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China’s investment in Africa and the Flying Geese Paradigm

July 28, 2017 Leave a comment

I have blogged before on Chinese Investment in Africa and recently came across a very interesting article in the Harvard Business Review ‘The World’s Next Great Manufacturing Center’ by Irene Yuan Sun. It outlines the effects of Chinese investment in Africa and how it could lead to an industrial revolution in the continent.

Investment in manufacturing by privately owned Chinese companies has increased from only 2 in 2000 to well over 150 in 2015 and 2016 and are transforming Africa’s economy by providing millions of jobs and encouraging a new generation of local entrepreneurs as well as attracting support from inspiring African institutions. Investment by the Chinese in Africa has usually been associated with natural resources or services but with manufacturing now being more prevalent industrialization is a growing possibility.

Chinese investment is about supply and demand

China sojourn into Africa is become more prevalent and has a lot to do with supply and demand. A generation under the one-child policy has had an impact on the supply of labour causing shortages to arise and ultimately wages – 12% annually since 2001 and productivity adjusted manufacturing wages nearly tripled from 2004 to 2014.

On the demand side Africa has started to integrate regional markets – in 2105 half the countries in Africa joined the Tripartite Free Trade Area, which will combine 600 million people in a single trading bloc, forming the 13th-largest economy in the world. The six nations of East Africa have created a single customs union – same as FTA but all member nations agree a set of standard tariff levels between themselves and outside nations. This is known as the Common External Tariff (CET). Nigeria boosts an enormous domestic market with high margins for companies as there is little competition. Also Lesotho enjoys tariff-free access to the US market and can take advantage of being close to the South African infrastructure.

Chinese companies in Africa employ locals

According to Justin Yifu Lin, a former chief economist at the World Bank. China is about to graduate from low-skilled manufacturing jobs which will free up nearly 100 million labour-intensive manufacturing jobs, enough to more than quadruple manufacturing employment in low-income countries. To put that into perspective, when manufacturing employment reached its peak in the United States, in 1978, only 20 million people had jobs in American factories. Now five times that number of jobs are about to migrate out of China.

By 2050 Africa’s population will reach 2 billion creating the largest pool of labour in the world. Today though some of the highest unemployment rates are in African countries – Nigeria 12.% with approximately 19% of the labour force being underemployed. However youth unemployment is just over 42%.
Although the media in Africa tend to portray an image that Chinese companies don’t employ local labour, recent analysis shows Chinese factories in Africa employ locals in large numbers – no research sample had a figure of local workers in a Chinese company lower than 78% and in some larger companies the figure exceeds 99%. In Nigeria 85% of workers hired by Chinese manufacturers are locals and 90% of workers in Chinese manufacturing and construction companies in Kenya are local.

The Flying Geese Paradigm

Flying Geese Paradigm.pngIn developing economics the flying geese paradigm was the view of Japanese economists upon the technological development in Southeast Asia viewing Japan as a leading power. It states that manufacturing companies act like migrating geese, flying from country to country as costs and demand change. Factories from a leading country are forced by labour-price pressures to invest in a follower country, helping it accumulate ownership and move up the technology curve. This movement shifts the bulk of economic activity in the follower country from low-productivity agriculture and informal services to high-productivity manufacturing. The follower country eventually becomes a leading country, spawning companies in search of new production locations. The paradigm offers a convincing model of how Asian economies developed—in a chain from Japan to the Asian Tigers to China – see image above.

It describes not only the movement of companies from country to country, but also a process of industrial upgrading from product to product within each country – see image below. First a few companies show up to try their hands at making a certain product. As they learn, their profits attract other manufacturers of the same product. But as the field gets crowded, intensifying competition and thinning profits, some companies look for something else to make—this time something slightly more complicated and thus harder to copy. As the cycle repeats, companies that started by copying and learning are inventing and teaching a mere generation or two later. An analysis of 148 countries shows that as GDP rises, manufacturers within a country predictably move toward ever more complicated products. In another decade or two, factories in Africa will be churning out computers instead of ceramics and clothing.

Flying Geese Paradigm 2.png

Investment in manufacturing key to Africa’s development

For any economy to develop being more productive in the long run is the only way to create a higher standard of living. Manufacturing tends to become more productive over time as there is overseas competition from imports as well as having to compete in the export market. Furthermore manufacturing investment has a big multiplier effect – research shows that for every manufacturing job created, 1.6 service jobs follow.

