The turbulence of the early 2020s has thus far made predicting future economic growth and performance a difficult task. First came the pandemic and accompanying waves of lockdowns, causing a huge demand shock across the global economy as consumer spending fell off a cliff. The faster-than-expected economic recovery from the initial COVID shock, fueled largely by unprecedented levels of stimulus by governments, then led to a supply crunch, with supply chain bottlenecks stalling market access to electronics, cars, and other manufactured goods. Most recently, Russia’s invasion of Ukraine has sent many commodity prices surging upwards, contributing to levels of inflation not seen since the 1980s.
These events and their consequences represent a setback to global economic growth in the early 2020s. Following the global financial crisis of 2008, global growth stalled, but towards the latter half of the 2010s, many countries in the Global South registered impressive growth rates until the pandemic hit, with a degree of hardship ensuing ever since.
Yet when taking a longer-term view, there are still areas for optimism on the possibility for countries to climb the economic ladder and alleviate poverty. The pandemic and its aftermath could even spell a realignment in certain areas of the global trading system, with certain countries well-positioned to take advantage of a shift away from the existing order, however, this will remain to be seen in full for some time. In terms of economic growth, pre-pandemic trends can still shed light on countries that have a better chance of outperforming others.
As recent events like the pandemic cannot fully displace longer-term trends, it is worth highlighting macro-level economic success stories that have unfolded in the past decade, or certain factors that might provide a reason to be particularly optimistic about the economic future of a country. While rises in national GDP are not always experienced equally by everyone, it can be a good general indicator as to whether living standards are rising within a country.
Below is a brief overview of three countries to be (cautiously) optimistic about their future economic success in these uncertain and turbulent times. Far from being chosen at random, the policies or comparative advantages that these countries currently have may make them worth paying closer attention to as the 2020s progress.
Mexico: Distancing Itself From the Lost Decade
First up is Mexico, a country that has seen its fair share of challenges in recent decades, not least the high levels of violence due to political turbulence and the incredible power of drug cartels. All this was compounded by a debt crisis in the early 1980s that led to what is often referred to as “the lost decade.” Yet recently, Mexico has experienced impressive economic growth and the establishment of a new middle class.
An economic trend that Mexico may be able to take advantage of is the so-called reshoring of supply chains caused by the COVID pandemic. When COVID hit, it suddenly became all too apparent that many Western countries, including the United States, were heavily reliant on China for critical supplies, including Personal Protective Equipment (PPE) for healthcare workers. As Western relations with China have reached icy levels in recent years, there has been a call from governments to manufacture these critical supplies closer to home so as to not be vulnerable to any brazen action by an adversarial power. With an already well-established manufacturing industry along its northern border, Mexico could take further advantage of greater investment by American companies seeking to diversify suppliers away from China for goods that could be considered strategically important.
Another reason for optimism about Mexico is its burgeoning tech sector. Specifically, Mexico City has seen an ever greater concentration of startups in recent years and recently saw a company valued at over a billion dollars for the first time. With electronic equipment already representing a significant share of Mexican exported goods, a shift to include services could make Mexico ideally situated to service both the North American and Latin American markets.
Finally, economic inequality has fallen sharply in recent years, although it still has some ways to go. Much of this can be owed to a greater amount of the labour force moving from the informal sector to the formal sector, especially manufacturing which has seen impressive wage growth. If Mexico’s relative economic success is to continue, the government should utilize its geographic advantage and proximity to the American market, and be wary of overly ambitious economic reforms that risk derailing Mexico’s favourable position.
Indonesia: The Benefits of a Working-Age Population
Next up is Indonesia, a country of 270 million whose economy is forecasted to be the 5th largest in the world by 2030, up from 16th in 2020. Nearly every Southeast Asian country has experienced impressive growth in recent years, and there is general optimism that some of its members could be on the way to joining their richer East Asian counterparts.
