What emerging realities do you see in light of the emerging economies? Which among these new economies do you feel would outpace the others? Quote examples and facts to support your argument.
The Emerging Realities
Resources no longer a curse: A search of the phrase “Resource Curse” on wikipedia generates the following outcome - The resource curse (also the paradox of plenty) refers to the paradox that countries with an abundance of natural resources, specifically point-source non-renewable resources like minerals and fuels, tend to have less economic growth and worse development outcomes than countries with fewer natural resources. But in the new world that we are witnessing these days, the resource curse seems healed. According to Michael Porter, it is the policies that a country or region follows for its resources that make it comepetitive, but for that to happen, the country must have the resources first. I believe that over the past century, learning lessons from the OPEC countries, now nations have become more intelligent in handling their resources.
Examples: In India, there is a major brawl when Posco comes to India seeking iron ore. Brazil has attained massive trade surpluses by exporting oil and sating internal energy demand by ethanol.
War for talent: Even a blind feel of the emerging economies would reveal that the reason for which the “emerging” phrase has got attached with them is their labour pool. With the world now slowly opening up to complete globalisation, the best talent has got more seekers. The emerging economies have been gunning on this fact to find favour among FDI and outsourcing.
Examples: IT industry in India. Cheap labour in China.
Free flow of capital: Despite the fact that even today, 80% of the world’s FDI flows from developed countries to developed countries, the heartening fact is tht share of FDI to emerging countries has increased manifold. This has given birth to an era of free capital.
Examples: ECBs in India. Huge FDI inflow in China & India.
Focus on technology & innovation: The emerging economies very well understand that in this new era of global competition, tehcnology and innovation are as important as capital and manpower. Focus on these factors worldover has increased. Also countries which are technologically advanced are reaping benefits now.
Examples: Indo-US nuclear deal. Russia’s defence arms exports. Rising Indo-brazilian trade (India being the technology rich country)
Framework for finding the best placed emerging economies
First of all, for doing the exercise, we shall be concentrating only on 4 emerging economies, namely Brazil, Russia, India and China (because of the size of their economies, and their growth rate). Ever since Goldman Sachs has published the BRIC report, these countries have witnessed phenomenal growth. It remains debatable as to whether Goldman Sachs wrote a report because the countries had potential, or the countries grew because of the report. But nevertheless, the fact remains, that investments in these countries has risen ever since, they have been the key contributors in the world’s growth figures.
As for the framework, we shall be doing the analysis using a mix of economic concepts (which talk about technology, capital, and labour as key determinants of growth), Porter’s Diamond Model (which talks about factor conditions, demand conditions, strategic bent, and supporting industries), and other geo-political factors. Then looking at the overall strengths coming emanating from the analysis, we shall choose the outperformer.
Brazil
Blessed with a huge land base, the country has huge oil reserves. The CIA website gives a figure of 11.72bn bbl as proven oil reserves, but the country may well have over 90bn bbl of oil reserves in the Atlantic. The country achieved great strength by implementing the ethanol energy program, and is now an oil exporter.
The country removed the traces of inflation and economic indolence transitioning from a military government to a democratic rule. It enjoys a population of nearly 200mn, which is a huge resource. The country is the largest exporter of wheat and soya and all the other BRIC countries depend heavily on Brazil for their food grains.
Brazil enjoys a trade surplus and the government debt has fallen to 42.2% of GDP. FDI touched a new high of $34.6bn in 2007 and has been growing at 84% year on year.
Brazil is also attempting to achieve technological excellence by trading with India. India is already Brazil’s largest customer of ethanol while Brazil is keen to exploit Indian expertise in pharmaceuticals and engineering.
Strengths: Trade surplus, energy independence, agrarian advancement, literate working population
Weaknesses: Income disparity, Lack of technological expertise
Figures: GDP – $1.3tn
GDP (2050, as per BRIC & beyond) - $11.36tn
Trade surplus - $ 40bn
Foreign Exchange reserves - $180bn (Dec 31, 2007)
Russia:
Russia’s $1.28tn economy sits on the world’s largest natural gas reserves, and the tag of world’s second largest oil exporter. In the 20th century, Russia was reduced to a speck of its former glory with the demise of communism and political and economic crisis, but the country has bounced back well, and now it is again a power to reckon with.
