10 January 2011
An updated study by consultancy firm PriceWaterhouseCoopers, “The World in 2050”, projects that South Africa will be the seventh fastest-growing economy between now and 2050, with an average annual real growth rate of five percent.
Released last week, the revised version of “The World in 2050” also predicts that in purchasing power parity terms, the E7 group of emerging countries (China, India, Brazil, Russia, Mexico, Indonesia and Turkey) will overtake the G7 economies (US, Japan, Germany, UK, France, Italy and Canada) by 2020.
“Our key conclusion is that the global financial crisis has further accelerated the shift in global economic power to the emerging economies,” the report says. The original version was published in 2006, before the 2008-09 crisis.
With reference to South Africa, the report projects an average annual population growth rate of 0.3%, and an average annual GDP (gross domestic product) per capita growth of 3.6%, from now until 2050.
It ranks South Africa as the world’s twentieth largest economy in 2009, both in terms of purchasing power parity, with the economy worth US$508-billion, and at market exchange rate rankings, with the economy worth $286-billion.
However, by 2050, South Africa is projected to drop out of the top-20 ranking, where it could be replaced by Nigeria, which has a higher average annual growth rate till 2050 (at 7.9%), a higher average annual growth rate per capita of five percent, and higher average annual population growth rate of 1.5%.
Nigeria has the largest expected contribution from population growth over the next 40 years, which will significantly increase its working age population contributing to GDP growth.
The study points out, however, that Nigeria’s high growth rate is also subject to a “considerable degree of uncertainty due to its need to address issues relating to current over-dependence on oil and various institutional and governance issues that have held back its growth potential in some past periods”.
Return to the ‘historical norm’
By 2020, China is expected to pass the US as the largest economy in the world, while India could also overtake the US economy, in purchasing power parity terms, by 2050.
The report finds that, even when looking at GDP growth at market exchange rate rankings, the overtaking process is slower, but still inexorable: the Chinese economy would still be likely to be larger than that of the US before 2035, and the E7 would overtake the G7 before 2040.
In addition, India would be clearly the third-largest economy in the world by 2050, well ahead of Japan and not too far behind the US.
“In many ways this renewed dominance of China and India, with their much larger populations, is a return to the historical norm prior to the Industrial Revolution of the late 18th and 19th centuries that caused a shift in global economic power to Western Europe and the US – this temporary shift in power is now going into reverse,” said one of the report’s authors, PriceWaterhouseCoopers economist John Hawksworth.
Challenges, opportunities for business
According to “The World in 2050”, this changing world order poses both challenges and opportunities for businesses in the current advanced economies.
“On the one hand, competition from emerging market multinationals will increase steadily over time and the latter will move up the value chain in manufacturing and some services, including financial services given the weakness of the Western banking system after the crisis.”
At the same time, the report predicts, rapid growth in consumer markets in the major emerging economies, associated with a fast-growing middle class, will provide new opportunities for Western companies that can establish themselves in these markets.
“These will be highly competitive, so this is not an easy option – it requires long-term investment – but without it Western companies will increasingly be playing in the slow lane of history if they continue to focus on markets in North America and Western Europe.”
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