catching up and falling down a latin american perspective
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Catching up and Falling Down A Latin American Perspective. Javier Santiso Chief Development Economist & Deputy Director OECD Development Centre. Global Convergence Scenarios Paris January 16 2006. 1. Latin America: Catching up versus falling down. 2. - PowerPoint PPT PresentationTRANSCRIPT
1
Catching up andCatching up and Falling Falling DownDownA Latin American PerspectiveA Latin American Perspective
Global Convergence Scenarios
Paris January 16 2006
Javier SantisoChief Development Economist & Deputy Director
OECD Development Centre
2
11 Latin America: Catching up versus falling downLatin America: Catching up versus falling down
Brazil and the old challenge of potential growthBrazil and the old challenge of potential growth22
Brazil in the new international economic orderBrazil in the new international economic order33
3
While Latin American countries While Latin American countries experienced a falling down …experienced a falling down …
1950
1960
1970
1980
1990
2000/06
2000/06
1990
1980 1970
1960
1950
1950
1960
1970
1980
1990
2000/06
-4
-3
-2
-1
0
1
2
3
-30 -10 10 30 50 70 90deviation (%) of GDP per capita with respect to world average
($ 1990)
GD
P p
er c
apita
gro
wth
min
us w
orld
per
cap
ita g
row
th
(% a
nnua
lized
)
Mexico Chile Brazil
Annual growth (%) calculated as the average annual growth rate for the last six decades; Deviation (%) in the beginning of each decadeSource: based on Groningen Growth and Development Centre and The Conference Board, Total Economy Database, 2005
4
Some, more than others, during Some, more than others, during the 1950-2005 period …the 1950-2005 period …
2000/06
1990
1980
1970 1960
1950
1950
19601970
1980
1990
2000/06
1980
1970
1960
1950
1990
2000/06
-6
-5
-4
-3
-2
-1
0
1
2
-50 0 50 100 150 200 250 300deviation (%) of GDP per capita with respect to world average
($ 1990)
GD
P p
er c
apita
gro
wth
min
us w
orld
per
cap
ita g
row
th
(% a
nnua
lized
)
Venezuela ArgentinaColombia
Annual growth (%) calculated as the average annual growth rate for the last six decades; Deviation (%) in the beginning of each decadeSource: based on Groningen Growth and Development Centre and The Conference Board, Total Economy Database, 2005
5
Deepening the gap between them Deepening the gap between them and developed countries …and developed countries …
1950
19601970
1980
1990
2000/061950
1960
1970
19802000/06
1990
2000/06
1990
1950
1960 1970
1980
-1,5
-0,5
0,5
1,5
2,5
3,5
4,5
50 100 150 200 250 300 350deviation (%) of GDP per capita with respect to world average
($ 1990)
GD
P p
er c
apita
gro
wth
min
us w
orld
per
cap
ita g
row
th
(% a
nnua
lized
)
Finland Norway Ireland
Annual growth (%) calculated as the average annual growth rate for the last six decades; Deviation (%) in the beginning of each decadeSource: based on Groningen Growth and Development Centre and The Conference Board, Total Economy Database, 2005
6
Deepening the gap with developed Deepening the gap with developed countries …countries …
2000/06
1990
1960
1970
1980
1950
1990
2000/06
1980
1970
1960
1950
2000/06
1990
1980
1970
1960
1950
-3,5
-2,5
-1,5
-0,5
0,5
1,5
2,5
3,5
4,5
0 50 100 150 200 250deviation (%) of GDP per capita with respect to world average
($ 1990)
GD
P p
er c
apita
gro
wth
min
us w
orld
per
cap
ita g
row
th
(% a
nnua
lized
)
Spain Portugal Italy
Annual growth (%) calculated as the average annual growth rate for the last six decades; Deviation (%) in the beginning of each decadeSource: based on Groningen Growth and Development Centre and The Conference Board, Total Economy Database, 2005
7
The Asian countries experienced The Asian countries experienced an historical jump.an historical jump.