Conclusion

Industrialization will allow Africa to follow in the footsteps of Japan, South Korea, Taiwan, and China: to build factories that employ its booming population and to refashion its institutions to meet the demands of modern capitalism. Most important, it will provide a real chance to raise living standards across broad sectors of the populace. If Africa could lift just half as many people out of poverty as China has in a mere three decades, it will eliminate extreme poverty within its borders. For nearly 400 million people, that would mean the difference between going hungry and being full, between scrounging for work and holding a steady job, between asking their children to do menial labor and sending them to school. The Chinese showing up in Africa today don’t doubt that this will happen. As one of them, who is working to build a special economic zone in Nigeria, said to me: “This is exactly like my hometown 30 years ago. If we could do it, then so can this place.”

Sources:

Harvard Business Review ‘The World’s Next Great Manufacturing Center’ by Irene Yuan Sun. May-June 2017

ANZ Bank – ‘ASEAN – The Next Horizon’ – June 25th 2015

China – a blessing or curse for Developing Countries of Africa?

May 20, 2017 Leave a comment

I recently read in the New York Times Magazine a very interesting article on China and how it has built up enormous holdings in poor, resource-rich African countries. Although it may seem as a blessing to the local economy it does have its drawbacks. You can read the full article here but I have edited it for students doing Development Economics topic at A Level.
—————————————————————
Everywhere you look on the globe China’s presence can be felt, driven by its insatiable demand for resources and new markets as well a longing for strategic allies. In 2000 China had 5 countries as their largest trading partner but that has increased today to more than 100 countries including New Zealand, Australia and the USA.  Although there has been a slow down in China, President Xi Jinping has indicated that over the next decade approximately $1.6 trillion will be put into infrastructure and development throughout Asia, Africa and the Middle East. This is serious money that makes a bold statement as to their intentions globally.

China hasn’t held back in trying to secure sufficient resources to keep their economy going. Besides oil and gas China’s state-owned companies have bought mines around the world eg:

  • Peru – copper
  • Zambia – copper
  • Papua New Guinea – nickel
  • Australia – iron ore
  • South Africa – iron ore
  • Namibia – uranium

However as the Chinese economy slowed recently the demand for imports of commodities dropped thus impacting on some of these commodity exporting countries – in particular mines in Western Australia, Zambia and South Africa have been forced to close.

When China met Africa
You maybe aware of a previous blog post in which I talked about the DVD documentary  ‘When China met Africa’ which focused on Chinese investment in Zambia – a very good look at the micro environment that businesses operate in.  Investment in Africa by the Chinese started in 1976 with a 1,156 mile railroad through the bush from Tanzania to Zambia but it wasn’t until the 2000’s that Chinese authorities realised that there was a need for resources to fuel its own internal growth. With this in mind Chinese companies were given free reign to go and seek these resources.

With the end of the Cold War and the Middle East becoming a major conflict area, the US involvement in Africa started to dwindle. Furthermore with the Trump administration raising doubts about free trade agreements and global warming there is an opportunity for China to push its own initiatives and push for global leadership. A Trans Pacific Partnership without the US is very appealing to the Chinese authorities as it allows to become a dominant player in negotiations with other members.

husab mine.jpegChina tends to provide no-strings financing that, unlike Western aid, is not conditional on human rights, clean governance or fiscal restraint. The Namibian finance minister welcomed China as an alternative but although the Chinese want you to be masters of your own destiny and dictate what you want, there are conditions which doesn’t necessarily make their presence truly beneficial. Namibia has seen significant Chinese investment especially in the Husab Uranium Mine ($4.6bn) the second largest uranium mine in the world. It is estimated that it will increase Namibia’s GDP by 5% when the mine reaches full production although almost all of the uranium will go to China for nuclear energy and thereby reducing its dependence on coal. Approximately 88% of China’s energy comes from fossils fuels, 11% from hydropower, solar and wind and only 1% from nuclear power. In order to reach clean energy goals and lose the mantle of chief polluter in the world, China has put a lot of emphasis on nuclear power and they have 37 nuclear reactors with another 20 under construction. The aim is to have 110 reactors by 2030 and become an exporter of nuclear-reactor technology.

