Connectivity for an investment and business hub in Brazil by BRAiN Brasil

Connectivity for an investment and business hub in Brazil

Preface 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 population, 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 economic 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.

Connectivity for an investment and business hub in Brazil

Contents Executive Summary 1 Business hub connectivity and its benefits

8 20

Trade in merchandise and services

Investment and capital flows

International business expansion

People flows

International Political Scenario

Conclusion 94

Connectivity for an investment and business hub in Brazil

Executive Summary 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;

Connectivity for an investment and business hub in Brazil

EXHIBIT 1

EXHIBIT 2

Seven major pillars sustain the creation and excellence of an investment and business hub

The benefits of connectivity and of a hub

1. Access to capital

Hub financial maturity makes it easier for businesses in the region to access world savings

48% of the asset management funds in Singapore go to the Asia-Pacific region, only 30% remain in the country

2. Investments

A hub fosters increased foreign investment in the countries within the region

Hong Kong is one of China’s most important sources of capital

3. businesses

Multinational decision making and R&D centers established in the hub bring innovation and attract talents to the region

Competence attraction and development cycle

7. image of the Country

6. Connectivity

5. Financial infrastructure

4. Physical infrastructure

4. Economic growth

Finally, a hub fosters adjacent economic growth

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

3. Talent and human capital

2. Institutional environment

• 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;

1. Macroeconomic environment

• 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.

Source: Central Bank of Chile, Working Papers (2004)

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).

Connectivity for an investment and business hub in Brazil

EXHIBIT 3

Connectivity is described along five dimensions

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:

1. Trade in merchandise and services Increase in imports and exports

• 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;

2. Investment and capital flows Increased investment in attractive markets

• 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;

Facilitate agreements, ensuring a greater supply of funding resources

3. International business expansion Production closer to consumer and raw material markets

• 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.

Regional and global expansion

4. People flows

• 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;

Free transit for travel and tourism

Simpler requirements for international contracting

5. Political scenario

• 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%;

Improve the country image abroad

• 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%.

Infrastructure development, as well as bilateral and regional agreements

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

3 Reflects a uniform tariff that would keep the level of imports by the exporter’s commercial partners constant

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 4

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;

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;

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

• 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;

The main enablers identified for this dimension are:

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:

• 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;

• 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;

• 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;

• 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;

• 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.

• 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.

IMD World Competitiveness Yearbook - score given by executives in response to the following question: Communications technology (voice and data) meets business requirements? 5

Source: World Investment Report 2009, UNCTAD

Source: World Investment Report 2011, UNCTAD

• 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;

Connectivity for an investment and business hub in Brazil

• 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;

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

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

• Alignment of the region’s financial regulations, which in Latin America could be improved by adopting agreements to eliminate double taxation;

11 Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Panama, Paraguay, Peru, Uruguay and Venezuela

• 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.

12 Represented as established organizations in each country with the right to a full vote at technical committees – only one per country

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:

• 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.

• 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;

The main enablers identified for this dimension are:

• 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.

• 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;

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;

• 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;

• 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;

• 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.

• 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:

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.

Source: UNCTADStat

Includes diplomatic relations, existing bilateral and multilateral agreements, the presence of embassies and other requirements 14

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

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 contato@brainbrasil.org.

Connectivity for an investment and business hub in Brazil

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 worldâ&#x20AC;&#x2122;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

EXHIBIT 4

Benefits of Connectivity

The world is increasingly connected

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).

“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.” “... 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. Globalization is forcing companies to do things in new ways.” Bill Gates, Microsoft

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.

Jack Welch, former GE CEO

“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

EXHIBIT 5

Trade in merchandise and services is growing at a faster pace than the global GDP and its population Total global flow of FDI1 in the world

“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.”

2.2

US$T

Total number of immigrants in the world2

CAGR

2.10

12.0%

Pierre Henri Gourgeon, Airfrance

1970

1980

1990

2000

CAGR total population 1.35%

2010

CAGR 1.61%

1990

1995

2000

2005

2010

Total value of goods traded in the world3

“Our nations [...] are growing melting pots of different beliefs, races, cultures and ethnicities. The Internet, mass communication, travel, migration: the world is getting closer.”

US$T 16.1

Tony Blair, former British Prime Minister

CAGR 9.9%

CAGR global GDP

7.6%

0.3 Source: Media survey; BCG analysis

214

110

7.6%

0.01 0

Million people 156

CAGR global GDP

1.1

Former US President Bill Clinton

“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.”

220

1970

1980

1990

2000

2010

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

Connectivity for an investment and business hub in Brazil

EXHIBIT 6

EXHIBIT 7

Some hubs stand out due to their high level of connectivity, but none of them is in Latin America

Businesses that establish themselves in a hub create a virtuous cycle of competence and skills development

The objective of the new center is to develop new solutions faster for company clients

LONDon International financial hub Airline hub to the world

Installed a Center for Innovation and Technology in Paulinia in 2008

ROTtERDam Busiest port in Europe

Shanghai Trading center for goods between China and the world

New YORK International financial hub

Chicago Largest futures and derivatives market Regional transportation center

There is no global hub in Latin America

HONG KONG

Airline hub to the world

Singapore

Important headquarters locations for multinationals in the region

Inaugurated a Research Center in Brazil in 2008, the company’s 4th lab outside Europe

The busiest port in the world in volume of goods Regional financial center

Ariana Bottura, DuPont

It is important to be close to the consumer to understand demand Serge Restlé, L’Oréal

The survey has to do with talent, and that is something Brazil has In 2010, IBM opened “IBM Research – Brasil” in Rio de Janeiro, its first company in South America

Daniel Dias, IBM

Fragmentation was complicating its response capacity, which is now faster and more efficient Opened its 1st center for technology and innovation in food in Latin America

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).

Will invest R$ 40 million in 2011 to bring place its Center of Innovation for Latin America in Brazil

Marcelo Martins, Cargill

(...) its Center of Innovation for Latin America, the focus of which are research and development and solution customization services Ericsson press clippings

US$ 550 million invested in a Global Research Center in Rio de Janeiro, GE’s 5th in the world, to be finished by 2012

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

Connectivity for an investment and business hub in Brazil

• 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.

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

• 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.

EXHIBIT 8

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.

