>Where are the best places to invest in the next 50 years? Posted on August 10, 2010 by thebigqs 18 comments > If someone gave you a million pounds on the stipulation that you invest it where would you invest? Which countries do you think have the best growth prospects? Which goods and services do you think have most growth potential? Which currencies do you think need to strengthen? Share this:TwitterFacebookLike this:Like Loading... Related Economics
>Great, one I can sink my teeth into.First up, Africa is out. Maybe in 50 years it will be ready for investment but not now, not by retail investors. China is going big there but they are investing as a sovereign nation and the question is about personal investment.Then it comes down to Emerging nations vs developed nations. If of course we are just talking about nations and not individual companies/sectors in each country.Given that emerging nations have more room for progress, it's got an advantage over developed countries in it's growth expectations.So, focussing on the BRIC economies (Brazil, Russia, India, China) I would choose Brazil and China as my preferred options.Now I like to pick by company and sector, but given that this is a more general question on which economy will grow the most, I will assume we are investing in Index-linked ETF's (exchange traded funds, basically mutual funds which track the stock market movements like the S&P 500, etc).So why those two BRIC countries and not the others.India has been the services centre and recieved a lot of investment due to outsourcing. Basically doing the job for cheaper than the west. This price differential is forever decreasing as their country grows wealthier, and I have even read a report that the IT sector in India is expected to only be 2/3 cheaper than the west in 5-10 years.India has not come to the fore-front with any innovations with which to drive their economy on once they can no longer take jobs from other countries (exception of Tata motors and Mittal).Therefore I do not see their strong growth continuing.Russia has only natural resources with which to earn its money. And only really natural gas at that. Ok, some wheat too. Natural gas is difficult to export via ships, and so their supply is limited to the EU, which they are already supplying well enough. So little growth there.Brazil on the other hand holds my biggest expectations for future growth.They have abundant resources in regards to fossil fuels, minerals, mining, and crops. They also have IP rights on all drugs developed from Amazonian flora and fauna, if i'm not mistaken.So they can feed the world, power the world, build the world, and cure the world. That's a pretty good and diverse basis upon which to build one of the worlds biggest economies.The of course comes China.Initially I thought that China would suffer the same fate I predicted for India. But they have really made some headline grabbing innovations in recent years, and it looks like the have a bit of Japanese in them after all.If you read the science websites you will find a lot of the reasearchers are Chinese, either in US colleges or in China. They have a lot of REALLY smart people. India and US do to, but China has A LOT.So I expect China to continue for a good decade it's leadership in manufacturing but also to start leading the world in a few areas of innovation which will help it to become the number 1 economy in the world.
>Sorry, that should read 2/3 the price, i.e. 1/3 cheaper, for Indian IT
>I was hoping you'd like this one. With Africa what do you think about Ghana? They're discovering new oil, and are forecasted to be able to drill huge amounts from next year. Plus Ghana is one of Africa's most stable conutries. And then there's Egypt too. I know a lot of people class Egypt as the Middle East but nevertheless it has a lot of potential because there's a lot of untapped domestic demand and a growing middle class (in fact there's a similar case to argue for Turkey, which could also see its currency increase in value soon). On India I'm a little more positive than you. Economic management is fairly sound, and there is a lot of untapped potential within the country still. In fact I have heard stories in this last year of more innovations coming out of India. The cheap cars and laptops coming out of India may not seem like big innovations but the amounts of savings they've made are huge, and by really stripping the products down and lowering costs they've tapped into the markets most forecast to grow in coming years. I think what we'll see in the next ten years is a shift from those businesses taking advantage of cheap labour, as you referred to, to increasingly innovation led business, and increasing demand from within the country. The Indian middle class may even be the biggest in the world now, and investment in education is huge! So maybe an intermittent slow-down in growth, but I see a bright future for India in the long term.On Russia I largely agree. In the last ten years soaring energy revenues have transformed Russia from a $160bn economy to a $trillion today. Average wages have also jumped more than ten fold. But has this growth been used effectively? No. As you say it's actual resources, although large, are limited and not being built upon. Foreign investors are discouraged by corruption, a lack of investment in the right areas (many buildings in Moscow are still Soviet era concrete blocks without air conditioning) and a generally poor reputation. The population is still shrinking by up to 700,000 a year. And despite what people say about global warming making the tundra more accessible for agriculture changing climates are not a help to Russia in the short to medium term (unless they can gain drilling rights in the Arctic). First of all you can see it from the current forest fires. But secondly when the ice melts in the northern tundra dangerous gases will be released, not only hindering development for years, but also intensifying global warming.And on China and Brasil I agree too. The biggest difficulties with all the aforementioned countries are probably internal and political more than economic. Will China be able to maintain its high growth? There are risks of course. Commodities such as the base metals, which China produces a lot of, will grow in price in the short term until supply matches demand, but will not stay high indefinetly. And there are worries about Asian housing bubbles, but I think these are sustainable as the authorities are aware of them and trying to address them, which is re-assuring the markets. The real risk about China is that, some sort of disaster like these mentioned could occur, which would trigger more internal calls for reform, and independence in more than one region, or China could follow Japan's path and see growth rapidly slow down as it reaches closer to its potential. Then the dangers of mismanagement could occur. However as risk goes I think it fairly low in China, slightly higher in Brazil and India, and much higher in Russia. As for Turkey, Egypt and Ghana I think there is a great deal of potential there too but perhaps still a great deal of risk on top, and not as much potential as China still has.
