September 19, 2018 (MLN): While carnage for emerging markets has grown over the last year, the decline may not be over yet as dollar continues to strengthen.
The blame in part is attributable to the US Fed tightening the monetary policy and reducing the balance sheet pushing the yields upwards. The majority of the blame, however, lies with the countries themselves, and in part with the unhelpful decision-making from those politically and economically in-charge of running these respective economies.
That being said, not all emerging markets are the same. Some of them have posted phenomenal growth numbers during the last few decades. According to a review of 71 potential emerging economies, conducted by the McKinsey Institute, 18 have stood out for their stellar growth.
Of those who have performed better amongst the Emerging Market pool include China, Hong Kong, Indonesia, Malaysia, Singapore, South Korea and Thailand have seen their per capita GDP grow by 3.5 percent on average from 1965 to 2016. In the remaining 11 countries – Azerbaijan, Belarus, Cambodia, Ethiopia, India, Kazakhstan, Laos, Myanmar, Turkmenistan, Uzbekistan, and Vietnam – per capita growth has grown by at least 5 percent since 1996.
In a bid to identify the key underlying elements that have yielded success for these countries and not so much for others, the report identifies large corporations which have raised the overall economic tide lifting entire countries with them. From a policy perspective, these countries have pursued pro-growth policies – accruing capital by mandating savings; increasing government’s effectiveness and efficiency; and steps to encourage the market competition by promoting free-market mechanism and careful interventions. These steps that have been taken over a period of decades, have in turn fueled the growth of large companies – chaebols – which have operated as engines to drive consistent economic growth for decades and in some cases for half centuries.
In 18 of the countries under review, companies earning more than $500 million in profits have doubled against those in the remaining 53 countries. Furthermore, a key marker – revenue-to-GDP ratio – has almost tripled during the last 20 years in these countries up from 22pc in 1995 to 64pc in 2016. During the same period, the contribution of value-addition to the GDP of these countries has increased from 11pc to 27pc. Firms such as Chinese giants Tencent and Alibaba, Kenyan regional behemoth M-Pesa, have all grown into large corporations in the midst of hyper competition.
Another important marker identified by McKinsey for the successful economies, which has helped towards the GDP growth for these countries, is the country’s orientations towards exports. Almost all the successful Emerging Market economies mentioned above have promoted far-reaching policies such as investing in key assets, focusing on research and development, and skill development at the higher, lower, and medium levels simultaneously, to increase their competitiveness in the international trade markets.
However, the challenges in this high velocity changing business environment have grown in size and complexity in line with the growth.
Questions on the sustainability of these existing growth models are also rising in their pitch. Keeping in view the threatening trend of automation, premature deindustrialization, changing trade patterns, protectionism, inward-looking political shifts, and demographic shifts, the Emerging Market economies have been facing numerous challenges to continue on their remarkable growth.
The key to addressing these challenges lies in adapting promptly to the rapid changes taking place on the global arena, and look at them as opportunities that could aid their economies through the adoption of structural measures.
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