The CIVETS are coming. Meow?

Picture from http://www.cdc.gov/animalimportation/civets.html



"Meow" might be the wrong word here, since a civet isn't (technically speaking) a cat.

It's actually a member of the same order (Carnivora) as both cats and dogs, but the civets belong to the Viverridae family (as opposed to cats, whose family is Felidae).  I know you really needed to know that. 

It it worth noting, though, that the civet's natural range is in Southeast Asia, including Indonesia.

Ok.  The CIVETS countries are:

Columbia
Indonesia
Vietnam
Egypt
Turkey
South Africa

So, the theme for this week is the CIVETS, one country at a time.

First of all, the term CIVETS was invented (by British bank HSBC) as a follow-up to the BRIC grouping.  Not the Big Economies, but the smaller, "second generation emerging markets characterized by dynamic, rapidly changing economies and young, growing populations."

It's become fairly common usage; for example, there's a S & P CIVETS Index

 

One article did say that CIVETS is an artificial cluster, unlike BRIC, which really were set to be the next Big Economies.  As one writer put it, "It sort of makes you wonder if Vietnam was added to provide a needed letter."

In any case, artificial or not, let's look at the CIVETS.

Columbia

The first CIVET is Columbia.  How does it look on the numbers?

Columbia's GDP is in the $4 billion neighborhood (#29 world-wide), and growing at 5.9% (2011).  Where is this GDP coming from?  According to one source (the source for all other numbers not otherwise attributed), Columbia's major exports are petroleum, coal, emeralds, coffee, nickel, cut flowers, bananas, and apparel.  In other words, its economy is based on natural resources, agriculture, and (in last place), low-tech manufacturing.

Moreover, Columbia does not appear to be investing in their future.  Gross fixed investment (in income-producing assets) is at 23% of GDP.  To put this in perspective, Belarus is spending almost 40%, Vietnam almost 35%.

I can't determine whether or not there's capital flight going on here (which is what Argentina's been battling for years), but I did find one article talking about FDI flowing out of Columbia -- $20 billion from 200 to 2010.

Official sources claim that FDI flowing into Columbia is increasing, but even that source admits that most of the FDI is coming from oil and mining.

What does your future economy look like?  What are you investing today?

So maybe it's the demographics.  Median age is 28.3 years.  That's right in the ballpark for developing economies (for example, Indonesia is 28.5 years, Brazil is 29.6 years).  This is ok, but nothing special.

Columbia's population is 75% urbanized, which matters, because urban residents shop more, driving domestic consumption (for a discussion of this phenomenon in China, see this report).  Again, not bad.  Indonesia's 44% urbanized, Peru's at 77%.

If the CIVETS are the economies of the future, what else is being done to invest in that future.  Literacy is 90.4% and average educational attainment is 14 years.  Public spending on education is 4.7% (World Bank numbers), which puts Columbia right in line with Nepal (4.7%) and Rwanda (5%).  In contrast, (and more to the point), Brazil spends 5.7% and Costa Rica is at 6.3%.  You'd think that if you were interested in economic growth, you'd invest in education.   Columbia isn't really low, but nor is it inordinately high.

So, then, why Columbia?  Per the Wall Street Journal:

Colombia is emerging as an attractive destination for investors. Improved security measures have led to a 90% decline in kidnappings and a 46% drop in the murder rate over the past decade...

A 90% decline in kidnappings.  I don't want to joke about what is a serious issue, but that doesn't strike me as the strongest recommendation out there.

Another source cites Columbia's "pro-business government."  Well, governments change.

During the 1990s, foreign investment was pouring into Argentina, under the government of President Carlos Menem (1989-1999).  That slowed in the Argentine financial crisis in the late 1990s, and under current president Cristina Fernández , nationalization is the order of the day.

And, Columbia has some internal governance issues.  President Santos is currently preparing for Formal Diplomatic Talks with an outfit called FARC (The Revolutionary Armed Forces of Colombia). FARC is politically left-wing and has long financed their operations by kidnapping and drug trafficking (though they claim to have given up kidnapping for ransom).

So, than, why not Venezuela?  The numbers are comparable or better (economic and demographic). 

Venezuela already exports oil; Columbia is in the beginning stages.  And, by the way, FARC just loves to take out oil pipelines....

Our problem with Venezuela -- Hugo Chávez.  However, as we've said, governments change, and we know (or suspect) that  Mr. Chávez is probably not too much longer for this world (though nobody knows for sure).

So am I dismissing Columbia?  No.  Just that there are other attractive Latin American countries in addition to Columbia.  Brazil we aren't counting here as up-and-coming, but I've also heard positive reports about Panama and Costa Rica.  Smaller countries, smaller economies than Columbia, but with growth potential.

Next up....South Africa.