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capital flows support economic growth
Economic growth is one of the most powerful tools for reducing poverty, and a key driver of economic growth is investment. Argentina and Saudi Arabia, two countries that have committed to political and economic reforms in recent years, are hoping to spur investment from abroad. The announcement by MSCI, an equity index provider, to classify them as emerging markets has attracted sizable foreign investments to the two countries. But whether the capital flows support economic growth is still up for debate.

MSCI

MSCI created its Emerging Markets Index in 1998 and since then it has become a benchmark for investment in emerging markets. Many investment funds track the index by buying a similar composition of stocks. Therefore, when stocks are added to the index it inevitably prompts investment flows to increase in certain countries.

In late June, MSCI decided to add Argentina and Saudi Arabia to its emerging markets index. The decision is a result of the reform efforts in both countries. The Crown Prince of Saudi Arabia, Mohammad bin Salman, is trying to shift the country from its oil dependency and increase social liberalization, including allowing women to drive while President Mauricio Macri of Argentina has sought to end disputes with international investors and remove barriers to capital entering and leaving the country.

The effects of their addition to the index may be profound. Some estimates predict approximately $3.5 billion and $40 billion of capital inflows into Argentina and Saudi Arabia respectively in the coming year. The inflows could lead to businesses in these two countries giving them cheaper access to credit that will further lead to more investments; thus boosting economic growth and productivity.

Poverty in Saudi Arabia and Argentina

The two countries are seeking to boost economic growth and stability by any means possible. Saudi Arabia’s economy contracted 0.7 percent in 2017, driven by lower oil prices. Argentina also had to turn to the International Monetary Fund for a $50 million line of credit after capital flight weakened its currency.

Given these countries’ extensive poverty, economic growth is needed for their governments to maintain its credibility. Argentina’s poverty rate is over 25 percent, and while there are no exact figures for poverty in Saudi Arabia, it is believed that almost four million people or approximately 12 percent of the population, live on less than $17 a day.

Do Capital Flows Support Economic Growth?

Do capital flows support economic growth in emerging markets? The answer to that is vague. Take Africa for instance. An economic study concerning private capital inflows found that capital flows had a detrimental effect on Africa’s economic growth in the absence of well-developed financial markets. Conversely, a research paper by the World Bank in 2015 found that capital inflows into Sub-Saharan Africa would have a positive effect on its economic growth. This study found, however, that the most effective type of capital inflow in boosting growth wasn’t private capital flows but aid.

The economic literature debating whether capital flows support economic growth is expansive and divisive. Therefore, increasing private capital flows to Argentina and Saudi Arabia may or may not be the answer to the economic instability plaguing the two countries. But both aid and private capital will continue to play an important role in the economic growth and futures of emerging markets.

– Mark Fitzpatrick
Photo: Pixabay

Why US Businesses Should Invest in AfricaThe continent of Africa is home to seven of the fastest-growing economies in the world. Seen as the “final frontier” for investors, Europe and China have pioneered these investments. Consequently, China has become Africa’s number one trading partner and job creator. American businesses, on the other hand, have been slow to invest in Africa and lag behind. As Josh Becker, the CEO of Impele Consulting Group, said, “We are seeing tremendous growth in interest in Africa [from the U.S.], but not the same growth in action”.

Africa is in a position that many envy. Different from the rest of the world, Africa is a frontier with the capability to build on lessons learned from other countries. Without the fuss of resistance and a lengthy trial-and-error period, they can establish institutions and infrastructure with the most effective methods that have been tested by others.

Africa is a clean slate. It has the capacity to lead sustainability continent-wide without having to change an existing framework. American businesses specializing in these areas have the opportunity to invest in Africa to assist in its development.

  • Agriculture
    Much of Africa’s landmass has been largely untouched agriculturally and has the potential to become a big name in world food production, and possibly a sustainable one.
  • Transportation
    Much of sub-Saharan Africa lacks well-built airports, railroads and highways. Africa can implement efficient, modern and sustainable transportation methods that other countries wish they could execute on a mass-scale. Once transportation hubs are built, markets will be connected and Africa can expect impressive gains in production.
  • Electricity
    Sub-Saharan Africa faces repetitive power outages, leaving households and businesses without electricity. This curbs production and ultimately threatens economic growth. If this problem is fixed, a higher standard of living and economic gains will result.
  • Mobile Connectivity
    Currently, Africa is the leader in mobile adoption. Cell phones have linked African countries to each other and with the outside world. In a 2014 pilot program in Ethiopia, a telephone hotline was established, allowing farmers to discuss agricultural techniques with agronomists. In the first couple of months of the program, 30 million calls were made. Communication flow is so vital in production, and investors can encourage this elsewhere by building telephone lines and bringing mobile companies to Africa.

