1. 1 Chapter 14 Emerging Global Players: The Countries

2. 2 2 EMERGING COUNTRIES IN A GLOBAL WORLD Philippe Lasserre

3. 3 3 GDP 2010 (current US$) GDP per capita (current US$) Population (million) Average growth (1990-2010)% of GDP North America 15390451523411,0%24,4% Europe 17340330005234,1%27,3% Asia and Pacific 176501665036706,7%28,0% Latin America 463082306237,3% Africa 159016309744,0%2,5% Middle East 1880150001206,8%3,0% Transition ex USSR 191071073635,4%3,0% World 63120922768405,4%100,0% The world in 2010

4. 4 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

5. 5 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)

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

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

8. 8 8 High economic growth cont.

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

10. 10 Evolution of urban household income in China 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%100%040000100000150000200000250000 GLOBAL AFFLUENTS AFFLUENTS MASS UPPER MIDDLE MIDDLE CLASS CLASSLOWERMIDDLECLASSPOORS 25000 1995 2005 2015 2025 RMB USD ~ 3000 ~ 4500 ~ 12000 ~ 24000

11. 11 Middle class in China: McKinsey Survey 2011 A) Total Population (Million) 1262 13381450 B) Urban Population %: 36%45%55% C) Percent of Urban population in Middle Class Affluent, Mainstream and Value (%) 63%90%95% D) Urban Middle Class Population (Million)=A*B*C Of which Afflent+ main Stream 28 5 540 43 760 430

12. 12 High degree of infrastructure investments

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

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

15. 15 The world in 2050 according to Goldman Sachs

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

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

18. 18 APAC 02 / 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

19. 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. 20 APAC 02 / 20 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 “Shining India”

21. 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. 22 Assets Oil/gas windfall profits From deficit to surplus From debtor to creditor Stabilization fund Relatively good infrastructure Good technology Education 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!) Russia: assets and liabilities

23. 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. 24 Four tenants of a ‘good institutional environment’: 1.Rule of law 2.Property rights 3.Transparency and quality of bureaucracy 4.Stability (political and macro) Independent central bank Checks and balances Relationship between income and institutions Low High 4 6 8 10 12 Aggregate governance measure Log of real GDP per capita This index measures the overall quality of governance including the degree of corruption, political rights, public sector efficiency, and regulatory burdens. A virtuous/vicious Cycle

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

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