1. Prof. Javier Santiso Vice President, ESADEgeo Professor of Economics, ESADE Business School Europe and Latin America’s Investment Relationship & Sovereign Wealth Funds 1

2. 2 2015 A.T. Kearney FDI Confidence Index Country ranking on how political, economic, and regulatory changes are likely to affect foreign direct investment (FDI) inflows in the coming years

3. 3 European Countries Represented

4. Investment Relationship between Europe and Latin America Sovereign Wealth Funds (SWFs) – Introduction to SWFs – European perspective on SWFs – The Paradox of Plenty: Norway vs. Venezuela – Opportunities for Europe Writing exercise on today’s lesson Conclusion 4 Lesson Road Map

5. 5 Source: EurostatEurostat Outward stocks of FDI, EU-27, end 2012 European Investment Latin America = 16% of the pie

6. European Investment in Latin America Students: what’s in the news? 6

7. 1)Netherlands 2)Spain 7 Which two European countries are the largest investors in Latin America? Source: UN ECLACUN ECLAC

8. 2 nd largest investor in Latin America among European countries Spain continues to be highly committed to the region 8 The Case of Spain Source: Invest in SpainInvest in Spain

9. 9 -Common historical, cultural, and linguistic roots. Institutional network relationships. -Strong economic and business ties: Spanish companies have invested in strategic sectors in Latin America. -Good communications: Spain is a major connecting hub for airlines. -Latin American multinational companies are choosing Spain for their European headquarters. -Multinational companies are increasingly choosing Spain for their Latin American headquarters. Spain as a Gateway to Latin America Why is Spain an attractive hub for doing business in Latin America?

10. 10 Managing Operations from Spain The following multinational companies are managing operations in Latin America or the EU from Spain. Source: Invest in SpainInvest in Spain

11. 11 Shifting away from the US and toward Europe Latin American FDI flows towards the EU – 2006-2009: between $2 billion and $2.5 billion – 2010: $12 billion Approximate investment between 2006-2010: – Brazil (71%) – Colombia (18%) – Chile (11%) Latin American Investment Destinations

12. Companies from Latin America (especially from Mexico, Brazil, and Colombia) are increasingly interested in investing in Spain 12 Latin American Investment in Spain Source: Invest in SpainInvest in Spain

13. The 5 Ws of Sovereign Wealth Funds (SWFs) 13

14. 14 What are SWFs? Source: The Global ContextThe Global Context

15. 15 Philipp Hildebrand argues that the French Caisse des Dépots et Consignations (founded in 1816) was the first SWF. General consensus places the Kuwait Investment Authority (founded in 1953) as the first of the more modern and active kind of SWFs. In 2005, Andrew Rozanov was the first to coin the term “sovereign wealth fund.” 195318162005 When were SWFs created?

16. 16 Europe is one of the major SWF investment destinations Where do SWFs come from?

17. “Dutch disease” 17 Why are there SWFs? Source: Offshore TechnologyOffshore Technology Source: RediffRediff vs. SWFs can play the role of insulating the domestic economy from large sources of wealth, which might otherwise cause a distortion in the economy

18. Q1 Q1: __________ (how much money (US$)?) are in the hands of around __________ (how many?) different SWFs. A1 A1: $7 trillion; 80 Q2 Q2: The top ten SWFs manage __________ (what percentage?) of the $7 trillion? A2 A2: 80% 18 Who are SWFs?

19. 19 Top 4 Investment Sectors: Financial Services Real Estate & Construction Commodities Infrastructure How do SWFs invest?

20. Group 1 (Pros): Discuss the benefits of SWF investment in Europe from the European perspective Group 2 (Cons): Discuss the drawbacks/concerns of SWF investment in Europe from the European perspective 20 European Perspective on SWFs

21. The Paradox of Plenty: Norway vs. Venezuela 21

22. Two natural paradises… 22

23. “Blessed” by nature… 23

24. With very different outcomes 24

25. Key Indicators 25

26. Norway’s Resources Largest holder of crude oil and natural gas reserves in Europe (U.S. EIA)U.S. EIA 3 rd largest oil-exporting nation in Europe (Norway)Norway World’s 3 rd largest natural gas exporter in 2014 (after Russia and Qatar) (BP)BP Supplies around 20% of Western Europe’s gas needs (Norway)Norway 26 Source: U.S. EIAU.S. EIA

