\A/ord5: Tina Nielsen

Booming economies in Brazil Russia, India and China suddenly look less assured as a global slowdown gathers pace. Can they still be a safe bet for entrepreneurs and where do the new frontiers for emerging markets lie?

BEYOND THE BRIC

hen the Goldman Sachs economist, ]im O'Neill, coined the term BRICs in 2003 as a term for the thriving emerging markets of Brazil, Russia, India and China, little did he know it would make such an impact internationally. In the report Dreaming with Brics, O'Neill and colleagues from the investment bank predicted that by 2010 the economies would comprise more than 10 per cent ofglobal GDP. Already they make up 15 per cent of the world economy. But while six years ago it might have been appropriate to group the four markets under the same banner, today their country profiles look markedly differentso, too, does the global economic picture. "There was a period when all four could be considered large, fast-growing emerging markets, or potentially fastgrowing emerging markets. The differences were always quite stark in terms of political set-up, market size and the balance of their economies," says Alasdair Ross, director of wire services at the Economist Intelligence Unit. "Now those differences are all the greater, so whatever rationale there was for grouping them together before is certainly weaker now. It was a handy catch-all phrase. The handier these things are, the more currency they get and the more they tend to get used." The sensational growth in the BRIC economies has caused UK companies to flock abroad, attracted by lowcost manufacturing and cheap labour. While China and India have been the most popular destinations, all four have developed tremendously. Between 2001 and 2007 Brazil's equity stock market increased by 369 per cent, India's by 499 per cent, while China's A-share market went up by 201 per cent. By 2012 China's share of world exports is forecast to rise to 10.7 per cent, a figure that is partly driven by foreign direct investment. But with an uncertain global economy, what's next for BRIC? According to Ross, the assumption mooted last year that the four nations had decoupled from the rest of the world economy and would continue to grow undisturbed by crisis has proven to be incorrect. "People are now much more discerning about their expectations of BRIC, and everybody understands that every market and every emerging market, including the BRICs, will be affected to some extent," he says. Gareth Thomas, minister for trade and investment, says the BRIC nations sdll offer excellent opportunities. "For
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RUSSIA
GDP: $i.29rn (2007 est.) Growth: 8.1% (2007 est.) Currency: Rouble (RUB) Exports (partners): The Netherlands 12.2%, Italy 7.8%, Germany 7.5%, Turkey 5.2%, Belarus 5%, Ukraine 4.7% (2007) Imports (partners): Germany 13.3%, China 12.2%, Ukraine 6.7%, Japan 6.4%, US 4.8%, Belarus 4-4% (2007)

many companies these economies hold the key to success in these difficult times," he says. "UK husinesses should continue exploring and, in fact, consider a deeper drive into BRIC markets. They are by no means immune from the global economic slowdown, hut they appear well placed to weather the storm." In Tomorrow's Marfeeis, a report published last year by UK Trade ^ Investment (UKTI), 49 per cent of executives sur-

WALL
CHINA
GDP: S3.25itrn (2007 est.) Growth: 11.9% (2007 est.) Currency: Renminbi (RMB) Exports (partners): US 19.1%, Hong Kong 15.1%,Japan 8.4%, South Korea 4.6%, Germany 4% (2007) Imports (partners): Japan 14%, SoLitli Korea 10.9%, Taiwan 10.5%, US 7.3%, Germany 4.7% (3007)

BRAZIL
GDP: i.3i4trn (2007 est.) Growth: 5.4% (2007 est.) Currency: Real (BRL) Exports (partners): US 16.1%, Argentina 9.2%, China 6.8%, the Netherlands 5.6%, Germany 4.6% (2007) Imports (partners): US 15.7%, China 10.5%, Argentina 8.6%, Germany 7.2%, Nigeria 4.4% (2007)

veyed indicated that China would be part of their plans for expansion, 42 per cent named India, 33 per cent Russia and 29 per cent Braziland all with good reason. "Economic growth in China for next year is predicted to he at ahout eight or nine per cent There has heen heavy investment in heavy goods and infi-astructure in all four BRIC economies over the past decade," says Richard Scase, professor at Kent University and author of Global Remix:
The Fight for Competitive Advantage. "To keep these econ-

INDIA
GDP: $i.099trn (2007 est.) Growth: 9% (2007 est.) Currency: Indian rupee (INR) Exports (partners): US 15%, China 8.7%, UAE 8.7%, UK 4.4% (2007) Imports (partners): China 10.6%,
US 7.8%, Germany 4.4%, Singapore 4.4% (2007) Source: CM

