Chapter 14 Emerging Global Players: The Countries

1. Chapter 14 Emerging Global Players: The Countries

2. EMERGING COUNTRIES IN A GLOBAL WORLD Philippe Lasserre 2

3. The world in 2010 3

4. What is an  emerging country? There is no clear definition of what an emerging country is, but this term often describes countries with: high economic growth a growing middle class a high degree of infrastructure investments a market which is opening up to international trade and investment 4

5. Different types of emerging countries Emerging giants: Brazil, Russia, India, China (BRICs) Transition economies: Eastern Europe Industrializing countries: Latin America, Asia, Africa (e.g. South Africa, Chile, Malaysia) The developing world (e.g. Vietnam, Nigeria, Pakistan) 5

6. Countries life cycle Average growth yearly rate (1990-2010) GDP/Capita (2010) Bubbles proportional to GDP 2010 6 Source: World Bank. World Development Indicators

7. High economic growth Poland, Czech Rep, Hungary Malaysia, Chile, South Africa Source: World Bank. World Development Indicators 7

8. High economic growth cont. 8 Source: World Bank. World Development Indicators

9. % + 20% + 66% Very poor Poor Middle class Rich Middle class effect in emerging countries Average 9

10. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 25000 0 40000 100000 150000 200000 250000 POORS LOWER MIDDLE CLASS UPPER MIDDLE CLASS MASS AFFLUENTS GLOBAL AFFLUENTS Evolution of urban household income in China 1995 2005 2015 2025 RMB USD ~12000 ~24000 ~ 3000 ~4500 10

11. Middle class in China: McKinsey Survey 2011

12. High degree of infrastructure investments 12

13. Opening up to international trade and investment 13 Source: World Bank. World Development Indicators and UNCTD World Investment Report , 2010)

14. Forecast in 2001/2003 for 2050 by Goldman Sachs BRICs: the path to 2050 14

15. The world in 2050 according to Goldman Sachs 15

16. The world in 2050 according to Goldman Sachs cont. 16

17. Growth of BRICs Growth drivers - Labour force input - Middle class - Export - Investments - Productivity Conditions for growth - Macro stability - Openness - Education - Institutions Disregarded - Inflation, cycles, wild cards 17

18. The emphasis on growth over development Easier to achieve and to measure Less subjective and controversial A safe heaven for technocrats The social impact of growth Widespread dislocation, winners and losers Rapid change and resistance to change Deterioration of direct environment Relative loss of position (income/status, etc.) The obsession with growth 18 APAC 02 / 18

19. China: the potential for continuing high growth • Pros • Examples from East Asia • Resources • Workforce input • Investments • Total factor productivity • Introduction of market efficiency • Technology flow/education • Foreign investment • Infrastructure improvements • Banking reforms • Government • Cons • Public debt • Lending to SOEs • Social welfare system • Unemployment • Rural/urban • SOEs/private • Manufacturing/services • Inequalities • Corruption • Energy shortages • Environmental degradation • Institutions

20. “Shining India” Growth drivers Labour force input - Excellent demographics - Unfortunate labour laws Investments - Low, but increasing saving rate/industrial investment - Good financial system; high foreign-exchange reserves Productivity - Large pool of scientists and engineers - Very poor physical infrastructure - Old and new technology 20 20 APAC 02 / 20

21. China The factory of the world Led by strong government High domestic savings High inflow of DFI Relatively good infrastructure but: Weak legal system Weak financial system Inefficient allocation of capital China and India India The ‘back office’ of the world For knowledge-intensive industries Excellent educational institutions World-class professionals Emerging MNCs but: Weak physical infrastructure Shortage of capital Weak government Electronics/sport shoes Cars Software/pharmaceuticals

22. Assets Oil/gas windfall profits From deficit to surplus From debtor to creditor Stabilization fund Relatively good infrastructure Good technology Education Russia: assets and liabilities Russia: A Balance Sheet Liabilities Politics run markets Dominance of state Obsession with control Ambiguity towards FDI Institutions/administration Rule of law Corruption (rank 143!)

23. Brazil: the country of the future • Independent since 1822 • Diversified economy (agriculture, mining, manufacturing) • Miracle years from mid-60s to mid-70s • Followed by oil shocks, financial crisis • - The ‘lost decade’ • - Hyperinflation, stagnation, debt • Lulu (II) government today • - Finally higher growth • - Financial stabilization

24. A virtuous/vicious Cycle Relationship between income and institutions 12 • Four tenants of a ‘good institutional environment’: • Rule of law • Property rights • Transparency and quality of bureaucracy • Stability (political and macro) •  Independent central bank •  Checks and balances Log of real GDP per capita 10 8 6 4 Low High Aggregate governance measure This index measures the overall quality of governance including the degree of corruption, political rights, public sector efficiency, and regulatory burdens.

25. Voice and accountability Political stability Government effectiveness Regulatory quality Rule of law Control of corruption The role of institutions Poor countries Good institutions Rich countries Bad institutions India China 25

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