1. Texas in the Global Economy Texas in the Global Economy Presented by Geoffrey S. Connor Central Texas Entrepreneur Funding Symposium April 18, 2008

2. Remarks Outline  The Global Economy –The Recession Question –The Rise of Sovereign Wealth Funds –Foreign Direct Investment  The Texas Economy –General Overview –Exports –Foreign Investment  Conclusions and Evaluations

3. The Global Economy at a Glance 2007  6.7 billion people  $66T Gross Planetary Product (GPP).  $10,000 GPP per capita.  5.2% growth rate  $165T Tradable Securities  3.0 billion person labor force.

4. RECESSION?  No consensus about recession.  U.S. economy displaying some symptoms.  Other economic woes (sub-prime mortgage collapse)  Net effect: recession or not, U.S. economy at one of its weakest points in the past decade.

5. RECESSION?  limited concern to those seeking VC/Angel funding.  Of limited concern to those seeking VC/Angel funding.  There is still money out there! –Less favorable terms.  Business cycle vs. venture capital cycle.  Be Smart!

6. Sovereign Wealth Funds   What, precisely, is a Sovereign Wealth Fund (SWF?): “Investment fund that draws capital directly from the resources of a national government, (typically currency reserves)”

7. Sovereign Wealth Funds The Hype   Congress so concerned they’ve held special hearings about SWF’s.   Major publications running cover stories on SWF’s.   Foreign SWF’s buying or investing billions in important U.S. assets.   Capitalization of SWFs expected to grow by 300% by 2015, to $12 trillion. The Rest of the Story   Are not new, around since the 1950s.   Not only low transparency, low accountability nations. Others: –Norway, Singapore, UK, Australia, Canada, USA.   Account for only 2% of world’s traded securities. –Less than pension funds, mutual funds, or insurance companies. –More than hedge funds or private equity markets.   In 2015, $12 trillion represents 3% of traded securities.

8. Sovereign Wealth Funds So, Why the Scare?   Vast size of individual funds. – –Often 10s or 100s of $ billions.   Low risk & low accountability for capital raised. – –Violating “natural” boundaries between public and private sector? – –Counterpoint: moral hazard, reduced incentive for good judgment.   National Sovereignty / National Security issues.

9. Foreign Direct Investment (FDI)  Important element of the global economy, growing more important.  Players: corporations, equity funds, hedge funds, individual investors, venture capitalists, others  Global Foreign Investment: $1.2 trillion (2007) –Up 51% since 2005.  Largest Source County: USA, Largest Source Region: EU  Largest Destination Country: USA, Largest Destination Region: Pacific Rim.  Projected “cool down” in FDI growth until 2011/2012.

10. Foreign Direct Investment (FDI)  Effects of FDI in the U.S –$50 billion (2007) –Created 107,000 jobs.  Recent growth of FDI will intensify competition among corporations and nations for this type of investment and funding.  More than 1/3 of FDI now goes to the developing world.  That proportion is likely to increase, perhaps dramatically.

11. The Texas Economy  Population: 23.7 million  GSP: $1.2 trillion –Annual Growth: 3.2%  Exports: $168.2 billion  Labor Force: 11.6 million  Unemployment: 4.2%

12. Leading Exporting States ($ billions, ’03-’07)

13. TEXAS EXPORTS BY SECTOR 2007 SectorValue%Chemical $ 35.0B 20.8 Computers $ 33.7B 20.0 Machinery$24.8B14.7 Trans Equip $16.3B9.7 Petrochem$14.7B8.7 Other$43.7B26.0

14. Texas Exports by Destination 2007 RankNationValue% #1Mexico$56.0B33.3 #2Canada$16.8B10.0 NAFTA$72.8B43.3 #3China$8.3B4.9 #4S. Korea$5.6B3.3 #5 Netherlands $5.3B3.2 #6Taiwan$5.1B3.0 #7Singapore$4.5B2.7 #8Brazil$3.9B2.3 #9Japan$3.4B2.0 #10U.K.$3.3B2.0 Other$56.0B33.3 Largest Exporter To MexicoRussia NAFTA Eastern Europe NetherlandsOPEC SingaporeAfrica

15. FDI in Texas Measured by Dollar Value   Texas Ranked #1   Total FDI value: $10B   Annual FDI: $100M   Major Sources: UK, France, Netherlands, Japan, Germany. Measured by Job Creation   Texas Ranked #3 (after CA, NY)   FDI jobs in Texas: 350,000   4.2% of private sector employment.

16. Why so Strong? Many factors explain the strength of Texas in the global economy:  Business Climate  Venture Capital  State Funds (ETF, TEF)  Infrastructure –Ports  International Tradition

17. In Conclusion:  There is funding out there (trillions of dollars, to be exact).  We live in an era when global and national economies face numerous challenges: –Possible Recession –Adjusting to SWF’s –Others  To be successful, entrepreneurs must pay careful attention to macroeconomic trends.  Texas offers your enterprises an advantage in competing globally.

18. THANK YOU