Latin America will be compared to Europe and Asia

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:

Latin America1

Europe (EU27)2

Expanded Southeast Asia3

Total GDP4

US$4.7 trillion

US$16.3 trillion

US$9.4 trillion

Sites

Languages

2 main (Spanish e Portuguese)

Dozens of languages 23 in the European Union

More than a dozen languages

Inhabitants

548 million

499 million

3.4 billion

Km2

20 million

4.4 million

14 million

Time zones

7 time zones UTC-2 - UTC-8

3 time zones UTC - UTC+2

4 time zones UTC+5 - UTC+8

Increased complexity Source: Central Bank of Chile, Working Papers (2004) 17

Source: IMF Working Paper – Arora and Vamvakidis (2005) – Analyzed data for 1960 - 1999 18

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

Connectivity for an investment and business hub in Brazil

Trade in merchandise and services

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.

Connectivity for an investment and business hub in Brazil

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

EXHIBIT 9

Latin America has the potential to increase its share and importance in the global trade of merchandise

Latin America’s share of the trade in merchandise is growing faster than global trade... Global exports

Enablers of the trade in merchandise in Latin America

US$ T

2009

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.

12.4

2008

16.1

2007

14.0

2006

12.1

2005

10.5 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

CAGR ‘05-’08

2.9%

7.3%

4.8%

3.8%

4.3%

Global imports Volume of imports - US$ T

2009 2008

16.5

2007

14.2

2006

12.4

2005 CAGR ‘05-’08

20 Reflects a uniform tariff that would keep the level of imports by the exporter’s commercial partners constant

12.6

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).

EXHIBIT 10

10.8 2.7%

6.5%

6.6%

3.5%

Latin American imports and exports within its own region are smaller than comparable trade in Europe and Asia

3.9%

Latin American intra-regional exports of merchandise are not very relevant...

...but the region could be an even more important player in world trade

...the same being true for intra-regional imports

Importance of intra-regional exports

Importance of intra-regional imports

Intraregional exports/ total region imports

Intraregional imports/ total region imports

Share of the GDP and of the international trade in merchandise % 2009

77%

Exports

68%

73%

67%

48%

GDP

Imports % FT/ % GDP1

71% Europe

Latin America

42%

77% Asia

164%

2007

127% Others

18%

17%

1. Mean relevance of the % exports and imports over the relevance of the GDP Note: All values are nominal, differences in global imports and exports ay be the result of imprecise data and differences in accounting Source: Unctad Online handbook of statistics; BCG analysis

Latin America1

17%

2008 Asia2

46%

42%

41%

16%

2009

2007

48%

15%

2008

Europe

1. Excludes Belize, Costa Rica, El Salvador, Guatemala, Guiana, Honduras, Panama and Surinam 2. Excludes Cambodia, Macao and Vietnam Note: All values are nominal. Source: Unctad Online handbook of statistics, Eurostat, International Trade Center, domestic statistics institutes; BCG analysis

2009

50%

Connectivity for an investment and business hub in Brazil

EXHIBIT 11

EXHIBIT 12

Mexico and Brazil surpass European nations in the intensity of their extra-regional trade

Commercial restrictions more severe than the world average limit Latin American connectivity in terms of the trade in merchandise

Penetration of the extra-regional international trade in merchandise in country economies % country GDP 30.5%

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)

Restrictions on access to other markets (06-09)

8.1% 6.1%

World mean3: 8.5

-1.7%

1.3%

1.2%

1.1%

-1.8%

-1.2%

-2.0%

-5

1.3%

1.0%

-1.0%

-0.5%

1.5%

-2.5%

-1.2%

1.0% -0.6%

EXPORTS IMPORTS

-5.2%

BRAZIL

CHILE

ARGENTINA

3.1%

16.9%

11.3%

2.3%

1.5%

LATIN america

INDONESIA

MEXICO

2.4%

SINGAPORE

3.1%

South KOREA

ITALY

4.8%

CHINA

FRANCE

-8.8%

EUROPE

BRAZIL

20.3

MEXICO

53.9%

5.6%

2.7%

1.6%

-23.4%

ASIA

Total country extra-regional trade divided by the country GDP

MeXICO

5.0

SINGAPORE

19.7

south korea

12.7 9.8 9.2 6.5

FRANCE

6.4

FRANCE

9.1

germany

6.4

GERMANY

9.1

ITALY

6.4

ITALY

9.1

6.4

9.1

Equivalent tariff = tariffs + non tariff export restrictions2 MORE RESTRICTIVE

MORE RESTRICTIVE

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.

5.1

INDONeSIA

SINGAPORE

7.5

Equivalent tariff = tariffs + non tariff import restrictions1

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).

8.3

CHINA

9.8

INDONESIA

12.3

south korea

10.0

CHINA

Source: World Trade Indicators 2009/10 – World Bank

16.4

CHILE

9.3

CHILE

ARGENTINA BRAZIL

18.0

ARGENTINA

germany

-25

World Mean3: 9.1

3.1%

LESS RESTRICTIVE

Latin America

Asia

LESS RESTRICTIVE

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 trade Note: import and export indicators include tariffs from preferential trade agreements Source: World Trade Indicators 2009/10 – World Bank

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 13

Limited or nonexistent free trade agreements also keep Latin America from reaching its full integration potential

Number of agreements1

Name

Geographic reach Main Agreement

Economic reach

Status

Integration with other regions

LATIN AMERICA

Southeast ASIA

EUROPE

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 members 57% if the countries in LA

11 members 67% of SE Asia

30 members 100% of the European Community

Block GDP $ 3.5T 75% of LAâ&#x20AC;&#x2122;s GDP

Block GDP $ 7.7T 82% of the SE Asia GDP

Block GDP $ 16.3 T 100% of the European Community GDP

Tariff free trade to be implemented

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

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

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)

Connectivity for an investment and business hub in Brazil

EXHIBIT 14

Institutional and logistics enablers – or more specifically the lack thereof - are major barriers to regional trade in Latin America It is harder to do business with/in Latin American countries...

...and the logistics performance of Latin American countries is also poorer Logistics performance indicator2

Difficulty doing business1 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).

