Emerging Markets

An economy that sustains economic growth and demonstrates traits of a developed economy in some capacity.

Emerging markets, also known as EM, are characterized as an economy that sustains economic growth and demonstrates traits of a developed economy in some capacity.

Emerging Markets

Emerging markets are those nations that move from developing to developed and industrialized economies.

They are considered attractive due to their high returns and risk policy in contrast to developed nations

EMs make strategic investments to accelerate their production capacity. Thus, they transition from traditional economies focused on raw material and agricultural exportation to manufacturing.

They possess accelerated growth and an enhanced standard of living for their population.

They possess low labor costs, economies of scale, booming markets for consumers, and an increased middle-class population, making them a valuable source for competition.

The lower category of economic development is shown as GDP per capita. An EM is seen as a transitional economy due to economic reforms using policies tailored to maximize growth. The rate of growth is seen as high as indicated by a GDP growth rate.

There is potential for future growth that can be illustrated using the economic development level and GDP of developed nations. 

There are several reasons for EMs being considered attractive investment opportunities. The first reason is economic growth as EMs continue to grow faster than developed economies. 

Another reason is corporate strength since corporations are increasingly competitive and stronger. 

Wealthy consumers that are in the middle-class population bracket are becoming wealthier and are spending a greater proportion of money. Corporate governance is also improving since inflation and government debt are both manageable. 

EMs are considered a window of opportunity since valuations are seen as attractive. 

EMs are crucial for international economic growth as they have played an important role in economic recovery globally post-crisis. They are a product of globalization. 

Characteristics

  1. Accelerated Economic Growth

  2. High Volatility

  3. Low per Capita Income

  4. Regulatory Body

  5. Growth Potential

  6. Nature of Transition

  7. Youthful Population

A country is considered an EM when it constantly grows in terms of economic growth. The percentage increase in its Gross Domestic Product, GDP, is a strong indicator. 

High volatility includes external factors that influence economic growth, for example, natural disasters, inflationary pressures, or political instability. EMs capitalize on their economic structures to withstand external threats and avoid vulnerability. 

These markets have low household incomes and this is indicated by the nation's per capita income index, PCI. National income is divided by a country's population. It determines the country's standard of living and quality of life.

Markets

EMs comprise a regulatory body, a market exchange designed for common currency and investments. Governments use them to manage functionality in the financial market and handle fairness. 

EMs optimize policies to advance economic growth and industrialization. This results in higher disposable income, less unemployment and job losses, and improved infrastructure.  

EMs are transitional since they divert their economic activity from exporting to manufacturing. Restrictions in trade are also reduced to facilitate economic growth and foreign trade. 

EMs have a young population that capitalizes on large labor forces and strong capabilities with the necessary skills, knowledge, and core competencies to increase economic productivity. 

BRIC Nations

Classified as Brazil, Russia, India, and China, the BRIC nations are the key emerging markets globally that have the characteristics of EMs. They indicate accelerated growth, rapid investments, showcase production contribution, and an increase in the middle-class size. 

The term was introduced by Jim O'Neill, an Economist at Goldman Sachs in 2001, where he stated that all four BRIC nations act as economic blocs rather than a union of members in a trading unit.

The BRIC countries emerge as key voices economically, politically, and financially. They act as agents of innovation and play an important leadership role on the international stage. 

In the last ten years, the BRIC nations have consolidated and expanded their position in the global economy. 

Brazil is a significant growth driver and the largest economy in Latin America. There is also a lower inflation rate and increased GDP, which gives investors several options. 

Russia has a key role in the global economy. It focuses on capitalism, a large number of widely used commodities, increasing GDP growth rate, and evolving into the largest stock market globally. 

BRIC

India demonstrates economic growth that is similar to that of China. It has high investment returns, and India's technological infrastructure is significantly growing. 