1950
1960
1970
1980
1990
2000/06
1950
19601970
1980
19802000/06
-2,5
-1,5
-0,5
0,5
1,5
2,5
3,5
4,5
5,5
-85 -75 -65 -55 -45deviation (%) of GDP per capita with respect to world average
($ 1990)
GD
P p
er c
apita
gro
wth
min
us w
orld
per
cap
ita g
row
th
(% a
nnua
lized
)
China India
Annual growth (%) calculated as the average annual growth rate for the last six decades; Deviation (%) in the beginning of each decadeSource: based on Groningen Growth and Development Centre and The Conference Board, Total Economy Database, 2005
8
11 Latin America: Catching up versus falling downLatin America: Catching up versus falling down
Brazil and the old challenge of potential growthBrazil and the old challenge of potential growth22
Brazil in the new international economic orderBrazil in the new international economic order33
9
The lost decade of the 1980s became The lost decade of the 1980s became the lost decade of a quarter of a the lost decade of a quarter of a
centurycentury..
Throughout the 30 year period previous to 1980, Brazilian real GDP grew at an average rate of 7.4% each year. Following this period, growth has been disappointingly low.
Source: BBVA
5.3
5.5
5.7
5.9
6.1
6.3
6.5
6.7
6.9
7.1
7.3
19
61
19
64
19
67
19
70
19
73
19
76
19
79
19
82
19
85
19
88
19
91
19
94
19
97
20
00
20
03
GDP and Trend
Average growth (1961-1980) = 7,4%
Average growth (1981-2004) = 2,2%
log
10
The fall in capital accumulation The fall in capital accumulation partly explains the storypartly explains the story
Source: IPEA
Source: IPEA
Net Fixed Capital Stock(billions of 1999 Reales)
0
500
1000
1500
2000
2500
3000
3500
4000
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
Capital Stock Growth (%)
0%
2%
4%
6%
8%
10%
12%
1951
1955
1959
1963
1967
1971
1975
1979
1983
1987
1991
1995
1999
2003
Average 1950-80
Average 1980-03
11
Lower capital accumulation: Lower capital accumulation: investments costs grew until investments costs grew until
1990...1990...Investment prices over General price index
0.5
0.6
0.7
0.8
0.9
1
1.1
1.2
1.3
1.4
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
Source:based on Penn World Table
… afterwards they stabilized at a relatively high level.
Investment prices over General Price Index
0.5
0.7
0.9
1.1
1.3
1.5
Co
lom
bia
Bra
zil
Ch
ile
Per
u
Me
xic
o
Sp
ain
Ko
rea
Source: based on Penn World Table
12
Lower capital accumulation: capital utilization dropped
Installed Capacity Utilization (%)
70
72
74
76
78
80
82
84
86
88
90
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
Average 1950-80
Average 1980-04
Source: based in IBGE
13
Lower capital accumulation: Lower capital accumulation: decline in productivity of capital decline in productivity of capital due to due to decrease in total factor decrease in total factor
productivity productivity Total Productivity and Capital Productivity
4.65
4.7
4.75
4.8
4.85
4.9
4.95
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
log
-0.6
-0.5
-0.4
-0.3
-0.2
-0.1
0
Total Productivity Capital Productivity
Source: Based in IBGE
log
14
There was a decline in terms of trade but also a series of structural inefficiencies: Lack of infrastructures, high taxes, rigid labor market…
0.87
0.89
0.91
0.93
0.95
0.97
0.99
1.01
1.03
1.05
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
Excludes terms of trade Includes terms of trade
Total Factor Productivity(logs)
Source: BBVA
Lower capital accumulation: Lower capital accumulation: productivity fellproductivity fell
Pavement roads (% of the total)
0
20
40
60
80
100
Argentin
a
Brasil
Chile
Colom
bia
Méxi
coPerú
Uruguay
Venezuel
a
%
Source: World Bank
Latam mean
Source: Doing Business 2005
Dismissal costs (in weeks)
020406080
100120140160180
Brasi
l
Argen
tina
China
Corea del
Sur
Méx
ico
Venez
uela
India
Españ
aPer
úChile
Colom
bia
Uruguay
15
Other productivity issues: Other productivity issues: Temporal costs vs financial Temporal costs vs financial
costscostsNumber of days needed to open a
business
