3 ways emerging markets are aggressively re-shaping the international
By Dr. Anna Biolik, Vice President & Chief Executive Advisor – Allam Advisory Group
Despite slower economic growth and falling levels of Foreign Direct Investments (FDI) in the BRICS emerging markets, their long-term prospects remain promising.
These markets remain an unprecedented source of economic growth across various industry sectors, and hundreds of millions of households will continue to join the ranks of the middle-class consumers in the years ahead.
According to the Monitor ICEF, while definitions and classifications of ‘emerging markets’ may vary, the general view is that the BRICS nations and a number of non-BRICS emerging markets (such as Indonesia, the Philippines, Vietnam, Mongolia, Myanmar, Nigeria, Ghana, Morocco, Turkey, and Mexico) will play a prominent role in shaping the new international trade environment.
Predicting future economic growth in emerging markets
Consider what the Monitor ICEF has to say about the growing economic power of the emerging markets:
Between 2004 and 2013, the BRICS economies doubled in size and now collectively account for 21 percent of global GDP and 53 percent of emerging market GDP.
Last year, emerging markets were home to 85 percent of the world’s population, and 90 percent of those under age 30. Their total population is expected to grow at three times the rate of developed economies between now and 2020.
The BRICS countries are home to 268 million households with an income over US $10,000—a figure that is more than the US and Eurozone combined.
Estimates from The Boston Consulting Group and the global consulting firm McKinsey & Company further predict that the middle class income group in the Association of Southeast Asian Nations (ASEAN) region will exceed 100 million people by 2020.
McKinsey & Company has forecasted that 128 million African households will earn US $5,000 a year or more by 2020, enabling them to spend half their income on non-food items. Furthermore, Africa’s middle class families—those earning US $20,000 or more—outnumber India’s.
A shift in the central players in international trade
These powerful statistics help us better understand why the emerging markets are more important today than never before, for three main reasons:
1) Rising incomes is a real driver of emerging market economies
The Boston Consulting Group projects that in Turkey, an additional 6 million households will enter the middle and affluent classes in the next five years.
In Indonesia, they project that 68 million people—roughly equivalent to the entire population of the UK—will make a similar leap by 2020.
Thirty-seven percent of Brazil’s 60 million households will belong to the middle and affluent classes by 2020, compared with 29 percent now, and will represent a US$1.2 trillion market.
In China and India, such households will represent US$10 trillion in buying power.
2) Transformation of the emerging markets’ business ecosystems is directly affecting business models in developed countries
In most emerging markets, domestic companies with low cost structures and more advanced knowledge of local consumers are quickly improving their operations. These young and dynamic companies are also becoming more aggressive in moving onto the world stage and in competing with the companies in the developed economies.
As emerging markets develop further, we should expect that companies based there will continue to expand their presence and compete with companies in developed countries with low-cost production.
They will be growing by invading the traditional territory of industrial countries and fine-tuning their capacity to manufacture increasingly sophisticated products and services.
3) Integration of the emerging markets’ financial institutions is reinforcing their status as central players in international trade
This new trend would allow developing countries to grow in a more financially integrated fashion and provide themselves with a competitive edge for conducting commercial operations by relying on their own financial centers and currencies. The newly created New Development Bank operated by the BRICS states, for example, stands as an alternative to the existing US-dominated World Bank and International Monetary Fund. How can businesses identify which emerging markets represent the best opportunities for their needs?
Original article: http://www.tradeready.ca/2015/trade-takeaways/3-ways-emerging-markets-re-shaping-international-trade-environment/
About the Author
Dr. Anna Biolik, Chief Executive Advisor and VP with the Allam Advisory Group is a former Canadian Ambassador and diplomat with over 30 years of public and private sectors experience in diplomacy, international commerce, trade policy, and international governmental affairs.