Global South’s Rising Economies Gain Investor Spotlight

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.

By David South, Development Challenges, South-South Solutions

Published: April 2012

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

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China Consumer Market: Asian Perspective Helps

The rise of China since 1989 has been the most remarkable development story of our times. The number of people lifted out of poverty is historically unprecedented: 65 percent of Chinese people lived below the poverty line in 1981; in 2007 it was 4 percent (World Bank).

Many commentators have focused on China’s astonishing work ethic, vast labour resources and ability to export great quantities of products. But while China has been busy meeting the needs of the world economy, domestic Chinese consumption has received less attention.

Yet, with the Chinese firmly established as keen savers and very ambitious to improve their living standards, a vast new opportunity has emerged: the Chinese consumer market. But it will be a tricky market to tap. Chinese consumers are notorious bargain hunters and prefer to save and invest rather than consume. Poor rural families earning less than US $200 per person a year still are able to save 18 percent of their income.

This makes a lot of sense: social supports have been stripped away as China’s economy embraced the market system. If you do not save and invest, then you will not have the resources to meet the costs of education and health care, for example. China has also seen a dramatic move to urban areas, with over 43 percent of the population now urban.

China, despite all the hype, is still a marketplace that is difficult to easily enter for Western brands and businesses. And this makes for an opportunity for local brands to raise their game.

In order to compete in the consumer market, businesses need to do more than compete on price: they need to also offer something more and that usually involves building a strong brand.

The Chinese urban consumer market could grow from around US $570 billion in 2005 to around US $4.7 trillion by 2025 (PWC) (http://www.pwc.co.uk). Fast growth will be seen in discretionary spending, things other than food, clothing and utilities.

While Chinese businesses have focused on export markets and meeting the needs of the global marketplace – a focus which has been very successful and led to remarkable wealth gains – the Chinese consumer has come lower down the list of priorities. 

 Growing the domestic consumer market offers a substantial wealth-creating opportunity. Since the global economic crisis erupted in 2008, it has become apparent that the old model of exporting vast quantities of products to Western consumers alone will not be enough to keep living standards rising. Western economies are highly indebted and will take many years to recover from the mistakes and debts from the boom years and the economic crisis. 

 This is an opportunity for South-South trade, which made up 20 percent of global exports by 2010. Foreign direct investment to developing economies rose by 10 percent in 2010 due to a rapid economic recovery and increasing South-South flows. 

 One company successfully targeting this market is the Singapore-based Banyan Tree Hotels and Resorts brand (www.banyantree.com), which bills itself as specializing in luxury sanctuaries to rejuvenate the body, mind and soul. It is notable for deliberately not competing on price but on its brand reputation and for tailoring its offering explicitly to Asian tastes. The company claims its resorts are “naturally-luxurious, ecologically sensitive, culture-aware experiences for the discerning, responsible traveller.” 

 The first Banyan Tree resort was built in Phuket, Thailand in 1987. It now employs 8,200 people from 50 nationalities in 26 resorts. Founder and executive chairman Ho Kwon Ping focused from the start on the business’s brand as critical to driving the growth of the company. 

 He told INSEAD Knowledge: “The difference between us and some others is that, for many other companies having a strong brand is a reward for being successful in many things that you do but it’s sort of coincidental. It comes afterward; it’s a reward for success in other areas. For us, we’ve always said from the very beginning – having a strong brand is imperative for our survival.” 

 Banyan Tree has also eschewed quick-growth models, instead trying to do as little environmental damage as possible and to include community development and environmental projects at each resort. 

 Its Banyan Tree Ringha resort in China’s Yunnan province tries to bring the atmosphere of the fictional earthly paradise of Shangri-La to China. Ringha Valley sits near the Temple of the Five Wisdom Buddhas, 3,600 meters above sea level. The resort has 15 one-bedroom suites, 11 two-bedroom lodges, and six spa suites, decorated in a Tibetan style. The area is home to the Naxi people who trace their origins to nearby Tibet (http://en.wikipedia.org/wiki/Naxi_people). 

 The accommodation is rustic and the resort is located in the middle of a village. Visitors can see farmers at work right from the resort. Overlooked by Tibetan mountains and settled in a lush, fertile valley the sight was picked for its tranquillity and isolation. The appeal of the area to tourists is clear: mountain peaks, deep canyons, rivers, valleys, streams and tranquil lakes. And in polluted urban China, it is an area free from pollution. 

 The resort is built from transplanted Tibetan farm houses and offers hikes, mountain lakes, hot springs, gorges, forests. There are Asian touches like a welcome at the resort of Tibetan horns, songs and a tea ceremony. 

 Tourism is transforming the area. Towns and villages have been renovated to showcase traditional architecture. 

 The hotel and resort chain gets its name from the tradition of ancient merchants gathering under the branches of the banyan tree to conduct business in the cool shade.

“The 21st century is really going to be the age of Asia – both India and China,” said Ho Kwon Ping. “The huge consumer markets are going to be Asian … Now there’s a real opportunity for people of Asian origin, who have an instinctive cultural feel for where their consumers are moving towards, to come out and create a brand which can be primarily rooted in their own Asian context, but have a global relevance.”

