Which Nations Will Rise After the Pandemic?

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Which Nations Will Rise After the Pandemic?

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• History recap: After 2000, emerging economies (EMs) were suddenly boosted (and BRICS was coined) due to rising globalisation and high commodity prices. In just 10 years, their share in global economy doubled, to 35%. Millions escaped poverty, as incomes rose. That was "the rise of the rest".
• The 2008 GFC shock: Then came the shock of 2008, in the Global Financial Crisis. 

1. International cross-border flows plunged
2. Work forces were seen shrinking due to slowing population growth
3. Share of developing world in global economy shrank; Brazil and Russia slowed compared to the US
4. Other than China, the "rest" are out of the global media radar now!

• Now something unique: Sadly, this is exactly what happened post 1945 (end of WW II). Emerging economies would grow, and then falter. Of the 195 economies IMF tracks, only 39 are "Advanced" and most were already so by 1945! The miracles were Japan, S Korea and Taiwan, that went from poverty to affluence, on the back of "export manufacturing". Instead of domestic markets, they took in revenues from around the world.
• The 2021 scene: Manufacturing and exports aren't as big now. Next big engines are unclear, and EMs are all silent. But three transformations are possible now - (i) faster digital revolution, (ii) economic reforms and (iii) revival of commodity prices
• Digital way: Pandemic accelerated digital adoption on a wide scale worldwide, and immature economies were most influenced. But it doesn't push exports, only domestic markets. 

1. Transformation is indeed possible locally. Since developing nations have lesser of any legacy brick-and-mortar structure, they can go wireless faster than the rich world can.  
2.  China's rapidly emerging "new economy" is helping it catch up with the US rapidly.
3. New digital firms are rising in Kenya, Russia, Poland and so on, with deep knowledge of local tastes. EMs are seeing it more than rich nations.
4. It takes time: The steam engine and cars came, and their full impact arrived decades later. Same with digital technologies. The EMs will be impacted fully, in some time.

• Economic reforms: Many EMs get stuck in a "success - failure" cycle, reforming only when forced to go into a crisis. Gains are lost. Crises arrive again. The pandemic has forced new reforms. 

1. US and rich nations have ramped up spending to reduce financial pain, but growth will be hit in coming time
2. Poorer nations lack that fiscal muscle, so are reforming to boost productivity and growth
3. India's new Labour Laws are an example. Same for new Farm Laws, to give more freedom to farmers.
4. Indonesia, Brazil, S Arabia, Egypt, UAE are doing the same.

• Commodity prices: Some emerging nations are hugely dependent on exporting oil, metals, farm produts and fortunes rise and fall. 

1. Long booms and busts have left commodity prices flat in inflation-adjusted terms (since 1850). 
2. So many couldn't move beyond the developing stages. Brazil's per capita income today, relative to US, is what it was in 1850. Major oil exporters are only as rich compared to US as they were when they found oil!
3. Commodity prices will now rise in 2020s, so many will catch up. (Russia, Brazil, S Arabia)

• Manufacturing still open: The ease to get rich via manufacturing has slowed down, but not ended. Export powerhouses usually have mfg as a share of GDP at higher than 15%. Examples are Vietnam, Bangladesh, Poland and Czech Republic. They are not winning big as firms exit China. Poland did well in past 25 years, and large MNCs are manufacturing everything there now. Vietnam is on the same route.
• Summary: Not everyone will rise in 2020s, but many can, as per the insights above.

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