The Chinese company China General Nuclear (CGN) has a 90% stake in the mine with the Namibian government 10%. Although Namibians are benefitting from all the infrastructure investment by the Chinese they have saddled the country with debt and have done little to reduce the 30% unemployment rate – Namibia has one of the most unequal societies in the world. In China independent unions are essentially illegal but Namibians have the Metal and Allied Namibian Workers Union (MANWU) which accused Chinese state-owned companies of paying Namibian workers only one third of the minimum wage and also using Chinese workers for unskilled jobs that by law should be going to Namibians. As the unions’s secretary said “the Chinese will promise you heaven but the implementation can be hell”. Also scandals involving Chinese nationals  include tax evasion, poaching endangered wildlife, money laundering have done little to enhance the mood of locals.

Over the last decade China has got a reputation for pillaging and pilfering the natural world with its growing demand natural resources as well as the illegal wildlife trade. Chinese businesses have had public backlash over their proposals that could do damage to the environment. One company wanted to clear a 30,000 acre forest so that it could plant tobacco – the soil in the forest is totally unsuitable for this purpose. Another wanted to set up donkey abattoirs to meet China’s demand for donkey meat and skin whilst a Nambian-based Chinese company requested to capture killer whales, penguins, dolphins and shark in Namibian waters to sell to aquatic theme parks in China. Under pressure from activists the Chinese firm withdrew their request.

Is China the World’s New Colonial Power?

Categories: Development Economics Tags: ,

The market for sand

April 16, 2017 Leave a comment

Sand Demand.pngSand has become an integral part of the global economy and also the most extracted material. It is used in the construction industry where it is part of the process in making concrete and asphalt. Fine sand tends to be used to produce glass and electronics.

Demand
Since the GFC in 2008 Asian countries have been the big users of sand with China consuming up to 40% of world supply (Asia 70%) building 32.3m houses and 4.5m kilometers of road between 2011 and 2015. See graph from The Economist.

Although hard to believe, sand is becoming scarce as desert sand is too fine for most commercial purposes. Furthermore the cost of transporting sand can be very expensive in relation to the price and reserves need to be located near construction sites to make it more economical. By contrast Singapore and Qatar are big importers of sand to assist in their construction programme (especially the latter with the Football World Cup in 2022). Sand is also demanded to create more living area in a country. As is well documented, China has built fake island on coral reefs in the South China Sea. Japan has also claimed a lot of land by dumping vast amounts of sand.

Limited supply
Sand is being extracted at an increasing rate and this is having an impact on the environment  with water levels in lakes being lowered and beaches in resort areas of the Caribbean and northern Africa. Indonesia and Malaysia have now banned sand exports to Singapore as a result of thinning coastlines. But with limited supply comes a higher price and with a higher price the black market starts to become prevalent. In India the illicit market for sand is valued around $2.3bn a year. Also the rising price of sand will lead developing-country builders to source alternatives to sand

Sand – elastic in demand as there are substitutes:
*Sand could be classifies as elastic as there are substitutes:
*Mud can be used for reclamation
*Straw and wood to build houses
*Crushed rock to make concrete.

Global Outlook
With the continued growth of construction and manufacturing output global demand for sand is forecast to increase 5.5 percent to 291 million metric tons in 2018, with a value of $12.5 billion. Whether the supply can cope with this increase demand is another question. Higher prices will make illicit mining more attractive.

Sources: The Economist 1-4-17. Freedonia – World Industrial Silica Sand

Categories: Supply & Demand Tags: , ,

New Zealand: #1 in Open Budget Index

October 7, 2015 Leave a comment

From The Economist. New Zealand rates as having the highest level of budget transparency. The Open Budget Index measures the amount, level of detail, and timeliness of budget information that is publicly available in 102 countries. Only 24 countries have acceptable levels of budget transparency whilst the remaining 78 provide “insufficient” information; 17 of these provided scant or no budget information. Although transparency has improved since the last survey in 2012, thanks largely to improvements made by countries at the bottom of the index, the average score is still only 45 out of a maximum of 100. New Zealand = 88, South Africa = 87, USA = 81, China = 14

open budget index

Categories: Fiscal Policy Tags: ,

G20 explained by Clarke and Dawe

March 25, 2015 Leave a comment

In explaining the G20 to my class I came across an amusing piece from Clarke and Dawe of the ABC in Australia.