The country’s greatest strength remains its technological advancement. With growing economic competition, both China and India would bolster their defence arsenal, and for both Russia continues to be the largest supplier of arms. Russia ended 2007 with ninth straight year of growth, averaging 7% annually since financial crisis of 1998.
The country also enjoys a huge trade and current account surplus.
However, the biggest weakness of Russia is its falling population. Russia’s population growth rate is negative, it is expected to have a population of 109mn by 2050 as against 142mn now. Accordingly, as per the BRIC & beyond report, the Russia’s growth rate shall soon fall to around 4%, and further down to 1.5% by 2040.
Strengths: Technology, oil reserves
Weaknesses: Falling political clout, declining population
Figures: GDP – $1.28tn
GDP (2050, as per BRIC & beyond) - $8.56tn
Oil Reserves – 60bn bbl
Population growth rate – negative 0.5%
India:
India as of now is mix of traditional agriculture based economy and new technology based economy. The country has in the recent past been showing high growth rate buoyed by a huge skilled manpower, and significant policy changes, however the country still faces huge challenges in the form of poverty, illiteracy, and infrastructure handicap.
The biggest strength for the country is its young population. Also, the country enjoys the largest arable land in the world. With proper policies in place, there is huge scope for advancement on the agriculture front, because as of now the agricultural productivity of the country is quite dismal.
For the country, its energy dependence on other countries is the biggest threat and weakness. India imports around 80% of its oil demand. However, with new exploration policies being exploited in house and with huge natural gas finds in the KG basin, the country is moving on the right track.
Also, India’s diplomatic ties with US (which have also lead to the landmark nuclear deal) are a going to be a great help in the future.
The entrepreneurial and strategic nature of Indians is also evident from the rise India has seen since 1991 reforms.
Strengths: Young population, huge natural resource base (iron ore, coal, thorium etc.), arable land base, strategic ties, access to technology
Weaknesses: Illiterate population, income disparity
Opportunities: Increasing agricultural productivity
Threat: Huge government debt and fiscal deficit
Figures: GDP – $1.099tn
GDP (2050, as per BRIC & beyond) - $38tn
Oil Imports – 2mn bbl/day
Public Debt – 58% of GDP
Population growth rate – 1.6%
China:
China’s growth in the past 2 decades has been ‘black swan’ story. The country’s economy has transitioned to a market-oriented economy from a closed-bow economy. Measured on PPP basis, China’s GDP stands second only to the US economy.
Major growth drivers for China have been an efficient use of its cheap labour to produce exportable goods. China has also been a beneficiary of its huge population (which is the largest in the world) which is a huge market. It attracted around $75 bn as FDI last year itself.
The country has acquired great defence and financial muscle in the past two decades, and is hungry for more.
China enjoys good amount of natural resources, and is also blessed with good oil reserves. However the country faces the following major problems.
- Corruption in China is huge problem. According to estimates, illegal activities like bribery, theft, or misspending of public funds cost China a minimum of 3% of its GDP. Lack of transparency and corruption are major hurdles to its growth.
- World-wide environmental concerns have been rising. China due to its low cost factories produces great levels of pollution. If China attempts to reign the pollution, it makes its exports uncompetitive. In the wake of growing environmental concerns, China’s exports may suffer in the future, and China has a lot riding on it.
- Third major concern for China is its aging population. The one child policy of China may hit it in the long run where its labour will no longer remain cheap.
However China is taking steps to remove these weaknesses, by moving up the value chain of value added products. It is now more known for its technological products than toys. Most of the new electrical equipment for Indian power sector are being imported from China.
Strengths: Huge market, good quantity of natural resources (coal, oil etc.), cheap labour
Weaknesses: Aging population, huge reliance on exports, falling political clout
Figures: GDP – $3.25tn
GDP (2050, as per BRIC & beyond) - $70tn
Exports – $1.22tn
Public Debt – 18% of GDP
Population growth rate – 0.6%
Looking at all the above discussion with focus on probabilities of happenings and the magnitude of their impact on the economic scene of the emerging economies, China seems to be the emerging economy that will outpace the others in the next 50 years.
