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.
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
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 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 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 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 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 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?