December 5th, 2012
Courtesy of Maplecroft, a report on 30 growth markets with the most promising prospects over the next two decades:
Maplecroft’s new Growth Markets Index (GMI), which evaluates the economic performance, stability and potential of 175 countries, has identified 30 markets that have the best growth prospects for business over the next two decades.
Exceptional GDP growth performance and the size of current and future markets in China (ranked 1st) and India (2nd) mean they significantly outscore all other countries, including fellow BRICs, Brazil 6th and Russia 11th. However, the inclusion of developing countries, such as Tanzania (12th), Peru (15th), Uzbekistan (20th), Ethiopia (21st), Iraq (22nd), Ghana (24th), Morocco (28th) and Uganda (30th) in the Maplecroft 30 provide investors with an interesting array of economies to consider that could see significant gains over the medium-to-long-term.
The Growth Markets Index provides an evaluation of economic performance, investment conduciveness, recent structural reforms and projected future demographic trends, including growth of middle class consumers. Maplecroft divides its scoring across the three categories of Growth Performance, Growth Environment Conduciveness and Growth Potential. Each country is assessed according to a selection of key indicators to evaluate whether its economy is likely to outperform in the future. The conduciveness element makes this index unique.
Maplecroft’s Growth Markets 2013
Rank Country 1 China 2 India 3 Indonesia 4 Viet Nam 5 Bangladesh 6 Brazil 7 Philippines 8 Nigeria 9 South Korea 10 Malaysia
Rank Country 11 Russia 12 Tanzania 13 Singapore 14 Hong Kong (China) 15 Peru 16 Egypt 17 Thailand 18 Colombia 19 Turkey 20 Uzbekistan The leaders
According to the results, East and South-East Asia, with six out of the top ten countries in the Maplecroft 30, are likely to remain the regions with the best performing economies out of the conventional emerging markets classifications that exist. This is largely due to their openness to trade and capital flows, macroeconomic stability and favourable demographic outlooks. However, Latin America could be the new region to watch with promising signs for catch-up growth, such as good measures of human capital and infrastructure readiness.
Brazil and Nigeria are the only non-Asian countries in the top ten of the Index, which consists of: China (1st), India (2nd), Indonesia (3rd), Vietnam (4th), Bangladesh (5th), Brazil (6th), the Philippines (7th), Nigeria (8th), South Korea (9th) and Malaysia (10th). The only BRIC nation not to feature in the top ten is Russia (11th), which faces long-term challenges to its economy, including a decreasing working-age population, poor legal and regulatory framework and a heavy reliance on commodity exports. It also needs to invest to update its aging infrastructure.
Looking towards the less established growth markets, Maplecroft states that the growth of middle class consumers over the coming decades could boost output in a number of countries – including in Nigeria and the Philippines. This may be enhanced by progress on the human capital front, which can improve the productivity potential and future attractiveness of the labour force. Likewise, the middle class is forecast to expand by 15- 20% a year, until 2020, in countries including India, Bangladesh and Viet Nam.
Reform key to improvement
Maplecroft highlights concerns in a number of the Growth Markets, which suffer from poor legal and regulatory environments, widespread corruption and a failure to respect the rule of law. These factors act as a major hindrance to the business environment and Maplecroft views political reform in these areas as crucial if countries are to reach their full economic potential.
Nigeria, Russia, Uzbekistan, Ethiopia, Ghana, Morocco and Uganda all have room for improvement in the Maplecroft Index. They are countries that could see their ranking improve if reforms to address political risk and legal and regulatory factors are implemented as an imperative. Improvements will be monitored in future bi-annual indices.
Movers and shakers
Maplecroft singles out Iraq (22nd) and Myanmar (63rd) as having a high potential if reforms are fully implemented. Even though the reform process in both countries is still in its infancy they have made considerable steps and are identified as ‘ones to watch.’ However, Iraq’s commodity dependence and political instability pose substantial challenges to its economy, while Myanmar suffers from poor infrastructure, and low levels of health and education. Nonetheless, both countries have significant scope to change their fortunes in the future, as both are starting from a low base and have favourable demographic profiles.
A number of countries falling outside the Maplecroft 30 also show signs that could see them become top performers in the future, such as Pakistan (32nd), Kazakhstan (34th), Mozambique (41st), Mongolia (54th) and Algeria (62nd). Maplecroft, however, highlights the need for ongoing legal and regulatory reform in Pakistan and Algeria to improve their standing in the Index, while Kazakhstan and Mongolia, will need to diversify away from a dependence on commodity exports. Mozambique, on the other hand, could see medium-to long-term gains in growth should it instigate greater trade and capital flow openness.
Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.