Financialisation and Internationalisation of Production in Brazil and Turkey
Explore the impact of financialisation on non-financial corporations in emerging capitalist economies like Brazil and Turkey. Understand the drivers, manifestations, and implications of financialisation in these economies compared to core capitalist ones. Delve into the symbiotic relationship between finance and production, shedding light on the integration and hierarchic nature of financialisation in the global economy.
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Debt and Financialisation in Emerging Capitalist Economics: the Case of Brazil and Turkey Annina Kaltenbrunner, Leeds University Business School a.kaltenbrunner@leeds.ac.uk Elif Karacimen, Rize University elifkaracimen@gmail.com
Motivation Research Project Financialisation of non-financial corporation in emerging capitalist economies - ECEs (Brazil and Turkey) What are the manifestations, drivers and implications of financialisation in ECEs? How and why does financialisation in ECEs differ from that in core capitalist economies? How and why do financialisation phenomena differ among ECEs?
Main Argument Financialisation in ECEs fundamentally shaped by integration in world economy Integration takes subordinated and hierarchic character (Painceira, 2011; Powell, 2013) - National manifestations shaped by spatial and institutional conditions and relations of production Symbiotic relation between finance and production (Kaltenbrunner and Karacimen, 2016) >>> This presentation: financialisation and the internationalisation of production
Outline Literature The financialisation of non-financial corporations in Brazil and Turkey The internationalisation of production and subordinated financialisation Aggregate data, annual reports, interviews
Literature Financialisation: Changes in the financial relations, practices and behaviour of key economic agents Non-financial corporations: shift from bank to market financing; increased payments to financial markets; holding of financial assets (shareholder value) Little systematic analysis of NFCs financialisation in ECEs Little analysis of the relation between financialisation and internationalisation Offshoring to meet shareholder demands (Milberg, 2008; Baud and Durand, 2012) Core Capitalist Economies Do not consider symbiotic relation between finance and production Some literature which points to role of internationalisation and subordinated financialisation (e.g. Lapavitsas, 2009; Painceira, 2011; Powell, 2013) Economic Geography: Need to understand how financial practices affect configuration and governance of international production (global value chains) and vice versa
The Financialisation of Non- Financial Corporations in Brazil and Turkey Large increase in debt External debt (foreign holdings and foreign currency) Bank vs. markets Onshore vs. offshore Intercompany loans Rise in stock market funding High foreign participation Increase in interest rate and dividend payments Increase in liquid asset holdings Cash/bank deposits vs. short-term financial assets Derivatives Large firms (bifurcation in company sector and structure of capital accumulation)
Brazil Financial obligations of NFCs, % GDP 59.9% 54.2% 50.0% 50.0% 13.7% 10.0% 45.0% 8.0% 7.9% 40.5% 7.7% 5.5% 5.4% 37.2% 4.6% 4.9% 36.2% 36.2% 4.5% 4.4% 3.5% 3.4% 3.4% 3.3% 4.1% 4.2% 4.1% 4.9% 2.7% 28.6% 3.5% 3.4% 2.5% 10.8% 10.7% 10.0% 4.6% 10.0% 2.5% 9.5% 2.5% 3.1% 2.3% 9.0% 3.4% 8.6% 7.9% 6.1% 2.2% 5.1% 14.9% 14.7% 14.8% 15.1% 15.1% 13.8% 12.9% 13.4% 14.1% 11.5% 2.9% 2.8% 2.8% 2.3% 1.5% 0.9% 0.4% 0.2% 6.9% 6.9% 6.5% 6.5% 6.2% 5.7% 5.2% 4.7% 4.3% 3.3% dez-07 dez-08 dez-09 dez-10 dez-11 dez-12 dez-13 jun-14 dez-14 dez-15 Corporate Debt Securities Debentures with financial institutions Bank Credit Directed Credit (BNDES) Directed Credit (Others) External Debt Intercompany loans Source: CEMEC
