26 July 2013 – The BRIC markets' slowdown has been well publicized during 2012 and 2013, and even consumer goods giant Unilever has become more cautious about prospects for emerging markets, a big growth driver for the company, according to comments made by its CFO yesterday.
The outlook for emerging markets shows little change with growth not expected to return to pre-crisis highs in the near term. However, according to Euromonitor International, opportunities still remain in the emerging markets.
Speaking in a recent podcast, Sarah Boumphrey, Euromonitor’s Head of Customers and Consumers Research, said there are varying issues in the BRIC countries, with Russia expected to see the biggest slowdown: growth to 2020 is forecast to be half that of growth between 2000 and 2007.
“Yet this is not to say that these four economies, which in 2013 are expected to account for one in every six US dollar spent globally, are has-beens,” she cautioned.
While other emerging markets may be performing better, when it comes to scale, the BRICs are a tough act to beat.
Between them, Brazil, Russia, India and China are home to 268 million households with an income over USD 10,000, which is more than the USA and Eurozone combined, according to Boumphrey.
Non-BRICs to Watch
Boumphrey said smaller frontier markets are showing the fastest growth; in 2013 Iraq, Mongolia, Libya and Paraguay all top the rankings for consumer spending.
However, growth in consumer spending is “not enough to make a market attractive”, she said. Companies also need to consider the overall size of the market, resilience of the economy and the business environment.
Boumphrey picks Turkey, Peru, Colombia, Mexico, Malaysia and Thailand as the key markets for consumer goods players, as these countries are comparatively large, fast growing and for the most part have business environments that are conducive to foreign direct.
However, companies have to enter emerging markets for the long haul as no strategy will bring immediate rewards, Boumphrey said.
Outlook and Risks
Many analysts have been arguing that emerging market growth has passed its peak and that long-term gains are likely to be much lower than in the past, as investors have become more risk averse.
Moreover, analysts say the ‘supercycle’ of high and constantly growing commodity prices has come to an end, which is of great significance to many emerging markets, including Brazil and Russia, as they have benefited from high commodity prices.
Meanwhile, in the Middle East growth prospects are dampened by the region’s political uncertainty and several other major emerging markets are facing social unrest, including Turkey, Brazil and South Africa.
For Boumphrey, “the key point to note really is that there is no generalized answer and different countries are on different growth paths."
Looking ahead, real GDP growth for emerging markets as a whole is expected to be slower than in the past.
Yet of the 159 markets for which Euromonitor International has forecasts, 76 are expected to have stronger economic growth in the forecast period than in the pre-crisis years. Moreover, there are 42 emerging markets that are expected to see annual average real GDP growth of 6 percent or above.
“I would say that of course risks are there, and they have increased in recent quarters, but that nevertheless opportunities remain,” Boumphrey said.
Strengthening in Developed Markets?
Moving on to developed economies, Euromonitor International has seen “undeniable signs of strengthening at a gradual pace”, according to Boumphrey.
However, she said that a key concern remains those economies where a large proportion of households are heavily indebted.
In addition, countries with an ageing population face the prospect of working to improve government finances at the same time as shrinking workforce and increasing pension obligations.
According to Boumphrey, advanced economies still have many strengths over their emerging counterparts: stable and accountable government, lower levels of corruption, an educated population, skilled workforce and better infrastructure.
“You may have to search harder for growth prospects but there still are some there: eight advanced economies are expected to see real GDP growth of three percent or above between 2013 and 2020 and this includes South Korea, Australia and Hong Kong, China,” she added.
Opportunities are especially likely for those companies that are in tune with consumer trends, such as social networking, and for those that align themselves with key consumer concerns, such as sustainability and transparency, she said.
“Yet for the final word, it is my opinion that an effective emerging market strategy is still key for companies looking to safeguard their long-term growth,” she said.