Rapid-growth markets forecast: Autumn 2012

High-potential economies: Indonesia, Turkey and Vietnam

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When we compare the various RGMs according to our criteria, Indonesia, Turkey and Vietnam stand out as high-potential economies alongside China and India.

Beyond China and India, Indonesia, Turkey and Vietnam stand out as particularly strong markets.

All five countries:

  • Have favorable demographic trends and rising household incomes
  • Are expected to grow by at least 5% p.a. over the next 25 years
  • Are expected to contribute a much greater share of global GDP over the next 25 years


Indonesia’s strong domestic fundamentals are expected to support GDP growth of 5.9% this year, down only slightly from last year’s 6.5%. By 2020, Indonesia will have more households earning over US$30,000 than China does today.

Indonesia has made firm progress in macroeconomic management and political stability in recent years. Government debt has fallen sharply to 25% of GDP in 2011. Within 10 years of the Asian crisis, the share of investment in GDP in Indonesia had returned to pre-crisis levels.

Indonesia: investment and debt as a percentage of GDP

Indonesia: investment and debt as a percentage of GDP

Source: Oxford Economics.

The quality of port infrastructure was rated at 3.6 out of 7 last year by the World Bank, an increase from 2.6 in 2007.

The authorities are targeting average growth of 7% p.a. by 2014, and are gradually implementing reforms to ease the cost of doing business and to build infrastructure. They are particularly keen to encourage foreign investors to invest in longer-term assets.

Moody’s and Fitch upgraded the country to investment grade status earlier this year. Standard & Poor’s are holding back from upgrading Indonesia’s rating, partly due to the authorities’ last-minute back-tracking over their decision to cut fuel subsidies.


Turkey is one of only two countries among the RGMs whose GDP growth forecast for this year has not been downgraded from a year ago. Over the next 25 years we expect GDP growth of 5% p.a.

Over the past decade, macroeconomic policy has been much more stable, with the Government focusing on reducing both inflation and the budget deficit. Huge improvements have been made to bring inflation under control, which has facilitated a large increase in bank lending over the last 10 years, boosting domestic demand.

Turkey has a massive domestic market, and in 10 years’ time there will be over 11 million households earning more than US$30,000. There has been a notable increase in trade with the Middle East, North Africa and central Asia over the last decade.

Last year, Turkey had the largest current account deficit as a percentage of GDP of all the RGMs, but its strong global links should ensure that external financing remains plentiful.


Vietnam is expected to grow by almost 6% p.a. over the next 25 years, making it the third fastest growing country among the RGMs. The authorities are targeting growth of more than 6% next year.

Per capita income is expected to grow by more than six times over the next 25 years. The number of households earning over US$30,000 will rise from less than 6,000 last year to more than 60,000 in 10 years’ time.

Vietnam has attracted more than US$6.5b in FDI in each of the last five years. Within the last few years, mobile phones and related accessories have become the second largest export item from Vietnam (after garments), according to the World Bank, accounting for 10.5% of total exports.

Vietnam: exports of telecoms excluding TVs

Vietnam: exports of telecoms excluding TVs

Source: Oxford Economics.

Being able to attract and retain foreign firms in high-value manufacturing products such as electronics, computers and phones is a big plus point.

The authorities adopted a stabilization package in February 2011 in response to the increasing pressures on inflation and the currency that took place in late 2010. The significant tightening of macroeconomic policies last year was very successful.

In June, Standard and Poor’s upgraded Vietnam’s outlook from negative to stable, but the agency stressed that price stability must continue to be prioritized.

Sector in focus: banking and capital markets

Indonesia, Turkey and Vietnam offer real opportunities for both domestic and international banks. These markets share three very promising characteristics:

  • A young and growing population
  • Rising levels of disposable income
  • Significant under-penetration in banking

Continued investment in infrastructure will be crucial for sustained growth. Further product evolution is expected as banks offer more premium banking services, investment products and wealth-management solutions to an increasingly affluent customer base.

Opportunities in project financing will be significant as governments develop a more robust national infrastructure. Continued improvement of skills in the workforce will help the economies of all three markets focus on higher-value industry sectors that will fuel growth in domestic consumption and exports. Trade finance will become an increasingly important enabler for growth in these economies.

All three markets still have a significant number of small sub-scale banks so the potential for consolidation is significant. To varying degrees, they are all open to foreign investment in the domestic banking sector as well as to the establishment of new branches and subsidiaries. The source of that investment is more likely to be banks from the Middle East, Asia and Russia.

Every silver lining

Investors in all three economies need to be wary of potential shocks and bubbles. Given the precarious state of the global economic recovery, further uncertainty in Europe or a harder landing in China could destabilize all these economies.

The central banks in all three markets are monitoring this closely to protect their banking systems and contain inflation.

Banks are also strengthening their approach to risk-based pricing. The broader availability of customers’ credit histories will also facilitate more accurate scoring and credit decisions, and help banks minimize the level of non-performing loans.

Of the three markets, Vietnam is a longer-term investment opportunity for banks and, given the recent slowdown in exports, not without its risks.

As businesses and individuals are impacted by the global economic slowdown, non-performing loans are on the rise and cash-strapped customers are looking for an increase to their credit limits. However, the potential upside is significant for those banks prepared to invest.  


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