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Emerging Markets: India, Mexico, Vietnam and Thailand
Until recently emerging market economies were viewed as a favourable high-risk destination, but their time as the propellants of the world economy was still some way off. However, as conventional powerhouses try and manoeuvre their way out of what seems to be a certain recession, all eyes are riveted on the emerging economies to find a way out with their robust fundamentals and strong domestic demand. The term emerging markets or economies has been changing with the changes in the global economic landscape and now encompasses a sizeable number of countries across the globe. While they had been viewed as an attractive destination by investors looking to add risk to their portfolios, they may now be our hope of stability. The economies of India, Mexico, Vietnam and Thailand have garnered much attention as emerging economies. Let us have a look at them to understand how they will weather the troubled global economic waters. India While the Indian economy has often been compared to a lumbering elephant, its sustained growth since the 1990s has often been viewed as a sign of its imminent arrival in the developed set. A growing voice at the international forum, it is hard to ignore this relatively stable and cohesive nation in South-East Asia. Belonging to much spoken about BRIC nations, this largest democracy in the world is moving from just being the world’s back office to a hub of financial activities. While the political coalition at the helm has shown regular signs of dissonance which also culminated into the Left’s split from the Congress led United Progressive Alliance (UPA), it has still managed to stay together and not bring the country to untimely elections. With only months to go before the election, it seems unlikely that the government will take strong measures that may dampen its chances at the polls. Fiscal deficits run up in the good times may just prove to be the albatross around the next government’s neck as it faces the challenging task of pruning the debt in times of a slowdown. India’s relatively low ranking of 120 in the Doing Business Report 2008 is indicative of an institutional framework that, at times, seems to work against the business and entrepreneur. A complex taxation system poses a daunting task for businesses. But in recent times the government has acknowledged this challenge and has taken initiatives to incorporate better technology and greater accountability in the functioning. While the political leadership would like us to believe that the domestic economy is strong enough to withstand any shocks that the current recession may throw up, multiple trade tie-ups with the US and several European countries have already thrown the handicraft and textile industry into a downward spiral. As the myth of decoupling becomes lore of the past, India will have to work very hard to find a balance between the growing economic insecurity, escalating fiscal deficit and national security concerns as its neighbours remain mired in internal conflicts. Its advantages include a GDP growth rate still far ahead of several developed nations, a sizeable consumer market and educated population base, and its expertise in sectors such as IT, telecommunications etc. It is a steady and attractive emerging market in South East Asia and should continue to be viewed favourably. Mexico With one of the highest per capita incomes in Latin America, Mexico, as the only Latin American member of OECD, has a lot going for it. Ranked 44 in the Doing Business, the Mexican economy has been fuelled steadily by its alignment with the US. With the signing of North American Free Trade Agreement (NAFTA) in 1992 its growth was linked inextricably to that of the US. In times of boom this meant a steady demand for goods ranging from cars to household appliances and a regular flow of income from Mexicans living and working in the US. But as the US economy grapples with its own slowdown, demand for Mexican exports, revenues from tourism and international remittances have all slumped drastically. While it had been a model pupil in the Latin American growth story over the last few years, rising unemployment and inflation have put a dampener on Mexico’s growth. A recently unveiled 25-point plan to revive the economy includes measures such as freezing petrol prices, providing more unemployment benefits as 3, 00,000 people are expected to lose their jobs despite government’s efforts to prevent further unemployment. Oil used to be an economic driver earlier for Mexico and hopes are set on the low trend that oil prices have shown so far, as this would benefit Mexico through an earlier hedge of almost the entire output of oil in Mexico at USD 70 in 2009 by the government. The auto industry in Mexico is one of its key growth drivers as it has been able to sustain itself in the face of competition from economies such as China and Vietnam. However as the global auto industry is collectively shuddering at the times ahead and auto giants form alliances, lay off workers and sell out, it remains to be seen what the industry in Mexico will loom like in the coming times. Much is being relied upon on a planned infrastructure spending programme and the