Recent trends in EM

1.Introduction
In the first two decades of the 21st century, emerging markets have witnessed rapid economic development,
although at different speeds across different regions.
While OECD member countries economic growth has consistently been below the world average, Emerging
Asia has systematically outperformed the economies of other regions since the beginning of the 21st century.
Finally, the health, social and economic crises brought on by the COVID-19 pandemic have plunged all
regions into a deep economic contraction.
‫ تأسست في‬،‫ دولة عضو‬38 ‫منظمة التعاون االقتصادي والتنمية منظمة التعاون االقتصادي والتنمية هي منظمة اقتصادية حكومية دولية تضم‬
‫ لتحفيز التقدم االقتصادي والتجارة العالمية‬1961 ‫عام‬
The COVID-19 crisis negatively affected all economies, but prospects are moderately
positive.
Along with the high human cost, this pandemic has hit a world that already affected by major imbalances,
sluggish growth, weak investment and deficient welfare systems, especially in emerging and developing
economies. The COVID-19 crisis has hit global businesses hard across all industries, but particularly in the
travel, tourism, leisure and hospitality sectors.

Global value chains have been disrupted, as companies around the world halted production for health reasons
and as a result of international transport disruption.
Corporate debt has reached levels close to those seen during the 2008-09 global financial crisis. And although
unprecedented policy support limited the number of bankruptcies, a spike could still happen in 2021 if
governments start withdrawing their assistance.
Rising debt in some emerging markets economies and developing countries during the COVID-19 crisis
has arguably made them more vulnerable to external financial shocks. At the same time, a stronger demand
from advanced economies could help some emerging markets offset the tighter financial conditions.

Signs of an economic rebound became clear in the first quarter of 2021. Global GDP is projected to rise by
5.8% in 2021 and by close to 4.5% in 2022, and all regions are registering positive economic prospects.

Global industrial production has strengthened and global merchandise trade is returning to pre-pandemic
levels. The rebound has been relatively fast in some large emerging economies. Robust growth is expected to
continue in China, with GDP rising by around 8.5% in 2021 and 5.8% in 2022.
Provided the pandemic can be contained quickly, GDP growth could still be around 10% in the 2021/22 fiscal
year.
Global merchandise trade indicators continue to rebound, helped by stronger global demand for personal
protective equipment and information technology goods. Container port traffic and total merchandise trade
volumes are now above 2019 levels, helped by the strong trade rebound in Asia.
In contrast, services trade remains soft, particularly air traffic. Overall, world trade volumes are projected to
increase by close to 8.3% in 2021 (after falling by 8.5% in 2020) and by just under 5.8% in 2022.
However, uncertainty remains high, Positive economic projections depend on the continued production
and deployment of the COVID-19 vaccines. An uneven rollout might not be able to stop new and more
powerful mutations of the virus, which could mean a weaker recovery, larger job losses and more business
failures. Furthermore, rising United States (US) bond yields could trigger a reversal of capital flows and
sharp currency depreciations, which would further increase existing pressures on debt and inflation
due to rising commodity prices.
These effects can differ substantially across countries. Net commodity exporters, however, could benefit from
this rise in prices.

Indeed, if a rise in US interest rates was accompanied by a stronger economic growth in large, advanced
economies, some negative financial market spillovers could be offset by stronger global trade demand.
Mexico and other LAC economies in particular would benefit from growing import demand from the United
States, given their strong trade links.

In addition, Colombia, Costa Rica, Turkey and other emerging market economies relying heavily on tourism
and services exports would benefit from an earlier-than-expected reopening of borders, enabled by improved
vaccination coverage.
An increase in commodity prices associated with stronger global growth, led by China in particular, would
put pressure on the external balances of net commodity importers such as India.

The pandemic also risks having long-lasting effects on economies. While the world economy has now
returned to pre-pandemic activity levels, the risk of lasting costs remains high, as global output at the end of
2022 is projected to remain weaker than that forecasted prior to the pandemic, especially in emerging markets .

