Bernardo M. Villegas
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Rebalancing Strategy
published: Mar 31, 2017



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Emerging Markets

           As the traditional engines of growth such as the U.S., Japan, and Europe sort out their humongous debt problems, they will take a back seat to the so-called "emerging markets" in the attainment of economic growth and in attracting investments over the next decade or so.   Leading these emerging markets (a phrase coined by Jim O'Neil of Goldman Sachs more than a decade ago) are the BRIC countries, Brazil, Russia, India and China.  Two years ago, the BRIC leaders decided to include in their exclusive club South Africa, the most developed country in the African continent.  Thus, now the acronym has expanded to BRICS.

          Lest we forget, Jim O'Neil added eleven other countries to his original four.  These are collectively referred to as "The Next Eleven."  They are in alphabetical order, Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, South Korea, Turkey and Vietnam.  In population (2011 figures), these eleven range from the lowest of South Korea's 50 million to Indonesia's 250 million. In GDP, the range is from the lowest of Vietnam of $122 billion to the highest of Mexico of $1.18 trillion.  The only other member of the "Trillion Dollars Club" among these eleven is South Korea with $1.16 trillion.  In fact, South Korea is the only country that is considered still an emerging market while already a highly advanced country with annual per capita income of more than $20,000. This fact makes South Korea a especially important country with whom the Philippines should cultivate closer relations in all aspects, i.e., economically, politically, culturally, socially, and spiritually.

          It must be stressed that not all countries whose incomes will grow rapidly in the next twenty to thirty years deserve to be called emerging markets.  The phrase must be limited to those countries that have sufficiently large domestic markets (population of at least 50 million) and abundant natural resources.  In the third quarter of the last century, there were at least four countries that managed to grow at rates of 10% or more in GDP for several decades.   These were the so-called "tiger economies" of Singapore, Taiwan, Hong Kong and South Korea.  They were said to have wrought economic miracles by practically eradicating mass poverty over just a generation or two decades.  Economists were competing with one another in singing high praises to them and holding them up as models for other developing countries then to emulate.  But they were never referred to as "emerging markets."  The most common labels given to them were  “Newly Industrializing Countries" or NICs or "Newly Industrializing Economies" or NIEs.  They could not possibly be referred to as "emerging markets" because they had very tiny populations and were handicapped with poor natural resources.  Their only real resource was the demographic dividend--abundant manpower-- which resulted from the baby boom after the Second World War,

          The NICs had enlightened leaders who knew how to capitalize on their demographic dividend, which is the stage in the demographic cycle in which the labor force is growing faster than the economically dependent population.  They did this by focusing first on export-oriented, labor-intensive industries to compensate for their very small domestic markets and their initial lack of capital.  They reached very high levels of per capita income in no time at all, but they had very little impact on the economies of the rest of the world.  They were not Emerging and Growth-Leading Economies (EAGLES).  In this century, there will be countries that will follow the footsteps of these NICs.  In a list crafted by the Hong Kong Shanghai Bank (HSBC), the fast-growth economies in the next thirty years or so include Malaysia, Peru, Algeria, Ukraine, Uzbekistan, Tanzania, Kazakhstan, Ecuador, Sri Lanka, etc.  Although they will grow fast (at 5% or more in the next three decades), they cannot be considered emerging markets because of their small populations  They don't have large domestic markets that minimize the negative impact on their respective economies of global economic crises, like what we are still experiencing today.

          In the same list of fast-growing economies in the HSBC list are some of the fourteen emerging markets in the original Goldman Sachs study: China, India, the Philippines, Egypt, Bangladesh, and Vietnam.  In the moderate growth (3 to 5%) are Brazil, Mexico, Turkey, Indonesia, Saudi Arabia, Iran, and Nigeria.  South Korea was no longer considered by the HSBC economists as an emerging market by 2050.  It will be among the very advanced economies with per capita incomes of $30,000 or more a year, joining the league of the U.S., Japan, Germany, the United Kingdom, France, and Canada.  The emerging markets will be growth-leading because they will experience the most rapid expansion in their middle classes who will account for the fastest rise in demand for the consumer goods and services that can be imported from the rest of the world.  Many of them like the VIP (Vietnam, Indonesia, and the Philippines) will be large suppliers of raw materials for the rest of the world.  The Chinese leaders are among the first to perceive this reality.  They are the most eager to partner with the ASEAN through the ASEAN + China Free Trade Area.

          The emerging market par excellence is what has been termed "Chindonesia" in a study of CLSA Asia-Pacific Market.  Authored by Anrudha Dutta and Srinivas Radhakrishnan, the paper focuses on the rise of the Asian middle class that will be especially pronounced in the three countries of China, India and Indonesia.  Quoting from their study, "The Asian middle class will continue to be the biggest investment story out of the region over the next decade as J-curve hypergrowth patterns spread across various consumer sectors.  We project that by 2015, a billion people in Asia ex-Japan will join the middle-income category by earning an average per-capita disposable income of US $3,000 annually.  Asian Development Bank (ADB) has a more liberal definition of the middle class--those who spend US$ 2 to 20 daily--and estimates that the group comprised 1.2 billion people in Chindonesia in 2010.  If we take away the lower US$ 2 to 4 segment, then the number comes to 450 million."  Here, we have another way of defining an emerging market:  a country that has a large and rapidly expanding middle class.  The good news is that in every one of these listings, the Philippines is included among the most promising emerging markets.  We just have to convince ourselves that we "can do it."  For comments, my email address is bernardo.villegas@uap.asia.