EY Rapid-Growth Markets Forecast Highlights Managing Risk Essential for Business Growth

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EY Rapid-Growth Markets Forecast July 2013
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B EY Rapid-Growth Markets Forecast July 2013
Welcome
Published in collaboration with

1EY Rapid-Growth Markets Forecast July 2013
3
Highlights
4
Managing risk?
Essential
12
Investment
helping
to diversify
economies
26
Forecast for
rapidly growing
countries
54
Detailed tables
Contents
Published on 11 July 2013
Welcome to
EY’s latest
Rapid-Growth
Markets Forecast.
It’s a time of
change — for us
with a refreshed
brand and logo —
and so, too, for the
world’s economy.
Despite a period
of increasing
confidence in the
prospects for the
global economy,
it seems that this era of turbulence and
unpredictability is not yet behind us.
Policy-makers in advanced economies
are seeking to reduce spending and at
the same time maintain public services
to stimulate growth. The picture is a
little brighter in rapid-growth markets
(RGMs). It’s not as if these economies are
contracting — far from it — but many have
seen their currencies weaken in recent
weeks as investors baulk at what they
see as higher risks and the knock-on effect
of reduced quantitative easing in the US
and elsewhere.
Recent announcements by the Federal
Open Market Committee (FOMC) and
the consequent increase in bond yields
have affected rapid-growth markets
significantly, weakening their currencies,
stock markets and the local investment
climate. In an increasingly globalized world,
the economic policies of both mature and
rapid-growth markets need to be aligned to
drive growth across all markets.
So what can we expect from RGMs over
the next few months? Is the fragility and
volatility set to continue or will stable and
assured growth be restored? In the short
term, we believe that growth prospects
have been subdued by a variety of
factors. Low investments in the major
economies haven’t helped, nor has the
disappointing recent performance of world
trade. Similarly, low interest rates and
strong credit growth are failing to deliver
a significant boost to domestic demand
in RGMs, and there are also concerns
over investment returns and the pace of
reform. As a result, we now expect a slower
recovery in RGMs, with growth of 4.6% in
2013, similar to the expansion in 2012.
There is better news to report for the
medium term. The main drivers of
strong growth in emerging markets —
ranging from an expanding middle class,
particularly in Asia, to the further
development of trade flows between RGMs
such as Turkey and the Middle East —
remain intact. This means that RGMs will
grow by close to 6% in 2015–16, much
faster than the advanced economies.
Another factor safeguarding the progress
of RGMs is increased levels of foreign direct
investment (FDI), which has the potential
to transform economies and boost
technology and skills. This is evident across
areas such as Africa and Turkey. FDI flows
also tend to be more stable than portfolio
flows into equities or bonds. Furthermore,
the likelihood of slower but more balanced
growth in China will help to drive higher
consumption rates across Asia, creating
opportunities for new businesses to
expand.
So it’s a mixed picture. Rapid-growth
markets continue to prosper, that much
is certain. But their path forward, in
the short term, is far from easy. With
some corrective measures like further
liberalization and economic reforms,
higher growth can be expected in the
medium term. In addition to navigating the
macro trends that will continue to shape
and influence the global economy, much
will depend on their own resolve to uphold
their respective growth performance. For
business, managing risk is essential, but so
is understanding how to adapt to rapidly
growing markets that are transforming
themselves with help from investments and
usage of information and communications
technology. Here we see a range of
interesting and innovative business
models grow.
EY’s Rapid-Growth Markets Forecast offers
timely analyses of emerging markets and
the role they are playing in the global
economy. I hope you find the data and
insights in this report useful. By exploring
how their progress affects the business
landscape, we aim to help you identify
opportunities in a world that is changing
fast and, as our new brand value says,
help to build a better working world.
To learn more about rapid-growth
markets, their business environments
and to access local contacts, please visit
ey.com/rapidgrowth.
Rajiv Memani
Country Managing
Partner - India

2 EY Rapid-Growth Markets Forecast July 2013

Investors reassess risks as recovery
in global trade and investment shows
signs of faltering
• Investors have been reassessing the
risks in rapid-growth markets (RGMs)
relative to prospects in the advanced
economies. And many RGM currencies
have weakened over the past
few weeks.
• Investment order indicators in the
major economies have been relatively
soft in recent months and world trade
growth has been subdued. Low interest
rates and strong credit growth are
providing less of a boost to domestic
demand growth in RGMs, with some
concerns over whether the returns to
new investments are falling and the
pace of reform is slowing.
• These stumbling blocks have dented
near-term growth prospects in RGMs.
As a result, we now expect a slower
recovery in RGMs, with growth of
4.6% in 2013, similar to the expansion
in 2012. The main drivers of strong
growth in emerging markets, however,
remain intact. And over the medium
term, RGMs will grow by close to 6%
in 2015–16, much faster than the
advanced economies.
Strong medium-term prospects
underpin investment flows to
rapid-growth markets
• Strong growth prospects and improved
risk management have led to increased
demand for investment into RGMs
over the past decade. At the same
time, quantitative easing in the US, UK
and Japan has increased the supply
of liquidity. These flows have helped
to lower interest rates in RGMs and
spurred domestic investment.
• A rising middle class, particularly in
Asia, and the further development
of trade flows between RGMs such
as Turkey and the Middle East as
domestic demand expands, will help
to underpin medium-term growth in
emerging markets.
FDI flows are helping to diversify
economies, allowing some RGMs to
“leapfrog” technologies
• Strong FDI flows, easier access
to credit, and the growth of
entrepreneurship is fuelling the
development of new businesses and
sectors within RGMs and helping
to diversify economies. Africa, for
example, is attracting more FDI,
particularly from Asia, and not just to
natural resources. The service industry
is developing fast in the continent,
with finance, real estate and insurance
representing more than 20% of South
Africa’s GDP.
• The increasing use of mobile phones
presents new business opportunities,
allowing people even in remote
locations to manage their finances
electronically. In addition, the growth
of private credit is enabling new
businesses to expand.
Risks of a slump in productivity in
some RGMs could have global
repercussions
• Managing the transition toward higher
consumption, and a greater role for the
financial and other service sectors in
China, will not be easy. If China fails to
reach its potential, growth could slow
much more sharply. A weaker China
has significant implications for other
countries in Asia and worldwide —
including countries that are sensitive to
commodity prices that Chinese demand
has supported. In Brazil and India, there
is a danger that the pace of structural
reform could slow.
Highlights

Despite increased uncertainty, emerging markets remain
attractive. Upsets of various kinds have overtaken many
countries in recent months, including falling equity prices,
currency instability and public unrest. Even as some fast-
growth economies mature, differentiation between countries
is becoming more marked across our selection of 25 rapid-
growth markets (RGMs). Directors and executives seeking
to assure the international future of their businesses must
weigh, with increasing care, not only where they invest, but
also when, and how.
Perhaps the biggest surprise of the first half of 2013 has been
the weaker-than-expected recovery in trade and investment,
and its impact across our RGMs. Caution is the watchword.
We now believe that growth across RGMs will average 4.6% this
year, a fraction weaker than the 4.7% they achieved during
2012. That is a disappointment. In our April 2013 Rapid-
Growth Markets Forecast, we were looking for growth of 5.1%
this year across our markets, rising to 6% next year. We now
think the real uptick will be deferred until 2014. After a solid
performance this year, we expect the average growth rate to
surge to 5.7% in 2014 and 5.9% in 2015. Social uncertainty is
real, but increasingly universal. Business must learn to live
with surprises. Managing risk is more than ever a key skill for
the RGM investor.
Fast, not faster
Surprises are increasingly commonplace — and inevitable — as
development widens out to create a truly global, intertwined economy.
The first noteworthy theme of our survey is slower-than-expected, but
still very fast, growth in China, as the world’s second-biggest economy
becomes progressively more focused on internal demand.
Second is a series of corrections underway in stock markets around
the world, especially those of emerging markets. Comments by Ben
Bernanke, Chairman of the US Federal Reserve, that the Fed could
begin “tapering” its program of quantitative easing this year, have
reminded investors that ultra-low US interest rates will not last
forever. The flood of developed-world cash seeking higher returns
in emerging economies has slowed or reversed.
Third, social unrest has sprung suddenly to life in some RGM stars.
Few predicted street battles in Turkey, protests triggered by bus-fare
increases in Brazil, nor rage in Indonesia as the Government pledged
to reduce fuel subsidies. In the era of social media, discontent can
burst out abruptly and be relayed rapidly around the world.
Understanding a changing world
Grasping the shifting shape of the global economy is fundamental for
any corporate executive charting a future in the RGMs. Though the
US is recovering, China fascinates as the new global locomotive. After
three decades of turbo-charged expansion, growth in China slowed
to 7.7% in Q1 2013 and we now forecast full-year growth of 7.5%,
down from the 8.2% anticipated in our April edition. Founded upon
export-led growth, subsequently sustained by infrastructure
spending, China’s economy is now being recast as a new leadership
looks to internal demand and services to underpin future expansion.
China’s Premier, Li Keqiang, is putting his faith in deregulation and
increased use of market mechanisms to strengthen the country’s
economic vitality. A new Chinese model is being born, more efficient
and mature.
Weak demand expectations among Chinese corporate purchasing
managers in May are shared by peers in Brazil and India. Brazil is
in the doldrums, trapped by poor competitiveness and in need of
structural reforms. After expansion of just 0.9% last year, 2.4% is
possible in 2013, rising to 4.1% in 2014.
India’s growth remains relatively subdued, at just 5.1% this year,
we think, but accelerating to 6.4% next and 7.5% in 2015. Growth in
Russia remains soft as resource prices stall. President Vladimir Putin
has unveiled US$13.6b of additional infrastructure spending,
including plans for a high-speed train link between Moscow and Kazan
(the capital of Tartarstan), two of the planned venues for the 2018
FIFA World Cup. Infrastructure improvements remain a central
opportunity in RGMs, but in-country design and management capacity
is improving, while emerging champions increasingly compete with
US and European stalwarts to supply high-tech engineering elements.
Managing risk? Essential

