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Manufacturing exports in emerging markets: The elixir of growth

  • Manufacturing growth can boost technology transfer (via FDI), consumption (job creation), FX reserves (exports)

  • Needs benign business climate, tariffs (export market access), logistics, and cheap, reliable inputs (wages, power)

  • We scan emerging markets to find where, apart from China and Vietnam, is the code for this growth elixir being cracked

Manufacturing exports in emerging markets: The elixir of growth
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
22 October 2022
Published byTellimer Research

Manufacturing growth is the elixir of growth for an emerging market. It can boost technology transfer, via foreign direct investment, consumption, as a result of job creation, and foreign currency, through export earnings.

Historically, China and Vietnam, above all, as well as a number of others in East Asia have cracked the formula for this – sufficiently benign business climate, low tariffs (ie export market access), well developed logistics, and cheap, reliable inputs (wages, power).

East Asian manufacturing still not widely replicated in EM

Premature deindustrialisation fears...

Premature deindustrialisation, articulated by Harvard economics professor, Dani Rodrik, in his 2015 paper, describes how countries are finding it harder to industrialise at a much poorer stage of their development compared to those countries, which were early to industrialise. Rodrik measured industrialisation by its share of employment and real value added.

The drivers in this thesis are globalisation and automation. The manufacturing success stories of Asia are portrayed by Rodrik as exceptional rather than a replicable template for other emerging markets, such as those in LatAm or Africa.

As such, this thesis represents a major challenge to the global emerging markets investment case.

...May be overdone

The data on the change in net manufacturing exports contribution to GDP over the last 20 years across emerging markets suggests there may be more success stories than Rodrik's thesis might imply.

No country has seen positive transformation on the scale of Vietnam and some net manufacturing export growth success cases may not be coupled with much job creation (eg Bahrain).

Nevertheless, improvements in this statistic across a number of emerging markets in Europe (eg Greece, Hungary, Poland, Turkey) and Sub-Saharan Africa (Ghana, Kenya, Nigeria) suggest that it is not the case the manufacturing export ship has sailed.

There is still time.

Wide dispersion in EM manufacturing exports since 2000

Related reading

In the context of alternatives to China manufacturing, I have written before on ranking potential of countries in both Asia and Africa.

And in my EM Country Index, the competitiveness of the manufacturing base is one of the factors considered.

The index weights c30 factors on growth (short and long term), policy credibility, politics, sanctions, ESG, equity valuation and liquidity.

The purpose is to rank the top-down investment case in about 50 countries.

The weights in the index can be changed in order to model different global themes and portfolio styles.