Emerging Markets’ GDP Exceed That of Advanced Economies
In the 21st century, the emerging markets surpassed the world's advanced economies in terms of the total gross domestic product as per the Business Insights on Emerging Markets 2021.
The Alliance Bernstein reported that post-2011, the emerging markets grew at an annual rate of 4.1 per cent as compared to the advanced markets which grew at 1.5 per cent in terms of real gross domestic product. China’s contribution to these numbers remained unmatched.
Twenty nations have been designated as emerging markets by the International Monetary Fund. These 20 countries contribute to about 34 per cent of the global nominal gross domestic product. They also contribute close to 46 per cent of the global purchasing power parity.
Given the foregoing, the world economists believe that the focal point of economic development has shifted dramatically from developed nations to emerging markets.
The role of foreign direct investment in the economic development of any country is non-negotiable. Many emerging countries have relaxed the regulatory restrictions related to foreign direct investments to lure global investors viz. China’s amended foreign investment laws with a curtailed negative list, Ease of Doing Business Initiatives and the latest 100% foreign direct investment in telecom sector in India and 100% foreign ownership of commercial companies in the United Arab Emirates, and so on.
The Business Insights on Emerging Markets 2021 reported that the foreign direct investment in the emerging markets jumped from 15 per cent to 46 per cent over the last two decades.
Over the years, technological advancements combined with digitalization have captivated the globe and benefited the global economy in many unprecedented ways. The developing nations are alarmed and asked to prepare for a fast pace technological revolution which shall revamp the markets and societies completely, says the Technology and Innovation Report 2021.
The emerging markets have also plunged into the race of creating an amicable digital infrastructure for technological innovations. The COVID-19 pandemic gave it a harder nudge.
The Internet is at the core of the technological revolution. According to the Business Insight on Emerging Market 2021, the internet users in Asia’s emerging markets are predicted to grow from 42 per cent to 54 per cent by 2025. This would result in enormous technological improvements in the banking, education, and e-commerce sectors, among other areas.
Furthermore, e-commerce platforms will radically disrupt the commercial sector. Since 2015, e-commerce platforms in Asian emerging economies have grown by double digits. In 2020, the number of subscribers to different e-commerce platforms in China, India, and ASEAN nations have risen by 71 million, 50 million, and 37 million, respectively. Education, the business sector, food chains, and e-commerce are all more technologically advanced than they were a few years ago.
Artificial Intelligence (AI) is knocking hard on our doors and soon it will be a big part of our lives. AI is effectively being used in all sectors from power transmission, education, health diagnosis, financial services, logistics chain, and so on. According to the Report on Artificial Intelligence in Emerging Market - China and the United States are leading the chart of AI-related investments. The opportunities in AI will boost the Gross Domestic Product of China by 26 per cent by 2030. Looking at such projections even the emerging economies have started to crave their own AI agenda.
An apt set of human skills is inevitable to keep up with the pace of advancements in the current technological and digital era. Many emerging markets are taking steps to preserve their human capital and allure high-skilled labour from another world. The latest announcement by the Crown Prince of Dubai to grant 5-year multiple visa entry to employees of multinational companies is an exemplary measure to safeguard and attract human capital.
The economics of emerging markets shows a gradual and radical shift from the manufacturing to the service sector in such economies.
Amongst others, the trend of the sectoral gross domestic product over a decade of China (Agriculture - 2010: 9.3 per cent | 2021: 7.7 per cent; Industry - 2010: 46.5 per cent | 2021: 37.8 per cent; Service- 2010: 44.2 per cent | 2021: 54.5 per cent) and United Arab Emirates (UAE) (Agriculture - 2009: 1.04 per cent | 2019: 0.73 per cent; Industry - 2009: 52.04 per cent | 2019: 46.16 per cent; Service- 2009: 46.92 per cent | 2019: 53.11 per cent) support this theory.
As a result of better awareness of this change, many developing markets are spending more on services and intangible assets as a percentage of their gross output. China has been at the forefront of this economic movement. In the last 20 years, the spending on research and development done by China has grown from 0.5 per cent of its gross domestic product to 2.2 per cent. In fact, in today’s time, China registers more patents annually than the United States of America.
The growth projections of the emerging economies were promising until the advent of the COVID-19 pandemic. However, the economic rebound made its way through in the year 2021.
China is expected to grow its gross domestic product by 8.5 per cent in 2021 and 5.8 per cent in 2022. Whereas, India can still strike a gross domestic product growth rate of close to 10 per cent in 2021, given that it is successful in avoiding the resurgence of the pandemic.
The Middle East, which is home to numerous rising markets, is likewise recovering quickly. Amongst all the countries in the Gulf Cooperation Council, the United Arab Emirates (UAE) has emerged as the most competitive emerging market. As reported by Reuters, the UAE will grow by 2.1 per cent in 2021 and 4.2 per cent in 2022.
According to Agility Emerging Markets Logistics Index 2021, in terms of the business fundamental index, UAE, Saudi and Qatar have retained their positions in the top 5.
The regional government promotes sustainable investment through a variety of programmes such as the Dubai Expo 2020, Annual Investment Meeting, start-up culture, and so on. These activities will likely propel the UAE to a few points over its present status soon.
The emerging markets are not void of challenges. Technological advancement leads to an unparalleled disparity in such economies. The Technology and Innovation Report 2021 terms this phenomenon in emerging markets as “Prosperity amidst poverty”. Demographic changes, slow economic diversification, political instability, weak financing mechanism, brain drain, poverty, and so on are some of the challenges that will remain a concern for the emerging markets.
However, the trends of investment in green technology, infrastructural connectivity and liberalised reforms over the next decade will put emerging markets on the world map. This will also lead to a change in the status of many emerging markets.
