Texas in the Global EconomyTexas in the Global EconomyPresented by Geoffrey S. Connor

Central Texas EntrepreneurFunding Symposium

April 18, 2008

Remarks OutlineRemarks Outline

The Global EconomyThe Global Economy– The Recession QuestionThe Recession Question– The Rise of Sovereign Wealth FundsThe Rise of Sovereign Wealth Funds– Foreign Direct InvestmentForeign Direct Investment

The Texas EconomyThe Texas Economy– General OverviewGeneral Overview– ExportsExports– Foreign InvestmentForeign Investment

Conclusions and Evaluations Conclusions and Evaluations

The Global Economy at a GlanceThe Global Economy at a Glance20072007

6.7 billion people6.7 billion people $66T Gross Planetary $66T Gross Planetary

Product (GPP).Product (GPP). $10,000 GPP per $10,000 GPP per

capita.capita. 5.2% growth rate5.2% growth rate $165T Tradable $165T Tradable

SecuritiesSecurities 3.0 billion person labor 3.0 billion person labor

force. force.

RECESSION?RECESSION?

No consensus about No consensus about recession.recession.

U.S. economy displaying U.S. economy displaying some symptoms. some symptoms.

Other economic woes Other economic woes (sub-prime mortgage (sub-prime mortgage collapse) collapse)

Net effectNet effect: recession or : recession or not, U.S. economy at one not, U.S. economy at one of its weakest points in the of its weakest points in the past decade. past decade.

RECESSION?RECESSION?

Of limited limited concern to concern to those seekingthose seeking VC/Angel funding.VC/Angel funding.

There is still money out There is still money out there!there! – Less favorable terms.Less favorable terms.

Business cycle vs. Business cycle vs. venture capital cycle.venture capital cycle.

Be Smart!Be Smart!

Sovereign Wealth FundsSovereign Wealth Funds

What, precisely, is a Sovereign Wealth Fund (SWF?):

“Investment fund that draws capital directly from the resources of a national government, (typically currency reserves)”

Sovereign Wealth FundsSovereign Wealth Funds

The HypeThe Hype Congress so concerned they’ve

held special hearings about SWF’s.

Major publications running cover stories on SWF’s.

Foreign SWF’s buying or investing billions in important U.S. assets.

Capitalization of SWFs expected to grow by 300% by 2015, to $12 trillion.

The Rest of the StoryThe Rest of the Story Are not new, around since the

1950s. Not only low transparency, low

accountability nations. Others:– Norway, Singapore, UK,

Australia, Canada, USA. Account for only 2% of world’s

traded securities. – Less than pension funds,

mutual funds, or insurance companies.

– More than hedge funds or private equity markets.

In 2015, $12 trillion represents 3% of traded securities.

Sovereign Wealth FundsSovereign Wealth Funds

So, Why the Scare?

Vast size of individual funds.– Often 10s or 100s of $ billions.

Low risk & low accountability for capital raised. – Violating “natural” boundaries

between public and private sector?

– Counterpoint: moral hazard, reduced incentive for good judgment.

National Sovereignty /

National Security issues.

Foreign Direct Investment (FDI) Important element of the global economy, growing more important. Important element of the global economy, growing more important. Players: corporations, equity funds, hedge funds, individual investors, venture Players: corporations, equity funds, hedge funds, individual investors, venture

capitalists, otherscapitalists, others Global Foreign Investment: $1.2 trillion (2007)Global Foreign Investment: $1.2 trillion (2007)

– Up 51% since 2005.Up 51% since 2005. Largest Source County: USA, Largest Source Region: EU Largest Source County: USA, Largest Source Region: EU Largest Destination Country: USA, Largest Destination Region: Pacific Rim.Largest Destination Country: USA, Largest Destination Region: Pacific Rim. Projected “cool down” in FDI growth until 2011/2012. Projected “cool down” in FDI growth until 2011/2012.

