MIST vs. BRICS - An Economic Analysis

Posted in Finance Articles, Total Reads: 2699 , Published on 17 December 2012
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In the ever-booming world of investment it is now the acronyms that decide the safe havens. Till last year it was BRICS that was making news in the daily publications. But with the ongoing global economic crisis from which even the BRICS couldn’t save itself we have now started listening a new acronym- MIST.  This new acronym is coined by Goldman Sachs, the same bank that gave the word BRIC to the world and coincidently the person behind both the nomenclatures is one and the same.

 

Jim O'Neill, often hailed as "the top foreign-exchange economist anywhere in the world in the past decade", had coined the term BRIC (without S) in 2001 giving the justification of how the world will see the shift in global economic power away from the developed G7economies towards the developing world. Although all the four countries justified the relevance of acronym by showing extraordinary growth till the global economic slowdown, there were few more countries which were experiencing the same rate of growth as the BRIC’s during the same period. These led to several rounds of arguments and counter-arguments about the inclusion of countries like Mexico and South Korea and change the acronym to “BRIMC” or “BRICK” accordingly. Later the BRIC countries formed a political organization among themselves; they also expanded to include South Africa, thus becoming the BRICS in 2010.

And now it seems as if the BRICS is looking like yesterday's newspaper as other global acronyms have stepped up to deliver solid returns.

The newly coined acronym- MIST - constitutes Mexico, Indonesia, South Korea and Turkey which are the four biggest markets in the Goldman Sachs N-11 Equity Fund(GSYAX), opened in February, 2011 to invest in the next big 11 emerging markets.  The fund has climbed 12 percent this year, compared with a paltry 1.5 percent gain in Goldman Sachs’s fund for Brazil, Russia, India and China. This further supported the argument against BRICS.

However, the comparison is totally justified since all of these nine countries (of BRICKS and MIST) are the members of G-20, the 20 major economies in the world and represents more than 1% of the global GDP.

Economic Analysis of BRICS and MIST

At present, the five economies of BRICS encompass over 40 per cent of the world’s population and account for nearly 25 per cent of total global GDP in terms of PPP. If one compares the GDP in PPP terms, four economies figure among the top ten, with China, India, Russia, Brazil, and South Africa in 2nd, 3rd, 6th, 7th, and 25th places, respectively

Secondly, the per capita GDP of BRICS (mainly BRIC) showed many folds rise from 1990 to 2011. It was mainly because of the liberalization of economy that happened at the same time in most of these countries.

 

GDP in PPP

(in US$ billion)

GDP

(in US$ billion)

Share in World GDP (in per cent)

Per Capita GDP

(US$)

Rank in the World

GDP

1990

2011

1990

2011

1990

2011

1

2

3

4

5

6

7

8

9

Brazil

7

2,293

508

2,492

3.3

3.5

3,464

12,789

Russia

6

2,383

-

1,850

-

2.6

-

12,993

India

3

4,457

326

1,676

3.1

2.4

378

1,389

China

2

11,299

390

7,298

3.9

10.4

341

5,414

South Africa

25

555

112

408

0.9

0.6

5,456

8,066

Source: IMF Database, 2011

Similarly, on analyzing the MIST countries using the same parameters we see that countries like South Korea and Turkey displayed spectacular growth in per capita GDP. The interesting point to note over here is the share of MIST countries in world’s GDP, which increased by huge margin between 1990 and 2011. Now if we exclude China from the BRIC countries we get to know that the share of BRICS in the World’s GDP during the same period remained almost stagnant (or in some cases reduced).

 

GDP in PPP

(in US$ billion)

GDP

(in US$ billion)

Share in World GDP (in per cent)

Per Capita GDP

(US$)

Rank in the World

GDP

1990

2011

1990

2011

1990 (approx)

2011

1

2

3

4

5

6

7

8

9

Mexico

11

1,661

263

1,154

1.0

1.7

7,100

10,802

Indonesia

15

1,124

126

845

0.6

1.2

1,307

3,469

South Korea

12

1,554

264

1,116

1.0

1.6

6,308

23,749

Turkey

16

1,073

151

778

0.5

1.1

3,860

10,576

Source: IMF Database, 2011

Overall Outlook

In the year 2011, the BRICS’ GDP was $13.7 trillion, while MIST’s GDP was almost 30 percent of BRICS’ GDP at $3.9 trillion, though the MIST countries displayed a higher overall growth when compared to BRICS.

The MIST economies have more than doubled in size in the past decade. On exploring the countries individually we get to know the reason behind this.

Mexico’s proximity with the US, its ease of access to the US markets and its own Hispanic culture helped making it international investors' strategic investment location. This also helped Mexico in becoming one of the last decade’s fastest growing nations. For Indonesia, it was the presence of ample natural resources and an expanding middle class that laid the foundation for continued growth. South Korea, often referred as the new Japan, has the highest purchasing power per capita in Asia and the world ($30,000) mainly attributed to the governmental long-term support in FDI. The huge presence of young manpower helped Turkey in showcasing an exciting growth of 11% in 2011 at the time of ongoing global economic crisis.

The Doing Business 2012 reported better rankings in terms of “ease of doing business” for MIST when compared to the BRICS thereby depicting the difference in the governmental support for enterprises and entrepreneurs in the two groups (See Fig).

Ranking on basis of ease of doing business (for BRICS):

Country

Rank

South Africa

35

China

91

Russia

120

Brazil

126

India

132

Source: Doing Business 2012 report

Ranking on basis of ease of doing business (for MIST):

Country

Rank

South Korea

8

Mexico

53

Turkey

71

Indonesia

129

Source: Doing Business 2012 report

When it comes to the credit worthiness we do not find major differences between the BRICS and MIST economies. Although both the credit ratings and overall outlook for these countries (BRICS and MIST) are on a positive side, the access to finance is an area in which businesses in the BRICS economies struggle more. The latest in news is India, whose ratings were downgraded by Moody’s recently.  Cost of entry and complexity is far lower in MIST when compared to BRICS giants

Country

Credit Rating

Outlook

Brazil

BBB

Stable

Russia

BBB

Stable

India

BBB-

Stable

China

AA-

Stable

South Africa

BBB+

Stable

Mexico

BBB+

Stable

Indonesia

BBB-

Positive

South Korea

A

Stable

Turkey

BB

Stable

Source: S&P Credit Ratings

Conclusion

The BRICS economies have played the key role in the world economy as producers of goods and services, importers and exporters of capital, and as consumer markets with huge potential. Given their large population (more than 40 per cent of world population), resurgent middle class and huge share of land area and natural resources, the BRICS form a significant part of the world economy. The major obstacle in their path is the dependence on US and Europe economies, which can be negated by the increase in domestic consumption. The BRICS is not famous as a group but because of the individual stars like India and China. The internal conflicts (between India and China, for ex.) are not beneficial for anyone of them. In case BRICS wants to grow with the same rate as was predicted originally, it has to work together as a single entity.

The MIST economies are equally capable to progress with same or even better than the BRICS economies. There is no doubt that the rate at which the MIST is growing is spectacular. But there are some concerns that need to focus upon if it really wants to continue progressing with the same rate. Issues like the internal crime in Mexico, Indonesia’s proneness to natural disasters and poor infrastructure in Turkey warrant serious consideration. They have the potential to consistently grow at a better rate than BRICS.

This article has been authored by Prateek Gupta from IIFT.


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