The BRIC of emerging economies...

What emerging realities do you see in light of the emerging economies? Which among these new economies do you feel would outpace the others? Quote examples and facts to support your argument

This December marks the 30th anniversary of the Chinese Communist Party's decision to initiate market-oriented economic reform. Not so long ago, China was an insignificant part of the world economy. Now, scarcely a week goes by without a new projection of its greatness and indeed the first nation that strikes me when I think of emerging economies.
Constituting approximately 80% of the global population, representing about 20% of the world's economies, accounting for 30% of world GDP at market exchange rates (and over half using purchasing-power parity to take account of price differences), emerging economies couldn't be more loosely defined than those with low-to-middle per capita income.
Over the years, their weight has been looming larger. Their exports are 45% of the world total; they consume over half of the world's energy and have accounted for four-fifths of the growth in oil demand in the past five years (explaining why oil prices are so high); and they are sitting on 75% of global foreign-exchange reserves.

Political Environment
One must not forget that political instability and/or incapable government is a dangerous phenomenon and unfortunately most of the emerging economies have such problems. Even today, there is not any control for preventing the tyranny from conducting unreasonable policies, including racism, unreasonable taxation, property confiscation and even taking the human life.

One should realize that in spite of economic prosperity, the region will never be stable as long as there is a constant threat on political front. The nuclear war looming large in the face of India and Pakistan, the divide between Koreas never getting any thinner, the ever present financial instability in central Europe by the politico-financial crimes is not helping these countries. In a nutshell, all of such economies are providing their people with opportunities to get rich, but they do not seem stable enough to keep them wealthy for generations.

The growth for the economies will be consistent when the monster called politics is taken away from the progress of these economies. The danger is growing manifolds with a profound implication on sustained growth.

Energy
Development is inextricably linked to energy supply. Access to energy means access to development. The energy needs of developing countries are vast. We notice that majority of people will be urban dwellers by 2050. Almost all the growth will happen in Africa and Asia. Among the "rich" countries, only the U.S. is growing while Europe, Russia, and Japan are all shrinking

The problem of energy is two-folds. The first being problem of consumption and other being the problem of conservation of environment as well as energy sources. One cannot forget the impact of sky-rocketing fuel prices on emerging economies. The gravity of the problem will be realized with increasing demand and reducing supply. Further, emerging economies need to follow a low-carbon development path. The impact of environment changes is most in these countries. An impoverished farmer in Malawi loses her crop due to drought then she is likely to go hungry as there is no food security in the country. If a slum dweller living in Port-au-Prince loses his hut in cyclones, where will he go? There are no resources with the government to establish temporary structures. Similarly, increased frequency of droughts in Africa means that women are walking greater distances to fetch water, often ranging from 10 to 15 kilometers a day. This confronts women with personal security risks, keeps young girls out of school and imposes an immense physical burden

The challenge is magnified by the fact that total investment in physical assets such as power plants is projected to triple between 2000 and 2030. Quite simply, the emerging economies need an energy revolution that will help anchor their economic and social transformation. This transformation requires measures that dramatically increase energy efficiency in buildings, vehicles and appliances. It entails greater use of innovative technologies that can help capture and store at our power plants. It requires renewable resources such as wind, solar, nuclear and sustainable bio-fuels. And it needs to be underpinned by rigorous standards and regulations. But beyond an overhaul of energy sources, this revolution demands major changes in life styles, in our day-to-day habits and in the way we pursue urban development.

Population
The window of opportunity provided by a relatively large and young workforce, a result of the demographic dividend, is the most conducive for growth and one of the significant drivers for economic development. In an economically interdependent and integrated world, what would matter is not the size of the population, but its age structure. A population "bulge" in the working age groups, irrespective of the size of the population, would be an inevitable advantage. For given unemployment rates, the higher the ratio of those in the labor force to those outside it, the larger would be the surplus.

The implications of these available surpluses for investment and growth are rather obvious; optimum channelizing of this large surplus f this larger surplus would indeed trigger growth. Let’s take India as an example here. In 2020, the average Indian would be only 29 years old, against 37 in China and the US, 45 in West Europe and 48 in Japan. But if the "window of opportunity" available when the population bulge enters the working age groups is to result in an acceleration in growth, the processes of development which in part created this bulge must have been such as to ensure that the quality of those entering the workforce is of the desired level and that these workers find employment opportunities as and when they enter the labor force. If India succeeds in capitalizing on its once grave problem of growing population, it could indeed strengthen its footprint on the globe.

The story if not same is not very different for other emerging economies. The population growth is outpacing the economic growth and fruits of development are hard to reach the many strata of society. This will be the most challenging problem that countries face in near future.

Industrial Infrastructure
In the face of huge global competition, many developed economies have found it difficult to sustain their manufacturing sectors growth. Keeping this in mind, emerging economies should realize that the task to develop infrastructure for the sustained economic development is very difficult. They need to constantly bridge between industrialists and government agencies. They need to grow new capabilities to deliver strategic infrastructure and cutting-edge solutions to sustain competitive edge. It is implementing special projects which the neither public nor private sector can handle alone, as a new initiative of Public-Private Partnership (PPP). They need to focus on core functions like master-planning industrial estates, allocating land for industrial use, and preparing the land ahead of time with the right configuration of infrastructure and utilities. I will quote an example, again from India, of that of Tata's in West Bengal. The movement of manufacturing to another state is a clear example of unsustainable and unsupportive industrial infrastructure for economic growth.


