The interlinked nature of today's global economy means that what happens financially in one country can have consequences in many others. There are many key challenges for the economy, Christine Lagarde, Managing Director of the International Monetary Fund (IMF) identified the following three areas: sovereign debt, growth and instability. Growth needs to be just at the right rate too, not too fast, not too slow together with a balance of spending and cuts by governments, global output is predicted to be 3/4% lower during 2012 than 2011. In addition, the unemployment rates make some predict a 'lost generation'.
According to the 2011 World Investment Report (WIR 2011) foreign direct investment (FDI) has not bounced back to pre crisis levels, $1.24 trillion is still 15% down. Recovery is predicted though, but it will take two years (all being well). Once again developing and transition economies seem to be the ones to watch, half of all FDI is down to them and they generated record levels of outflows, directed mainly to other nations in the South, although FDI in the lowest developed countries fell and remains uneven. The importance of developing countries on the world economy isn't a new concept but these figures only highlight that there are positive aspects in today's economy, but probably away from the Eurozone. Demand from emerging markets is increasing,
It's not just the nations involved which are fresh and new and exciting, it's the way they get involved that's new and fresh and exciting. They're using new production and investment models to assist their integration into the global economic community and build their profile as not just players, but competitors. BAN Ki-moon says that their potential has to be unlocked and that frameworks are needed in order for developing countries to fully benefit.
The World Trade Organisation aims to help developing countries build their trade capacity, there are 153 members who negotiate changes to trade rules. The Doha round is the latest round of trade negotiations and its aim is to introduce lower trade barriers and revised trade rules, but progress is slow. The fundamental objective is to improve developing countries trade prospects. Director General Pascal Lamy said recently that if Europe wants to exit the current crisis it needs to have independent fiscal resources and focus on developing its competitive edge. Sounds like Europe is too risky, too interlinked financially and too expensive to me.
There have been uprisings in places like Syria and Greece because people are feeling the strain of social instability, high unemployment and austerity measures. There are arguments for focusing on the bottom of the pyramid, or those with a lower income, selling the lower priced goods to the biggest market. Sounds like developing markets to me. We've become a nation of high end consumers who would not know a good low cost product if we saw one. We're all about luxury and expense, does anyone reading this NOT have a smartphone? It's become the norm.
The more involved the emerging markets become in the global economy, the more organisations such as the ILM and WTO will impact upon them and in today's economic times, that may pose a risk in getting involved in crisis stricken countries. In addition the links between politicians and big business in developed countries almost puts developing markets at a disadvantage. If there was a recession in advanced markets, it would have a big impact on emerging markets, so called 'hot money' too can be damaging, flowing into and out of a country in the short term can damage their economy. If emerging markets are going to play what has become a developed countries game, there'll be winners and losers, who they are, only time will tell.
Sources World Investment Report 2008, 2011. World Trade Organisation. FT. Arnold
Do you think that this will be the way that emerging markets and countries will always have to act? Just hope that they are one of the winners? It will be interesting to see the impact the World Trade Organisation have on this issue.
ReplyDeleteThere's no doubt that FDI is important but, to state the obvious, there's lots of beuracracy, it's complicated and the risks are high, the outcome is uncertain among different cultures, not to mention taking your eye off domestic core markets. HSBC promote a business which understands foreign business culture, we've all seen the adverts, and what's more it's allocated £4bn to small and medium sized businesses who want to start exporting. They're highlighting the fact that European markets are flat and there's opportunities to be had elsewhere. If they do deliver what they advertise, they'd probably be good 'partners'.
ReplyDeleteI think we've all become a bit more risk averse since the financial crisis but as a result businesses may be missing opportunities to tap into foreign markets, the UK export more to Ireland alone than the BRIC countries combined.
IF more businesses took the risk and IF more banks were set up to partner/mentor this type of arrangement it COULD bring a much needed boost to the economy. Balancing the risks with the return in unknown countries may be difficult and with organisations as big as the WTO, change may be slow.