Investing in the BRIC nations
PART 3: The BRIC nations - Brazil, Russia, India and China - aren't just worth watching, they represent opportunities for investors to prosper from the rising fortunes of the world's hottest emerging economies.
The persistent shift to an increasingly globalized economy is sharpening focus on four countries whose economies are redefining world commerce: the BRIC nations -Brazil, Russia, India and China. For investors, it's an opportune time to tune into the market trends, risks and potential rewards inside these dynamic nations.
According to a 2007 report by MFC Global Investment Management, India is the main driver of economic growth in the South Asian region today. The report notes India's "large English-speaking population has turned India into a service and business-process outsourcing destination of choice, and the world leader in the production of computer software and generic pharmaceuticals."
India's manufacturing sector, which is now responsible for nearly 75 per cent of India's industrial output and about 15 per cent of its GDP, is showing signs it is slowing down, however.
While India's real GDP growth is expected to ease to8.0 per cent in 2008 from 8.9per cent last year,
India's longer-term prospects remain strong propelled by the growing wealth and capabilities of its 1.1 billion-strong population.
Despite the turbulence emanating from Russia in 2004 when President Vladimir Putin cracked down on Russia's oligarchs, since2005 Russia has worked to improve business-state relations and Russia's investment climate. Today, Russia's economy is sturdy.
According to Export Development Canada, duringQ3 2007 alone, Russia's economy grew by an estimated 7.6per cent, a trend expected to continue due to a strong commodity price environment and robust domestic demand.
While the Russian government is likely to continue to exert control over strategic sectors such as energy, EDC notes "windows of opportunity for foreign involvement are anticipated, as is Russia's entry to the World Trade Organization this year."
On the other side of the planet, Brazil is making waves felt worldwide. Claudio Escobar, EDC chief
representative and director -Brazil and Southern Cone, says Brazil's economy has become far friendlier towards foreign investors than it used to be.
"At one time, investment by foreigners in Brazil without a local partner was very difficult, but that has changed and many large institutional investors have found good opportunities in the country," he says.
Brazil's economy grew by an estimated six per cent in the fourth quarter of 2007. EDC expects above-trend growth to continue this year due to rising personal income levels, a generally supportive monetary
environment, and strong domestic demand.
Among its population of approximately 187 million people, the Brazil Chamber of Commerce says the country now boasts 35 million middleclass families, a consumer group larger than the populations of
France and Canada combined.
A big question facing foreign investors in Brazil is whether global economic turbulence -particularly in the U.S. - will negatively impact the country's real economy. So far, says Mr. Escobar, there has been no evidence of a significant slowdown due, in part, to Brazil's well-diversified economy.
While China's rapidly increasing demand for Brazilian natural resources is deepening Brazil's dependence on the Asian tiger, Mr. Escobar says this is being offset by strong regional integration and diversification of trade partners and products.
To keep up its pace of growth, Brazil will require massive investment over the next20 years to develop additional infrastructure, mainly within the energy sector. EDC says the pipeline sector alone is expected to attract investments totalling $100 billion US over the next five years.
Unlike other leftist leaders in the region, Brazilian President Luiz Inácio Lula da Silva supports both government participation in the economy and respect for the contractual rights of investors, a policy reflected in the government's active promotion of public-private partnerships to attract private capital.
EDC says while there is significant, ongoing progress in the liberalization of Brazil's foreign exchange regime, a number of important residual controls remain. Foreign currency bank accounts are not permitted.
In addition, regulatory agencies are weak and the bureaucracy is cumbersome. Overall, EDC expects
Brazil's moderate nationalism and neo-liberal economic policies should bolster investor confidence.
Like those of its BRIC counterparts, Brazil's opportunities tend to loom larger than its risks.
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