When Economists try to Forecast - Nothing could go Wrong. right?
Note: I am not sure when I wrote this piece but it must have been somewhere between late-2013 and early-2014, when MINT entered the headlines.
However, I still remember that I was unable to find an outlet that would take it, primarily because its about economics rather than foreign or security policy.
Jim O’Neill has come up with a new acronym called “MINT” and investors will go bananas about it.
It all started in 2001, when Jim O’Neill, then head of global research at Goldman Sachs, coined the now famous term BRIC, which includes the four major emerging economies of Brazil, Russia, India, and China. To most people, the BRIC grouping was easy enough to understand to make some economic sense. All four countries were large in size, relatively strong in growth and had demographics on their side.
In 2010, South Africa joined the club and turned BRIC into BRICS, which fundamentally altered the underlying logic of the term. South Africa’s land mass was only 1/3 of India’s and its GDP growth rate clocked an unimpressive 3% in 2010. Admittedly politics were meddling with Neill’s acronym by including an African country into a new emerging power club.
But looking back at Jim’s forecast in 2001, the BRIC countries performed outstanding. While the world economy grew by 2.6% annually between 2001–2010, the BRIC countries rose by 6.5% within the same period.
However, with BRIC and BRICS struggling in 2011 with a mere annual growth rate of only 3% (excluding China), new acronyms for places of growth needed to be identified.
Citigroup came up with CARBS — Canada, Australia, Russia, Brazil and South Africa — based on the logic that these five countries encompass 29% of global landmass inhabited by only 6% of world population. Combined with their large commodity assets and high stock market liquidity, CARBS were disproportionally important as commodity exporters and markets.
But there is a reason why you will never hear of CARBS again. No single commodity asset in the world, whether it is oil, gas or gold, is so monopolized to the extent that a CARBS investment will result in a guaranteed return.
What was needed to reinvent the success of the BRIC-like impact was a look beyond the biggest countries and the largest populations in the world.
In 2005 a Goldman Sachs team surrounding Jim O’Neill came up with a list of 11 promising countries. Their common ground: “they are the next set of large-population countries beyond the BRICs”.
But even for Goldman Sachs standards a list of countries as diverse as South Korea and Pakistan did not make economic sense. The list needed to be smaller, more concise and most importantly attract investors in the end. So while Goldman dwelled on the issue for several years, other companies came up with new acronyms.
In 2009 Robert Ward, Director at the Economist Intelligence Unit, coined the term CIVETS — Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Korea — based on their sophisticated financial systems, controlled inflation, and growing young population. Hailed by Michael Geoghegan, CEO of HSBC, as the “new BRICs” in 2010, the arrival of the Arab Spring in Egypt one year later, also marked the end of CIVETS altogether. Again politics were meddling with economic forecasting and undoing promising investment strategies.
Finally in 2012 Jim O’Neill resurfaced to present Goldman’s new investment acronym MIST. MIST included the nations of Mexico, Indonesia, South Korea and Turkey which were all forecasted by the World Bank to perform outstanding in the decades to come. However, not entirely satisfied with MIST’s diversity and long-term growth prospects, O’Neill substituted South Korea with Nigeria in 2014, creating the new acronym of MINT.
According to O’Neill, Mexico was chosen because it is “next door to the US, but also Latin America”. Indonesia was in it because it is “in the heart of South-East Asia but also has deep connections with China.” Turkey could not be ignored because it is “in both the East and West.” And Nigeria was important because “it is not really similar to [Turkey] in this regard for now, partly because of Africa’s lack of development, but it could be in the future if African countries stop fighting and choose to trade with each other.”
From an economic perspective the MINT choice made perfect sense. According to a 2013 PwC report only the MINT nations will rank together with the US, Europe, and the BRIC among the top 15 economies in 2050. In terms of GDP per PPP, Nigeria is projected to outrank South Korea by 5 spots putting it 13th respectively. Mexico and Indonesia will be the world’s 7th and 8th largest economies, while Turkey will rank 12th.
From a political perspective however no credible forecast can be made to even reflect the situation of the MINT countries one or forty years from now. If the Failed States Index maintained by the Fund for Peace is any indicator, the MINT nations have a long way to make it to the top. While Mexico, Indonesia, and Turkey are ranked in the lower warning levels for instability, Nigeria is currently the 16th most unstable country in the world.
As far as the literature is concerned, there is no such thing as sustainable economic growth without political stability. Thus if O’Neill is right with its MINT vision, then it will not be because these four countries were destined for high economic growth. Without political leadership, democratic reforms and a comprehensive economic agenda, the MINT nations will go nowhere. In the end politics will determine their faith, and not macroeconomics.