Across all emerging markets (EM), excluding China, investment growth is down to zero, according to the Institute of International Finance (IIF).
The IIF looked across all major EM to see where the investment slump is most pronounced, by calculating the contribution of gross fixed capital formation to year -over-year (YoY) GDP growth.
It found out that Turkey and Argentina are at the extreme weak end of the spectrum, describing it as “not surprising,” given difficult external funding pictures.
“What is more surprising is that Mexico is also seeing pronounced weakness, along with a number of other key EMs, including Brazil, India, and South Africa,“ the IIF said.
The IIF attributed the growth slump to weak investment in crisis economies like Argentina and Turkey, where BoP’s sudden stops sharply curtail investment, and to “secular stagnation” cases like Mexico and South Africa, where weak investment
has been part of a slowing growth trend for some time.
The report said that this investment slump carries the risk of turning a difficult few years into a more structural slowdown.
Despite the drop in the EM`s investment growth, and according to the latest investment trends reports issued by the United Nations Trade and Development Organisation (UNCTAD), Egypt still maintains its position as the largest recipient of foreign direct investment (FDI) in Africa.
According to the UNCTAD, new foreign direct investments remained concentrated in the gas and oil sector, along with significant investments in telecommunications, real estate, and tourism sectors.
Moreover, Minister of Planning Hala Al-Saeed said Thursday that the state’s FDIs hiked 5% during 2019 YoY, reaching $8.5 bn.
Going back to the IIF, it said the bulk of EM are experiencing a protracted growth slump, stating that excluding China, and India, arguably outliers due to their large populations and economic heft, EM have not materially outgrown advanced economies since 2013, something that is called “secular stagnation” in EM.
There’s a growing debate around the growth model across EM , a discussion that feeds off growing anxiety over automation, deglobalisation, and climate change.
The report explained that growth across most emerging markets has
not been materially above that in advanced economies since 2013.
Looking at YoY growth through Q3 2019, the IIF revealed that Brazil, Uruguay, Turkey, South Africa, Ecuador, Mexico, Saudi Arabia, and Argentina have failed to outperform developed markets.
Driving the EM slowdown are two distinct groups, with “crisis” EMs on the one hand, and genuine “secular stagnation” cases on the other. The first category includes Turkey, where the BoP “sudden stop” in 2018 caused
investment to contract sharply, while the second includes Mexico, where growth has been on a slowing trend for some time, with weak investment a key driver, according to the report.