Brazil Relative Share of NFCs Financial Obligations 100.0% 95.0% 10.8% 11.0% 11.2% 11.5% 12.3% 13.4% 15.8% 15.9% 18.4% 90.0% 22.8% 85.0% 9.5% 9.4% 10.1% 11.8% 9.9% 12.6% 80.0% 9.2% 9.7% 10.0% 75.0% 12.9% 70.0% 17.8% 21.9% 23.1% 22.2% 21.1% 16.8% 65.0% 20.0% 20.0% 19.9% 60.0% 17.8% 55.0% 50.0% 45.0% 29.5% 33.6% 40.0% 40.3% 34.2% 30.2% 34.8% 36.9% 27.4% 38.9% 35.0% 24.5% 30.0% 25.0% 6.8% 6.4% 6.6% 20.0% 6.1% 6.2% 5.8% 6.7% 6.9% 5.6% 7.7% 3.4% 15.0% 4.7% 5.3% 6.4% 2.2% 1.1% 4.7% 0.6% 10.0% 14.0% 14.0% 13.7% 13.1% 13.0% 13.0% 12.6% 11.9% 11.7% 11.5% 5.0% 0.0% dez-07 dez-08 dez-09 dez-10 dez-11 dez-12 dez-13 jun-14 dez-14 dez-15 Corporate Debt Securities Directed Credit (Others) Directed Credit (BNDES) Intercompany loans Debentures with financial institutions Bank Credit External Debt Source: CEMEC
Turkey External Debt to GDP (via debtor) 30% 25% 20% 15% 10% 5% 0% Public Financial Institutions Non-Financial Institutions Source: Central Bank of Turkey
Turkey Long terms Outstanding Loans of NFCs, 2002-20152Q, US$ Million 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Q1 2015Q2 Official Creditors Nonresident Commercial Banks Foreign Branches and Affiliates of Resident Banks Nonbank Financial Corporations Nonfinancial Holders of Bond Issues Abroad Source: Central Bank of Turkey
Brazil and Turkey International Bond Issuance, US$ Million 180000 Debt Securities, Brazil, Non-Financial Corporations Nationality vs Residence 160000 140000 120000 100000 80000 60000 40000 20000 0 01/03/1990 01/10/1990 01/05/1991 01/12/1991 01/07/1992 01/02/1993 01/09/1993 01/04/1994 01/11/1994 01/06/1995 01/01/1996 01/08/1996 01/03/1997 01/10/1997 01/05/1998 01/12/1998 01/07/1999 01/02/2000 01/09/2000 01/04/2001 01/11/2001 01/06/2002 01/01/2003 01/08/2003 01/03/2004 01/10/2004 01/05/2005 01/12/2005 01/07/2006 01/02/2007 01/09/2007 01/04/2008 01/11/2008 01/06/2009 01/01/2010 01/08/2010 01/03/2011 01/10/2011 01/05/2012 01/12/2012 01/07/2013 01/02/2014 01/09/2014 01/04/2015 01/11/2015 International Debt Securities - By Residence (Brazil) International Debt Securities - by Nationality (Brazil) International Debt Securities - By Residence (Turkey) International Debt Securities - By Nationality (Turkey) Source: Bank for International Settlements
Internationalisation and Subordinated Financialisation Financial liberalisation and integration > availability of financial instruments Higher exchange rate and capital volatility (macroeconomic uncertainty) > hedge vs. speculation; funding ability (short-term) More vulnerable to changes in the world economy > Changes in Asset Management Financialisation and the Internationalisation of Production Surge in outward investment ECE TNCs global players (global leaders) Integration into global value chains Interviews (Brazil) August 2012 and 2014 Vale, JBS, Petrobras, Gerdau, M.Dias. Branco, BRF
Brazil and Turkey FDI Stocks, Outward, 1980-2014, US$ Millions 350000 300000 250000 200000 150000 100000 50000 0 Brazil Turkey Source: UNCTAD
The Internationalisation of Production and Subordinated Financialisation Internationalisation to become global players which allow stock price increase and ability to leverage (Hiratuka and Sarti, 2011) and vice versa (Palpacuer, 2005) Domestic consolidation and centralisation of capital Internationalisation to gain access to cheaper/flexible funds Natural hedge Financial practices crucial factor for international competitiveness Cost of funding (offshore centres; interest rates) Cash for Mergers & Acquisitions Long-term confidence with major institutional investors to acquire large funds
The Internationalisation of Production and Subordinated Financialisation Foreign currency (US$) Exchange rate risk Hedge (financial assets; derivatives)> Speculation Natural hedge? On international markets Under international law Products managed by core country banks Higher share of foreign investors Dependence on international market conditions More demanding? Carry trade and exchange rate volatility Equity vs. Bond Issuance
Next steps Continue with interviews and analyse annual reports of case study companies Variegated financialisation Nature of productive integration Brazil vs. Turkey Sectoral > Structure of Economy
