Structural reforms for investment and growth

1
Structural reforms for investment and growth

• The view of the business sector
• Dr. Stephan Mumenthaler, Head Economic Affairs
• Mexico City, June 14th, 2007

2
Latin America has made a lot of progress since
the crisis of the 80ies, especially in macro
stabilization
Example Countries with a history of
hyperinflation
Annual inflation rate, percent
Source Global Insight (2007) / Novartis
International
3
Mexico has made important progress, reaching
macroeconomic stability and attracting foreign
capital
Central government budget balance, of GDP
Annual inflation rate, percent
Treasury Bill rate, percent per annum
FDI imports into Mexico in billion USD
Source World Market Monitor (2007) / Novartis
International
4
Latin American economies grew slower than
emerging economies in South East Asia and Central
Europe.
Annual real per capita GDP growth, 2000-2006
Source Global Insight (2007) / Novartis
International
5
and attracted less Foreign Direct Investments
than emerging economies in Asia and Central Europe
Foreign Direct Investment inflow 2002-2006
(billion USD)
Source United Nations Conference on Trade and
Development (2007), Global Insight (2007) /
Novartis International
6
Novartis is represented with marketing,
manufacturing and research facilities all over
Latin America
Marketing Marketing and Production Marketing,
Production, Research Development
Source Novartis International (2007)
7
Novartis commitment to health and growth in
Latin America

• Novartis is present in poor and prosperous
  regions of the continent providing innovative and
  cost effective cures to patients (branded and
  generic pharmaceuticals and vaccines)
• Novartis invests in clinical trials and a high
  level of care in Latin America, involving
  thousands of patients
• Novartis respects standards which are above legal
  requirements in terms of
• Employee treatment
• Environmental protection
• Novartis provides quality employment to over
  8000 Latin Americans paying salaries that are
  7-15 times above minimum wage
• Novartis is concerned by health problems and
  committed to be part of the solution
• Through patient access assistance programs
• By offering a broad portfolio of cost effective
  innovative and generic pharmaceuticals
• By investing in research for rare and tropical
  diseases
• By conducting clinical research in LATAM, thereby
  allowing patients access to new cures before
  product registration

8
Novartis achieved considerable increase in sales
in Latin America, leading to the creation of new
jobs
Number of Full Time Employees in Latin America
Pharmaceutical sales1 of Novartis in Latin
America
55.5
11.5
1 Pharma, OTC, Sandoz Source Novartis (2007),
IMS Padds (2007)
9
Insufficient protection of IP, political
uncertainty and lacking research clusters are
major hurdles for Pharma to invest in LATAM

• Insufficient protection of intellectual property
  rights
• Patents face many challenges from backlogs in
  applications to enforceability
• Inadequate linkage between IP and pharmaceutical
  regulators - registration agencies frequently
  approve products that infringe patents
• Threat of compulsory licensing, beyond the
  framework set by the WTO/TRIPS agreements
• Counterfeiting and illegal cross border trade
• Political uncertainty due to the emergence of
  governments with populist trends in some
  countries
• Fear of greater government interventionism,
  tighter price control and restricted access to a
  growing public sector
• Lack of research clusters is an important
  investment hurdle as pharmaceutical innovation is
  increasingly the result of co-operation between
  academia, small biotech and big Pharma

10
What are the factors impeding innovation and
growth in Latin America?

• Trade barriers (i.e. tariffs and quota)
• Government inefficiencies
• High and inadequate taxation
• Extensive and costly procedures for opening a
  business
• Political uncertainty, e.g. risk of compulsory
  expropriation
• Low efficiency of the financial sector
• Difficult access to loans, equity and venture
  capital
• Insufficient soundness of banks
• Insufficient protection of property rights
• Corruption and wasteful spending of governments
• Quality of education, research and availability
  of skilled personnel

11
High costs for starting a business is one hurdle
to investment, growth and prosperity in Latin
America
Costs of starting a business ( GNI per capita)
Source World Bank (2007) / Novartis
International
12
Suggestions for structural reforms for investment
and growth in Latin America

• Fiscal Reforms
• Establishing a broader and more equitable tax
  base to provide a more sustainable and efficient
  source of income
• Opening to the competitive forces that drive
  innovation and change by removing trade barriers
• Strong economic growth and prosperity of Chile is
  among others the merit of unilateral tariff
  reductions
• Mexico has benefited enormously from joining
  NAFTA in terms of investment and trade
• Creation of a business climate that encourages
  investment, innovation and job creation
• Improvement of governance, infrastructure and
  reduction of regulatory barriers
• Tackling of public and private monopolies
• Improved protection of intellectual property
• Labor Market Reforms
• Removal of labor market restrictions in order to
  allow jobs to move flexibly from less towards
  more productive sectors