
52.3
4.4
51.8
42.1 44.9
51.2
5.2
50.9
42.6 45.1
51.3
3.6
52.5
41.8 45.6
50.3
4.6
51.7
Share of the world outward portfolio investment
1.71.8
0.40.3
0.3 0.3
2005 2006 2007 2008
2.5
2.0
1.5
1.0
0.5
0.0
Eu
southEast asialatin aMErica
latin america and southeast asia have a proportionately small share of international portfolios in their economies
2009
ratio (% portfolio stock/% global gdp)
exhibit 24the share of inward and outward portfolio investment is also small compared to their share of the global GdP
latin america gets only a small share of the inward portfolio investment stock,
even weighted by the region’s gdp
Share of the world’s inward portfolio investment stock weighed by country or region share of the global GDP
The share of outward portfolio investments weighted by the gdp is also small
1. Cambodia, North Korea, South Korea, China, Singapore, Philippines, Hong Kong, Indonesia, Laos, Macao, Malaysia, Myanmar, Thailand, Taiwan, Vietnam Note: Portfolio investment stock, non flows. Source: UNCTADStat; CPIS (Coordinated Portfolio Investment Survey) - IMF
1.7
1.8
0.3 0.3
0.1
ratio (% portfolio stock/% global gdp)
Share of the world’s outward portfolio investment stock weighed by country or region share of the global GDP
2005 2006 2007 2008
2.5
2.0
1.5
1.0
0.5
0.0
Eu
southEast asialatin aMErica
latin america has only a minimal share compared to its share of the GdP
2009
the situation is no different if one weighs latin america’s share of world portfolio investment by its share of the global GdP. european union indicators show there is a lot of potential for increasing external investment portfolios in latin america. in 2009, the european union’s share of inward and outward portfolio investment was 180% larger than its share of the global GdP. in latin america and asia the ratio was 30% for the inward portfolio. latin america’s share of outward portfolio investments was even smaller - less than 10% of its share of the global GdP. asia’s share of outward portfolio investment flows was also 30% of its share of the global GdP (see Exhibit 24).
0.1
ConneCtivity for an investment and business hub in brazil 57 56 ConneCtivity for an investment and business hub in brazil
even when each country is analyzed individually, latin american and asian economies are behind europe in their share of the global inward and outward portfolio investment: between 2007 and 2009, france, Germany, the uK and italy together accounted for about 30% of both the inward and outward global portfolio investment stock. during this period no latin american or asian country exceeded 1% of the inward or outward portfolio investment. singapore, although not very representative in absolute terms, stands out when its share is weighted by its GdP. between 2007 and 2009 the island state received an amount of portfolio investment proportional to its share of the global GdP, and over this same period its share of outward GdP was fully three times its share (see Exhibits 25 and 26).
exhibit 26inventory of outward portfolio investment sent by the main countries in each region
latin american and asian economies are behind europe in world share
compared to each country’s gdp, singapore stands out, and chile leads in latin america
outward portfolio stock as a percent of the world total - largest GDPs in each region
outward portfolio stock weighted by GDP - largest in each region
inventory of inward portfolio investment/world total (%)1ratio (% inward portfolio investment/% global gdp)1
0.05 0.04 0.06 0.22 0.220.01
0.92
6.82
7.888.27
3.10
10
8
6
4
2
00.02 0.02 0.11
0.75
0.190.01
1.15
1.68
3.07
1.89
0.82
4
3
2
1
0
1. Mean for the past three available years (2007-2009) Position at the end of each year.Note: Portfolio investment stock, non flows. Source: UNCTADStat; CPIS (Coordinated Portfolio Investment Survey) - IMF
asialatin america europe
GERM
ANy
GERM
ANy
SOuT
H kO
REA
SOuT
H kO
REA
BRAZ
IL
BRAZ
IL
FRAN
CE
FRAN
CE
INDO
NESI
A
INDO
NESI
A
MEX
ICO
MEX
ICOuk uk
SING
APOR
E
ARGE
NTIN
A
ARGE
NTIN
A
ITAL
y
ITAL
y
SING
APOR
E
CHIL
E
CHIL
E
Singapore stands out when weighted
by the GDP
exhibit 25inventory of inward portfolio investment received by the main countries in each region
latin american and asian economies are behind europe in world share
singapore and the uk stand out in their regions compared to their gdps
inward portfolio stock as a percent of the world total - largest GDPs in each region
inward portfolio stock weighted by GDP - largest in each region
inventory of inward portfolio investment/world total (%)1ratio (% inward portfolio investment/% global gdp)1
0.92 1.00 0.80
0.160.36
8.27
6.65
9.11
4.17
0.400.06 0.06
10
8
6
4
2
0
0.38
0.14
0.49
0.18
1.391.41
2.09
1.19
1.10
0.240.12 0.20
2.5
2
1.5
1
0.5
0
1. Mean for the past three available years (2007-2009) Position at the end of each year. Note: Portfolio investment stock, non flows. Source: UNCTADStat; CPIS (Coordinated Portfolio Investment Survey) - IMF
asialatin america europe
GERM
ANy
GERM
ANy
CHIN
A
CHIN
A
BRAZ
IL
BRAZ
IL
FRAN
CE
FRAN
CE
SOuT
H kO
REA
SOuT
H kO
REA
MEX
ICO
MEX
ICOuk uk
INDO
NESI
A
INDO
NESI
A
ARGE
NTIN
A
ARGE
NTIN
A
ITAL
y
ITAL
y
SING
APOR
E
SING
APOR
E
CHIL
E
CHIL
E
Singapore stands out when weighted
by the GDP
ConneCtivity for an investment and business hub in brazil 59 58 ConneCtivity for an investment and business hub in brazil
Eu Eu
exhibit 27inventory of inward portfolio investment received by the main countries in each region
Inward portfolio investment is still a small share of the total, even weighted by the region’s gdp
however, latin american nations send more investment to their region than their share of the gdp
Regional portfolio investment as a percent total inward portfolio investment
Share of regional portfolio investment as a percent of region’s total outward investment
portfolio investment originating from within the region/ total portfolio investment in the region
ratio (% intraregional portfolio/% global gdp)
portfolio stock for the region/total portfolio stock from the region
ratio (% intraregional portfolio/% global gdp)
100 100
80 80
60 60
40 40
20 20
0 0
3 3
2 2
0 0
1 1
Note: All values are nominal. Note: Portfolio investment stock, non flowsSource: UNCTADStat; CPIS (Coordinated Portfolio Investment Survey) - IMF
asialatin america europe
2007
2007 2007
20072008
2008 2008
20082009
2009 2009
2009
2% 7%4%11%
2% 8%18%
28%22% 25%20% 25%
59% 59%61% 62%61% 62%
southEast asia
southEast asia
latin aMErica
latin aMErica
intra-regionally, although the volume of inward portfolio investment in latin america is very small, its share of outward portfolio investment is larger than its share of the global GdP. in 2009, only 2% of latin america’s inward portfolio investment came from within the region, which is only one third of its share of global GdP. in asia, 20% of the portfolio investments are intra-regional, and in europe 61%, equivalent to 150% and 210% of their share of the global GdP respectively (see Exhibit 27).
