Gap narrows on the road to prosperity

The following comment by me appeared in yesterday’s issue Fund Strategy.

Only a few years ago the emerging markets were considered suitable only for the young and adventurous. The average investor would have at most a few per cent of emerging market stocks in his portfolio.

Times are changing fast. In recent months Fund Strategy has examined the rise of new funds specialising in such areas as Africa, India and the Middle East. Such fund launches reflect a fundamental change in the global economy. Although the developed economies are growing, the developing ones are typically growing much faster.

As a result, a growing proportion of the world economy consists of developing countries. Back in 2000 the advanced economies accounted for about two-thirds of global output on a purchasing power parity basis, according to the International Monetary Fund. By 2013 the advanced economies are projected to account for only about half of the global economy. The advanced economies remain far richer than the developing ones but, on this measure at least, the gap is narrowing.

This trend is to be wholly welcomed. In the past, the benefits of development – including a modern infrastructure and access to consumer goods – were confined to a largely white elite. Now they are becoming more evenly spread.

One of the most potent symbols of this change is the advent of the Tata Nano. The £1,000 people’s car is designed to bring motoring to India’s masses. Given that the Ford Model T, which made motoring a popular reality in America, was launched a century ago, the development is long overdue. Even in as poor a country as India, with 80% of the population living on less than $2 a day, cars should become more widely available as long as growth continues.

Of course, it may be that one of Tata’s rivals ultimately builds a more successful car. However, the key point is not about an individual model of car but the fact that Indians can now realistically aspire to such things. India will also need to sustain a massive roadbuilding programme to ensure that its citizens can enjoy the full benefits of mobility.

If there is a problem, it is that developing economies still have a long way to go to catch up with the West. Sub-Saharan Africa and South Asia in particular remain desperately poor.

The sooner developing economies can be considered mainstream rather than exotic the better.