According to the World Bank, investments in developing economies are, as they put it, investments in the future. But you may be stuck wondering: what type of economy does a developing country have? We’re here with one answer to this complicated issue.
It’s difficult to determine what kind of economy developing nations have because we don’t know exactly what a developing country is. The basic definition says it’s one that has a low HDI, a low GDP per capita, and an underdeveloped industry.
What Type of Economy Does a Developing Country Have?
What can be said for certain is that developing countries have struggling economies. They may be underdeveloped, their cash flows unstable, their fiscal regulations wild and ironically unchecked. The specifics then tend to vary depending on the geopolitical region, the main exports, and the trade routes available.
We’ve thus divided this part into a few sections, depending on the questions that often come up:
Is Investing in Developing Economies Wise?
This question has a double answer:
- Firstly, consider business-related aspects. If one enterprise picks a good developing market to invest in, the only option for their money is to grow. Provided a generous marketing budget is allocated for targeted ads, it’s really the sky is the limit.
- Secondly, look at the humane factors. Operating any kind of business in a developing country stimulates that country’s economy. Whether you’re just launching your product in the area or setting up a new location for business, paying taxes will help the market help you. Education, healthcare, social services thrive when the economy is bolstered by your business.
Reminder: it’s very important to glimpse over the socio-political landscape in the target market. Pushing money into dictatorships or countries with poor human rights records will always result in loss. What type of economy does a developing country have when it can’t even keep up its own continuity of leadership?
How Has Investment in Developing Economies Been Up to Now?
You may have heard of the BRICS. These five countries were deemed to be developing nations and great markets for investments about 10 years ago. Jim O’Neill, then asset manager of Goldman Sachs, dubbed Brazil, Russia, India, and China as set on growth (South Africa was added later on). He was right – but only up to a point.
He predicted the GDP share would go up to 14%. It went over that and got to 19%. However, Brazil faced turmoil over the last years, and the international sanctions on Russia crippled its economy. But these two are just minor problems. Trust funds such as The Market Vectors Russia ETF Trust SBI, or the iShares MSCI Brazil Index Fund have protected investors against the socio-political backdrop.
Are there Any Surefire Developing Economies that Guarantee ROI?
Nothing is ever certain, but some of the countries to invest in are safer than others. What type of economy does a developing country have on offer for new business? A very tempting one. Countries such as South Korea, Taiwan, and Mexico really do look great right now.
Double that down with the info from O’Neill himself who thinks Mexico and South Korea are great markets for investing. He also adds Turkey and Indonesia to the list. So if you’re planning on investing here, find trust funds such as:
- Rowe Price Emerging Market Stock Fund (for South Korea, Mexico, and Taiwan);
- Guggenheim Frontier Markets ETF;
- iShares Inc MSCI Emerging Markets Index Fund;
- PowerShares MENA Frontier Countries Portfolio;
- SPDR S&P Emerging Middle East & Africa ETF;
Are there Developing Economies that Are Slowing Down?
O’Neill also expects China’s economy to slow down. Apart from that, countries like Russia and Brazil have already seen such a decrease in the rate of growth in their economy.
As a rule of thumb, don’t invest in these trusts before thoroughly researching the markets yourself. Remember that while growth rates don’t go down overnight, political events may happen just like that. Like it’s always been a rule in investing, think of the future as well as of the present, while keeping a close look at the history of that market.
Tips on Understanding the Economies of Developing Countries
As a businessperson, the most important tip one could give is to train your eye to observe changes in political, economic, and social climate. With a keen spirit of observation, a few newsletters, and a bit of experience, making sense of these economies is relatively easy.
Keep an Eye on Unemployment
High unemployment in a developing country can be a double-edged sword. It could mean the population is trained but the jobs are too few and underpaid. It could also mean that the jobs demand higher training than the candidates have. Finally, it could mean that the nation is an unfriendly market to investors.
Check the National Debt of the Country
Most likely, the number will be gut-wrenchingly high. This could also mean two things: that the country is eager to welcome foreign investors so that their debt goes down through taxation; or that the country will be very strict in taxing new enterprises to pay off that debt quickly.
Furthermore, a high national debt is a question mark for businesses looking to launch a product in the specific country. Trade taxes could be just as crippling and could result in meager profits (depending also a lot on the availability and cost of trade routes).
Be on the Lookout for News
The slightest change in the business landscape of a developing economy could have a snowball effect. What type of economy does a developing country have is not just a question to be answered once. This answer constantly changes with the government, the representatives, or the fiscal regulation of the nation.
What Have We Learned?
Investing in a developing country is difficult, can give great profits, but can also fluctuate wildly. So to answer the question what type of economy does a developing country have, all we can do is speculate.
The economy of a developed country is not always steady. As such, the economy of a developing country can be viewed better as fluid rather than fixed. If we look at it this way, we better comprehend the complexity of the issue and thus are better prepared for the future.
Images from depositphotos.com.