The growth story in Asia remains compelling. Indonesia, Malaysia,
Thailand and Vietnam are all forging ahead. The Middle East also
has good momentum and growing scale and sophistication. Chile
and Colombia are pacemakers among our Latin American leaders.
Sub-Saharan Africa continues to catch up, with sterling progress from
Nigeria and Ghana — though there's a sad showing from South Africa.
The mire is in Central and Eastern Europe, where the Czech Republic,
Ukraine and Poland are stalled by the recession-hit Eurozone.
But we expect them to accelerate next year, delivering on their
promise in 2015.
With every quarter that passes, these markets command a bigger
share of the world economy. Their expanding middle classes consume
more goods and services. In a more open global economy, mobility of
people and money has opened a vast gamut of economic activity to
business. As RGM economies develop, domestic producers and
exporters from both developed and emerging markets fight a
three-corner contest to satisfy new demand for goods and services.
Coping with financial fluctuations
Yet financial market instability is the enemy of the kind of long-term
planning directors and executives must undertake to grasp emerging
market opportunities. Wrestling with the unexpected, companies need
to steady their nerves and continue to base decisions on long-term
trends, while keeping events under review.
Instability in stock and bond markets can make corporate fund-raising
more difficult. Already, there are reports of corporate initial public
offerings that have been deferred. Setting rates for corporate bond
issues also becomes more challenging, especially in RGMs when
international financial inflows are waning. Mergers and acquisitions
are also trickier to accomplish when corporate valuations are
fluctuating. On the other hand, if valuations of quoted companies
in RGMs undergo a bout of sustained relative weakness, new
deal-making trends may arise. For example, Western companies
may seize opportunities to buy-in shares of subsidiaries quoted in
RGMs, while the acquisitive appetite of BRIC companies may pall.
Slower-than-expected growth has reined in surging demand for many
commodities, from metals and ores to foodstuffs. Some mining
company stocks have already weakened in anticipation of lower prices
and earnings. Reduced export of natural resources may weaken the
exchange rates of exporting countries. On the other hand, companies
in sectors that are big users of commodities — such as engineering and
construction — may benefit from more affordable inputs.
Effective management of fluctuations in exchange rates is imperative.
By mid-June, many emerging market currencies had experienced
notable falls against the US dollar, including the South African rand,
the Mexican peso, Brazil’s real, the Indian rupee and the Turkish lira.
Such falls will be important for companies with subsidiaries in multiple
countries, and those managing international supply chains.
Manufacturers importing inputs into countries with falling exchange
rates and those exporting products or services from these countries
may see costs rise and revenues fall. Businesses in countries with
strong currencies may obtain cheaper inputs and windfall export
profits. But for truly multinational businesses, the consequences will
be complex. If they endure, changing currency valuations will affect
internal transfer prices, balance sheet valuations and reported profits.
Businesses need to be on the alert.
Companies contracting long-term projects, for example in the
infrastructure arena, may need to take care over pricing policies and
currencies, ensuring that contracts protect the profitability of
agreements from sudden currency swings. Concerns over currencies
and finances may also prove more acute in countries that rely upon
footloose funds to finance current account deficits, such as Indonesia
and Turkey.
But short-term currency swings need to be set in the context of
long-term rebalancing. Many RGM currencies have hardened in recent
years — and the Chinese renminbi has appreciated by 35% over the
past decade.

Box 1
Tailoring technology in rapid-growth markets
Technology is fundamentally changing both mature and
emerging economies.
In some emerging markets today, technology usage is growing
substantially faster than in developed markets. This is especially
true in the smartphone segment, but many RGMs are also enjoying
a surge in the number of internet users. These areas are closely
related, as rises in internet usage are partly a function of the way
smartphones and tablets provide increased connectivity in
emerging markets. In addition, traditional, PC-based internet
connections are also on the rise in many RGMs.
Whatever the device, internet user growth in RGMs is striking. The
worldwide increase in 2012 was about 8% year on year.1
But within
that, user growth in China was about 10%, with more than 50 million
internet users added, and in India it was about 26%.2
Uptake in India
is expected to continue to rise: there were 138 million internet users
in 2012; this could grow to between 348 million and 600 million
users in 2017.3
Meanwhile, mobile broadband subscriptions are growing especially
fast in Africa, Asia-Pacific and the Middle East. According to the
most recent International Telecommunications Union data, mobile
broadband subscriptions grew 40% worldwide from 2010 to 2011,
with developed markets growing 23% year on year, and RGMs
growing 78%.4
Broadly speaking, two types of online technology business
opportunities appear to be emerging in RGMs. Some are “followers”,
which replicate the business models that first appeared in developed
markets. Others are more novel, adapted to particular consumer or
business needs in RGMs. Examples of the former occur in China and
Russia, which have their own email, search engine and social
networking champions, as well as e-commerce companies bred to
meet local needs.
But more original business models are also developing in emerging
markets. A striking example is M-Pesa, a rapidly growing mobile
phone-based money-transfer service in Africa that started in Kenya.
M-Pesa allows users to make deposits and withdrawals, transfer
funds, and pay bills. It offers flexible financial services in countries
where banks and road infrastructure are still developing.
Digital ID cards, like those being introduced in India to facilitate
good government, might also enable an online industry to overcome
many of the challenges otherwise associated with identifying
customers. By enabling financial transactions, and the identification
of parties to transactions, technology has the potential to increase
business and market efficiency significantly across RGMs, where
information infrastructure is often lacking.
As internet access spreads in the emerging world, it becomes
possible to launch businesses that can reach many millions of
consumers, but do not have the high entry costs involved in
brick-and-mortar shops. Low barriers to entry for online enterprises
may also lead to increased competition. This has the potential to
reduce profit margins and prices, but expand the number of
potential customers.
It’s important to note that technology products and business
models are moving in both directions between developed markets
and RGMs. Leading technology companies from developed markets
are looking for growth in RGMs, and many RGM leaders are seeking
to expand beyond their own national boundaries. Some have found it
hard to enter technology markets in mature economies, though a
notable exception has been in communications equipment for
1
Mary Meeker, Internet Trends @Stanford — Bases, Kleiner, Perkins, Caufield,
Byers, 3 December 2012.
2
Ibid.
3
“India will lead in internet protocol traffic growth,” Business Today, 29 June
2013; http://businesstoday.intoday.in/story/india-will-lead-in-internet-protocol-
traffic-growth/1/195587.html
4
Measuring the Information Society, International Telecommunications Union,
2012; http://www.itu.int/dms_pub/itu-d/opb/ind/D-IND-ICTOI-2012-SUM-
PDF-E.pdf?bcsi_scan_dc00907d16dca697=0&bcsi_scan_filename=D-IND-
ICTOI-2012-SUM-PDF-E.pdf

Adapting to maturing growth
The gradual appreciation of the Chinese currency is among a slew
of trends that are driving many companies in the world’s biggest RGM
(and second biggest economy) to rethink the way they operate. Rising
wage and non-wage costs, and a gradual structural rebalancing to
increase the proportion of domestic demand within the economy,
are having a profound influence on many companies that do business
in China.
China’s Government is pushing companies to improve productivity
to avoid the so-called “middle-income trap” when growth starts to
slow. China’s progress in this endeavor will be closely watched by
other RGMs facing a similar challenge.
EY’s Driving Profitable Growth: The Productivity Challenge in China,
looked at progress by companies in China, and areas of focus needed
to lift their productivity to the next level. It found that, while
companies in China are largely still profitable, profit margins are
coming under pressure, with almost half of companies surveyed
reporting a fall over the past two years. Only a quarter had seen
margin improvements.
EY’s analysis identified wide differences in profitability between sector
leaders and laggards: the opportunity for improving productivity
probably comes from upgrading the long tail of backmarkers.
Second, domestic companies are rapidly catching up and even
overtaking foreign-owned rivals — though many domestic companies
still have ample room for improvement.
Top-performing companies had adopted a transformational approach
to performance improvement, building expertise and better results in
most of the activities needed to deliver their products or services.
In particular, the top-performers have developed especially strong
capabilities in five specific areas: long-range strategic planning,
standardization of operating processes, robust internal controls,
effective workforce planning and strong technology infrastructure.
These improvements were not necessarily expensive: many revolved
around business organization rather than capital investment.
As they survey not just the pace of growth, but the increasing
sophistication and maturity of the RGMs in which they operate,
corporate leaders must adopt best practice and continuous
improvement in these markets too. In many markets, rapid growth
is also synonymous with rapid change and intensifying competition.
network operators. But emerging market technology champions,
producing networking equipment, laptops or even smartphones,
have been very successful in selling equipment in other emerging
markets, where customer requirements or behavior may
resemble those in their home markets.
Online retailing has great potential in markets where shopping
malls are scarce but connectivity is expanding apace. Its
development has often been held back, however, by inadequate
postal services, lack of infrastructure for financial transactions
and cultural issues of trust in societies that are largely cash-
based. Pioneering online retailers have reacted creatively, often
setting up cash-on-delivery logistical systems.
Business-to-business markets are also developing differently —
or at least at different speeds. In Latin America, 39% of leading
companies are estimated to have switched to cloud computing,
compared with 28% in Asia-Pacific, 19% in the US and just 12% in
Europe.5
Cultural concerns in Europe and the US about privacy
and security may contribute to slower adoption there. But
developed market companies may also be held back by the cost
and complexity of switching from legacy systems, while
companies in RGMs are likely to have no such issues standing
between them and the lower capital costs and increased flexibility
of cloud computing.
What are the implications of these developments for technology
companies? Clearly, some innovations and business models travel
well and can be extended to, or replicated in, RGMs. But local
conditions may limit their relevance, or open opportunities for
other innovations and business models that are better adapted to
local conditions. In developing technology business models in
RGMs, understanding local constraints and culture are a critical
part of success.
5
“Emerging markets lead the way in cloud application adoption,” TCS News &
Events: Press Release, 26 March 2012; http://www.tcs.com/news_events/press_
releases/Pages/Emerging_markets_lead_way_cloud_application_adoption.aspx

