The most influential Megatrends set to shape the world through 2030, identified by Euromonitor International, help businesses better anticipate market developments and lead change for their industries.
The BRIC countries (Brazil, Russia, India and China) were named in 2003 as the most rapidly developing countries with the greatest economic potential. With these countries continuing to develop fast, albeit at different rates, it is useful to look at the next tier of emerging economies. Those countries following the BRIC path will typically experience high rates of population growth, creating a growing pool of potential consumers, at the same time as rising disposable incomes.
Since the acronym BRIC was coined by Goldman Sachs in 2003, the economies of these countries have grown rapidly, with China experiencing the highest growth in the group and Brazil the lowest;
In 2005 Goldman Sachs mooted the BRIC successors, otherwise known as the Next-11 (N11). This grouping comprises Bangladesh, Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, the Philippines, Turkey and Vietnam;
The N11 countries share the characteristics of rapidly growing populations combined with significant industrial capacity or potential;
Together, these factors indicate a growing consumer market with increased earning potential, creating business opportunities for both local and international firms;
However, long-term risks to the progression of the N11 towards BRIC economic levels include slowing oil production for those that are oil exporters, and mounting levels of political instability.
The original 2003 Goldman Sachs research focused on Brazil, Russia, India and China as the economies with the greatest development potential to 2050 on the basis of positive economic fundamentals, large and growing populations, and the ability to exploit resource assets, such as oil. By 2008 this hypothesis is playing out.
All the BRIC countries have posted consistent economic growth since 2001, despite the global economic downturn of 2001-2002. In 2007, economic growth registered 4.4%, 7.0%, 8.9% and 11.5% for Brazil, Russia, India and China respectively:
Real GDP growth in Brazil, Russia, India and China: 2001-2007
Source: Euromonitor International from International Monetary Fund (IMF), International Financial Statistics and World Economic Outlook/UN/national statistics.
Next 11 countries
The N11 countries are Bangladesh, Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, the Philippines, Turkey and Vietnam. Although varied both geographically and economically, these 11 countries have features in common that are believed to single out their high economic potential:
All have large and growing populations. Between 1980 and 2008, population growth was highest in Pakistan at 110.8%, with the lowest being in South Korea, with 28.4% period growth;
Of the N11 countries, Indonesia had the largest population as of January 2008, with 228.9 million people, while South Korea had the smallest at 47.6 million;
In 2006, Mexico had the highest sum of private final consumption expenditure, totalling US$567 billion. Vietnam had the lowest, at US$36.8 billion;
All 11 countries demonstrate population growth rates above those of Western developed economies, indicating greater consumer market potential over the medium term. Large populations represent a wide potential pool of consumers for businesses to target, while high growth rates mean that this market will expand rapidly, providing proportionally more potential customers.
Current consumer trends
In 2007, the N11 economies performed markedly differently, with varying implications for consumer spending trends:
In 2007, real GDP growth varied between 2.9% and 8.3% year-on-year, for Mexico and Vietnam respectively;
These differing growth levels were led by country-specific factors. For example, Mexican growth fell from 4.8% in 2006 owing to the Mexican economy’s close links to the US economy, which experienced decelerating growth in 2007 owing to a growing credit crisis, particularly in the housing sector, growing by only 1.9%, compared to 2.9% in 2006;
By contrast, Vietnamese economic growth was fuelled by strong export figures, particularly of textile goods, and a surging tourism industry. In addition, Vietnam benefited from a diversified export market, meaning that it was less affected by the slowdown in the USA. In 2006 Vietnam sent 22.8% of its exports to the USA, while Mexico sent 85.8%;
Consumer markets in Vietnam therefore possessed greater growth potential, with high economic growth rates encouraging wage and job growth.
Sustained strong economic growth in the N11 countries is creating new consumer markets that can be targeted by businesses. However, differences in levels of growth mean that some higher-growth countries may prove more profitable for businesses.
