Speech by Philippine Congressman, Hon. Jerry P. Treñas, on the occasion of the CALD-ALDE Meeting session, From BRICS to TIP: Implications for Trade and Investment Policies, held on 09 November 2013 at the Manila Hotel, Philippines.
For the entire 20th Century, the world economy was dominated by the Western nations. The United States of America was the undisputed economic giant of the world, while Europe rebounded from the ashes of World War II to regain its economic prominence which its countries have previously enjoyed. The 21st Century, however, took a radical turn and saw the emergence of the world’s rising economies.
Jim O’Neill of Goldman and Sachs coined the term ‘BRIC’ to group together four of the world’s fastest growing economies at the dawn of the 21st Century. Brazil, Russia, India and China were titans which displayed rapid economic growth. An “S” was further added to BRIC to include South Africa. The success of these new giants challenged the exclusivity of the Organization for Economic Co-operation and Development (OECD) countries in the developed country club. It also played a huge part of the global power shift from the Atlantic to the Pacific, from West to East and, to a certain extent, from North to South.
Just over a decade removed from the emergence of BRICS, the economic think tanks have already crowned the next generation of rising stars in international trade and commerce. All of us are now familiar with the new acronym – TIP or Turkey, Indonesia and the Philippines. Mexico is also grouped together by economic watchers as part of the TIP group, as well as Mongolia by some analysts. These countries have replaced BRICS as the new darlings of investors and as the new catalysts for the growth of the developing world. The new alignment of rapidly developing economies and the slowing pace of growth of BRICS have certainly caused a few ripples in the economic pond of global commerce. But to further understand this shift, we have to look at the context and history of BRICS, TIP and the relationship of both with the Western economies.
The BRICS economies were long overdue for a radical and exponential increase in economic output. We have to look back at the internal and external context of the BRICS nations and the world in general to understand this sudden upsurge, which we may also use to analyze the emergence of the TIP countries in the current decade. Internally, China and India were in a period of turmoil in the decades after World War II. Russia was still the lynchpin of the Soviet Union, and the collapse of the USSR did not help Russia’s economy in the short term.
Externally, the United States was outpacing the developing world by a large margin. It came to a point when China and India, which accounts for more than a third of the world’s population, only produced 7% of the world’s total output. On the other hand, six rich countries whose combined population is only 12% of the world’s total produced more than half of the world’s economic output. This was the context in 1992. It was unnatural, unhealthy for the world economy, and it was only a matter of time before the BRICS countries broke out of their slump. It was a case of overdevelopment for the West and extreme underdevelopment in the BRICS countries.
At the dawn of the 21st Century, the BRICS have stolen the thunder from the West. These countries have nothing in common in terms of geographic location, topography, resources and culture. But what are notable about these countries are their huge population (especially China and India) and size. Russia, China, Brazil and India are among the seven largest countries in the world in terms of land area.
It was highly abnormal for these developing countries to produce so little in the 20th Century, hence these countries were long overdue for exponential economic growth buoyed by their large populations, abundant resources and the eventual “catching-up” with the United States and the West in terms of economic production. Of course, the major changes in the economic policies of the BRICS countries, with China’s aggressive economic and trade policies and the fall of the Iron Curtain in Russia, allowed more Foreign Direct Investments to enter the rapidly developing nations.
We have seen the BRICS countries catch up with the rest of the developed world in the previous decade. In 2007, China’s economy was expanding at a rate of 14.2%, India at 10.1%, Russia 8.5% and Brazil 6.1%. The BRICS phenomenon was amazing because we were witnessing extremely high economic growth rates in the world’s biggest countries.
What is even more fascinating is the fact that not so long ago, a small percentage of the world’s population occupying a relatively small percent of the world’s land area were accounting for majority of the planet’s economic output. Today, the developing countries where most of the world’s population is concentrated are providing over half of the world’s total production, and the BRICS countries are leading the way.
However, a new trend has stalled the seemingly unstoppable engine of growth of the BRICS. The International Monetary Fund (IMF) predicts that China’s growth rate in 2013 will just be 7.8%, India at 5.6% and Russia & Brazil at 2.5%. These numbers are significantly low compared to the previously mentioned 2007 figures.
The slowdown experienced by BRICS has allowed a new group of developing countries to lead the engine of growth. The TIP countries (or TIMP including Mexico) have taken over the pole position from the BRICS nations experiencing sluggish growth rates. While BRICS are now in the bear market, stocks in TIP countries are more bullish than ever. We are seeing a new paradigm shift here from the production and export-oriented BRICS to the local consumer spending-driven TIP. In fact, economists believe that more Foreign Direct Investments (FDI) are headed in the way of the TIP countries.