Which among these new economies do you feel would outpace the others? Quote examples and facts to support your argument.

And we talk about our favorite words like "Globalization" and interdependent and integrated economies...but somewhere in this interdependence as well, there is a flavor of race... a conscious effort to outdo the other one... a desire to be the next leader or economic superpower.

The caveat: It's only in the competition that meritocracy breeds and it's only in the openness of economy lies real growth of the world at large. There would indeed be enough rankings of these emerging economies based on their bullish stock markets, based on potential economic risk, size of current-account balances, budget deficits, credit growth and inflation. A country's overall score could be arrived at from the sum of the rankings of each indicator. My objective here is not to rank each of the countries on these parameters as that that would be the easiest way out.

· I do not wish to speak about the already known India and its success story. The substantial capital inflows in the country are testimony to the confidence level that the global investors have placed in its ability to be a superpower. However, I do have my inhibitions considering the fact that 85% of India's capital inflows this year have been in the form of debt or portfolio investment, much of which has gone into the stock market. We all understand that foreign direct investment is much safer than speculative capital and India does show dangerous signs of irrational exuberance.

· I do not intend to celebrate the world renowned Chinese turn around. There has always been a question on the sustainability of the export driven strategy of emerging economies and therefore the dependence on West. But the numbers give a different story. How China's exports going to America (including re-exports through Hong Kong) has fallen from 34% in 1999 to 24% now! China exports more to other emerging economies, which as a group now send more to China than to America. This partly explains why as American imports have slowed this year, the emerging world has continued to boom. So long as China's economy remains robust, it will help to pull other emerging economies along. Indeed, this year for the first time emerging economies are likely to have bought slightly over half of America's exports, helping to prop up the economy of the United States. Some years into the future, economists may instead ask: "Can America decouple from China?"

· If markets were any indicator of a nation's performance, let me quickly get away with Brazil by seeing its stocks rise more than 70% in 2007, making the Latin American country one of the world's top-performing markets. Once an economic basket case, Brazil has whipped the inflation beast and its economy is expected to grow by more than 4% annually over the next five years.

· And, I find Russia's credit boom more than intriguing, with lending up by 55% in the past year, but the economy is sheltered by large external and budget surpluses, thanks to high oil prices.

But here, I wish to concentrate on two economies which I think have come of shadows and growing at a decent pace and aim for the sustainable model of growth.

Romania
Following Romania's accession to the EU in January 2007, the country's economy has continued to expand at a steady rate. Many sectors are performing well and foreign direct investment remains solid. The rapid rise of the average monthly wage has increased the population's spending power, leading to a growing demand for higher-quality products and services in various sectors.

The political reforms remain at the forefront with various directives for Anti-Corruption, which works to eliminate high-level fraud and revision of country's constitution to give it a push in the right direction.

Taking cue from the political reforms, economy has performed consistently over the last few years. Economic growth accelerated after 2001, peaking at 8.6% in 2004. Consumer demand is very brisk with final consumption and gross capital formation both growing faster than GDP. Also, foreign investment in Romania is largely long-term and steady.

The industry also has shown similar results with BET index gaining over 20% in first half of 2007 and the average daily market turnover was up almost 28%.

The government is also planning for sustained growth in future and many industries have shown promising results. There if FDI in Romanian steel industry, major investment in seaports, rail network and airports. There has been rejuvenation of metal industry, increased consumer spending on pharmaceuticals. Further, Romania will soon be host to not one but two of the world's top motor manufacturers. The large-scale projects planned for Romania have attracted many international building companies from countries such as the US, Germany and France.

Romania has long been known for high-quality medical training, and in recent years it has attracted attention for its IT graduates as well. This recently acquired momentum towards a sustainable model of economic development catapults Romania into the driving seat of growth of emerging economies.


Turkey
Turkey’s economy grew at a 4.5 percent in 2007. The economy accelerated to an annual rate of 6.6% in the first quarter of 2008. Thus despite being faced with a series of major headwinds – the June 2006 lira crisis, the August 2007 sub-prime turmoil, the threat of having the governing party banned and a global food and energy price shock – the growth momentum of the Turkish economy has been maintained.

The extent and duration of the economic revival which Turkey has experienced since it left the deep recession experienced in 2001. It is clear that something has changed in Turkey, and in a quite remarkable way.

The application of well-founded economic policies, anchored in an ongoing EU accession process and backed-up by a steady flow of International Monetary Fund reviews and arrangements, has served to provide Turkey with a greater degree of political and economic stability than was normal in the past.

Further, adding the extremely favorable external conditions which characterized the global environment until August 2007, have produced in the Turkish case an impressive average annual GDP growth rate of 6.8% in the years between 2002 and 2007. Recent quarters have also witnessed a steady build up in investment in machinery and equipment, which is basically a very healthy sign since it can be read as showing confidence in future end user demand growth.

Turkish financial markets outperformed most of their peers in 2007 but then fell back significantly as the cloud of uncertainty hung threateningly over the AKP, only to rebound strongly again following the final Constitutional Court ruling. Equities rose 42 percent in local currency terms in 2007. And since the start of July, the stock markets have rebounded by some 18%.

The country is ready for the spurt in economic growth and has a solid platform to move on the path of sustained growth. But there are few issues that Turkey needs to tackle on its economic journey. It faces a number of structural problems - including tax rates which are still high in comparison with competitors, a large informal economy, and shallow financial intermediation, all of which need to be tackled to lift the potential growth rate.