In 2001 Jim O’Neill coined the acronym ‘BRIC’, referring to the up and coming economies Brazil, Russia, India and China, later to be joined by South Africa. Over a decade later we are now faced with ‘MINT’, a term originally invented by Fidelity Investments, encompassing Mexico, Indonesia, Nigeria and Turkey – four emerging world economies that, we are being told, are the next big things.
This commentary looks at these new stars on the global stage and poses the question: are the MINTs really ready for the limelight, or should we be treading with caution?
It’s Mexico’s Moment
Since taking office in 2012, President Enrique Peña Nieto has launched a series of drastic reforms that look set to bolster Mexico’s growth, which is now recovering from a sluggish 1.1% in 2013. Labour, education, finance, energy, telecommunications and tax are all getting a serious overhaul. As these chains that constrain the economy are being broken, Mexico’s young population, high productivity and abundant oil reserves mean that many are predicting 5% growth over the coming years.
Mexico has a good portfolio of free trade agreements that promote an open economy, but what gives Mexico its current edge is its geographic position. Close to Brazil and even closer to the US, Mexican factories churning out cheap products are now able to compete against China with the unique attractiveness of a speedy delivery. However, closely tied to the US in this way, Mexico’s future directly depends on its northern neighbour.
Mexico faces deeper barriers, which the president’s reforms will not touch in the medium term. Inequality, corruption, poverty, not to mention Mexico’s infamous drug cartels– any of these could trip up Latin America’s rising star.
The emerging archipelago – Indonesia
A chain of 13,466 islands with a turbulent economic history, Indonesia currently enjoys high and stable growth at around 5%. Political reforms since 1998 have been successful, but these have been marred by the Asian financial crisis, as well as more recent harmful economic choices, such as the mineral export ban in May 2014.
Indonesia is the fourth largest country in the world, with an extensive young workforce and a booming export industry of raw materials to China, India and other growing economies. It is suggested that Indonesia could see a 7% growth rate over the coming years, and that it is set to be the 7th largest economy in 2030.
Poverty and corruption are rife and the country drastically needs to change its view towards foreign investors, but one of the biggest problems is the lack of infrastructure to meet the rapidly urbanizing population. 60% of Indonesians live in Jakarta, and construction is booming. However, many buildings have no access to running water and urban dwellers sit in sinking slums. All eyes will be on the incoming president on 9 July (between Joko Widodo and Prabowo Subianto), who will have a serious job to do.
The wonder of Nigeria
Africa’s most populous country and recently declared Africa’s largest economy after revising its GDP figure in March, Nigeria has enjoyed 7% growth each year since 2000, mostly due to its rich oil reserves.
It is disputable whether Nigeria’s oil-led growth is sustainable. The country has joined the Extractive Industries Transparency Initiative (EITI) to improve governance and minimize corruption. But even with good governance, oil accounts for 90% of Nigeria’s exports, which makes the economy vulnerable to price shocks. The domestic economy is healthy, with a growing middle class and small businesses and entrepreneurs taking a foothold.
What really makes Nigeria a wonder is the fantastic growth despite long-term structural problems of crime, terrorism, poverty and poor infrastructure. However, increasing poverty alongside impressive growth highlights inherent problems with corruption – more than half of Nigerians still live in poverty.
Turkey – the bridge between Europe and Asia
Turkey has always held a coveted geographic position along the silk road, with access to diverse markets across Europe, North Africa and Asia. Currently Turkey boasts around 4% growth, mainly thanks to a decade of reforms launched by Prime Minister Erdogan.
As a third airport is built in Istanbul, reflecting a healthy construction and tourist industry, Turkey’s growth is actually slowing down. The recent unrest and political instability has not done the economy any favours. Many projects are controversial, as the protests over Gezi Park highlighted, and Turkey further suffers from incessant corruption scandals and a weak rule of law.
AKP recently won local elections in March, widely believed to be a referendum of Erdogan’s rule. A sense of stability in the presidential election in August and parliamentary elections in 2015 may bring the economy back on track.
The MINTs – just a tenuous link?
It is argued that the MINT grouping is as random as picking names out of a hat. We have just seen that these are individual and unique economies in diverse parts of the world, tied to very different markets and at different stages in their economic development. However, there are still stark similarities.
Jim O’Neill’s main interest in these countries is their demographics. All have a growing young population that should dramatically boost productivity and therefore boost growth. These countries may now start to rival China in manufacturing markets, whose ageing population and increasing wage levels make it harder for this old dragon to compete with its younger competitors. Another interesting similarity is the growing number of millionaires.
These countries also face the same structural problems that present a huge barrier to growth: lack of basic infrastructure, poor investment in education, unclear property rights, corruption, poverty, political unrest and currency volatility.
A fragile future
If we take the BRICS as predecessors, this bodes both well and ill for the MINTs. Investors, the media and the global community pander to these groupings. It is likely we will we see ‘MINT summits’ soon, which will in turn give legitimacy to these countries as viable markets within which to do business.
However, the MINT’s future already looks fragile. Apart from overcoming the barriers mentioned above, the MINTs (notably Turkey and Indonesia) are reliant on quantitative easing (QE) in the US. In certain BRIC and MINT countries, investment has already taken a turn for the worse due to the anxiety over tapering. According to the World Bank, capital inflows to emerging economies could fall by as much as 80% with further tapering and interest rate rises.
The global acknowledgement of the MINTs is important. The continuing focus on emerging powers reflects the shifts in global economics and the increasingly multi-polar nature of our world. However, for the moment, it is clear that investors and economists alike are treating the MINTs with caution and waiting to see whether reforms bring real change. In all regions the first port of call for investment is still the well-established BRICS, and even investment in these countries is faltering. Throw your money straight into the MINTs and you may be left with a rather bitter taste.