What is the G20? The G-20 is made up of the finance ministers and central bank governors of 19 countries and the European Union:

Argentina Australia Brazil Canada China European Union France Germany India Indonesia Italy Japan Mexico Russia Saudi Arabia South Africa Republic of Korea Turkey UK USA.

They recently met in Brisbane and Clarke and Dawe put together their own version of what the G20 is.

Categories: Eco Comedy Tags:

Employment – The Africa Effect

September 1, 2014 Leave a comment

Employment AfricaA common feature in the labour market of many Africa countries is the high rate of low-productivity and under-employment in their economies. Furthermore firms in southern Africa take on 24% fewer employees than is the norm in other countries. So what are the constraints in these countries that put a stop to firms hiring more workers?

One of the main reasons is the informal economy that exists in many of these countries. It is estimated that nine out of ten workers have cash jobs, mainly in the primary sector, and therefore are not part of the employment figures. Their choice makes it harder for Africa to reduce poverty because increases in revenue in this sector do not mean that wages will also become greater. The size of firms will also impact on employment numbers as small firms will want to maintain that status. A firm below 50 workers is classified as small and therefore will not have the burden of government regulations that a large firm (over 100 workers) will have to contend with. In Nigeria and Liberia firms with more than 100 employees have to spend 14% longer in its communication with government officials than their smaller counterparts. Additionally where a company has fewer employees government officials are less likely to allocate time in search of tax fraud and bribes than would be the case with large firms – the latter being more inclined to pay up.

Labour in Africa should be cheap as income levels are very low – World Bank Classification low income country is less than US$766 per person. However unit labour costs on average are higher in Africa than in China as the productivity of the workforce is much lower. In comparison to other countries of less developed status outside Africa, the wages are 80% higher which makes employers less inclined to hire more workers.

The issue of trust between employer and employee is another reason for the low employment numbers. As firms start to grow bigger they switch away from family-only employees to those in the labour force and this lack of trust can play a role in limiting the size of the firm.

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The above is a brief extract from an article published in this month’s econoMAX – click below to subscribe to econoMAX the online magazine of Tutor2u. Each month there are 8 articles of around 600 words on current economic issues.

econoMAX

Categories: Labour Market, Unemployment Tags:

China’s Policies and their impact on the Global Economy

January 23, 2014 Leave a comment

Over the last decade the policies implemented by the Chinese authorities have had an unrivaled short-term impact on the global economy. These effects include: very high mineral and oil prices; significant amounts of foreign reserves; deals with countries in Africa to secure resources; pollution levels that are unparalleled by any time in history.
China’s Policies

Historically China’s economic model was based on export-led growth, massive government injections into the economy and access to cheap money. For instance the Chinese authorities have artificially created growth – as well as building ghost cities –
in that a seven year old bridge (built to last for 40 years) was blown up and rebuilt. This generates jobs for construction industry, including contractors for different aspects of the bridge.
Market for Global Commodities

Impact on the Global Economy
As an economy of 1.35bn people (approximately 20% of world population) rapidly industrialises and urbanises it requires a vast amounts of food and non-food commodities. The global market for bulk commodities shows the enormous consumption levels of China and ultimately this led to global commodity prices to treble. (See table above). Another impact is the size of China’s foreign reserve assets and their relationship with the value of China’s currency – the renminbi. China has abandoned its pre-2005 practice of fixing the renminbi against the US dollar, but now uses a flexible peg against where its value is allowed to change. Although there has been some appreciation of the renminbi it is still seen as undervalued against the major currencies – Euro, Yen and US dollar.

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The above is a brief extract from an article published in this month’s econoMAX – click below to subscribe to econoMAX the online magazine of Tutor2u. Each month there are 8 articles of around 600 words on current economic issues.

econoMAX

China’s unproductive investment justified.

August 16, 2013 1 comment

For Developing Economies to grow certain variables have been identified as fundamental to the cause. These fall into two broad areas:

Human Capital – health, education and fertility.
Legal Infrastructure – rule of law (property rights), government interference, democracy and monetary control. These influence fixed capital investment which determines technology.

