At a recent meeting convened in Abu Dhabi by consulting company AT Kearney, managers of sovereign wealth funds had a message for US and European executives: Work with your government to keep your markets open to us. If not, we’ll go elsewhere.
The big government-controlled investment pools weren’t just talking tough. Sure, the US remains the world’s largest and most attractive economy. But the past couple of decades have seen the rise of trade and investment not only between the rich countries of the North and developing economies of the South, but between South and South.
Dubai Ports World is expanding in China, India, Peru and Vietnam. Saudi Arabia’s state-owned oil company is investing in refineries in China. Industrial and Commercial Bank of China last year bought a 20% stake in South Africa’s Standard Bank. India’s sprawling Tata group has African investments ranging from the Taj Pamodzi hotel in Zambia to a railroad car and steel fabrication plant in Mozambique.
AT Kearney says flows of money, investment and trade are creating a multicontinental market spanning the Indian Ocean. Showing a consultant’s affection for catchphrases, it has dubbed this market Chimea—Chinese and Indian know-how, money and thirst for resources (“chi”), plus West Asian money and oil (“me”), plus African raw materials and opportunity (“a”).
Boston Consulting Group lists 100 companies in 14 emerging market countries that, it says, are becoming global players. Many prosper by selling to other developing countries: Revenue of India’s Bajaj Auto has more than doubled over the past several years to $2.2 billion as it exports two- and three-wheeled vehicles.
In his book, Africa’s Silk Road: China and India’s New Economic Frontier, World Bank economist Harry Broadman argues, “China and India have a growing middle class, with increasing purchasing power and with an increasing appetite for imported goods”—from Africa. (They) offer Africa more than markets. He says Chinese and Indian companies are beginning to expand beyond oil and mining in Africa to telecommunications, food processing, textiles and construction.
Economists Cigdem Akin and M. Ayhan Kose, in a new analysis published by the International Monetary Fund, detail ways in which “the globalization era” that began in 1986 is different from earlier decades. One big one: The two dozen countries they call “the emerging South” (from Brazil to China to India to South Africa) have diversified, grown and become more dependent on one another’s growth and less on the North.
By contrast, countries of “the developing South” (from Bolivia to Bangladesh to Botswana) are just as tethered as ever to demand from the North.
With all the hype about China and India, it’s easy to forget just how big a change this is. When the US pulled out of Vietnam three decades ago, would anyone have imagined a Morgan Stanley advertisement on Page 1 of The Wall Street Journal lauding Vietnam as a promising market for luxury goods?
In a 1979 lecture accepting the Nobel Prize in economics, Sir Arthur Lewis said: “For the past hundred years, the rate of growth of output in the developing world has depended on the rate of growth of output in the developed world. When the developed grow fast the developing grow fast, and when the developed slow down, the developing slow down.”
“Is this linkage inevitable?” asked the Caribbean-born, British-trained Princeton professor.
Sir Arthur bemoaned developing countries’ dependence on rich countries for food, fertilizer, cement, steel and machinery. He argued—hopefully and presciently—that South-South trade could change the world for the better. “Taken as a group, lesser-developed countries could quickly end their dependence” on the North for food, fertilizer, cement and steel—and “more gradually throw off their dependence for machinery.”
“LDCs are capable of feeding themselves now,” he added, ”if they adopt appropriate agrarian policies and...(scientists) give us better varieties and improved technology.”
A central question about this year’s global economy is whether emerging markets can keep growing as they have been as the US and Europe slow.
The answer turns on at least three factors: whether demand for commodities abates and hurts economies dependent on raw material exports, whether turmoil in financial markets of the North disrupts lending to borrowers in the South, and whether there is enough self-sustaining demand among emerging market economies to stoke their growth.
But the importance of the explosion of the South-South trade and investment goes far beyond this year’s outlook. It could be the opening of a new epoch of globalization—one in which the global economic might of big US and European companies is challenged like never before, one in which the remarkable success of China and other Asian economies in lifting their people out of poverty is spread—finally—to other poor continents.
Edited excerpts. David Wessel is a columnist with Wall Street Journal. Comment at email@example.com