China has a crucial role in the global economy because it has the highest global population. As a result, it is a large driver of growth. It also gives investors a diverse range of investment options

The BRIC countries have a high potential for growth in young populations. However, sustaining robust and sustainable growth to minimize living standard gaps in mature market economies remains challenging. 

India and China are predicted to become the leading nations of manufactured product and service provision globally by 2050.

All BRIC nations face the challenge of ensuring high growth rates based on sustainability, reducing the income gap, and enhancing macroeconomic stability

The OECD

The Organization for Economic Co-operation and Development is an international organization that helps develop policies for economic reforms and aims to enhance international cooperation in economic affairs.  

OECD aims to achieve the highest possible economic growth and full employment, a higher standard of living, and good quality of life in emerging countries and other member nations while simultaneously maintaining financial stability.  

The OECD monitors various trends, compiles data, forecasts economic development, and undermines patterns in a diverse portfolio of public policy. 

OECD

It is considered to be the most reliable global source of economic, statistical, and factual data.

OECD develops decision-making on policymaking and promotes standards using evidence, knowledge, and research. 

EMs have seen increased economic development in the 21st century. The OECD encourages collaboration between member countries and partners for negotiating key global issues at a national, regional, and domestic level. 

Through OECD's standards and initiatives, its work helps drive reform globally in more than 100 economies, building on its collectivism and shared values.

The OECD regularly reviews its tools, policies, and standards to guarantee that they fit according to its purpose and maintains impact. 

In response, OECD has launched and sponsored the Emerging Markets Network (EMnet), which is focused on providing services in the private sector. 

It is handled and managed by the OECD Development Center, EMnet promotes analysis of the emerging economies and their effect on international economic concerns. 

Over the past 20 years, the global economic center has altered rapidly. EM's share between 2000 and 2019 significantly increased by 14%, from 32% to 46%, as well as the international FDI increased from 15% to 46%. 

OECD's Development Center establishes a platform for dialogue between investors and traders that behave as key actors in developing those countries. 

EMnet grants multinational corporations information exchange between peers in developing markets led by OECD's expertise, analytics, and policy collaboration between governments of the Development Center. 

Sustainability in Emerging Markets 

Sustainability connotes the support of a business for sustainable development. 

Boat

Sustainability can attract foreign investment and FDI for responsible investment in EMs. 

During the rise of COVID-19,  EMs with sustainability initiatives take a range of forms, and this depends on the global and local geographical contexts. 

The COVID-19 crisis and its portrayed economic downturn have caused new resource constraints and restrictions for sustainable initiatives in EMs. 

Unfortunately, this could discourage sustainable initiatives elastically in the short term, especially where sustainability projects need significant upfront investments with returns that are delayed.   

EMs governments encourage sustainable investment and reporting. Developing economies can do more to attract sustainable investment, reduce the impact of the crisis, and support recovery in the long term. 

Building

Governments can introduce policies that are scaled to sustainable investment in the private sector, based on legal certainty and reassessment of current policies in the private sector.  

Dialogue between the public and private sectors can complement effective policy design policies, enhance the impact of sustainability initiatives and improve the convergence and alignment with governmental priorities for post-COVID recovery.

With differing social and economic conditions existing across EMs, sustainability initiatives must adapt to more diverse environments than those in developed economies. 

Emerging Markets and COVID-19

COVID-19 has projected an unforeseen impact globally which has intensified inequalities and challenges socio-economically across Asia, Africa, and Latin America. A year after COVID-19, economic growth in developing countries has been at a halt.

Mask

This has led to sustained debt crises and long-term financial problems while managing a persistent health crisis. Slow growth, poor investment, inadequate welfare systems, and large imbalances are the after-effects of the pandemic in these markets. 

There is higher debt in developing economies and various developing countries during COVID-19, which has made them more susceptible to financial shocks. 

The pandemic has had a ripple effect on emerging market economies (EMEs) by impacting consumer demand and confidence, trade and value chains, transport, and disrupting the labor market. 

