HOWEMERGING MARKETS ARE CHALLENGED BY FRONTIER NATION Emerging Markets v/s Frontier Nations: An emerging market is a country that hasfew characteristics of a developed market,but does not fall into the category of a well developed market. Frontier market isused to denote the economies which are developing countries with slower growth rate than”emerging”.Frontier market is that kind of developingcountry’s market which is more suitable for the developed countries. The potential challenges posed by Frontiernations to the Emerging markets are as follows: Emerging nations are being treated as ablow to the U.
S. monetary policy which continues to be shifting. Moody’sestimates that emerging market economies could face a cumulative 2013-2016 GDPgrowth loss of between 2.8 percent – 3.1 percent depending on the speed of thegrowth of the economy. Among nations most that are mostly exposedto a reduction or reversal of financial flows, emerging markets rank high,given that they were the recipients of large amounts of capital inflows. This reversal in growth prospects andthe ongoing reduction of excessive liquidity led to a fall in the differentialreturn on assets in advanced and emerging economies.
This led to capitaloutflows, which in turn triggered falls in equity and bond indices as well ascurrency depreciations in the very same emerging markets that had benefitedfrom the original inflows,” The major emerging markets are seeingtheir phenomenal growth over the last decade or more slow considerably. And assome of the emerging markets ascend to developed status, the better returns inthe future period is most likely to be from frontier or developed markets. As the economic and financial situationin some of the different countries changes and you do not want the focus to beon the bigger or on more developed potential markets. Regional and country specificfrontier market ETFs provide you the opportunity to be invested specificallywhere you believe the best opportunities are. The emerging markets contributedsignificantly in recovery of global economy from the recession that followedthe collapse of Lehman Brothers Holdings in 2008. WORLD SCENARIOBEFORE THE EMERGENCE OF BRICS. We are currentlyin the edge of seeing a sharp shift towards adoption of new global superpowers. If we look at the powers held by thedifferent nation in the current scenario, The United States of America will bein top of globally dominant and dominative position list.
Before this, Great Britian and its associateregions was the dominant power and forceand prior to that there is a long list of countries which have at least once topped the list of thedominating power list in the entire global. Great nations are also subjected tothe concept of declining so called as concept known as declinism wheresimultaneously other nations are busy evolving into powerful states. For a number of years now, a handful ofnations have been developing at a rapid face and today we compare them with themighty USA. BRICS BRICS is anacronym standing for the five countries who represents BRAZIL, RUSSIA, INDIA, andCHINA AND SOUTH AFRICA. The acronym atfirst was just BRIC until SOUTH AFRICA made an appearance in the association in2010. Together BRICS is a strong unionwhich constitutes 42.8% of the world population and in monetary terms about 22%of the world’s GDP. However, The BRICS creation doessignal a growing disgruntlement or dissatisfaction among developing nations asthe policies have penetrated and of these are mainly US dominated policies whichare mostly customized as per the wishes and whims of the developed nations thatare followed by both International Monetary Fund and the World Bank.
TheBRICS which has a common agenda of removing the international economic andpolicies governance away from the neoliberalism approach and the westerndominance was also in the manifestation and that is when they complained thatstrictness flowing from the west was holding or slowing back the world growthrate and prosperity and that the central banks traditional and unconventionalmonetary policies were designed in such a manner that encouraged speculationworldwide rather than the potential growth domestically. BRICSfrustrations over the current system that suggests a political standstill whichinspired these new enterprises. Interestingly and studies found that these notonly not set an example in a global balancing of economic and political powerwithin the financial institutions but also the balancing of powers within BRICSamong themselves. However, what makes these separate them from their dominatinginternational financial counter-parts is the capital invested which equals thevotes received.
Whereas it is always difficult to influence votes as acoalition of non-founding and non participating members as there will be lessfinancial interest at stake. It is strongly believed that without having anyregards of internal power distribution among the BRICS, the NDB willdecentralize the global economic and financial powers by paralleling thecurrent scenario.Financialstructure of the BRICS Presently, there are twoaspects that make up the financial structure of BRICS, the first one being NewDevelopment Bank (NDB) or frequently referred to as the BRICS Development Bankand the second one being the Contingent Reserve Arrangement (CRA). Both ofthese aspects were signed at the treaty in 2014 and this became active from2015. TheNew Development Bank (NDB),formerly known to the world as the BRICSDevelopment Bank, is a multilateral and multi dimensional bank operatedby the BRICS nations. The primary focus of the bank is to assure that lendingof the funds will be mainly in the infrastructure projects with an authorizedlending of up to $34 billion per annum.