Sifting long-term trends
As the leading RGM economies mature, their economies will gradually
rebalance. Growth will moderate, and be driven increasingly by
production and services targeting domestic consumers. The shift
from export-led growth, of either natural resources or manufactured
goods, is already discernible in China, Brazil and even Russia, where
companies’ main focus today is already the Russian domestic market.
Russia’s middle class is growing fast. By 2020, Russia is expected to
have the fourth-largest consumer market in the world.
Similar trends are seen in Saudi Arabia. An economy founded upon oil
exports is gradually developing a manufacturing sector, with growing
numbers of businesses targeting the needs of a rich population of
27 million consumers.
In the medium term, we expect growth in our 25 RGMs to approach
6% in 2015 and 2016, more than twice the typical pace of expansion
in advanced economies. This will be driven, then, by a rising middle
class, and strengthening flows of both commodities and manufactured
goods between RGMs. Though infrastructure investment will continue
apace, foreign direct investment (FDI) flows and entrepreneurship
will become the chief engines of economic expansion, not only in
Asian and Latin American RGMs, but across the Middle East and
Africa too.
Foreign investors, whether based in developed economies or maturing
RGMs, are already beginning to re-target. During 2012, for the first
time, FDI into emerging economies exceeded flows into the rich world.
FDI flows are building between southern countries. Sooner than battle
for a share of slow-growth developed markets, investors of all types
are competing for opportunities in the south.
Their chief rivals are domestic entrepreneurs in RGMs, better
educated and financed than ever before, as transport infrastructure,
education and training, communications technology and financial
institutions become increasingly sophisticated. Though bureaucratic
and other obstacles remain, many frontier markets are now
developing a business climate where entrepreneurship can flourish.
Direct investors in RGMs must be prepared to join the trend, ensuring
their overseas subsidiaries participate in burgeoning south-south
trade flows. That may require substantial revision of supply chains,
and the development of regional business hubs.
What brakes will apply to this process? Interest rates are already
beginning to rise in many RGMs as markets anticipate the end of
quantitative easing in the US. That will raise the cost of borrowing
modestly in emerging economies and slow investment, but probably
not by much. We may also see weaken demand for commodities,
paring revenues in RGMs that are dependent upon energy
and commodity exports.
On the other hand, rebalancing may spur lower exchange rates
in some RGMs, spurring their competitiveness.
The long-term trend is clear. Today, our 25 RGMs account for perhaps
a third of global GDP. By 2040, their share of global GDP may be
two-thirds: an appetizing opportunity for RGM investors whether
foreign or domestic.
Financing growth
The development of financial services is simultaneously both a critical
growth enabler and a business opportunity in RGMs.
EY’s Banking in emerging markets: Seizing opportunities, overcoming
challenges, studied 10 of our 25 RGMs and identified how financial
market opportunities emerge in these markets. Its findings
were revealing.
As frontier RGMs, such as Nigeria and Vietnam, begin to monetize,
small deposit and savings accounts and small loans begin to develop,
but banks are usually focused on city dwellers.
In transitional RGMs, such as Colombia, Egypt and Indonesia, people
seek finance for consumption, housing and education, while
businesses demand loans for investment, and capital market
development, accelerates. Leasing companies and credit card
companies vie with banks for business.

Box 2
Effective indirect tax management leads to success
A recent EY report, Managing indirect taxes in rapid-growth
markets, investigates the indirect tax issues that multinational
companies face in doing business in emerging and fast-growing
economies. The report is based on interviews with clients and EY
indirect tax professionals providing their experiences and conveying
the “leading practices” they have developed.
The emerging markets are not only attracting inward investment,
they are also creating a new generation of global traders. Business
models are also transforming, as advances in technology allow new
goods and services to be designed, manufactured and delivered in
new ways. In parallel, governments in RGMs do in general rely on
indirect taxes, such as customs duties and local excise taxes,
because they represent a much higher percentage of overall tax
income than in many developed markets. To protect and increase
tax revenues, tax authorities in RGMs are:
• Increasing enforcement of indirect tax compliance obligations.
• Exchanging more information between tax departments and with
other countries.
• Using advanced technologies to improve revenue collection,
collect information and audit companies’ activities.
Learn more about how to take advantage of the opportunities
afforded by the effective management of indirect taxes and how to
avoid unnecessary costs and risks by downloading Managing
indirect taxes in rapid-growth markets at: ey.com/indirecttaxrgm

In established RGMs — for example, Malaysia or Turkey — demand for
consumer credit surges and companies seek longer-term, more
complex financing and risk-management products. Domestic banks
battle regional and international rivals.
Banks keen to compete in these markets must pursue four
essential strategies:
• Simultaneously develop simpler low-cost products to attract the
unbanked, and more sophisticated products to serve an emerging
middle-class and commercial customers.
• Build alliances with financial and telecoms companies, in order to
access capital, expertise and technology to reach the unbanked via
mobile phones.
• Strengthen their credit-risk management as they start to serve
ill-documented customers.
• Invest in technology so that they can reach more customers, and
offer a wider range of products.
Though the solutions and strategies may be different in each country,
many lessons are transferable.
Building capacity
Financial flows — in the form of loans, remittances or FDI — can finance
investment in production capacity, from small to large. FDI traditionally
focused upon production for export of commodities or of manufactured
goods made competitive by low-cost labor. But more balanced patterns
of development are today creating entrepreneurial opportunities across
a swathe of sectors. In frontier markets, opportunities arise especially in:
• Food production: commercial-scale production, food processing,
packaging, distribution and retail. Successful companies are often
obliged to pursue vertical integration from “farm to fork”, and can
deploy their skills horizontally across adjacent products.
• Construction and materials: local by nature, the sectors expand
rapidly with prosperity.
• Transport: vehicle maintenance increasingly requires software skills
and scale. Air travel holds promise, but regulatory hurdles and lack
of airport infrastructure are impediments.
• Education and health: no longer the preserve of states alone.
Technology and novel business models promise more affordable
private sector solutions to speed economic transition.
Thinking differently
RGMs are defined by the pace of their economic development. Yet
rising prosperity is a single index. Often they are also undergoing
substantial social, political and technological change. But, like
economic expansion, inflation, exchange rates, and any other
economic measure, change in these fields often proceeds in fits
and starts. And it may be even harder to measure or anticipate.
Today, that is true of many emerging and developed markets.
Businesses that hope to prosper in emerging markets must understand
the hopes and expectations of the consumers and societies that are
their customers. Only then can they hope to contain the risks — from
bus-fare riots to currency valuations — that are inherent in investing in
a fast-changing world.

Box 3
Key questions for business
Despite the weaker economic activity in the RGMS, these markets
remain attractive for business and investors. However, there are
some key questions that businesses should ask themselves:
• What does the slowdown and additional factors — such as falling
equity prices, currency instability and public unrest in some RGM
countries — mean for us? How should we respond to this?
• What does the RGMs’ claim for a bigger share of the world
economy mean for our business and investment plans? How can
we respond to new demand for goods and services in the RGMs?
• How does instability in stock and bond markets affect our
business? How can we manage ﬂuctuation in exchange rates
effectively?
• How can we increase our productivity in order to meet increasing
competition? Productivity is not only about cost cutting, but
rather long-term strategic planning, standardized operating
processes, robust internal controls, effective workforce planning
and a strong technical infrastructure.
• What does the development of ﬁnancial services in the RGMs
mean for our business opportunities?
• Which sectors offer the best opportunities for entrepreneurs
and investors?

Recovery in world trade is subdued
Investment orders indicators in the major economies in recent months
have been relatively soft and world trade growth has been subdued.
While demand in some of the advanced economies has held up
reasonably well, domestic demand in some of the key RGMs has
faltered. Trade ﬂows, particularly in Asia, have been weaker than
expected in Q2 2013.
Figure 1
World: cyclical indicators
% year% year
-40
-30
-20
-10
0
10
20
30
40
-80
-60
-40
-20
0
20
40
60
80
2000 2002 2004 2006 2008 2010 2012
Japan, Korea and Taiwan exports to China (mainland)
(left-hand side)
US, Japan and Germany investment goods
orders indicator (right-hand side)
Source: Oxford Economics; Haver Analytics.
Trade growth in China slowed signiﬁcantly in May, with exports
expanding by only 0.6% year on year. This followed several months in
which trade data from China’s partners was increasingly out of line
with China’s reported data, as Figure 2 highlights. It seems likely that
Chinese export and import data for the previous months were
somehow overstated — and underlying demand thus overstated.
Figure 2
China: imports from Taiwan
US$bUS$b (seasonally adjusted)
0
2
4
6
8
10
12
0
3
6
9
12
15
18
2005 2006 2007 2008 2009 2010 2011 2012 2013
Chinese (mainland) imports from Taiwan
(left-hand side)
Taiwanese exports to China (mainland)
(right-hand side)
Source: Haver Analytics; Oxford Economics.
GDP growth in China slowed to 7.7% in Q1 2013 and the HSBC
manufacturing Purchasing Managers’ Index (PMI) for June dropped
to a nine-month low. New orders fell, suggesting this weakness has
persisted in Q2. Against this background, we have lowered our GDP
growth forecast this year to 7.5%, from the 8.2% anticipated in our
April Rapid-Growth Markets Forecast.
Slower but more balanced growth in China
But the overall pattern of growth is more balanced, with consumption
contributing over half of the overall economic growth in China in
Q1 2013. The Government also appears more committed to
rebalancing the economy toward higher consumption, stimulating the
economy less and thus accepting a slower rate of growth. As a result
of these factors, we now expect growth to accelerate only mildly in
H2 2013, with GDP growth of 8% next year. Over the medium term,
growth in China should moderate to just over 6.5% by 2020, as its
economy shifts more toward the service sector and its population
ages. But the number of households in China with a disposable income
of US$30,000 is expected to increase to over 30 million by 2020.
For this reason, stronger domestic demand should help to expand
trade links with other RGMs.
Investment helping to diversify
economies

