CIVETS Lesson
The CIVETS are outshining BRICS as engines of future international economic growth.
Move over BRICs, it’s the civets’ time to roar. the so-called “BRIC” countries —Brazil, Russia, India and China—have been the economic powerhouses of emerging markets. Over the last decade, business investors swarmed to these countries hoping to tap into an economic growth spurt. BRICs aren’t done.
They still have enormous middle-class populations with money to spend, and frankly, growth rates look better than in the Western markets. China is expected to grow 7%–8% in 2012, off its double-digit returns in prior years but far above the forecast of 1.8% for the G-7 nations.
But for those willing to take big risks for big returns, the new buzz is “CIVETS.” With growth slowing in the BRICs, investors are eyeing the next tier of emerging tigers, err “civets.” Not to be confused with furry creatures from Asia, CIVETS is an acronym coined by Robert Ward with the Economist Intelligence Unit (EIU). It stands for Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa.
Michael Geoghegan, CEO of HSBC, Europe’s largest bank, says the CIVETS have a bright future because “each has a large, young, growing population, each has a diverse and dynamic economy and, in relative terms, is politically stable.”
These young upstarts offer tremendous potential, soaring domestic consumption and a population with an average age of 27. In 2011, the combined GDP of the CIVETS was $13.4 trillion. Geoghegan says the middle class in these countries will grow to 1.2 billion people by 2030, up from 250 million in 2000. With more money to spend, households will buy more products, which “bodes well for financial services.”
No opportunity is without risk, so caveat emptor. Here’s what EIU and the World Bank are saying.
Colombia’s projected 2012 GDP is 4.9%. Its population of nearly 45 million has a median age of 28. Leading industries are oil, coal, coffee, agricultural products and emeralds. Colombia’s pro-business government recently implemented reforms, including improving security, which is the number one risk, making it easier to do business in the country. A $55 billion, 10-year investment plan to rebuild its crumbling infrastructure will help boost the economy. Colombia recently signed a free-trade agreement with the United States and other developed countries, which should help its growth. In addition to security, taxes are complex, and corruption and inefficiency are rampant.
Indonesia has the fourth-largest population in the world and a growing middle class, which is expected to triple by 2014. It also has a large pool of educated talent and the lowest unit labor cost in the Asia-Pacific region. Its 2012 GDP growth is expected to be 5.9%. Foreign direct investment jumped 30% in the first quarter to a record $5.6 billion and is expected to hit $20 billion in 2013. Industry makes up half its economy. Problems include a lack of basic infrastructure, government inefficiency and protectionist regulation.
Vietnam is politically stable with lower labor costs than China, making it an attractive manufacturing center. Its GDP is expected to be 5.7% in 2012 and 7% in 2013. The median age is 27. The middle class has substantial purchasing power, which is good for business. The business environment has improved, and the government provides tax breaks for high-tech, education and healthcare. Analyst concerns are inflation, an overstimulated pace of growth, and vulnerability of the banking system.
Egypt’s GDP is 1.6% for 2012 and projected at 5.2% for 2013. The median age is 24. With the Suez Canal joining Egypt’s fast-growing ports on the Mediterranean and Red Sea, the country is poised to become a major trading hub between Europe and Africa. It has a young population willing to spend on consumer goods. Instability remains a concern, but unrest is expected to die down.
Turkey’s 2012 GDP is 3.5%. The median age is 28.5. Turkey’s access to Europe and the Middle East and its stable government make it attractive for business. It has a young, educated, upper middle-class population that can afford to buy consumer goods, technology and energy. It has grown rapidly, but there is some concern whether it can continue that trajectory. The government is not as effective as it could be, and the legal process is slow and unpredictable.
South Africa’s projected GDP is 2.3% in 2012 and 3.7% in 2013. EIU says the country has a fairly good physical infrastructure, sound macroeconomic policy, developed legal and tax systems and a strong civil society. It’s rich in natural resources, e.g., gold. Businesses are looking to South Africa to test the latest products on a “young and hip generation.”
The government plans to spend $39 billion to improve infrastructure, boost investment and create jobs. Growth is slower than in other CIVETS, and exports have suffered from the economic slowdown in the United States and Europe. Rigid labor markets, high unemployment (23.9%) and high crime levels hinder its growth.
