The Best Countries for Long-Term Growth

PUBLISHED: Thu, 16 Feb 2012 13:34:01 GMT

Economic Growth Through 2050

Worries over the European debt crisis, a slow recovery in the U.S. and fears over a “hard landing” for China’s economy have left global investors searching for new markets for their money. For long-term investors that means identifying economies that have strong growth prospects driven by advantages such as demographics, natural resources or geography. The following is a list of the 10 countries with the best prospects for long-term growth. It’s based on a report from HSBC titled “The World in 2050,” which forecasts what the economic landscape will look like over the next 40 years. Some of the economies are already known as economic powerhouses, while others may come as a surprise.The ranking includes some of the world’s fastest-growing economies as well as those that will have the largest gross domestic product in absolute size by 2050. Excluded are economies that are projected to be less than $400 billion in GDP by 2050. The 2010 and projected 2050 GDP numbers are from the HSBC report and are based on constant U.S. dollar exchange rate in 2000. We calculated the annual average growth rates over the 40-year period based on figures in the report.Click ahead to find out which countries offer investors the best growth prospects in the next few decades.By Ansuya HarjaniPosted 15 Feb 2012

10. Algeria

Projected annual growth: 5%2010 GDP: $76 billion*    2050 projected GDP: $538 billion        Algeria, endowed with Africa’s third-largest proven oil reserves,is one of the richest countries on the continent, and its wealth appears likely to grow further in the coming decades.Oil reserves of 12 billion barrels have played a key role in luring foreign energy companies, including Anadarko and A.P. Moller-Maersk to the country. Petroleum products, the backbone of the economy, account for 95 percent of Algeria’s exports, according to the International Monetary Fund. Revenues from its commodities exports have allowed Algeria’s government to accumulate large savings in an oil stabilization fund, estimated to be worth $55 billion,which helped shield the economy from the fall in energy prices in 2009.An acceleration of household consumption and government fiscal expansion has also helped to boost growth in recent years. In 2009, President Abdelaziz Bouteflika announced a five-year plan to increase government spendingfrom $120 billion to $150 billion to improve national infrastructure, create 3 million jobs, and build 1 million new homes.Although the country has favorable demographics on its side — with more than half the population under age 35 — the country faces high levels of youth unemployment. Over 20 percent of those in the 16-24 age bracket are unemployed, and Algeria has seen several protests during last year’s Arab Spring.* Based on 2000 U.S. dollars

9. China

Projected annual growth: 5.1% 2010 GDP: $3.511 trillion* 2050 projected GDP: $25.334 trillion     It may be no surprise that China, the current engine of global growth, is set to be one of the fastest growing economies over the next four decades. But what is noteworthy is that the size of mainland economy, which is currently one-third that of the United States, is expected to grow more than seven-fold to overtake the U.S. by 2050.It is no wonder that foreign companies across all sectors are flocking to China to set up shop and capitalize on its growth. The country is a leading recipient of foreign direct investment, receiving $116 billion in 2011,according to China’s Commerce Ministry.Growing wealth among Chinese firms has also led to an increasing amount of outward foreign direct investment — increasing the country’s influence on the world economy. In 2011 alone, China invested in 1,392 overseas projects in 132 countries, totaling $332 billion.   Dubbed the “world’s factory,” China’s economy has been largely fueled by its export sector. However, the country’s latest five-year plan aims to shift the economy’s focus to the development of its internal market. One way it plans to do so is by increasing the spending power of its 1.36 billion population by spurring job creation and implementing minimum-wage requirements. The government recently pledged to raise minimum wages by 13 percent a yearthrough 2015 and launch measures to generate 45 million new jobs.* Based on 2000 U.S. dollars