Managing the transition toward higher consumption, and a greater
role for the financial and other service sectors in China, will not be
easy. An aging population will start to place strains on China’s
growth from 2017 and the rapid pace of urbanization could lead to
more growth-limiting environmental pressures. If China fails to reach
its potential, growth could slow much more sharply. As Box 4 shows,
a weaker China has significant implications for other countries in Asia
and worldwide — including countries sensitive to commodity prices
that Chinese demand has supported. In Brazil and India, where the
need to increase spending on infrastructure is pressing, there is
a danger that the pace of structural reform could also slow.
Low interest rates providing less of a boost
to investment
Low interest rates and strong credit growth are providing less of
a boost to domestic demand in RGMs, with some concerns over
whether the returns to new investments are falling and the pace
of reform is slowing.
Investment growth in emerging Europe, for instance, has been
subdued over the past few quarters. We now expect Russia to grow
by less than 3% this year, due to heightened concerns about the
recovery of investment spending. But we remain confident that
consumer spending growth will rebound sharply during the remainder
of this year — given the continued strength of the labor market —
helping to lift growth in Russia to 3.4% next year.
Figure 3
Central and Eastern Europe: investment
% year
-25
-20
-15
-10
-5
0
5
10
15
20
25
30
2000 2002 2004 2006 2008 2010 2012
Poland
Russia
Czech Republic
In Poland, as Figure 3 shows, the economy held up well relative to the
Czech Republic in 2011 and H1 2012. The Government cut spending
in H2 2012 in order to reduce public debt as a share of GDP below
56%. The Polish economy has slowed very sharply since and the
central bank cut interest rates for the seventh time in this cycle in
June. We now expect GDP growth of less than 1% this year. However,
this should mark the bottom of the current cycle and growth of 2.5% is
forecast for 2014, helped by monetary stimulus.
Czech fiscal spending fell between 2010 and 2012 as the Government
was very prompt at introducing austerity measures to reduce the
budget deficit to below 3% of GDP. But while we still expect GDP in the
Czech Republic to fall by around 1% this year, there were promising
signs in the Q1 national accounts that consumer spending and
investment are beginning to improve and consumer confidence is
now on a clear upward trend.
According to Ernst & Young’s European attractiveness survey 2013,
Poland overtook Russia as the leading destination in Central and
Eastern Europe for FDI in 2012. The report also identified the
Czech Republic as a popular FDI destination. Wages in Poland and the
Czech Republic are still substantially lower than the more developed
Western European countries, while their infrastructure and business
environments have improved markedly in recent years. Much of this
FDI has gone into labor-intensive sectors, such as heavy industry, and
this should support solid employment growth over the medium term,
partially offsetting lower public sector employment.
Loose monetary conditions and good access to credit should support
growth in most RGMs as the year progresses. But with business and
consumer confidence still relatively weak, the recovery in RGMs will be
more gradual.

Box 4
Slower growth in China would be felt across RGMs
Investment and urbanization have driven China’s
impressive growth record
Growth in China has averaged more than 10% a year over the past
decade. This has been driven by high levels of investment,
particularly in infrastructure, and a rapid pace of urbanization.
Investment has been an important part of China’s economic
transformation, allowing the country to improve its infrastructure,
adopt new technologies and boost productivity. Investment in China
as a proportion of GDP is close to 45%, much higher than some other
BRICs. Investment was close to 30% of GDP in India and 18% in
Brazil in 2012. At the same time, large-scale migration from rural to
urban areas has increased productivity in China, as workers have
moved from farming to more productive manufacturing jobs.
Figure 4
Fixed investment 2012
% GDP
0
5
10
15
20
25
30
35
40
45
50
US Germany Brazil Russia India China
Source: Oxford Economics.
… but investment-driven growth will wane as productivity
slows
China’s future growth potential comes from its labor and capital
resources, and from the rate of technological progress or total factor
productivity. In the past 10 years, capital growth has accounted for
over three-quarters of potential growth in the non-agricultural
economy. But this is set to slow, as China seeks to rebalance its
economy away from investment and toward higher consumption.
We also expect the fast pace of innovation to slacken as China’s
economy matures. There are indications that new investment in
China is not as productive as it was, with the boost to growth from a
given increase in capital starting to fall off. Nevertheless, a growing
middle class and improving infrastructure will help China to outpace
the advanced economies and also many emerging markets. There is
still plenty of scope for China to catch up with the developed world
by improving its human capital, adopting newer technologies and
moving up the value-added chain, as well as developing its service
sector. As a result, we expect a moderate slowing in growth in China
to just over 6.5% over the next decade.
Links with other RGMs, particularly in Africa, have
grown recently
China’s links with other RGMs, and particularly those in Africa,
have increased rapidly in the past few years. For example, China’s
imports from South Africa tripled in size from US$11.4b in 2010 to
US$44.6b in 2012. While China’s overall trade with Ghana is much
smaller, it has also expanded quickly, nearly doubling over the
course of last year to US$640m. And China is not just a source of
demand for Africa’s manufactured goods — it also provides a ﬂow
of FDI to many African countries. The moderate slowing in China’s
growth will be felt across RGMs, but rising consumption as a share
of GDP in China will help to support demand for consumer products.
As Figure 5 shows, exports from sub-Saharan Africa to China will
continue to expand rapidly.

Figure 5
Exports from sub-Saharan Africa
US$b
0
100
200
300
400
500
600
700
800
1990 1994 1998 2002 2006 2010 2014 2018 2022
Other
Rest of emerging Asia
China
Europe
Sub-Saharan Africa
Forecast
Although our central forecast is for a smooth transition, there is a
risk that China’s potential growth could slow quite sharply. Pollution,
water shortages and other environmental pressures could force a
slowdown in the pace of urbanization and cause a fall in effective
labor participation rates.
Managing financial sector reform is difficult
In addition, managing the reform of the financial sector to provide
a greater range of savings instruments for households and to ease
the rapid growth in credit of recent years is difficult. Local
government debt levels in China have risen in recent years and the
shadow banking sector has grown rapidly, possibly obscuring a
higher level of non-performing loans. Interbank rates rose sharply
in mid-June, as Government efforts to reduce banks’ off-balance-
sheet lending led to lower liquidity in money markets.
The current level of China’s general government debt is low,
however, giving it scope to adopt responsibility for the debts of
various public institutions. Nevertheless, managing the situation is
a challenge. A sharp rise in non-performing loans could lead to a
need to recapitalize the banking sector and put pressure on local
government finances.
Investment helping to diversify economies

Box 4
Slower growth in China would be felt across RGMs (continued)
Sharp slowing in China’s growth would be felt across
the RGMs
Given these risk factors, we have used Oxford Economics’ Global
Economic Model to estimate the effects of Chinese growth falling
to 5% over the medium term. In this scenario, lower investment
rates would lead to a much smaller contribution from capital. The
overall level of innovation would fall, leading to even slower growth.
Lower domestic demand in China and the rest of Asia would feed
through to lower demand for exports from the advanced economies,
and weaker growth in China would slow its consumption of oil and
other commodities. In this scenario, oil prices in 2015 would be
more than US$20 lower than in our baseline forecast. Countries
that have forged close links with China through trade and FDI ﬂows
would be vulnerable. Large commodity exporters such as South
Africa and Ghana would be hit particularly badly — both by lower
demand for commodities from China and the rest of Asia, as well
as lower world prices for these commodities.
Figure 6
World: oil price
Brent crude spot, US$ per barrel
0
20
40
60
80
100
120
2000 2003 2006 2009 2012 2015
Baseline
Forecast
Productivity slump
As the table below shows, if growth in China slowed to 5% by 2014,
this would have serious repercussions for the other RGMs. Slow
growth would likely hamper some of the efforts to improve
infrastructure and investment in Brazil and, as a result, growth in
Brazil could slow to just over 1% by 2014. South Africa would be
particularly affected — not only by weaker demand from China,
but also by lower prices for its commodity exports, such as copper.
As a result, growth could slow to 2% next year. With a large domestic
market and relatively few commodities exports, India would be
somewhat less affected. But nonetheless, the recovery would be
more subdued.
Table 1
Alternative GDP growth forecasts
2012 2013 2014 2015
RGM Forecast
China 7.8 7.5 8.0 7.9
Brazil 1.9 2.7 3.6 4.6
Russia 3.4 2.7 3.4 4.1
India 5.1 5.1 6.4 7.5
South Africa 2.5 2.0 3.6 4.0
China slowdown
China 7.8 6.1 5.1 5.5
Brazil 1.9 2.3 1.2 2.7
Russia 3.4 2.3 1.1 2.3
India 5.1 4.9 5.3 6.4
South Africa 2.5 1.7 2.1 2.5

Investors are reassessing risks in RGMs
Since May, there has been a sharp sell-off in global financial markets,
posing new questions about the robustness of the global recovery.
Incoming economic data has contributed to these jitters, especially for
manufacturing, with weak May PMIs in the US, Brazil, India and China.
Currencies weakened in many of the larger RGMs in June, reflecting
both a perception that quantitative easing in the US may taper earlier
than previously expected and a wider reassessment of emerging
market risks relative to more developed economies. In general, there
has been a sharper sell-off in RGMs with higher perceived risks. In
South Africa, for instance, the rand has fallen by nearly 20% since the
beginning of 2013, partly reflecting concerns over the expansion in
the current account deficit to more than 6% of GDP last year.
Figure 7
Emergers: exchange rate vs. US$
Index (30 Dec 2010 = 100)
60
65
70
75
80
85
90
95
100
105
110
2011 2012 2013
India
South Africa
Brazil
Thailand
In the US, despite the recent sell-off, equity markets remain well above
levels of one year ago, delivering wealth gains for US consumers. In
contrast, many emerging market equities have performed poorly over
the past year. The overall MSCI index is below the levels at the start of
last year. An improving housing market, a competitive manufacturing
sector and low interest rates will help drive the recovery in the US
from 2% growth this year to 3% in 2014.
Figure 8
Emergers: equity markets
Index (30 Dec 2010 = 100)
70
80
90
100
110
120
130
140
Jan-11 Jul-11 Jan-12 Jul-12 Jan-13
Emergers (MSCI, US$)
US S&P 500
Source: Haver Analytics.
The Eurozone is expected to start growing again from mid-2013, but
overall a decline of 0.6% is still forecast for 2013, followed by very
sluggish growth of only 1.4% a year in 2014–17. Improving
competitiveness and strengthening demand from the US and
emerging markets will start to boost Eurozone exports over the
coming year.

