"For more than two decades, emerging markets (EMs) have generated some of the most exciting investment opportunities globally. As economies in Asia, Latin America and Eastern Europe began to grow at rates that far outpaced more developed countries, new economic reforms and trade liberalisation opened the door to Western investment. Meanwhile, increasing urbanisation and a burgeoning middle class gave rise to a new generation of consumers with strong demand for consumer goods and infrastructure development to support their new lifestyles. As a result of these developments, investors were able to enjoy a period of exceptional returns across major asset classes. Today, however, EMs present a very different investment proposition, having established themselves as major players in the global economy. Compared to Western countries, many emerging markets are better resourced, have stronger balance sheets and younger work forces. China and India together comprise three times the population of the entire advanced world. Emerging markets now represent 86 per cent of the world's population, 75 per cent of the world's land mass and resources and account for 50 per cent of world GDP (gross domestic product) at purchasing power parity (PPP), yet account for just 12 per cent of the global equity market capitalisation on a float-adjusted basis." - Blackrock Investment Institute.
However, "Global Emerging Markets" (GEM) is an anomalous concept with many pitfalls and contradiction in its macro fundamentals. Performing economies in the West enjoy the advantages of democratic institutions, plural governance, clarity in geopolitical and strategic perspective and a free or an open market culture which are the core requirements for a sustained development for demand, supply and consumers choice. Emerging markets failed to meet these requirements and on the contrary, became dependent on supplying to the developed markets and failed to create domestic demand and a competitive domestic market.
Investment which was attracted from the West was selfishly for the export growth in the emerging markets and for sustained supply to meet demands in the developed markets. This supposedly created wealth in the emerging economies but also created wealth gap in the population of the emerging economies.
Emerging economies were less organised politically and in some cases were going through a chaotic transition to some form of democratic destination. As a result, they were unable to perceive a national planning for development. Export mode attracted the local entrepreneurs in collusion with foreign investors to solely invest in the export sector.
Governments in whatever form it may operated, saw in the export sector an employment generating and revenue earning scope and the investors generated profit from low wages and other incentives offered to them. Thus an overall national planning was either abandoned, or kept on hold or not made ready for implementation. Employment that was generated by export boost created a very narrow scope of skill by on the job training and a general education to better one's life and skill was left to the bureaucratic management of the governments with limited or no resources and lack of political resolve.
A classical example of exploitation by both foreign and local investors in making profits out of low wages that will make only subsistence support to the workers continued ever since high inflation impacted the growth in developed economies.
There had been some attempt in supporting emerging economies with structural support, aid to develop infrastructure, develop awareness for population control and for developing social and political institutions. But it was a half-hearted attempt with meagre resources and with strings attached to monopolise the market.
WORLD ECONOMY IS STRUGGLING WITH DIFFICULTIES: The current international situation is evolving with drastic changes, and the world economy is struggling with difficulties. Some countries in West Asia and North Africa are undergoing turbulence. The world "hot spot" issues keep on erupting, one after another. The social troubles in the West have become a frequent phenomenon. People are coming to realise that the West, being the initiator of a rampant economic crisis, is facing large-scale uncertainties. The turbulent situation in West Asia and North Africa is intensifying because of the meddling from the West, and at present, the unrest looks likely to be expanding. The wars in Afghanistan and Iraq are not seeing quick conclusions, and now Libya is in a state of war. In the Western society, extremist ideas are growing unchecked and social disorders are unstoppable. The public is discontented with some reforms, and they also call the whole political system into question.
All of these realities reflect deep structural contradictions faced by the Western society. Under the Western-style democratic system, the relationship between the ruling party and the opposition is one of zero-sum, and the opposition's political future depends on the failure of the ruling party. The reason is rather self-evident. With a higher degree of satisfaction from the people, the opposition has a smaller chance to defeat the ruling party and gain the power. On the contrary, with a poor performance of the government and a low satisfaction from the people, the opposition has greater odds of winning an election.
Because of such a zero-sum relationship, the opposition will always refrain from taking any measures to help the ruling party in its effort to properly govern. The vested interests of the opposition will spur it to obstruct the ruling party's performance, thus harming national interests and popular well-being. For instance, the opposition tends to block any reform plan of the ruling party, no matter whether or not the reform is beneficial to society at large. The purpose of doing so is to prevent the ruling party from gaining an upper hand through reforms. The opposition hopes that reforms could be made when it comes to power in order to add lustre to its own popularity. The problem is that when the opposition comes to power by winning the election, the ruling party becomes the opposition, and as the opposition, it treats any reform with the same mentality and logic. As a result, the agenda will be discussed repeatedly, various reform plans will be debated and postponed in succession, problems will become increasingly hard to resolve, and the competitiveness of the country will gradually be weakened. Just as Time magazine put it, America never lacks new ideas, nor does it lack the channels for debate or the outlets for rage.
ATTRACTING FDI: The term 'FDI Fitness' refers to a country's ability to attract, absorb, and retain FDI (foreign direct investment). An allusion to the Darwinian concept of the survival of the fittest suggests that it is not necessarily the biggest and strongest who survive, but rather those who adapt most cleverly and fittingly to existing conditions.
In other words, it is not the largest countries but the fittest that obtain most FDI. Fitness denotes a state of wakefulness, the ability to react swiftly to dangers and opportunities, creativity and flexibility in carving out a niche in which a country can survive against competitors.
Consistency in the national development objectives is vital in forging consensus on investment policy reform and implementation. Increasing FDI is not an objective with an intrinsic value; instead, it ought to be treated as a means to attain budgetary and socio-economic security in order to improve the well-being of the people.
This can be done only by achieving a fine-tuned balance in regulating FDI, adopting budgetary discipline, and conscientiously allocating capital generated by FDI.
The writer is an economist, Business Consultant and President of Bangladesh-Myanmar Chamber of Commerce & Industry (BMCCI).