OECD analysis shows that advanced G20 economies will be able to absorb the effects of the pandemic on
global output, while G20 emerging economies will remain below the pre-pandemic projections. Prospects for
recovery are likely to be uneven across African regions, with those that have diversified their economies
catching up faster than those that are heavily reliant on commodity exports.

2. Constant Growth of Trade and Investment volumes in emerging markets

The trade volume generated by emerging markets expanded significantly from 2000 to 2019, led in particular
by the growth of China.
Emerging markets’ share of global trade volume also increased from 32% around 2000 to 46% in 2019.
Following a significant drop in the first half of 2020 coinciding with the outbreak of the pandemic, global
merchandise trade is rebounding, with the exception of cross-border services trade.

While the majority of FDI (foreign direct investment) is still targeting advanced economies, the importance of
emerging markets has grown significantly since 2000. Approximately 85% of FDI was destined for OECD
member economies in 2000, but in 2019 this figure had dropped to 54% (Figure 1.3).

The pandemic has also had a negative impact on investment. In 2020, global FDI flows decreased by 38% to
USD 846 billion, reaching their lowest level since 2005. While FDI inflows to OECD member
countries plunged by 51% in 2020, flows to G20 emerging market economies only decreased by 9% due to
the recovery of China and India. China overtook the United States as the top destination for FDI worldwide.

MAIN DRIVERS FOR BUSINESS RECOVERY POST-COVID

Prospects for 2021 improved with the ongoing global vaccine rollout and the large economic stimulus
packages implemented by governments in response to the crisis.

1. Digital Transformation for Economic Resilience

 Advanced digital technologies have helped societies deal with the impact of lockdowns, allowing
people to work, study, socialize and access medical help remotely.
 Emerging markets are placing significant emphasis on digitalization in order to overcome the
crisis, return to sustainable growth and build resilience to future economic shocks.
 The private sector is investing alongside governments to expand digital connectivity and bring digital
services to end consumers. This has generated a steady development of information and communications
technology (ICT) infrastructure, which increases Internet access and speed across emerging markets.

However, digital transformation does not come without challenges. Ensuring an affordable price for Internet
services remains an important issue for emerging markets, where only 17% of the population in Africa, 37%
in LAC and 47% in Asia can afford 1 gigabyte (GB) of data.

 OECD recommendations encourage the elimination of digital divides by promoting access for all
at affordable prices (sustainable economic development).

 Emerging Asia has become an important destination for investment in ICT, attracted by a growing
regional market. E-commerce in particular has maintained double-digit growth since 2015. During 2019 and
2020 alone, the number of e-commerce users is estimated to have increased by 37 million in ASEAN
member countries, by 71 million in China and by 50 million in India.
 The percentage of Internet users in Emerging Asia is expected to increase from 42% in 2019 to 54% in
2025, growing by 430 million users. Mobile broadband penetration is more advanced in some countries
 – for example, Malaysia and Singapore surpass the OECD average of 102 subscriptions per 100 inhabitants
– but is lagging behind in countries such as Cambodia, India, Lao PDR, the Philippines and Viet Nam.

2. Green Recovery and Climate Action

 A green recovery that mobilizes investment in clean energy and promotes energy efficiency offers
an opportunity to stimulate growth, innovation and jobs in the wake of the COVID-19 pandemic,
while also tackling the looming challenge of climate change.
 Across emerging markets, reliance on fossil fuels remains a reality, although investments in renewable
energies are expected to grow significantly as the renewable energy sector leads the rebound in global
energy demand.