The World Bank predicts that Africa has just started growing, and will only flourish more with investment. However, current Chinese investment is damaging and will eventually stunt Africa’s growth. The George W. Bush Presidential Institute stated that China does not help Africa fight corruption, encourage gender inclusion, promote sustainability or connect its regions. The United States needs to step in and be the source of positive encouragement Africa needs. By competing with China, American businesses can ensure they will benefit from investment and Africa will exceed its potential.

In 2017, President Trump expressed desires to enhance trade and partnership with Africa. One can hope these desires will be implemented and inspire businesses to invest in Africa. If so, vast economic advancements await Africa and lucky American businesses.

– Mary McCarthy

Photo: Flickr

world trade and emerging marketsIn an era of global retrenchment and calls for protectionist trade policies in developed countries, the increase in trade in 2017 gives a glimpse of hope for the future, especially for the economies of emerging markets.

Emerging markets are classified generally as countries whose economies are trending toward more liquid and robust markets, similar to those in developed countries, but are not quite there yet. The opportunity for growth in these countries provides a huge opportunity for addressing poverty and development issues. A few concrete examples of emerging markets are India, Russia, China and Brazil.

World trade and emerging markets are closely related. Since declining in 2016, world trade is growing at a faster rate than this time last year, largely on the back of import demand from emerging market economies, especially in places like Brazil and Russia. This is good news as it pertains to poverty in these countries. Between 2014 and 2016 in Brazil, the population living below the poverty line declined by more than 3 percent, or around 6 million people.

Since hitting a low in 2016, the dollar amount of imports has increased drastically in Brazil, with an exceptional bump in July 2017. There is no current data on the poverty level in 2017, but it is safe to assume that it is continuing to decline as Brazil’s economy improves and domestic demand increases, resulting in more trade activity.

General Russian commerce has increased as well, with the EU being the main benefactor of this trend. However, the Russian economy has stagnated and slowed due to a supply glut and subsequent diminishing of prices for fossil fuels. This has actually led to an increase in those living in poverty. However, the upward trend in trade due to demand in this emerging market may spell good news for poor Russians.

The relationship between world trade and emerging markets looked grim in recent years due to a surge in populism and protectionist policies in Europe and the United States. Trade is widely considered to be the reason that certain economies, who otherwise would have experienced stagnant growth and increased poverty, were able to establish more free economies and a consumer-based middle class.

Not only are these economies important in terms of production of consumer goods for developed countries, but are now increasingly becoming destinations for such products themselves. If this trend stays true, not only will poverty in these countries continue to decline, but a middle class will emerge and become vibrant markets for products from developed countries, thus benefiting everyone.

Despite what may look like a grim near-term forecast in terms of global trade resulting from political trends in developed countries, history is on the side of greater integration and raising the standard of living for everyone. World trade and emerging markets will continue to be a catalyst spurring growth and reducing poverty across the globe.

Daniel Cavins

Photo: Flickr


Growth in emerging markets and developing countries is set to increase this year after a financial crisis slowed trade in vulnerable regions. This turn of events could have a drastic impact on an already steadily declining rate of global poverty.

According to a report from World Bank, global trade growth has made a significant increase from 2.5 percent in 2016 to four percent this year. The financial crisis was due in part to growing concern of mounting debt and deficits in emerging markets and developing countries. World Bank Development Economic Prospects Director Ayhan Kose stated that this was a promising turn of events.

“After a prolonged slowdown, the recent acceleration in activity in some of the largest emerging markets is a welcome development for the growth in their regions and for the global economy,” Kose said.

Estimates show that the growth in emerging markets and developing countries alone will rise from 3.5 percent in 2016 to 4.1 percent this year. Growth is slated to exceed 2018 projections in the largest emerging markets and will have a positive impact on both local and global economies.

These recent predictions are in line with projected growth of income for individuals living in emerging markets and developing countries.

Additional information provided by World Bank, reflected that the number of people living below the poverty line (U.S. $1.90 a day) declined from 12.8 percent of the global population in 2012 to 9.6 percent in 2015.

World Bank Group President, Jim Yong Kim, sees the projections of economic development as a way to strengthen the growth of individuals in these regions.

“For too long, we’ve seen slow growth hold back progress in the fight against poverty, so it is encouraging to see signs that the global economy is gaining a firmer footing,” Kim said.

