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Where next?

The emergence of large, vibrant and seemingly unstoppable new markets has been the good news story of the past decade.

By London Business School 01 June 2010

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China, India, Russia and Brazil are among those who have emerged blinking into the economic light. Amid the turbulence and rapid growth, of one thing we can be sure: new and very different markets will continue to emerge. For investors and business leaders, the critical question they must contemplate is powerfully simple: where next? We present three countries which are well placed to seize the economic day.


Botswana


A small, landlocked nation of nearly two million people in Southern Africa, Botswana, Africa’s oldest democracy, was originally home to Bushman, then Bantus. It became a British protectorate in 1886 and remained so until gaining independence in 1966. Its legacy from British rule includes English as an official language but, more important, a strong democratic government that has acted wisely in almost every area over the years. In the latest Global Peace Index ranking, Botswana was the highest listed African nation.


The government’s careful management of the economy has changed Botswana from one of the poorest countries in Africa, at its independence, to one of the more rapidly growing economies in the world. (Two major investment services rank Botswana as the best credit risk in Africa.) Nobel Prize-winning economist Joseph E. Stiglitz says its economic strength is the result of “its ability to maintain a political consensus, based on a broader sense of national unity”; and today, that once-poor nation has a Gross Domestic Product (GDP) of $27.1 million and a per capita GDP of $13,900, compared to $70 in 1966. Moreover, its GDP growth over the past decade has been in the double digits (except recently, a reflection of the world economic crisis).


The major economic problem facing Botswana is that its diamond deposits will begin to run out over the next decade. Anticipating that event, however, the government developed its Vision 2016 plan, making diversification a strategic objective. Involving the creation of development hubs for such things as innovation, the plan has received praise and financial support from many international organisations and attracted private foreign support. Ericsson, one of the world’s biggest telecommunications equipment providers, recently announced that it would be among the first tenants of the Botswana Innovation Hub when it is ready in December 2010.


The other huge problem facing Botswana is HIV/AIDS: its infection rate is second in the world, with almost a quarter of the population infected.


The road to overcoming these problems may be rough, but most analysts agree that Botswana’s future is promising. For example, the government’s plan to grow the tourism industry has raised great interest among international companies. Botswana has much to offer tourists, in part because it set aside 17% of its land for national parks; and it has some of Africa’s largest elephant populations, which already attract wealthy tourists from the US, the UK and Germany.


Chile


One of the world’s the rising stars, until this year’s earthquake, Chile is second only to Brazil in respect to direct foreign investment and has the lowest inflation rate (an estimated 1.7% for 2009) among major Latin American countries. Moreover, it is third in GDP per capita ($14,900) in South America and has a total GDP of $244.5 billion, with a growth rate of 3.2%. Considered by many the most competitive and stable economy in the region, it gained full membership in the Organization for Economic Co-operation and Development in 2009, an indication that it is transitioning from a developing to a developed country. Many economists predict that this country of 17 million people will become the first in Latin America to do so.


The vigour of the Chilean economy is evident in its $66.5 billion in exports, as well as in the investments made in various sectors of its economy by some of the world’s largest multinational companies, including Motorola, Unilever, AT&T, Alcatel and Thames Water. Foreign investors, drawn by Chile’s stability and attractive business environment, are increasingly using it as a base for exporting to, or providing services for, other Latin American markets, making it a regional business centre and Latin American headquarters for such multinational companies as IBM, JPMorgan, Microsoft and Coca-Cola.


Over the long term, however, Chile’s economy has been prosperous mainly because it is the world’s largest producer of copper: its export of minerals (nitrates, iron, manganese, molybdenum, gold and silver as well as copper) account for about half the total value of its exports. In addition, Chile is a successful exporter of food (its $2 billion salmon industry, built in less than two decades, makes it the world’s second largest exporter and the biggest supplier of salmon to the US) and wines (a $1.4 billion industry also only 20 years old).


Chile’s economic strengths are a result of its business-friendly government (stable since the end of a long and bloody dictatorship some 20 years ago and now with Harvard-educated Sebastián Piñera as president); talented labour pool (with a literacy rate of 96.5%, the best business schools in Latin America and lower labour costs than those of North America and Europe); long-standing commitment to trade liberalisation (it has had a free trade agreement with the US since 2004 and has 57 other trade agreements of various sorts, including with the European Union, Mercosur, China, India, South Korea and Mexico); and low corporate tax rates (17%, the lowest in Latin America).


Indonesia


Indonesia, the world’s fourth most populous country, is situated in an archipelago of more than 13,000 islands (about half of which are inhabited) and extends some 3,000 miles along the equator from Malaysia toward Australia. Its combination of nature’s bounty and natural disasters, new democratic leadership and a legacy of corruption, extreme wealth and dire poverty makes it a difficult nation to evaluate in terms of future economic growth.


Although Indonesia has drawn increased foreign investment in recent years, corruption is still an issue (which the current regime is working hard to eliminate). There is a history of labour unrest, and the education system ranks lowest among its Asian neighbours in terms of public education expenditure (fewer than half its 12–15-year-olds attend secondary school, and less than 1% of its workforce holds university degrees).


President Susilo Bambang Yudhoyono, the pro-democracy leader re-elected to a second term in a peaceful election, delivered one of the G-20’s best economic growth rates this past year, with strong GDP numbers, rising income levels and increased domestic consumption (although 14% of the country’s 240 million citizens still live in poverty). His re-election as leader of a nation that is home to the world’s most populous Muslim majority (86% of citizens are Muslim) seems to indicate that Indonesia can thrive as a stable democracy; for, even though the problem of violence from militant Islamist groups continues to flare up on occasion, support for Islamic parties in the recent election declined.


So there are many reasons to be hopeful: as global strategist Kenichi Ohmae says, “Good government invites world capital.” As proof of that, in January 2010, the nation’s Industrial Minister reported that at least seven major US companies — Ford, Caterpillar, Dow Chemical, GE, Cargill, Monsanto and News Corporation — have signalled their interest in beginning operations in Indonesia in the near future. The dream of Indonesia rising to become the second “I” in the so-called BRIC emerging economies of Brazil, Russia, India and China may become a reality in the face of the changes being brought by the current government.


The Summer issue of Business Strategy Review provides introductions to 12 countries which may be the next economic powerhouses.

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