ARGENTINA

118

MEXICO

CHILE

122

CHINA

SINGAPORE 1

1.9 1.8

INDONESIA

2.2 1.5 1.4 0.9 1.4

FRANCE

1.2

UK 5

1.1

GERMANY

Position in the Doing Business ranking

LESS RESTRICTIVE 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

ARGENTINA

ITALY

GERMANY

1.9

SINGAPORE

ITALY

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.

CHILE

SOUTH KOREA

FRANCE

2.0

CHINA

SOUTH KOREA

MEXICO

BRAZIL

INDONESIA

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.

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).

129

MORE RESTRICTIVE

0.9

Infrastructure rating - min.: 0 max. 5

MORE RESTRICTIVE

LESS RESTRICTIVE

Overall perception of a country’s performance in logistics based on approximately one thousand interviews with international experts

Latin America

Asia

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 experts Source: World Trade Indicators 2009/10 – World Bank

Connectivity for an investment and business hub in Brazil

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

EXHIBIT 15

The logistics performance of Latin American countries is poor in almost all dimensions Customs1

Infrastructure2

min:0 / máx:5

Global mean: 2.4

braZil

2.6

CHILE

MEXICO

2.5

ARGENTINA MEXICO

ARGENTINA

2.4

CHILE INDONESIA CHINA SOUTH KOREA SINGAPORE

CHINA

1.8

SINGAPORE

1.0

ITALY

1.6

ITALY

FRANCE

1.4

UK FRANCE

UK GERMANY

Latin America

1.3

2.1

CHILE

2.2

ARGENTINA

2.0

MEXICO

2.1

BRAZIL

MEXICO

2.0

CHILE

1.4

Europe

2.1

ARGENTINA INDONESIA

2.2

CHINA SOUTH KOREA SINGAPORE

BRAZIL

1.9

1.7 1.5

INDONESIA

2.5

CHINA

1.5

SOUTH KOREA

1.4

1.3

1.8

ITALY

1.1

FRANCE

1.7

FRANCE

1.1

1.0

GERMANY

1.3

1.1

1.3

GERMANY 0.9

1.3

1.7

CHILE

1.2

1.7

ARGENTINA

1.2

INDONESIA

2.2

CHINA

1.5

SOUTH KOREA

1.2

ITALY FRANCE

BRAZIL

1.6

SINGAPORE 0.9

1.1

MEXICO

1.9

BRAZIL

1.7

ITALY

GERMANY 0.7

1.0

Asia

ARGENTINA

1.0

UK 0.9 GERMANY 0.8

min:0/máx:5 Global mean: 1.6

Global mean: 2.1

min:0 / máx:5

2.1

1.0

1.3

Global mean: 2.3

CHILE

2.5

0.8

min:0 / máx:5

Global mean: 2.2

Punctuality6

Tracking and control5

2.3

1.9

SOUTH KOREA

1.7

Logistics competence4

MEXICO

INDONESIA

2.6

min:0 / máx:5

Global mean: 2.4

2.3

BRAZIL

2.1

International shipping3

0.9

INDONESIA

1.5

CHINA SOUTH KOREA

1.1 1.0

SINGAPORE

0.8

ITALY

0.9

FRANCE

0.6

GERMANY 0.5

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 destination on time. Source: World Bank Logistics Performance Index (LPI) 2010

Connectivity for an investment and business hub in Brazil

EXHIBIT 16 Low density ocean freight flows are a challenge for commercial integration in Latin America Illustration of the global transshipment flows

Rotterdam Antwerp

Hamburg

Barcelona

Manzanillo

Freeport

Algeciras

Gioia Tauro Piraeus Malta

Kingstom

Damieta

Jedah

Busan Shangai

Dubai/Khor Fakkan Salalah

Hong Kong Port Klang

Kaohsiung

Singapore Tanjung Pelepas

65% of global transshipments are concentrated in the worldâ&#x20AC;&#x2122;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

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.

23 WTO, The General Agreement on Trade in Services (GATS): objectives, coverage and disciplines. www.wto.org, accessed in Sept., 2011

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.

EXHIBIT 17

Latin American trade in services is growing, but is still only 49% of its share of the global GDP Latin America’s share of the trade in services is growing faster than the world mean...

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.

Global exports

...but the region could be even more relevant in terms of services

Global imports

Volume exported - US$ T

CAGR ‘05-’08

3.9

Volume of imports - US$ T

CAGR ‘05-’08

Share of the GDP and international trade in services 100

% FT / % GDP1

3.7 3.5

3.4

7.5%

7.2% 3.3

3.2

2.9

7.3%

2.6

2.7

10.1%

9.9%

9.1%

40%

76%

49%

15%

110%

41%

151%

51%

7.6%

2.5

8.7%

38%

3% 14% 7%

13% 1

45% 20

29%

6.8%

2005 2006 Europe

2007 Asia

2008

2009

Latin America

5.9%

2005 2006

2007

2008

2009

Exports

GDP

Imports

Others

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

Connectivity for an investment and business hub in Brazil

EXHIBIT 18

GATS in force in Latin America, Europe and Asia Latin America Number of signed GATS1 commitments per site 30 MORE OPEN

213

17 14

115

MORE CLOSED

PARAGUAY

BOLIVIA

argentina

CHILE

venezuela

URUGUAY

PERU

COLOMBIA

BRAZIL

eCuador

mExico

RANKING

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.

Average weighted by the GDP for each country IMD World Competitiveness Yearbook – Score given by executives in response to the following question: Communications technology (voice and data) meets business requirements? 25

International direct dial rates charged by Brazilian telephony operators, ref. 2011 26

Recreation and culture

Distribution

Telecom

Services environmental

Education

Transportation

Healthcare

100%

75%

83%

80%

40%

60%

80%

44%

50%

eCuador

67%

50%

67%

20%

60%

20%

100%

33%

25%

venezuela

67%

75%

83%

100%

40%

22%

argentina

100%

50%

80%

60%

40%

BRAZIL

67%

25%

33%

80%

60%

20%

44%

COLOMBIA

67%

50%

67%

80%

20%

25%

PERU

67%

50%

40%

20%

22%

URUGUAY

67%

75%

67%

20%

11%

100%

75%

50%

20%

11%

BOLIVIA

67%

50%

60%

20%

25%

PARAGUAY

67%

75%

Mean for the region3

37%

CHILE

Construction and engineering

mExico

Business services

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).