Kim also encourages that “with a fragile but real recovery now underway, countries should seize the moment to undertake institutional and market reforms that can attract private investment to help sustain growth long-term. Countries must also invest in people and build resilience against overlapping challenges, including climate change, conflict, forced displacement, famine, and disease.”

Though there has been real change in economic growth in emerging markets and developing countries, there is still much work to be done. In order to maintain progress, these countries must make sound investments and maintain productivity in order to reduce poverty.

 

Drew Hazzard

Photo: Flickr


One sign of growing wealth in merging markets of developing nations is the increase in use of the internet and digital devices. To provide a picture of the size and scope of this change, here are 10 facts about the internet in emerging markets.

  1. Between 2000 and 2017, internet use in Africa grew by 7,500 percent. In the Middle East, the increase was 4,200 percent, and in Latin America, 2,000 percent.
  2. By the end of last year, 47 percent of the world’s population had internet access; by the end of next year, 51 percent will be internet users, for a total of 3.82 billion people going online.
  3. The number of people going online through use of their mobile phone is increasing. More than 72 percent of internet users last year connected through a mobile phone, up 11.9 percent from 2015. Emerging markets in the Middle East, Africa and Latin America are driving the growth of smartphone internet usage.
  4. The countries experiencing the most rapid growth in smartphone ownership are Turkey (at 42 percent) and Malaysia (34 percent), followed by Chile and Brazil, both at 26 percent.
  5. At the end of 2015, 54 percent of adults in emerging economies were on the internet, an increase of nine percent from 2013. That same year, 21 percent accessed the web through a smartphone. That percentage rose to 37 by the end of 2015.
  6. Internet penetration is especially strong in large emerging countries. At least 72 percent of adults in Russia and Turkey are online. The percentage dips slightly to 68 percent in Malaysia, then again to 65 percent in China and 60 percent in Brazil.
  7. The growth rate for the internet in emerging markets is particularly rapid in these large developing countries. Internet use in Turkey increased by 31 percent between 2013 and 2015. In that same period, Jordan experienced a 20 percent bump. Malaysia followed with a 19 percent increase. Chile, Brazil and China all experienced growth of 10 to 12 percent.
  8. Once online, internet users in emerging markets are more likely to use social networks than internet users from the U.S. and Europe. In the Middle East, 86 percent of internet users visit social networks; in Latin America it is 82 percent. By contrast, 71 percent of Americans online use social networks. The percentage drops to 65 in Europe.
  9. Social networking in emerging countries is especially strong in Jordan (90 percent of adult internet users), Indonesia (89 percent), the Philippines (88 percent), Venezuela (88 percent) and Turkey (87 percent).
  10. The rise in social networking as the use of the internet in emerging markets grows has been particularly swift in China. There, 63 percent of internet users in 2015 reported being social networkers, up 15 percentage points from 48 percent just two years earlier.

Increasing wealth in developing countries, especially large developing countries such as Russia, China and Turkey, is making it possible for more and more of their people to be connected. Continued growth will result in continuing communication and internet use around the world.

Robert Cornet

Photo: Flickr

Argentina Brexit
In the wake of the Brexit vote, equity funds in Europe experienced outflows of 19.2 billion euros while some $21.7 billion flowed out of actively managed U.S. equity funds. The uncertainty caused by Brexit is pushing investors to move their money into emerging markets worldwide. Argentina is one of them.

Since taking office in December, President Mauricio Macri has overhauled the protectionist and populist policies of his predecessor, kept Argentina’s peso currency competitive and encouraged more foreign investment. Nevertheless, despite Macri’s clear rules that will potentially guarantee stability and build confidence among Argentines, poverty levels in Argentina have risen.

According to a recent report published in May by the U.N.’s Children’s Emergency Fund (UNICEF), in Argentina between 25 and 32 percent of all children live in multidimensional poverty, among whom 8.4 percent of girls and boys up to the age of 17 live in extreme poverty.

In the first six months in office, Macri’s administration oversaw more than 179,000 layoffs, over 66,000 in the public sector alone. Workers have also suffered under the economic pressures of record inflation and skyrocketing prices of utilities.

Contrary to the popular pessimism, President Macri is hopeful. “The country has already received investment pledges worth $16 billion…The U.K.’s decision to leave the European Union may make countries like Argentina more attractive to investors,” Macri said at the annual Allen & Company Sun Valley Conference in Idaho in June.

Marci envisioned Argentina to be part of a global scenario, that anyone could come in with their money and go out with their money whenever they like.

