Global South’s Rising Economies Gain Investor Spotlight

By David South, Development Challenges, South-South Solutions

SOUTH-SOUTH CASE STUDY

A new book is arguing that the world’s attention should switch away from BRICS countries – Brazil, Russia, India, China and South Africa – and take another look at nations and regions elsewhere across the global South. It argues many are lodestones of future growth and prosperity in the making and will see dramatic changes over the next decade.

The story of the BRIC and BRICS countries is an impressive one. In just eight years from 2000 to 2008, the BRIC countries’ combined share of total world economic output rose from 16 to 22 per cent. This led to a 30 per cent increase in global output during the period, showing how key these countries were to global prosperity in the 2000s. BRIC countries make up nearly half the world’s population and are regional leaders. Taken together, their gross domestic products (GDPs) are not far behind the United States.

Ruchir Sharma’s Breakout Nations: In Pursuit of the Next Economic Miracles (http://www.amazon.com/Breakout-Nations-Pursuit-Economic-Miracles/dp/0393080269) argues that the BRICS are now entering a more stable growth path and thus will not see the rapid-fire expansion and quick profits investors have become used to in the past decade.

“The BRICs,” Sharma told Forbes magazine, “were last decade’s team.”

The BRIC acronym (http://en.wikipedia.org/wiki/BRIC) was coined in 2001 by Goldman Sachs managing director Jim O’Neill, in a 2001 paper titled “Building Better Global Economic BRICs” (http://www.goldmansachs.com/ourthinking/brics/building-better.html). O’Neill predicted that this handful of countries would dominate the growth and economic development story for the years 2000 to 2010. This was because they all shared a similar stage of advanced economic development.

The BRIC states first began meeting together in 2006. South Africa was added in 2010 to form the BRICS acronym.

The buzz surrounding the BRICS countries over the past decade has been justified by their impressive growth rates, declining poverty levels,modernizing economies and societies and growing middle class populations.

China alone had seen its gross domestic product grow by US $5 trillion between 2001 and 2011.

Now, Sharma argues, it is someone else’s turn.

Sharma is head of emerging markets with Morgan Stanley Investment Management in New York, and Breakout Nations looks at where the next economic surprise stories will take place.

“A breakout nation is a nation that will grow above expectations, and will grow more than nations with similar per capita income,” Sharma told Forbes. “You can’t bunch all of the emerging markets together anymore. The last decade saw these countries behaving the same economically, but I think that is behind us now. Investors today will really have to pick their spots.”

He points out that Indonesia was the best performing emerging market in 2011 and has an economy that will surpass a trillion dollars in the coming years.

He also believes Sri Lanka and Nigeria are economies to watch.

Sharma says funds flowing into emerging market stocks grew by 478 per cent from 2005 to 2010, a massive jump compared to 2000 to 2005, when they grew by 92 per cent.

As he sees it, China has now reached middle-income status and its growth rates will not be as high as they have been for the past two decades. In his research, he found that countries like Japan, South Korea and Taiwan all slowed down once their per capita income went past US $5,000.

Investors who watch the emerging markets predict the hot growth areas for the next decade will be around energy, technology, and agricultural resources.

Sharma picks out Indonesia, Turkey, the Philippines, Poland and the Czech Republic for future investment interest, but urges caution with thinking all emerging economies are on course to boom.

“You’ve got to pick your spots, rather than just assume that because you put a tag of emerging on a particular nation, it’s going to boom,” Sharma told The Globe and Mail newspaper.

To make sense of the complexity of fast-emerging economies, a flurry of new investor acronyms has popped up. One of the country clusters is called the CIVETS: Colombia, Indonesia, Vietnam, Egypt, Turkey, South Africa (http://en.wikipedia.org/wiki/CIVETS).

The MINTS (Mexico, Indonesia, Nigeria and Turkey) are also set for great growth in the next decade, many investors believe.

Then there is the N-11 or Next 11. This is the MINTS plus Bangladesh, Egypt,Iran, Pakistan, the Philippines, South Korea and Vietnam.

And after that there is VISTA (Vietnam, Indonesia, South Africa, Turkey and Argentina). While clearly the creative juices are flowing at investment houses as they come up with ever-catchier acronyms, a more serious point is being made: many countries in the global South, for the first time in history, are no longer solely dependent on the Western economic system for demand.

These countries, investors note, now have an unprecedented range of options uncoupled from the political, financial and economic legacy of Western developed nations. They say that many nations in the global South are set for a runaway investment boom because they are making changes and modernizing their economies faster than many expect.

As the BRICS economies mature and slow down and take on different priorities based around improving the quality of life of their citizens, those seeking faster profits will look elsewhere. This trend is even happening within the BRICS, as Chinese and Brazilian companies offshore work to Vietnam and Colombia.

There are many new centres of economic activity and rising prosperity across the emerging markets that often fail to gain wider attention. Few would probably know that the Northeast Asian nation of Mongolia – mired in the 1990s in the worst peacetime economic collapse in half a century (http://www.scribd.com/doc/20864541/Mongolia-Update-1998-Book) – is now the world’s fastest-growing economy (http://www.worldbank.org/en/news/2012/02/28/what-behind-mongoliaeconomic-boom) and one of the top places for mobile phone usage and penetration (http://www.businessmongolia.com/mongolia/2012/03/19/mongolia-ringing-the-changes/).

Then there is Myanmar (formerly Burma), where many are hoping recent moves toward democracy and improvements in diplomatic relations will lead to an economic boon for the region. Investors are also targeting Kazakhstan in Central Asia.

Reflecting these changing realities, Standard Bank, Africa’s largest bank, has been documenting the rising role played by the Chinese currency in international trade. A recent report forecast US $100 billion (R768 billion) in Sino-African trade would be settled in the Chinese currency, the renminbi, by 2015. This would be double the trade between China and Africa in 2010. It also found 70,000 Chinese companies are using the renminbi in international trade transactions.

Resources 

1) Beyondbrics blog: A blog by the Financial Times calling itself “The Ft’s emerging markets hub”. Website: http://blogs.ft.com/beyond-brics/

2) BRICS Summit: The Fourth BRICS Summit was hosted in New Delhi on 29 March 2012 under the overarching theme of “BRICS Partnership for Global Stability, Security and Prosperity.” The Summit has imparted further momentum to the BRICS process. Website: bricsindia.in

3) Market Oracle: A good source for updates on investor sentiment about the emerging market economies. Website: marketoracle.co.uk

4) Monocle magazine: “A briefing on global affairs, business, culture and design” often featuring trends in the emerging market countries. Website:

monocle.com

5) BRICS Information Centre, University of Toronto. Website: brics.utoronto.ca

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