The Emerging Realities
Resources no longer a curse: A search of the phrase “Resource Curse” on wikipedia generates the following outcome - The resource curse (also the paradox of plenty) refers to the paradox that countries with an abundance of natural resources, specifically point-source non-renewable resources like minerals and fuels, tend to have less economic growth and worse development outcomes than countries with fewer natural resources. But in the new world that we are witnessing these days, the resource curse seems healed. According to Michael Porter, it is the policies that a country or region follows for its resources that make it comepetitive, but for that to happen, the country must have the resources first. I believe that over the past century, learning lessons from the OPEC countries, now nations have become more intelligent in handling their resources.
Examples: In India, there is a major brawl when Posco comes to India seeking iron ore. Brazil has attained massive trade surpluses by exporting oil and sating internal energy demand by ethanol.
War for talent: Even a blind feel of the emerging economies would reveal that the reason for which the “emerging” phrase has got attached with them is their labour pool. With the world now slowly opening up to complete globalisation, the best talent has got more seekers. The emerging economies have been gunning on this fact to find favour among FDI and outsourcing.
Examples: IT industry in India. Cheap labour in China.
Free flow of capital: Despite the fact that even today, 80% of the world’s FDI flows from developed countries to developed countries, the heartening fact is tht share of FDI to emerging countries has increased manifold. This has given birth to an era of free capital.
Examples: ECBs in India. Huge FDI inflow in China & India.
Focus on technology & innovation: The emerging economies very well understand that in this new era of global competition, tehcnology and innovation are as important as capital and manpower. Focus on these factors worldover has increased. Also countries which are technologically advanced are reaping benefits now.
Examples: Indo-US nuclear deal. Russia’s defence arms exports. Rising Indo-brazilian trade (India being the technology rich country)
Framework for finding the best placed emerging economies
First of all, for doing the exercise, we shall be concentrating only on 4 emerging economies, namely Brazil, Russia, India and China (because of the size of their economies, and their growth rate). Ever since Goldman Sachs has published the BRIC report, these countries have witnessed phenomenal growth. It remains debatable as to whether Goldman Sachs wrote a report because the countries had potential, or the countries grew because of the report. But nevertheless, the fact remains, that investments in these countries has risen ever since, they have been the key contributors in the world’s growth figures.
As for the framework, we shall be doing the analysis using a mix of economic concepts (which talk about technology, capital, and labour as key determinants of growth), Porter’s Diamond Model (which talks about factor conditions, demand conditions, strategic bent, and supporting industries), and other geo-political factors. Then looking at the overall strengths coming emanating from the analysis, we shall choose the outperformer.
Brazil
Blessed with a huge land base, the country has huge oil reserves. The CIA website gives a figure of 11.72bn bbl as proven oil reserves, but the country may well have over 90bn bbl of oil reserves in the Atlantic. The country achieved great strength by implementing the ethanol energy program, and is now an oil exporter.
The country removed the traces of inflation and economic indolence transitioning from a military government to a democratic rule. It enjoys a population of nearly 200mn, which is a huge resource. The country is the largest exporter of wheat and soya and all the other BRIC countries depend heavily on Brazil for their food grains.
Brazil enjoys a trade surplus and the government debt has fallen to 42.2% of GDP. FDI touched a new high of $34.6bn in 2007 and has been growing at 84% year on year.
Brazil is also attempting to achieve technological excellence by trading with India. India is already Brazil’s largest customer of ethanol while Brazil is keen to exploit Indian expertise in pharmaceuticals and engineering.
Strengths: Trade surplus, energy independence, agrarian advancement, literate working population
Weaknesses: Income disparity, Lack of technological expertise
Figures: GDP – $1.3tn
GDP (2050, as per BRIC & beyond) - $11.36tn
Trade surplus - $ 40bn
Foreign Exchange reserves - $180bn (Dec 31, 2007)
Russia:
Russia’s $1.28tn economy sits on the world’s largest natural gas reserves, and the tag of world’s second largest oil exporter. In the 20th century, Russia was reduced to a speck of its former glory with the demise of communism and political and economic crisis, but the country has bounced back well, and now it is again a power to reckon with.
