BRIC Power, Cross-Border Opportunities & Rising Inflation
· Economic might and dynamics as we know them historically will never be the same again. Come 2008, financial power and drive will lie in places outside of the traditional geographies such as North America, Germany and Japan. Rather, the growth engines of the world economy will centre around these four BRIC nations: Brazil, Russia, India and China, all of whom will continue to see healthy GDP growth.
· Feeding this appetite for growth means unprecedented demand for commodities to feed and house the million of consumers that are moving away from the poverty line and towards a better life. In many developing countries, food purchases account for as much as 70 percent of family income.
· Cyclical as the effect is, this upwardly mobile movement is leading to signs of inflation, that is, increased consumer prices of basic day-to-day commodities, which is now attracting government intervention in their pursuit to keep the cost of living down.
· If costs of basic commodities become steeper and dearer to the masses, we can also expect to see price controls introduced. The current addition of 60 million urban citizens a year is the equivalent of adding another Paris, Beijing, or Cairo every other month.
· As a result, from an opportunity stand point, companies (stocks) and mutual funds in basic commodities and agro produce will stand to benefit. Likewise, the Middle Class of the BRIC economies will continue to offer attractive opportunities for the Healthcare, Education, Housing / Real Estate and Retailing industries
· Meanwhile, countries like China and India will continue to develop their commodities supply chain in the emerging markets of Africa and Latin America, in some cases via state-level or aid-based initiatives (think Indian Government in Sudan); and through acquisitions in other cases (Mittal for instance). The re-emergence of commodities and energy based business tycoons on top of the world’s richest list (replacing some of the New World knowledge-based businesses) clearly underscores the hypotheses stated above.
· For countries like Sri Lanka, while it may not be able to take the BRIC Superpowers head-on, it can play the role of a regional centre. What Hong Kong was to China, Sri Lanka could be to India (if it gets it act together)
Feeding the explosive growth in the BRIC countries will see a surge in demand for basic commodities and agro produce. Consequences, the likes of the Mittals will challenge the might of the Microsofts as the world’s wealthiest
·The BRIC economies comprise nearly half of the global population with an exploding youth population leading to attendant employment issues. This may potentially lead to a rapid widening of disparity between the rich and poor if not checked at the early stages.
Game Plan for $100 Oil and Greener Alternatives
· Currently, there are no imminent signs of energy prices easing up for the Average Joe. If the political controversies surrounding Iran, Iraq, Turkey, Sudan and Venezuela continue, energy prices will continue their upward incline.
· Irrespective of this however, investments in alternate energy sources will represent an attractive investment opportunity – especially to feed the growing appetite for energy in the developing continents. World energy production rose 42 percent between 1980 and 2000 and will grow 150-230 percent by 2050. Renewable resources like solar and wind account for only 11.5 percent of current consumption.
· The debate over the environment will intensify, as countries such as the USA (which consumes 25% of the world’s energy) will exert pressure on global CO2 emissions, however countries such as China and India will not curtail their growth plan, as it is their rightful turn for their own industrial and economic revolution.
Looming prospects of further energy-based wars and the profitability of alternative energy
Wall Street pains to hit Main Street
· The sub-prime loans crisis will continue to take its toll on the bottom-line of the leading financial services institutions, as well the jobs of CEOs of power-brokering banks and FSIs.
· The last quarter of 2007 has seen mild signs of the sub-prime crisis hitting the Asian Markets, however if the crisis in North America and Europe intensifies it will certainly serve as a blow to the currently sensitized Asian Markets.
· It is also anticipated that the pains of Wall Street will hit Main Street, which of course means curtailed demand for the goods of Asian Countries that act as the ‘Production Floor’ of developed markets.
· Furthermore, countries like Sri Lanka, which are seeing exceptionally high levels of consumption-oriented consumer credit (at very high interest rates) should watch out for the dangers of an Argentina-style credit default that could in the long-term derail any propelled economic growth and progress experienced during this time.
High consumer - consumption credit coupled with high interest rates recipe for an Argentina- style credit default. Watch out Sri Lanka!
Poverty & Environment – the Dilemma & the Dollar
· The Richer Nations will continue to be pre-occupied with the Environment (‘’Planetary Emergencies’’ as per Al Gore) and the Poorer Nations cannot but take their eye off Poverty. Tropical diseases such as malaria and dengue fever are expected to spread northwards as the ecologies of these countries change with global warming, causing major health scares in addition to the twin challenges of poverty and environment.
· Both of these challenges represent ‘blue ocean’ style opportunities for businesses, ranging from Green Factories to Micro Finance. The tectonic shift in economic power regionally as well as globally will dry up funds for the mature economies (owing to higher risk) as investment funds flow to the new economic power houses.
Greater global attention and funding will flow towards Poverty and Environment – in the form of sustainable businesses and not as conventional donors
About MTI Consulting
An international business strategy consultancy, MTI Consulting has operations in Bahrain, Bangladesh, Dubai, India, Malaysia, Pakistan, Sri Lanka and UK, with strategic alliances in Australia, Mexico and the Middle East and North Africa.
MTI’s business strategy solutions focus on Strategic Planning, Re-Structuring, Marketing and Brand Management, Sales and Channel Management, Research and Service Quality. More recently, MTI has launched six new Specialist consulting units namely Corporate Finance, Technology, Legal & Governance, Supply Chain, HRM and Branding on demand.
In the last 10 years MTI has worked with the likes of Fonterra Brands Limited, Nestle, Aditya Vikram Birla Group; Al Ghurair Group, American Express, Bahrain Kuwait Insurance, DHL, Dubai World Group, Dupont, Citibank, Emirates Airlines, the Intercontinental, KPMG, Malaysia Telekom, Standard Chartered Bank, ORIX Leasing, Triumph International and Vodafone to name just a few. In the last 10 years, MTI has worked on more than 275 assignments in 33 countries across 5 continents.