What goes up need not always come down, but the speed of ascent surely decelerates, and it is just that which is worrying Organisation for Economic Cooperation and Development (OECD)-based business economists. Their conviction about the locomotive role of Bric economies has, in fact, been shaken for sometime now. The best of them now seem to believe that these economies?and even those that are growing at 9% to 11% currently?will slow down to expansion rates that are nearer 6%. In short, the trans grand vitesse (TGV) velocity of today?s four-coach Bric looks all set to turn into a milk train in the not too distant future.
But all is not lost for the OECD, which never underestimates the need for external inputs and impulses to trigger demand, or growth. Accordingly, it had been as far back as on December 1, 2005, that the sights had been turned on eleven other economies (the so-called ?Next-11?) to infuse fresh blood into the system. Named in Goldman Sachs? Global Economics Paper No 134, `How Solid are the BRICs??, they comprise Bangladesh, Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, The Philippines, Turkey and Vietnam.
The investment bank?s thesis has been that some key members of Bric may be on the verge of a secular slowdown, but each one of the N-11 would grow in size, to rival, or, in some cases, even surpass the GDP (measured in PPP) of many of today?s developed economies. In fact, the service which the N-11, or their ilk, are expected to render is to raise OECD investments, and increase the off-take of developed economy manufactures. For, not only have the Bric and many of the N-11 proved that they have the wherewithal to compete, they are also turning out to be welcome investors.
The facts on that are unambiguous. Three out of the four Bric economies?and nine of the N-11?have increasingly been drawn into international investments and financial markets. For instance, Unctad?s World Investment Report 2007 chronicles that Brazil?s outward investment flows jumped from 0.9% of gross fixed capital formation over 1990-2000, to 15.8% in 2006; China?s too, from 1.0% to 1.9%?and India?s from zero to 5%.
As for the N-11 getting abreast of the game, nine of them increased their outward investment flows?the biggest increments being Indonesia?s (1.4 to 3.9% of gross fixed capital formation over 1990-2000 to 2006), Mexico?s (0.7 to 3.4%) and South Korea (2.1 to 2.8%). There were increases in six other cases too?Iran, Egypt, Pakistan, Vietnam, Turkey and Bangladesh?only Nigeria and the Philippines depicted falls.
Finally, it should be of interest to know that there has been no systematic correlation between directional changes in inward FDI and the outward response. Investors in three of the biggest developing economies? China, Mexico and South Korea? went ahead with foreign investments despite falls in inward FDI.
Next comes the issue of purchasing power?there, South Korea and Mexico are of special weight: Goldman Sachs has predicted that, by 2050, South Korea would attain a higher level of per capita income compared to any of today?s G-7 economies, barring only the US.
By then, South Korea?s GDP per capita would be $ 81,462 (measured by market-driven exchange rates), while Mexico?s would be $52,990. Only the US GDP per capita, at $89,663, would be higher. Meanwhile, South Korea is projected to draw level with the US? current GDP per capita?about $42,000?between 2015 and 2020.
Of greater import still is perhaps Goldman Sachs? prediction that the N-11 would be critical in underpinning the international markets for equity, commodities, plus those for luxury goods. That explains why it distinguished the Bric from the general category of ?emerging economies? in 2005. By no means have the latter been drivers of investments or markets, whereas the Bric and N-11 are expected to be just that.
Among them, South Korea and Mexico are of particular importance. By 2050, Korea will become richer (in income per capita) than six of the G7 economies (Canada, France, Germany, Italy, Japan and UK), leave alone only the US. The US?s GDP per capita, at $89,663 in 2050, will be slightly above Korea?s. But, other things being equal, South Korea?s GDP per capita will reach $81,462 (at the market exchange rate) in 2050, while Mexico?s will be $52,990. The US?s GDP per capita currently stands between $42,000 and $43,000 per year, and Korea?s will equal that between 2015 and 2020.
Amongst the other Bric contenders, China is expected to accelerate past the US by 2025 and emerge as the largest global economy. However, real economic growth in China between now and then will average 6.8% annually, lagging 9.8% growth in Vietnam and 8.5% in India. That apart, although the Bric economies of Brazil, Russia, India and China will continue to offer superior investment opportunities, so too will Nigeria. Clearly, developing country economies have developed a taste now for relocating abroad. They have done so to reap the advantage of scale economies, draw nearer to markets and inputs?and, of course, to breathe the air of freedom. And the OECD need fresh blood.