Bernardo M. Villegas
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published: Aug 13, 2019

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Emerging Markets Alive and Kicking

            The Philippines is fortunate to belong to the club of "emerging markets" that will lead the global economy in economic growth for at least the next thirty years.  Despite some short-term crises faced by the original emerging markets (Brazil, Russia, India and China--the BRIC), these four and at least eleven more will experience growth rates in consumption, investments, and trade that will be double or triple those of the OECD countries.  In an article that appeared in theFinancial Times (February 3, 2014), Gideon Rachman states categorically that "the future still belongs to the emerging markets."  As happened in the East Asian financial crisis in 1997, when countries like Thailand, Indonesia, South Korea and Brazil got into serious trouble, in no time at all, these debt-ridden economies bounced back and were the darlings of investors during the early years of this century.  As Mr. Rachman commented:  "the rise of non-western economies is a deeply rooted historic shift that can survive any number of economic and political shocks.  It would be a big mistake to confuse a temporary crisis with a change to this powerful trend.  The bursting of the dotcom bubble in 2001 did not mean that the internet was massively overhyped, even though some people jumped to that conclusion at the time.  In the same way, today's turmoil will not change the fact that  emerging markets will grow faster than the developed world for decades to come."


          What does the Philippines have in common with most emerging markets, such as Indonesia, Vietnam, Turkey, Nigeria, Myanmar, Bangladesh and Pakistan? The first obvious feature is that all of them have huge domestic markets and, given prudent macroeconomic policies, can weather large declines in exports during global recessions as the world experienced in the last five years.  Also, in contrast with the "tiger economies" of the twentieth century (e.g. Singapore, Taiwan, Hong Kong and South Korea), most emerging markets are richly endowed, not only with human resources, but also with physical resources.  Consider Indonesia:  it has practically all the resources that this planet can offer:  petroleum, minerals, aquatic resources, forests and fertile lands spread out over 14,000 islands. The VIP countries (Vietnam, Indonesia and Philippines) can also boast for some time to come of having a young and growing population, in contrast with their rich neighbors to the north that are suffering from an irreversible demographic decline.  Aging societies are generally very rich countries, with the exception of Thailand that has aged prematurely because of an overly aggressive population control program in the last century.  Fortunately, the so-called RH Law has been greatly emasculated and, given continuing vigilance of the pro-life sectors, can still permit a growing and young population for a long time to come.

          What make emerging markets attractive for investments in the coming decades or so?  Mr. Rachman gives the following answers:  "lower labor costs, rising productivity, huge improvements in the communications and transport that connect them to global markets, a rising middle class, a boom in world trade as tariffs have fallen and the spread of best practice in everything from management techniques to macroeconomic policy.  Added to this is the drive of people all over the world--from factory hands to entrepreneurs--who have realized that they are not condemned to poverty, and that a better life is there for the taking."   With a huge population, an emerging market can enjoy a rising middle class as in the case of China over the last twenty years when some 400 to 500 million people graduated from poor to middle-income.  Such a figure is much bigger than the market of the largest economy in the world, the U.S.  In the Philippines, there are some 60 million individuals that can be considered as belonging to the middle class, although most of them are at the lower end of the ADB figure of US $2 to $20 per capita. Just think of the 10 million OFWs and the 900,000 workers of BPO and KPO enterprises.  These are the low middle income households that can sustain a consumer-oriented boom for many years to come.

          The rising middle class (referred to as the "expanding middle") will be especially noticeable in the fledgling ASEAN Economic Community.  In addition to the VIP countries, expect Myanmar, Laos, and Cambodia to join the club in the next ten to twenty years.  These large economies will constitute a common market that can challenge China and India for economic supremacy in the Asian region in the coming decades.  As trade among them intensifies in the coming years, we should expect the emergence of multinational enterprises rooted in the ASEAN to compete with MNCs from outside the ASEAN.  Already there are Indonesian, Malaysian, Singaporean, Thai and Philippine MNCs that are looming large in food and beverage, real estate, banking, pharmaceuticals, tourism and agribusiness.  I am challenging Philippine enterprises to follow the example of such ASEAN-wide MNCs as United Laboratories, Liwayway Manufacturing, San Miguel Corporation, Ayala Corporation and Southeast Asian Food.  Those firms who want to prepare their top executives for expansion into the ASEAN should get in touch with the following email address:  amp@uap.asia.   The next Advanced Management Program offering will start next September 15 to 20, 2014.  For comments, my email address is bernardo.villegas@uap.asia