CIVETS – The Next Big Emerging Markets?
When countries get grouped together for economic or political purposes, an acronym or other shorthand device is soon to follow. OPEC, EU and G7 are a few of the old standards, while G20, PIIGS (European nations with dangerously large sovereign debt burdens), and of course BRICs are newer examples.
Now The Economist is getting into the game with “CIVETS”: Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa – six countries that could be the next wave of emerging markets stardom.
The Economist’s basic case: these six have large and young populations, diversified economies, relative political stability and decent financial systems. In addition, they are for the most part unhampered by high inflation, trade imbalances or sovereign debt bombs.
We didn’t think up the acronym, but we have liked the long-term prospects for most of these countries for quite a while. Here are some of our thoughts and observations.
Start with Colombia, which has had a hard time getting people to forget about its narcoterrorism past and look at its promising pro-business government policies.
I met with former President Alvaro Uribe and it was fascinating to observe his policies for social stability and job creation. Five years ago, he changed the rules and began to encourage companies to come in and help develop their oil resources. He has taken those petrodollars created and reinvested them back in the country’s infrastructure and created jobs.
That is in complete contrast to what Hugo Chavez is doing in Venezuela, or even Mexico and its energy policy. Both of those countries are watching their reserves deplete, but there’s no policy to bring in intellectual capital like you’re seeing in Colombia.
| Population (m) | GDP per head (US$, PPP) | Consumer price inflation (%, av) | Budget balance (% of GDP) | ||
|---|---|---|---|---|---|
| Source: Economist Intelligence Unit, Country Data | |||||
| Colombia | 46.9 | 8,920 | 2.6 | -3.9 | |
| Indonesia | 243.0 | 4,230 | 5.1 | -2.2 | |
| Vietnam | 87.8 | 3,150 | 9.3 | -7.7 | |
| Egypt | 84.7 | 5,910 | 11.8 | -8.7 | |
| Turkey | 73.3 | 12,740 | 8.7 | -4.5 | |
| South Africa | 49.1 | 10,730 | 5.8 | -6.3 | |
Turkey’s economy is dynamic and currently supported by strong underlying trends that point to long-term growth ahead. Its economy is the sixth largest in Europe and in the top 20 worldwide with a 2009 GDP of $615 billion. Turkey’s per capita GDP of just over $8,700 is greater than any of the BRICs. Industrial output leaped by 21 percent in the 12 months ending March 2010, inflation fell to 6.1 percent last year from double-digit levels a year before, and public debt is less than 40 percent of GDP.
And while Europe still makes up more than half of Turkey’s exports, the current government has taken steps to increase exports to Middle East trading partners – Saudi Arabia, Iraq and Egypt – as a hedge against economic volatility in Europe.
Indonesia’s demographics, natural resources and relatively stable politics have set up the country for what could be a very strong decade of growth. Its economy doubled in the past five years and in greater Jakarta – the world’s second-largest urban area with roughly 23 million people – per-capita GDP grew by 11 percent each year from 2006 through 2009.
More importantly, this growth was driven by the private sector, not by government spending – the private sector accounts for roughly 90 percent of the country’s GDP. Over the past five years, the average income has doubled to $2,350 a year and Deutsche Bank thinks that figure can rise another 50 percent by the end of next year.
Despite this income growth, Indonesia still has the lowest unit labor costs in the Asia-Pacific region, according to JP Morgan. This has attracted manufacturing activities from China. Employment growth is key because half of Indonesia’s population is 25 years old or younger, so the workforce as a portion of total population will rise over the next 20 years. This should increase the country’s consumption levels and fuel further economic growth.
Vietnam has seen rapid economic growth in recent years. It too has picked up some manufacturing base that was formerly in China. The country’s per-capita income of $1,050 last year was nearly fivefold higher than it was in the mid 1990s, and in Hanoi, the income level is closing in on $2,000 per person, according to government figures.
That new wealth is showing up in gold purchases. Net retail gold investment in Vietnam exceeded 500,000 ounces during the first quarter of 2010, up 36 percent year-over-year, the World Gold Council says. Add to that a 20 percent increase in gold jewelry demand.
Beyond the CIVETS, we see some potential in other places. Malaysia’s economy, for instance, grew more than 10 percent in the first quarter of 2010, and the country has plans to slash its budget deficit and at the same time invest more heavily in infrastructure. And in Chile, despite February’s earthquake, public debt is just 7 percent of GDP and the economy is expected to see 5.5 percent growth this year and 6.5 percent in 2011 as resource exports to emerging markets in Asia accelerate.
We see the global growth story – led by key emerging market countries like the BRICs, the CIVETS and others – as the most powerful long-term investment opportunity.
For more on this theme, I invite you to visit our website to read through the Emerging Markets archives on the “Frank Talk” blog and to look at our interactive “What’s Driving Emerging Markets” presentation.