Foreign Direct Investment (FDI)

Effects of FDI in the U.SEffects of FDI in the U.S– $50 billion (2007)$50 billion (2007)– Created 107,000 jobs.Created 107,000 jobs.

Recent growth of FDI will Recent growth of FDI will intensify intensify competition among corporations competition among corporations and nations for this type of investment and funding.and nations for this type of investment and funding.

More than 1/3 of FDI now goes to the developing world.More than 1/3 of FDI now goes to the developing world. That proportion is likely to increase, perhaps dramatically. That proportion is likely to increase, perhaps dramatically.

The Texas EconomyThe Texas Economy

Population: 23.7 Population: 23.7 millionmillion

GSP: $1.2 trillionGSP: $1.2 trillion– Annual Growth: 3.2%Annual Growth: 3.2%

Exports: $168.2 billionExports: $168.2 billion Labor Force: 11.6 Labor Force: 11.6

millionmillion Unemployment: 4.2%Unemployment: 4.2%

Leading Exporting StatesLeading Exporting States($ billions, ’03-’07)($ billions, ’03-’07)

0

20

40

60

80

100

120

140

160

180

TX CA NY

2003

2004

2005

2006

2007

TEXAS EXPORTS BY SECTORTEXAS EXPORTS BY SECTOR20072007

Chemical Computer

Machinery Transport

Petro Electronic

Metal Other

Sector Value %

ChemicalChemical $ 35.0B$ 35.0B 20.820.8

ComputersComputers $ 33.7B$ 33.7B 20.020.0

MachineryMachinery $24.8B$24.8B 14.714.7

Trans EquipTrans Equip $16.3B$16.3B 9.79.7

PetrochemPetrochem $14.7B$14.7B 8.78.7

OtherOther $43.7B$43.7B 26.0 26.0

Texas Exports by DestinationTexas Exports by Destination20072007

RankRank NationNation ValueValue %%

#1 Mexico $56.0B 33.3

#2 Canada $16.8B 10.0

NAFTA $72.8B 43.3

#3 China $8.3B 4.9

#4 S. Korea $5.6B 3.3

#5 Netherlands $5.3B 3.2

#6 Taiwan $5.1B 3.0

#7 Singapore $4.5B 2.7

#8 Brazil $3.9B 2.3

#9 Japan $3.4B 2.0

#10 U.K. $3.3B 2.0

Other $56.0B 33.3

Largest Exporter ToLargest Exporter To

MexicoMexico RussiaRussia

NAFTANAFTA Eastern EuropeEastern Europe

NetherlandsNetherlands OPECOPEC

SingaporeSingapore AfricaAfrica

FDI in TexasFDI in Texas

Measured by Dollar ValueMeasured by Dollar Value Texas Ranked #1 Total FDI value: $10B Annual FDI: $100M Major Sources: UK, France,

Netherlands, Japan, Germany.

Measured by Job CreationMeasured by Job Creation Texas Ranked #3 (after CA,

NY) FDI jobs in Texas: 350,000 4.2% of private sector

employment.

Why so Strong?Why so Strong?

Many factors explain the Many factors explain the strength of Texas in the strength of Texas in the global economy:global economy:

Business ClimateBusiness ClimateVenture CapitalVenture CapitalState Funds (ETF, TEF)State Funds (ETF, TEF)InfrastructureInfrastructure

– PortsPorts

International TraditionInternational Tradition

In Conclusion:In Conclusion:

There There isis funding out there funding out there (trillions of dollars, to be exact).(trillions of dollars, to be exact).

We live in an era when global We live in an era when global and national economies face and national economies face numerous challenges:numerous challenges:– Possible RecessionPossible Recession– Adjusting to SWF’sAdjusting to SWF’s– OthersOthers

To be successful, entrepreneurs To be successful, entrepreneurs mustmust pay careful attention to pay careful attention to macroeconomic trends.macroeconomic trends.

Texas offers your enterprises an Texas offers your enterprises an advantage in competing globally.advantage in competing globally.

THANK YOUTHANK YOU