CIVETS – The next BRIC economies ?

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The economics aficionados are harping on the emerging markets to be the growth centres of future. The leap in the number and size of emerging-market cities alongside the burgeoning middle-class households within them is creating both new opportunities and challenges for companies. For almost 9 years now the BRICs have created rage in the international market & continue to do so. Perhaps markets are undergoing transformation again resulting in formation of new world order popularly touted as acronyms CIVETS, MAVINS & NEXT 11. The most promising amongst all is CIVETS (not referring to the Luwak Coffee) & essential role civets play in producing the world’s most expensive coffee.

CIVETS is the acronym for Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa. As such, it aims to identify the next wave of nations likely to follow the much-celebrated BRIC quartet of Brazil, Russia, India and China on to the world stage.

CIVETS Nations

CIVETS

Origins of the Term

The CIVETS is an acronym for favoured emerging markets namely Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa, coined in late 2009 by Robert Ward, Global Forecasting Director for the Economist Intelligence Unit (EIU). The term has been made widely public by HSBC‘s chief executive Michael Geoghegan. The economies that are part of this group are considered to be very promising because they have reasonably sophisticated financial systems, controlled inflation, their role in the global governance and a soaring young population.

These countries are counted as “the new BRICS” because of the potential that they have as second generation emerging economies. According to The Economist’s Intelligence Unit, CIVETS will have healthy yearly growth rates of 4.9% for the next twenty years, while G-7 countries are predicted to have only 1.8% yearly growth rates.

Meet the CIVETS

Columbia

The first promising country in the league is Colombia. The country embraces policies that favor the creation of businesses and foreigners can integrate to this market without any major hurdle. Foreign investment has increased in 2010 by almost 250%.

With 44 million people and a gross domestic product (GDP) of $231 billion, Colombia is certainly big enough to be worth considering. In a world in which resources prices are likely to trend upwards because of rising demand, Columbia counts on agricultural and natural-resources orientation & is in the process of finalizing the U.S.-Colombia Free Trade Agreement.

The Economist’s panel of forecasters projects growth of 3.8% in 2011. The projected 2010 budget deficit equal to 3.9% of GDP and the payments deficit of 1.6% of GDP look reasonable, as does the 2.6% inflation; and external debt a modest 47% of GDP. The country with a progressive economic aperture and political framework looks like an excellent candidate for future growth

Indonesia

Indonesia is another country, particularly under its current, competent government of Susilo Bambang Yudhoyono, in power since 2004. It has 243 million people (more than France, Germany, and England combined) and a GDP of $521 billion. It’s well diversified, with agriculture, natural resources and substantial manufacturing. And it’s strategically situated between China and India, meaning it should benefit as these both global players rise. The forecasters are calling for a growth of 5.9% next year. The budget deficit is a reasonable 2.1% of GDP, and the current account is in surplus. Nevertheless today Indonesia is substantive-enough economy to invest in, even if it comes in fits and spurts.

Vietnam

Vietnam is hailed as the next China. Vietnam has a culture that’s similar to the Red Dragon, but this communist country is rapidly liberalizing its economy while benefiting from the near-term political stability and centralized command and control that communism provides. Vietnam has a population of 90 million, but a GDP of only $92.4 billion. Vietnam is rich agriculturally complemented by rapidly developing manufacturing sector (given the cheaper labour costs) to move up the value chain. The Economist predicts a growth of 7.0% in 2011. But the budget deficit is substantial at 7.7% of GDP, as is the payments deficit at 7.8% of GDP. The inflation rate is expected to exceed 10% which is worrisome. Given that the stock market is small and highly speculative, and it’s very difficult to have positive outlook.

Egypt

Egypt makes the CIVETS acronym work nicely, but does not enjoy a very optimistic outlook. It is essentially a one-party dictatorship, With 80 million people and a GDP of $190 billion, Egypt is surprisingly poor – especially given its geographical location close to Europe. The Economist expects this country to grow at 5.4% in 2011. The economy is heavily government controlled, and has few natural resources, given its excessive population. With a budget deficit of 8.7% of GDP, a payments deficit of 3.7% of GDP, an expected inflation rate of 12%, and serious sovereign debt problems, this market doesn’t look very lucrative.

Only positives visible are booming population, major oil and gas production, and steady cash flows from rich Gulf States like Saudi Arabia and Qatar.

Turkey

Turkey has GDP growth of 4-5% annually ($608 billion economy) and 80 million people, with major proportion of young people.

Turkey is a pretty decent growth economy, albeit without many natural resources. But it now faces significant political risk. The Economist’s forecasters say Turkey will grow at a 4.0% in 2011.The budget deficit is 4.5% of GDP, the trade deficit 4.8% of GDP and inflation is expected to run at 10.1% in 2010. The public debt/GDP ratio is at 46%. The opportunity is that Turkey finally gets a really decent free trade agreement with the European Union without full membership – that allows it to manufacture for tariff-free sale throughout the EU market (but can EU be counted on completely given the on-going crisis situation). Turkey is now out-competing many of the Central Eastern Europe and Eastern European countries for business. It is also forging strong partnerships in countries like Iraq and Syria. Overall Turkey is a high-risk proposition.

