RUCHIR SHARMA is head of Emerging Markets and Global Macro at Morgan Stanley Investment Management. He generally spends one week per month in a developing country. He has been a contributing editor with Newsweek and has penned essays for publications such as The Wall Street Journal, Financial Times, New York Times, Foreign Affairs, and Economic Times. (source: http://breakoutnations.com/)
We live in a connected and interlinked world, with the emphasis currently being on open markets. This has facilitated easy flow of money from one market to another; with countries with a better economy being able to tap into this reservoir of global surplus investments to further their own development. These surplus funds flow (normally) from the developed to the emerging markets. And among these emerging markets, it is thought that the so-called BRICS are head and shoulders ahead of the rest – and are the nations to invest in, the nations that will deliver better returns and have greater potential. These are the nations that delivered great GDP growth in the past few years..
And then along comes a book that challenges this very notion; that examines the entire emerging market nations along both interesting as well as established parameters to arrive at frankly surprising conclusions. Surprising not because they are inaccurate –they aren’t – but because they go against the conventional wisdom that is prevalent. The book also meets the excellent growth notion head-on, and quotes hard numbers to provide an entirely different picture of the GDP growth of the recent past. The simple proof of the fact that nearly all emerging markets delivered superior performance in the period 2003-2007, buttressed with numbers provides a captivating start to the book; and sets the pace for the remainder of the book…
“Between 2003 and 2007, the average GDP growth in these countries {emerging markets} almost doubled from 2.6 percent in the prior 2 decades to 7.2 percent, and almost no developing nation was left behind. In the peak year of 2007, the economies of all but 3 of the world’s 183 countries grew, and they expanded at better than 5 percent in 114 countries, up from an average of about 50 countries in the prior 2 decades”
This analysis at the very start of the book stuns the reader, who is now glued to the book. The analysis of the emerging markets, and the world economic forces that shape these markets in the first chapter sets the pace of the book, and throws up a multitude of questions in the readers’ minds. The book asks some pertinent questions and examines the GDP numbers to set the mind thinking. A case in point being the $-4000 barrier section, which looks at the difficulty of nations approaching mid-income levels, and makes the perfectly simple point that growing at 8% on a base of $1500 is going to be fundamentally different to growing at 8% from a base of $4000. A simple observation stops you in your tracks: all boom economies slowed from 9-10% growth to 5-6% growth when their economies reached middle income levels.
After this, you are hooked, and the books takes on a life of its own as it delves in depth into each country and its economic drivers. China, India, Brazil, Mexico, Russia, Europe, Turkey, South Korea etc all find a mention and an analysis. This section is both an eye-opener, as well as a treasure trove of information and ideas. Again, long-held country specific notions are challenged and disproved – like in the section on the consumer demand scenario in China; Country specific problems that can hold it back are analysed in short but power packed sections - like welfare spending & investments of Indian businesses abroad in a time when the home country is in urgent need of capital.
Each nations’ problems as well as enablers find adequate mention, giving a nice balance and flow to the analysis, as well depth and convincing power. Economic, political as well as other problems find adequate coverage – like the problem of crony capitalism in India, or the welfare state in Brazil, or the political situation in Russia, or the olipolistic nature of Mexico, or – coming back to India – the rising inflationary trend in India. Each factor that can impact growth has been looked at.
The author’s objective is to identify breakout nations – the nations most likely to succeed. Thus, the approach given above, which looks at both conventional as well as unconventional factors, seems intuitively right. For example, the analysis of number of billionaires in a nation is an eye-opener. The section on Africa is stunning, with an entirely new look at the dark continent. All in all, this is a book that first of all, teaches you how to properly analyse a market or a nation; second, it is a handbook of the emerging markets. It gives you a perspective of the entire emerging markets in a short, 258-page analysis.
A word on the writing style: it is simple and easy to understand. You don’t need to be a professional economist in order to understand the book. This is perhaps its most powerful plus point. It makes its entire pitch in very simple, easy to understand and comprehend prose. It avoids needless details and voluminous analysis; the analysis is short, sweet and to-the-point. This makes for a fast read; it also makes for easy absorption of the material presented in the book.
As to the breakout nations identified, be prepared for a surprise… read the book to learn more, and open your mind to new ideas and thoughts!
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