looking at extra-regional flows, latin america’s share of inward portfolio investment is larger than it would be if it were proportional to its share of the global GdP (see Exhibit 28). extra-regional flows account for more than 98% of all inward portfolio investments in latin america, equivalent to 105% of the extra-regional GdP (global minus latin america). in europe, extra-regional portfolio investment stock accounted for approximately 40% of region’s total inward portfolio investment, or 57% of the extra-regional GdP (global minus latin america). and finally in asia, extra-regional portfolio investment stock accounted for approximately 80% of region’s total inward portfolio investment, or 93% of the extra-regional GdP (global minus asia). the situation is quite similar looking at outward portfolio investments.
exhibit 28extra-regionally latin america receives a larger share of inward portfolio investment than would be its fair share based on GdP
inward stock outward stockExtra-regional stock - % of total Extra-regional stock - % of total
100
100
100
100
100
100
50
50
50
50
50
50
0
0
0
0
0
0
1. Ratio: percent extra regional stock/% extra-regional GDP 5 year mean (05-09)Note: Portfolio investment stock, non flows. Source: CPIS (Coordinated Portfolio Investment Survey) - IMF
2005
2005
2005
2005
2005
2005
2006
2006
2006
2006
2006
2006
2007
2007
2007
2007
2007
2007
2008
2008
2008
2008
2008
2008
2009
2009
2009
2009
2009
2009
Euro
pEas
iala
tin
aMEr
ica
98.5
41.0
86.3
90.7
41.1
80.1
98.5
40.4
84.7
93.5
41.0
77.1
98.2
40.5
81.5
92.7
40.9
72.4
96.3
39.1
78.5
89.1
37.7
74.8
98.1
39.2
80.4
92.4
37.6
75.0
105%Percent extra-regional GDP1
57%Percent extra-regional GDP1
93%Percent extra-regional GDP1
98%Percent extra-regional GDP1
57%Percent extra-regional GDP1
86%Percent extra-regional GDP1
in short, although intra-regional investment flows are small compared to the total foreign direct investment received by latin america, it is worth pointing out that most outward investment from latin america stays within the region, favoring its integration.
ConneCtivity for an investment and business hub in brazil 61 60 ConneCtivity for an investment and business hub in brazil
extra-regional europeintra-regional europe
Enablers of investment and capital flows in Latin America
a number of tools are available to foster greater regional integration and enhance brazil’s and latin america’s importance in the world’s capital flows. the first is signing and ratifying international investment treaties to attract more foreign investment to the region, bearing in mind how relevant these resources are to national economic development. a robust exchange legislation is another important factor to ensure foreign investors feel legally comfortable investing in the region. finally, the implementation of local a currency payment system could reduce costs and make financial transactions more agile.
ratification of bilateral investment agreements is one of the levers that could be used to foster even greater regional integration and enhance investment and capital flows in latin america. the region’s countries are now well represented in such agreements, especially compared to those in europe (see Exhibit 29). brazil’s participation in this type of agreement is particularly low. it has signed agreements with only 14 countries, none of which has been ratified. Chile has 51 signed agreements (more than three times as many), and 38 of them have been ratified, including counterparty agreements with the us, Canada, mexico and india. european and asian nations are the most represented in bilateral investment agreements. Germany, which is where this type of agreement originated, stands out from all other nations in the analysis, with 122 ratified bilateral agreements. the uK and france are right behind, with 89 and 83 ratified agreements each. in asia, China and south Korea have the largest number of ratified agreements – 68 and 54 respectively.
bilateral agreements foster safe and easy investments between signatory nations. normally this type of agreement involves equal treatment for domestic and foreign investors, protection and indemnification in the event of expropriation decrees or breach of contract, free transfer of the income to the country of origin and dispute resolution in an international tribunal. for brazil, ratified agreements might help facilitate the entry and exit of foreign direct and portfolio investments, contributing to the region’s development through the efficient allocation of capital between those with capital to invest, and those in need of capital.
on a regional scale the situation is similar. although the Colonia Protocol on the promotion and protection of mercosur investments was signed in 1993, followed by the buenos aires Protocol on the promotion and protection of investments from non mercosur states, neither has been ratified. europe and asia have well established multilateral investment agreements. in 1988, the european union issued a directive on the free movement of capital within the region, which was implemented by all participating nations in 1990. in 2009, asean signed a comprehensive multilateral investment agreement, the asean Comprehensive investment agreement (aCia), the pillars of which are liberalization, protection, facilitation and the promotion of investments between participating nations.
number of ratified bilateral agreements
exhibit 29latin american countries have few bilateral investment agreements in force; brazil, for example, has no ratified agreements
1. ASEAN Comprehensive Investments AgreementSource: International Center for the Settlement of Investments Disputes (ICSID) ; Foreign Trade Information System (SICE); ACIA Factsheet de 26/02/2009; European Union web site
0 50 100 150
braZil
argEntina
chilE
MExico
gErMany
china
uK
south KorEa
FrancE
indonEsia
italy
singaporE
extra-regional asiaintra-regional asia
extra-regional latin am.intra-regional latin am.
0Brazil has 14 signed BITs, none of them ratified
45
38
21
89
83
69
68
54
30
17
122
11
15
4
18
18
19
26
19
12
5
21
34
23
17
71
65
50
42
35
18
12
101
latin aMErica• The 1994 Colonia Protocol defined national and equal treatment for Mercosur member investors• Exceptions are granted to numerous sectors• Taxation rules are not uniform
EuropE• In 1988 the European Union issued a directive for the free circulation of capital in the region, which was implemented by all member states in 1990
asia• In 2009, ASEAN signed a broad multilateral investment agreement, known as ACIA1 • 5 pillars: liberalization, protection, facilitation and promotion of investments between nations
Bilateral investment Treaties
ConneCtivity for an investment and business hub in brazil 63 62 ConneCtivity for an investment and business hub in brazil
Within the context of foreign investment, exchange regulation is another point that merits attention, given its obvious relevance for intermediating investments flowing into and out of a country. in general, over the long term exchange regulations that are both stable and agile will help make latin america more attractive for foreign investments.
the exchange regulation in brazil, although not very predictable, has the important characteristic of protecting investment liquidity. in addition, although new control mechanisms are implemented with some frequency, these changes are not retroactive. despite these advantages, it is important that this country continue its efforts to simplify its exchange legislation, which is quite antiquated, as it is based on the law # 4,595 passed in 1964, when capital flows and fluidity were much smaller. in addition, the current regulatory framework is complex and was updated using a series of amendments, making it harder to understand exchange transactions and leading to a measure of legal insecurity on the part of investors.
there is agreement on the need to reformulate brazil’s exchange regulations, which could be done in one of two ways: an overhaul of the institutional basis of the exchange regulation, making it clearer and less vulnerable, or specific improvements to its weaker points, reducing any legal dubiousness and ensuring that contractual compliance is respected, thus providing exchange transactions with a greater degree of legal comfort.
another lever that could contribute to enhanced investment flows in latin america is the implementation of local Currency Payment systems (sml in Portuguese). an sml is a payments system used in commercial transactions that allows payables and receivables to flow between countries in their respective currencies. smls reduce the transaction, financial and administrative costs of exchange transactions, and make the entire process more agile, eliminating the need for real-us dollar and us-dollar local currency transactions, and vice-versa. brazil adopted this system in its commercial transactions with argentina in 2008, and is negotiating now with uruguay. other countries and regions are looking into using their own local currency for payments so as to reduce the dependence on the us dollar. at the second briC summit in 2010, the leaders of the four briC economies agreed to investigate mechanisms to use their own currency for bilateral trade. the same is happening with asean, where China, south Korea and Japan are looking at how to use their local currencies for payments.