Indonesia itself has emerged from the pandemic shock relatively unscathed. The country’s economy only shrank by 2% in 2020, compared to other national economies in the region, such as Thailand and the Philippines which shrank by 6% and 9.5% respectively. Moreover, the Asian Development Bank predicts Indonesia’s growth to be over 5% for 2022 and 2023, a positive outlook for breaking into the ten largest economies in the coming years.
To maintain this forward momentum, one area of importance that has been identified is taking advantage of Indonesia’s “demographic dividend.” Indonesia is the fourth most populous country in the world, and for the past two decades has been experiencing declining birth and death rates, meaning its population is currently in prime working age with fewer dependents to care for than in previous times. This positions Indonesia well to become a major global economic player if this large population can broadly be employed in productive sectors, a route similar to what China and its enormous population took as it embarked on its period of rapid development.
Indonesia’s main exports are still largely natural-resource based, including coal, gas, and most controversially palm oil. However, as a percentage of its overall economy, natural resources have been steadily declining, a positive for Indonesia to guard itself against volatile commodity prices and shocks. One way for Indonesia to diversify away from natural resources could be by seeking to put greater effort into manufacturing – an industry that has remained somewhat stagnant for the past decade. Doing so could help place its population in more productive roles, and eventually shift from predominantly manufacturing an assortment of food products and transport equipment to more high-tech industries like microchips and other advanced electronics – a route several East Asian countries took to great effect.
Bangladesh: Comparative Advantage in the Garment Industry
Lastly, there is Bangladesh, the small yet densely populated country of 167 million which is probably the biggest success story of the aforementioned countries. When it gained independence from Pakistan in 1971, Bangladesh was one of the poorest countries on Earth with little to no industry, education, or health services. Beginning in the early 2000s Bangladesh began to grow rapidly and is now neck and neck with India’s GDP per capita.
Many experts point to two key factors why Bangladesh has been one of the world’s fastest-growing economies in recent years: its garment manufacturing export industry, which is now the world’s second-largest behind China, and its investment in improving the social status and labour force participation of women. Garments and textiles are still a hugely important industry globally, and as labour costs in garment manufacturing in China rose, there was an opportunity for Bangladesh to step in and begin reaping the economic benefits of doing so. Much of the labour force for the garment industry is occupied by women, and enrollment in secondary education is now higher for girls than it is for boys.
In spite of this success, the garment industry in Bangladesh does remain a point of concern for many human rights activists with hazardous working conditions being the norm. If Bangladesh is to continue using this industry as a way to boost the living standards of its citizens, greater levels of transparency and safety will need to be present, as has already happened in small part.
Yet this still bodes well for continued future economic success, as Bangladesh has probably not come close to taking full advantage of an increasingly more educated population. Moreover, Bangladesh is not endowed with natural resources, and thus there is a greater incentive than there otherwise might be in other countries – including Mexico and Indonesia – to focus on increasing human capital. Similar to Indonesia, the trick in the coming years and decades will be making a successful switch to more complex industries than garments and textiles as wages and living standards rise, making these industries less economically viable.
The Importance of Cautious Optimism
These three are by no means an exhaustive list of countries that have experienced marked economic success in recent decades, nor is it a sure-fire prediction of their continued growth. Political crises, climate change, and global economic shocks like those currently being experienced are all pervasive risks that could derail much of the progress that has been achieved.
The reasons for the relative success of these three countries have not been uniform, with each playing to various geographic and demographic advantages that they find themselves with. Crucially, going forward the task will be to avoid the “middle-income trap”, where these countries are no longer able to grow their productivity and competitiveness and hence fail to reach the status of a fully developed state. But in an era full of risks to the global economy, these three countries have offered reason to be hopeful that such transitions can still take place, especially in defiance of historical shocks like that pandemic. Although the road for each of them is still long and arduous, these transitions are worth acknowledging and should be discussed with greater frequency and enthusiasm.
Edited by Bethlehem Samson
