1. Banking on Development Javier Santiso Director, OECD Development Centre Geneva, 28 February 2008 OECD Global Forum on Development Public-Private Roundtable

2. Context The OECD Global Forum on Development 3 “Seeking solutions beyond aid” Year I: A complex development finance system (06/07) Year II:Putting ownership into practice (07/08) Ownership in Practice Banking on development Think Tanks & Fiscal legitimacy Plenary Year III:Matching instruments to needs (08/09) Year IV:Proposals for a more effective system (09/10)

3. Geneva Banking on Development Roundtable 3 Agenda I.Private development finance: the new reality for developing countries II.New options, more ownership? Group discussion: Innovation and good practice in development finance III.Improving the environment for private investment and development outcomes IV.Donor agencies and private-sector finance: Solutions beyond aid Group discussion: Catalysing private finance: a new priority for ODA? V.Messages for the Doha Conference on Financing for Development

4. Spotlight on Africa: Seeking Solutions Beyond Aid 1 A Public-Private Innovation Lab on Development Finance 2 2

5. Aid Over the « hump » of debt relief Source: OECD Development Centre / African Development Banks, 2008 3

6. MDGs Slow progress, despite growth Source: OECD Development Centre / African Development Bank, 2007 4

7. Investment Africa: a new investment frontier? Source: OECD Development Centre / UNCTAD, 2007 A rapidly evolving investment destination: Lower external debt: from 183% of gdp in 2002, to 69% in 2006 South-South lending: South Africa exporting capital China investing & providing loans, direct entry into African banking sector (2007: $5bln in deals struck) Today private capital = 80% of total flows (50% in mid-80s) Decoupling: Africa’s low correlation with other asset classes has made it an important in portfolio diversification Real lending rates still very high: SSA 13% other LIC/MIC: 8%, Developed countries: 3.5% (04). Savings rate still very low: SSA: 10% (SSA LIC: 5%, other SSA: 12%) BICTS*: 28% average savings Allocation puzzle: the poorest countries have become net exporters of capital over recent years *BICTS: Brazil, India, China, Thailand & South Africa 5

8. FDI Record investment inflows for 2007 Source: OECD Development Centre / UNCTAD, 2008 Africa FDI 2007 : $36 billion Highest figure on record +20% on 2006; +200% on 2004 FDI outflows - $8 billion 2006 Largely due to surging extractive industry investment: South Africa and oil producing countries are still receiving the bulk of direct investment to Africa Previously off-limit sectors opening to foreign investment: Banking: Congo, Egypt, Nigeria Telecoms: Botswana, Burkina Faso, Cape Verde, Ghana, Namibia Land ownership: Morocco  FDI inflows likely to remain strong, but unevenly distributed by sector and destination. 6

9. FDI Africa still last, despite rapidly rising investment Source: OECD Development Centre / World Bank, 2008 Source: OECD Development Centre based on UN Comtrade, 2008 19992000200120022003200420052006 World31173199155244684642745951050917569 Developed economies253423801496436683156457195647173 Developing economies 5838195591016327020244769721 Africa527695208095691849360746 Latin America373--67166--125 Asia158503914125361751168850 Distribution of cross-border M&A purchases in Africa by home region, 1999-2006 (US$ million) Source: OECD Development Centre based on UNCTAD cross-border M&A database, 2008 7

10. Investment Rising investment, unchanged allocations Global Emerging Market Equity & Bond funds: Total investments and regional allocations Source: OECD Development Centre / EPFR, 2008 8

11. Private Equity Well adapted to African constraints? Total emerging world private equity funds raised: $21.5 billion raised in first half of 2007 Sub-Saharan Africa 2006: $2.3 billion raised (+198%) Average deal size 2005 $1.2 million, trending towards larger deals South Africa: 81% of investments, Nigeria 50% of remainder(2005) Top sectors: Transport, consumer-related investments, telecommunications/IT (2005) Later stage funds : 75% of all in-country investments 2005 “In-country” investments: 96% total. “Outbound ” (intra- African) investments nonetheless in strong progression. Emerging Capital Partners: first $1 billion pan-African fund (2006) 2003200420052006 $3.4 bln$6.4 bln$25 bln$33 bln *OECD Development Centre / African Venture Capital Association, 2007 * * * * * Source: OECD Development Centre / Emerging Markets Private Equity Association, 2008 9