“ease of use and lower cosT should make The new [local warrency paymenT BeTween Brazil and argenTina] sysTems aTTracTive... This iniTiaTive is an imporTanT firsT sTep Towards greaTer inTegraTion of our economies”
hEnriquE MEirEllEs, prEsidEnt oF thE braZilian cEntral banK at that tiME (oct/08)
ConneCtivity for an investment and business hub in brazil 65 64 ConneCtivity for an investment and business hub in brazil
another characteristic of an investment and business hub is the international flow of businesses that make up the worldwide business network. this flow includes both the international expansion of local businesses as well as attracting the operations and regional or even global functional and decision making centers of companies originally from other nations. such moves attract investment and, more importantly, create high value added jobs in corporate functions, thus strengthening a virtuous circle of attracting talents and improving the local human capital.
in recent years latin american countries have demonstrated an important trend towards international expansion. in a ranking of developing nations with the largest volume of assets abroad27, the share of latin american businesses is increasing: in 2003 they owned 14.1% of all assets abroad, and by 2008 owned 17.2%. this increase in position is the result of a 258.1% increase in assets held abroad over the past five years, from us$ 35 billion to us$ 125 billion. in the past decade, the flow of outward fdi from latin america to other parts of the world has also increased. although starting from a number that is rather low in absolute terms, between 2000 and 2010 the increase in latin american fdi was 532%, compared to 170% in asia and -50% in europe (see Exhibit 30).
although increasing in importance, the global relevance of latin american businesses is still limited. in the ranking of the 100 largest transnationals from developing nations, only nine are latin american, three of them brazilian. if one looks at the list of 100 largest transnationals in the world, vale and Cemex are the only two latin american companies, listed in 55th and 79th place respectively28 (see Exhibit 31).
the region’s limited importance in the international expansion of latin american businesses, compared to european and asian businesses only reinforces a situation of incipient expansion. european companies have six times more international operations than latin american29 companies (see Exhibit 32). in addition, international operations of latin american companies are predominantly within the region – 50% of their international operations are in some other latin american nation, while in europe and asia this percentage is 30% and 37% respectively.
04 international Business expansion
27 source: World investment report 2011, unCtad
28 source: World investment report 2011, unCtad
29 the 30 largest businesses in the six nations with the largest GdPs in each region were chosen, and the number of operations abroad for each business calculated. selection made from the list of largest businesses published by forbes magazine (2010). for countries that did not have 30 businesses on the list, the criteria of largest revenue was used
exhibit 30strong growth of fdi in latin america
latin american fdi increased faster than any other region’s in the past decade, but the total volume is still small
us$b1,500
1,000
0
500
1. Asia includes only: Cambodia, North Korea, South Korea, China, Singapore, Philippines, Hong Kong, Indonesia, Laos, Macao, Malaysia, Myanmar, Thailand, Taiwan, Vietnam 2. Vale purchased Inco for US$ 18 billion. Note: Indonesian FDI data for 1990 - 2002 includes East TimorSource: World Investment Report - UNCTAD; UNCTADstat
90 92 94 96 98 00 02 04 062 08 1009
Outward FDI, 1990-2010
∆% 1990-2000 ∆% 2000-2010
Asia1
Latin America
European Union
375% 532%
234% 170%
447% -50%
exhibit 31latin america has only a very small number of the world’s multinationals
few latin america businesses are among the world’s largest transnationals
us$b6,000
4,000
0
2,000
1. Ranking by assets held abroad - 2010 valuesSource: World Investment Report - UNCTAD; UNCTADStat
LATIN AMERICA ASIA EuROPEAN uNION
Total assets held abroad – companies included in the ranked list1 of the 100 largest transnationals
VALE: 55th
CEMEX: 79th
86 234
4,605
# of companies
2 5 61
mean per company (us$ b)
42.8 46.7 75.5
ConneCtivity for an investment and business hub in brazil 67 66 ConneCtivity for an investment and business hub in brazil
even intra-regionally, a comparison with europe and asia shows there is still room for latin american businesses to expand. in latin america, the average penetration of companies from one country in the other30 countries in the region is 11%, compared to 17% in asia and 30% in europe (see Exhibit 33).
30 ten largest countries in each region based on GdP, 2010
breakdown by region of operations outside the country of origin (%)
breakdown by region of operations outside the country of origin (%)
breakdown by region of operations outside the country of origin (%)
exhibit 32the importance of latin america in the international growth of multilatin companies reinforces the reality of an incipient expansion
european and asian companies have a large number of international operations, about one third within their region
latin american companies have six times fewer international operations and most are within the same region
1. The 30 largest companies in the six nations with the largest GDPs in each region were chosen, and the number of operations abroad for each one calculated. The largest companies were selected from the 2010 Forbes list. If a country did not have 30 companies on the list the criteria of highest revenue was used.Note: Largest GDPs in each region (from those selected for the study): Latin America: Brazil, Argentina, Chile, Mexico, Peru and Colombia; Europe: Germany, United Kingdom, France, Spain, Italy and the Netherlands; Asia: China, South Korea, Indonesia, Singapore, Taiwan and Hong Kong. Source: Forbes, One Source, company reports and websites, BCG analysis
100
50
0
50,9
asialatin america europe
EuROPE ASIA LATIN AMERICA
other intraregional
43
2734
14
65
12
17
24
30
5037
4,719 1,139
6x
781# of company operations1
outside the country of origin# of company operations1 outside
the country of origin# of company operations1 outside
the country of origin exhibit 33Comparatively speaking, there is room for latin american businesses to expand
penetration of domestic companies in the 10 largest countries1 in each region
1. Largest in terms of their 2010 GDP 2. Percentages exclude one country in the denominator and one in the numerator to avoid including the country of origin in regional expansion.Note: The 30 largest companies in the six nations with the largest GDPs in each region were chosen, and the number of operations abroad for each one calculated. The largest companies were selected from the 2010 Forbes list. If a country did not have 30 companies on the list the criteria of highest revenue was used.Source: Forbes, One Source, company reports and websites, BCG analysis
Latin American countries are present in only about 17.5% of the countries in the region
For EU companies this percentage is almost triple, or 43.9%
In Southeast Asiait is about 50% larger, or 24.4%
Mean presence of companiesin the largest countries in the region2 (%)
Mean presence of companiesin the largest countries in the region2 (%)
Mean presence of companiesin the largest countries in the region2 (%)
MEx bra chl col arg pEr
24.420.0 19.8
5.9
80
70
50
60
30
20
10
0
40
Mean 17.5%
Mean 43.9%
Mean 24.4%
Fra sgpdEu Kornld hKguK chnEsp idnita twn
61.5
42.2
54.8
36.3
49.3
22.2
41.1
15.9
32.6
14.8
24.1
14.818.4 16.7
although latin america may not stand out in terms of the international footprint of its businesses, it does stand out when it comes to attracting foreign businesses to the region. an analysis of the 360 largest businesses in each region shows that latin america attracts as many companies as do asia and europe, between 35% and 40% of them. Within latin america brazil, mexico, argentina and Chile stand out (see Exhibit 34).