The Sun Valley conference is known as a gold mine for deals in the world’s communication and technology industries. With huge outflows of funds in the U.K., Macri is hoping that the new business-friendly atmosphere will attract enough new investment to boost domestic production and create new jobs.

“The number-one priority is reducing poverty,” said Macri. “We are launching the most important infrastructure program in our history–ports, energy, trains, waterways…and agribusiness.”

Long-term aftermath effects of the Brexit vote are still unclear, but President Obama’s historic visit to Argentina this year is expected to kickstart another wave of U.S. international investment.

A study in 2010 found that U.S. companies with international investment create the domestic jobs and pay higher wages than companies focused solely on the domestic market. Indeed, multinational corporations added 289,000 domestic jobs in 2007-2009 even as the recession pillaged more than eight million jobs from Americans overall.

Yvie Yao

Photo: Flickr

Global economic prospects report
On June 7, the World Bank reduced its 2016 global growth forecast to 2.4 percent, down from the 2.9 percent predicted in January. The downgrade comes due to slowed growth in advanced economies, as well as consistently low commodity prices, weak global trade and diminishing capital flows.

The latest update of the World Bank’s Global Economic Prospects Report notes that lower prices for oil and other important commodities have negatively impacted commodity-exporting emerging markets and developing countries.

These commodity exporters were predicted to grow by 1.6 percent this year, but the new report lowers those expectations to a meager 0.4 percent. This adjustment accounts for half of the overall forecast downgrade.

Despite these effects, commodity-importing markets have had their growth rate forecast moderately reduced, but basically stable. Even though they are benefitted by lower prices, the secondary and tertiary benefits of such conditions have been stifled because of their weak starting point and inability to implement effective fiscal policy.

In many countries, the adverse effects of low commodity prices were further exacerbated by external factors such as severe drought in Haiti and Zimbabwe, the recent Ebola outbreak in Northwest Africa, political and electoral uncertainties in Burundi, Haiti and Nepal, as well as security challenges and terrorist attacks across the Middle East and North Africa.

The Global Economic Prospects Report also noted the looming threat of high and rising private sector credit in many of these emerging market economies. In some extreme cases, credit has risen to as much as 100 percent of GDP in Thailand and Malaysia. While not an immediate threat, the report notes that debt rollover risks could become important in 2017 when refinancing pressures intensify.

Furthermore, the report notes that in sectors such as energy, where most resources are state-owned, deteriorating credit could cause significant risks to the governments of these nations, propagating weak institutions, shallow markets and under-developed debt resolution mechanisms.

According to World Bank Group President Jim Yong Kim, “This sluggish growth underscores why it’s critically important for countries to pursue policies that will boost economic growth and improve the lives of those living in extreme poverty, […] Economic growth remains the most important driver of poverty reduction, and that’s why we’re very concerned that growth is slowing sharply in commodity-exporting developing countries due to depressed commodity prices.”

The low expectations are a setback to achieving the U.N.’s Sustainable Development Goals (SDG), which include sustainable economic growth of at least 7 percent GDP growth per year in least developed countries and poverty elimination by 2030.

Overall, 2015 marked the fifth consecutive year of declining growth in emerging market developing economies and aggregate performance of these economies remains tepid in 2016. Furthermore, growth in low-income countries in 2015 was the lowest it had been since 2009.

Global economic growth in accordance with the SDGs cannot be accomplished without strong growth in these emerging and low-income developing economies, and such growth will be impossible to attain when structural, institutional and societal weaknesses and obstacles such as those that exist currently continue to persist.

Adam Gonzalez

Photo: Flickr

helping_the_poor
One doesn’t automatically think of making money by giving it to the world’s poor, but through the eyes of a business leader, a wealthier population means dollar signs. Millions of new consumers around the globe are always great for business and they come in the form of emerging markets.

Dr. Vladimir L. Kvint, one of the world’s leading economists and strategists defined emerging markets for forbes.com as a society transitioning from a dictatorship to a free-market-oriented economy with increased economic freedom, gradual integration into the global marketplace, an expanding middle class, improved standards of living, social stability and tolerance, and increased cooperation with multilateral institutions.

Simply put, an emerging market is a national market in the early stages of economic development that is expected to grow rapidly.

The four largest emerging markets are often referred to as the “BRIC” economies–Brazil, Russia, India and China. These markets are watched very closely by Multinational Enterprises (MNE) because of the increased availability of whole populations to their products, many of which are U.S. based.

One example of the importance of emerging markets is the sale of iPhones. According to the Economic Times, Apple CEO Tim Cook said emerging markets such as China and India were among Apple’s biggest consumers during the first few months of 2015. The California based company sold 6.12 million iPhones during the first three months of this year, 40 percent of which were sold to buyers in emerging markets.