China InvestmentWhere a Developing Economy has these characteristics, but low income per capita, their potential for increasing GDP/capita is great. However economies with poor governance and low education will remain stuck in this low-income trap. This has been the position a number of African nations have found themselves in for so long.

In the initial years of growth developing economies open themselves up and embrace developed nation technologies and infrastructure. However, to further develop they need to become more innovative and drive the change themselves rather then relying on other countries. It is at this point that many economies struggle and get stuck in what is often known as the middle-income trap.

Many countries are still at such an extremely low level of development and there are years of catch-up growth ahead. China has a high rate of investment as a percentage of GDP but is this just catch-up growth? Many have said that it is too focused on unproductive investment and China’s policymakers are building cities, roads etc to keep the economy growing (Chart 7). However according to the HSBC report China’s level of development today is so much lower than that of the Asian tigers before their rapid expansion (Chart 8). They believe that the strong rate of investment is entirely justified – providing China with much-needed basic infrastructure.

China Inequality – new figures released

January 30, 2013 Leave a comment

Here is a recent chart from The Economist. This is the first data on inequality to come out of China for 12 years – remember 0=perfect equality and 1=perfect inequality (all the income is earned by one person). It seems that poorer countries like South Africa, Nigeria and Brazil have benefitted from growth over the last few years but it hasn’t trickled down to lower income groups. As well as being better off Japan and Sweden seems to be more equal societies as opposed to India and China where most people are equally poor.

China Gini

Categories: Inequality Tags: , , ,

Dambisa Moyo and China’s resource grab

September 19, 2012 1 comment

Dambisa Moyo is an international economist who writes on the macroeconomy and global affairs and has recently published the book “Winner Take All: China’s Race for Resources and What It Means for the World”. I had the privilege to listen to Dambisa Moyo talk at the Tutor2u conference in June this year.

So, how is China’s approach to securing resources different from its western counterparts:

1. China has befriended countries that are in the axis of the unloved. These countries have largely been ignored by major western economies includes countries in Africa, South America and Eastern Europe. A number of these countries have natural resources.

2. They have spent huge amounts of money on securing these resources and to some people they are paying too high a price.

3. They are a price setter for many resources like coal and copper. It is the main buyer so is able to influence the price it pays for natural resources.

Below is an interview with CNN.

Categories: Development Economics Tags:

When China Met Africa

February 17, 2012 2 comments

Here is another documentary type movie which has had some very good reviews. Produced by the Directors of the award winning documentary “Black Gold”.

On the front line of China’s foray into Africa, the lives of a farmer, a road builder, and a trade minister reveal the expanding footprint of a rising global power. A historic gathering of over 50 African heads of state in Beijing reverberates in Zambia where the lives of three characters unfold. Mr Liu is one of thousands of Chinese entrepreneurs who have settled across the continent in search of new opportunities. He has just bought his fourth farm and business is booming.

In northern Zambia, Mr Li, a project manager for a multinational Chinese company is upgrading Zambia’s longest road. Pressure to complete the road on time intensifies when funds from the Zambian government start running out.

Meanwhile Zambia’s Trade Minister is on route to China to secure millions of dollars of investment.

Through the intimate portrayal of these characters, the expanding footprint of a rising global power is laid bare – pointing to a radically different future, not just for Africa, but also for the world.

AS Unit 4: Comparative Advantage – Labour and Capital

October 22, 2011 Leave a comment

Another interesting graphic from the Begg Textbook. Comparative advantage need not depend on technology differences. It may also reflect different factor supplies. The US has more capital per worker than China. Even though China’s vast size may mean that it has absolutely more capital than the US, the US has relatively more capital than China. Where they is an abundance of supply of a variable factor (labour) it is relatively cheap and the opposite applies if the variable is scarce. Therefore labour intensive industries in China tend to be more competitive that similar industries in the US. The graph below supports this view. It emphasises skills, or human capital, rather than physical capital, although the two are usually correlated. Countries with scarce land but abundant skills have high shares of manufaturing in their exports. Countries with lots of land but few skills typically export base materials. The figure also shows regional averages. Africa lies at one end, the industrial countries at the other end.

Exports to China – not so important for world economy?

October 30, 2010 Leave a comment

Here is another graphic from The Economist which shows the value of exports of individual economies to China.