8. Egypt

Projected annual growth: 5.1% 2010 GDP: $160 billion*2050 projected GDP: $1.165 trillionEgypt, the Arab world’s second largest economy and most populous nation, is a hub for trade routes between Africa, Europe, and Asia due to its strategic location.The economy relies heavily on agriculture and petroleum exports as well as tourism. Home to one of the most-visited attractions in the world, the Pyramids of Giza, Egypt’s tourism sector employs 10 percent of the country’s workforce and accounts for 11 percent of GDP.The economy, however, is among the most fragile in this ranking due to Egypt’s political uncertainty. Violent anti-government protests that began in January 2011 and helped topple the government of Hosni Mubarak have continued into 2012. According to the investment bank Credit Agricole, each day of demonstrations costs the economy $310 million. The tourism and manufacturing sectors and foreign direct investment into the country have been most affected by the unrest. FDI, for example, fell 93 percentduring the first nine months of 2011, according to central bank data.While the political uncertainty is clouding the outlook for the economy, some economistsbelieve the revolution, if successful, could bring about positive change that would far outweigh recent short-term losses, including reducing corruption and improving the distribution of wealth.* Based on 2000 U.S. dollars

7. Vietnam

Projected annual growth: 5.2% 2010 GDP: $59 billion*2050 projected GDP: $451 billionAs the world’s second-largest exporter of rice, agriculture has been a pillar of Vietnam’s economy. But this is rapidly changing as the government moves to liberalize and diversify the economy.While, state-owned enterprises contribute 40 percent of the country’s GDP, overseas investment has been on the rise since the country was granted entrance into the World Trade Organization in 2007.Vietnam’s low-cost manufacturing base has attracted a wave of foreign money, particularly by retail clothing and technology firms, looking for a cheaper alternative to China. Intel, the first international technology company to make a major investment in the country six years ago, has helped raise Vietnam’s profile as an investment destination. A long list of companies including Samsung, Canon and Foxconn have followed, investing millions into developing manufacturing operations in the country. Analysts say this is helping to lay the foundation for Vietnam to become Asia’s next big electronics manufacturing hub.Vietnam’s rapid growth in the recent years, however, hasn’t come without a price. The country’s pro-growth policies have resulted in record inflation. In 2011, consumer prices soared over 18 percent, doubling the rate in 2010.* Based on 2000 U.S. dollars

6. Malaysia

Projected annual growth: 5.3 percent 2010 GDP: $146 billion*          2050 projected GDP: $1.16 trillionMalaysia, Southeast Asia’s third-largest economy, also has one of the best economic records in the region, growing by an average 6.5 percentper year from its independence in 1957 to 2005, according to the CIA World Factbook.Once dependent on mining and agricultural exports such as tin and rubber, Malaysia now boasts a diversified economy — a key factor in helping the country bounce back from the 1997 Asian financial crisis faster than its peers. It is now one of the world’s largest exporters of semiconductor devices, electrical goods and solar panels, and is a global center for Islamic banking.  The economy is also supported by a growing domestic consumer base,which the government hopes to boost even further in coming years. In 2010, the country’s prime minister unveiled a plan — the New Economic Model — aimed at more than doubling the per capita income in Malaysia by 2020.However, it’s not all rosy for the Southeast Asian economy, which is facing an outflow of human capital to more developed countries. An increasing number of Malaysians are looking to countries such as Singapore and Australia for better education and career opportunities. The skills shortageis hurting the country’s ability to attract more high-tech, petrochemical and engineering companies from abroad, according to the Malaysian International Chamber of Commerce and Industry.* Based on 2000 U.S. dollars

5. Bangladesh

Projected annual growth: 5.5%2010 GDP: $78 billion*            2050 projected GDP: $673 billion        Bangladesh is the poorest country to make the ranking, with around 30 percentof the population living below the international poverty line, according to government officials. That equates to 45 million people living on $1.25 a day. But, things will be very different in 40 years, according to HSBC, which says GDP per capita will increase six fold between now and then. One of the country’s biggest assets is its growing low-cost labor force. That has attracted overseas investors — such as JC Penney, Wal-Mart, H&M, Marks & Spencer and Zara — which have pumped money into the country’s manufacturing sector. Ready-made garment manufacturing, now a critical part of the economy, employs 3.5 million workers and makes up more than 75 percent of the Bangladesh’s exports. To encourage more investment in the sector, the government launched an initiative to develop “garment villages” across the country. Consulting firm McKinsey believes Bangladesh could fill the low-value manufacturing gap as Chinese manufacturers moves up the value chain.  Bangladesh’s onshore and offshore gas reserves are also seen as a potential source of wealth. Last year, energy giants including Chevronand Santos,poured hundreds of millions of dollars into searching for gas in the largely unexplored deep waters of the Bay of Bengal.* Based on 2000 U.S. dollars

