Forget the BRICs. Meet seven unheralded countries to watch.
- By Ruchir Sharma<p> Ruchir Sharma, a 2012 FP Global Thinker, is head of emerging-market equities and global macro at Morgan Stanley Investment Management and is author of Breakout Nations. </p>
The excitement that drove the discovery of "emerging markets" in the 1980s and the easy money that turbocharged growth during the booming 2000s are over. The most hyped countries — Brazil, Russia, India, and China — are all slowing sharply, taking the average growth rate in the developing world back to the old normal of about 5 percent. Today’s global economy is all about moderate, uneven growth, with stars emerging in previously underappreciated nations. Forget about the BRICs — these seven countries are the real breakout nations to watch:
1. Philippines: This country’s huge wealth in natural resources is still largely untapped, and its long stagnant per capita income is still less than $3,000 — but that means it has lots of room to grow. Since his election in 2010, President Benigno "Noynoy" Aquino has worked to finally deliver his political dynasty’s promise to restore the luster of the Philippines of half a century ago, when it was billed as the next East Asian tiger. Aquino has overseen economic reforms that have made government spending more transparent and pushed for more tax revenue. And thanks to success in the outsourcing industry, the Philippine economy has watched incomes grow and new wealth spread.
2. Turkey: The next two members of the club of trillion-dollar economies will be large Muslim democracies — Indonesia and Turkey. Turkish Prime Minister Recep Tayyip Erdogan has brought to his country both economic orthodoxy, taming the hyperinflation that raged when he took office in 2003, and normalcy, opening up opportunities for pious Muslims who had been shut out of plum jobs by the previous secular regimes. This was tantamount to welcoming the majority into the commercial mainstream, and Turkey has prospered ever since, riding the success of its surging auto exports and the boom in the financial services sector.
3. Indonesia: Most economies that have thrived mainly by exporting raw materials — think Brazil and Russia — have slowed sharply amid the global financial downturn. Indonesia, however, is a commodity-fired economy that has achieved balance: between its export market and its healthy consumer economy, between the national capital and increasingly vibrant provincial generators of growth, and in the form of a leader, Susilo Bambang Yudhoyono, who understands the basics of economic reform. That makes the country the model example of those Southeast Asian tigers that were defanged in the 1997 financial crisis but are roaring once again today.
4. Thailand: Like the rest of its neighbors, Thailand suffered during the late-1990s East Asian financial crisis, when the devaluation of the Chinese currency suddenly made Southeast Asia uncompetitive. But as the renminbi has appreciated over the last few years, while Chinese wages have risen, the region, and Thai manufacturing in particular, is competitive again. Thailand’s wild card is the seemingly never-ending political tension between capital and countryside. If Prime Minister Yingluck Shinawatra can contain it, Thailand is in a strong position to prosper as the central trade corridor of the Greater Mekong.
5. Poland: Poland, which entered the European Union in 2004, is a case study of a country in the "sweet spot" — the period after a member state enters the EU but before it adopts the euro. It is stable, attracting investment, and benefiting from EU subsidies, and it has made required reforms to financial institutions and curbed its deficits to meet EU requirements. At the same time, it suffers none of the instability that comes with adopting the euro (see Portugal and Spain). It continues to grow much faster than the European average and is in no hurry to join the euro. In fact, Poland recently confirmed its status as a model European reformer with a tough pension overhaul that raised the retirement age to 67, at a time when many Europeans still retire in their late 50s.
6. Sri Lanka: The outbreak of war has derailed many high-growth economies, but few for as long as Sri Lanka, where the uprising of Tamil rebels that began in the 1980s did not end until just a few years ago. It was a miracle that the Sri Lankan economy was able to grow at even 4 to 5 percent during the war years, when nearly 30 percent of the landmass and 15 percent of the population had been cut off by the fighting. Now the country is reincorporating the provinces once controlled by the rebels, and, with its strategic location on shipping routes between India and China and a highly literate population, Sri Lanka is poised to grow much more rapidly.
7. Nigeria: In a country plagued for years by corrupt leaders, President Goodluck Jonathan has committed himself to reform, encouraging investment in Nigerian agriculture, oil and natural gas, and, most importantly, electrical power. For now, the whole country generates only as much electricity as some small towns in England, and this lack of a reliable power supply has made Nigeria one of the world’s most expensive markets for operating a business. But the key in a place like Nigeria is that it doesn’t take much to grow from a very low base, given its per capita income of just $1,500. The landmark change from bad to good leadership, now focused on improving basic infrastructure and boosting investment, may be enough to make Nigeria among the world’s fastest-growing economies over the next five years — and in the process make it the largest economy on the African continent.