Posted in Finance Articles, Total Reads: 7109
, Published on 06 February 2011
A new term has been coined to represent the next set of emerging markets, CIVETS countries, the new BRIC on the block. The CIVETS countries are Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa. They are touted as next emerging markets because they have diverse economies, fast growing population, relatively stable political environments and potential to produce increasing returns in the future. They are unhampered by high inflation, trade imbalances and sovereign debts. CIVETS are second-tier emerging markets that have relatively sophisticated financial systems and do not face runaway inflation, massive current-account deficits or public debt. Economic Intelligence Unit (EIU) has forecasted an average growth rate of 4.5% for these countries for next 20 years but only 1.8% for developed countries.
None of the global companies aiming for high growth can miss BRIC countries because of their sheer size. When compared to the BRICs, the CIVETS are much smaller. Indonesia is, by far, the largest with 242.9 million people, followed by Vietnam with 89.5 million, Egypt (80 million), Turkey (77 million) and Colombia (44 million). By contrast, Russia has a population of 139 million; Brazil has 201 million, India 1.2 billion and China 1.3 billion. Decision to invest in CIVETS countries is a complicated one. In a country like China, one can afford to go off course once in a while because he is sure to come on course. But that may not be true for CIVETS countries. Since market is small, companies might aim for short term results compared to larger countries where companies are willing to focus for a longer term.
Also there in the BRIC countries, there are home grown companies which are providing economic growth for their respective companies. Multinationals are can emulate the home grown companies or pick individuals from these companies to establish their operations. But that is not the case with the CIVETS countries. The domestic market is emerging and there are not truly global companies. So multinationals will have to either build from the scratch or buy an existing domestic company. One example from the recent past would be Airtel buying MTN.
As seen from the above table, most of the CIVET countries have manageable debt and budget deficit, except for Egypt.
Each of these countries presents its own challenges. Here is what Wharton faculty says about these countries.
Colombia: Following years of high-profile drug wars, Colombia remains a small market, but has always been a dynamic economy with some key industries, including fresh flowers, oil and coffee.
Indonesia: The largest of the CIVETS, Indonesia has a huge, sprawling population and has already benefited from investment by the U.S., China and Japan, but political and social stability is never certain.
Vietnam: A low-cost alternative to China for manufacturing, Vietnam has ambitious plans to grow its economy despite a Communist government.
Egypt: Although Egypt has a well-educated, prosperous population in its Nile Valley cities, much of the country remains poor and the country has a high level of debt (80% of GDP). The political future beyond the rule of President Hosni Mubarek is cloudy, and the country could face religious turmoil.
Turkey: Not a destination for manufacturing because costs are already high, Turkey remains a promising regional center which has benefited from relative stability and ties to the West in a volatile part of the world. Membership in the European Union would be a plus, experts note, but religious turmoil might hurt its economic prospects.
South Africa: Although it faces problems with unemployment and HIV/AIDS, South Africa has strong companies, a well-developed business infrastructure and can serve as a gateway to southern Africa.
CIVETS are in their formative years. After the dynamic growth of the BRIC countries in the last decade, a batch of six more countries that is the CIVETS — will be the ones to watch in the long term.
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