Financial market volatility and subdued investment and trade will keep
growth in RGMs at 4.6% in 2013, similar to the growth in 2012. But we
expect improving domestic demand and a gradual recovery in world
trade to drive a strong recovery in RGMs to 5.7% in 2014.
Figure 9
GDP growth
% Annual growth
0
1
2
3
4
5
6
7
2012 2013 2014 2015 2016
RGMs
Advanced
economies
Forecast
Currency falls create policy dilemmas
Sustained currency weakness may indicate higher inflation (from
higher import prices, as in the case of India) which could hold back
activity. But it also makes exports more competitive and could act
as a spur to world trade growth.
Brazil’s manufacturing sector has been struggling for several years
with competitiveness issues caused in part by an overvalued exchange
rate. The recent rapid depreciation of the Brazilian real could help
to make the country more competitive and spur innovation in its
manufacturing sector. But managing monetary policy in the face
of sharp currency fluctuations will not be easy.
The authorities in Brazil abandoned a tax on foreign investments
in domestic bonds (which had been designed to discourage capital
inflows) and in early June interest rates were increased by an
unexpectedly high 50 basis points. The depreciating exchange rate
could mean higher import prices at a time when inflationary pressures
are already significant. We expect further interest rate rises this year,
but there are also some more positive signs. Investment recovered
significantly in Q1 2013 and imports of capital goods reached
a five-month high in April. Brazil’s recovery will eventually pick
up steam, with growth rising above 4% in 2014.
Mexico enjoys competitiveness dividend
Mexico, where growth in wage costs in the manufacturing sector has
been broadly flat over the past decade, is much more competitive.
As a result, it has rapidly expanded its exports of higher-value-added
goods, such as cars. Nonetheless, having weathered the global
downturn well in 2011 and 2012, more recently Mexico has also been
affected by the more subdued world trade flows. Quarterly GDP
growth in Mexico slowed to 0.5% in Q1 2013 and the industrial sector
grew just 0.2%, held back by weak external demand as exports to the
US declined. More recent monthly indicators suggest that the situation
has not improved since then. The manufacturing PMI for June was the
lowest in the survey’s 27 month history. By contrast, the service
sector continued to pick up speed in Q1, with relatively robust growth
of 1.5%. We now think that GDP will grow close to 3% in 2013,
but an increase in government spending, low interest rates and
a strengthening US economy will help to lift growth close to 5%
next year.

Rupee limits India’s room for maneuver
The Indian economy remains subdued, growing by less than 5% for a
second successive quarter in Q1 2013. And with the manufacturing
PMI easing to its lowest in more than four years in May on weak
orders, the fragile performance looks set to continue in the coming
months. The recent impact of the depreciation of the rupee on import
prices may limit some of the Reserve Bank of India’s room for
maneuver to counteract weak growth and might push up inflation.
Nevertheless, the three cuts of 25 basis points that have already been
implemented this year will help build the economy’s momentum in H2
2013. India is expected to see a strong recovery, with the economy set
to grow by around 7.5% in 2015-16.
Strong medium-term prospects underpin investment
flow to RGMs
Strong growth prospects and improved risk management have led
to increased demand for investment into RGMs over the past decade.
At the same time, loose monetary policy in most advanced economies
and quantitative easing in the US, UK and Japan has increased the
supply of liquidity. Between 2005 and 2008, a total of US$508b
portfolio investment was invested in emerging markets. Over the
subsequent four years, this more than doubled to US$1,130b.
Figure 10
Emergers: cumulative portfolio inflows since 2002
US$b
-25
0
25
50
75
100
125
150
175
200
225
250
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
India
Mexico
China
Korea
Source: Haver Analytics; Oxford Economics.
Low interest rates have supported investment
With high liquidity and low returns in advanced economies, investors
have sought out emerging markets, particularly their debt markets.
As a result, real yields have fallen across many RGMs, as illustrated
by the chart below. Lower yields have reduced the costs of debt and
encouraged domestic investment. By reducing the debt payments on
government borrowing, it has also increased the fiscal space to fund
large-scale infrastructure projects. In Brazil, for example, real 10-year
government bond yields were nearly 9% in early 2010, but are less
than 3% now. In Turkey, they have fallen from over 5.5% in early
2011 to around zero today.
Figure 11
Emergers: 10-year government bond yields
%
2
3
4
5
6
7
8
9
10
11
2011 2012 2013
Poland
Korea
South Africa
Turkey

Managing the tapering of quantitative easing will not
be easy
Figure 11 also highlights a more recent trend. Having fallen steadily in
the last few years, bond yields picked up notably in Q2 2013, as a
result of higher investor uncertainty. The US Federal Reserve System
is likely to begin tapering quantitative easing from Q4 2013. And as
we have seen in recent weeks, managing the transition away from
quantitative easing in the US and other advanced economies has the
potential to disrupt equity and bond markets as investors adapt to
changes in liquidity. So emerging markets that are heavily dependent
on portfolio flows to fund their current account deficit, such as Turkey,
face near-term risks.
Though quantitative easing will be phased out gradually in coming
years, we expect monetary policy in the advanced economies to
remain very loose through to 2015–16 as growth slowly picks up
speed. This will boost RGM growth prospects.
A surge in investor flows can, however, lead to asset-price bubbles,
particularly if there is a limited supply of domestic investment
opportunities and “hot money” can leave just as fast as it arrives.
Demand for property in some RGM cities with restricted land for
development has driven strong property price inflation. This creates
more dilemmas for monetary policy, as low interest rates may further
fuel asset-price bubbles.
The authorities in some countries have intervened to restrict
investment in property in an attempt to prevent bubbles from
emerging, notably in China, Singapore and the Middle East. Credit
growth has been very strong in recent years in many emerging
economies, which in some cases has caused enough concern to merit
intervention. In Indonesia, for example, the authorities have restricted
the availability of credit to buy motorbikes and cars.
Figure 12
Emerging Asia: residential property prices
Index (2006 = 100, quarterly averages)
60
80
100
120
140
160
180
200
220
240
260
2000 2002 2004 2006 2008 2010 2012
Singapore
China
(luxury residential)
Hong Kong
Reform is the key to encouraging FDI
Brazil, India and Indonesia in particular would benefit from increased
spending on infrastructure and better financial services. In April, the
Indian Government announced further reforms to attract greater FDI.
By improving technology and skills through partnerships on specific
projects, FDI has been shown to boost a country’s potential. FDI flows
tend to be more stable than portfolio flows into equities or bonds.
FDI is boosting the Turkish economy
The potential for FDI to help transform economies is well illustrated
by the outlook for Turkey. As outlined in EY's Turkey attractiveness
survey 2013, Turkey plans to attract investment of US$250b in the
fields of energy and transportation to support its goal of becoming
one of the world’s top-10 economies within the next decade. Turkey
has a huge domestic market and our forecast suggests that in
10 years’ time there will be over 11 million households earning
more than US$30,000, the same number as in Canada now.

Growth in Turkey accelerated to 3% in Q1 2013, driven by rising
consumer spending and investment. The recovery reflects the major
easing in monetary policy since the middle of last year that is
starting to feed through the economy. Meanwhile, consumers’ real
incomes are benefiting from lower inflation as well as still-buoyant
employment growth.
However, the uncertain political situation in Turkey, following large
demonstrations in Istanbul and other cities, is affecting the economic
outlook. The exchange rate and Turkish capital markets fell sharply at
the end of May and in early June in response to news of a large
widening in the external deficits and sizeable political demonstrations.
But assuming the political situation improves, we forecast Turkey to
grow by around 5% per year over the longer term. Nonetheless, Turkey
remains vulnerable to a reversal of portfolio flows, pressures on its
exchange rate and the implications for the external borrowing of its
banking sector.
Figure 13
Turkey: monthly trade balance
US$m (seasonally adjusted)
-11,000
-10,000
-9,000
-8,000
-7,000
-6,000
-5,000
-4,000
-3,000
-2,000
-1,000
0
1997 1999 2001 2003 2005 2007 2009 2011 2013
Source: Turkish Statistical Institute; Haver Analytics.
Opportunity to expand trade links with the Middle East
Turkey’s geographic position has helped it to benefit from increased
trade with Europe, the Middle East, North Africa and Central Asia over
the last decade. Around half of Turkey’s FDI came from Europe last year,
but having nurtured stronger links with the Middle East in recent years,
the authorities are keen to attract more FDI from other emerging
markets over the next decade — particularly from the Middle East.
Non-oil sector buoyant in Middle East
We expect the Middle East region to grow by 3.0% this year, down from
growth of 3.7% last year, which partly reflects lower commodity
prices. However, the recovery in global trade will boost the region next
year, underpinning growth of 4% or more. Our slightly more subdued
forecast for activity in China will reduce demand for Middle Eastern
exports a little in the medium term, however. But in the key Middle
Eastern RGMs, a young population is helping to foster
entrepreneurship and the growth of the non-oil sector is buoyant,
protecting these economies from slower global oil demand. Despite
cutting its oil output this year, Saudi Arabia is still expected to grow by
around 4.5% this year and next as growth in the non-oil sector has
very strong momentum. In Qatar, growth of 5% this year will be driven
by a gain of nearly 10% in the non-oil sector.

FDI flows will boost Africa’s growth
Strong FDI flows, easier access to credit, and the growth in
entrepreneurship is fuelling the development of new businesses and
sectors within RGMs and helping to diversify their economies. Africa,
for example, is attracting more FDI — and not just to natural resources.
The service industry is developing fast in the continent with finance,
real estate and insurance representing more than 20% of South
Africa’s GDP.
Figure 14
Sub-Saharan Africa: total annual inward FDI
US$b
0
5
10
15
20
25
30
35
40
45
1990 1994 1998 2002 2006 2010 2014
The total includes the largest 11 countries in
sub-Saharan Africa by nominal US$ GDP
Forecast
As Box 5 shows, the increasing use of mobile phones in Africa
presents new business opportunities, allowing people even in remote
locations to manage their finances electronically. This is also
increasing access to private credit, which is in turn enabling new
businesses to expand. A growing middle class, particularly in Asia,
provides the market and catalyst to fuel new business growth.
Figure 15
Sub-Saharan Africa: private credit
US$b
0
50
100
150
200
250
300
350
0
2
4
6
8
10
12
2001 2003 2005 2007 2009 2011
South Africa (right-hand side)
Nigeria
(right-hand side)
Ghana (left-hand side)
US$b
Source: World Bank.
Conclusions
• A weaker recovery in trade and investment across RGMs will
keep the outlook in 2013 subdued. Growth is expected to be
close to 4.6%, similar to growth in 2012.
• Currencies have weakened across many RGMs in recent
weeks, as investors have become more cautious about the
relative risks in emerging markets. Uncertainty around the
tapering of quantitative easing in advanced economies has
added to financial market volatility.
• Slower but more balanced growth in China will help to drive
higher consumption rates across Asia, creating opportunities
for new businesses to expand.
• Rising FDI flows are helping to transform trade opportunities
across Turkey, the Middle East and Africa, with particular
expansion in financial services.
• Rising domestic demand and growing world trade will drive a
strong recovery in RGMs, to close to 6% in 2015–16. This will
far outpace growth in the advanced economies.