By David South, Development Challenges, South-South Solutions

Published: March 2011

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

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Book Boom Rides Growing Economies and Cities

Along with growing economies, the global South is seeing growing numbers of readers and a newly flourishing publishing industry. The creative economy – of which book publishing is part – is experiencing a jolt from a combination of expanding economies and urbanizing cities. Just as the first settled cities of ancient Mesopotamia (today’s Iraq) spawned literature and learning, so the rapidly urbanizing South is changing dynamics and creating the space and demand for books.

The creative economy is seen as the “interface between creativity, culture, economics and technology in a contemporary world dominated by images, sounds, texts and symbols” (UNCTAD). It has been shown to be an effective way for emerging economies to leapfrog into high-growth areas in the 21st century world economy.

Telling stories about local conditions and people’s rapidly changing lives is proving a commercial success formula. Fast-growing India is forecast to become the largest market for English language books within a decade. India’s economic boom, which saw 6.7 percent growth in 2009, and its expanding middle class are driving demand for books. India saw the number of literate people pass 66 percent by 2007.

“It is a forward-looking generation,” said Manish Singh, country manager for publisher Harlequin Mills and Boon, to The Guardian newspaper.

Estimates of India’s book reading market put the number of readers at just 5 million out of a population of over 1 billion people. But according to Anantha Padmanabhan, the director of sales in India for publisher Penguin, “that is set to increase dramatically.”

A survey by Tehelka (http://www.tehelka.com) found Indians are favouring stories about local conditions and set in the places where they live.

India’s most popular current writer is Chetan Bhagat, a former investment banker. He has sold more than 3 million books in the last five years. His latest, Two States, sold a million copies in four months.

Bhagat writes about the country’s aspiring middle class. His publisher, Rupa (http://www.rupapublications.com/Client/home.aspx), believes he appeals to a “pan-Indian, pan-age group.”

Bhagat puts his success down to the way the stories are written. “This is not like the mature English literature market,” he said. “It needs an English that is highly accessible, simple, and with stories that are still interesting and relevant.”

Book prices in India have stayed affordable for the middle classes. A book can cost from US $1.85 to US $2.65 for a paperback – still a high cost for the poor, however, who live on a dollar a day.

In Egypt, around 30 percent of the population is illiterate and book reading has been historically very low: it has been claimed an average literate Egyptian reads a quarter of a page of a novel per year. From this low base, a best seller only needs to sell a few thousand copies.

However, in Egypt small-scale independent publishers are starting to make an impact. Mohamed Hashem – founder of the Dar Merit publishing house (http://www.zoominfo.com/Search/ReferencesView.aspx?PersonID=1007104230) – has built from scratch in 12 years one of the country’s most critically acclaimed publishers: all from a tiny apartment in a rundown Cairo building.

“We can’t compete with the big firms in terms of profits,” he told The Guardian, “but the new wave of authors will always be sitting here. Yes, we have poverty and limited resources. But we also have the future.”

Launched to counter what Hashem felt was an unimaginative book market, his stable of authors have shaken up the Arabic fiction world. The global success of Alaa al-Aswany’s The Yacoubian Building (http://en.wikipedia.org/wiki/The_Yacoubian_Building) is proof Hashem’s gamble on edgy talent was correct: rejected by two government-run publishing houses, the book went on to be a hit in English and Arabic and has been made into a film.

Hashem is being credited with unleashing a wave of new talented authors that has pushed literature out from being the preserve of a select group.

One of its successful authors, Hamdi Abu Golayyel – winner of the country’s top literary prize, the Naquib Mahfouz medal – believes “Merit has changed the way pioneering literature emerges in Egypt.”

“Before, you had the innovative writers – there are normally no more than five or six in a generation – meeting together in mutual isolation, because popular opinion rejected them.”

Merit “had the drive and ambition to support and distribute new and younger authors properly. Today innovative writing is wanted by the people.”

Hashem’s secret in attracting talented writers has been more than just business savvy: he also gives them “the freedom to write in my own way,” according to writer Ahmed Alaidy.

The writers also have a credibility advantage: they are writing about their circumstances rather than just imagining what it would be like. Writer Hani Abdel Mourid comes from Cairo’s traditional garbage-collecting neighbourhood; another author, Mohamed Salah Al Azab, has written a book named after the folding seats on Egypt’s lively minibuses.

Demographic changes and Cairo’s relentless expansion are being cited as the catalyst for the new writing.

“The fact that the city has grown the way it has,” says Samia Mehrez, a literature professor in Cairo, “the fact that what we used to call the periphery is now the centre, that is very important.”

“The year we started, we published five titles and the number of people interested could be counted in the dozens,” he told The Guardian. “Now we have 600 titles under our belt, and thousands are interested. It’s my duty to try and expand that circle. We’re chipping away at a wall, and slowly we’re making progress.”

By David South, Development Challenges, South-South Solutions

Published: May 2010

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

Follow @SouthSouth1

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