 Decarbonizing economies by stimulating green investment is a key objective of the

energy transformation roadmaps such as the Net Zero by 2050.
 Roadmap outlined by the International Energy Agency. Achieving the climate goals of the 2016 Paris
Agreement and decoupling GDP growth from carbon emissions will require trillions of dollars of
investment.
 In emerging markets, governments have already taken steps towards a green recovery that
supports economic development while putting carbon emissions into a structural decline.
 However, although investment in renewable energies is growing, it remains concentrated in a
small number of countries. The contribution of the private sector will therefore be necessary in order
to accelerate transformation and achieve a higher level of clean energy investment.
Examples:
 In Africa, 600 million people still lack electricity, despite the fact that the continent has vast,
largely untapped, renewable energy potential. Electrification efforts during the 2010’s are finally outpacing
Africa’s population growth, adding some 20 million connections per year.
One quarter of those are from solar home systems, solar kits and other off-grid or mini-grid solutions.
Despite being home to 17% of the world’s population, Africa currently accounts for just 4% of global power
supply investment. Achieving a reliable electricity supply for all would require an almost four-fold
investment increase, to around USD 120 billion per year through to 2040.

 Many countries in LAC are facing an “environmental trap”: an environmentally

unsustainable development model in which emissions have been growing faster than GDP.
 On average for the region (excluding Mexico), 50% of exports were commodities in 2016.
Another 23% we re natural-resource-based manufactures, with less than 5% of these being manufactures
with high technology.

 A nine-country coalition has set a collective target of 70% renewable energy use by 2030, but the
transition to a low-carbon economy will require unprecedented investment in order to transform
infrastructure and technologies.
 In Emerging Asia, only 0.2% of urban residents live in areas with pollution concentrations at,
or below, levels in line with World Health Organization (WHO) recommendations. Fine particulate
air pollution in excess of WHO guidelines is estimated to cause 1.5 million excess premature deaths per year
in urban areas.

 China leads the world in the addition of wind and solar photovoltaics (PV) capacity, spurred
by renewable energy feed-in tariffs. India boasts the largest solar power plant in the world (Sanjay, 2020) and
plans to install 175 gigawatts (GW) of renewable energy by 2022 (Partnerships for the SDGs, 2020).

3. Putting sustainability at the core of business

The current economic and social crisis is changing sustainable business models and their relation to
key stakeholders across emerging markets. As the pandemic continues to unfold in unpredictable ways, firms
are rapidly adapting in order to identify new ways of doing business that can support resilience to the crisis
and contribute to a lasting and sustainable recovery . The importance of sustainable business has
grown considerably since 2010, as companies have come to understand the importance of putting
sustainability at the core of their corporate strategies and of including Environmental, Social and Governance
(ESG) criteria when screening potential investments (Figure 1.6).

Many multinational enterprises have placed sustainability at the core of their corporate identities and of their
business models. They understand that a focus on sustainability can help them to access new markets and
opportunities, improve talent retention and increase global competitiveness. Across emerging
markets, multinational enterprises have created sustainability initiatives that are locally relevant, and have also
embedded sustainability in their operations, leveraging collaborations for greater impact. Initiatives to
measure progress and impact in this space have also garnered interest and have the potential to further attract
investment. The outbreak of the COVID-19 pandemic has seen many multinationals across emerging
markets focus on sustainability in their immediate response, pivoting production, investing in supply-
chain resilience and working through collaboration with other companies and stakeholders. However,
the financial, logistical and public health impacts of the pandemic make it difficult for firms to systematically
priorities and incorporate sustainability into their core strategies. With profitability affected by the
crisis, boards and shareholders are becoming more risk-averse, particularly where sustainable projects require
significant upfront investments with delayed returns.

