BRIC is waning as the go-to set of emerging economies, so what next? Volatile markets are leading businesses to look further than BRICS.
- by William Bell

For 15 years, Brazil, Russia, India and China (BRIC) have consistently been the key countries targeted by corporations for global expansion. A growing middle class, welcoming governments, and plans for country-wide development made BRIC seem like an unlimited opportunity for foreign investments. Along came the recession, a faltering Chinese economy, and a world in turmoil, all impacting currencies and supply chains. BRIC’s economic growth has been impressive, but the picture is changing as the economies slow. At the same time, other emerging markets are developing and posting strong growth, like Mexico, Malaysia Indonesia, Nigeria, and others.

Smart businesses are reconsidering their strategic investment approaches in light of these changes, but one thing is certain: Investing in emerging markets remains a solid strategy for years to come.

Shaking Up the Emerging World
Once touted as the fastest growing economies in the world, BRIC is faltering for a number of reasons. Until the past couple of years, it seemed as if BRICS (group now includes South Africa) had an economic dynamism that seemed unstoppable with each boasting a rapidly growing middle class and government reforms designed to make it less risky and easier for foreign companies to do business within their borders. Then the economies were slowed as the impact of global volatility hit home, giving rise to new sets of emerging economies. Jim O’Neill, once of Goldman Sachs, coined the term MINT in 2014 for a rising set of emerging markets with entrepreneurial cultures — Mexico, Indonesia, Nigeria and Turkey.

The volatility of the business environment has never been more evident than in the BRIC countries. It should be noted that BRICS has made astonishing progress in the last 15 years. BRIC accounted for 8 percent of the global economy in 2001 and now accounts for approximately 19 percent. However, a series of events are creating a drag on the economies. What happened?

There is no questioning the fact that the Great Recession triggered volatility and economic issues that the global economy cannot seem to shake off. China’s economy is unexpectedly slowing down, and the World Bank expects a decline in GDP growth from approximately 7.4 percent in 2015 to 6.9 percent by the end of 2016, and by 2020 the OECD projects 5.14 percent growth. Per the IMF, India fares better with 7.3 percent in 2015 and slow growth to 7.5 percent in 2016 to 7.7 percent in 2020. Brazil GDP trends downward, while Russia’s remains flat, with both countries seeing GDP growth well under 3 percent. The OECD projects a slow GDP decline for South Africa also.

Scandals, Sanctions and Declining Oil Prices
The reasons for the lack of expected economic performance vary from country to country. Brazil struggles with scandals and a slowing Chinese economy. Russia’s economy is suffering from corruption, economic sanctions and declining oil prices. India’s economy is held back by a slow pace of government reforms, though it should be noted that it remains the seventh largest economy in the world, followed by Brazil. South Africa has a number of internal issues, including poor governance, labor tensions and an underdeveloped infrastructure. China’s economy is still growing faster than most, but labor costs are rising and making the country a less attractive strategic investment destination. As the second largest economy in the world, China’s woes have an impact on the rest of the world, especially when the country demands fewer commodities from Russia and Brazil.

The volatility and unexpected economic slowdowns in BRICS made eyes turn toward MINT because these countries had many of the same characteristics of BRICS when they were on their rapid growth path, including large populations with a rapidly emerging middle class. But many of the same issues that are dragging down BRICS are hurting MINT, including political instability and tepid business-friendly government reforms.

India, Nigeria and Indonesia remain on the list of potential investment sites. Voters in Indonesia and India have elected new leaders on a platform of more rapid reform. Unfortunately, terrorism is a true risk factor today. Nigeria’s biggest threat is Boko Haram, but the government is fighting the group as well as it can.

Emerging economies are dealing with issues like falling oil prices, terrorism, refugees, inflation, high unemployment, corruption, ineffective leadership and China’s slowing economy. It is a matter of selecting from these group issues when describing emerging economies.

As businesses look for the next set of emerging markets as investment targets, they need to remember the lessons from the BRICS. Evaluating emerging markets is a complex process when so many factors contribute to less than stellar performance.

Good News in Emerging Markets
By now it may feel as if the news is all bad, but there is a new group of emerging economies that have learned from the past and offer enormous promise for strategic investments well into the future.

On the list is Malaysia, which has put an economic transformation process into place that includes tax incentives for foreign investors, liberalization of the financial services and manufacturing sectors, and increased spending on the infrastructure.

Also on the list are the countries that will benefit from China’s labor costs. Mexico is one because it serves as a gateway country to the U.S. and Canada, and offers low labor rates and a bountiful labor supply. Bangladesh and Vietnam are also benefitting from China’s rising labor costs and are working to expand into new markets.

In Africa, there are countries like Kenya and Ethiopia that are determined to reduce actual poverty and the image of poverty that discourage foreign investments. Ethiopia is projected to expand by 8 percent through 2017.

Clearly, it makes sense to look beyond BRICS and MINT to re-evaluate emerging markets ripe for foreign investments. There are many factors to consider, including proof of political and economic reforms leading to greater stability, improved education and health care, impact of slowing economies in BRICS, long-term projected growth rates, expanding middle class and rising standard of living, and the infrastructure.

A new emerging markets acronym has not been developed but for a good reason. There are too many countries ready to join the global economy, and that is good news for minority suppliers with a strategic vision for long-term growth.