Taking advantage of the world’s ‘Next 11’

Read the full article: http://www.thestar.com/news/world/article/1096213--taking-advantage-of-the-world-s-next-11

For four years, a stream of Canadians travelled to Washington to pitch U.S. lawmakers on a $7 billion north-south oil pipeline.

The proposed 2,700-kilometre line would carry nearly 600,000 barrels a day through a metre-wide pipe from Alberta to Texas refineries. In the end, a spirited campaign by environmental activists sidelined the project until another route could be found that avoided an important aquifer in Nebraska.

The detour could mean sending more oil west to the Pacific, which would suit Walid Hejazi, an associate professor at the University of Toronto’s Rotman School of Management.

“We have come to rely too much on the U.S. for trade,” he says. “The U.S. says sit there and wait, and we say okay. Canada is supposedly talking to eight countries now about free trade agreements, but that’s all it is: talk, talk, talk. Canada needs to start acting and really take emerging markets more seriously.”

FULL COVERAGE: Emerging Markets

Maybe it’s happening. After American officials delayed TransCanada’s pipeline, Prime Minister Stephen Harper said it was time to look at Asian markets for Canadian oil, transportation challenges through the Rockies notwithstanding.

“It’s really good to see Canadian companies and our government finally realizing the world is changing,” says Hejazi.

For the past decade, enterprising companies and investors have targeted the so-called BRIC countries — Brazil, Russia, India and China, as well as South Africa. But attention is swinging to a new bloc of up-and-coming nations, such as Mexico and Korea, with growing populations, cheap labour and often an abundance of natural resources.

Jim O’Neill, the Goldman Sachs economist who coined the term BRIC in 2001, calls these countries — Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey and Vietnam — the “Next 11,” or N-11.

“These countries are the locomotive of global development,” says Vladimir Kvint, president of the International Academy of Emerging Markets. “You don’t realize how important they are. Without emerging markets, global economic growth in the world in 2009 would have been below zero, instead of plus-3 per cent like it was.

“From an economic standpoint, these countries are crucial because they offer cheaper production facilities and labour and, in at least some cases, cheaper raw materials,” Kvint says. “And politically they are important, too. Some emerging markets are now part of the European Union and NAFTA, and are increasingly demanding more influence in multilaterals like the World Bank and IMF.”

Last year, Canada exported $3.7 billion of goods to Mexico, making the NAFTA partner our fifth-largest export market. Imports from Mexico were worth $14.6 billion, making it our third-largest importer.

Similarly, Canadian exports to South Korea were $2.6 billion (seventh), while imports from the Asian country were $5.4 billion (also seventh).

But elsewhere in the N-11 Canada is a laggard.

Canadian exports to Indonesia, for instance, the world’s fourth-largest country by population, were $693 million last year — the 21st market for Canadian exports.

The newest markets are not always the easiest. Security can be poor. Politics is often murky and fast-changing. Foreign courts are sometimes no help when foreign investors clash with local partners. It can take years for a corporate case to wind its way through India’s sluggish justice system, for instance.

“Sometimes, emerging markets can be quite protectionist, especially in industries where state-owned companies are big players,” says Philip Poole, an emerging markets expert with HSBC.

Even so, the rewards can be massive.

O’Neill says the BRIC and N-11 countries combined should generate additional global consumption over the next decade of up to $20 trillion. The Canadian economy, for comparison, generates about $1.5 trillion a year.

“As they get wealthier and the middle classes grow, what we tend to start seeing is a predictable path where the desire for consumer goods increases,” O’Neill says. “Autos, televisions, refrigerators all these things become highly attractive.”

How will Canadian businesses ensure they don’t miss the out?