Ngozi Okonjo-Iweala
Emerging economies of Nigeria, Indonesia and Mexico could push the UK and France out of the top ten economies of the world by 2050 provided they are able to build their institutions to global standards, diversify their economies and sustain growth friendly policies. This is one of the key findings of the global report from PricewaterhouseCoopers’ (PwC) economists titled ‘‘The World in 2050:
Okonjo-Iweala Will the shift in global economic power continue?’’ This presents long-term projections of potential GDP growth up to 2050 for 32 of the largest economies in the world, covering 84 per cent of total global GDP. According to the report, the current global economic power shift away from the established advanced economies in North America, Western Europe and Japan will continue over the next 35 years, despite a projected slowdown in Chinese growth after around 2020.
The world economy is projected to grow at an average of just over 3 per cent per annum from 2014-50, doubling in size by 2037 and nearly tripling by 2050. But there’s likely to be a slowdown in global growth after 2020, as the rate of expansion in China and some other major emerging economies moderates to a more sustainable long-term rate, and as working age population growth slows in many large economies.
Nigeria, Vietnam and the Philippines are notable risers in the global GDP rankings in the long term, reflecting relatively high projected average growth rates of around 4.5-5.5 per cent per annum over the period to 2050.
According to Mr Andrew S. Nevin, PwC Nigeria’s Chief Economist and co-author of the report, “Over the past decade, Nigeria has boasted superior economic growth and, with the right reforms and investments, Nigeria could become one of the world’s leading economies by 2030, with further progress by 2050.
Nigeria’s potential advantages for future growth include a large consumer market, a strategic geographic location, and a young and highly entrepreneurial population’’. He continued, ‘‘however, at the same time, we are all aware of the significant headwinds (adverse trends) created by the rapid drop in the oil price, putting pressure on the fiscal and monetary systems, as well as reducing economic growth in the short term.
To achieve its long-term economic potential, Nigeria will need to manage the oil price decline effectively at all levels of government and create a sustainable platform for diversification into the sectors that we know will drive the economy in the future – including power, agriculture, manufacturing, telecoms, hospitality and real estate’’.
Nevin concludes, “according to our long term projections, Nigeria could sustain average growth of around 5-6 per cent per annum in the long run, following projected growth of around 6-7 per cent in the rest of this decade, assuming broadly growth-friendly policies are pursued. While foreign investment has in absolute terms long been focused on the oil sector, portfolios are becoming increasingly diversified, moving towards the power, agriculture and mining areas of the economy that have demonstrated a comparative advantage in emerging markets vis-à-vis the West’’.
Recent experience has however underlined that relatively rapid growth is not guaranteed for emerging economies, as indicated by recent problems in Russia and Brazil. It requires sustained and effective investment in infrastructure and improving political, economic, legal and social institutions.
Overdependence on natural resources, according to the analyst, could impede long-term growth in countries such as Nigeria, Russia, and Saudi Arabia unless they can diversify their economies over time. Nevin further concludes that ‘‘while our analysis confirms that emerging markets have huge potential, they can also be an institutional minefield – both managers and investors need to tread carefully.
Overall, Nigeria continues to be an attractive place to invest not because it is an oil producer, but because of the immense size of its domestic market and the extraordinary commercial energy of its people, which remains largely untapped.”
Beyond Nigeria, the PwC Report projects that China will be the largest economy by 2030 on any measure. However, it also expects its growth rate to slow markedly after around 2020 as its population ages, its high investment rate runs into diminishing marginal returns and it needs to rely more on innovation than copying to boost productivity. Eventual reversion to the global average has been common for past high growth economies such as Japan and South Korea and we expect China to follow suit.”
The report also contains projections based on GDP at market exchange rates, without this relative price adjustment. On that basis, China is projected to overtake the US in around 2028, while India would clearly be the third largest economy in the world in 2050, but still some way behind the US. Other highlights from PwC’s projections are: India has the potential to sustain its higher growth rate for longer and become a $10 trillion economy by around 2020 in purchasing power (PPP) terms, or around 2035 at market exchange rates.
But this relies on India making sustained progress on infrastructure investment, institutional reforms and boosting education levels across the whole population. Emerging economies like Indonesia, Brazil and Mexico have the potential to be larger than the UK and France by 2030, with Indonesia possibly rising as high as 4th place in the world rankings by 2050 if it can sustain growth-friendly policies. Malaysia is also projected to grow at around 4% per annum on average in the period to 2050, which is higher than China’s projected average growth rate of around 3.5% per annum over this period, and an impressive performance for what is already a middle income country.
Colombia is also an economy that PwC projects to grow at a relatively healthy long term rate of around 4% per annum over the period to 2050, noticeably faster than its larger Southern American neighbours like Brazil and Argentina. Japanese growth is projected to be the slowest of all 32 countries covered in total terms, driven in part by a steadily declining population; as a result Japan is projected to fall from 4th to 7th place in the global GDP rankings over the period to 2050. European economies tend to slide down the rankings, with growth rates in the major Eurozone economies projected to average only around 1.5-2% per annum to 2050.
Poland is projected to have the highest average growth rate of the large EU economies, and also to outperform Russia in terms of long-run growth. These projections assume, however, that emerging markets will follow broadly growth-friendly policies. In practice, not all may do so and therefore not all of these economies will fulfil the potential indicated by the PwC growth projections, although some could also exceed the projections if they can accelerate their investment rates and institutional reforms.
By Emeka Anaeto, Economy Editor
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