Emerging markets show their mettle

WHILE THE BEGINNING of this year still saw speculation about whether emerging economies had become sufficiently disengaged from the Western industrialised nations to save the world from a deep recession, at the close of 2009 it's being widely acknowledged that they have become a surprisingly major force on the international scene.

Commentators everywhere were impressed by China's achievement of an 8,9% growth rate in the third quarter. The attempts by China's authorities to stimulate domestic growth on a large scale to make up for the weakening of the rich United States and other export markets achieved the desired effect. Antoine van Agtmael, one of the leading experts on emerging economies, says the development of such countries is still only at an early stage. Their growth will add a further 1bn consumers (unlike those who now live on a subsistence level) to their markets - which will be music to the ears of Naspers due to its valuable interest in the exploding Chinese TV market.

Some commentators also see 2009 as the beginning of the end of the US's domination. It's estimated almost 75% of the world's economic activities now take place outside the US. It's also estimated international investments will double in the years to come to more than US$300 trillion, with around half of it flowing to the emerging economies. Over the past year large amounts of capital flowed to countries such as China and India, because good returns were still possible. Van Agtmael - former head of the World Bank's treasury division and deputy director of the International Financing Corporation's capital market division - predicts that those economies' output will overtake that of current Western industrialised nations.

Over the past year the world also saw the extent to which previously unknown companies from emerging countries have challenged leading Western names. As one commentator put it: Every year more aircraft are bought from Embraer in Brazil, fridges from China's Haier appliances group and cellphones from Taiwan and Korea while the sphere of influence of Russia's Gazprom giant keeps growing.

Brands such as Ford, Sony, Shell and IBM have to make increasingly more effort to remain competitive against the newcomers. Van Agtmael's book* mentions some of the more important of the new giants and shows how they're outmanoeuvring the West's big guns. He looks specifically at the growth of the electronic division of Korea's Samsung, China's Lenovo computer group and India's Infosys. He mentions about 25 companies getting the better of established Western groups. The dominant positions they're achieving will change the lives of everyone, he says.

However, China's aggressive expansion isn't going unnoticed. Though its companies go about things quietly, voices are being raised because they are starting to play such a major role. Mexico is one of its targets, due to its access to the US. Several Chinese vehicle manufacturers say they want to operate in Mexico. These include Zhongxing Automobile, ChangAn Automobile (Ford's Chinese partner) and First Automotive Works. They have no shortage of capital.

In commodity-rich Canada there's already a degree of concern at its major investments in local companies. China's overseas investments in third quarter 2009 increased by 190% compared to the same period last year. For Canada, the strong growth in China - industrial production in the current quarter could rise at an annualised rate of 16% - is of great importance. That will also help South Africa, also an important commodity exporter, to achieve growth in 2010.

* The Emerging Markets Century (Simon and Schuster).