Turkey is now the golden boy of Europe. Although its application to join the European Union (EU) is still under question , Turkey definitely has one of the most dynamic economies in Europe. With EU countries experiencing stagnancy and financial difficulty, Turkey is beginning to become an economic powerhouse in the region. Strategically located in the middle of Asia and Europe, Turkey connects the EU and Russia to the rich Asian and Middle East markets.
Indonesia experienced the highest growth rate in Asia next to China in the previous year. It is the fourth most populous country in the world, with a young population supported by a rising middle class.
Mexico not only takes advantage of its strong trade relations with the neighboring United States, but also with the growing economies of Latin America. New policies of the Mexican government have liberalized trade and the economy, opening new opportunities for FDIs.
The Philippines continues to pose impressive economic growth rates under the present administration of President Bengino Aquino III. Its economy is further strengthened by large remittances from overseas workers and from the booming offshore call center and business process outsourcing industries in the country. Like the rest of the TIP nations, the Philippines has a relatively young population ready to supply skilled labor. Domestic consumption is also very robust in the country. Like in Mexico, the ruling administration in the Philippines has initiated reforms to root out corruption, streamline business processes to avoid red tape, and encourage investors to set up shop in the country.
Today, we could say with confidence that TIP is the new BRICS. Like the BRICS nations, TIP growth has been increased by the fruits of globalization. BRICS countries enjoy the extension of the production line by the sinking cost of transportation and communications through technological advances such as doing business through the internet. The fruits of globalization allowed the Western countries to include the BRICS countries as part of their production line, with goods being manufactured in the large developing countries. The TIP nations are likewise enjoying this advantage, although in a different way. While BRICS nations such as China are production-oriented, the Philippines is taking advantage of the globalized economy by providing service-oriented output to foreign and multinational corporations. This allows the Philippines to provide outsourced labor to foreign companies.
Unlike the BRICS nations, however, the force stimulating the growth of TIP countries cannot be identified as population and size driven. The combined populations of the TIP countries are less than that of either India or China. The TIP countries are also smaller in terms of land area compared to the BRICS nations. Moreover, the TIP countries are not too reliant on export-oriented commerce and production-based industries.
The TIP phenomenon, though similar to the BRICS breakout in the previous decade, is therefore a different trend. It is fueled by policy changes, efficient economic planning and management, anti-corruption programs, and a strong workforce which is both young and well-trained.
The TIP is set to drive the engine of economic growth of developing countries for years to come. We have already felt the changes in our home country, with the Philippines receiving investment-grade ratings from Moody’s Investors Service, Fitch Ratings and Standard & Poor’s. The GDP growth rate of the Philippines was at 6.8% in 2012 and our country posted a 7.6% growth rate in the first half of 2013. Our country was also ranked 59th in the 2013-2014 Global Competitiveness Index of the World Economic Forum, which is up from its 65th ranking the previous year. Our government is also elated by the report of Moody’s that “The Philippines’ economic performance has entered a structural shift to higher growth, accompanied by low inflation.”
The World Bank’s recently released East Asia Pacific Economic Update gave a positive outlook for the economic growth of the Philippines. The growth forecast for developing countries in the East Asia and Pacific (excluding China) is 5.2% for 2013 and 5.3% in 2014. But the Philippines is expected to perform better, with a forecasted growth of 7% for 2013 and 6.7% in 2014. The World Bank’s positive forecast is predicated on strong private consumption, remittances from overseas workers, increasing government spending on infrastructure, expansion of business process outsourcing, low and stable inflation and strong macroeconomic fundamentals.
The Asian Development Bank (ADB) also gave a positive forecast for the economic growth of the Philippines. It updated its Asian Development Outlook report for the Philippines by increasing the 2013 GDP growth forecast from 6.3% to 7% and the 2014 forecast from 5.9 to 6.1%. The ADB also decreased the inflation rate forecast in the Philippines for both 2013 and 2014.
I believe that the trend of BRICS to TIP is still part of the paradigm shift of economic activity from the Atlantic to the Pacific Rim. Indonesia, the Philippines and Mexico are already attractive countries for investment in the Pacific Region, while Turkey is the link of Europe to the rich markets of Asia. In the past decade, the BRICS countries proved profitable for investors in the EU. With BRICS slowing down and TIP changing to a higher and faster gear, it is wise to consider investing in the TIP countries.
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This post was written by CALD