4. India

Projected annual growth: 5.5%2010 GDP: $960 billion*2050 projected GDP: $8.165 trillion       India, South Asia’s economic powerhouse, is forecast to leap six spots to become the world’s third-largest economy in absolute terms by 2050, replacing Japan.Unlike regional rival China, Asia’s “rising elephant” has experienced robust growth only since the 1990s following the government’s move to deregulate the economy and attract more foreign investment. The economic reforms and favorable demographics have enabled India to play catch-up and emerge as one of the front-runners in Asia.India’s young and growing population offers a large workforce and booming consumer market — factors that are regarded as vital drivers of long-term growth. The country’s thriving middle class, a key source of domestic demand, stands at approximately 300 millionand is approaching the entire population of the United States.These factors have positioned India as a preferred destination for foreign investment in the region. The latest entrants into the market include coffee chain giant Starbucksand global online shopping giant Amazon. In the first 11 months of 2011, foreign direct investment totaled $50.81 billion,up 13 percent from the previous year, according to Ernst & Young.* Based on 2000 U.S. dollars

3. Peru

Projected annual growth: 5.5%2010 GDP: $85 billion*2050 projected GDP: $735 billionReferred to as South America’s rising star, Peru is enjoying its longest economic expansion on record, averaging 7 percent growth from 2003-2010.Growth is expected to remain robust in coming decades, with HSBC forecasting the country to jump 20 places to become the 26th largest economy by 2050.The Andean nation, which was ravaged by a 20-year armed conflict with Maoist Shining Path guerrillas between 1980-2000, has successfully managed to bounce back thanks to a leap in private investment. The country’s pro-business government has played a key role in this, encouraging decentralization and greater transparency.  As the world’s second-largest producer of copper and silver, Peru has attracted substantial investments in mining, which accounts for 60 percent of its exports. The resources sector has attracted more than $18 billionin investment, mostly foreign, over the last 15 years. But the mining boom has not come without resistance. Authorities have faced opposition from Peru’s indigenous groups in the Amazon region and Andean mountains, who argue that the mining projects are wiping out their ancestral lands.There’s also a large, unwanted contributor to the economy: drug trafficking. In 2010, Peru overtook Colombia as the leading producer of coca leaf, the source for cocaine. According to the AFP, drug trafficking generated$22 billion in 2009,nearly 17 percent of Peru’s gross domestic product.* Based on 2000 U.S. dollars

2. Ukraine

Projected annual growth: 6% 2010 GDP: $45 billion*2050 projected GDP: $462 billion        The economy of Ukraine is forecast to increase 10 fold over the next 40 years, outperforming its European peers.The former Soviet republic is well endowed with natural resources, including high-quality agricultural land and mineral deposits. It also has the world’s largest manganese-ore fields, according to the Organization for Economic Cooperation and Development. The abundance of other mineral resources, including coal and iron, has allowed it to become one of the largest refiners of metallurgical products in Eastern Europe.Demand for Ukraine’s top export, steel, and robust domestic consumption helped by rising pension and wages, led to an annual average growth rate of 7.5 percent for the economy between 2001-2008, according to the OECD. However, the country was severely hit by the global economic downturn, which cut FDI inflows by more than half and led to a 15 percent contraction in GDP during 2009. In 2010, however, the country returned to positive growth, boosted by a recovery in exports. The value of Ukraine’s exports for 2010 was $52 billion, representing a 30 percent increase over the previous year, according to the CIA World Fact Book. In addition to access to resources, one of Ukraine’s other competitive advantages has been its focus on education and developing human capital, which HSBC believes will be key for driving growth in coming decades. The country boasts a near 100 percent literacy rate and has a well-qualified labor force — an important factor for attracting investment.* Based on 2000 U.S. dollars

1. Philippines

Sign Up for Our Newsletter Daily Update
Get the best of CNBC Africa sent straight to your inbox with breaking business news, insights and updates from experts across the continent.
Get this delivered to your inbox, and more info about about our products and services. By signing up for newsletters, you are agreeing to our Terms of Use and Privacy Policy.