ConneCtivity for an investment and business hub in brazil 69 68 ConneCtivity for an investment and business hub in brazil
Mean 37.9%
exhibit 34foreign companies are as attracted to countries in latin america as they are to countries in other regions
latin america attracts companiesfrom both asia and europe...
... Brazil, mexico,argentina and chile are the highlights
Foreign company presence in the region Presence2 of Asia and Europe’s 360 largest companies1 in Latin America
% companies from one regionpresent in the other two regions1
50
40
30
20
10
0
1. The Latin American presence of the 360 largest companies in Asia and Europe, Asian presence of the 360 largest companies in Latin America and Europe, and the European presence of the 360 largest companies in Latin America and Asia. 2. Countries with fewer than 25 companies were excluded from this analysisNote: The 30 largest companies in the six nations with the largest GDPs in each region were chosen, and the number of operations abroad for each one calculated. The largest companies were selected from the 2010 Forbes list. If a country did not have 30 companies on the list the criteria of highest revenue was used. Regions include the following countries: Latin America: all continental countries, excludes the Caribbean; Europe: All EU countries (27); Southeast Asia: Cambodia, North Korea, South Korea, China, Singapore, Philippines, Hong Kong, Indonesia, Laos, Macao, Malaysia, Myanmar, Thailand, Taiwan, Vietnam. Source: Forbes, One Source, company reports and websites, BCG analysis
asia latin aMErica EuropE
40.338.6
34.7
117
85
2536 52
6127
45
3276
69
Enablers of the international expansion of businesses in Latin America
the largest difficulties businesses face to set up operations in multiple latin american countries are related to the absence of any standardization of rules and laws, in particular accounting and technical standards, the fact that there is no unified system of registration and patents, and misaligned financial regulations across the countries in the region. increased alignment of accounting, financial, tax and technical standards would make intra-regional operations more efficient.
insofar as the alignment of accounting standards goes, latin american has taken an initial step and started to organize efforts to harmonize accounting rules by adopting international financial reporting standards (ifrs)31, which tend to be globally accepted. Colombia and Chile adhered to the standard in 2009, while brazil and argentina did so in 2011. in the case of brazil, traded companies, financial institutions and insurers were required to adopt the new accounting for their financial statements already in 2010, and consolidated financial statements for 2009 had to be converted into the new model to enable comparisons. in addition, there have been movements in the region to exchange information and organize the region’s demands to the international accounting standards board (iasb), such as the creation of Glenif (Grupo latino-americano de emissores de normas de informação financeira – Group of latin-american accounting standard settlers) in order to ensure greater strengh and representation for the region on that board. Glenif gathers several countries of the region32, being established in June, 2011.
in addition to accounting regulations, standardized technical standards would also benefit the international activity of businesses in the region. the alignment of technical standards across countries in a given region reduces the transaction ad adjustment costs, makes it easier to trade in merchandise and services, incentivizes technological development and improves process quality and standardization. further, it makes it easier to compare these businesses to global benchmarks, as it becomes easier for local and international financial agents to understand the information, which in turn makes credit transactions safer and thus available at better rates.
31 international accounting standards published by the
iasb (international accounting standards board). since
2010 the iasb has worked to implement these standards
to improve comparability and integration of the accounting
standards of businesses in different countries
32 argentina, bolivia, brazil, Chile, Colombia, ecuador, mexico,
Panama, Paraguay, Peru, uruguay and venezuela
in recenT years laTin american counTries have demonsTraTed an imporTanT Trend Towards inTernaTional expansion. in The ranking of developing naTions wiTh The largesT volume of asseTs aBroad, The share of laTin american Businesses is increasing: in 2003 They owned 14.1% of all asseTs aBroad, and By 2008 owned 17.2%
ConneCtivity for an investment and business hub in brazil 71 70 ConneCtivity for an investment and business hub in brazil
33 established organizations from each country with the right to a full vote on technical committee - one per country only
34 block made up of singapore, Cambodia, indonesia, malaysia, Philippines, laos, thailand and vietnam
When it comes to aligning technical standards, efforts in latin america are still limited, both within and outside the region. latin american nations are not well represented in international standardization bodies such as the international organization for standardization (iso) - fewer than 50% of all countries in latin america are active33 members of the iso, while 96% of the european union nations and 60% of the countries in asia are active members. in addition, regional standardization bodies in latin america are less comprehensive and more fragmented. the region has two main standardization bodies, both with few standardized standards and only very limited adhesion: the Pan-american standards Commission, which covers 81% of the countries, has only 101 harmonized standards, and the mercosur standardization association, which covers 19% of the countries in the region, and has 493 harmonized standards. the european union body is exemplary, not only for being unique, with 100% of the countries adhering, but also because it is the most efficient in terms of standardization. in 2009 alone 1,303 standards were harmonized. (see Exhibit 35).
in addition to uniform standards, the use of common systems and registration can also make it easier for businesses to operate in multiple countries within a given region. one example is the unification of the patent registration system. europe already has a unified patent registration system, the european Patent office (ePo), created in 1977. the initiative has 38 member nations and operates as a common legal system for patent registration, ensuring the uniqueness of the application, concession and granting process for patents across all countries. once a patent has been granted, each country is responsible for the subsequent procedures, based on its own intellectual property legislation. asean34 launched its first joint program in 2009, the asean Patent examination Co-operation (asPeC), which includes all of the countries in that group. the focus of asPeC is to grant patents in a manner that is quicker and more efficient, and information on existing patents and the results of patent analyses is shared by the different bodies in each country.
latin america as yet has no established program or organization at the regional level; right now there are initiatives in this direction, such as the ePo project, whose objective is to promote the transfer of know-how to support a regional intellectual property system in latin america. another initiative currently underway in latin america is Prosur, which involves nine south american countries and aims to integrate and make it compatible registration systems between participating nations, with the support of the World intellectual Property organization (WiPo). its first pilot project was approved in January, 2011 and will work as follows: 300 patent applications in biotechnology and mechanics, submitted in two or more countries, will be selected for cooperative examination. examiners in the nations involved will exchange relevant search and review information for the final decision, which shall remain sovereign for each nation. Collaborative patent reviews started in august, 2011 and should accelerate the examination process across the region. Going forward the target is to expand cooperation to other areas.
% adhesion to iso by type
exhibit 35latin america’s efforts to align technical standards regionally and internationally are still quite limited
participation of latin american countries in international organizations such as iso is limited ...
