Looking beyond the obvious
Momentum is shifting to other hot spots
Increasingly, non- BRIC rapid-growth markets are emerging as hot spots for global business. These markets are more globally integrated than the BRICs on a range of trade, investment, cultural and technological criteria, and this is set to continue through 2016.
Many of these markets also show consistently high economic growth close to that of the leading BRICs. For example, Turkey, Mexico and Indonesia closely shadow China and India in terms of GDP growth from 2000 through 2015.
Other promising locations include Peru, Colombia, Venezuela, Malaysia and Vietnam, as well as several countries and regions in Africa that are shaping up to be among the most dynamic parts of the world for investment.
In our survey, the number of executives who view rapid-growth markets other than the BRICs as the most important source of new revenue nearly doubles from 26% today to 45% in three years and they’re following the money.
Executives from all geographic regions expect to increase investment in these markets — 82% plan to do so, and 4 in 10 expect to increase it by more than 10%.
“It will take strong and decisive leaders to stimulate global economic growth. And those leaders must come from diverse backgrounds and have international experience, as well as a global mindset.”
- Beth Brooke-Marciniak, Global Vice Chair, Public Policy, EY
Our respondents believe South Africa, Indonesia, Mexico and Turkey to be the most competitive locations because of their access to nearby markets, political stability, and transport and technology infrastructure.
Our survey shows a significant shift in fundamentals: vast majorities of executives see improvement in non-BRIC rapid-growth markets in terms of ease of doing business, infrastructure, government policies and labor productivity.
This is part of a broader cycle of economic development. As an increasing number of emerging markets around the world develop the capability to be manufacturing leaders, they leapfrog other countries — a cycle driven by the development and dispersion of new technologies.
Colm Reilly, head of the UKTI Investment Services group, says, “That is why you’re starting to see the growth of markets beyond the BRICs, like Mexico, Indonesia or some countries in Africa, where you’re starting to see a propensity for them to leapfrog because of technology. Mexico, for example, is now the No. 1 producer of flat-screen TVs.
"As long as they keep educating their young people, which they are doing very successfully, then you would expect that to continue. These countries have available capacity in skills at a relatively low cost, which is not something that every country can claim at the moment.”
Businesses are also looking to non-BRIC rapid-growth markets primarily to grow their demand base, rather than to cut costs. This is an important shift in mindset.
It reflects the relatively attractive economic fundamentals in these markets, such as favorable demographics and the potential for income growth, although higher inflation is altering the equation on production costs.
Sub-Saharan Africa, in particular, is a magnet for investors. The International Monetary Fund estimates that foreign direct investment (FDI) in the region has surged 50% since 2005. FDI projects abound in manufacturing, infrastructure and services.
Seventy-three percent of respondents to our 2012 Africa attractiveness survey of more than 500 investors and business leaders anticipate that Africa’s attractiveness will improve over the next three years.
“In the next decade, growth will be very substantial in African countries. They are the potential BRIC economies of the future.”
- Michael Lalor, Lead Partner, Africa Business Center, EY South Africa