omies growing, the governmentsespecially in China are trying to stimulate consumer spending, and that will create opportunities for many UK knowledge-based businesses, including legal, financial and architecture." Last year, a US economic expert suggested that there would be a shift in what makes a market attractive, and that British husinesses should be looking to the BRAC rather than the BRIC economiesAustralia and Canada taking the place of India and China. He argued that in times of global instahility, companies should focus on countries rich in natural resources and more likely to henefit from a sthle economic climate. Scase dismisses this as nonsense. "How can Canada possihly create more opportunities for investment than India, China or Russia?" he asks. "Russia has got all the natural reserves that Canada has but many times more and a larger population. It might he safer to invest in Canada at the moment, hut the return and the scale of investment is inevitably going to be much lower." But it is true that there has been a shift, if not away from China and India entirely then at least heyond the major cities that have heen popular business centres. UKTI predicts that many "second-wave" locations will hegin to emerge as investors seek to tap into new markets. Rising costs in Beijing, Delhi and Mumhai might also lead to more adventurous behaviour fi-om investors. "There has heen a shift towards higher value-added sectors," says Ross. "As more and more people have piled
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in looldiig for the specialised labour they require, the cost of labour has gone up, so people have started to look fiarther afield where wage costs are still cheap. So China as a cheap production platform has been overtaken by other places, but that's not a measure of China's failurethat is a measure of its success as it has pushed up the valueadded chain and attracted more high-tech companies." Scase agrees: "Countries sucb as India and China have been able to grow because of heavy investment in raising living standards, providing water and housing, and all this has created an affluent middle class. Combined, the two have an affluent middle class of about 400 million people and they now desire cars, houses, financial products such as pensions, healthcare and education." UKTI says investors should continue to look for opportunities that clearly exist in other economies. Vietnam seems to have largely escaped the global downturn and is the most popular market for executives looking beyond

"COMBIIMED. IIVIDIA AND CHINA HAVE A IVIIDDLE CLASS OF 400 MILLION PEOPLE AND THEY DESIRE CARS, HOUSES AND EDUCATION"
BRIC, but Mexico, the United Arab Emirates and Ukraine are also predicted to be popular, although UKTI states that companies view these countries as additional markets and not as replacements for the BRIC economies. "These countries might not match China or India in terms of population, but their progress in market reforms, trade liberalisation and governance will weigh more heavily in company investment decisions, especially given competitive wage levels," says Thomas, who understands why businesses feel apprehensive about investing abroad. "Though the prospect of exporting can be daunting, particularly now, there are still compelling reasons why UK companies should look outside of the domestic market," he says. "The outlook for emerging markets is generally positive, but there are risks. Many still struggle

with inflationary pressures, unsustainable credit expansion, poor infrastructure and inadequate governance." Ross thinks these factors combined are likely to make many British businesses think twice about investing abroad. "There are two issues feeding into their decisionmaking; one is the fact there are no longer any countries that will be immune to the downturn and the other is that companies will quite simply move to protect their own balance sheets," he says. "I think we are already seeing this across the boardthere is a huge amount of uncertainty and I believe companies will be battening down the hatches preparing for a tough year." For Scase, looking abroad is vital for UK businesses. He doesn't believe that they have grasped the severity of the current crisis. "I spoke at a business event recently and I was staggered by the complacency of delegates," he says. "They were so nave in analysing the situation. They didn't appreciate the fact that there is a fundamental paradigm shin in the global economy." Scase believes recession should, and will, force businesses to spot potential overseas. "The proactive ones will look abroadit is a tremendous time to seek opportunities. I am afraid that the people who naively think things will be back to normal and don't do anything are the same businesses that are going to go to the wall." He points to Turkey, South Africa, Vietnam, the Baltic states and the new EU accession states as potentially rewarding markets. "The imaginative entrepreneur should be looking for all sorts of opportunities, even in the more mature markets such as Europe. The growth of an affluent middle class in these very large economies offers tremendous potential for businesses in the UK." With China's impressive growth, says Ross, much of what happens in the west depends on demand from China, and he believes the international trade picture could be markedly difFerent when tbe crisis ends. "The big questions are when does this slowdown end and which will be tbe first economies to emerge from it? I think that it could be the UK, the US and the rest of Europe that will emerge most quickly because they went into it first." Q

GATEWAYS TO GROWTH
TURKEY
Expected to be among the world's top 10 economies by ZOSO, Turkey is one of the most exciting and fastest-growing markets, and 1,600 UK companies already operate there. Several large multinationals among them GE Heaithcare, Ford and Coca-Colahave bases in Turkey. A young workforce50 per cent of the 72 million population is under 28an ideal location between Europe, Central Asia and the Middle East and many special investment zones, including 21 free-trade zones, are all factors that appeal to foreign investors. UKTI says the environment, water, ports and agriculture are priority sectors where expertise will be needed. Opportunities also exist in financial services and ICT.
www.i nvest.gov.tr

PANAMA
The Central American nation has boomed since regaining control of the Panama Canal from the US in 1999. In 2006, GDP grov/th rose to 11.Z per cent, making the country one of the world's fastest-growing economies. The construction sector is strong and a huge rise in tourist numbers has resulted in rampant hotel developmentit is estimated that a further 8,000 rooms will be needed by 2018. In addition, Panama has the second-targest freetrade zone in the world. A strong banking sector and a largely servicebased economy (80 per cent of GDP comes from the service sector) have even prompted someto speculate that Panama may even be immune from the global downturn.
www.businesspanama.com

BRUSSELS
According to the 2007 European Competitiveness Index, Brussels is

the most competitive region in

Europe, it is popular for businesses that want to establish themselves on the continent, ofFering a highly educated, multilingual and productive workforce. There are many advantages for foreign businesses, including an 80 per cent reduction on the tax paid by companies on revenues from research and development patents drawn up by the owner business, making it particularly attractive for those dealing with intellectual property. Homes are cheaper than in other European capitals and the lower cost of living means less pressure on salary costs.

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