Africa will enjoy strong growth over the next decade,
supported by ICT …
Advances in information technology and communications have
helped sub-Saharan African economies to grow by 5% a year for the
past 10 years. As well as freeing a vast and disparate region from
some of the difficulties caused by a lack of physical infrastructure,
mobile phone usage has opened up access to financial markets.
At the same time, rising world demand for commodities like oil and
minerals has increased inward investment in the region. Although
GDP per capita is still low by world standards, South Africa and
Angola are comparable with China (where per capita GDP was
estimated by the International Monetary Fund at just over
US$6,000 last year). Faster growth goes hand in hand with
improvements to institutions, infrastructure and human capital,
but there are still plenty of gains to be secured.
… and benefitting from natural resources
We expect most sub-Saharan countries to grow faster than the
world average for the next 10 years (see Figure 16). Natural
resources will remain an important growth driver, although the
trend toward economic diversification will continue. It is notable
that the three largest economies in GDP terms — South Africa,
Nigeria and Angola — each have substantial natural resources at
their disposal.
Figure 16
Sub-Saharan Africa: annual GDP growth*
Compound annual growth rate
2012–22
2002–12
0 2 4 6 8 10 12
Advanced economies
World
South Africa
Kenya
Sub-Saharan Africa
Cameroon
Ghana
Nigeria
Cote D'Ivoire
Uganda
Ethiopia
Tanzania
Angola
Zambia
*Compound annual growth rate.
Africa is attracting more FDI …
But it is not just natural resource wealth that is driving growth.
The ready availability of funds (from loose monetary policy in much
of the advanced world) has led to a surge in FDI into sub-Saharan
Africa, up to more than US$20b in 2011. The natural resources
are a big attraction, but the potential benefits available from
technological progress have also helped to make Africa a more
attractive investment location. The EY’s Africa attractiveness
survey 2013 highlights the key role FDI will play in African growth
in years to come, not only as a source of capital, but also a source
of job creation, skills development and technology transfer. This
will enable the economies to diversify and sustain longer-term
rapid growth.
Box 5
Technological advances welcome new opportunities and faster growth in Africa

Box 5
Technological advances welcome new opportunities and faster growth in Africa (continued)
… as the penetration of modern technology offers new
opportunities
Mobile telephone penetration is now over 50% in every major
sub-Saharan country.
Figure 17
Mobile phone subscriptions
Number per 100 people
0 20 40 60 80 100 120 140
South Africa
Eurozone
US
Cote d'Ivoire
Ghana
Kenya
Zambia
Nigeria
Tanzania
2011
2001
Source: World Bank.
In development terms, this means that economies can “leapfrog”
over older technologies (such as fixed telephone lines) which would
have been prohibitively expensive to install. In South Africa, for
example, the penetration of fixed telephone lines is just 8%, and in
Nigeria and Kenya it is less than 1%. But with mobile penetration at
60% or more in these countries, the majority of the population now
has access to modern communications. This has several advantages:
• Banking and Insurance: Mobile banking has surged in recent
years, allowing people even in remote areas to manage their
finances electronically. Industry sources estimate that there
are 1.7 billion people worldwide without bank accounts, but with
access to a mobile phone. In Kenya, a net commodities importer,
annual growth still averaged 4.6% between 2002 and 2012, and
more than 80% of mobile users now use their phone for
monetary transactions.
• Education: Internet penetration is still relatively low, but as
technologies develop the rise in virtual learning could bring huge
benefits in terms of knowledge and skills. The rapid spread of
information is already having a positive impact on the quality of
health care, for example.
Access to technological advances has raised potential
growth across Africa
The increasing use of mobile technologies could help sub-Saharan
economies to catch up fast, by freeing up capital constraints and
sharing skills and information. Private credit already accounts for
over 100% of GDP in South Africa and nearly 40% in Kenya. This
facilitates start-up businesses and enables more efficient markets
to develop. If physical infrastructure, such as roads and power
supplies, are also improved (FDI may help with this), both
international and intra-African trade will benefit. We expect
intra-African trade to grow strongly, compensating for a relatively
subdued medium-term growth outlook in more developed regions.
The share of exports destined for Europe is forecast to fall sharply
over the next few years. And as incomes and labor costs increase in
more advanced regions, such as emerging Asia, opportunities will
be created for lower-cost producers in Africa to compete in markets
such as food, textiles and IT services.
Improved macroeconomic stability is also needed …
Technological improvements alone will not secure these benefits,
however. Stable macroeconomic conditions are also needed.
Ghana is a good example. Since 1992, when reforms ended more
than 30 years of political troubles, the country has tripled its per
capita income. This stability has encouraged foreign investment,
and Ghana recently began exporting oil for the first time. It has also
become the first African country to meet the Millennium
Development Goal of halving its 2000 levels of poverty and hunger.
As the tables opposite show, Ghana also ranks highly in the World
Bank’s rankings for the ease of doing business, and has a low
corruption score.

… and the potential for even faster growth exists
Despite rapid economic growth in recent years, progress toward
reducing corruption, ease of doing business and improving
infrastructure has been slower. As the table below shows, South
Africa and Angola have seen no improvement in their corruption
scores over the past 10 years, and infrastructure in both Ghana and
Tanzania has deteriorated. Although education and health care have
improved, sub-Saharan Africa is still poor by world standards. But if
continued progress can be secured through the rise in mobile
technologies, the potential for even faster growth exists.
Table 2
Ease of doing business ranking
2006 2012–13
South Africa 28 39
Nigeria 94 131
Ghana 82 64
Kenya 68 121
Zambia 67 94
Angola 135 172
Tanzania 140 134
Ethiopia 101 127
Cote D’Ivoire 145 177
Turkey 93 71
Indonesia 115 128
Scores represent global ranking.
Source: World Bank.
Table 3
Corruption score
2002 2012–13
South Africa 27 29
Nigeria 16 27
Ghana 39 45
Kenya 19 27
Zambia 26 37
Angola 17 22
Tanzania 27 35
Ethiopia 35 33
Cote D’Ivoire 27 29
Turkey 32 49
Indonesia 19 32
Scores measured from 1 to 100, where 100 is least corrupt.
Source: Transparency International.
Table 4
Infrastructure score
2006 2012–13
South Africa 4.04 4.13
Nigeria 2.26 2.28
Ghana 2.98* 2.87
Kenya 2.75 3.09
Zambia 2.75 2.85
Angola 2.07 not available
Tanzania 2.65 2.27
Ethiopia 2.34 2.65
Cote D’Ivoire 3.33* 3.1
Turkey 3.46 4.38
Indonesia 2.72 3.75
* Earliest available datapoint is 2008.
Scores measured from 1 to 10, where 10 is the best.
Source: Global Competitiveness Report, World Economic Forum.

Argentina
Brazil
Chile
Mainland China and Hong Kong
special administrative region (SAR)
Colombia
Czech Republic
Egypt
Ghana
India
Indonesia
Kazakhstan
Korea
Malaysia
Mexico
Nigeria
Poland
Qatar
Russia
Saudi Arabia
South Africa
Thailand
Turkey
Ukraine
United Arab Emirates
Vietnam
Forecast for rapidly growing
countries

Brazil
Nigeria
Egypt
Poland
Turkey
Ukraine
Kazakhstan
Russia
China
Ghana
Czech
Republic
South Africa
Saudi
Arabia
Qatar
UAE India
Korea
Indonesia
Malaysia
Thailand
Vietnam
Argentina
Chile
Colombia
Mexico
To find out more, please visit ey.com/rapidgrowth
25 rapid-growth markets
We define rapid-growth markets on the basis of three
key criteria:
• Proven strong growth and future potential
• Size of the economy and population
• Strategic importance for business
Figure 18 shows the GDP growth of our 25 rapid-
growth markets over the last 10 years, comparing
these with the leading advanced economies. Together,
they represent a significant proportion of the world
economy (Figure 19).
Figure 18
Real GDP growth 2002–12
Figure 19
Share of world GDP in PPP terms
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Mexico
World
US
Czech
Ukraine
South Africa
Brazil
Korea
Thailand
Poland
UAE
Hong Kong
Russia
Egypt
Chile
Colombia
Turkey
Malaysia
Indonesia
Saudi Arabia
Vietnam
Nigeria
Ghana
Argentina
Kazakstan
India
China
Qatar
%
% annualized growth rate, 2002–12
Asia RGMs
Americas
EMEA RGMs
0
10
20
30
40
50
60
1988 1992 1996 2000 2004 2008 2012 2016 2020
% of World
Forecast