Travel and tourism

% commitments signed by sector2

Services financial

> 0 and ≤ 50%

> 50%

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 GDPs Source: WTO trade in services database

Connectivity for an investment and business hub in Brazil

EXHIBIT 18

GATS in force in Latin America, Europe and Asia Europe Number of signed GATS1 commitments per site

393

more open

34 30

102

Lithuania

Slovenia

Czech Republic

hungary

Slovakia

bulgaria

sweden

finland

poland

romania

cyprus

malta

more closed

poland romania cyprus malta Mean for the region3

71%

> 0 and ≤ 50%

> 50%

Healthcare

china

Transportation

vietnam

Education

% commitments signed by sector2 Services environmental

100% 50% 75% 50% 50% 0% 100% 0% 25% 0% 0% 25% 0% 0% 0%

more closed

Telecom

56% 78% 44% 78% 56% 44% 78% 44% 44% 33% 67% 11% 22% 0% 11%

5 114

Distribution

100% 80% 60% 80% 60% 100% 80% 100% 60% 0% 0% 80% 0% 0% 0%

5 112

Recreation and culture

50% 100% 100% 100% 100% 75% 50% 75% 100% 100% 50% 25% 25% 0% 0%

Construction and engineering

40% 20% 40% 40% 40% 40% 20% 40% 20% 20% 20% 40% 20% 20% 0%

Business services

80% 80% 80% 80% 80% 60% 60% 60% 80% 60% 80% 40% 60% 0% 0%

Travel and tourism

100% 60% 80% 60% 20% 0% 40% 0% 20% 60% 40% 0% 0% 0% 0%

Services financial

Healthcare

finland

Transportation

sweden

Education

bulgaria

100% 100% 100% 100% 100% 100% 0% 100% 80% 100% 60% 100% 80% 0% 0%

Services environmental

Slovakia

83% 100% 100% 83% 83% 83% 83% 83% 67% 100% 100% 50% 50% 50% 0%

Telecom

hungary

75% 75% 75% 50% 50% 75% 50% 75% 50% 75% 75% 50% 75% 0% 50%

Distribution

Czech Republic

67% 67% 67% 67% 67% 67% 67% 67% 100% 67% 67% 67% 67% 67% 67%

Recreation and culture

Slovenia

Construction and engineering

Austria Lithuania

Business services

Travel and tourism

estonia

Services financial

% commitments signed by sector2

singapore

malaysia

thailand

south korea

Cambodia

china

RANKING

11 Austria

9 eu

5 113

Vietnam

21 6

estonia

RANKING

more open

213

myanmar

macau

indonesia

hong kong

Asia Number of signed GATS1 commitments per site

100%

83%

100%

80%

60%

100%

80%

100%

67%

50%

83%

100%

80%

60%

100%

67%

75%

67%

100%

20%

100%

40%

100%

60%

44%

25%

100%

75%

83%

100%

80%

40%

75%

56%

thailand

67%

75%

67%

60%

20%

40%

100%

60%

56%

malaysia

67%

50%

83%

100%

40%

22%

25%

singapore

67%

75%

67%

100%

20%

60%

22%

hong kong

67%

50%

83%

40%

20%

60%

22%

indonesia

67%

75%

67%

80%

20%

11%

macau

67%

50%

17%

myanmar

50%

33%

Mean for the region3

58%

cambodia south korea

> 0 and ≤ 50%

> 50%

Connectivity for an investment and business hub in Brazil

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

EXHIBIT 19

EXHIBIT 20

Latin America attracts an amount of FDI that is proportional to its GDP, while Europe and Asia attract more

Although the main Latin American FDI destinations get a small share of the global FDI, it is significant when compared to their GDP

However, the % follows the region’s share of the global GDP

In absolute terms, Latin America receives five times less FDI1 than Europe

Latin American economies are behind Europe in world share, while China leads inward FDI as a percent world total - largest GDPs in each region

Share of inward global FDI weighted by country share of the global GDP

Share of the world’s inward FDI % of total FDI received by the country

inward FDI/world total (%)1

Ratio (% inward FDI/% global GDP)

100

Other

6.21

2.5

2.0

6.05

26.0 80

4.48

42.2

40.3

7.1

49.6

43.9

2.74

1.7 2.17

15.9

4.8 12.9

5.1 10.7

1.5

Southeast 1.3 Asia2 1.1 EU

1.6

6.5

Latin America3

17.1

1.3 Southeast 1.0 Asia2

6.9 13.1

% FDI = % GDP

50.9 40.2

44.0 30.3

32.5

2006

2007

2008

2009

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

1.26 0.43 0

bra

MEX

arg

1.28

0.86

chl

chn

Latin America

0.37

0.43

kor

idn

sgp

deu

Southeast Asia

fra

ita

European Union

Latin American nations uniformly get an amount of inward FDI close to their share of the GDP, with Chile standing out from the rest

0.5

inward FDI weighted by GDP - largest in each region 5

0.0

2005

1.87

1.0 Latin America3

EU 20

2005

2006

2007

2008

Ratio (% inward FDI/% global GDP)1

2009

Europe and Southeast Asia receive a proportionately larger share of FDI compared to their economies

4.24 4 3.03

2 1.33 1

0.84

0.73

0.95

0.84

0.82

0.25 0

bra

MEX

arg

chl

chn

Latin America

kor

0.50

idn

Southeast Asia

0.50

0.46

sgp

deu

% FDI = % GDP

fra

ita

European Union

1. Mean for the past three available years (2007-2009). Source: UNCTADStat

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).

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.

