\A/ord5: Tina Nielsen

Booming economies in Brazil Russia, India and Chinasuddenly look less assured as a global slowdown gatherspace. Can they still be a safe bet for entrepreneurs andwhere do the new frontiers for emerging markets lie?

BEYOND THE BRICW hen the Goldman Sachs economist, ]im

O'Neill, coined the term BRICs in 2003 as aterm for the thriving emerging markets ofBrazil, Russia, India and China, little did

he know it would make such an impact internationally. In thereport Dreaming with Brics, O'Neill and colleagues from theinvestment bank predicted that by 2010 the economieswould comprise more than 10 per cent of global GDP. Alreadythey make up 15 per cent of the world economy.

But while six years ago it might have been appropriateto group the four markets under the same banner, todaytheir country profiles look markedly different—so, too,does the global economic picture.

"There was a period when all four could be consideredlarge, fast-growing emerging markets, or potentially fast-growing emerging markets. The differences were alwaysquite stark in terms of political set-up, market size andthe balance of their economies," says Alasdair Ross, direc-tor of wire services at the Economist Intelligence Unit.

"Now those differences are all the greater, so whateverrationale there was for grouping them together before iscertainly weaker now. It was a handy catch-all phrase. Thehandier these things are, the more currency they get andthe more they tend to get used."

The sensational growth in the BRIC economies hascaused UK companies to flock abroad, attracted by low-cost manufacturing and cheap labour. While China andIndia have been the most popular destinations, all fourhave developed tremendously. Between 2001 and 2007Brazil's equity stock market increased by 369 per cent,India's by 499 per cent, while China's A-share market wentup by 201 per cent. By 2012 China's share of world exportsis forecast to rise to 10.7 per cent, a figure that is partlydriven by foreign direct investment.

But with an uncertain global economy, what's next forBRIC? According to Ross, the assumption mooted lastyear that the four nations had decoupled from the rest ofthe world economy and would continue to grow undis-turbed by crisis has proven to be incorrect. "People arenow much more discerning about their expectations ofBRIC, and everybody understands that every market andevery emerging market, including the BRICs, will beaffected to some extent," he says.

Gareth Thomas, minister for trade and investment, saysthe BRIC nations sdll offer excellent opportunities. "For

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WALLCHINAGDP: S3.25itrn (2007 est.)Growth: 11.9% (2007 est.)Currency: Renminbi (RMB)Exports (partners): US 19.1%,Hong Kong 15.1%,Japan 8.4%,South Korea 4.6%, Germany 4%(2007)Imports (partners): Japan 14%,SoLitli Korea 10.9%, Taiwan 10.5%,US 7.3%, Germany 4.7% (3007)

RUSSIAGDP: $i.29îrn (2007 est.)Growth: 8.1% (2007 est.)Currency: Rouble (RUB)Exports (partners): The Netherlands12.2%, Italy 7.8%, Germany 7.5%, Turkey5.2%, Belarus 5%, Ukraine 4.7% (2007)Imports (partners): Germany 13.3%,China 12.2%, Ukraine 6.7%, Japan 6.4%,US 4.8%, Belarus 4-4% (2007)

many companies these economies hold the key to successin these difficult times," he says. "UK husinesses shouldcontinue exploring and, in fact, consider a deeper driveinto BRIC markets. They are by no means immune fromthe global economic slowdown, hut they appear wellplaced to weather the storm."

In Tomorrow's Marfeeis, a report published last year by UKTrade ^ Investment (UKTI), 49 per cent of executives sur-

BRAZILGDP: Îi.3i4trn (2007 est.)Growth: 5.4% (2007 est.)Currency: Real (BRL)Exports (partners): US 16.1%,Argentina 9.2%, China 6.8%, theNetherlands 5.6%, Germany 4.6% (2007)Imports (partners): US 15.7%, China10.5%, Argentina 8.6%, Germany 7.2%,Nigeria 4.4% (2007)

INDIAGDP: $i.099trn (2007 est.)Growth: 9% (2007 est.)Currency: Indian rupee (INR)Exports (partners): US 15%, China8.7%, UAE 8.7%, UK 4.4% (2007)Imports (partners): China 10.6%,US 7.8%, Germany 4.4%, Singapore4.4% (2007) Source: CM

veyed indicated that China would be part of their plans forexpansion, 42 per cent named India, 33 per cent Russia and29 per cent Brazil—and all with good reason.

"Economic growth in China for next year is predicted tohe at ahout eight or nine per cent There has heen heavyinvestment in heavy goods and infi-astructure in all fourBRIC economies over the past decade," says Richard Scase,professor at Kent University and author of Global Remix:The Fight for Competitive Advantage. "To keep these econ-omies growing, the governments—especially in China—are trying to stimulate consumer spending, and that willcreate opportunities for many UK knowledge-based busi-nesses, including legal, financial and architecture."

Last year, a US economic expert suggested that therewould be a shift in what makes a market attractive, andthat British husinesses should be looking to the BRACrather than the BRIC economies—Australia and Canadataking the place of India and China. He argued that intimes of global instahility, companies should focus oncountries rich in natural resources and more likely tohenefit from a stähle economic climate.

Scase dismisses this as nonsense. "How can Canadapossihly create more opportunities for investment thanIndia, China or Russia?" he asks. "Russia has got all thenatural reserves that Canada has but many times moreand a larger population. It might he safer to invest inCanada at the moment, hut the return and the scale ofinvestment is inevitably going to be much lower."