South Africa

South Africa is another resource-rich economy, with 49 million people, a barely growing population, and a GDP of $280 billion, South Africa is a decent-sized economy. However, forecasters have it growing at a rate of only 3.7% in 2011. With a budget deficit of 6.3% of GDP, and a payments deficit of 5.0%, this country’s finances are unattractive though rate of inflation is pegged at only 5.8%. South Africa also lacks the massive natural resource base of Russia or Brazil. The nation is plagued by poor governance & has not been able to capitalize its resource advantages. However, its literacy rate at 86 per cent is much higher than India’s 61 per cent and quite close to China’s 92 per cent.

What’s more, the Gini coefficient (measurement of inequality) is .65 – the world’s second highest – which makes the society highly unstable. Subject to all such conditions South Africa is also a risky bet.

What’s in store for future?

CIVETS are in formative years & will ace teething problems as of now whereas this phase for BRIC has matured & now the countries have started reaping benefits. BRIC’s is going to the epicentre of the growth & influence for the coming years.

Like the BRICs, the CIVETS don’t offer a sure-fire recipe for investment profits. But it’s worthwhile to explore these countries particularly Columbia & Indonesia even Vietnam could offer great deal.

After the dynamic growth of the BRIC countries in the last decade, a batch of six more countries that is the CIVETS — will be the ones to watch in the long term.

Almost all of these countries also share similar challenges: unemployment, corruption, and inequality are persistent problems in most of the countries of the group. None of these countries is so stable or well-established that back-sliding and disappointment could not occur and hence investors should not over-estimate the openness of these markets or the ease of investment.

However, emerging markets aficionados argue that the CIVETS offer opportunities no longer available in the BRIC nations. The size of the emerging market middle class will swell to 1.2 billion people by 2030, from 250 million in 2000. Emerging markets will grow three times faster than developed countries this year and are driving global recovery but which nations it will truly be is waited to be seen.

What’s your take BRIC or CIVETS?

  1. […] Have you heard about CIVETS ? Are they the New BRIC countries ? […]

  2. Viral says

    Charu,

    This is a nice informative article about the next set of Emerging markets. Again, this reminds me about the concept of market capitalisation in the capital markets.

    You can compare the Developed economies with Large-cap counters, Developing economies (BRICs) with Mid-cap counters and Emerging economies (CIVETs) with Small-cap counters.

    At the same time, small-caps (or CIVETs economies) can be co-related with high risk-high return counters; and mid-caps (or BRICs) can still be market performers that fare better than the large-caps during optimistic times.

    Charu… I also liked your article on ‘Financial Inclusion’ for its *completeness* in coverage.

    1. Charu says

      hey thanks viral, that means a lot.
      I appreciate the basis of comparison that you have suggested, infact i tried to search relevant information about respective countries stock markets & P/E ratios but did not find much. i agree mid-caps (or BRICs) can still be market performers for next 10 years to come as compared to large ones.

  3. Altaf Rahman says

    @ Charu,
    An excellent post regarding world economy. Here are my two paisa :)

    When the term “BRIC” is coined, it was done with a purpose. It does not only refer to certain block of countries which had promising growth. The economists considered that for the world to grow it needs 3 resources – Mineral resources (Metals and energy sources), manufacturing and services. They assumed that Brazil and Russia will provide the world with enormous quantities of natural resources, China provide low cost manufacturing and India provide low cost services.
    The concept held good for a decade and still continue to hold good for near future. However every one felt BRIC has become a stereotype. When they looked beyond the stereotype they found the second generation of the next block (as you mentioned CIVETS). However I feel they dont have the concept like minerals / manufacturing / services. You can not identify any of the mentioned countries to be synonymous with any single sector (like India is synonymous for services, china for manufacturing)

    However I feel the promise of the growth in those countries lie in their localised factors and their own competance. They dont have anything to offer to the world with the exception of Indonesia which can be next supplier of mineral resources.
    All teh countries except Indonesia and Vietnam have negetive impression in the eyes of the world (Columbia for drugs, Egypt and Turkey for stagnent economies and lacking visionary leadership and South Africa for crime-as recent as last week one Indian couple honeymooning in South Africa were attacked and the bride was raped and murdered in South Africa)

    Now coming to Vietnam and Indonesia, I am more inclined towards Vietnam.

    I am fortunate to have worked in Vietnam for a year in 2007. I will say if there is heaven on earth, it is Vietnam. When I say this I say with the authority of seeing atleast 10 countries.

    Vietnam finally came out of its seclusion in 2003 and copied chinese formula that administration will be firmly in the control of communism and markets are open to world economic forces. With in a short span of 3 years they became WTO member. (A speed incredible considering India still dilly dallying the same for 20 years) When I was in Vietnam in 2007 economy grow by 11% (higher than India)

    The attraction of Vietnam is fromt eh fact that it is one of the very few “last frontiers” free man has not set foot in. Before 2003 not many have seen Vietnam. (Just like no one has seen North Korea even today)

    Let me give an example of their success. In 3 years of open economy, they beat Thailand to become the largest rice exporter in the world.