Connectivity for an investment and business hub in Brazil

EXHIBIT 21

EXHIBIT 22

Latin 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

Latin America’s share is also small in relative terms

Share of the world’s outward FDI

Share of outward global FDI weighted by country share of the global GDP

outward FDI/world total (%)

Even 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 Outward FDI as a percent world total - largest GDPs in each region 10

Other

39.8

3.1 7.9

35.1

1.0 7.1

2.3

6.61 6

43.0

1.9 7.6

2.0

50.9

1.3 12.5

68.6 49.3

56.8

Latin America2

1.2

Southeast 1.0 Asia1

47.6

2007

2008

2009

0.15

0.37

bra

MEX

0.07

arg

0.88

0.42

chl

0.00

chn

Latin America

kor

idn

sgp

deu

Southeast Asia

fra

ita

European Union

0.5 0.4

0.0

2006

0.9 % IED = % PIB Southeast Asia1

0.8

0.2 0

3.42

3.35 2.68

1.5

EU 35.3

2005

8.02

2.5

21.6 2.2 7.6

9.65

Ratio (% outward FDI/ % global GDP)

100

Outbound FDI as a percent of world total1

2005

2006

2007

2008

Europe’s share of outward FDI is larger than its share of the global GDP; Chile and Singapore stand out

Latin America2

Outward FDI weighted by GDP - largest in each region

2009 2.5

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

Ratio (% inward FDI/% global GDP)1

2.06

2.0

1.70 1.47

1.5

1.46 % FDI = % GDP

1.11 1.0

0.91 0.56

0.5 0.23

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).

0.06 0.0

bra

MEX

0.36

0.30

0.13

arg

chl

chn

Latin America 1. Mean for the past three available years (2007-2009). Source: UNCTADStat

kor

idn

Southeast Asia

sgp

deu

fra

European Union

ita

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.

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).

EXHIBIT 23

EXHIBIT 24

Latin American and Asian nations also account for only a small share of the inward and outward flow of portfolio investments

100

Latin America and Southeast Asia get only a small share of inward portfolio investments

Latin America and Southeast Asia also have only a small share of the outward portfolio investment stock

Share of the world’s inward portfolio investment stock

Share of the world outward portfolio investment

% world portfolio

43.3

42.1

42.6

1.7 4.0

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

1.7 4.4

1.8 5.2

1.3 3.6

1.9 4.6

Other

Latin America

44.4

44.9

45.1

45.6

Southeast 40 Asia1

0.3 2.7

0.4 2.9

0.4 3.5

0.4 3.1

0.5 3.6

EU 20

51.8

50.9

52.5

51.7

Ratio (% portfolio stock/% global GDP) 2.5

1.8 1.7

Latin America Southeast Asia1

2.0

1.5

1.0

Southeast 0.3 Asia Latin 0.3 America

0.5 0.4

51.1

52.3

51.2

51.3

50.3

0.3 0.0

2006

2007

2008

2009

2005

2006

2007

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

2008

2009

Southeast 0.3 Asia Latin 0.1 America

0.5

0.3 0.1 0.0

2005 2005

1.8 1.7

EU 20

51.0

Share of the world’s outward portfolio investment stock weighed by country or region share of the global GDP

2.5

2.0

45.9

The share of outward portfolio investments weighted by the GDP is also small

Ratio (% portfolio stock/% global GDP)

100

41.8

The share of inward and outward portfolio investment is also small compared to their share of the global GDP

% world portfolio

Other

2006

2007

2008

2009

Latin America and Southeast Asia have a proportionately small share of international portfolios in their economies

2005

2006

2007

2008

2009

Latin America has only a minimal share compared to its share of the GDP

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

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 25

EXHIBIT 26

Inventory 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

Outward 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 (%)1

Ratio (% inward portfolio investment/% global GDP)1

1.5

1.19

1.39

1.41

0.92

Asia

Europe

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

Latin America

0.19

0.11

0.01

Asia

Europe

ITALY

FRANCE

GERMANY

SINGAPORE

INDONESIA

SOUTH KOREA

CHINA

CHILE

ARGENTINA

MEXICO

BRAZIL

ITALY

FRANCE

GERMANY

INDONESIA

SINGAPORE

SOUTH KOREA

CHINA

CHILE

MEXICO

ARGENTINA

BRAZIL

Latin America

0.02 0.02

0.01

FRANCE

0.22

0.05 0.04 0.06 0.22

GERMANY

0.18

0.14

INDONESIA

0.20

ITALY

0.12

0.24

0.36

FRANCE

0.16

GERMANY

0.06 0.06

0.82

0.75

SINGAPORE

0.40

1.15 1

0.49

INDONESIA

0.92

0.5 0.38

1.00 0.80

3.10

SOUTH KOREA

1.68

CHILE

1.89

1.10

4.17

MEXICO

6.82

3.07

SINGAPORE

6.65

Singapore stands out when weighted by the GDP

8.27

SOUTH KOREA

7.88

ARGENTINA

2.09

Singapore stands out when weighted by the GDP

CHILE

8.27

BRAZIL

9.11

Ratio (% inward portfolio investment/% global GDP)1

2.5

ARGENTINA

Inventory of inward portfolio investment/world total (%)1 10

Outward portfolio stock weighted by GDP - largest in each region

BRAZIL

Inward portfolio stock as a percent of the world total - largest GDPs in each region

Compared to each countryâ&#x20AC;&#x2122;s GDP, Singapore stands out, and Chile leads in Latin America

MEXICO

Latin American and Asian economies are behind Europe in world share

Inventory of outward portfolio investment sent by the main countries in each region

Connectivity for an investment and business hub in Brazil

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).

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.

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). Extraregional 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, extraregional 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 28

Extra-regionally Latin America receives a larger share of inward portfolio investment than would be its fair share based on GDP Inward stock

LATIN AMERICA

100

EXHIBIT 27

Inventory 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 Regional portfolio investment as a percent total inward portfolio investment

However, Latin American nations send more investment to their region than their share of the GDP Share of regional portfolio investment as a percent of region’s total outward investment

61%

59%

60 40

2007

20% 2%

2008

2009

Ratio (% intraregional portfolio/% global GDP) 3

2007

2008 Latin America

Asia

Europe

2005

2006

2007

Percent extra-regional GDP1

2008

2009

90.7

93.5

92.7

89.1

92.4

2005

2006

2007

2008

2009

105%

Percent extra-regional GDP1

100

98%

100

41.0

40.4

40.5

39.1

39.2

2005

2006

2007

2008

2009

Percent extra-regional GDP1

2008

2009

41.1

41.0

40.9

37.7

37.6

2005

2006

2007

2008

2009

57%

Percent extra-regional GDP1

100

84.7

81.5

78.5

80.4

EU Southeast Asia Latin America

Note: All values are nominal. Note: Portfolio investment stock, non flows Source: UNCTADStat; CPIS (Coordinated Portfolio Investment Survey) - IMF

80.1

77.1

72.4

74.8

75.0

2005

2006

2007

2008

2009

2005

2006

2007

Percent extra-regional GDP1

2008

57%

100

86.3

Ratio (% intraregional portfolio/% global GDP)

2007

98.1

Latin America 0

2009

2007

96.3

25%

Southeast Asia

25% 11%

28%

62%

59%

100

98.2

22%

18%

61%

Portfolio stock for the region/ total portfolio stock from the region

98.5

EUROPE

100

98.5

Extra-regional stock - % of total

ASIA

Portfolio investment originating from within the region/ total portfolio investment in the region 100

Outward stock

Extra-regional stock - % of total

2008

2009

93%

2009 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

Percent extra-regional GDP1

86%

Connectivity for an investment and business hub in Brazil

EXHIBIT 29

Latin American countries have few bilateral investment agreements in force; Brazil, for example, has no ratified agreements

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.