>OK, so we kinda agree. What about goods and services ?You mention innovation but most of the innovation witnessed by the consumer is in consumer electronics and thats a fairly short lived game, being affected by moore's law and what not.Food prices are easy to predict as there will always be demand for it, and china is not self sufficient in this regards. plus western standards of living include obesity so 1.3 billion obese chinese will need a lot of food ;-)Water, its scarce but i'm continually surprised by the lack of investment in de-salination plants, which would turn a scarce resource into the most plentiful one on the planet in no time.I think services are dependant on the location they are being offered in, with the exception of easily outsourced one, e.g. mechanic vs accountant. can't fix your car in India but can have your tax done there.So for this reason i think services are difficult to make generic statements about.
>On food/agriculture I absolutely agree. With lots of new research in the past few years I feel we might be on the cusp of some further breakthroughs in third world agricultural development. And in addition as you say demand is certainly not going to be a problem in coming years. In fact China's obesity rates are already greater than 20% in some of the cities, which is already encouraging state involvement.With water I'm not really surprised. De-salination plants are incredibly expensive and offer little return for the private investor. Current de-salination technologies are rather environmentally unfriendly, and not suitable for places deep inland or high above sea level (which is often where most problems are). And of course with much current research in the field, and rapidly falling costs everyone is playing the waiting game to see if it becomes more viable in the future. Many countries bordering the Med are investing however. For example Israel spends quite a bit there.As for other goods I'd say base metals such as iron ore and lithium in the short to medium term. Demand is very high for these goods and supply is being rapidly expanded to keep up. However as always with such goods prices will at some point start to fall. Gold is continually being heralded as a safe place to invest, and in the short term I would agree, but although I agree gold is relatively safe I am slightly worried about a gold bubble. Investing in green iniatives is also a wise move because political forces are forcing increased state investment in the area.I agree that services are more difficult. In fact on that side of things I'd be more keen to invest in research. The big service economies are the UK and US but I suspect after the recent crisis in the financial services both states will be keen to re-balance their economies away from a too heavy service reliance. Although financial services may in fact still be the place to invest but you're the man to say where in this regard.
>The thing I love about financial services is that t sticks it to the gov't so to speak.Basically a lot of financial service jobs are going (have gone) to the lower cost-just as educated countries.However, the domiciliation of the companies is still occurring in the small, wealthy, and developed countries. Or i should say, in the tax-haven countries.And this is why i like the idea of tax havens. Your govt has a monopoly, unlike any other business, and you have to just suck it up.With tax havens though, it allows competition into the sector.By way of a bit of corporate structuring it is possible to pay your tax in jurisdictions where the levy is much lower (sometimes 0%).Now this is rgeat in that it forces the govt to come up with more detailed and focussed taxes (I moot a sales tax, since that is a consumption tax that does not benefit growth, and increasing the incentive to become a producer).It also is a great way for developing countries to kick start their economy. For example, the Seychelles are one of the newest tax-havens. An african country who was depedant on tourism is now diversifying its economy, and giving impetus to the upskilling of its population.For countries in Africa, it is hard to compete with western countries for a number of reasons, even though they should have the advantage of lower costs of production. By offering this service to businesses they can leverage that advantage to aid their development.The west loves to patronise africa with it's developmental aid, and gifts of garden hoes and clay bricks, i think its fantastic that the Seychelles have in essence said "screw that shit, we going for the good stuff" and used modern ideas to promote their economy.