020406080
100120140160
Brasi
l
Venez
uela
Españ
aPer
úIn
dia
Argen
tina
Colom
bia
Méx
ico
China
Corea
del S
urChile
Uruguay
Money needed to open a business (en US$)
0
500
1000
1500
2000
2500
Españ
a
Uruguay
Corea
del S
ur
Méx
ico
Venez
uela
Perú
Colom
biaChile
Brasi
l
Argen
tina
India
China
Number of days needed to enforce a contract
0100200300400500600
Colom
biaPer
ú
Brasi
l
India
Venez
uela
Uruguay
Méx
ico
Argen
tina
Chile
China
Españ
a
Corea
del S
ur
Money needed toenforce a contract
0
500
1000
1500
2000
2500
Venez
uela
Españ
a
Uruguay
Chile
Argen
tina
Perú
Méx
ico
India
Corea
del S
ur
China
Colom
bia
Brasi
l
Source: Doing Business 2005
16
Other productivity issues: Other productivity issues: financial intermediationfinancial intermediation
Brazil:Free credit investment over
total
0%
15%
30%
45%
60%
75%ene
-97
ene
-98
ene
-99
ene
-00
ene
-01
ene
-02
ene
-03
ene
-04
The small margin for boosting investment towards profitable projects is a delicate issue.
17
Simulation: path of Brazilian GDP Simulation: path of Brazilian GDP with unchanged capital with unchanged capital
productivityproductivity
Due to the direct effect of productivity in GDP, if the 1980s level had remained unchanged, ceteris paribus, Brazil would be twice as rich today.
(Equivalent to Greece´s GDP per capita in PPPs).
0.8
1
1.2
1.4
1.6
1.8
2
2.2
2.4
2.6
197
8
198
0
198
2
198
4
198
6
198
8
199
0
199
2
199
4
199
6
199
8
200
0
Simulation
Real Value
GDP Evolution IndexBase 1980 = 1
Source: BBVA
18
11 Latin America: Catching up versus falling downLatin America: Catching up versus falling down
Brazil and the old challenge of potential growthBrazil and the old challenge of potential growth22
Brazil in the new international economic orderBrazil in the new international economic order33
19
The Chinese Dragon and the Indian Elephant are rapidly catching-up, while Brazil has only been recovering in recent years.
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
BRA CHI IND TUR
Real GDP per capita
Source: PWT
Real GDP pc
1980 2004 % yoy
China 1069 5150 6.77%India 1159 3097 4.18%Turkey 4272 7572 2.41% Brazil 6380 7801 0.84%
As a result, Brazilian growth has As a result, Brazilian growth has been lagging behind other been lagging behind other
emerging giantsemerging giants
20
Real GDP pc
1980 2004 % yoy
China 1069 5150 6.77%India 1159 3097 4.18%Turkey 4272 7572 2.41% Brazil 6380 7801 0.84%
US 21336 37233 2.35%
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
BRA CHI IND TUR USA
Real GDP per capita
Source: PWT
USA(right) The Chinese
Dragon and the Indian Elephant are rapidly catching-up, while Brazil has only been recovering in recent years.
Brazil has also diverged with respect to the benchmark country, US.
As a result, Brazilian growth has As a result, Brazilian growth has been lagging behind other been lagging behind other
emerging giantsemerging giants
21
Trade openness and the catching Trade openness and the catching up processup process
Successful Asian emerging countries were able to simultaneously combine growth with a trade openness proccess.
Brazil has recently started to open up its economy.
In 2005 the trade surplus reached a record USD 45 billion, an increase of 33% yoy (in spite of a 13% appreciation of the Real).
-1,0
-0,8
-0,6
-0,4
-0,2
0,0
0,2
0,4
0,6
0,8
1,0
0,0 0,2 0,4 0,6 0,8 1,0 1,2
Thailand Taiwan South Korea Japan India China
2001-04
1951-55
2001-04
1951-55
Trade openness and development
Real tradeopenness(as a % of GDP)
Dev
iation
ofRea
l GDP pe
rcap
ita with
resp
ectt
owor
ldav
erag
e(in
loga
rith
ms)
Source: BBVA using Penn World Tables and IMF data
1951-55
2001-04
0%
5%
10%
15%
20%
25%
30%
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Brazilian Real Trade Openness(as a % of GDP)
Source: BBVA
22
A trade exposure well balanced A trade exposure well balanced between US, Europe and Asia…between US, Europe and Asia…
China has become one of the main destinations for Brazilian exports.
