There was a time when countries all over the world aspired to be one of the Brics. The acronym comprised Brazil, Russia, India, China (later adding South Africa). These countries seemed to embody the economic dynamism and promise of the world’s emerging markets.
So there was plenty of investor interest when, in 2014, Jim O’Neill — the former chief economist at Goldman Sachs and the man who had coined the term Brics — began to champion the economic prospects of another group of countries: the Mint economies.
For this select group of four — Mexico, Indonesia, Nigeria and Turkey — it was clearly a blessing to be marketed as the next big thing.
Many investors thought the Mints sounded simply delicious. This was another group of four countries with the characteristics that defined the original Brics: large populations, strong growth rates, rapidly emerging middle classes and entrepreneurial cultures.
The past 18 months, however, have been disillusioning for fans of both the Brics and the Mints. Brazil, South Africa and Russia are in the middle of economic crises and China is growing at its slowest pace for a generation.
The Mints also seem troubled. The problems in each of the four countries involved are quite specific. However, in broad terms, they tend to include political instability and slowing economic growth. Investors who were once all too happy to ignore the structural problems of these emerging markets can now see little else.
Inevitably, the picture is mixed and there is some good news out there as well. Nigeria, in particular, can point to its successful presidential election earlier this year. This saw the first peaceful transition of power following an election from one head of state to another in the 55 years since Nigeria’s declaration of independence.
Better still, the new president, Muhammadu Buhari, seems to be genuinely committed to tackling the endemic corruption that has held Nigeria back for decades.
Nonetheless, in the short term, the country faces several formidable economic and political challenges. The fall in the oil price has slashed Nigeria’s export earnings and government revenues.
Nigeria must also cope with Boko Haram, the extremist Islamist insurgency that has claimed about 20,000 lives and created 1.5m refugees. The new government seems to be taking the fight to Boko Haram with renewed energy, but it will be a long struggle.
Some of the problems facing Nigeria are present in the other Mints. The falling oil price is a problem for both Mexico and Indonesia, both of which are large exporters. Islamist militancy has been a problem in Indonesia in the past, although things are relatively quiet for the moment.
Turkey, however, is suffering badly from the conflict in neighbouring Syria. The prolonged civil war there has created millions of refugees, some 2m of whom are now in Turkey.
The old grievances between the Turkish state and the Kurdish militants of the PKK have also flared again into violent conflict. And the general atmosphere of political uncertainty has been further fostered by President Recep Tayyip Erdogan’s decision to go for fresh elections on November 1, as he struggles to secure the parliamentary majority he would need to change the constitution and bolster the powers of the presidency.
For a decade after 2003, when Mr Erdogan came to power, Turkey enjoyed strong and non-inflationary economic growth. That boosted the Turkish leader’s reputation for competence and allowed investors to ignore some of his more eccentric views — such as his oft-stated belief that there is an international “interest rate lobby” that is agitating for Turkey to have inappropriately high borrowing costs.
In the current economic environment, however, Turkey needs competent economic management that inspires international confidence. Inflation is at about 8 per cent, unemployment is at 11.3 per cent, and the country is running a large current-account deficit of about 6 per cent of GDP. It looks vulnerable to capital flight.
The problems these four countries face include political instability and slowing economic growth
Political leadership is also now an issue in both Mexico and Indonesia. When President Enrique Peña Nieto first came to power in 2012, he was hailed both at home and abroad as a charismatic and dynamic leader.
Over the past year, however, the Mexican leader has had what the Queen of England might have described as an annus horribilis. His administration has been hit by corruption scandals, slowing growth, a stalling economy, and public outrage over a mass killing of students and the escape from jail of one of the country’s leading drug lords.
As a result, opinion polls suggest that the president is now Mexico’s least popular for some 40 years.
One spark of hope, however, is that stronger growth north of the border might spur demand for Mexican goods. The country may also continue to benefit from rising labour costs in China, which makes Mexico look like an appealing base for manufacturers wanting to export to the US.
The troubles of the Chinese economy are more of a threat to Indonesia. As a country in the Asia-Pacific region and a major exporter of commodities, Indonesia has benefited from many years of strong Chinese growth.
With China slowing, Indonesia needs imaginative and confident leadership. So it is unfortunate that the current president Joko Widodo is increasingly being portrayed as ineffectual and diffident.
More broadly, all the Mints are now suffering from the fact that investors across the world are cooling on “emerging markets”.
But while classification as an emerging market might not be regarded as a strong selling point at the moment, the factors that have driven emerging-market success over the past two generations have not disappeared.
In the medium term, therefore, globalisation, expanding international trade, relatively low labour costs and a rising middle class are once again likely to prove a potent combination.
Gideon Rachman
Fonte: FT
