World looks to emerging markets
Since the 2008 global financial crisis that affected most of the developed markets, everyone is looking to the emerging markets for new hope of economic growth.
We have seen glimpses of that along the way: China has been growing at a steady speed, while other big emerging markets such as Russia, India and Brazil are expected to gain momentum. We can also look to Southeast Asia, Latin America and Africa as further options.
Nonetheless, growth in emerging markets is not as straightforward as our experience with more developed markets. Infrastructure, for one, tends to lag behind. Without proper infrastructure, the temporal observation of growth will be shortlived.
Emerging markets
The term ‘emerging markets’ was coined more than 30 years ago to represent a group of countries with a low income per capita.
At that time, emerging markets made up a third of global gross domestic product (GDP). By now, they represent more than half.
Four of the largest emerging markets – Brazil, Russia, India and China (known as BRIC) – have indeed led the way as we would all expect. The combined BRIC GDP in 2014 was US$16.6 billion with a population of around 3 billion.
At the recent sixth BRICS Summit, BRIC created the New Development Bank in co-operation with South Africa, expanding its influence further.
Many promises but difficult markets
Emerging markets are a huge source of potential market for multinational enterprises. The growing middle-income group and increasing number of billionaires in major emerging markets come with big spending power for foreign products.
The bottom line is that there are lots of opportunities out there for foreign products of a reasonable quality. High quality products will always command a premium. This is particularly true in the emerging markets of Asia.
A major challenge, however, is that emerging markets tend not to be market-oriented, which makes them difficult to understand, sometimes even from the perspective of the fundamentals of conducting business.
We have witnessed these emerging markets and the phenomenal growth they experienced, but right now we are also seeing that for most, growth has been reliant on single and limited mechanisms. As such, growth has certainly slowed down.
Verdict
The fact is the emerging markets’ share of global output will no longer grow as fast as it did several years ago. China’s slowdown is probably inevitable and only natural.
More domestic spending is needed for India and China to grow. Enhancing the services sector trade for these economies is also necessary.
Companies in these emerging markets are still trying to build global brands. Relying purely on local consumption will not help these economies grow.
The good news for now is that other emerging markets are picking up the slack. For example, many of the Southeast Asian nations are expected to grow by more than 6 per cent this year.
These are not small economies either. Growth of more than 8 per cent has been projected for some African nations, notably Ethiopia.
All is not lost with emerging markets. While some take time to rejuvenate before extending their growth further, others are moving forward in a way that looks like an unco-ordinated tag-team effort.