...and its regional bodies are less effective than that of its european counterparts
1. International Organization for Standardization 2. Mean of the number of technical committees on which each country in the region has a seat. Only countries that participate in ISO counted as members. 3. Established organizations from each country with the right to a full vote on technical committee - one per country only; Not actively involved in the development of policies and technical standards; 5. A means for smaller countries with no developed standardization activities to participate. 6. Excludes countries in the CaribbeanSource: ISO; CEN; COPANT; AMN; CNI; BCG analysis
417 311
~3.5 x
124
Mean number of seats on technical
committees2
Euro
pEas
iala
tin
aMEr
ica
100
80
60
40
20
0
southEast asia latin aMEricaEuropEan union
Participation of the countries in each region in ISO1
MEMbErs3
non MEMbEr
signatoriEs5
participants4
4 719
13
24
10
96
20
6048
european committee for standardization27 members (100% of the total6)
in 2009 alone 1,303 standards were harmonized
299 technical Committees
pacific area standards congress27 members (100% of the total6)
asean consultative committee on standards and quality10 members (67% of the total
harmonized standards for 20 product categories and 81 health and safety standards
9 technical Committees
pan-american Technical standards committee17 members (81% of the total6)
101 of its own standards have been published
9 technical Committees
mercosur standardization associationmercosur (19% of the total6)
493 harmonized standards
34 sector Committees
ConneCtivity for an investment and business hub in brazil 73 72 ConneCtivity for an investment and business hub in brazil
finally, aligned financial regulations create favorable funding conditions that attract and enable business expansion. taxation and funding in latin america could be improved through agreements to eliminate double taxation and improve the access to local sources of credit.
double taxation at the international level has a series of disadvantages, as it places an overly large burden on international activities, makes capital and people flows more difficult, and hurts technology transfer and the interchange of merchandise and services; it also fosters tax evasion. latin america already has a number of agreements to avoid double taxation, but should continue its efforts to progressively lessen the burden on businesses. brazil, for example, has double taxation agreements with 29 countries35.
latin american countries can also improve the access to local sources of credit. a first step would be the regional integration of its corporate debt markets, which would demand a series of changes to simplify the issuing process, expand the base of issuers and investors in the region, improve the liquidity of its secondary markets, introduce risk management instruments and create a reliable and efficient benchmark yield curve. the region also needs to create mechanisms to recognize international guarantees.
35 south africa, argentina, austria, belgium, Canada, Chile, China, Korea, demark, ecuador, spain, Philip-pines, finland, france, hungary, india, israel, italy, Japan, luxembourg, mexico, norway, netherlands, Peru, Portugal, slovakia, Czech republic, sweden and ukraine
laTin america already has a numBer of agreemenTs To avoid douBle TaxaTion, BuT should conTinue iTs efforTs To progressively lessen The Burden on Businesses. Brazil, for example, has This Type of agreemenT wiTh 29 counTries
ConneCtivity for an investment and business hub in brazil 75 74 ConneCtivity for an investment and business hub in brazil
business flows depend on more than the flow of merchandise, services, capital and businesses. to enable the installation of decision making centers and regional headquarters, as well as for day-to-day business, it is vital that executives and decision makers from all sectors be able to freely and easily enter and exit a hub. in addition, facilitating the flow of people and international hiring could help balance the supply and demand for qualified professionals, helping prevent inflationary pressures on wages, for example.
the number of immigrants residing in latin america is small and their relative numbers have remained constant over the past few years, despite the increase in the total number of immigrants around the world. immigrants make up only 1% of the population in latin america, compared to 9.4% in europe (see Exhibit 36). for brazil in particular, connectivity measured in terms of immigrants is poor, as only 0.4% of the country’s population is made up of immigrants, a proportion that has been falling at an annual rate of 0.7%. established business centers in singapore and hong Kong, for example, are known for welcoming immigrants, who already make up 40% of the population in those places (see Exhibit 37).
in addition to its small numbers, immigration in latin america is predominantly intra-regional - 53% of all immigrants living in latin american countries are from the region itself, whereas in europe only 27% of immigrants come from other european nations. broken down by country, the statistics on immigration in latin america show that in argentina and Chile, 66% and 71% respectively of their immigrant populations come from other countries in latin america, while in brazil and mexico most immigrants are from other regions, with only 21% and 16% from within the region, less than in some european countries like spain, italy, the uK and Germany (see Exhibit 38).
even so, there are opportunities to increase the interest of latin american expatriates in other countries in the region - the brazilian diaspora, for example, shows it is more concentrated outside the region, especially in north america and europe (see Exhibit 39).
05 people flows
155.5
exhibit 36the number of resident immigrants in latin america is small and has remained constant
1990 19901995 19952000 20002005 20052010 2010
latin america is not among the main destinations chosen by immigrants...
...and immigrants still make up only a small percentage of the population in latin america
Worldwide distribution of immigrantsby place of residence
Immigrants as a percent population by location of residence
immigrants by region of residence (million)
resident immigrants/ total population1
0 0
50 2
100 4
150 6
200 8
250 10
cagr‘90-’10
2.9%
2.7%
0.0%
1.3%
1.6%
1. Sum of the immigrants in each country divided by the total population in the regionSource: United Nations; BCG Analysis
asia latin america europe other
4%3%
3%3%
3%
4%4%
5%5%
5%
75%74%
73%
71%
70%
17% 19% 20% 21% 22%
166.0
178.5
195.2
213.9
0.4% 0.4% 0.5% 0.5% 0.5%
1.5%
1.1% 1.1% 1.1% 1.1%
5.7%
6.6%
7.2%
8.5%
9.4%
ConneCtivity for an investment and business hub in brazil 77 76 ConneCtivity for an investment and business hub in brazil
• 0.4% of the resident population is made up of immigrants• the number of immigrants is dropping at an annual rate of 0.7%• total of 0.7 million resident immigrants in 2010
braZil
exhibit 37latin american countries, and brazil in particular, stand out for their limited connectivity in immigration
0%
10%
20%
-10%
-20%0% 20%10% 30% 40% 50% 60%
singaporE
hong Kong
luxEMburg
irEland
gErMany
spain
Macau
costa rica
Ecuador
argEntina
braZil
incr
ease
in r
esid
ent i
mm
igra
nts
– 11
90-2
010,
% p
.y.