But it is true that there has been a shift, if not away fromChina and India entirely then at least heyond the majorcities that have heen popular business centres. UKTIpredicts that many "second-wave" locations will hegin toemerge as investors seek to tap into new markets. Risingcosts in Beijing, Delhi and Mumhai might also lead tomore adventurous behaviour fi-om investors.

"There has heen a shift towards higher value-addedsectors," says Ross. "As more and more people have piled

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in looldiig for the specialised labour they require, the costof labour has gone up, so people have started to lookfiarther afield where wage costs are still cheap. So China asa cheap production platform has been overtaken by otherplaces, but that's not a measure of China's failure—that isa measure of its success as it has pushed up the value-added chain and attracted more high-tech companies."

Scase agrees: "Countries sucb as India and China havebeen able to grow because of heavy investment in raisingliving standards, providing water and housing, and all thishas created an affluent middle class. Combined, the twohave an affluent middle class of about 400 million peopleand they now desire cars, houses, financial products suchas pensions, healthcare and education."

UKTI says investors should continue to look for oppor-tunities that clearly exist in other economies. Vietnamseems to have largely escaped the global downturn and isthe most popular market for executives looking beyond

"COMBIIMED. IIVIDIA AND CHINAHAVE A IVIIDDLE CLASS OF 400MILLION PEOPLE AND THEY DESIRECARS, HOUSES AND EDUCATION"

BRIC, but Mexico, the United Arab Emirates and Ukraineare also predicted to be popular, although UKTI statesthat companies view these countries as additional marketsand not as replacements for the BRIC economies.

"These countries might not match China or India interms of population, but their progress in market reforms,trade liberalisation and governance will weigh more heav-ily in company investment decisions, especially givencompetitive wage levels," says Thomas, who understandswhy businesses feel apprehensive about investing abroad.

"Though the prospect of exporting can be daunting,particularly now, there are still compelling reasons whyUK companies should look outside of the domesticmarket," he says. "The outlook for emerging markets isgenerally positive, but there are risks. Many still struggle

with inflationary pressures, unsustainable credit expan-sion, poor infrastructure and inadequate governance."

Ross thinks these factors combined are likely to makemany British businesses think twice about investingabroad. "There are two issues feeding into their decision-making; one is the fact there are no longer any countriesthat will be immune to the downturn and the other is thatcompanies will quite simply move to protect their ownbalance sheets," he says. "I think we are already seeing thisacross the board—there is a huge amount of uncertaintyand I believe companies will be battening down thehatches preparing for a tough year."

For Scase, looking abroad is vital for UK businesses. Hedoesn't believe that they have grasped the severity of thecurrent crisis. "I spoke at a business event recently and Iwas staggered by the complacency of delegates," he says."They were so naïve in analysing the situation. They didn'tappreciate the fact that there is a fundamental paradigmshin in the global economy."

Scase believes recession should, and will, force busi-nesses to spot potential overseas. "The proactive ones willlook abroad—it is a tremendous time to seek opportuni-ties. I am afraid that the people who naively think thingswill be back to normal and don't do anything are the samebusinesses that are going to go to the wall."

He points to Turkey, South Africa, Vietnam, the Balticstates and the new EU accession states as potentiallyrewarding markets. "The imaginative entrepreneurshould be looking for all sorts of opportunities, even inthe more mature markets such as Europe. The growth ofan affluent middle class in these very large economiesoffers tremendous potential for businesses in the UK."

With China's impressive growth, says Ross, much ofwhat happens in the west depends on demand fromChina, and he believes the international trade picturecould be markedly difFerent when tbe crisis ends. "The bigquestions are when does this slowdown end and whichwill be tbe first economies to emerge from it? I think thatit could be the UK, the US and the rest of Europe that willemerge most quickly because they went into it first." Q

GATEWAYS TO GROWTHTURKEYExpected to be among the world'stop 10 economies by ZOSO,Turkey is one of the most excitingand fastest-growing markets, and1,600 UK companies already operatethere. Several large multinationals—among them GE Heaithcare, Fordand Coca-Cola—have bases inTurkey. A young workforce—50 percent of the 72 million population isunder 28—an ideal location betweenEurope, Central Asia and the MiddleEast and many special investmentzones, including 21 free-trade zones,are all factors that appeal to foreigninvestors. UKTI says the environ-ment, water, ports and agricultureare priority sectors where expertisewill be needed. Opportunities alsoexist in financial services and ICT.www.i nvest.gov.tr

PANAMAThe Central American nation hasboomed since regaining control ofthe Panama Canal from the US in1999. In 2006, GDP grov/th rose to11.Z per cent, making the countryone of the world's fastest-growingeconomies. The construction sectoris strong and a huge rise in touristnumbers has resulted in rampanthotel development—it is estimatedthat a further 8,000 rooms will beneeded by 2018. In addition, Panamahas the second-targest free-trade zone in the world. A strongbanking sector and a largely service-based economy (80 per cent of GDPcomes from the service sector) haveeven prompted someto speculatethat Panama may even be immunefrom the global downturn.www.businesspanama.com

BRUSSELSAccording to the 2007 EuropeanCompetitiveness Index, Brussels isthe most competitive region inEurope, it is popular for businessesthat want to establish themselveson the continent, ofFering a highlyeducated, multilingual andproductive workforce. There aremany advantages for foreignbusinesses, including an 80 percent reduction on the tax paid bycompanies on revenues fromresearch and development patentsdrawn up by the owner business,making it particularly attractive forthose dealing with intellectualproperty. Homes are cheaper thanin other European capitals and thelower cost of living means lesspressure on salary costs.

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