% of exports to China – 2009
Australia – 21.8%
Japan – 18.9%
Brazil – 12.5%
South Africa – 10.3%

Thus exports to China are only 3.4% of GDP in Australia, 2.2% in Japan, 2% in South Africa and 1.2% in Brazil (see below). Export earnings can, of course, have a ripple effect throughout an economy but the multiplier effect is rarely higher than 1.5 or 2 – this means that they hardly ever double the contribution to GDP.

Recently, the Bank Credit Analyst, an independent research firm, asked what would happen if China suffered a “hard landing”. Its answer to this “apocalyptic” question was quite “benign”. As it pointed out, Japan at the start of the 1990s accounted for a bigger share of GDP than China does today. Its growth slowed from about 5% to 1% in the first half of the 1990s without any discernible effect on global trends.

Categories: Growth, Trade Tags: , ,

Sub-Sahara economies hit by fall in commodity prices.

January 12, 2017 Leave a comment

Commodities have been the engine of growth for many sub-Saharan countries. Oil rich nations such as Nigeria, South Africa and Angola have accounted for over 50% of the region’s GDP whilst other resource-intensive countries such as Zambia, Ghana and Tanzania to a lesser extent.

I have mentioned the ‘resource curse’ in many postings since starting this blog. It affects economies like in sub-Sahara Africa which have a lot of natural resources – energy and minerals. The curse comes in two forms:

  • With high revenues from the sale of a resource, governments try and seek to control the assets and use the money to maintain a political monopoly.
  • This is where you find that from the sale of your important natural resource there is greater demand for your currency which in turn pushes up its value. This makes other exports less competitive so that when the natural resource runs out the economy has no other good/service to fall back on.

However it is the fall in commodity prices that is now hitting these countries that have, in the past, been plagued by the resource curse. As a lot of  commodities tend to be inelastic in demand so a drop in price means a fall in total revenue since the the proportionate drop in price is greater than the proportionate increase in quantity demanded.

The regional growth rate for 2016 is approximately 1.4% but it is not looking good for commodity driven economies:

  • Nigeria – oil – 2016 GDP = -2%
  • Angola – oil – 2016 GDP = 0%
  • South Africa – gold – 2016 GDP = 0%

In 2016 resource rich countries will only grow by 0.3% and commodity exporting countries have seen their exports to China fall by around 50% in 2015. Furthermore, public debt is mounting and exchange rates are falling adding to the cost of imports. With less export revenue the level of domestic consumption has also decreased.

It is a different story for the non-resource countries of sub-Sahara. It is estimated by the IMF that they will grow at 5.6%. By contrast they have been helped by falling oil prices which has reduced their import bill and public infrastructure spending which has increased consumption.

africa-oil-effectAs is pointed out by The Economist numbers should be read wearily as GDP figures are only ever a best guess, and the large informal economy in most African states makes the calculation even harder. Africa may have enormous natural reserves of resources, but so far most Africans haven’t felt the benefit. In Nigeria, for instance, what’s seen as a failure to spread the country’s oil wealth to the country’s poorest people has led to violent unrest. However, this economic paradox known as the resource curse has been paramount in Africa’s inability to benefit from resources. There is a gravitation towards the petroleum industry which drains other sectors of the economy, including agriculture and traditional industries, as well as increasing its reliance on imports. What is needed is diversification.

Emerging Markets take hit as Fed starts the tapering process

February 12, 2014 Leave a comment

Recent volatility in the major financial markets has had ripple effects on the emerging economies especially the fragile five – Turkey, India, Brazil, South Africa, and Indonesia.

The emerging markets are currently facing 4 major concerns:

1. The Chinese economy’s growth rates are slowing – China is a very important trading partner for many emerging markets.

2. There is the prospect of monetary tightening in the US which could increase interest rates. This then leaves investors a dilemma. Do they continue to invest in emerging markets with volatile growth prospects or take the now safer option by investing in U.S. Treasury bills which are perceived to have no default risk.

3. All these economies have significant current a/c deficits which means that they rely on overseas funding to pay for domestic consumption and investment.

4. Politically they are unstable which makes the implementation of reforms near impossible.

It is important to remember that before the tapering of QE purchases liquidity in developed countries has gravitated towards higher returns in emerging markets and the carry trade. Since the start of the tapering process the volume of money into emerging markets has fallen which means that they will have to tighten up their own budget policies or reduce investment and domestic consumption.