Table 5
Argentina
2011 2012 2013 2014 2015 2016
Real GDP growth (% per year) 8.9 1.9 2.7 3.6 4.6 3.9
CPI inflation (% per year) 9.8 10.0 10.8 10.3 9.7 9.5
Current account balance (% of GDP) -0.4 0.1 0.2 -0.1 -0.1 -0.1
External debt total (% of GDP) 31.1 29.9 30.8 31.1 30.3 29.3
Short-term interest rate (%) 10.7 12.0 14.0 12.4 9.5 8.4
Exchange per US$ (year average) 4.1 4.6 5.3 6.0 6.5 7.0
Government balance (% of GDP) -1.6 -2.5 -1.8 -1.3 -0.9 -0.6
Population (millions) 40.8 41.2 41.5 41.9 42.2 42.6
Nominal GDP (US$b) 444.7 475.1 462.3 470.5 496.2 523.9
GDP per capita (US$ current prices) 10,897.6 11,540.7 11,134.7 11,235.3 11,753.2 12,308.1
Figure 20
GDP and industrial production
Source: Oxford Economics. Source: Commodity Research Bureau; Haver Analytics.
Figure 21
World: commodity prices
Moderate improvement in activity expected in 2013
We expect GDP to grow by 2.7% this year, assuming modestly
rising consumption and an improvement in key trading partners,
particularly Brazil. This should help drive a pickup in exports, and
there should also be a moderate rebound in investment as a result
of a depreciating currency.
Although Argentina’s economy may gain a short-term boost from its
falling exchange rate, it faces several challenges that need to be
overcome if it is to achieve its full growth potential. Intervention in
many aspects of economic activity limits the flexibility of local
businesses to compete internationally. Import restrictions,
for example, prevent the purchase of the investment goods and
raw materials needed by industry. Despite these problems,
we forecast GDP growth averaging over 4% in 2014 and 2015.
The authorities also need to contain rising inflation, which will be
exacerbated by the weakening exchange rate. High inflation harms
competitiveness and erodes purchasing power. While official CPI
inflation is expected to average 11% this year, the true rate
may be over 30%.
Argentina’s longer-term prospects would benefit from measures
to address these structural issues, as the country is rich in natural
resources and has a well-educated workforce.
Argentina
2007 = 100 (rebased)
20
40
60
80
100
120
140
160
180
200
2000 2002 2004 2006 2008 2010 2012
Oil
Commodity Research Bureau;
foodstuffs
Commodity Research Bureau;
raw industrial materials
% increase per year
Forecast
-25
-20
-15
-10
-5
0
5
10
15
20
25
1990 1993 1996 1999 2002 2005 2008 2011 2014
Industrial
production
GDP

Table 6
Brazil
2011 2012 2013 2014 2015 2016
Current account balance (% of GDP) -2.1 -2.4 -3.7 -3.1 -2.7 -2.3
Nominal GDP (US$b) 2,476.4 2,255.0 2,353.4 2,608.0 2,660.1 2,745.9
Figure 22
Contributions to GDP growth
Source: Oxford Economics. Source: Oxford Economics.
Figure 23
Prices and earnings
Challenges remain for Brazil
There are signs of improvement after a lackluster 2012 (when GDP
grew by just 0.9%), with output growing by 0.6% on the quarter in
Q1 2013. But challenges remain for South America’s largest economy.
Consumer spending, the economy’s main driver, ground to a halt in
Q1, growing by just 0.1% on the quarter. And external demand
remains patchy, with exports falling 0.8% year-on-year in April and
May combined. Overall, the economy is expected to grow by 2.4%
this year, down from 3.1% in our previous forecast.
Despite the moderation in domestic demand, inflationary pressures
remain elevated. Inflation stayed at 6.5% in May, just inside the central
bank’s 4.5% (+/-2%) target. The central bank has already raised the
SELIC overnight rate to 7.5%, and we expect three further 25 basis
point increases this year.
Reforms to tackle the labor market and government bureaucracy,
as well as invest in infrastructure, would significantly improve the
economic environment. But the Government is increasingly focusing
on short-term fixes to boost demand. With an election due next year,
this is unlikely to change much — in contrast to other countries in the
region, such as Mexico. We expect growth to average more than
4% per year to 2016.
Brazil
% increase per year
-4
-2
0
2
4
6
8
10
12 Forecast
GDP
Net exports
Domestic
demand
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
% increase per year
-5
0
5
10
15
20
25
30
35
40
45
1996 1999 2002 2005 2008 2011 2014
Consumer prices
Producer prices
Forecast

Table 7
Chile
2011 2012 2013 2014 2015 2016
Current account balance (% of GDP) -1.3 -3.5 -2.9 -2.8 -0.4 0.4
Government balance (% of GDP) 1.5 0.6 0.6 0.1 0.3 0.4
Nominal GDP (US$b) 251.2 268.3 289.3 310.8 335.9 358.2
Figure 24
Exchange and interest rates
Source: Banco Central de Chile; Haver Analytics. Source: Haver Analytics.
Figure 25
Monthly indicator of economic activity
Growth of 4.5% expected for 2013
GDP grew by just 0.5% on the quarter in Q1 2013. However,
temporary factors, including fewer working days and a major port
strike, may have exaggerated the scale of the slowdown. More recent
trade data points to a pickup in export volumes in Q2, while domestic
demand remains underpinned by solid fundamentals, suggesting
that activity may improve through the year. Even so, the weak start
to the year has led us to cut our 2013 GDP growth forecast to 4.5%
from 4.9%.
Low inflation and subdued activity prompted the central bank to
consider an interest rate cut at the May meeting, and we now expect
a 25 basis point cut to 4.75% in Q3 2013. However, given our view that
the economy should start to regain momentum soon and that inflation
may be back to 3% in a year’s time — particularly if the weaker peso
persists and the labor market stays tight — we do not expect further
easing beyond this small cut.
In 2014 and beyond, we expect annual GDP growth to be broadly in
line with the regional average at 4%–4.5%. The macroeconomic and
financial stability of Chile should provide a stable backdrop for
investment. Expanding mining capacity will boost copper exports
to the emerging markets. But slowing growth in the working age
population could hinder growth in the long run, while energy
infrastructure bottlenecks must be addressed to achieve our
forecast growth rates.
Chile
%Peso/US$
0
2
4
6
8
10
12
14
16300
350
400
450
500
550
600
650
700
750
800
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Nominal interbank
rate (right-hand side)
Peso/US$
(left-hand side)
2008 = 100 (IMACEC, seasonally adjusted)
60
70
80
90
100
110
120
130
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Table 8
Mainland China
2011 2012 2013 2014 2015 2016
Current account balance (% of GDP) 1.8 2.3 3.2 2.6 2.5 2.3
Government balance (% of GDP) 0.1 -1.8 -1.8 -1.2 -1.2 -1.3
Population (millions) 1,363.7 1,372.3 1,380.8 1,389.1 1,397.0 1,404.6
Nominal GDP (US$b) 7,335.6 8,239.5 9,184.6 10,463.8 11,828.5 13,348.8
Figure 26
China: inflation
Source: China Bureau of Statistics; Haver Analytics. Source: Hang Seng Index Services Limited; Haver Analytics.
Figure 27
Hong Kong: stock market
Slower growth, but more balanced
The global upturn is looking less robust than we expected a few
months ago. Investment indicators are subdued and trade flows,
particularly in Asia, are weaker than expected. GDP growth in China
slowed to 7.7% in Q1 2013. The HSBC flash manufacturing Purchasing
Managers Index (PMI) for June dropped to 48.2, a nine-month low,
with new orders falling, suggesting this weakness has persisted in Q2.
We have lowered our growth forecast for China this year to 7.5% from
the 8.2% we forecast in April.
The Government also appears more committed to rebalancing the
economy toward higher consumption, accepting a slower rate of
growth. Robust credit growth is providing less of a stimulus than we
expected. We now foresee growth accelerating only mildly in H2 2013,
with GDP growth of 8% next year, relative to the 8.5% we anticipated in
our April forecast.
Over the medium term, China faces the challenging task of moving
further up the value-added chain and reforming its financial sector.
We expect slowing investment rates and an aging population to
contribute to a lower trend growth rate of just over 6.5% by 2020.
Moreover, there is perhaps a 20% chance that China will face a more
significant slump in productivity.
Mainland China and Hong Kong
special administrative region
(SAR)
% increase per year
-8
-4
0
4
8
12
16
20
24
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Consumer prices
Manufacturing
producer prices
Food prices
8,000
12,000
16,000
20,000
24,000
28,000
32,000
1999 2001 2003 2005 2007 2009 2011 2013
Hang Seng
index

Table 9
Colombia
2011 2012 2013 2014 2015 2016
Exchange per US$ (year average) 1,848.1 1,796.9 1,860.2 1,970.8 2,089.6 2,195.0
Nominal GDP (US$b) 336.3 369.8 379.0 385.4 391.2 400.1
Figure 28
Inflation
Source: Oxford Economics; World Bank.Source: Oxford Economics; Haver Analytics.
Figure 29
Real GDP growth
Monetary and fiscal stimulus to support economy in 2013
We expect Colombia’s economy to grow almost 4% this year, as it
begins to recover from a cyclical low, supported by expansionary fiscal
and monetary policy.
The central bank has cut its key policy rate by 200 basis points in this
cycle, to 3.25%. Inflation is at the bottom of its 2%–4% target range,
so loose monetary conditions are likely to be maintained for some
time. In addition, a new fiscal policy stimulus package was announced
in April, which will boost consumer spending and construction activity.
We expect fiscal policy to remain supportive in the run-up to
presidential elections in 2014.
Several factors have held back recent activity, however. The economy
was hit in the early part of 2013 by a series of strikes and supply
problems in the coal and coffee sectors, which contributed to a decline
in industrial output. And exports have been hit by falling commodity
prices and a strong exchange rate. As these temporary hitches pass,
the prospects for future growth will improve. Foreign investment in oil,
coal and mineral extraction is rising, which will fund exploration and
development. These activities account for two-thirds of exports, so
should help bolster the economy — especially as world trade begins
to pick up again later this year.
Colombia
% increase per year
-6
-4
-2
0
2
4
6
8
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Colombia
Forecast
Latin America
and Caribbean
% increase per year
0
5
10
15
20
25
30
35
40
45
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Forecast
Western hemisphere
Colombia

Table 10
The Czech Republic
2011 2012 2013 2014 2015 2016
Real GDP growth (% per year) 1.8 -1.2 -1.0 2.2 2.7 3.0
Nominal GDP (US$b) 216.2 195.7 194.6 189.5 191.2 201.1
Figure 30
Consumption and investment
Source: Oxford Economics. Source: Oxford Economics.
Figure 31
Unemployment
Outlook improving, but GDP to decline again in 2013
GDP fell 2.2% year-on-year in Q1 2013, below our expectations.
The running down of inventories largely drove this decline. Indeed,
all other components made a positive contribution to GDP growth,
including external trade. As a result, we believe that the Czech
economy is likely to return to growth in Q2 2013, supported by
improving forward-looking indicators, such as consumer confidence.
Recovering demand from Eurozone countries, particularly Germany,
will also boost Czech exports later this year. However, it will not be
enough to offset the significant decline in GDP in Q1 and we still
expect the economy to contract by 1% in 2013.
We think that austerity measures will slow this year, as the budget
deficit should fall below 3% of GDP. However, there is some political
uncertainty that must be resolved. Growth will pick up to 2.2% in
2014, driven mainly by exports. By 2015–16, we expect GDP growth
to be 3%, with this pace likely to be maintained throughout the rest
of the decade.
The aging population will cause the labor supply to decline and will
slow productivity growth. The current growth model of the Czech
economy is very dependent on the external sector — exports,
export-related investment and external financing. Given the weak
medium-term outlook for the Eurozone, neither exports nor foreign
direct investment are expected to return to pre-crisis growth rates
in the medium term.
Czech Republic
% increase per year
Forecast
-20
-15
-10
-5
0
5
10
15
20
25
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Consumption
Investment
%
1
2
3
4
5
6
7
8
9
10
11
1996 1999 2002 2005 2008 2011 2014
Forecast