Bilateral Investment Treaties Number of ratified bilateral agreements

argentina 23

chile

latin america

11 45

• The 1994 Colonia Protocol defined national and equal treatment for Mercosur member investors • Exceptions are granted to numerous sectors • Taxation rules are not uniform

15 38

17 4 21

mExico

Brazil has 14 signed BITs, none of them ratified

BRAZIL 0

101

germany uk

71 65

france 50

italy 42

china 35

south korea indonesia

singapore

12 5 17 0

europe

21 122

• 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

18 89 18 83

19 69

asia

26 68

• In 2009, ASEAN signed a broad multilateral investment agreement, known as ACIA1 • 5 pillars: liberalization, protection, facilitation and promotion of investments between nations

19 54

12 30

Extra-regional Latin Am. Intra-regional Latin Am.

100

Extra-regional Europe Intra-regional Europe

150

Extra-regional Asia Intra-regional Asia

1. ASEAN Comprehensive Investments Agreement Source: International Center for the Settlement of Investments Disputes (ICSID) ; Foreign Trade Information System (SICE); ACIA Factsheet de 26/02/2009; European Union web site

Connectivity for an investment and business hub in Brazil

â&#x20AC;&#x153;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 economiesâ&#x20AC;? Henrique Meirelles, president of the brazilian central bank at that time (Oct/08)

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 Brazilâ&#x20AC;&#x2122;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.

Connectivity for an investment and business hub in Brazil

EXHIBIT 30

Strong 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

Outward FDI, 1990-2010 1,500

International business expansion

US$B

1,000

∆% 1990-2000

∆% 2000-2010

Asia1

234%

170%

European Union

447%

-50%

Latin America

375%

532%

500

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.

062

08 09 10

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 Timor Source: World Investment Report - UNCTAD; UNCTADstat

EXHIBIT 31

Latin America has only a very small number of the world’s multinationals Few Latin America businesses are among the world’s largest transnationals Total assets held abroad – companies included in the ranked list1 of the 100 largest transnationals 6,000

US$B

4,605 4,000

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

2,000

# of companies Mean per company (US$ B)

VALE: 55th CEMEX: 79th

234

Latin america

asia

European union

42.8

46.7

75.5

1. Ranking by assets held abroad - 2010 values Source: World Investment Report - UNCTAD; UNCTADStat

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).

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).

30 Ten largest countries in each region based on GDP, 2010

EXHIBIT 32

The 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

# of company operations1 outside the country of origin

4,719

# of company operations1 outside the country of origin

Latin American companies have six times fewer international operations and most are within the same region

1,139

# of company operations1 outside the country of origin

EXHIBIT 33

781

Comparatively speaking, there is room for Latin American businesses to expand Penetration of domestic companies in the 10 largest countries1 in each region

6x Breakdown by region of operations outside the country of origin (%) 100

Breakdown by region of operations outside the country of origin (%)

50,9 27

6 5 50

Latin American countries are present in only about 17.5% of the countries in the region

Breakdown by region of operations outside the country of origin (%)

Mean presence of companies in the largest countries in the region2 (%)

For EU companies this percentage is almost triple, or 43.9% Mean presence of companies in the largest countries in the region2 (%)

61.5

54.8 49.3

Mean 43.9%

41.1

Mean presence of companies in the largest countries in the region2 (%)

In Southeast Asia it is about 50% larger, or 24.4%

42.2 36.3

32.6 30

24.4 20.0

19.8

18.4

16.7

24.1

Mean 17.5%

europE

Asia Latin America

Asia

Europe

Latin america Other

Intraregional

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

10 0

Mean 24.4%

22.2 15.9

14.8

chn

idn

twn

5.9 MEX

bra

chl

col

arg

per

fra

deu

nld

esp

ita

sgp

kor

hkg

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

Connectivity for an investment and business hub in Brazil

EXHIBIT 34

Foreign companies are as attracted to countries in Latin America as they are to countries in other regions Latin America attracts companies from both Asia and Europe...

... Brazil, Mexico, Argentina and Chile are the highlights Presence2 of Asia and Europe’s 360 largest companies1 in Latin America

Foreign company presence in the region % companies from one region present in the other two regions1

40.3 40

Mean 37.9%

38.6 34.7

36 61 27

52 Enablers of the international expansion of businesses in Latin America

117

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.

69 0

asia

latin america

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.

europe

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 analysis 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. 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

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%

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 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.

Connectivity for an investment and business hub in Brazil

EXHIBIT 35

Latin Americaâ&#x20AC;&#x2122;s efforts to align technical standards regionally and internationally are still quite limited

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).

Participation of Latin American countries in international organizations such as ISO is limited ... Participation of the countries in each region in ISO1 % adhesion to ISO by type

7 13

NON MEMBER 19 10

20 60

SIGNATORIES5

EUROPE

100

European Committee for Standardization 27 members (100% of the total6) In 2009 alone 1,303 standards were harmonized

PARTICIPANTS4

299 Technical Committees

MEMBERS

Pacific Area Standards Congress 27 members (100% of the total6)

24 96

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.

