Investing Outside the Region (Outward FDI)

July 2011 Atlantic ConnectionEconomic and Financial Development Conference

Introduction

Replacing Vera (WB). Privileged. A2F Consulting (Access to Finance) (DC

based) Financial Sectors in EM – Stability /

Development Microfinance / SME (where also investors in

Africa) Alfredo

20+ years, Banking crisis, Strategic fin. sector perspective

Own Caribbean credentials? Venezuela, Curacao, Dom Rep.

Different global perspective – and guide discussion

Outward FDI: What are we talking about?

Institutional Inv. (Public)

Corporates

Institutional Inv. (Private)

Outside of the Country

Outside of the Region

Key Focus – Based on Participants

Also relevant – But will leave until later

3

A Hugely Diverse Region …

Very wide range of: Physical size Population Languages Mineral resources Wealth (GDP per capita) !!

But Some Common Themes … Generally very small (island) states Similar (though complex!) heritage Managed to reduce dependency on agriculture -

Tourism Financial Services

Large populations out of country Very open economies (good, but also exposed)

[US/Europe centric] Hit by the recent crisis

Exposed to natural disasters Generally high levels of country debt

And on natural disasters …

“The country I’m from, St. Lucia, has 160,000 people. The cost of government per capita is very high; the markets are very small; and the cost of production is very high. Also every year we have a hurricane season, which can destroy the country’s GDP. In some countries, it can also lead to high debt levels. Their infrastructure is destroyed before they paid for it, so they borrow again. Then it is destroyed a second, and sometimes even a third time”.

- Sir K. Dwight Venner (Governor, ECCB)

Clearly an overwhelming case …

Manage Risks

Diversify Investment(Invest outside the country,

and region)

But the reality is not so simple…

But, who are talking about (state employee pension funds, social security funds, or similar). And, countries in debt, development gap, [unfunded schemes?], fiscally tight, crisis, government priorities.

Political [As well as Legal/regulatory regulatory restrictions]

Clearly not a “textbook” pension fund investment issue

Is Pragmatic Evolution possible?

Yesterday’s discussion (CARICOM MOU) seems to create a path: Potentially both a technical and political tool “Reserves” vs. “Resources” discussion insightful

(both valid) But getting started is never simple …

Interesting ideas were mentioned, which taken a little further?: Create specifically investible vehicle(s)? A “Menu” (of at least 2?) funds, allowing investors

to choose? Potentially bring in other (institutional) investors to

help kick start the product, create scale, and validate governance?

“Private sector type” solution: allowing to “pick” – and with less political

risks

In summary …

“No brainer” investment case for risk diversification

But is this is not just an investment issue Political / financial [This is not good or bad, just a reality]

But can continue steps in the right direction (“MOU”)

But back to the bigger picture …

Institutional Inv. (Public)

Corporates

Institutional

Inv. (Private)

Out of Country

Out of Region

Are these relevant?

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Do (local) private institutional investors have a role to play?

Do we have corporates with a regional / international story?

Public / semi-public pension schemes work best when they are is a “rich” / “deep” market setting

Need to deepen the local markets

International

(Global)Business

• Leading global off-shore centers

Local Markets

• But local markets not developed

Big gap between

the “country club” and

the “back-

streets”!!

Building the future …

Need to change a bit the perspective: The “Caribbean” is an extraordinary global brand “South-South” successes provide inspiration

Need to look more broadly for models and markets Need to find your own (Caribbean) solutions Local success models can (and need to be) scaled Working as a region (not easy!) provides strength

The challenges will not disappear –

But they can be managed

Final message …

Would encourage you: To continue the path opening outward foreign

investment (by the local pension funds) To support broader local financial deepening

Thank You !!!