Source: United Nations; BCG Analysis
resident immigrants as a percent total population
global connectivity measured by immigrants received
# of resident immigrants in 2010 latin america asiaeurope other2M
exhibit 38latin american immigrants mostly come from other countries in the region - brazil and mexico are an exception
71% 29%
34%66%
21% 79%
84%16%
CHILE
SPAIN
CHINA
ARGENTINA
ITALy
SOuTH kOREA
BRAZIL
uk
SINGAPORE
MEXICO
GERMANy
INDONESIA
Breakdown of resident immigrants in each region by origin
Breakdown of the resident immigrant population in each region between intra and extra-regional
global connectivity measured by immigrants received
ExtraExtra
ExtraExtra
ExtraExtra
intraintra
intraintra
intraintra
53%
27% 73%
47%latin aMErica1
EuropE2
asia3
40.5%
29.5%
28.6% 71.4%
78.0%22.0%
79.9% 20.1%
n/a
n/a
n/a
n/a
59.5%
70.5%
1. Data for 2005 Includes Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela. Data for 2008. Includes Austria, Belgium, Czech Republic, Denmark, Finland, Germany, Greece, Hungary, Italy, Netherlands, Poland, Portugal, Spain, Sweden and the UK Total number of immigrants in 2008, estimated from 2005 data and a the ‘05-’10 CAGR Source: Unctad Online handbook of statistics, Eurostat, International Trade Center, domestic statistics institutes; OECD; BCG analysis
ConneCtivity for an investment and business hub in brazil 79 78 ConneCtivity for an investment and business hub in brazil
exhibit 39the example of brazil shows that there are more latin american immigrants outside the region than within it
north america
south america
central america
Europe
oceania
asia
Middle East
africa
1.325
514
37
816
290
23
32
5
Breakdown of the Brazilian diaspora (thousand people) - 2009
Source: Brazilian Ministry of Foreign Relations, BCG analysis
Enablers of people flows in Latin America
initiatives are necessary not only to simplify the entry processes, but also to rethink the model latin america wants to adopt regarding immigrants. in a globalized world that is increasingly connected, the option to recruit freely is an important competitive advantage, which benefits not only those who come to the region and the businesses that hire them, but the entire region. the possibility of recruiting talents freely from anywhere in the world would make the region more integrated with what is going on in the world, contributing to the education and cultural development of those that reside there. in addition, more open people flows help keep a balance between the supply and demand for labor, potentially containing wage inflation.
People flows require that the transit between the country and other hubs around the world – global, regional and local – be relatively free and easy. to this end it is vital that the regulatory requirements for the entry and exit of professionals be modernized, avoiding extremes that make it harder for executives to come into the country or for international events and business to take place, and yet do little to strengthen national security. facilitating the flow of tourists is also important to attract people, as it serves as a mechanism to disclose the region internationally. in addition, it is a fundamental requirement that there be good air transport connectivity, which includes a suitable airport infrastructure and frequent flights, as air transport is the most common way of transport in a globalized world.
an analysis of the difficulties to obtain visas for countries within the same region, which takes into consideration diplomatic relations, existing bilateral and multilateral agreements, the presence of embassies and other requirements, shows that the freedom for intra-regional flows of professionals in latin america is greater than it is in asia, yet smaller than in europe (see Exhibit 40).
in addiTion To iTs small numBers, immigraTion in laTin america is
predominanTly inTra-regional: 53% of all immigranTs living in laTin american counTries are from The
region iTself, whereas in europe only 27% of immigranTs come from
oTher european naTions
ConneCtivity for an investment and business hub in brazil 81 80 ConneCtivity for an investment and business hub in brazil
exhibit 40the intra-regional flow of professionals is greater in latin america than it is in asia, but smaller than it is in europe
how easy it is for foreigners in each region to get a visa to work in the country
Europe: Professional flows facilitated across the board
Latin America: Flows are facilitated between countries in the region
Asia: Difficulty to get visa similar for Asians and non Asians
Note: Scoring criteria in order of relevance: (1) Diplomatic relations (e.g. political conflicts that could harm the immigration process); (2) bilateral and multilateral agreements; (3) presence of embassies of the countries analyzed in the countries of origin; (4) documents, additional requirements and other restrictions.Source: Ministry of Justice, Ministry of Foreign Relations or International Affairs, embassies of the selected countries; Federal Police website; Frontera Sur; Cancileria; VisaHQ; Francie Diplomatie; UK Border Agency; HiKorea.com.
spain
spain
netherlands
netherlands
italy
italy
Germany
Germany
france
france uK
uK
dEstination
origin
Colombia
Colombia
mexico
mexico
Chile
Chile
argentina
argentina
brazil
brazil Peru
Peru
dEstination
origin
taiwan
taiwan
indonesia
indonesia
south Korea
south Korea
Japan
Japan
China
China thailand
thailand
dEstination
origin
harder than most other countries
the same as most other countries
easier than most other countries
no demands
exhibit 41free residence agreements can improve connectivity if they are reinforced and cover more countries
Source: Migration policy institute; press clippings
mercosur countries
other signatory countries
Countries not signatories to the
agreement
citizens of member countries have a simpler process to establish residence in Brazil
Citizens of member countries may enter brazil freely
once in brazil, citizens of these countries have a simpler process to apply for a 2 year residence permit
after 2 years they may automatically be granted permanent resident status
The argentine program is even broader
after 1 year foreign citizens can get argentine documents giving them access to all of the country’s public services
some provinces allow these “naturalized” citizens to vote in local elections
the country’s Patria Grande program, created in 2006 to legalize immigrants, has already legalized over 1 million persons
Million inhabitants
244
27
304
one of the paths for this would be to expand the regional space open to people flows created by the mercosur free residence agreement (see Exhibit 41). in addition, regional registration of people and integrated professional recognition should be looked into to selectively facilitate the entry of immigrants with skills that are strategic to the development of the region. Canada, denmark, singapore, the european union and the uK have simplified visa processes for qualified professionals. in singapore, for example, a special process can produce visas in only 24 hours. meanwhile a work visa for brazil takes an average of two months.
MorE rEstrictivE
lEssrEstrictivE
ConneCtivity for an investment and business hub in brazil 83 82 ConneCtivity for an investment and business hub in brazil
exhibit 42brazil’s image as a tourist and cultural destination is particularly good, but this does not translated in large numbers of tourists
1. Questions: Interest in visiting the country, it is rich in natural beauty and historical monuments, and its cities are exciting 2. It us successful in ports and has a cultural heritage as well as a contemporary culture Note: survey of 50 countriesSource: The Anholt-GfK Roper Nation Brands IndexSM 2008 50 country report, EIU; BCG analysis
Tourism1 Culture2
bEst bEst
worst worst
italy
braZilbraZil
FrancE
iran iran
1st 1st
50th
10th
13th
50th
Ranking Destination % of world tourists
11%
8%
7%
4%
4%
3%
3%
3%
2%
1%
1%
1%
1%
1%
FRANCE
uSA
CHINA
uk
HONG kONG
GERMANy
RuSSIA
MEXICO
CANADA
SINGAPORE
JAPAN
SOuTH kOREA
INDIA
BRAZIL
1st
2nd
4th
6th
7th
10th
11th
14th
15th
28th
29th
30th 35th 38th
brazil is ranked 38th out of 60 countries
Brazil has a positive image in tourism and cultural issues ...
...but attracts only a small shareof the global tourist volume
tourism is something else that can be used to stimulate people flows as a whole, by disclosing the image of the region internationally. this is the image tourists who come to brazil take back to their country of origin, and helps build a perception and stimulate the potential interest of future immigrants. however, the number of tourists who come to latin america is quite small, especially compared to europe. as an example, although it has a good image as a tourism and cultural destination, brazil is ranked only 38th on a list of the 60 countries receiving the most tourists in the world, and this number has been steadily dropping (see Exhibit 42).
