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September 24, 2014

Life Beyond the BRICs — why emergence is here to stay

by globallyminded.wordpress.com

As a world watcher, I try to stay on top of what’s happening within the so-called emerging markets.

Since the early 2000s, much has been focused on the so-called BRICs — Brazil, Russia, India, and China (and South Africa frequently added).  The term BRIC was first coined by British economist and former Goldman Sachs chairman Jim O’Neill in 2001.

But the winds of change — some would say storm clouds — are blowing against the BRICs these days.

So much so, many global analysts have begun to question whether the era of the BRICs is coming to an end.

Some go even further, suggesting we may be witnessing the beginning of the end of emergence for developing nations altogether, citing bearish economic cycles, uncertainty about the U.S. Federal Reserve and structural challenges dragging down continued growth — affecting prospects both here at home and abroad — and the general rising tide of strife and unrest in hotspots like Syria, Iraq, Israel-Palestine, Ukraine, the Ebola virus in Africa, and so on  — all weighing heavily against continued prosperity in emerging countries.

Here I’ll attempt to contrast these two conflicting themes: on the one hand, gloomy reports showing how BRIC dominance is on the wane; on the other hand, the strong and still growing case in favor of continued emergence throughout the developing world.

Indeed, the evidence supports that emergence will continue to be with us for decades to come, even if BRIC naysayers are right.

BRICs — slower growth, rising uncertainty, and lowered expectations 

Clouds do seem everywhere for the BRICs right now.

Consider how Brazil is now officially in recession, according to the latest reports.

Russia’s military incursions into Ukraine, now daily international headline news, have triggered more international sanctions by Western countries, causing ripples of uncertainty throughout global markets.

In India, the new Modi government, in power just a few short months, has promised bold economic reforms in response to a sharply slowing economy, but these have a long way to go before they manifest.

China, much like India, continues to see sharply slower economic growth, but the story points to much deeper and more profound changes in China in the future.

For China, the era of easy growth seems to be over.  Since 2007, we can compare GDP growth (based on purchasing power parity, or PPP, which is a broader, and some would argue more accurate, measure of prosperity for people in an economy, accounting for differences in currency exchange rates) when the rate in China peaked at a stunning 17.5 percent, to where it is today, at around 8.5 percent (PPP).  And for the near future, forecasts are for continued moderate rates of growth for China.

In China, manufacturing has been the driver of this record GDP growth so far.  But China nows seems to pin its hopes on more domestic growth spurred by its rising class of middle class consumers.  In this way, China’s future might more resemble the consumer economies — Europe, Japan and the United States.

Also, as freedoms continue to proliferate, China’s centralized authoritarian government will face growing pressure from rising middle class values and the expectation for greater economic and social freedoms.  Just how long can Chinese government officials continue to jail citizens who blog, for example, is anyone’s guess.

South Africa can’t add much positive news to this story either:  this summer, the World Bank downgraded South Africa’s GDP growth estimates from 2.7 to 2.0 percent, as labor strikes, higher interest rates, and rising inflation drag down the economy there.

Technology and Globalization — major drivers of future progress for the emerging world

Technological innovation is making the world smaller, increasing access for everyone, to anywhere.

For signs of major hope for continued emergence, consider the progress made since the UN Millennium Development Goals:  in just the past 14 years, global extreme poverty has been reduced by half.

Moreover, indicators point to a wide range of encouraging statistics in almost every emerging country:  Rising literacy (especially among women), increasing education standards, longer life expectancy, better access to health care and immunizations, particularly improved access for mothers and children.

Technology, and, for all its critics, globalization, have combined and are now bringing enormous potential for democratic, civil, and social improvements throughout to the emerging world.

Progress in emerging countries, traditionally thought of in terms of diluted measures like GDP and development aid, is undergoing a revolution.

Today, a brighter, more individualized version of progress is showing up in the form access to the Internet, the use of inexpensive smart phones to access all kinds of data, to help farmers get pricing for the goods before going to market.

We can now see how the use of social media to promote democracy, fight corruption, and build civil society, is having enormous impact on the lives of billions of people throughout the world.

Trends like these are only just getting started throughout the developing world, and this is a big reason why emergence will only continue to proliferate.

In many respects, access to appropriate, inexpensive technology is enabling emerging countries to leap frog over obstacles to development — like the lack of infrastructure — so many of which have been stubbornly immovable for decades.

For example, a rural villager in India or Africa can today access a doctor in any developed countries, by using the Internet with an inexpensive smart phone equipped with free (or nearly) free application software which sends the villager’s vital statistics to the doctor in the Netherlands, or the United States, or anywhere at the other end of the Internet connection.

Using inexpensive (or even free) smart phones and Internet technology, people in drought-stricken Africa can more easily locate fresh – “there’s an app for that” too!  The same technology can be easily customized to allow farmers to look up data on prices of their produce before going to market, saving them time and money.

Emerging Markets — here for the long term

Technological innovation, and its appropriate application for the developing world, is making emergence a global phenomenon.  This extends everywhere and is not restricted to the BRICs.

Thus, people all over the world may soon be living in an “emerging market,” the next BRIC.

Africa may be the most likely continent we’ll find the rise of the next BRICs.  Extraction of natural resources has played a big role in investment in many African emerging markets.   But technology and globalization will continue to drive many countries toward middle income status — countries as diverse as Cameroon, Ghana, Kenya, and Morocco.

In Asia, candidates for the BRICs of the future may be among today’s poorer countries like Myanmar and Cambodia, where political and social changes point to wider economic progress for more citizens in the future.

In LATAM, Panama, Colombia, Guatemala, and Argentina, all show tendencies favoring emergence and put them on the radar to watch.

It’s an exciting to be a world watcher.

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