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Global index reveals average growth of 2.3% for 20 most integrated countries during 2008/2009 economic crisis, while bottom 20 contracted
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New research into the BRICs (Brazil, Russia, India and China), has revealed that the countries with the highest economic integration with the emerging powers managed to sustain growth during the global downturn of 2008/2009, compared to a contraction seen in the countries with the least financial ties.
The Emerging Powers Integration Index Series released by risk analysis and mapping company Maplecroft, assesses the economic integration of 180 countries with each of the BRICs, as well as South Africa, which is included due to its regional influence. Maplecroft compiled the series of indices, using the latest available data on world trade and foreign direct investment (FDI), to provide insights into which countries stand to gain most from the economic rise of the emerging powers. At the same time, they expose the countries most at risk of economic contagion should the growth of the BRICS falter.
The economic strength of the emerging powers, especially China, proved critical in the wake of the 2008/2009 crisis. The Emerging Powers Integration Index reveals a clear distinction in the economic performance, following the onset of the crisis, between the countries with close trading and investment links to the BRICs and those without. Appeals to China to support the recently agreed Eurozone debt rescue fund provide further evidence of the growing economic might that China, and to a lesser degree the other BRICs economies, hold on the world stage.
Maplecroft’s analysis of the results has found that the 20 countries with the greatest economic ties to the emerging powers averaged growth of 2.3% in 2009 (down from 4.4% in 2008), compared to the 20 least integrated countries, whose growth contracted by an average of 1%.
“If this economic resilience is indeed a product of integration with the emerging powers we can expect the most integrated countries to better withstand a similar downturn to that of 2008/2009,” states Chris Dixon, Risk Analyst at Maplecroft. “However, should the current economic turbulence in Europe and the US spread, investment risks in these economies may increase.”
The economic emergence of China, along with the emerging powers of Brazil, Russia and India has had a dramatic effect on patterns of global commerce. The past two decades have seen the expansion of multinational operations and supply chains in the BRICs, as companies attempt to exploit new investment opportunities that are aligned to impressive long-term growth potential. The global shift becomes even more dramatic when viewed through the lens of the 2008/2009 economic and financial crisis, from which the BRICs have recovered quickly, while most advanced economies have floundered.
Emerging Powers Integration Index
© Maplecroft, 2011
According to Maplecroft, the countries most integrated with the emerging powers are regional partners and resource-rich developing economies, which provide the raw materials to fuel economic growth. Of these many are located in Africa including Zimbabwe ranked joint 1st, Liberia 5th, Guinea-Bissau 6th, Zambia 7th, DR Congo 10th, Mozambique 12th, Mauritania 15th, Congo 18th and Sudan 20th.
Of the emerging powers, China stands out as the only one which is truly globally integrated. In addition to its influence as a regional power, trade and investment by Chinese state and private sector companies have become key contributors to growth in Africa and South America. These countries are crucial to China as it seeks to secure natural resources, particularly oil and gas, iron ore, and copper. These include Chile 6th, Sudan 11th, Ethiopia 12th, DR Congo 14th, Mauritania 15th and Peru 25th.
“Economic resilience and long term growth potential will largely depend on the ability of the BRICs to confidently address global market uncertainties including fluctuating commodity prices and domestic economic pressures, such as persistent inflation, especially rising food prices, and wage demands,” states Alyson Warhurst, CEO of Maplecroft. “Should growth in the BRICs economies falter or lead to internal unrest and repression, we could see contagion spread to those countries that are most highly integrated with the emerging powers.”
Given economic and political imbalances at home, China and the other emerging powers are potentially more exposed to global crises today than they were in 2008. Despite emerging as economic powers in their own right, these countries will become increasingly vulnerable to global economic conditions as they become more integrated. Indeed, this is all the more so as the BRICs become more influential in plans to stabilise Eurozone economies and the US.
In China, domestic political factors may begin to play a crucial role in the country’s growth, which is forecast by the IMF to be around 9.5% in 2011. This marks a slowdown on average growth of over 11% between 2005 and 2010. Potential constraints on growth include inflation, asset bubbles, wage unrest and rising local government debt, sometimes as a result of endemic corruption which characterised the earlier years of foreign direct investment. There has also been growing demand to balance societal expectations in line with efforts to promote growth based on domestic consumption. As a result, there have been more rights and improved conditions provided to manufacturing workers, especially migrant workforces, so they can more effectively save and spend, and contribute to economic growth.
“Political dynamics in the BRICs, and the countries where BRICs are most invested, have the potential to both enhance and constrain economic stability and thus contribute to their long term growth environment,” says Jim O’Neill, Chairman of Asset Management at Goldman Sachs who is also a Maplecroft investor. “This exciting new range of indices shines a spotlight on the opportunities and risks that investors will need to monitor to extract greatest potential from the areas where growth is occurring in the global economy.”
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