International | Jul 10 2006
By Chris Shaw
The world’s six largest economies currently are the USA, Japan, the UK, Germany, France and Italy, but according to Goldman Sachs by 2050 only the US and Japan will retain their place in this list.
Replacing the other four will be Brazil, Russia, India and China, the so called BRIC nations, which are set for many years of significant growth. Russia and Brazil are expected to join China and India on long-term growth paths thanks in large part to significant natural resources, which will see them become major beneficiaries of both China and India’s need for raw materials.
Thomson Financial has assessed how private equity, or venture capital money to use another popular term, is analysing the growth prospects of these four emerging economies by looking at private equity inflows to each country, with how much and where it is being invested offering an insight into how each economy may develop.
The first point it makes is all of the BRIC nations are still very much being regarded as emerging economies, with venture capital companies continuing to look for toeholds rather than aggressively entering each economy. Emphasising this is the fact investment inflows into China in 2005 totalled US$1.56bn, which while the most among the BRIC countries is a fraction of the US$54.22bn invested in the US last year. India was closest to China with US$805m invested, though this was down from US$950m in 2004, while Brazil received just US$66m and Russia US$170m.
The other point Thomson Financial makes is with these nations still seen as emerging markets, the range of industries in which venture capital funds are investing in is somewhat limited. It notes while Brazil is regarded as resource rich, little money is actually being directed to this sector as about 75% of the investment inflows are being directed to consumer related industries, while medical and health related investments account for another 11%.
Things are a little different in Russia as transport, industrial/energy and business service are the dominant investment areas, though Thomson Financial points out that like Brazil, little is being channelled towards the internet and communication sectors.
Given India is somewhat more advanced in its economic development it is not so surprising money here is being spread over a wider range of businesses and industries, while in China the focus is on consumer related industries and the manufacturing sector, particularly with respect to technology such as semiconductors, communications and computer equipment.
The most obvious conclusion according to Thomson Financial is private equity is viewing each of the BRIC economies as being at a different stage of development and offering a different level of risk, which is determining where the money flows and how much the venture funds are willing to risk.
This suggests while each of the BRIC nations will economically be far more powerful in a global sense by 2050 than is the case now, the rate of this development will vary significantly between them as private equity money will assist some industries, and therefore some economies, to develop much faster than others.
