The term “emerging markets” is conventionally used to describe nations in the world that are rapidly developing from a current less developed state. Depending on definition, this ranges from around 28 to 40 countries worldwide. When analyzed however, the term seems inappropriate.
The growth of “emerging” markets (in particular the BRIC nations) has been incredible. Over the past 25 years the world has grown at an average of 3.7%. In 2011, world GDP is expected to grow at 4.4% which is already above average. The BRIC economies however are poised to grow 7.9% on average after having already achieved similar rates so over the past couple of years. These economies are growing so strongly that 2009 is sometimes cited as the year in which emerging market consumption caught up with US consumption; it is the first time more cars were sold in China than in the USA. Apart from a new economic reality, this also carries a psychological impact for the car-loving nation of the USA.
A GDP per capita of $11,000 is often cited as the threshold for achieving developed status. Allan Conway, Head of Global Emerging Markets Equities of leading investment manager Schroders, mentions, “economies with a GDP per capita above about $11,000 are developed, between roughly $1,500 and $11,000 emerging“. Looking at the GDP per Capital of the BRIC nations reveals that only India is still truly in the midst of emerging status, lying at around $3,500 per capita. China is expected to cross the threshold in 5-7 years. Brazil and Russia already have.
Trade flows additionally highlight the changed world we live in from 10 years ago. 3 phases of trade in modern history can be identified, the first one being trade between developed markets, 48% of global trade for exampled occurred just between developed markets in 2008. The second phase is trade between developed and emerging markets which is still strongly increasing, China for example is forecasted to surpass France as Germany’s main exporting destination within two years. The third phase however is the most intriguing and its presence is becoming very apparent; trade amongst emerging markets. Examples include the Panama Railway in South America which is to be built by a Chinese firm (5% of world trade passes through the Panama Canal). Similarly, China is now the largest trading partner of Brazil, replacing the USA which held this position for the last 40 years.
Nevertheless, some issues remain that could hold these nations back if they are not dealt with properly. China’s one child policy will cause demographic pressure. Global imbalances (do the Chinese really believe in US repayment of debt?) persist and there is no mechanism to correct them. There is discussion about ‘overheating’ in several emerging markets, what growth level is sustainable (also from an environmental perspective)? Additionally, the BRIC members each have different interests, China and India being consumers of raw materials while Brazil and Russia are largely producers of such natural resources and this endowment powers their economies. Potential conflicts need to be avoided.
In conclusion, the rapid pace of development has catapulted these markets onto the world stage. They are no longer “emerging” but are a defining component of the world economy. Lets call them RDEs, Rapidly Developing Economies, and give their astounding achievements some recognition. Should they defy the challenges on the path ahead of them, they will join the exclusive “developed markets” club sooner than many are likely to predict today.
Nevertheless, some issues remain that could hold these nations back if they are not dealt with properly. China’s one child policy will cause demographic pressure. Global imbalances (do the Chinese really believe in US repayment of debt?) persist and there is no mechanism to correct them. There is discussion about ‘overheating’ in several emerging markets, what growth level is sustainable (also from an environmental perspective)? Additionally, the BRIC members each have different interests, China and India being consumers of raw materials while Brazil and Russia are largely producers of such natural resources and this endowment powers their economies. Potential conflicts need to be avoided.
In conclusion, the rapid pace of development has catapulted these markets onto the world stage. They are no longer “emerging” but are a defining component of the world economy. Lets call them RDEs, Rapidly Developing Economies, and give their astounding achievements some recognition. Should they defy the challenges on the path ahead of them, they will join the exclusive “developed markets” club sooner than many are likely to predict today.