While the N11 countries share certain characteristics, they are not at the same level of economic development so consumer-focused businesses must target these markets in different ways:
The N11 countries can be categorised in two different ways: developing economies and newly industrialised economies. These are both ’emerging economies’, but the latter have greater industrial capacity and are typically beginning to export heavy manufactured or refined products, while the former are still largely reliant on primary exports, with some industrial capacity. Typically, developing economies have lower standards of living than newly industrialised economies;
Of the N11 countries, Bangladesh, Iran, Nigeria, Pakistan and Vietnam can be categorised as developing economies, while all the others except South Korea can be categorised as newly industrialised economies. South Korea is the only N11 economy that could be categorised as a developed economy, owing to its high level of industrialisation and relatively stable macroeconomic fundamentals;
For example, South Korea is a predominantly technological state, exporting manufactured goods and services expertise. By contrast, Bangladesh is an exporter of primary goods while Nigeria is an oil exporter and an exporter of lower-level manufactured goods;
In 2007, GDP per capita (purchasing price parity; figures adjusted for currency fluctuations) was the highest in South Korea, which has the most skilled and well-paid population, with the population being significantly smaller than most of those of its N11 peers. Nigeria had the lowest GDP per capita in 2007, at International $1,328, owing in part to a lower skilled but larger population, but also the significantly lower level of development in the country;
GDP per capita in N11 countries: 2007
(International $, PPP)
Source: Euromonitor International from IMF.
Sales of high-end consumer goods are therefore likely to be higher in a higher income country such as South Korea, while a lower income N11 state may be more suitable for targeting more basic consumer durables.
Consumer incomes in N11 countries are not necessarily comparable, but are at different levels and will grow by varying rates in the long term. This allows international businesses to target these markets for different products.
N11 business environments
The N11 countries are also different in their business environments, affecting their relative attractiveness as an investment destination:
South Korea was ranked 30th out of 178 countries in the World Bank’s 2007 Ease of Doing Business survey, the highest of the N11 countries. This is due to its well-regulated tax and investment code, heavily influenced by the US model, and the adherence of state and financial institutions to this code;
Iran is ranked the lowest at 135th. This reflects its authoritarian state-owned business environment, which in many cases actively deters foreign investors. In other cases, the regulatory environment is opaque and arbitrary, offering few incentives for investment;
In 2006, Turkey received the greatest amount of foreign direct investment of the N11 countries, at US$20.1 billion. This reflected its unique role as a bridge between Europe and the Middle East, and its consequent position as an export and re-export hub;
By contrast, Iran received the least foreign direct investment, at US$901 million, indicating its investor unfriendly business environment and also the economic sanctions imposed on it by the USA.
Business environment is a major contributing factor for potential growth, since investors can easily choose to invest elsewhere if operating environments are too difficult, restricting the potential for wage and job growth in those countries.
While the N11 countries have significant growth potential, there are also factors that could hinder them from following the BRIC growth path:
Shifts in global commodity prices will affect the N11 producers of these commodities. For example, all except South Korea are oil producers, although only Mexico and Iran are consistent net oil exporters. Accordingly, high oil prices (with oil touching US$100 per barrel in January 2008) will benefit Mexico and Iran in particular, although the other producers will also benefit, since their domestic supply will limit the amount of imported oil required, and hence a higher import cost;
Domestic political events may also restrict growth prospects. For example, ongoing political instability in Pakistan and Bangladesh may deter investment, while the activities of terrorist groups in Indonesia, the Philippines, Nigeria and Turkey could also act as a disincentive for growth.
Both global market moves, particularly of export commodities, and the domestic political situation could act to counteract the investment incentives offered by these countries. This would limit the potential for economic growth, with correspondingly negative implications for consumer spending growth.
Both domestic and international factors will affect growth prospects for the N11 countries going forward:
Demand from key export markets will determine economic growth. For the N11 countries, the USA and China are the main export markets. Although US GDP growth is forecast to reach only 1.9% year-on-year in 2008 owing to ongoing concerns about poor credit, China’s economy will grow by 10%;
Those countries that are most stable – whether via democracy or dictatorship – will have better prospects for consistent growth. These include South Korea, Vietnam, Mexico and Egypt;
A key factor for Iran will be the continuation of economic sanctions by the USA, which would curtail growth.