This presentation by OECD's financial markets expert Adrian Blundell-Wignall shows the highlights from the 2016 edition of the OECD Business and Finance Outlook. http://www.oecd.org/daf/oecd-business-and-finance-outlook-2016-9789264257573-en.htm

1. OECD BUSINESS AND
FINANCE OUTLOOK
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

2. Doing business in a 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.

3. Excess capacity: ROE vs Cost of Capital and vs
Cost of Equity in advanced and emerging economies

4. Global capital expenditure by sector, 2002-2015

5. The evolution of selected financial prices (the grey
line is the return based on 100 years of data)

6. Corporate bond issuance and declining quality, 2000-2015

7. Capital expenditure and corporate finance: Advanced
economies could expand CAPEX by 60% by reducing
dividends and buybacks

8. Company productivity levels and growth
rates, pre-crisis versus post-crisis

9. Debt-to-capital ratios and free cash flow per employee in
advanced economy companies, pre-crisis versus post-crisis

10. Characteristics of companies that 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

11. Fiscal incentives for R&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.

12. An illustration of the distribution of trading among venues and
between lit and dark volume in France, Germany and the UK
December 2015 - March 2016

13. Change in equity mix in wind energy projects
in Europe, 2010 and 2015

14. Difference in life expectancy at age 65 by level of
education relative to the population average

15. 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.

16. Investment treaties: Companies,
shareholders and 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.

17. Thank you
Find the OECD Business
and Finance Outlook online
www.oecd.org/finance/
oecd-business-finance-outlook.htm