MINT countries to be next economic giants?

March 2014  |  FEATURE  |  ECONOMIC CONDITIONS

Financier Worldwide Magazine

In 2001, when many economists and theorists were searching for a way to define the next period in global economic development, Jim O’Neil, head of global economics research at Goldman Sachs, first coined the term ‘BRIC’. Referring to Brazil, Russia, India and China, Mr O’Neil created the acronym to represent the four countries he believed had the fastest growth potential at the time.

Thirteen years later, Mr O’Neil has popularised another acronym representing the nations that some believe will be the next great emerging markets: Mexico, Indonesia, Nigeria and Turkey. These ‘MINT’ nations are expected to take up the mantle from the BRICs and become the standout group of all the emerging nations.

Although there is some scepticism regarding the potential success of the MINT nations, they do share some common and desirable features. Indeed, all four nations boast large, young and expanding populations. The youthful nature of the MINT populations means that in theory all four nations should experience a rapid increase in domestic consumption in the coming years. By way of comparison, a number of Western nations – and China – are currently suffering from rapidly ageing populations, a phenomenon which will ultimately result in slower growth rates in the future.

The geographical position of the MINT countries also presents an advantage in terms of their potential economic development. Mexico, Indonesia and Turkey all occupy advantageous locations with large markets nearby. Indonesia lies at the heart of emerging Asia – crucially, in close proximity to BRIC powerhouse China and resource rich Australia. Indonesia is already performing nicely and proving to be particularly attractive to investors; foreign direct investment into Indonesia in 2013 reached $28.5bn, an increase of 22.4 percent year on year, according to the country’s investment board.

Turkey sits on the edge of the EU, the gatekeeper to Asia and Africa. Mexico, which has the largest economy of the MINT countries, at around $1.2 trillion, is ideally positioned on the doorsteps of both the US and Latin America. Over the last five years, Mexico has significantly increased its exports into the US – 75 percent now flow into its neighbour. This, in turn, has boosted growth, which is currently running at 3.5 percent per year. The extensive program of economic reform about to be launched in Mexico will further serve to make the country attractive to potential investors. The reformation and liberalisation of the Mexican energy sector in particular will likely attract significant levels of foreign capital going forward.

Of the MINT countries it is Nigeria whose geographical advantage is less obvious, primarily due to the continent’s comparative lack of development over the last 20 years. However, Nigeria still has the potential to become the hub of Africa’s economy, and may already have surpassed South Africa as the continent’s largest nation in terms of wealth. The Nigerian government will carry out a statistical rebasing exercise this year which will see the base year for calculating GDP changed from 1990 to 2008 – this could potentially boost the assessment of the size of the Nigerian economy by as much as 60 percent. Furthermore, the Nigerian economy is currently running at an account surplus, a situation which will allow the government to push forward with a number of large scale infrastructure projects, creating jobs and boosting consumer spending.

Despite the optimism surrounding the MINT countries, there a number of caveats which individuals and organisations must be aware of before committing capital to these regions. Like many other emerging markets, the MINT countries face issues including widespread bribery and corruption, high levels of debt, governance issues, poor infrastructure development and inadequate education systems. In Mexico, much is being done to meet these challenges. In addition to the program of energy reform, changes to the Mexican education system and fiscal policy are also in their formative stages, as is the reformation of the government itself. Nigeria is also taking great leaps forward in solving its considerable energy shortages. Historically, the country has relied solely on gas as a source of energy – a situation the Nigerian government and the World Bank are keen to resolve. Accordingly, the World Bank and the Federal Ministry of Environment are attempting to attract a $100m dollar clean technology fund to boost renewable energy in Nigeria. The fund would likely take the form of a concessional loan with low interest rates targeting a grid-connected solar plant in some states in the country. Diversification of the Nigerian energy sector would help drive investment into the sector and also go some way to helping the country’s economy grow in its own right.

If the MINT nations are to become genuine economic powerhouses, instances of socio-political unrest in Mexico, Nigeria and Turkey must be brought to an end. As the BRIC nations can confirm, excellent opportunities for economic growth are at stake.

© Financier Worldwide

BY

Richard Summerfield