MINT Condition: Where is the Emerging Potential?
The four MINT countries share well-oriented prospects, even if their collective economic weight lies some way below that of the BRIC bloc. Not unlike the BRICs the MINTs have displayed diverging outlooks for future growth, with gross domestic product (GDP) growth expected to be higher than 5% for Indonesia and Nigeria by 2015 and close to 4% for Turkey and Mexico.
As a group, their contribution to world growth through 2015 (0.2 percentage point out of 3.1%) is expected to remain far below the BRIC’s contribution (1.1 percentage point out of 3.1%). In addition, their cumulative projected import growth over 2013-2016 (approximately US$120bn) is likely to just equal the growth expected in India alone.
Picking Winners Remains Hazardous
Among the MINT grouping, the countries with the greatest economic growth potential also pose the greatest risks. In terms of risk, Mexico is in the best position with an overall healthy economy and positive growth outlook. While it may be the least dynamic of the four, GDP growth has also been the most consistent and least volatile, likely due to being heavily linked to the US (representing almost 70% of its exports and 50% of imports).
Relative to other Latin American countries Mexico also displays a more favourable business environment, as the government is adopting several pro-business reforms – notably in the finance and energy sectors. However, the country is lacking in certain areas; for instance, the rule of law and control of corruption are below the average for Mexico’s neighbours.
In contrast to Mexico’s stability, the other three countries pose higher levels of risk. In the case of Turkey, GDP growth has been dynamic (9.2% in 2010) but also highly volatile (falling back to 2.1% in 2012). The volatility extends to Turkey’s currency, the lira (TRY) and consumer prices, both of which increase risk and sensitivity to external shocks.
In addition, the country’s large current account deficit (-7.9% of GDP in 2013) will remain its Achilles heel and a major drag on economic growth. Indonesia, on the other hand, is much less risky in terms of the current account deficit, but shows exchange rate and price volatility similar to that of Turkey, making it highly exposed to external risk.
Although Nigeria has shown the strongest GDP growth among MINT countries over recent years, it also has the highest risk. While it now represents Africa’s largest economy, a majority of this growth comes from the oil and gas sector, which comprises over 90% of exports and 30% of GDP and makes it extremely sensitive to market or price fluctuations.
The largest risks reside in the business environment, where Nigeria ranks 147th out of 189 in the 2014 World Bank ‘Doing Business’ survey. In terms of political risk, tensions are high due to religious and social conflicts within its borders. The latter have become increasingly problematic in recent months as attacks and abductions by the Islamist group Boko Haram have soared, further increasing commercial risk.
Risk Management 2.0: Combining Country and Sector Risk
In order to minimise the risk of non-payment, a clear risk management strategy is key. In addition to a thorough country risk assessment, individual sector risk must be evaluated to determine the best market opportunities. This can expose the most vulnerable sectors, such as construction in Mexico, air transportation in Indonesia or metals in Turkey. It can also reveal certain industries performing above average relative to the macroeconomic fundamentals. Through a ‘sink or swim’ approach, certain sectors have learned to cope with difficult macroeconomic and political environments, allowing them to perform better than the headline indicators would suggest.
In future years, these four countries will surely benefit from domestic demand-led growth due to the previously-mentioned favourable demographics, of growing and generally young populations. These large markets create potential for certain sectors including retail, pharmaceuticals and agrifood, as they hold a strong positive relationship with market indicators such as economic and demographic size.
However, expanding the risk assessment to globally integrated sectors, including electronics, car components and IT components reveals diverging outlooks once again. Mexico and Indonesia separate themselves, as their economies are well connected to the global value chain and heavily intertwined with regions currently registering strong growth. For Mexico, a majority of trade occurs with the US and the country has become a region for outsourcing the production of car components. Indonesia engages with neighbours China and Japan for approximately 30% of all trade, and is increasingly becoming a platform for the production of car and electronic components.
Turkey, on the other hand, is linked mostly to European countries, especially in sectors such as textiles and the automotive industry, and is not able to thrive as much due to the relatively slow recovery seen in the eurozone. Nigeria is worst-off of the four MINTs, as its industry is still mainly concentrated on the energy industry.
Beware of Artificial Groupings
When analysing the potential of emerging economies, one must always be wary of the risk of non-payment. For the MINT grouping, there is no true ‘ideal’ emerging country, as each has its strengths and weaknesses with varying levels of risk. With the exception of Mexico, other emerging economies that minimise this risk include several countries not included in BRIC or MINT groupings, such as Chile, Colombia, Malaysia, Poland and, to a lesser extent, Morocco.
These five countries could be potentially interesting further down the line as – with the exception of Morocco – they all make up over 0.3% of world GDP. In addition, they display positive and stable growth prospects, and their financing strength (solid reserves, sound macro-policy management) allows them to cope with external shocks.
Behind these groupings, there are other economies of a smaller size, but also with large and young populations which have strong economic potential. In particular, over the long term, countries such as Nicaragua, Vietnam and eastern African countries (including Ethiopia and Kenya) will be also worthy of consideration.