Ruchir Sharma (Head of Emerging
Market Equities and Global Macro at Morgan Stanley Investment Management) has
written an absolutely worth reading book;
Breakout
Nations – In Pursuit of the Next Economic Miracles. This book comes at an
opportune moment when the world at large is looking at emerging markets for
increased growth. Sharma very convincingly debunks many myths and takes the
reader on a very interesting tour. The great thing about this book is that the
author backs every argument with lots of captivating and logical data.
The author has travelled
extensively around the world and typically spends one week per month somewhere in
the world and takes the reader from Lagos in Nigeria to Seoul in South Korea. This
book is a vast collection of ground realities of more than two dozen countries
Ruchir has minutely observed and the book absorbs the reader at almost every
page. For e.g in the chapter on India, “The Great Indian Hope Trick”, there is
a fine piece on ‘High Context’ and ‘Low Context’ societies. Also, in the
chapter ‘The Fourth World’ he talks about Frontier Markets and mentions how
Nollywood (Hollywood of Nigeria) with cheap technology and entrepreneurial
spirit has become the second biggest employer in Nigeria.
The key argument that the author
makes in the book is that the past decade of extraordinary growth in the
emerging markets is coming to end. He correctly points out that the growth in
the emerging market countries came more from the global free money flows and
less from domestic policies. He argues that going forward one cannot view
emerging market countries as one group, but have to understand them as
individual nations. For e.g. in the segment on Russia the author mentions that
the outflow of private capital from Russia hit $80 billion in 2011 which was
$42 billion in 2006, and that key things to watch out for Russia would be non-oil
based growth and reversal of capital flows.
The author right through the book
offers various ‘Rules of the Road’ to watch out for potential ‘Breakout
Nations’. The author explains that the break-out game is all about beating
growth expectations relative to one’s per capita GDP level and in order to find
the next breakout nations, one has to look at different wealth category.
According to the author, in the $20,000 - $25,000 income range Czech Republic
and South Korea have a best chance. In $10,000 - $15,000 category Turkey and
Poland could be potential winners. The author believes that Thailand could
surprise on the upside in $5,000 - $10,000 income range. Under $5,000
Indonesia, Philippines, Sri Lanka and Nigeria have a chance. According to the
author India has a 50-50 chance to breakout.
The author also presents in the
book some innovative ways of looking at facts. One of the things he mentions is
‘The Billionaires Index’ which means that if a country is generating too many
billionaires relative to the size of the economy, the economy is not well
balanced. The key thing is which sectors are generating billionaires and there
has to be churn in the billionaires list. More billionaires generating from industries
(Real Estate, Mining, Oil & Gas) where there is government patronage is a
not a good sign. Sharma also touches upon developed countries such as USA and
Germany and persuasively mentions that how USA will maintain leadership in
technological innovations and will keep up the pace in the global growth game.
Lastly, the author has an art for
smart lines and some in the book are quite fascinating. For e.g. in the chapter
on the global commodity mania, the author mentions that those countries
(Brazil, South Africa etc.) that have solely depended on the growth in
commodity prices are heading for a tough landing. In author’s words “Meanwhile
the nations that have reveled in the commodity boom are likely to face a
disheartening return to the mundane ordeals of a normal life. Buddhist monks
have a phrase for it: After the ecstasy, the laundry”.
Breakout Nations is certainly
worth reading!