    The country has another geographical advantage. Just like Chili, it has a longest maritime area under control for every square KM of land area. Its width is between 80-120 km but the length is more than 2000 km. So they have lot of ocean in their territorial waters.

    They have found Oil and Gas in their waters as well as common area of Vietnam, Malaysia. They have started many power plants using the gas found offshore. (I happened to work on the gas pipeline project bringing gas to Saigon city presently called Ho Chi Minh City named after their freedom fighter and a contemporary of Mahatma Gandhi)

    The second longest river in the world – Meekong river meets the ocean in Vietnam after flowing through China, Myanmar, Thailand, Laos, Combodia. The delta of Meekong is the most fertile in the world. As Vietnam is a tropical country, it rains for 8 months out of a year. With ample water, the lands are so fertile, they produce some of the tastiest vegitables / fruits in the world. For example all the vegitables I used to cook were so sweet, some times I get doubt that by mistake I added sugar instead of salt to curry. The tropical fruits Rambutan and Lichi are the sweetest in the word. (Let me tell you I tasted Indian Lichi, Malaysian Lichi, Thai Lichi. Similarly Viet Rambutan is better than Thai Rambutan) They have enormous potential for export of fruits and Vegitables. Some of the fruits they have is mind boggling. I have never seen such fruits in my life.

    Textiles : Vietnam is the cheapest producer of textiles. And they are not cheap quality. I have seen many Indians ordering textiles for export orders to west from Vietnam. My family loved cloths they bought in China Market there. The quality of a pair (T-shirt and Jeans for girls) for 5 USD is better than the best from India. My family bought 30 pairs each for each kid. Can you believe it??

    IT / Software : I had seen all Indian IT gaints set up shop in Vietnam. Literally every one!! As the Vietnamese are taught in French, they are weak in English. But once they get hold of the language, they give more productivity than their indian counterparts. (This I was told by one Indian IT aquintence there) Now Indian IT industry is getting orders from west, loading the work to Vietnam offices and benifitting the difference in margins.

    Friendliness of people : I had been to almost 10 countries. Some people are arrogent, some non commital, some very dangerous (like indians unless you watch your back). But in 2007, Vietnam is voted the most friendly nation outside western countries (9th over all in the world). I have seen with my own eyes, Forigners with out ID papers on person, fully drunk at 2 o Clock in night roaming in small alleyways and yet no mugger nor police harrass them.

    Cost of living : As the nation has newly opened for business to the outside world, the cost of living is the lowest what I have seen. Just now they start getting a feel of cost of living and they charge a little more to forigners.

    Coffee : Vietnam coffee is considered worlds best. But unlike India they grow only Robusta variety (India grow both Robusta and Arabica) But if you buy it personally, it costs as low as the cheapest in India. So for small businessmen, it still holds promise to bring coffee to india (best quality, low cost.

    Gems : Vietnam has lot of Rubies though low quality when compared to the Myanmar Rubies which are considered worlds best. But you get Rubies at cheap thoughaway prices. Infact some of the markets in the interior (I have seen in pics) where the trade is done nomadic way. The place has lot of cots similar to our Punjabi Dhabas. They put their rubies on the cots and you can go around the cots and bargain, make deals and get the stones. Its so different when we see De Beers offices.

    Tourism : Vietnam holds charm for westerners as they want to see the country which defeated US. I am fortunate to have seen the forests where the actual tunnel war took place around Cuchi. Now the whole network of Cuchi tunnels are a national monument in remembrance of the difficulties the nation went through while US was carpet bombing village after village with poison gas and shooting anything that moves. The Vietnamese built the entire towns underground. They fought the gerilla war from the tunnels and killed as many as 60,000 Americans, in the only war that US lost. They attract tourists. May be Indian tour operators take this opportunity in taking Indians to the exotic location of Vietnam.

    Indian Restaurants : For a city where the Indians are hardly around 2,000, there are literally one Indian restaurant for a street. I could not believe it. Later I found out that the westerners coming to Vietnam want adventure but most of them can not stand the stale food (no salt, no pepper, no spices) and the next best food for them other than home made food is the Indian food. So all those hundreds of Indain restaurants are actually catering to westerners. Still there is tremendous scope for indian restaurants.

    I think I am going overboard. Let me stop this.

    But I can say with firmness that Vietnam is the next emerging market. Just that it is recouping from the recession at the moment. And I assume Indonesia also hold vast potential.

    If given a chance, I will take citizenship of Vietnam and settle down there.

    1. Charu says

      Thanks Altaf…..i guess your take is Civets in particular vietnam,

    2. Madhav Shivpuri says

      Hi Altaf,

      Very informative…didn’t know all this about Vietnam…except its tourism. Thanks for sharing.

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