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My pick for word of the year 2013 is: “taper”. This modest word — better than the conceited “selfie” or the annoying “twerk” — did more to bring us together as a global community than any other. The beauty of the taper is that, like Godot, it didn’t actually have to make an appearance to make a difference. In fact, it is now, in 2014, that the US central bank will actually begin the tapering, a winding down of the biggest monetary experiment in history. The experiment may have started as a way to juice-up the American economy with increased money supply, but it had an even more dramatic impact on economies elsewhere. Fuelled by speculators awash with cash and chasing quick returns, “hot” money had flooded emerging markets in past years. The year 2013 was when this flow abruptly reversed direction, in anticipation of the experiment’s end.
Even without the impending taper’s destabilising spell, conditions were ripe to make 2013 a year of tumult for emerging markets. The taper threat served to put three essential truths about these markets into focus.
To begin with, context matters. In much of the emerging world, the “emergence” of the past few years has been concentrated in selective sections of the populations. Moreover, all the dramatic positive developments had primarily been in aggregate GDP growth statistics. A quick scan of the World Bank’s ease of doing business rankings, for example, offers a measure of how far the most celebrated of emerging countries are from being truly complete societies. China, the world’s second largest economy, leads the BRICS pack and is ranked 91st in the world, while India, the world’s third largest economy in purchasing-power-parity, brings up the BRICS rear at 132nd. The contexts surrounding the economic oases — comprising political, legal and other governance systems, the state of human development, of the capital markets, of the environment or of the infrastructure — have barely kept pace. Corruption scandals, factory collapses and fires, and sluggish reform agendas dominated the headlines the past year. This two-speed emergence has created an unsustainable imbalance. The year 2013 was distinctive in a marked slowdown across much of the emerging world and revealed a fundamental axiom: bad context will eventually trump the best business opportunities.
Second, the last decade’s marketing labels don’t matter. Speaking of the BRICS, it is time to stop speaking of it. The packaging geniuses at the investment banks stopped peddling BRICS or CIVETS in 2013 and used the taper talk to tape together a new package, the “fragile five”: Brazil, India, Indonesia, Turkey and South Africa, or BIITS, if you insist. They continued…