0
1000
2000
3000
4000
5000
6000
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
Real Brazilian Exports towards China
mill
ions
of
1996
rea
les
Source: SECEX
Brazilian Exports Composition by Country of Destination
US 24.1% 1º US 18.3%
Argentina 11.8% 2º Argentina 8.9%
Germany 9.7% 3º Germany 8.1%
Italy 5.3% 4º China 5.9%
Japan 5.2% 5º Japan 4.6%
France 4.0% 6º France 3.6%
United Kingdom 2.5% 7º Italy 3.3%
Spain 2.4% 8º Algeria 3.1%
South Korea 2.1% 9º South Korea 2.8%
Algeria 2.0% 10º United Kingdom 2.2%
Venezuela 2.0% 11º Spain 1.9%
Canada 2.0% 12º Canada 1.4%
Sweden 1.9% 13º Sweden 1.3%
China 1.8% 14º Venezuela 0.3%
1999 2004
Increasing in importance
Decreasing in importance
23
……which underlines a process which underlines a process successfully implementedsuccessfully implemented
The structure of Brazilian exports is very similar to that of other Latin American countries.
Brazil is therefore exploiting its competitive advantage.
The main destination for Brazilian exports are those countries which Brazil does not compete with, and those which do not produce the goods that Brazil mainly exports.
0
10
20
30
40
50
60
70
80
90
100
Ecuad
or
Par
aguay
Bolivi
a
Ven
ezuel
a
Chile
Arg
entina
Uru
guay
Colo
mbia
Per
u
Indones
ia
Bra
zil
Can
ada
Net
her
lands
India
Thai
land
Spai
n
Mal
aysia
Mex
ico
Bel
giu
m
UK
Fran
ce US
Singap
ur
Ital
y
Chin
a
Ger
man
y
South
Kore
a
Taiw
an
Hong K
ong
Japan
Source: BBVA using WTO data
Agricultural, energetic and mining products Exports(% over total exports) (2003)
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
Braz
il
Boliv
ia
Colo
mbi
a
Ecua
dor
Arge
ntin
a
Uru
guay
Para
guay
Mex
ico
Peru
Chile
Vene
zuel
a
Source: BBVA using WTO data
Exports Conformity Index with the rest of LatAm Countries* (between 0 and 1) (2003)
24
Top 100 firms in Latin-America
45
40
8
31 1 1 1
0
10
20
30
40
50
Brazil Mexico Chile Argentina Ecuador Colombia Peru VenezuelaSource: America Economia 2005
Rk Local Private Firms Sector2004 (US$ Mill) 04/03 %
12 Vale do Rio Doce Mining 10.376,8 54,215 Empresas Ipiranga Petroleum/Gas 8.393,8 24,416 Odebrecht Holding 8.206,8 36,821 Gerdau Steel 7.382,9 59,622 Dist.Ipiranga Petroleum/Gas 7.200 22,228 Cia. Ipiranga Petroleum/Gas 6.121,3 23,530 Telemar Participaçoes Telecom 5.968,1 23,131 Telemar Norte Leste Telecom 5.882,3 24,232 Grupo Votorantim Holding 5.809,2 6,945 Grupo Pao de Açucar Trade 4.733,7 26,648 Usiminas Steel 4.607,4 53,749 Braskem Petrochemical 4.593,1 30,952 Ambev-CBD Drinks 4.523,4 20,762 Embraer Aerospace 3.854,4 69,563 Gerdau Açominas Steel 3.825,9 248,366 CSN Steel 3.691,8 52,972 Casas Bahia Trade 3.390,6 63,374 Varig Airlines 3.337,2 21,389 Grupo Camargo Correa Holding 2.795,6 8,5
100 CPFL Energía Electricity 2.537,8 21
Sales
Brazilian firms are beginning to increase activities overseas
Source: America Economia 2005
25
Within the 50 companies that had greater profits in 2004, 19 are Brazilian, with an average utility over sales of 18%. The average ratio of exports over total sales was 32%.