>You think tax havens are universally a good thing? Noreena Herz, in ‘The Silent Takeover’, argues that globalisation leads to “a world in which the primary service that national governments appear able to offer their citizens is to provide an attractive environment for corporations or international financial institutions.” If everyone pursued your logic we'd enter a 'race to the bottom' and this quote would be true. And if it was true then people at the bottom would simply be hit harder. In fact all people would be hit harder for limiting corporation tax means that governments have to take the tax from elsewhere i.e. incomes and spending.Besides becoming a tax haven is not a shortcut to succcess as many people believe. Seychelles can do it succesfully because they have other strengths. But most of Africa suffers from low foreign investment not because of tax but because of corruption, violence, poor infrastructure and other such things. In fact tax is a hindrance to Africa, but not because they collect too much; it's because they collect too little due to the huge problems of tax evasion and tax avoidance.
>"shortcut to success" implies that there is an accepted path to success. If this were so, then every would take the well worn route."success by any means possible" is a better description of the route in my opinion.Tax havens like the Seychelles are to be commended for using government policy to make themselves attractive as possible for foreign investment, without it coming at the expense of local citizens.Africa's porblems of corruption, violence, etc are omni-present, with or without Tax-haven status.I see your point that you must bake the cake before you can put the icing on, but I am merely applauding developing countries like the Seychelles who have done the baking and are now icing up as best they can.As for Tax-havens universally, we are in danger of going a bit of topic here, but ok.The race to the bottom is already happening, and in such a lovely hypocritical way, as per usual.Obama criticised 'off-shore tax havens' during the financial crisis and has pushed for regulations concerning these. He was talking about those carribean islands, bermuda, and others. Even Luxembourg was put on the 'grey list' for a while.However Obama failed to acknowledge that the U.S. state of Delaware is also a tax-haven.It is even called an 'off-shore tax-haven' such is the misnomer that the term has become.The way all tax-havens that i'm aware of work is that the tax-exempt status only occurs if your company is a foreign company, and often it precludes your company from carrying out any part of its trading activities in the off-shore haven. This is exactly what Delaware does (requiring no trading activities to take place in the U.S.).The state of Delaware and other 'off-shore tax-havens' make their money on the administrative & domicilation fees.So this is where the hypocrisy comes in, Governments decry the use of tax-havens by local companies, while at the same time they offering the same status to foreign companies, thereby reducing the tax revenue for foreign governments.As i've started using cake analogies i'll continue, I think this one is called "having your cake and eating it".Now hypocrisy aside, are tax-havens universally good ?Well no, but they would help move tax receipts from production to consumption. The term 'consumer-driven society' not only highlights some of the greed and selfishness of our current era, but should also highlight a new route of fiscal policy for governments.
>If you imagine that the rich business owners would use tax-havens to avoid paying tax on their profits, (can anyone smell coffee ?), then don't worry, it has been happening for a long time already.The best way to make sure those wealthy people pay their tax is by hitting them when they buy their toys. Here's a wonderful idea. We currently have a progressive tax system right, earn more = get taxed more.How about we pursue a progressive consumer tax, i.e. spend more = get taxed more ?Fruit and vege, 5 % VAT (i think its 3% at the moment). Porsche SUV, 80 % VAT.Houses under 150 sq.m, 5 % stamp duty.Houses over 600 sq.m, 50 % stamp duty.
>That's a really interesting question you raise, and one I've been thinking about recently. The textbook I'm using (Macroeconomics by Miles and Scott) says that corporate taxes have not declined over time, and between 1970 and 1998 the percentage of the world’s population living on less than $1 fell from 16% to 5%. In addition I'm aware of EU rules that restrict the amounts of subsidies that member states can pay firms to avoid a race to the bottom. However other sources such as http://earthtrends.wri.org/updates/node/6 state that the number of people living on less than $1 per day is now 20% of the global population. Do you know if both are correct? I can't imagine things have gotten that much worse in the past ten years. And in fact I've seen various different figures over the past year. But the way you're speaking suggests you know more. What makes you say there has been a race to the bottom?
>race to the bottom ? I was quoting you !
>Yes I know but I was speaking about the possibility of it happening whereas you said "The race to the bottom is already happening".
