Sent: 28-03-2012 13:50:03
In this issue:
Return to full article list
HomeFree weekly newsletterSelf Managed Super Fund ArticlesContact usLogin
Cuba Versus India
The dynamism of the world economy was illustrated in the past week by two cover stories for The Economist which highlighted again the inappropriateness of looking at growth from a regional perspective.
The 24 March cover of the North American edition of the prestigious international news magazine, The Economist, read "Cuba hurtles towards capitalism". The cover story for the Asia Pacific edition on the same date was "How India is losing its magic".
These two headlines exemplify how precarious forecasting macroeconomic changes can be and the folly of extrapolating global economic outcomes simply on the basis of recent experiences.
The juxtaposition of the two articles questions the wisdom of economic strategists recommending actions based on regional growth prospects as though the region is responsible for the economic performance and not some other investment friendly ingredient that fast growing economies have in common.
While Asia appears set to run ahead of the global growth averages because of its burgeoning middle class and their desires for more material goods, these advances are coming through freer markets being able to respond in ways that were impossible 20 years ago.
Freer markets are not the preserve of Asia. There is no reason they cannot blossom elsewhere and bring about similar gains in economic activity. Indeed, that is already happening. The International Monetary Fund, for example, is forecasting that Latin American and Caribbean countries are in the midst of a 10 year average 4.3% growth path. Sub Saharan Africa is running ahead at a 5.7% annual rate. The advanced economies, battling to overcome serious policy failures that have hobbled their markets, are growing at just 1.7%.
Cuba might never be comparable as an economic power to India simply because of the difference in size of the potential populations of the two countries. As the article in The Economist made clear, the Cuban gerontocracy is also some way from giving its otherwise decrepit system its head. Yet signs of a break with the past are appearing.
In India, on the other hand, signs of a reversion to a past steeped in economic nationalism are emerging. Relatively high public debt supporting government subsidies and weaker than average investment compared with the other major Asian economies has been affecting growth detrimentally. Failure to lift a ban on foreign retailers, such as Wal-Mart, entering the Indian market has also signalled some lessening of the dynamism which was expected to drive development and compete with China for the top of the growth league ladder.
From the Caribbean to Eastern Europe, central Asia and Africa old countries are emerging with new economies. As the old economies of western Europe rid themselves of the fiscal shackles which have hobbled their economic performance some of them might also contribute to global growth in ways that are not currently foreseen because we are preoccupied with a geographic classification of where growth is coming from.
The political rhetoric is telling business to embrace Asia. The region most certainly should not be ignored but businesses looking to invest should consider the basis of the new opportunities and not simply their location. Underpinning the opportunities is a systemic change in the importance accorded markets.
Cuba could turn into a low cost manufacturing centre on the edge of the vast North American market offering companies based outside the USA opportunities to tap the most affluent market in the world, even if no longer the biggest.
Given the dramatic impact of economic reform and the speed of political change, can we say with any certainty today that an Australian manufacturer setting up a business in Cuba will be worse off in 20 years than a company setting up in India?
Equally, should government be diverting attention to "the Asian century" and risk Australian companies failing to take advantage of the likes of Cuba wherever they may be located?
This email is general in nature only and does not constitute or convey specific or professional advice. Legislation changes may occur quickly. Formal advice should be sought before acting in any of the areas discussed. Be aware that the information in these articles may become innaccurate with time. Responsibility is disclaimed for any inaccuracies, errors or omissions. Particular investments are neither invited nor recommended and hence this publication is not "financial product advice" as defined in Section 766B of the above legislation. All expressions of opinion by contributors are published on the basis that they are not to be regarded as expressing the official opinion of any other person or entity unless expressly stated. No responsibility for the accuracy of the opinions or information contained in the contributor's articles is accepted by any other person or entity. Copyright: This publication is copyright. If you wish to reproduce this article you require a license, which can be purchased here, to do so.