ConneCtivity for an investment and business hub in brazil 85 84 ConneCtivity for an investment and business hub in brazil
exhibit 44the quality of air transport in latin america varies significantly from country to country, brazil stands out in a negative way
bEst
worst
air transport quality score (0-10, worst)
2.6
2.0
1.2
2.9
2.6
1.3
5.7
5.3
4.3
3.3
1.4
Source: IMD World Competitiveness Yearbook
SPAIN
uk
GERMANy
CHINA
THAILAND
SOuTH kOREA
ARGENTINA
BRAZIL
MEXICO
COLOMBIA
CHILE
asia
latin america
europe
36 based on the number of lights in the week of december 6 - 12,
2010, departures only. latin american sample made up of brazil, Chile and mexico. asia
sample made up of flights from China and singapore. european
sample made up of flights departing from Germany, france,
the uK and russia
37 imd World Competitiveness yearbook
together with regulatory issues mobility between nations also depends on the available physical infrastructure. the ability for people to move around is essential to consolidate a business hub. latin america is still not well integrated with the rest of the world: although better integrated than asia, it still lags far behind europe. latin america has an average of six international flights a day for every million inhabitants, equally balanced between intra-regional and extra-regional flights. this same ratio is less than three in asia, but is 53 in europe, 72% of them intra-regional36 (see Exhibit 43). if one looks at the quality of air transportation, latin american countries fare badly: of the countries in the analysis argentina, brazil, Colombia and mexico got the worst scores in the imd37 survey of executives (see Exhibit 44).
exhibit 43air travel integration of latin america is similar to that of nations in southeast asia, but quite a bit more limited than in europe
total # of international flights
# of flights to destinationsoutside the region
# of flights to destinationswithin the region
46% of international departures in latin america have destinations within the region
# of international flights/day from the country’s main urban center1 (2010)
652
403
848
244
78
654
358
325
194
in asia the level of air travel integration is smaller
# of international flights/day from the country’s main urban center3 (2010)
919
2,607820
2,374
99
233
China singapore
europe is well integrated in terms of air travel
# of international flights/day from the country’s main urban center4 (2010)
3,9301,131 2,799
Germany
1,972601 1,371
russia
5,1241,576 3,548
france
7,4791,864 5,615
uK
southeast asia sample3
of the international flights are intraregional
Flights per million inhabitants per day
3,5263,194 332 2.6
9%
europe sample4
of the international flights are intraregional
Flights per million inhabitants per day
18,5055,172 13,333 53.4
72%
latin america sample2
Flights per million inhabitants per day
of the international flights are intraregional
1,903877 1,026 5.9
46%
1. Based on the number of flights in the week of December 6 - 12, 2010. Departures only. 2. Sample made up of flights from Brazil, Chile and Mexico. 3. Sample made up of flights from China and Singapore. 4. Sample made up of flights departing from Germany, France, the UK and Russia. Source: OAG database; BCG analysis; WTO ASAP
ConneCtivity for an investment and business hub in brazil 87 86 ConneCtivity for an investment and business hub in brazil
Political stability and security are also desirable characteristics for an investment and business hub. the guarantee of political stability creates an environment that is attractive to foreign investors, as it represents a measure of security offered by the country’s government and its businesses to foreign investors who purchase government bonds or corporate stock.
latin america’s relatively peaceful history is one of the factors that contribute to the region’s good relationships with the rest of the world. only two latin american countries had domestic conflicts of sufficient international consequence to be included in the 2010 Conflict barometer: mexico because of its drug cartel wars, and Colombia due to the civil war against the farCs (see Exhibit 45). although such conflicts do not seem to frighten investors, violence is keeping these economies from being even better as businesses must invest additional amounts in security.
latin american nations are also starting to stand out as influencers of the global public order. brazil and mexico are already among the most influential countries in the world – ranked 21st and 22nd respectively according to the 2010 soft power38 ranking, which assesses the ability of states to influence the actions of others without coercion, using persuasion or attraction. although the more longstanding and traditional nations such as france, the uK and us are still considered references in terms of their perceived influence in the world, recently developed nations such as singapore, and developing nations such as the briCs, are already included in the league tables (see Exhibit 46).
06 international political scenario
38 soft Power: a concept developed by Joseph nye, ranking based on four categories: business/innovation, culture, government diplomacy and education. source: “the Persuaders: an international ranking of soft power” by the institute for Government
exhibit 46two latin american countries are among the 26 countries the world sees as influential
1. FrancE
2. uK
3. usa
4. gErMany
5. switZErland
6. swEdEn
7. dEnMarK
8. australia
9. Finland
10. nEthErlands
11. spain
12. canada
13. singaporE
14. norway
15. Japan
16. italy
17. china
18. israEl
19. south KorEa
20. south aFrica
21. braZil
22. MExico
23. india
24. uaE
25. turKEy
26. russia
asia
latin america
europe
other
Historically, traditional powered head up the list in terms of perceived influence...
...but recently developed nations such as Singapore, and those still in development such as the BRICs, are already on the list
1. Soft Power: a concept developed by Joseph Nye; ranking calculated based on four categories: business/innovation, culture, government diplomacy and education.Source: The Institute for Government’s “The Persuaders: an international ranking of soft power”
international soft power1 ranking - the ability of a nation state to influence the actions of another through persuasion or attraction, without coercion
exhibit 45only two latin american countries have domestic conflicts the international community considers relevant
1. The Mexican drug cartel conflict escalated to war status in 2010, with worsening violence and more than 10,000 deaths in that year aloneSource: University of Heidelberg “2010 Conflict Barometer”
map of very violent conflicts in 2010
Colombia: Civil war with the FARCs
Mexico: drug cartel conflicts1
severe crisis War
ConneCtivity for an investment and business hub in brazil 89 88 ConneCtivity for an investment and business hub in brazil
other
asia
latin america
europe
north america
multilateral
exhibit 47Political connectivity also takes the form of international official visits
# of international visits made bythe brazilian president in office
# of international visits made bythe south Korean president in office
2006 2007 2008 2009 2010
20
40
60
17
38 40
48
Mean 35
over the past 5 years the Brazilian president in office has made official
visits to all regions
visits by the south korean president are far less frequent
2006 2007 2008 2009 2010
20
40
60
2018
11 11
6
Mean 13
Latin America / Total (%)
Asia / Total (%)
% GDPglobal visited
% GDPglobal visited
Source: Brazilian Ministry of Foreign Relations; South Korean Ministry of Foreign Relations; BCG analysis
29% 30%
32% 40%
32% 17%
46% 34%
35% 36%
55% 36%
32% 0%
35% 29%
21% 27%
59% 47%
Enablers of the political scenario in Latin America
to enhance its connectivity with the world, it is important that latin america keep up its efforts to increase its influence in the international community. international visit agendas and cooperation activities can make positive contributions to a country’s visibility and political relevance.
brazil is a positive example in both these dimensions. over the past five years, the brazilian President in office made an average of 35 official visits a year. official visits in 2010 were double the number in 2006. by comparison, the President of south Korea made only 13 official visits and the number actually dropped between 2006 and 2010. additionally, while the number of trips made by brazilian Presidents is increasing, the opposite is true for south Korea, where the President in office made 20 official trips in 2006 but only 6 in 2010 (see Exhibit 47).