While the crisis has the potential to negatively affect sustainable business, it is not yet clear how permanent or
profound these effects may be. In this context, the role of governments will be decisive in both encouraging
and channeling private sector efforts towards sustainability in order to contribute to a resilient and inclusive
post-COVID-19 pandemic recovery. This is an opportunity for governments to enact policies conducive to
sustainable private investment based on legal certainty and a reassessment of existing sectoral policies. Policy
dialogue will be critical to ensuring that private sector efforts can progress in line with government priorities,
whether through digital transformation, the transition to a green economy, or enhanced trade and regional
collaboration.
Reviewing emerging markets: context, concepts and future research
Defining Markets
Through the 90s and 00s, some abbreviation raised in research fields:
•“BRIC” – Brazil, Russia, India, and China,
•“MINT” – Mexico, Indonesia, Nigeria and Turkey
•“Next-Eleven” – Bangladesh, Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, the
Philippines, Turkey and Vietnam emerge to guide attention to these growing economies
•“Third World” countries, with less than $7,300 annual GNP per capita
•This had a high yield on investment rates at these countries

Definition Streams

During the 1990s the first definitions of EMs emerged in research papers within international business and
management

One stream focuses on economic definitional elements; Corporate executives need to rethink when entering
EM

Second stream focuses on institutional characteristics of Ems; EMs suffer from weak institutions, and
companies must adapt their strategies to fit

Results

Two Overall Definitional Elements

Economic and Institutional

• Economic element has three subcategories:

• Economy
• Liberalization
• Income levels
• Institutional element has two subcategories:
• Differences
• Changes
•EMs are considered transitional economies experiencing a change from closed to open market economy

economic growth constitutes a central role in conceptualizing Emerging Markets

Cooperation and Competition among the BRICS Countries and Other Emerging Powers

 The BRIC countries have indeed showed Significant economic weight for the world economy.
 Together they currently represent 40 percent of the world’s population, nearly 25 percent of global
GDP, and hold about 40 percent of global currency reserves.
 All the four BRIC countries are now in the top ten of the world’s largest economies: China is second,
India is fourth, Russia is sixth, Brazil is seventh. And since the financial crisis of 2007, the BRIC nations
contributed to about 45 percent of the global economic growth.
 Economic power is shifting from advanced Western countries to fast-growing non- Western emerging
economies located mainly in Asia, roughly “from West to East”.

Cooperation among the BRICS

 The main characteristic that the BRICS have in common is their status as emerging economic
powerhouses and their shared idea that they are important rising powers that should play a more
prominent role in global affairs.
 They view the established powers as declining and they don’t like the global economy that they
consider as favoring the West.
 The BRICS governments argue that they seek increased voice and rule-making power to promote the
democratization of international institutions.
 The BRICS have thus been calling for reforms of the G7 towards an elevated role of the G20 (which
embodies all the BRICS countries) and for increased voting rights for underrepresented countries in the
IMF.
 They also support the need to end the monopoly of the dollar as the world’s major reserve currency
and repeatedly called for a diversification of the global reserves away from the dollar toward a global
currency such as the IMF Special Drawing Rights (SDR), while beginning to experiment with using their
local currencies for regional trade.
 Moreover, as the aid from Western countries have stagnated or declined because of the global
financial crisis, the BRICS have expanded their development assistance and spending.
 Another area of cooperation between the BRICS is their common support for traditional conceptions
of state sovereignty and non-intervention.
 The cooperation among the BRICS thus seems limited to areas related to their support for greater
representation and leadership in international institutions and their support for the principles of state
sovereignty and non-intervention in other states’ affairs, since they want to be taken seriously in the
international community and be considered as leaders of the developing world.