Individual Concerns:

Turkey – political problems – current account deficit – exchange rate depreciation.

Argentina – political problems – high Inflation – exchange rate depreciation (Peso has fallen 14% since 22nd January).

India – very high inflation = higher interest rates = reduced domestic consumption

Brazil – similar to India – very high inflation = higher interest rates = reduced domestic consumption

Indonesia – current account deficit – slow growth – budget problems with US tapering.

Below is a graph from The Economist showing emerging market currencies depreciating over the last 9 months as investors move their money elsewhere.
Emerging Markets v US$

From BRIC’s to MINT’s

January 11, 2014 Leave a comment

First it was BRIC’s now its MINT’s. Goldman Sachs economist Jim O’Neil now see Mexico, Indonesia, Nigeria and Turkey as the new potential growth economies in the next 30 years.

As mentioned on the BBC one particular advantage that they have is that they all have geographical positions that should be an advantage as patterns of world trade change.

Mexico, Indonesia and Nigeria – are commodity producers and only Turkey isn’t. This contrasts with the BRIC countries where two – Brazil and Russia – are commodity producers and the other two – China and India – aren’t.

In terms of wealth, Mexico and Turkey are at about the same level, earning annually about $10,000 (£6,100) per head. This compares with $3,500 (£2,100) per head in Indonesia and $1,500 (£900) per head in Nigeria, which is on a par with India. They are a bit behind Russia – $14,000 (£8,500) per head – and Brazil on $11,300 (£6,800), but still a bit ahead of China – $6,000 (£3,600).

Interesting Statistic – Power in Nigeria
About 170 million people in Nigeria share about the same amount of power that is used by about 1.5 million people in the UK. Almost every business has to generate its own power. The costs are enormous.

“Can you imagine, can you believe, that this country has been growing at 7% with no power, with zero power? It’s a joke.” says Africa’s richest man, Aliko Dangote. Read the full article – The Mint countries: Next economic giants?

Global Econ 2012-2050

Categories: Development Economics, Trade Tags: ,

BRICS: the engine of world growth

May 5, 2013 Leave a comment

World GDPThe Economist produced a telling graphic that shows the composition of world trade from 2007 to the present day. What is significant is the share of world growth from the BRICS countries – Brazil, Russia, India, China and South Africa. The developed world which is made up of 23 countries contributed just 20% over the same time period. This is mainly due to levels of debt and austerity measures. However the BRICS have contributed 55% of world growth.

Categories: Growth Tags:

The World’s Major Producing Nations – 2010

February 7, 2013 Leave a comment

Global OutputThe World Bank produces every year two measure of world production:

Gross ‘World’ Product – total GNP of each country
Gross ‘World’ National Income – this is GDP plus net remittances from abraod. That is money which is earned abroad and sent back to family members minus remittances sent out of the country. In some developing countries this can amount to some 10% of GDP.

The actual figures:

Gross ‘World’ Product – US$63,242bn – 2010
Gross ‘World’ National Income – US$76,296 – 2010

PPP = Purchasing Power Parity which focuses on establishing a value of the goods and services that can be purchased using one unit of each currency.

Sone interesting things to note from the table:

– 48% of world output occured in just 5 nations
– Of those 5 nations they have 44.7% of the world’s population
– In 2010 China, India, Brazil, Turkey and Indonesia all increased their percentage contribution to global production.
– Italy and the UK experienced the greatest fall in (0.2%) in their contribution to global output.
– Although China is approaching the USA with regard to global output but is lagging when you consider GDP/Person

Regional Break-up of global GDP from the above table

Asia and Oceania – 30.9%
North and Central America – 23%
Europe – 21.4%
South America – 3.6%
Africa – 0%

Source: Updated Economics 2013 Edition

Categories: Growth, Trade Tags: ,

Emerging markets to power global growth

September 11, 2012 Leave a comment

HSBC produced a very good report in which it seeked to identify the Top 100 economies by size. The ranking is based on an economy’s current level of development and the factors that will determine whether it has the potential to catch up with more developed nations. These fundamentals include current income per capita, rule of law, democracy, education levels and demographic change, allowing us to project forward GDP to 2050. They came up with the following findings:

1. The striking rise of the Philippines, which is set to become the world’s sixteenth-largest economy, up 27 places from today.

