Growth in our MIST: the economic bloc to watch

Julia Gillard and Susilo Bambang Yudhoyono both acknowledge the importance of a strong relationship between Australia and Indonesia. AAP

Trade liberalisation has pulled many developing countries into emerging markets in the last decade. Jim O’Neil, an economist and chairman of Goldman Sachs, who forecast global economic domination by certain developing countries - in particular Brazil, Russia, India, and China (BRICs) - now challenges us with notions of a new phase of global economic development. The anticipated international alignment of Mexico, Indonesia, South Korea and Turkey (MIST) is representative of the new wave of emerging markets.

These four countries, all members of the G20 group, are clearly a powerful rhetorical agglomeration. The influence of MIST is evident upon analyses of their macro and micro political-economies. Due to our trade and diplomatic relationship with the MIST countries, it is important that Australia understands the implications of this economic bloc.

Mexico was one of the last decade’s fastest growing nations. Membership of the North American Free Trade Agreement (NAFTA) has brought some positive outcomes to this nation. Mexico’s proximity to the US, and links with Central and South American markets, as well as its Hispanic culture, underpins international investors’ and multinational corporations’ choice of Mexico as a strategic investment location. The country’s inflation rate is considered ‘normal’ as far as developing nations go.

Nevertheless, international investors believe that failure to liberalise the labour market, improve a paltry tax take, and attract more foreign investment could condemn Mexico to years of weak growth and threaten its credit rating in the foreseeable future.

As it stands, Mexico’s political instability is, paradoxically, likely to bring about tremendous and positive structural change.

In the forthcoming election this year, it is expected that Partido Revolucionario Institucional (PRI) will win. The party, has promised to ratify higher taxes and more private investment to state-run industries, such as oil and other natural resources, despite blocking these reforms over the past decade.

Indonesia, the most populous Muslim nation in the world, is one of the rising stars in the global economy. With a population of 250 million, and its generous endowment of natural resources, this country is clearly one of the key markets for production and consumption. Major strengths of Indonesia include its geopolitical links with the region and its leading role in the Association of South-East Asian Nations (ASEAN), which will become the ASEAN Economic Integration (AEC) in 2015. These place Indonesia as a hub of the south-east Asian region.

Reuters suggested in early 2012 that Indonesia, economically speaking, has plenty of positives. Its economy held up better than that of peers when Europe’s debt crisis intensified. A bounty of natural resources and an expanding middle class are the foundation for continued growth. With the inauguration of the AEC, Indonesia will become a regional mega market for both natural and human resources.

Julia Gillard and South Korean President Lee Myung-bak AAP

In the eyes of multinational corporations, South Korea is the new Japan. With governmental long-term support in foreign direct investment, South Korean is now perceived as a well-developed centre for international business operations. With the lowest unemployment rate (3.4%) among G-20 nations, South Korea has the highest purchasing power per capita in Asia and the world ($30,000).

The nation’s political stability remains an unknown which might be clarified, at least in part, by its elections this year. The situation is compounded by the ongoing argy bargy with its northern neighbour. Having said that, South Korea is one of the of significant strategic importance to American and European business. Thus we can predict political intervention and protection from the EU and the US.

Table 1: Economic Indicators among MIST (Year 2011) The World Bank

According to the World Bank, Turkey’s rate of 11% economic growth led the world in 2011. GDP per capita is $12,300, below European levels, but ahead of most emerging markets, including the BRICs (excluding Russia). However, Turkey’s application to join the European Union remains in the balance. Most EU members question Turkey on its human rights issues, and an uninterrupted outflow of Turks to Western Europe impedes the application’s progress.

One key concern for Turks is the nation’s unemployment rate, which sits at 10.3%. This is linked to a number of issues such as high labour costs, lack of competitive advantage in the labour market and disparities between affluent areas (such as Istanbul) and the poor areas in the east and north-east.

Nevertheless, Turkey is still an attractive country. The Economist confirmed Turkey’s GDP rose by 8.5% in 2011 after a 9% increase in 2010. In terms of its manpower, Turkey has 75 million people and the majority are young. It is forecast by the United Nations that Turkey’s population will reach 92 million by 2050.

MIST and Australia

Due to the long history of political, trade and social relationships between Australia and Indonesia, the latter may be the most significant partner for us of the MIST nations. According to AusAid, Indonesia is the largest recipient of Australian aid, to the value of $462 million in 2009-10. With the transformation of South East Asian political and economic approaches to the AEC, Australia must engage more with our neighbours. Indonesia can support our role and relationship in this region.

South Korea has strong impact on Australian trade and investment. Its role as the third largest export market for Australia can influence our political and trade policy and practice in the Korean Peninsula in various ways. One important concern is its political relationship with North Korea. The issue of nuclear weaponry is sensitive and strategically important. Australia may not be in the position to directly influence this situation. Critics, however, argue Australia should work with South Korea and the global community on issues such as counter-proliferation and nuclear security in the region.

Regarding our trade relationship with Turkey, Austrade reported in 2011 Australia’s exports to Turkey were largely commodity-based, including coal, non-monetary gold, aluminium and lead. In recent times, there have been some successes in diversifying exports, including with the sale of a number of fast ferries to the Istanbul municipality. The increasing role of the Turkish market, and the modern form of privatisation in Turkey, will attract more Australian investors and companies.

Last but not least, Mexico has been one of the key markets for Australia from Latin America. For instance, in 2009 Mexico was rated as the most important trade partner with Australia from Latin American markets. Trade was worth over $2 billion. In 2010, Australia, New Zealand and Mexico formed Australia, New Zealand and Mexico business council (ANZMEX) to facilitate international trade among the three countries. ANZMEX will potentially support trade in renewable energy, automotive and electronic components between Australia and Mexico.

MIST is not just another catchy acronym for international trade; it has weighty economic, social and political implications for Australia. We should not underestimate the rapid growth and soft power of these countries.