For someone who has trudged with soaked feet through the floodwaters drowning a tiny village in Cambodia, it might be easy to tell the difference between an underdeveloped and a developed country. For those who don’t, however, it comes down to statistics such as life expectancy rates, literacy rates and per capita income. A nation rated lower in this statistical criteria would be considered underdeveloped and a prime candidate to grow into an emerging market full of Apple iPhone users.

As an underdeveloped nation grows and its population’s quality of life increases, so too does the probability that it will become a contributing member in the global economy.

According to the United Nations, 900 minority families in Vietnam have escaped poverty through projects backed by the United Nations Development Program (UNDP). With funding from the Global Environment Facility Small Grant Program (GEF-SGP), thousands of Vietnamese minorities are now able to make a living wage through a lost tradition of insect farming, which produces a resin used in food, fine arts and medicine.

Programs such as the ones backed by the UNDP are important examples of aid to underdeveloped nations that can make the difference between a population in poverty and the emergence of a middle class with purchasing power.

Most of the world’s population lives outside the U.S. Foreign aid accounts for less than one percent of the U.S. budget. If this was increased to fund even more programs like those in Vietnam, how many more people around the globe could afford to buy U.S. products?

– Jason Zimmerman

Sources: International Invest, Economic Times Forbes UNDP
Photo: Flickr

emerging_markets
Emerging markets are important to the economy and they provide opportunities for investment and they usually occur in developing countries.

Developing countries have the ability to be more stable than developed markets such as those in the U.S. and Western Europe. This is because emerging markets such as Brazil have high revenues with a budget surplus. Since these markets have little or no debt to pay off, they are actually safer places to invest. Another country that is experiencing the benefits of a strong emerging market is India. Hedge funds there went up 49.1 percent in October and financial advisors in the U.S. are taking note.

Marko Dimitrijević, the founder of firm Everest Capital said, “We believe in their reform agendas, they are doing the right things from a macro standpoint, and their currencies are also more likely to hold their value against the U.S. dollar.” Investors turn to macroeconomics to decide whether or not to invest in a region or specific country. When it comes to investing it is important to be focused on a certain country and the specific economy within that country. Emerging markets are growing economies and these are important areas that investors can see a return on their investments. In other parts of the world and in developed economies the trend is not so positive.

Pradipta Chakrabortty is a manager of a fund that specializes in emerging market investments. He believes that it is necessary to look past the obstacles such as social unrest or infrastructure problems that often plague developing countries. Businesses have the ability to succeed even in a context that seems to counter the political issues.

Investors are looking to profit in emerging markets because they have attractive features such as growing populations and high government spending on infrastructure. These and other factors are important when looking to invest.

There are also negatives to investing in emerging markets. For instance, they sometimes are at risk due to the value of their currency because it is not always stable. Fluctuations in the market leave the currency at risk and the likelihood that it will be devalued increases. The term investors use to describe investing in many different economies is “diversification.” Portfolios need to be diverse so that if the market were to plunge in one place, they have investments in other places.

– Maxine Gordon

Sources: Bloomberg, CNBC, Yahoo Finance
Photo: Business Insider

emerging-economies
Most major news venues are preaching about the crash of the global economy, however, there are certain attitudes that have been left untold. In a study done by the Pew Research Center from March 2 to May 1 of this year, attitudes reflect that things are not as bad as they seem, especially from the viewpoints of citizens of emerging economies worldwide.

Citizens of both advanced and developing economies declared that their personal finances were in a positive state despite the unequal and jobless market the recession brought. Citizens of emerging economies were particularly optimistic, 48% expecting their national economies to improve in the next 12 months. 53% of people surveyed in emerging economies said that they thought their economy was doing well. Furthermore, these positive attitudes have changed very little and have even improved from 2007 to 2013.

In contrast, 25% of people living in advanced economies said they thought their economy was failing and as many as 32% said their economy would get worse. The survey revealed that negative attitudes about national economies are more typical of European Countries and advanced economies such as France, Spain, Italy and Greece.

The survey proved that even in the face of a negative reality, emerging economies come out on top. 80% of Chinese citizens and 85% of Malayasian citizens that took part in the survey agreed that their emerging economy was doing well, while 24% of those surveyed in advanced economies thought the opposite about their own national economy. One factor that all participants surveyed could agree on was that the gap between the rich and the poor was definitely increasing, most distressfully in developing countries.

Kira Maixner

Source: Hindustan Times
Photo: The Guardian