27. Venezuela’s Resources 27 Source: OPECOPEC Contains some of the largest oil and natural gas proven reserves in the world (U.S. EIA)U.S. EIA Owned 25% of OPEC proven oil resources in 2014 (OPEC)OPEC 3 rd largest exporter of crude oil to the United States in 2013 (U.S. EIA)U.S. EIA World’s 9 th largest exporter and 12 th largest producer of petroleum and other liquids in 2013 (U.S. EIA)U.S. EIA Venezuela’s oil revenues account for about 95% of export earnings. The oil and gas sector is around 25% of GDP. (OPEC)OPEC 2 nd largest natural gas reserves in the Americas, behind the United States. Much of the natural gas is used to bolster production in its mature oil fields. (U.S. EIA)U.S. EIA

28. The SWFs Norway Government Pension Fund Global (GPFG) Market value of about $900 billion Owns 1.3% of the world’s listed companies Taken a deliberate decision to give preference to investments in European companies and to penalize stakes in North American, especially U.S., companies One of the world’s most transparent SWFs and with the best corporate governance Venezuela Macroeconomic Stabilization Fund (FEM) Market value of about $1 billion In 2003, the government withdrew $6 billion to cover the fiscal budget 28

29. Differences in Outcomes 29 Source: Invest in SpainInvest in Spain

30. Opportunities for Europe Groups: 1.Real Estate 2.Infrastructure 3.Private Equities 4.Human Capital Brainstorm: What are Europe’s potential opportunities (related to SWF investment) in each of these fields? 30 Note: the information on the following four slides comes from: López, Diego. "The Major Role of Sovereign Investors in the Global Economy: A European Perspective." In The Global Context: How Politics, Investment, and Institutions Impact European Businesses, edited by Javier Solana and Angel Saz-Carranza, 86-109. Barcelona, Spain: ESADEgeo, 2015.

31. Real Estate “Since the mid-70s, sovereign investors have poured over $65 billion into the European property markets” Largest investors: – ADIA – Qatar Investment Authority (QIA) – Kuwait Investment Authority (KIA) – Government of Singapore Investment Corporation (CIC) – SAFE Eyeing European secondary cities 31 Opportunity for “European financial institutions holding large portfolios of non-core real estate assets and/or those in need of liquidity”

32. Infrastructure Previously, foreign investors were banned from acquiring European airports, ports, and highways The financial crisis changed it all Non-European sovereign entities now own (but do not operate) some of the main European structural assets, including: – Airports – Power & utilities conglomerates – Nuclear energy companies – Highway operators – Telecoms 32 “Opportunity for European governments, not only to raise money from the privatization of established companies, but also from developing infrastructure project where the financial muscle of sovereign investors and the operational expertise of their partners can add an even greater value” Source: The Global ContextThe Global Context

33. Private Equities Generally associated with Small and Medium Enterprises (SMEs), i.e., the backbone of the European economy (European Commission)European Commission – 99 out of every 100 non-financial businesses in Europe are SMEs – 2 of every 3 employees are employed at SMEs – 58 cents in every euro of value added are produced by SMEs 33 “The acquisitions of sovereign investors in European healthcare…could be one of the main industries of focus in the next few years, in addition to the always-preferred industrial products and consumer-related European companies.”

34. Human Capital Thousands of skilled professionals—especially young graduates—have left the continent since 2008 “This brain drain may be a blessing in disguise for Europe if, as in the case of China and Russia, it is reversed, luring executives back to their home countries after having gained an invaluable experience investing in the global markets.” 34 “The new focus of sovereign investors on direct investments, alternative assets, and new geographies can represent an opportunity for European economies.” Source: European CommissionEuropean Commission

35. Three-minute Paper Please write for 3 minutes about what you have learned in today’s session and why the information is important for EU businesses. 35

36. Conclusion Questions? 36 This powerpoint presentation and the matching teaching plan were developed as a part of the Jean Monnet project MEKBiz (Mainstreaming EU Knowledge in Business Studies and Strategy), hosted by ESADEgeo – Center for Global Economy and Geopolitics and partially funded by the European Commission.MEKBiz “The European Commission support for the production of this publication does not constitute an endorsement of the contents which reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein.”