The reduced demand and need for goods and services have adversely affected ⅓ of the GDP in EMEs. In addition, decreased international demand, disruptions in supply chains, and trade bans have significantly reduced emerging markets. 

Closure of borders has hindered key sectors such as transport and tourism.  

Governments can help businesses in a post-COVID-19 pandemic world by highlighting their emphasis on increasing global connectivity, investment in human capital, promoting gender equality, developing sustainable technology, and designing new regulations and policies.

These support investment, innovation, and global competition.  

Diverse connectivity involves improving information and communications technology infrastructure and accelerating Internet speed. It also involves increasing resource allocation for infrastructure financing and accelerating regional collaboration efforts.  

COVID-19

Governments need to invest in the development of human capital, improve digital and literacy skills and promote science, technology, engineering, and mathematics (STEM) education. 

Social measures and public protection need to be enhanced to reduce the impact of labor market changes. To speed up low-carbon recovery, governments must focus on supporting higher investment in green technology, clean energy, and sustainable energy efficiency.  

New regulations and strict policies for reducing business risk in emerging markets are necessary to encourage and promote higher investment in the private sector.  

Global cooperation is crucial and essential to addressing global issues, creating feasible and appropriate investment policy reforms as well as preparing effective post-COVID-19 pandemic recovery plans.

Chart

In response, OECD has developed long-term strategies of global action to address the immediate crisis and analyze its impacts for successful recovery. 

Since the outbreak of the COVID-19 pandemic, OECD has distributed recommendations on a variety of topics related to the coronavirus. 

EMEs need to achieve a balance in overcoming the pandemic, return to normal policies, and rebuild economies. 

The OECD can introduce market-oriented reforms for Brazil, China, and India. As a result, it can strengthen its social safety nets, bridge infrastructure gaps, and implement governance in various countries. 

Clear communication related to policies with measures for protecting vulnerable individuals is key for developing social support. 

EMs are focused on developing and strengthening their financial regulatory framework to enhance and manage transition risks in efforts to reduce an economy's carbon emissions and footprint.

These markets will need to re-establish their fiscal policies and structures in preparation for the upcoming crisis in the future and build economic resilience. 

Conclusion

In conclusion, an EM is a country or nation with characteristics of a developing economy that shifts its production activities from raw material and agricultural exportation to manufacturing in the effort of promoting economic growth and achieving economies of scale and value.

China

The EM countries are defined as BRIC nations, including Brazil, Russia, India, and China. All these countries demonstrate characteristics of EMEs to facilitate trade and investment. 

As indicated by OECD, the global Organization of Economic Co-operation and Development, governments need to tighten their cooperation policies post-pandemic. They are required to unify nations and promote multilateral collaboration between state members. 

An emerging market is a country that initiates its productivity abilities to achieve a high-quality life for its inhabitants. Therefore, high potential for growth and accelerated growth are two of its characteristics. 

Since the global pandemic is not only a health crisis but also an economic crisis, there is a need to effectively implement key measures for the protection of the global economy to withstand external forces in emerging markets.

Enhancing global collaboration between nations reduces exposure to business risk and geopolitical pressures. In addition, robust sustainability initiatives post-pandemic are key to economic recovery and market success that must be strived towards universally. 

COVID-19 has significantly shifted how international trade works globally by imposing an unprecedented effect on the world. It has intensified the current inequalities and trade imbalances, with a dire effect on the growth of developing nations. 

As such, the effects of COVID-19 necessitate the intervention of both private and public parties to seek feasible solutions for tackling the emergencies of the COVID-19 crisis on the EME through discussion. 

Policies for job creation and employment need to be generated using the diversification of production, increasing gender equality across industries, encouraging women empowerment, developing high-quality infrastructure, and industrialization.

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Researched by Haniya Ahmad Wasim I Linkedin

Edited by Aditya Murarka | LinkedIn

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