Fiducia Wealth Management

With the BRIC (Brazil, Russia, India and China) economies well and truly established on the world stage, Jim O’Neill, the former Chairman and Chief Investment Officer of Goldman Sachs, has coined a new acronym ‘MINT’, to identify the next group of emerging economies.

Initially the countries included in MINT may promote an air of scepticism but when one looks past the initial reputation and media swirl associated with Mexico, Indonesia, Nigeria and Turkey (MINT), all show promise in one form or another and may well become the economies to watch on the world stage.

The demographic statistics alone are staggering, a total population larger than Europe’s at over 600 million, an average age of just 24 and forecast economic growth over the next few years that could exceed Chinas.

Geography

If one takes into account geography, this too paints a positive picture as all four countries are either located next to major economies or are in areas that have great potential.  As a neighbour of a reinvigorated United States, Mexico benefits from a local market which soaks up 75% of their total exports, and with NAFTA (North American Free Trade Agreement) becoming more integrationist, they may be perfectly placed. Indonesia has the advantage of being in a corner of the world that has seen momentous growth in the form of South East Asia, with access to expanding markets giving a source of international demand to feed its pre-existing growth. Turkey is the gateway between East and West, which brings trading benefits but also a whole set of ideological challenges, as demonstrated by the recent political tensions. Nigeria’s location is the least advantageous of the four in what has been a continent of conflict. That said if corruption can be conquered, the country does have tremendous potential.

Demographics

Much has recently been made of the ageing populations of Western economies as well as the resulting cost increases of the future welfare burden. In the four MINT countries this is not an issue, their populations are brimming with ambitious, young and increasingly better educated individuals to spur on the growth of their respective nations. One thing that has often held back countries in their initial stages of development is aggressive population growth, as any increase in the standard of living (i.e. GDP per capita) is quickly offset by the number of extra mouths to feed (i.e. a Malthusian economy). In all but Nigeria (where the average birth rate is still around 5.49) birth rates have fallen to Western levels of around 2 per family. In Mexico this fall is most pronounced with the birth rate falling from around 7 in the 1960s, to around 2.28 now. This not only allows the standard of living to rise but also the female proportion of the labour force to be fully utilised as in many of the newly developing countries the burden of caring for large families falls upon them.

Indigenous Prospects for growth

Of all the MINT countries, Nigeria’s potential is perhaps the most exciting. Despite its high level of corruption and poor infrastructure, it has still managed to grow at 6-7% pa throughout the past decade. As the population becomes relatively better off, this should make the government more accountable for its actions as well as helping to stamp out corruption. One particularly astounding statistic is that for all its oil resource, 170 million Nigerians have the same level of domestic power supply as do just 1.5 million British citizens and despite this handicap they achieve a high level of economic growth, you could say they are effectively growing in the dark.

Turkey appears to be at an impasse with relatively good economic growth (although below its potential), along with some emerging global brands, such as the white goods producer ‘Beko’ and Turkish Airlines. However, the economy faces challenges, politically the state is very unstable, which serves to dissuade investors and hinders its ability to become a progressive European nation. It also faces economic problems, such as a rising current account deficit and, as such, mounting levels of national debt. Unlike the other three nations it also lacks the underlying commodities which would help in stabilising these deficits (admittedly dependant on the terms of trade). Still, if it can overcome these barriers, its manufacturing base, public infrastructure and growing private consumption could help it become a global economic success.

Though Mexico has become the poster boy for economic integration both through NAFTA as well as the ‘Maquiladora’ programmes (which create manufacturing hubs on the border of the two countries), its economy is very reliant on offshore oil and there is still the question of what happens when the wells run dry. This said, the country is currently the most stable of the MINT group, due to significant and lasting economic reforms brought about by the current government, particularly in relation to energy, education and fiscal policy targets. Current IMF projections for its GDP per capita are $48,000 by 2050 (equivalent to that of the United States today) illustrating just how much of a global player Mexico could become.

In the current hothouse of East Asia it would be easy to overlook Indonesia, though its growth in GDP has reached levels of around 6% and the World Bank projections indicate this will be sustained through the next few years at least. Probably the biggest issues it faces are not entirely different to its MINT compatriots – infrastructure and leadership. Like Mexico and Nigeria, it needs to move on from a commodity export reliance and use this as a springboard to move into manufacturing and urbanisation. Foreign investment is also beginning to flood in to pre-empt the consumption surge that accompanies rising wealth. Jakarta, for example, is the 2nd largest conurbation in the world after Tokyo and before Seoul, with a population of around 26 million, and is progressively becoming home to new multi-nationals, with the BBC reporting the building of the first IKEA store at the start of the New Year.

From BRIC to MINT

The MINT countries all have their share of challenges, but as with the BRICs before them, if they can overcome these barriers, they may become major economic powers of tomorrow. Those investors that choose to be bold and invest in these new frontier markets may find themselves well rewarded. The big advantage the MINT countries have is the potential to raise the living standards of over half a billion people. In the case of Nigeria and Indonesia, 68% and 15% of their respective populations live in absolute poverty, so the scale of the challenge is certainly daunting.

 

Paul Barker  Bsc (hons) Msc.

Junior Paraplanner Fiducia Wealth

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