Table 11
Egypt
2011 2012 2013 2014 2015 2016
Nominal GDP (US$b) 231.1 254.7 246.1 261.3 287.3 314.2
Figure 32
Real GDP growth
Source: Oxford Economics; World Bank. Source: Oxford Economics.
Figure 33
Government budget balance
Ongoing political and economic crisis weighing on activity
The political and economic crisis continues, with little prospect of the
situation improving in the near term. In fact, latest developments have
been overwhelmingly negative. There is still no agreement with the
IMF over the US$4.8b loan program, which is urgently needed to
trigger more international aid and boost confidence that the
Government will be able to implement a credible medium-term
economic program.
Investor and business confidence continues to suffer. The currency
has fallen sharply and we expect further depreciation to perhaps
EGP7.15 by the end of the year. While foreign reserves jumped to
US$16b in May, this was only because of a US$2b deposit from Libya.
The underlying trend is still falling. Reserves still cover less than
three months’ imports.
The budget deficit is likely to fall only slowly from the estimated
outturn of close to 12% of GDP in 2012–13. Inflation picked up to
8.2% in May, due to higher food and fuel costs. We expect it to
average 9% this year and about 10% in 2014.
Our growth profile remains unchanged and sees GDP rising by just
2% in 2013–14 after estimated 1.7% growth in 2012–13. We expect
any real recovery to be delayed until 2015, when growth is forecast
at 4.5%.
Egypt
% increase per year
0
1
2
3
4
5
6
7
8
1991 1994 1997 2000 2003 2006 2009 2012 2015
Egypt Forecast
Middle East and
North Africa
US$b % of GDP
Forecast
-20
-17
-14
-11
-8
-5
-2
-32
-28
-24
-20
-16
-12
-8
-4
0
1991 1994 1997 2000 2003 2006 2009 2012 2015
US$b
(left-hand side)
% of GDP
(right-hand side)

Table 12
Ghana
2011 2012 2013 2014 2015 2016
Short-term interest rate (%) - - - - - -
Nominal GDP (US$b) 39.2 38.6 41.6 45.7 50.3 54.9
Figure 34
Inflation
Source: Oxford Economics; Haver Analytics. Source: Oxford Economics; World Bank.
Figure 35
Real GDP growth
GDP growth forecast to slow in 2014–16 as boost from
oil fades
After accelerating to 14% in 2011 due to the onset of oil production
boosting activity, the pace of GDP growth slowed to 7.1% in 2012 when
the big boost from oil dropped out of the calculations. As the rise in oil
output slows, we forecast GDP growth of about 7% in 2013, and then
5%–6% per year in the medium term.
Although under much better control than in the past, and in single
digits in both 2011 and 2012, inflation has risen recently, driven by
high world oil prices and cuts in fuel subsidies. In May 2013, the rate
was 10.9%. Price pressures have also increased, created by high
spending ahead of the elections at the end of 2012, which saw the
budget deficit balloon to 12% of GDP. With imports surging and the
currency under pressure, the Bank of Ghana raised its key interest
rate by 250 basis points in H1 2012. In addition, having kept policy
unchanged in H2 2012, it then raised rates again by 100 basis points
(to 16%) in May 2013, in response to rising price pressures.
And despite high gold and cocoa prices, strong imports meant that
a widening trade deficit and rising outflows of services and income
lifted the current account deficit to almost US$5b in 2012 (over 12%
of GDP). The deficit should fall slowly in the coming years as oil
exports climb.
Ghana
% increase per year
0
10
20
30
40
50
60
1990 1993 1996 1999 2002 2005 2008 2011 2014
Forecast
Africa
Ghana
% increase per year
-2
0
2
4
6
8
10
12
14
16
1990 1993 1996 1999 2002 2005 2008 2011 2014
Ghana
Forecast
Sub-Saharan
Africa

Table 13
India
2011 2012 2013 2014 2015 2016
Wholesale price index (% per year) 9.5 7.5 5.2 4.7 4.5 4.2
Population (millions) 1,232.8 1,249.0 1,265.0 1,280.7 1,296.1 1,311.2
Nominal GDP (US$b) 1,864.2 1,827.2 2,000.5 2,196.3 2,402.6 2,593.6
Figure 36
HSBC manufacturing purchasing managers’ index (PMI)
Source: Markit. Source: Oxford Economics.
Figure 37
Interest rate and wholesale price index inﬂation
Ease in policy to support recovery
India’s economy grew by 4.8% year-on-year in Q1 2013, accelerating
slightly from 4.7% in Q4 2012. Growth is likely to have bottomed out
now and we expect the economy to pick up in H2 2013, driven by a
gradual increase in investment. GDP growth is forecast to average
5.1% this year, picking up to 6.4% in 2014.
Consumer spending will be supported by a gradual decline in inﬂation
and easing in monetary policy. Indeed, core wholesale prices have
been falling steadily over the past few months. Furthermore, the
Reserve Bank of India lowered the repo rate by 25 basis points to
7.25% in May, the third cut this year. This will help spur growth and
support spending.
But India’s economy continues to be held back by weak investment,
particularly in the private sector. The 2013–14 budget fell short of
measures to stimulate private businesses. Government expenditure
was cut and the tax rate on corporations was increased to
boost revenues.
Although the Government has taken tentative steps toward improving
the economic environment, a lot more needs to be done. Unless the
reform process accelerates, we expect medium-term growth to reach
7.5%. This will miss the Government’s stated target of 8% growth.
50 = expansion/contraction breakeven point
40
45
50
55
60
65
2005 2006 2007 2008 2009 2010 2011 2012 2013
%
-4
-2
0
2
4
6
8
10
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Repo rate
Wholesale price index non-food
India

Table 14
Indonesia
2011 2012 2013 2014 2015 2016
Current account balance (% of GDP) 0.2 -2.7 -2.7 -2.1 -1.9 -1.6
Exchange per US$ (year average) 8,789.4 9,403.2 9,733.5 9,566.2 9,548.4 9,724.9
Nominal GDP (US$b) 844.9 876.4 941.4 1,066.2 1,181.8 1,283.0
Figure 38
Inflation
Source: Oxford Economics. Source: Bank Indonesia; Haver Analytics.
Figure 39
Bank lending growth
Export demand is very subdued, but domestic activity
remains solid
The economy slowed for a third straight quarter in Q1 2013, though
at 6% it is still growing at a robust pace. Annual growth in private
spending was over 5% for the fourth quarter in a row, but annual
growth in investment has slowed since H1 2012. Lower commodity
prices have dampened mining investment and the Government’s
commitment to cut the budget deficit has hit public investment.
The revised 2013 budget includes a 44% increase in the gasoline price
and a 22% hike in the diesel price. In the near term, higher inflation will
dampen spending. But consumer spending will not be completely
derailed, given initial high levels of confidence and widening access
to credit. Exports remain weak, with low commodity prices
hitting coal, crude oil and natural gas revenues. However, export
volumes picked up in Q1 and this improvement is likely to continue,
albeit gradually.
The authorities have encouraged more long-term investment to help
develop infrastructure projects. This is starting to bear fruit, with
annual FDI inflows exceeding US$19b for the second year running
in 2012. Lower subsidies should also free up more funding for
infrastructure investment. We expect higher FDI to help support
overall investment in the next few years. The economy is expected
to grow by 6.1% in 2013 and 6.0% in 2014. Strong domestic
fundamentals should support medium-term growth above 5.5%.
% increase per year
-10
-5
0
5
10
15
20
25
30
35
2000 2002 2004 2006 2008 2010 2012 2014 2016
Consumer prices
Producer prices Forecast
% increase per year
0
5
10
15
20
25
30
35
40
45
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Indonesia

Table 15
Kazakhstan
2011 2012 2013 2014 2015 2016
Current account balance (% of GDP) 7.7 3.8 1.1 0.4 1.1 1.3
Nominal GDP (US$b) 183.1 200.5 218.5 238.0 263.5 290.1
Figure 40
Real GDP growth
Source: Oxford Economics; World Bank. Source: Oxford Economics; World Bank.
Figure 41
Inflation
Higher metal prices and ongoing fiscal stimulus to
support a strong recovery
After slowing to 5% in 2012, GDP growth is forecast to accelerate to
5.7% this year, and then 6.9% in 2014. This improvement is the result
of several factors, including stronger growth in key export markets,
rising oil production, a better performance by agriculture and higher
metal prices.
Fiscal stimulus will continue, given the healthy public finances and oil
prices that are still historically high. The National Oil Fund continues
to rise — it reached US$60b at the end of March. Interest rates remain
at an historic low of 5.5% and are expected to be kept low to support
growth and the banking sector.
The giant US$46b Kashagan offshore oil field will come on stream
by 2014. It holds 13 billion barrels of recoverable oil reserves and
could result in a near doubling of output within a decade. In addition,
there will be heavy investment in copper production.
But GDP growth will fall short of rates reached in 2000–07, averaging
7% in the medium term. This is in part due to more modest growth in
public spending, but mostly because the banking sector will take time
to recover from the global financial crisis.
Kazakhstan
Europe and
Central Asia
% increase per year
-15
-10
-5
0
5
10
15
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Kazakhstan
Forecast
% increase per year
Europe and Central Asia
Forecast
0
5
10
15
20
25
30
35
40
45
50
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Kazakhstan
% increase per year
Europe and Central Asia
Forecast
0
5
10
15
20
25
30
35
40
45
50
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Kazakhstan

EY Rapid-Growth Markets Forecast Highlights Managing Risk Essential for Business Growth

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