10th May 2011, citywire.co.uk/wealth-manager, By David Campbell
In an otherwise moribund economy, recent years have witnessed one area of runaway growth: the creation of quirky acronyms to describe the next hotspots of emerging world development.
Alongside the market-leading Brics, the Next 11 and the Seven Percent Club have been among the more coherent and less annoying. Others have owed more to snappy phrasemaking than a well-conceptualised outlook on economic history and what it tells us about new markets.
Step forward Willem Buiter. Rather than drawing up a ragbag of frontier growth prospects, the Citibank chief economist has created a development model and ranked leading states by index positions.
His index – Bangladesh, China, Egypt, India, Indonesia, Iraq, Mongolia, Nigeria, Philippines, Sri Lanka and Vietnam lead it up to 2050 and compares predicted GDP data versus the past 10 years of growth.
While it does have a brand name, the 3G Index (or global growth generators) has a more diligent rationale underpinning it than some other attempts to sell the next sources of growth.
‘We don’t want 3G to join the list of patronising acronyms or even the list of cute but uninformative and pointless ones (although at one point we flirted with an intriguing/confusing label like the Magnificent Seven, the Nine Nazgûl or the 39 Steps),’ said Buiter. ‘Instead, we view it as a question. What are the generators of global growth and profitable investment opportunities or the next 40 years?’
Working from a baseline prediction of purchasing power adjusted GDP growth rates, inflation and market exchange rates for 85 countries over the next 40 years, supplied by 50 economists, Buiter and his colleague Ebrahim Rahbari compared these to the recent past.
Over these they applied aggregated key growth catalysts such as capital formation, domestic savings, institutional quality, human capital, trade openness and starting levels of per capita income.
Two Brics excluded
‘There are several reasons why two of the Brics, Brazil and Russia, are not in the 3G category,’ said Buiter. ‘One is that they are significantly richer than the 3G countries. A lot of catch-up has already occurred and most of the low-hanging fruit is gone.
‘The second reason is their low investment rates. The third is that, for the later stages of the convergence process, the quality of institutions and policies matters more than for the early stages. Brazil and Russia especially have material weaknesses in the quality of their key economic institutions and policies, which limit their growth prospects.’
He stressed the aim had been to create a replicable and consistent model of projected development rather than pick a series of growth prospects. In particular, asset price fluctuation remains a wildcard risk, particularly in the highly political and sensitive food supplies, as do sustainability issues. On the upside, North Korea, Cuba, Iran, Myanmar, Venezuela and Argentina could all very conceivably face transformative institutional change.
'The growth we are predicting will either be “green” and sustainable or it won’t occur. It is therefore encouraging that the main driver of environmental degradation and excessive natural resource use – population growth – is expected to peter out,’ Buiter said.
‘Global GDP growth will mainly be driven by growth in GDP per capita, especially in the later decades.’
Related Info :
• Sri Lanka in Citi's 3G Economies. Global Growth Generators Identify 11 Countries with Most Promising Growth Prospects. BRICS Displaced
• Sri Lanka Performs better than BRIC Economies. Smart Money Highlights Investing in Smaller Emerging Markets
• Sri Lanka Bonds Out Perform BRIC Bonds in International Capital Markets - Survey by JP Morgan Chase and Co
• Why the West must Stay Engaged in Sri Lanka