South Africa will have the AfricanHeadquarters of the Bank with the name “New Development Bank AfricaRegional Centre”. The bank will start starts its operations with aninitial capital of 50 billion USD, which will be later and gradually increasedto 100 billion USD over time. Brazil, Russia, India, China and South Africawill initially contribute USD 10 billion each to make to the total of USD 50billion. TheBRICS second aspect or the componentwhich is the Contingent Reserve Arrangement is a framework for providingthe protection against global liquidity pressures. This also includes issues ofthe currency where the currencies of the nations who are members to the groupare adversely affected by the financial pressures arising from the world.
It iscritically analyzed that and found that emerging economies which experienced arapid economic and financial liberalization experienced an increased economicand financial volatility, bringing the uncertainty in the macroeconomicenvironment across the globe. The CRA is generally considered as the competitorto the Breton Wood sisters, the International Monetary Fund and the New Development Bankis taken as an example of increasing the South-South cooperation as against theWest. This was established in 2015 by the BRICS nations. A legal basis and codeof conduct is formed by the treaty forthe establishment of the Contingent Reserve Arrangement of BRICS which wassigned at Fortaleza, Brazil on 15 July 2014.
With these inaugural meetings ofthe BRICS CRA, the governing Council and Standing Committee was held onSeptember 4, 2015, in Ankara, Turkey and they entered into an agreement for ratificationby all BRICS nations which later was announced in the 7th BRICS summit. NATIONS CAUSINGTHREAT TO BRICS…. Since thepopulation and landmass of BRICS nations is enormous consisting of Brazil,Russia, India, China and South Africa where China has taken a lead in economicdevelopment among all the nations, BRICS has the potential to abandon the useof US dollar leaving the western market mechanisms in trouble.
It is also agreat threat to the exchange value of dollar as more of developing and underdeveloped nations is showing a shift in the preference in terms of currency,the imports of technology, the goods, the services. China’sdeep engagement economic and political dialect with Russia on economic issuescan be seen as avoiding the U.S. policy on Russia, which again is inconjunction with the Economic Union that has imposed sanctions on Russia forannexing Crimea. However, this version of China may be tosome extent a biased perspective. After all, the ultimate objective is topressurize the dominance of the U.S.
dollar and the growth which dampens theimpacts of International Monetary Fund, the loan conditions, the creation ofdollar reserve currency which may not be necessary. In addition to this, theimposition of economic and political sanctions on Iran for which they have yetto achieve their end goal. So, is it wrong on China’s part to engage Iran and Russia as an alternativeto isolating them. The UnitesStates of America is very disturbed about the formation and successfuloperations of the BRICS. They also distribute the recent trade deal between Russia and India on the matters of defense, agriculture,space atc.
And these nations do not want India to be interfering into the China and Russia alliance and so isthe one of the biggest reason that they aretrying their best to destroy the relationship between BRICS nations. The US Air forceis by far the most powerful in the world. The US Air force budget is more than the entire military budget of anyother nation. Out of its 13344aircrafts, US can choose one of the most advanced aircraft in the world. As we said no airforce comes closer to this but Russia, India and China have highly ratedequipment and are often part of lists containing what is said to be the world’sbest air forces.
It’s worth nothing thatthe latter two countries are investing heavily in aerial militarydevelopments. India also has aconsiderable cache of aircraft. China is playinga catch up but it’s doing a great job. Currently the South African air force has nothing that compares to theBRICS partners. In terms of nuclearweapons, USA and Russia own around half of the nuclear weapons in the world. The Western policytowards Moscow is toppling the political order of Russia from within and makesEuropeans less dependent on Russia because they haven’t got over their cold warmentality shall lose very large and is still the largest country in the worlddespite the fact that the Soviet Union collapsed.
It has very powerful strategic forces andstill considerably influence globally and sitting right next to Europe wherethere are small countries there is a sense of Russia looming very large andthen the Baltic States who look at the United States to defend them from anythreat that may be caused by Russia in the future. They want to make sure that Russia ispolitically weakened so as to reduce the threat to Western Europe and NATOalliance. The Russian viewto construct European security was not accepted by the West fully. President Putin spoke recently after theannexation of Crimea about his well-founded grievances with the West. BRICS has alsoseen a tendency of the western media showing a negative image and showing thebias against it.
Western media only decides on what the viewers should listento but also moulds their perspective and thinking capacity. Not only thewestern or developing or frontier countries are making a plan against BRICS nationsto degrade or defame the organization and these are supported by few otherelements also which are included in the list including the media that degradesthe BRICS objective. CRITICAL COMMENT According to the studies and the reportspublished in Global Competitiveness Index 2013 of the World Economic Forum, theEuropean Union is comparatively much ahead of the BRICS in terms of key factorslike health sector, infrastructure, education facilities and businessoperations. This lack of development in some of the most essential andpotential market areas will always keepthe BRICS and give an advantage to the BRICS from overtaking European Union’stop position in the global market.However, the European Union faces severalchallenged and should always keep its focus on increasing the efficiency in theoperations and the competitive spirit at the times of global stringencies andeconomic depressions or crises.