Everyone knows the BRICs – Brazil, Russia, India and China – but has their time passed? China is seeing high levels of inflation, leading to fears that its economy is over heating and the government may be forced to step in to curb the high levels of growth. Brazil faces similar problems, with the President already trying to slow growth to avoid overheating. Russia still has the problem of corruption, which has put many investors off, just look at BP’s recent attempt to do a deal with Rosneft. India looks to be in the best position, there are no signs of over heating, it’s growth rate is expected to surpass that of China’s in 2013 and it has the furthest of the four to go in terms of economic development.
These problems outlined above, with the exception of India, have led to a new set of countries being touted as the new growth kings of the developing world: the CIVETs – Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa.
These countries all have young populations, low inflation and strong, stable banking systems. Furthermore they provide a variety of exports, good strategic locations, and lots of natural resources. These factors are viewed as important in terms of a basis for industrialisation and growth. Whilst these countries have all started to industrialise, they have a long way to go and so it may not be too late for investors.
However these countries are not without their buy brics money problems. Most face problems of unemployment, corruption and inequality. They are also all different.
Colombia has well known problems with drugs, and has been fighting a seemingly endless war against drug related gangs. Corruption is also a problem. However a recent oil boom and foreign investment means Colombia may be a good long-term investment, as long as it does not become too dependent on oil, like Nigeria in the 1970s.
Indonesia may be one of the best investments in the CIVETs. A good growth rate of 4.4% last year, good trade relations with India and China and a large population desperate for work.
Vietnam is interesting. It has already industrialised and has very good relations, and a border, with China. However it is still a socialist country, and therefore the government owns many of the large companies, leading to inefficiency. Furthermore the government may be wary of foreigners profiting too much from Vietnamese industry.
Egypt is currently politically very unstable and while it may be possible to find bargains at the moment, it is risky as the new political regime is yet to emerge.
Turkey is probably the safest bet, however, as everyone knows, risk equals reward. The country is the most developed and is knocking on the door of the EU. It is currently in the EU Customs Union, increasing trade with other EU members. Therefore Turkey is unlikely to see the highest growth rates, but it may be the most stable.
South Africa suffers from serious inequality. It is an upper-middle income country, but suffers from extremely high levels of unemployment – 25% – and a quarter of the population live on less than $1.25 a day. Whilst this means South Africa is nowhere near its economic capacity, it may mean that stability will be an issue in the future.
In conclusion, the CIVETS may be attractive to investors, but they all contain some sort of serious risk, apart from Turkey. On the other hand, fears about the BRICs may be misplaced and I think it would be dangerous to write them off as investment opportunities completely. Therefore if looking to invest in emerging markets it is advisable to diversify you portfolio to include several of these countries.