Advanced G-20 economies references members of the G-20 whose economies are considered by the IMF to be developed. This includes Canada, United States, Austria, Belgium, France, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, Australia, Japan and Korea. Emerging G-20 economies references members of the G-20 whose economies are considered by the IMF to be emerging. This includes Brazil, India, Indonesia, Hungary, Russia and Saudi Arabia. BRIC refers to the emerging market countries Brazil, Russia, India and China.
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An interesting assessment of Uribe. Others have followed his policies also with slightly different conclusions.
The Colombian economy, despite the narco and civil wars and the globally distressed economies. At the same time, he has strong armed the dispossession of landed poor and assembling of super-ranches on all of the best farm lands. He has curtailed social and civil policies to the point of human rights abuses. Education and healthcare are better suited to outsiders and tourists than for the typical Colombiano. Those who can afford both are training for junior level positions in business and tourism. The degrees being offered for senior levels require more study than in the US and the opportunities are scarce.
When countries sell off their national enterprises to foreign-run corporations they frequently are surrendering a large part of the resulting profits as well. Ireland opened its doors to American businesses to develop new industries. It borrowed heavily from the EU. It celebrated its Celtic Tigre. And watched as most of those businesses closed and left again. Not because of the recession. But because of government policy. Business grown at home, by trained and equipped entrepreneurs will always endure longer because of self-interest. These are not the businesses encouraged by the Bush republican mentality of Uribe in a Lincolnesque landscape.
Unemployment, poverty, education, and healthcare are suffering immensely. Not all students are in any way suffering because of the troubles. Some do and will always be at a loss for problems created in the 1980s. Those who suffer from the new century have yet to raise their heads.
The opportunities opened by Uribe are for foreign enterprise with large capital investments. The employees available are in large part under educated and very likely cheap labor. The result will hardly be widespread economic development. Prices will soar faster than incomes as current policy proceeds to perpetuate the polarization of haves and have nots.
Not a very knowledgeable comment by G. Frederick. Not surprising either as we Colombians are accustomed to hearing speculations from not very well informed foreigners (an the international professional left) about Uribe and the country.
I am Colombian and Uribe did in fact change for good the destiny of the country. He is one of the few global leaders that after 8 years in office still had an approval rate of nearly 80%!. In fact, the support among the poor was the strongest as they felt more than other demographics the benefits from the outstanding reduction in crime rates, and better access to education and health services among others. A testimony of that is the fact that Colombians just elected one of Uribe’s closer aides as the new President with the highest support in history.
A few of the economic indicators that show the progress made are a reduction in poverty of about 8%, reduction in unemployment to a level comparable of that of the US, a well controlled inflation of around 2 to 3%, a well balanced fiscal budget and a increased economic output where the increase in Oil production is just but an example. Colombia has not indebted itself to any country, so the comparison to Ireland is mistaken. Despite the global economic recession and a particular crisis with Venezuela, which slowed down a healthy 5 to 7% GDP growth in the last 5 years, Colombia is expected to grow at around 2% in 2010.
G. Frederick errs too when claiming that “…the employees available are in large part under educated and very likely cheap labor…” Maybe he’s never traveled to Colombia; on the contrary, Colombia has been for quite a while a net exporter of human talent to multinational corporations in various areas, a trend that is being reversed as more of the highly educated people decide to stay or go back.
As Mr. Holmes points out, Colombia is more than ready to keep receiving investments from the international community and to keep developing despite the obvious challenges.
Raul
Raúl piensa con el deseo. Concido plenamente con Frederick, desde colombia.
Raul,
I agree with most of your comments, thanks for giving some facts to support the idea that this is the time for Colombia to make a big change and to go after the opportunities that have been denied to the country in the past.
It would not be correct to deny that Colombia still faces several challenges, however it’s necessary to acknowledge that the positive results obtained during the past years are the result of the established economic policies that are driving the country in the right direction (foreign investment policies, focus on establishing FTAs with developed economies, developing policies for exploting natural resources, strengthening the financial sector,…)
It is great for Colombia to be considered as one of the countries with high growth potential in the next decade, instead of discussing whether the results from the past have benefited few or many we should focus in developing the strategies to exploit the current opportunities that we have at hand.
Juan
Hello,
I’m Indonesian. Good to read the article. But as Indonesian there are things that worrying us. First and the most important thing is the corruption. We have a deadliest level of corruption. It happens in all level. Second one is natural disaster. We have about 150 active volcanoes, and our country is located right on a tectonic plate. Those 2 things can rock us to the bottom.
Btw, bit correction to the map of Indonesia. The thing that you showed there is only Sumatera island. Indonesia have more than 17 thousand islands.
Why when somebody tells something positive about our Country, Colombia, there are tons of pesimistics that contradict him/her? This is the time to change, and there are great opportunities for Colombia, but if we continue to be ashamed it will be more difficult to achieve success. Of course the country has many challenges to face but the fact that foreigners see us with different eyes is something positive. The fact that they havent been in Colombia does not mean that they cannot be well informed through reports and several other sources. Come on, is time for optimism!