The country’s greatest strength remains its technological advancement. With growing economic competition, both China and India would bolster their defence arsenal, and for both Russia continues to be the largest supplier of arms. Russia ended 2007 with ninth straight year of growth, averaging 7% annually since financial crisis of 1998.
The country also enjoys a huge trade and current account surplus.
However, the biggest weakness of Russia is its falling population. Russia’s population growth rate is negative, it is expected to have a population of 109mn by 2050 as against 142mn now. Accordingly, as per the BRIC & beyond report, the Russia’s growth rate shall soon fall to around 4%, and further down to 1.5% by 2040.
Strengths: Technology, oil reserves
Weaknesses: Falling political clout, declining population
Figures: GDP – $1.28tn
GDP (2050, as per BRIC & beyond) - $8.56tn
Oil Reserves – 60bn bbl
Population growth rate – negative 0.5%
India:
India as of now is mix of traditional agriculture based economy and new technology based economy. The country has in the recent past been showing high growth rate buoyed by a huge skilled manpower, and significant policy changes, however the country still faces huge challenges in the form of poverty, illiteracy, and infrastructure handicap.
The biggest strength for the country is its young population. Also, the country enjoys the largest arable land in the world. With proper policies in place, there is huge scope for advancement on the agriculture front, because as of now the agricultural productivity of the country is quite dismal.
For the country, its energy dependence on other countries is the biggest threat and weakness. India imports around 80% of its oil demand. However, with new exploration policies being exploited in house and with huge natural gas finds in the KG basin, the country is moving on the right track.
Also, India’s diplomatic ties with US (which have also lead to the landmark nuclear deal) are a going to be a great help in the future.
The entrepreneurial and strategic nature of Indians is also evident from the rise India has seen since 1991 reforms.
Strengths: Young population, huge natural resource base (iron ore, coal, thorium etc.), arable land base, strategic ties, access to technology
Weaknesses: Illiterate population, income disparity
Opportunities: Increasing agricultural productivity
Threat: Huge government debt and fiscal deficit
Figures: GDP – $1.099tn
GDP (2050, as per BRIC & beyond) - $38tn
Oil Imports – 2mn bbl/day
Public Debt – 58% of GDP
Population growth rate – 1.6%
China:
China’s growth in the past 2 decades has been ‘black swan’ story. The country’s economy has transitioned to a market-oriented economy from a closed-bow economy. Measured on PPP basis, China’s GDP stands second only to the US economy.
Major growth drivers for China have been an efficient use of its cheap labour to produce exportable goods. China has also been a beneficiary of its huge population (which is the largest in the world) which is a huge market. It attracted around $75 bn as FDI last year itself.
The country has acquired great defence and financial muscle in the past two decades, and is hungry for more.
China enjoys good amount of natural resources, and is also blessed with good oil reserves. However the country faces the following major problems.
- Corruption in China is huge problem. According to estimates, illegal activities like bribery, theft, or misspending of public funds cost China a minimum of 3% of its GDP. Lack of transparency and corruption are major hurdles to its growth.
- World-wide environmental concerns have been rising. China due to its low cost factories produces great levels of pollution. If China attempts to reign the pollution, it makes its exports uncompetitive. In the wake of growing environmental concerns, China’s exports may suffer in the future, and China has a lot riding on it.
- Third major concern for China is its aging population. The one child policy of China may hit it in the long run where its labour will no longer remain cheap.
However China is taking steps to remove these weaknesses, by moving up the value chain of value added products. It is now more known for its technological products than toys. Most of the new electrical equipment for Indian power sector are being imported from China.
Strengths: Huge market, good quantity of natural resources (coal, oil etc.), cheap labour
Weaknesses: Aging population, huge reliance on exports, falling political clout
Figures: GDP – $3.25tn
GDP (2050, as per BRIC & beyond) - $70tn
Exports – $1.22tn
Public Debt – 18% of GDP
Population growth rate – 0.6%
Looking at all the above discussion with focus on probabilities of happenings and the magnitude of their impact on the economic scene of the emerging economies, China seems to be the emerging economy that will outpace the others in the next 50 years.
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