additionally, trips by brazilian Presidents have increasingly been made to countries of greater economic importance, although this declined somewhat in 2010. in 2006 the countries that received official visits from the brazilian President accounted for 32% of the global GdP. this number went up to 59% in 2009, then dropped to 35% in 2010. latin american and multilateral meetings make up a large portion of the brazilian official agenda, showing there is room to expand relationships with countries outside the region. the countries visited by the south Korean President accounted for 40% of the global GdP in 2006, dropping to 29% in 2010.
the number of official visits made to brazil shows there is room to increase its importance and its attraction to foreign leaders. While Korea received an average of 55 official visits from foreign leaders in the past five years, brazil received only an average of 35 visits each year. the number of presidential visits to brazil is increasing at a rate of 5% per year, with 37 visits in 2010 compared to 30 in 2006. the opposite is happening in south Korea, where the number of official visits fell drastically from 80 in 2006 to just 13 in 2010.
the economic importance of those countries making official visits to brazil has also increased. in 2006, official representatives from countries responsible for 14% of the global GdP visited brazil. in 2010 this had jumped to 23%. in south Korea, not only has the number of official visits dropped, but the economic importance of the visiting countries has as well. in 2006, the countries making official visits to south Korea accounted for 59% of the global GdP, but for only 43% in 2010 - despite the drop, still higher than the equivalent percentage in brazil. about half of the official visits made to brazil are by leaders of other latin american nations. in the case of south Korea, only 17% of the official visits made to that country in the past five years were by leaders of other southeast asian nations (see Exhibit 48).
34
ConneCtivity for an investment and business hub in brazil 91 90 ConneCtivity for an investment and business hub in brazil
other
asia
latin america
europe
north america
exhibit 48the example of south Korea shows that brazil could receive more international visits from the larger economies
2006 2007 2008 2009 2010
80
73
13
Brazil has been visited by leaders of countries in all regions
over the same period south korea received a much larger number of visits
Latin America / Total (%)
Latin America / Total (%)
% GDPglobal received
% GDPglobal received
# of visits by foreign leaders to south Korea
20
40
60
80
Source: Brazilian Ministry of Foreign Relations; South Korean Ministry of Foreign Relations; BCG analysis
2006 2007 2008 2009 2010
30
24
42 42
37
# of visits by foreign leaders to brazil
20
40
60
Mean 35
80
Mean 55
60% 15%
14% 59%
42% 19%
37% 50%
55% 20%
26% 72%
45% 8%
23% 43%
48% 18%
16% 56%
brazil also stands out for its increasing importance to international cooperation, especially within its own region. the country’s investments in international development increased 25% per year between 2005 and 2009. although the main focus was to contribute with international organizations, investments in humanitarian aid increased in importance in 2009. in terms of geography, 76% of brazil’s investments were made in latin america, with Cuba, haiti and honduras being the main destinations, which together accounted for over half the total investment made (see Exhibit 49).
brazil has also stood out on the international scene by becoming the first latin america Country to sign the treaty of amity and Cooperation of asean. besides the member countries, China, india, usa and the european union also signed the treaty. this step creates the opportunity to greater cooperation between brazil and the asean nations, which include some of the major business centers in asia, covering a population of more than 600 million inhabitants.
in addition to investments in cooperation, latin american nations in general are strong players in the main multilateral organizations. the un security Council has been a particularly important venue for latin american projection. four of the 13 more active members of the un security Council (outside the permanent members) are latin american, with brazil and Japan being the most active. brazil is also attempting to secure a permanent seat on the un security Council (see Exhibit 50).
The economic imporTance of Those counTries making official visiTs To Brazil has also increased. in
2006 official represenTaTives from counTries responsiBle for 14% of The gloBal gdp visiTed Brazil. This
numBer wenT up To 23% in 201050
59
ConneCtivity for an investment and business hub in brazil 93 92 ConneCtivity for an investment and business hub in brazil
exhibit 49brazil has a relevant role as an investor in cooperation, in particular within its own region
2005 2006 2007 2008 2009
158
277292
337
362
Brazilian investments in international development are growing
Breakdown of Brazilian investments by purpose Breakdown of Brazilian investments by region
us$ million at current value
100
200
300
400cagr
‘05-’08
19%
+23%
44%
-1%
207%
Source: Ipea and Brazilian Cooperation Agency report entitled “Cooperação Brasileira Para o Desenvolvimento Internacional: 2005-2009”
scholarships for foreign students
technical cooperation
humanitarian aid
Contributions to international organizations
CuBA
HAITI
PALESTINE
HONDuRAS
13%
19%
22%
10%
Most important destinations % of total
Brazilian efforts were, for the most part, intraregional
regional breakdown (% us$)
76%
16%
7%
asia
other
latin america
investments 2005 - 2009
exhibit 50brazil is attempting to secure a permanent seat on the un security Council
latin american nations participate in all of the main multilateral organizations
The un security has been a venue where latin america has been particularly active:
All Latin American countries are part of the main global multilateral organizations
# of elections to non permanent seatson the UN Security Council1
BRAZIL
JAPAN
ARGENTINA
COLOMBIA
INDIA
CANADA
ITALy
PAkISTAN
BELGIuM
GERMANy
NETHERLANDS
PANAMA
POLAND
10
10
8
7
7
6
6
6
5
5
5
5
5
Four of the 13 more active members of the UN Security Council (outside the permanent members) are Latin American; Brazil and Japan being the most active
1. Since the organization was created in 1945Source: UN; Media survey; BCG analysis
latin americaeurope other
ConneCtivity for an investment and business hub in brazil 95 94 ConneCtivity for an investment and business hub in brazil
as discussed at the start of this report, intra and extra-regional connectivity are an essential characteristic to create an investment and business hub. at the regional level, connections strengthen the uniqueness of a region’s network, increasing its value to all of its members. at the global level, these connections are necessary to increase the region’s global relevance.
therefore, well developed connectivity between brazil and other latin american nations and the world would strengthen its ability to become one of the region’s international hubs, and contribute to the economy of the countries involved.
there is great potential, but also a lot of work to be done. the analyses presen-ted in this report provide tools to break down the theme to define specifically what should be the priority focuses for brazil and latin america. it is also possible to use worldwide examples as guidance for the direction to follow and the steps to be completed along the five connectivity dimensions considered.
brain already has some Working Groups in place, and soon will have others to foster the development of brazil’s connectivity. Possible themes to be addressed include: ratification of Gats and bits, a reduction in the double taxation of invest-ments, standardized corporate regulations, and easier immigration for qualified talents, among others.
all those who realize the importance of developing connectivity in brazil and latin america for developing an international investment and business hub in the region are welcome to participate in brain’s initiatives.
Please visit our website to track the progress and contribute with this process: www.brainbrasil.org.
ConClusion
ConneCtivity for an investment and business hub in brazil 97 96 ConneCtivity for an investment and business hub in brazil