>Ok, i see. I wastaking race to the bottom to mean competition among states to attract overseas investment by offering incentives, tax breaks, etc,.I don't have any hard facts or figures on the increase/decrease etc, and will admit to it being an opinion on anecdotal evidence.Such anecdotes are the NZ government offering tax breaks and incentives to overseas movie producers to shoot their films in NZ. Some of the big budget films have actually cost the NZ taxpayer more than they contributed to the economy.A funny occurrence regarding this also happened during the credit crunch. I forget the name of the company involved but it was originally a Michigan based company, founded there and an important part of their state economy.About 5 years prior to the crunch, the new CEO relocated them to Canada to reduce corporate taxes, etc. Michigan state gov't apparently begged them to stay and offered them a whole lot to do so, but to no avail.Then a few years later the credit crunch arrived and this company was caught short, and asked the Canadian government to bail them out Their request was denied.Then the company had the gall to go and ask the Michigan state govt to bail them out !They were indubitably declined.
>The BRICS (the S is sometimes capitalised to include South Africa) are characterised as emerging markets driven, crucially, by a growing section of society who are aspirant consumers. These are enormous parts of the world (four of the ten most populous countries in the world are BRICS) with huge, barely tapped consumer markets.How to invest falls into two categories:The first (and initial) is reverse innovation, rather like what the Indian conglomerate TATA are doing with cars: cheap, no-frills products that eschew the Western 'app culture' of bell-and-whistle additions. It is important to remember that the BRICS haven't had their Model T yet (it will probably be imminent or about to take off) so it is important not to try and sell Porsches to emerging consumers, and also that while Apple hasn't cracked any of the BRICS the less-hailed and technologically-conservative (thence cheaper) Nokia has. This is something Toyota has recently tapped into with its roll out of a $6000 (still more than twice the price of a Tata Nano) model in China (I think).Secondly (and linked), you need to (rather like HSBC always claim to) understand and adapt to local custom and culture. This is something Panasonic are apparently doing to shift air conditioning units in India; making them less noisy and also more efficient (to be fair, qualities that could well be exported universlly) to adapt to the fact that they are constantly on and much of India is susceptible to power failures. Similarly, the company places ostentatious lights on its Chinese versions, taking into account the fact that air conditioning is seen as a status symbol (kind of the reverse of what Tata are showing in India with that more typical western status symbol, the car).I'm obviously not going to mention specific products (well done to anyone who would have said ICT in 1960 or national/global electronic media in 1900 but, realistically, the big hitters tend to be Black Swans that can't be predicted until they are already here and hitting), but I'd happily invest my sadly all-too-fictional fortune in the BRICS (particularly India and Brazil), focusing on R&D concentrating on both reverse innovation and cultural peculiarities in these vast new markets.
>Good response. I know which articles you read, I just read the same ones. Speculation about the black swans, although as you say hard to do, could be fun though. Besides there's always someone betting on the winners so you never know.Tapping into the global middle class will probably be it actually, so the "reverse innovation" you refer to whereby companies are able to supply highly desirable and useful utilities like computers, laptops, entertainment systems, cars, phones and other such things (in fact including food, as a new agricultural revolution is sorely needed throughout many parts of the world) on the cheap may well be the next black swan event. However above and beyond this I would have to point to the current technological, communication and information revolution we're all living through. I therefore think that new sources of technology such as developments in nanotechnology, holographic communication, and in renewable energy sources, could prove very popular.And, though I think these will be less popular for investors I also think robotics, bio-engineering, and computer gaming will be big going forward. Robotics & bio-engineering will possibly be more popular in healthcare (artificial hearts and livers were invented in 2001, and SonoPrep was invented in 2004 to deliver medication by sound) than where science fiction would have us believe. Computer gaming is very popular in East Asia already, and with new technologies coming fast, as well as a rising middle class, radical new technologies such as holographic gaming could take the world by storm. Personally I'm hoping for a boom in academia and huge demand for Professors (that's what I want to be). With the rising desire for education, and increasing abilities to teach anyone anywhere around the world who knows …
>If I didn't want to start a family early(ish) I'd have gone into academia. Unfortunately, an extra 5+ years study for a PhD combined with accompanying costs and lost earning time has held me back. Maybe someday once I'm more financially secure and my fiancee moves up her career, who knows.I thought you wanted to go into politics?
>It's probably not the best place to discuss it but yes I want to go into both. My ideal career path would be to become a Professor, and then an MP. Unfortunately both career paths are very hard to get into but I'd be happy with either, as if I'm a Professor I can write books and meet with decision makers to influence decisions, whereas if I'm a politician I can make them myself. For the moment though I can't afford either, so I'm going into economics, finance or research and analysis until I can afford to take the next step (hopefully all of these will help in the long term anyway).