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The Global Economy’s Unsung Heroes

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Which are the smaller, well-performing economies, with strong fundamentals and friendly business environments? Looking outside of the world’s largest emerging markets – in this case those who rank outside of the largest 20 emerging markets - and excluding those who receive more than 25% of GDP from mineral fuels, there are some interesting candidates – chief amongst them Kazakhstan, Peru and Rwanda.

Real GDP Growth in Kazakhstan, Peru and Rwanda: 2008-2016

Source: Euromonitor International from national statistics/UN/IMF

Note: Data from 2014 are forecast

Business Takes off in Kazakhstan

Although Kazakhstan has a large oil and gas sector, it falls under our 25% threshold. Kazakhstan has seen strong levels of economic growth since 2010, and in the medium term growth is also expected to be strong, averaging 5.6% between 2014 and 2018. The country’s currency, the tenge, was devalued in February 2014 and although this will impact inflation it should also boost exports. Unemployment is low and incomes have been increasing rapidly:

  • Looking at more than 1,000 of the world’s major cities, ranked by projected real growth in disposable income between 2013 and 2018, three of the top 20 are in Kazakhstan.
  • Growth of private consumption has consistently outpaced real GDP growth since 2002 and in per capita terms has more than doubled since 2004 – to reach US$6,212 in 2013.

Private Consumption in Kazakhstan: 2004-2013

Source: Euromonitor International from national statistics/UN/IMF

Note: Data are in constant 2013 prices

Kazakhstan has also seen huge improvements in its business environment. The World Bank ranks Kazakhstan at 50th (out of 189 countries) in its Ease of Doing Business 2014 report – the highest of the “stans” and above Spain and Italy; this represents an improvement of 30 places since 2008.

There are threats however: Kazakhstan’s economy is beholden to the oil price and also to the strength of its harvest – which although small-scale, provided employment for 27% of the population in 2013. Demand in Russia, China and the EU – destination for 84% of the country’s exports also plays a part, so risks to the outlook are real and present. Another key challenge is poor transport infrastructure  - the road network density is the lowest in the region, which is a serious issue in a country with the ninth largest land area in the world.

Growth in Peru

Peru is perhaps the most well-known of the unsung heroes. It is Latin America’s 7th largest economy and has been outperforming the regional average real GDP growth since 2005. In the medium term, although growth has slowed compared to the peak of 9.8% in 2008, Peru is expected to see strong real GDP growth averaging 5.6% annually between 2014 and 2018.

Real GDP Growth in Peru and Latin America: 2004-2018

Source: Euromonitor International from national statistics/UN/IMF

Note: Data from 2014 are forecast

Peru has benefited from a strong export sector, based on commodity exports, and the government’s prudent fiscal stance.  It is also seeing a strong increase in middle class households which is having a beneficial impact on consumer expenditure, which we expect to increase by 5.3% in real terms in 2014. Economic growth will be given a boost by large copper mines coming on-stream in 2014 and 2015.

Risks include this reliance on commodity exports – Peru is the world’s third largest copper producer, a China slowdown – China is Peru’s largest trade partner, and income inequality - which is one of the highest in the world.

Rwanda Transforms

Rwanda is the smallest of the three economies, with total GDP of US$7.7 billion in 2013 – to put this into context this is roughly equal to that of Moldova or half the size of Botswana’s economy.  At 11.8 million in 2013 the population is also small –placing it at around the same size as Belgium – and mainly rural. Nevertheless, Rwanda has seen strong growth since the genocide of 1994 – admittedly driven in part by donor inflows. Public debt and inflation are both low and it has outperformed neighbouring countries. An improvement in social indicators has taken place at the same time – life expectancy has risen, poverty has fallen and educational enrolment improved.  The government have worked to improve the business environment with Rwanda placed at 32nd position in the Ease of Doing Business 2014 rankings, in fact Rwanda is now ranked higher than the USA in terms of the ease of starting a business.

Ease of Doing Business in Rwanda: 2008-2014

Source: Euromonitor International from World Bank

Note: Ranking of between 181-189 countries

Risks are high – Rwanda runs a large current account deficit and its reliance on foreign aid leaves it vulnerable. This was seen in 2012 when donor aid was suspended. The export base is narrow – Rwanda relies on a range of food and non-food commodities including coffee and coltan – used in the manufacture of mobile telephones.

An Appetite for Risk

Kazakhstan, Peru and Rwanda have all impressed with their strong rates of economic growth, improving business environments and competitiveness. Smaller, fast-growing economies attracted investors during the era of cheap money and they still offer potential now. This is not to say that these three economies are perfect – they are not; all three face their own challenges, but in an era of slower emerging market growth looking beyond the usual suspects remains a key strategy for many.

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