government being able to dissuade companies from letting go of workers. Expected to be among the leading economies of the world by 2050, it is time for Mexico to prove its mettle and show that it can power ahead without riding on other economic powerhouses. In the aftermath of the subprime crisis and the collapse of major investment banks, Mexico will have to work harder on its domestic demand. Inflationary trends need to be controlled to make sure that the government’s policy does not lose its effectiveness. Vietnam One of the last few communist countries, Vietnam has shed its centrally planned and controlled economic framework to go to market with a steady and planned approach. Since the catastrophic Asian crisis of 1997-98, the government’s focus has been on maintaining stability in the country. From simply being an exporter of agricultural goods, Vietnam has transformed itself as an attractive investment destination in South-East Asia despite stiff competition from behemoths such as India and China. Capitalising on traditional advantages, a skilled and enthusiastic workforce and strategic international partnerships, Vietnam has seen days of 8.5% GDP growth. While till last year the government was grappling with how to address soaring inflation, the global meltdown has brought down both inflation and GDP growth rate in Vietnam, with the IMF expecting it to fall to 5% this year. The political framework of Vietnam is stable with the government committed to sustaining the economic growth in the country. A USD 6 billion plan has been announced to counter the slowdown and USD 1 billion is exclusively devoted to providing tax relief to corporates. Slashing the interest rates is just one of the many measures the government is taking to provide a stimulus to the businesses. Allowing depreciation of the currency has also made exports, a key source of income, more competitive. This emerging market economy however still lags behind in a facilitative and supportive structure, investor friendly laws, and a simple and clear legal system. Complex laws governing foreign investment and land usage rights act as a bottleneck for business ventures. With a rank of 91 in the Doing Business 2008 report, Vietnam still has some way to go before it completely sheds the shackles of a complex institutional structure. Lack of competition and steady growth in GDP has made Vietnam a favourite with global retailers. Increasing disposable incomes translating into higher purchasing power increase Vietnam’s attractiveness as an emerging market. By tackling the problems in the institutional structure and focussing on sustaining stable domestic demand the government can ably tide Vietnam over the global crisis. Thailand With a rank of 15 in the Doing Business Report, Thailand is the most attractive out of the four countries to start a business venture. Thailand is renowned for being the only nation in South East Asia to have avoided colonisation by a European power and also acts as a hub for the surrounding countries of Laos, Cambodia etc. One of the nations that was seriously affected by the Asian crisis of 1997-1998, Thailand’s recovery has been largely export fuelled. Electronic items as well as the automotive industry are the key drivers in this boom Automobile manufacturing has become a large employer with companies such as Toyota and Ford setting up base in Thailand. This, in turn, has also provided stimulus to the steel companies. As the global automotive industry goes through a severe downturn, Thailand needs to have plan to tackle the inevitable shutdown ready. Tourism has so far also been one of its biggest sources of revenue. As people from all over the world flocked to Thailand’s beaches for rest and rejuvenation, the tourism industry was able to mint good money. But natural disasters, terrorism, blockades at its airport and political instability have dampened the enthusiastic numbers. The crisis of 1997-98 may be long over but its after-effects can still been seen in Thai banks as they face capital crunch an debts remain unrealised. A recent fiscal stimulus package of 116.7-billion-baht (USD 3.3 billion) has been unveiled to cope with the recessionary trends globally. This plan encompasses cash dole for the unemployed, subsidies for utilities such as transport and incentives for education. In addition, the Thai government is attempting to strengthen the financial sector through the consolidation of commercial, state-owned, and foreign-owned institutions. Specifically, the government's Financial Sector Reform Master Plan, which was first introduced in early 2004, provides tax breaks to financial institutions that engage in mergers and acquisitions. Political instability is an issue that needs to be speedily redressed to make sure that the global confidence in Thailand’s potential stays intact. Last year’s turmoil at the airports has also affected visitor confidence adversely. As an emerging economy, Thailand has the advantage of not being burdened by colonial legacies and bureaucratic structures. It needs to capitalise on these to work its way out of the downturn. Sources: www.economist.com
>> Read more articles written by Chillibreeze writers:1. Articles related to Content and Outsourcing
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