The 50 more profitable firms
19
16
7
3
1 1 1 1 1
0
5
10
15
20
Brazil Mexico Chile Argentina Colombia Ecuador Panama Peru VenezuelaSource: America Economia 2005
Rk Firm Sector Exports04 (US$ Mill) % of sales % of sales
3 Petrobras Petroleum 6.728,7 16,5 11,212 Vale do Rio Doce Mining 2.433,5 23,5 30,632 Grupo Votorantim Holding 1.544,6 26,6 18,948 Usiminas Steel 1.137,3 24,7 9,121 Gerdau Steel 1.066,7 14,4 11,663 Gerdau Açominas Steel 935,6 24,5 22,440 Telesp Telecom 821,7 16,4 -66 CSN Steel 746,6 20,2 20,2
144 CST Steel 611,9 31,9 53,594 Cemig Electricity 521,7 19,4 -20 Electrobras Electricity 487,2 6,5 -62 Embraer Aerospace 473,1 12,3 86,952 Ambev-CBB Drinks 437,6 9,7 -
208 Aracruz Celulose Paper 402,5 31,3 61,8102 Balgo Mineira Steel 391,6 15,5 -143 Cosipa Steel 363,2 18,8 33,531 Telemar Norte Leste Telecom 345,5 5,9 -16 Odebrecht Holding 320,2 3,9 -
Utility
Source: America Economia 2005
Brazilian firms are beginning to increase activities overseas
26
In worldwide terms Brazil is the Latin American country which had most firms listed in the Forbes 2000 report.
Number of firms in Forbes 2000
0
5
10
15
20
25
30
35
India Spain China Brazil Mexico Chile
Source: Forbes 2000
Rk Firm Sector Sales ($bill) Profit ($bill) Assets ($M.m.) Market value($bill)208 Banco Bradesco Group Banking 17,38 1,15 69,63 13,42256 Banco do Brasil Banking 15,05 1,14 89,99 9,59361 Vale do Rio Doce Materials 6,72 1,56 12,83 40,32477 Itazsa Banking 7,08 0,54 42,3 6,49601 Unibanco Group Banking 7,34 0,48 29,88 4,4807 Eletrobras Utilities 6,7 0,11 40,78 7,86
1.049 CSN-Cia Siderurgica Materials 2,41 0,36 7,56 7,341.064 Usiminas Materials 2,99 0,45 4,91 6,011.090 Tele Norte Leste Telecom 4,84 0,07 9,73 7,571.170 Braskem Chemicals 4,16 0,26 5,49 4,121.424 Cemig Utilities 1,94 0,41 5,1 3,441.467 Embraer Aerospace & Defense 2,27 0,2 4,37 6,091.496 Metalurgica Gerdau Materials 4,62 0,2 4,69 1,991.501 Siderurgica de Tubarao Materials 1,92 0,61 3,81 2,991.697 Sabesp Utilities 1,42 0,29 5,67 1,731.779 CESP Utilities 0,6 0,22 6,57 0,361.860 Aracruz Celulose Materials 1,17 0,23 3,53 3,481.948 Ipiranga Oil & Gas operations 5,88 0,03 0,98 0,39
Source: Forbes 2000
Brazilian firms are beginning to increase activities overseas
27
Brazil is already quoted as being an example of macroeconomic
pragmatism
-2
-1
0
1
2
3
4
5
6
7
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
% o
f G
DP
Public Sector Primary Surplus(12 month acum.)
Plan RealHiperinflation Flexible FX
Source: BCB
1119
916
247716211973
980
0
50
100
150
200
250
300
350
400
450
500
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
%
Inflation IPCA
Source: BCB
28
Some of the main challenges facing Brazil are to boost its productivity, diminish transaction costs and overcome inefficiencies.
Conclusions
Brazil is progressively opening its economy in order to avoid lagging behind the main catching up developing countries.
There is an ever expanding economic pragmatism among Brazilian policy makers, who continuously adhere to the view of “the political economy of the possible".
29
Thank youThank youfor your attention!for your attention!