...and its regional bodies are less effective than that of its European counterparts

60 48 ASIA

european union

417

southeast asia

311

latin america

124

9 Technical Committees Pan-American Technical Standards Committee 17 members (81% of the total6)

~3.5 x Mean number of seats on technical committees2

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

ASEAN Consultative Committee on Standards and Quality 10 members (67% of the total Harmonized standards for 20 product categories and 81 Health and Safety standards

LATIN AMERICA

101 of its own standards have been published 9 Technical Committees Mercosur Standardization Association Mercosur (19% of the total6) 493 harmonized standards 34 Sector Committees

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 Caribbean Source: ISO; CEN; COPANT; AMN; CNI; BCG analysis

Connectivity for an investment and business hub in Brazil

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

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, Philippines, Finland, France, Hungary, India, Israel, Italy, Japan, Luxembourg, Mexico, Norway, Netherlands, Peru, Portugal, Slovakia, Czech Republic, Sweden and Ukraine

Connectivity for an investment and business hub in Brazil

EXHIBIT 36

People flows

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 countryâ&#x20AC;&#x2122;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 intraregional - 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).

The number of resident immigrants in Latin America is small and has remained constant

250

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 immigrants by place of residence

Immigrants as a percent population by location of residence

Immigrants by region of residence (million)

CAGR â&#x20AC;&#x2DC;90-â&#x20AC;&#x2122;10

Resident immigrants/ total population1 10

9.4%

1.6% 213.9

8.5%

195.2

200

7.2%

178.5 166.0

6.6%

155.5 150

70%

5.7%

1.3%

71% 73% 100

75%

4% 4%

74%

3% 4%

3% 5%

17%

19%

20%

1990

1995

2000

Asia

Latin America

3% 5%

21%

22%

2005

2010

Europe

0.0% 2.7%

1.5% 1.1%

2.9% 0.4%

Other

1. Sum of the immigrants in each country divided by the total population in the region Source: United Nations; BCG Analysis

1990

0.4%

1995

1.1% 0.5%

2000

1.1% 0.5%

2005

1.1% 0.5%

2010

Connectivity for an investment and business hub in Brazil

EXHIBIT 37

EXHIBIT 38

Latin American countries, and Brazil in particular, stand out for their limited connectivity in immigration

Latin American immigrants mostly come from other countries in the region - Brazil and Mexico are an exception Global connectivity measured by immigrants received

Global connectivity measured by immigrants received 20%

Breakdown of resident immigrants in each region by origin

Breakdown of the resident immigrant population in each region between intra and extra-regional SPAIN

Increase in resident immigrants – 1190-2010, % p.y.

71%

CHILE

10%

ECUADOR

SINGAPORE

IRELAND

Latin America1

MACAU

LUXEMBURG 0%

ARGENTINA

BRAZIL

-10%

53%

66%

ARGENTINA

47%

BRAZIL

21%

MEXICO

COSTA RICA

Intra

20%

30%

40%

50%

Extra

60%

Europe

Resident immigrants as a percent total population

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 # of resident immigrants in 2010

79%

Europe

Latin America

Asia

27%

Intra

Extra

40.5%

59.5%

ITALY

29.5%

70.5%

28.6%

71.4%

73%

GERMANY Intra

84%

16%

SPAIN 10%

34%

HONG KONG

GERMANY

-20% 0%

29%

Extra

22.0%

78.0%

Intra

Extra

Other

SOUTH KOREA

79.9%

20.1%

Source: United Nations; BCG Analysis

Asia3

CHINA

N/A

SINGAPORE

N/A

INDONESIA

N/A

Intra

Extra

Intra

Extra

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

EXHIBIT 39

Enablers of people flows in Latin America

The example of Brazil shows that there are more Latin American immigrants outside the region than within it Breakdown of the Brazilian diaspora (thousand people) - 2009

Asia 290

Europe

1.325 North America

816 Central America

Middle East

5 37 South America 514

Africa Oceania 23

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 â&#x20AC;&#x201C; global, regional and local â&#x20AC;&#x201C; 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).

Source: Brazilian Ministry of Foreign Relations, BCG analysis

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

EXHIBIT 40

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.

The 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 France

Germany

Italy

Netherlands Spain

ORIGIN

France Germany Italy

EXHIBIT 41

Netherlands

DESTINATION

Free residence agreements can improve connectivity if they are reinforced and cover more countries

Spain UK

Latin America: Flows are facilitated between countries in the region Brazil

Argentina

Chile

Mexico

Colombia

Peru

ORIGIN

Brazil Argentina Chile

Harder than most other countries

Citizens of member countries may enter Brazil freely

The same as most other countries

Once in Brazil, citizens of these countries have a simpler process to apply for a 2 year residence permit

Easier than most other countries

Mexico

DESTINATION

Citizens of member countries have a simpler process to establish residence in Brazil

MORE restriCtivE

Colombia

After 2 years they may automatically be granted permanent resident status

No demands

Peru LESS RESTRICTIVE

Asia: Difficulty to get visa similar for Asians and non Asians China

Japan

South Korea

Indonesia Taiwan

Thailand

ORIGIN

China Japan

Other signatory countries

South Korea

Countries not signatories to the agreement

Indonesia

DESTINATION

Mercosur countries

Million inhabitants

The Argentine program is even broader

244

After 1 year foreign citizens can get Argentine documents giving them access to all of the country’s public services

27 304

The country’s Patria Grande program, created in 2006 to legalize immigrants, has already legalized over 1 million persons

Taiwan Thailand

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.

Some provinces allow these “naturalized” citizens to vote in local elections

Source: Migration policy institute; press clippings

Connectivity for an investment and business hub in Brazil

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).

EXHIBIT 42

Brazilâ&#x20AC;&#x2122;s image as a tourist and cultural destination is particularly good, but this does not translated in large numbers of tourists Brazil has a positive image in tourism and cultural issues ... Tourism1 ITALY BEST

BRAZIL

Worst

1st

10th

50th

IRAN

Culture2

...but attracts only a small share of the global tourist volume Ranking Destination

FRANCE 1st

13th

50th

BEST

BRAZIL

Worst

1st 2nd 4th 6th 7th 10th 11th 14th 15th 28th 29th 30th 35th 38th

FRANCE USA CHINA UK HONG KONG GERMANY RUSSIA MEXICO CANADA SINGAPORE JAPAN SOUTH KOREA INDIA BRAZIL

% of world tourists

11% 8% 7% 4% 4% 3% 3% 3% 2% 1% 1% 1% 1% 1%

IRAN

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 countries Source: The Anholt-GfK Roper Nation Brands IndexSM 2008 50 country report, EIU; BCG analysis

Brazil is ranked 38th out of 60 countries

Connectivity for an investment and business hub in Brazil

EXHIBIT 43

Air travel integration of Latin America is similar to that of nations in Southeast Asia, but quite a bit more limited than in 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

46% of international departures in Latin America have destinations within the region # of international flights/day from the country’s main urban center1 (2010)

654 194

848

Latin America sample2

877 1,026

1,903

5.9

Flights per million inhabitants per day

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).

