2016 OECD Business and Finance Outlook Key Findings

2016 OECD Business and Finance Outlook Key Findings

• 1.
  OECD BUSINESS AND FINANCEOUTLOOK 2016 KEY FINDINGS 9 June 2016 – Paris, France Adrian Blundell-Wignall Special Advisor to the Secretary-General on Financial Markets and Director of Financial and Enterprise Affairs, OECD
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  Doing business ina fragmented world  7 years after the global financial crisis: Banks recapitalised & monetary policy remains highly supportive  But the global environment is not supportive: EMEs such as China have struggled with the reversal of the commodity “supercycle” that sustained the earlier boom & created excess capacity.  Result: A failure of the business sector to respond with new investment & restructuring needed to generate jobs & the productivity growth that can support rising incomes & employment  These are essential for inclusive growth if we are to address challenges like climate change & rising wealth inequality.  So what is blocking business investment & productivity growth?  The 2016 OECD Business and Finance Outlook includes many contributions that we can summarise under the theme of “fragmentation”: the heterogeneous policies, rules, laws & industry practices that create perverse incentives & block business efficiency & productivity growth.
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  Excess capacity: ROEvs Cost of Capital and vs Cost of Equity in advanced and emerging economies
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  Global capital expenditureby sector, 2002-2015
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  The evolution ofselected financial prices (the grey line is the return based on 100 years of data)
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  Corporate bond issuanceand declining quality, 2000-2015
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  Capital expenditure andcorporate finance: Advanced economies could expand CAPEX by 60% by reducing dividends and buybacks
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  Company productivity levelsand growth rates, pre-crisis versus post-crisis
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  Debt-to-capital ratios andfree cash flow per employee in advanced economy companies, pre-crisis versus post-crisis
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  Characteristics of companiesthat transitioned to fast productivity growth after the crisis  R&D - openness to ideas, fiscal incentives  M&A - restructuring low cost Authority cooperation & approval process  Equity vs debt - tax, “dark” vs. “lit” exchanges, trust  Free cash flow - open trade, open domestic markets, tax, flexible labour contracts
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  Fiscal incentives forR&D need to be well targeted  R&D a key driver of companies that transitioned to rapid productivity growth in the face of the crisis— fiscal incentives are a key policy option.  Supporting tax policies (e.g. credits against income, accelerated or enhanced depreciation, etc.) need to be well targeted at specific impediments to R&D, or they may have no effect or be counterproductive.  Harmful tax practices can be avoided with a “nexus” approach—the taxpayer benefiting from the policy regime must have incurred the expenditure that gave rise to R&D income.
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  An illustration ofthe distribution of trading among venues and between lit and dark volume in France, Germany and the UK December 2015 - March 2016
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  Change in equitymix in wind energy projects in Europe, 2010 and 2015
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  Difference in lifeexpectancy at age 65 by level of education relative to the population average
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  Foreign Bribery: fragmentation& the profitability of bribes  Legal principle: Crime should not pay. But it does, and the Unaoil and Panama Papers bring home just how prevalent it is.  Penalties vary widely amongst adherents to the Anti- Bribery Convention. And even strong penalties on paper are not necessarily enforced. This strong fragmentation of incentives across 41 adherents to the Convention is problematic.  Simulations based on real world data show that, even in the case of 100% chance of detection, companies would still be willing to invest in a bribery scheme as the penalties are just too low.  Bribery and corruption steals the future of our children in many ways.
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  Investment treaties: Companies, shareholdersand creditors  3000 different investment treaties - this patchwork fragmentation may set up incentives and mechanisms that modify corporate governance.  “Reflective losses” - Shareholders covered by treaties may claim for damages due to government breaches of treaties. The ‘rules’ can provide greater rights to foreign covered shareholders vs domestic shareholders.  Corporate governance can be fragmented by shifting power away from the Board to covered shareholders. Foreign shareholders may even stand in front of creditors.  This can lead to complex structuring of investment through multi-tiered corporate structures—to take advantage of different treaties.
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  Thank you Find theOECD Business and Finance Outlook online www.oecd.org/finance/ oecd-business-finance-outlook.htm