2. Peru could sustain average growth of 5.5% for four decades and jump 20 places to twenty-sixth. Chile is another star performer in Latin America.

3. Massive demographic change: in 2050 there will be almost as many people in Nigeria as in the United States, and Ethiopia will have twice as many people as projected in the UK or Germany. The population of many African countries will double. Pakistan will have the sixth-largest population in the world. Even if some of these countries remain relatively poor on a per-capita basis, they could see a dramatic increase in the size of their economies thanks to population growth.

4. By contrast, the Japanese working population looks set to contract by 37% and the Russian one by 31%. The eurozone faces similar problems with working population declines of 29% in Germany, 24% in Portugal, 23% in Italy and 11% in Spain, adding a whole new perspective to the sovereign debt crisis.

5. It is not just about population. Ukraine is set to jump 19 places to fortieth because of its education system and rule of law, even though its population is set to fall to 36m from 45m.

6. We divide the Top 100 into three categories: 1) fast growth – with expected average annual growth of more than 5%; 2) growth – with expected annual growth of between 3% and 5%; and 3) stable – those countries expected to expand less than 3% a year.

7. We identify 26 fast-growth countries. They share a very low level of development but have made great progress in improving fundamentals. As they open themselves to the technology available elsewhere, they should enjoy many years of ‘copy and paste’ growth ahead. Besides China, India, the Philippines and Malaysia, this category includes Bangladesh, the central Asian countries of Uzbekistan, Kazakhstan and Turkmenistan, Peru and Ecuador in Latin America, and Egypt and Jordan in the Middle East.

8. The growth category extends to 43 countries. It includes 11 Latin American countries such as Brazil, Argentina, Chile, El Salvador, Costa Rica and the Dominican Republic; Turkey, Romania and the Czech Republic in central and eastern Europe; as well as the war-ravaged Iraq and Yemen.

9. Africa will finally start to emerge from economic obscurity. Five of our fast-growth countries come from Sub-Saharan Africa and three are in the growth category.

10. Most of the economies in our ‘stable’ group are in the developed world. The West is not getting poorer, but high levels of income per capita and weak demographics will limit growth. It is the small-population, ageing economies in Europe that are the big relative losers, seeing the biggest moves down the table.

11. Our Top 30 list changes slightly. Our forecasts for the countries considered in the original document have not changed, but after expanding the pool of countries considered, Peru, the Philippines and Pakistan leapfrog into the Top 30. Pakistan makes it into the top league, less because of individual prosperity, than because of population size.

12.This research strengthens the conclusions of the original report, which found that 19 of the top 30 economies will be countries that are currently ‘emerging’. Our update shows that it is not just the likes of China and India that will be powering global growth over the next four decades. Countries as varied as Nigeria, Peru and the Philippines will also be playing a significant part.

Categories: Development Economics, Growth Tags:

BRIC’s to CIVETS’ – what next?

December 19, 2011 Comments off

10 years ago Jim O’Neill of Goldman Sachs coined the acronym BRIC – Brazil, Russia, India, China. This group of countries were seen as the emerging economic superpowers. However a new group of countries is now challenging their presence in the world economy – CIVETS.

Columbia – Indonesia – Vietnam – Egypt – Turkey – South Africa

Columbia – Already a key target for foreign investment thanks to a pro-business government and a wide variety of industries beyond oil and natural resources. 2010 growth: 4.3%

Indonesia – The primary attraction of the world’s fourth most populous country is “a vast pool of educated manpower, giving it the lowest unit labour costs in Asia”, says HSBS. 2010 growth: 6.1%

Vietnam – It’s also targeted as a potentially profitable new manufacturing hub, though there are concerns the economy and banking system may be vulnerable to shocks. 2010 growth: 6.8%

Egypt – If the political unrest abates, it could become a key trading hub linking Europe and Africa. 2010 growth: 5.1%

Turkey – A decade of political and economic reform is beginning to pay dividends in Turkey’s services-dominated economy. 2010 growth: 8.2%

South Africa – Foreign investors have long been attracted to South Africa’s rich resources, but there are concerns about unemployment, political stability and growth. 2010 growth: 2.8%

Source: The Week – 26th November 2011

Categories: Development Economics Tags: ,
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