article 3 months old

Who Will Follow The BRICs?

FYI | Mar 10 2008

By Chris Shaw

The story of the last few years in terms of the global economy has been the emergence of the BRIC nations – Brazil, Russia, China and India, and the impact they have had on the global economy as their respective nations have grown strongly while allowing for a consolidation of their financial bases.

Credit Agricole (CA) has turned its attention to who may now be in line to follow the BRIC economies and become the next group of emerging nations to deliver on growth potential, suggesting as many as 13 countries around the world could fit the bill.

CA’s list includes Argentina, Egypt, Indonesia, Iran, Malaysia, Mexico, Nigeria, the Philippines, South Africa, Thailand, Turkey, Ukraine and Vietnam and while it notes each faces its own sets of challenges thanks to the diverse nature of their respective economies it sees each of them as having the potential to emerge as new growth economies.

While the 13 follow-up candidates are a diverse list CA notes a number of common elements such as having sufficiently strong GDP growth and large enough populations, as together the 13 account for 6.7% of global GDP and almost 17% of the world’s population.

Economic theory used to assume economic growth was based on exogenous factors such as growth in technology and access to non-renewable natural resources but theory has now been extended to factor in growth from infrastructure spending, investment in R&D and training and education in general, meaning creating a better environment can boost development and so spur growth.

Each of the 13 countries on CA’s list has shown this to be the case as average growth in 2007 was almost 7%, while their aggregate GDPs have essentially tripled since 1990. Even allowing for a slowdown in world growth this year CA expects growth among the 13 nations to again come in at around 7% thanks to resilient domestic demand and a more resilient macroeconomic framework.

As well, CA notes the external financial position of each country has improved significantly in recent years, reflected by growing trade and foreign capital inflows, which have boosted foreign exchange reserves. At the same time banking systems have developed at different speeds and banks play different roles in financing the economy in each nation, though all have recorded growth in their banking system in general.

In CA’s view there is no guarantee each of these 13 nations will emerge, but on its analysis each is relatively well placed to have a chance of developing into a larger and stronger economy. Issues remain, the most significant in the group’s view being political tensions, access to electricity and access to fresh water.

These issues have varying degrees of importance in the different nations, with Nigeria, Iran and Argentina seemingly the most at risk from political pressures, Nigeria again, Indonesia and South Africa continuing to deal with large portions of the population not having access to electricity and Nigeria, Egypt and Mexico most at risk from constraints given poor access to fresh water for a large portion of the population.

Credit Agricole suggests how each county deals with such problems within the constraints peculiar to each economy will play a huge role in determining which of these nations emerges as a growth engine, but the above list is a good guide as to where the potential is greatest for such an emergence in the future.

Share on FacebookTweet about this on TwitterShare on LinkedIn

Click to view our Glossary of Financial Terms