Competition among the BRICS

 The BRICS are very diverse politically and economically, which make them have opposing values and
interests.
 China and Russia are authoritarian and practice variants of state capitalism, while India, Brazil and
South Africa are large, fractious democracies.
 The democratic India, Brazil and South Africa used their own separate trilateral group, the IBSA
Dialogue Forum, since 2003 as a platform for coordinating positions on several major diplomatic issues.
 As for the economic differences, China and India are commodities importers, China specializes in
manufactures and India in services.
 By comparison, Russia and Brazil are commodities exporters, Russia specializes in natural resources
and Brazil in agriculture.
 China and Russia have more open economies, with export accounting for a third of GDP. India and
Brazil are more closed, with exports less than a fifth of GDP.
 There is an increasing regional competition between China and India in South Asia and between China
and Russia in Central Asia.
 The Sino-Indian relations still have tensions concerning the 1962 war, unresolved border disputes,
China’s political and military support for Pakistan, and China’s perception of India’s support for Tibet.
India feels also threatened by China’s improved relations with and limited assistance to Myanmar,
Pakistan, Bangladesh, and Sri Lanka, which could restrain the influence of India on its neighbors and
make it fear of being encircled by China.
 On the other side, China feels threatened by India’s intrusions in its sphere of influence in
Myanmar and Indochina. As both China and India are modernizing their militaries, they are
also potentially competing over the control of the Indian Ocean and might engage a potential
arms race.
 The Sino-Russian relations have areas of tensions as well, although their relations have
improved after the fall of the USSR. There are still difficult negotiations over Chinese imports
of weapons from Russia and over the construction of an oil pipeline from Russia to China,
which show a certain mistrust in their military and energy cooperation. Russia feels threatened
by the economic and military growth of China and it fears being left as a provider of raw
materials fueling Chinese growth.
 It is difficult for them to agree on a candidate to lead the IMF or the World Bank.
 The UN Security Council expansion is also an issue that divides the BRICS.
 They failed to reach a common position on the Syria crisis at the UN Security Council in 2012.
 Most of the BRICS also have closer relations with the US than any of them have with each other,
therefore any move to turn the BRICS into an anti- US alliance seems to be very unlikely.
 The BRICS countries shared interests are very limited and there is little evidence of any “BRICS
mentality” that could challenge the world order as a united bloc.

Other Groupings of Emerging Powers

 South Africa does not appear to fit into the BRICS configuration:
 as it does not reach the other four members’ power indicators in terms of territory, population
size, size of the economy and its economic growth is lower than other emerging market
economies that were not included in the BRIC.
 Nevertheless, South Africa shares the broad aspirations and objectives of the other BRICS
members, and it uses its international credentials emanating from its transition from apartheid
and the perception of South Africa as the “natural” leader of the African continent to justify its
inclusion in the BRICS.
 Russia’s membership in the BRICS can also be questioned as it has been considered a country with a
declining population and a declining growth and as it is not considered a significant player in the world
economy apart from being an oil and gas producer.
 On the other side, China has become very different from the other BRICS. It is the largest and most
powerful economy of the BRICS but also the world’s largest authoritarian state. This can limit the
coherence of the BRICS grouping as China can be considered the natural leader of the group although it is
the political outlier.
  The “Next 11” (Bangladesh, Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan,
Philippines, Turkey and Vietnam) is a regionally broad group of countries selected on the basis of their
large populations that could potentially have a BRIC-like impact in rivaling the G7.
 Mexico and South Korea have been considered as being the two most developed countries of
the “Next 11” that could become as important globally as the BRICS.
 The MIST (Mexico, Indonesia, South Korea, Turkey) grouped other large emerging economies apart
from the BRICS that are more than one percent of global GDP.
 The EAGLES (Emerging and Growth-Leading Economies) added South Korea, Indonesia, Mexico,
Turkey, Egypt and Taiwan to the BRICS in order to put together large, fast-growing emerging markets to
represent the countries that were expected to contribute most to the global growth.
 The CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) were grouped
together especially in order to represent large young populations and emerging markets.

 All these classifications of emerging economies are problematic because they are outdated very
quickly.

Conclusion

 The BRICS grouping is surely a symbol of a changing world economy, but it is unlikely to become a
strong geopolitical force.
 Despite their appearance as a united bloc of fast-growing giants, the BRICS are very diverse
politically and economically and have significant geopolitical rivalries and conflicts among them that are
undermining their cooperation.
 None of the BRICS have tried to use their collaboration to counterbalance the United States or to
overthrow the Western order.
 They thus cannot be considered as an obvious and natural grouping of countries, but rather as a forced
one, and there may be as much that divides them as unites them.