12. Investment Attractive investments with low correlations Source: OECD Development Centre, based on Thomson Datastream, 2008 10

13. Asia The challenge of China and India’s rise Source: OECD Development Centre, based on Comtrade data, 2008 Note: Herfindahl-Hirschmann index calculated as, where represents the market share of good j on the exports of country i in its total exports. The risks of excessive specialisation: 11

14. Asia More diversification of trading partners? Source: OECD Development Centre, based on Comtrade data, 2008. Note: Herfindahl-Hirschmann index calculated as, where represents the market share of country j on the exports of country i in its total exports. Herfindahl-Hirschmann Index by Destination 12

15. China Net Exports with Asia: growing deficit Source: UNComtrade/OECD 14

16. SWFs Sovereign Development Funds? 15 Can SWFs play a role on the financial architecture? Source: Dealogic, Peterson Institute of International Economics, September 2007.

17. Spotlight on Africa: Seeking Solutions Beyond Aid 1 A Public-Private Innovation Lab on Development Finance 2 16

18. PPPs An innovation Lab on Development Finance Public Private Partnerships with Banks and Asset Managers: A partnership between donor agencies and banks for investment funds: Emerging Africa Infrastructure Fund. EAIF  370 millions USD, created by the DFID and private banks (Barclays, Standard Bank). Other governments (Switzerland, Netherlands, Sweden) are now investing in this public private equity fund. Swiss Investment Fund for Emerging Markets (Sifem), created in 2006. Initial investment of 200 millions USD. Investment fund of the State Secretariat for Economic Affairs (SECO) in long term projects for the private sector in developing countries. 17

19. PPPs An Innovation Lab on Development Finance 18 A Public-Private Partnership Forum Some examples: Micro-finance and remittances offer opportunities for PPPs: BBVA Foundation for Micro-finance and Remittances. Mobile banking in South Africa  Local and firm development Remittances  Banking accounts in Euros to avoid currency risk for money senders and encourage banking development. Information hub on Public Private Partnerships

20. PPPs Improving coverage: The African example 19 Banks coverage in emerging markets is uneven (based on 10 main financial institutions) Source: OECD Development Centre 2008, from investment bank emerging market research publications (Citibank, Credit Suisse First Boston, Deutsche Bank, Dresdner Kleinwort, Goldman Sachs, JP Morgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, UBS, Standard Bank South Africa, Renaissance Capital) and emerging market indices (MSCI EM, EMBI Global, IIF).

21. PPPs Improving coverage: The African example 20 Public-private partnerships could put African markets into the picture and avoid informational bias Source: OECD Development Centre 2008, from investment bank emerging market research publications (Citibank, Credit Suisse First Boston, Deutsche Bank, Dresdner Kleinwort, Goldman Sachs, JP Morgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, UBS, Standard Bank South Africa, Renaissance Capital) and emerging market indices (MSCI EM, EMBI Global, IIF).

22. PPPs Improving coverage: S&P and UNDP 20 Rating agencies and multilateral institutions have successfully implemented country risk coverage in Africa Note: Countries most frequently analyzed by Emerging Markets analysts or covered by leading financial institutions. Based on OECD Development Centre database using 10 selected investment banks. See more on Santiso, J. Nieto, S. “In Search of a Better World: Financial Markets and Developing Countries”. OECD Dev Policy Insight No.37, 2007.

23. Thank you More information: www.oecd.org/dev Based on African Economic Outlook ; “Banking on Development: Private Banks and Aid Donors in Developing Countries” (OECD Development Centre Working Paper, 263, November 2007; and OECD Development Centre Policy Brief, 34, February 2008).