46% of the international

244 358

flights are intraregional

652

EXHIBIT 44

The quality of air transport in Latin America varies significantly from country to country, Brazil stands out in a negative way

78 325

403

In Asia the level of air travel integration is smaller Air transport quality score (0-10, worst)

# of international flights/day from the country’s main urban center3 (2010) Southeast Asia sample3

SPAIN

Europe

2.6

2,374 233

2,607

820 99

919

Asia

3,526

China

Singapore

2.6

3,194 332

Flights per million inhabitants per day

2.0

GERMANY

Latin America

1.2

CHINA

of the international flights are intraregional

2.9

THAILAND

2.6

SOUTH KOREA

Europe is well integrated in terms of air travel # of international flights/day from the country’s main urban center4 (2010) Europe sample4

1.3

ARGENTINA

5.7

BRAZIL 1,131 2,799 1,864 5,615

7,479

601 1,371

1,972

1,576 3,548

5,124

3,930

5,172 13,333

18,505

53.4 Flights per million inhabitants per day

72% UK Total # of international flights

Russia # of flights to destinations outside the region

France # of flights to destinations within the region

Germany

of the international flights are intraregional

5.3

MEXICO

4.3

COLOMBIA

3.3

CHILE

1.4 worst

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 best Source: IMD World Competitiveness Yearbook

Connectivity for an investment and business hub in Brazil

EXHIBIT 45

Only two Latin American countries have domestic conflicts the international community considers relevant Map of very violent conflicts in 2010

International Political Scenario

Mexico: drug cartel conflicts1

Colombia: Civil war with the FARCs

Severe crisis

War

1. The Mexican drug cartel conflict escalated to war status in 2010, with worsening violence and more than 10,000 deaths in that year alone Source: University of Heidelberg “2010 Conflict Barometer”

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.

EXHIBIT 46

Two Latin American countries are among the 26 countries the world sees as influential International soft power1 ranking - the ability of a nation state to influence the actions of another through persuasion or attraction, without coercion

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).

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

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.

FranCE UK USA GERMANY Switzerland SWEDEN Denmark AustrAlia FinlAnd Netherlands SPAIN CanadA SingapORE

14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26.

NorWAY JaPAN ItALY China Israel SOUTH KOREA SOUTH Africa BraZil MExico India UAE TurKEY RUssia

Historically, traditional powered head up the list in terms of perceived influence...

Europe Asia Latin America Other

...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”

Connectivity for an investment and business hub in Brazil

EXHIBIT 47

Political connectivity also takes the form of international official visits

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 countryâ&#x20AC;&#x2122;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).

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

# of international visits made by the Brazilian President in office

# of international visits made by the South Korean President in office

60 Other Asia

Europe

North America

Latin America

Mean 35 Multilateral

18 11

Mean 13

2006 2007

2008

2009

2010

29%

32%

35%

21%

32%

Latin America / Total (%)

32%

46%

55%

59%

35%

% GDP global visited

2006 2007

2008

2009

2010

30%

17%

36%

27%

40%

34%

36%

47%

29%

Source: Brazilian Ministry of Foreign Relations; South Korean Ministry of Foreign Relations; BCG analysis

Asia / Total (%) % GDP global visited

Connectivity for an investment and business hub in Brazil

EXHIBIT 48

The example of South Korea shows that Brazil could receive more international visits from the larger economies

Brazil has been visited by leaders of countries in all regions

Over the same period South Korea received a much larger number of visits

# of visits by foreign leaders to South Korea

# of visits by foreign leaders to Brazil 80

Mean 55

50 42

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 2010

37 Mean 35

30 24 Other

Asia

Europe North America Latin America

2006

2007

2008

2009

2010

60%

42%

55%

48%

45%

Latin America / Total (%)

14%

37%

26%

16%

23%

% GDP global received

2006

2007

2008

2009

2010

15%

19%

20%

18%

Latin America / Total (%)

43%

% GDP global received

59%

50%

Source: Brazilian Ministry of Foreign Relations; South Korean Ministry of Foreign Relations; BCG analysis

72%

56%

Brazil also stands out for its increasing importance to international cooperation, especially within its own region. The countryâ&#x20AC;&#x2122;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 Brazilâ&#x20AC;&#x2122;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).

Connectivity for an investment and business hub in Brazil

EXHIBIT 49

EXHIBIT 50

Brazil has a relevant role as an investor in cooperation, in particular within its own region Brazilian investments in international development are growing

Regional breakdown (% US$)

362

+23%

337

CAGR ‘05-’08

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 seats on the UN Security Council1 BRAZIL

JAPAN

16%

207%

292

Latin American nations participate in all of the main multilateral organizations

Breakdown of Brazilian investments by region

US$ million at current value

300

Brazil is attempting to secure a permanent seat on the UN Security Council

Brazilian efforts were, for the most part, intraregional

Breakdown of Brazilian investments by purpose

400

-1%

277

ARGENTINA 44%

Investments 2005 - 2009

76%

COLOMBIA

INDIA

Latin America

200

158

Asia Other

canadA

ITALY

PAKISTAN

19%

100

Most important destinations % of total

2005 2006

2007

2008

Humanitarian aid Scholarships for foreign students

2009

CUBA

22%

HAITI PALESTINE

19% 13%

Technical cooperation Contributions to international organizations

HONDURAS

10%

BELGIUM

GERMANY

NETHERLANDS

PANAMA

POLAND

Source: Ipea and Brazilian Cooperation Agency report entitled “Cooperação Brasileira Para o Desenvolvimento Internacional: 2005-2009” Europe

Latin America

Other

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 1945 Source: UN; Media survey; BCG analysis

Connectivity for an investment and business hub in Brazil

Conclusion

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 presented 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 investments, 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.

Connectivity for an investment and business hub in Brazil