Fastest Growing Economies that are Ripe for Political Violence that Your Business Should Watch
A major challenge faced by countries with growing economies is the disparity between the wealthy and the poor. Money isn’t distributed evenly in growing economies, and the process of poorer people benefitting from growth can take decades, or it may never happen at all.
Various experts and studies have offered theories about the ramifications of income disparity. Alan B. Krueger, President Obama’s former chief economic adviser, promoted the theory known as the “Great Gatsby Curve,” which indicated wide income gaps increased the chances of poor children growing up to become poor adults.
British researchers Kate E. Pickett and Richard G. Wilkinson argued that inequality leads to negative effects on health and mental illness. They also said it promotes crime, and leads to obesity and teen pregnancy.
According to The World Bank, excessive inequality affects quality of life by leading to more poverty, which impedes progress in health and education while also resulting in increases in crime.
Other risks include political instability because if enough people are dissatisfied with their economic situation, it’s difficult to find consensus among wealthier and poorer citizens, and among the populations whose policies affect the two groups in different ways.
High inequality can limit a government’s ability to introduce increases in costs of such services of electricity and clean water. That increased revenue could be needed, but the slightest increase in such essentials could send a country’s poorest residents to extreme poverty.
One of the key measures of income inequality is the “Gini coefficient.” Developed by Italian statistician Corrado Gini in 1912, the Gini coefficient compares income distribution in a society. A zero on the scale would mean everyone in a society is equal, while a “1” would mean the society’s entire income would be earned by one individual. While countries with a high Gini coefficient signals a growing economy, they are potentially political hot spots that business should monitor. In general, a Gini coefficient of around .25 is considered low while 0.40 signals an unbalanced economy and a red flag for a nation in turmoil.
Here are some of the key countries around the world with high Gini coefficient numbers.
South Africa. Since the end of the apartheid era in the 1990s, South Africa has emerged as a growing economy with its manufacturing, agriculture, communications and tourism sectors. But inequalities from the apartheid era remain, as noted by the country’s .660 Gini coefficient, the highest in the world. The income gap has widened, with 60 percent of people making less than the equivalent of 7,000 U.S. dollars per year, and about 2 percent making the equivalent of $50,000. The African National Congress has instituted policies aimed at closing the gap, but black citizens in South Africa make up 90 percent of the country’s poor while being nearly 80 percent of the population.
South Africa may have likely seen the effects of income disparity during its August elections when the African National Congress, the party of Nelson Mandela, won 53.9 percent of votes. That’s still a majority, but it’s the first time it received less than 60 percent since all races could vote in elections, beginning in 1994. The increasing numbers of young voters, who didn’t live during apartheid and who are most anti-government and willing to participate in demonstrations.
South Africa has endured years of weak economic growth, high unemployment, sustained inequality and frequent “service delivery protests” — citizen demonstrations meant to express dissatisfaction with the provision of municipal services such as water, sanitation and electricity. The ANC’s current leader, President Jacob Zuma, has also been embroiled in a series of widely publicized corruption scandals.
Haiti has a Gini coefficient of .592. The World Bank has reported that Haiti’s rate of extreme poverty is declining, but 80 percent of the population lives in poor, rural areas, and 38 percent cannot meet its nutritional needs. The richest 20 percent takes home 64 percent of Haiti’s income. The World Bank is calling on the Haitian government to do more to help its citizens escape free poverty. These include investment and providing such basic needs as clean water to poor citizens.
Honduras’ income disparity is large, based on its .574 Gini coefficient, and economic growth has been sluggish since the 2009 coup that removed Manuel Zelaya from power. Current President Juan Orlando Hernandez was elected in 2013. The country has seen protests against perceived corruption in the government and police force. The country’s leading export is coffee and mineral resources.
China. With a Gini coefficient of .550, China has one of the highest wealth gaps in the world. Since 1980, the Gini coefficient number has grown significantly from .300 to over 0.5, which is considered “severe disparity.” According to a report by the Financial Times, the poorest 25 percent of people in China possess just 1 percent of wealth in the country. Peking University’s Institute of Social Science Survey is calling for increased taxes on the wealthy and increased spending on social programs.
Hong Kong has one of the largest gaps in the world when it comes to the rich and poor. With a Gini coefficient of .537, the country has seen protests, particularly by students who can’t get jobs and are afraid they won’t be able to build a future. Although Hong Kong raised its minimum wage in 2014, minimum wage workers take home only about $600 a month (in U.S. dollars). Hong Kong’s Gross Domestic Product has increased by 60 percent over the last 10 years, but the earnings haven’t matched that, at just 30 percent.
Colombia. Colombia’s Gini coefficient remains high at .535, but many experts say the future looks bright in the country in northern South America. The country has long been volatile with civil conflict that has killed thousands over the decades. Still, Colombia has seen some success in the fight against poverty. Since 2012, more than 6 million people have escaped poverty levels and more Colombians are considered middle class than in poverty.
Belize has a high Gini coefficient at .531. The country has the second-highest per capita income in Central America, but income disparity between rich and poor is significant with four out of 10 people in the country living in poverty. Belize has strong exports in marine products, citrus, cane sugar, bananas and clothes. Oil discoveries about 10 years ago have helped, but growth remains slow, and the country struggles with public debt.
Guatemala’s Gini coefficient of .524 reflects a country where 75 percent of people live below the poverty line, according to the World Bank. Poverty is at its highest in rural areas among poorly educated and indigenous populations. Land distribution is a concern, with just 2.5 percent of the country’s farms controlling 65 percent of farmland. The Gini coefficient number for land distribution has been calculated at .859, according to the World Bank. The country has strong imports in coffee, sugar and bananas, and the enactment of the Central American Free Trade Agreement in 2006 has resulted in increased investment in Guatemala’s export sector.
United States. America’s Gini coefficient of .469 represents a large gap for the world’s wealthiest country. When you factor in returns from investment, something that benefits the wealthy and which the poor don’t take advantage of, the gap becomes wider. Income inequality was the driving force behind Bernie Sanders’ bid for the presidency. Protests during the democratic convention in Philadelphia illustrated people’s frustration. Meanwhile, republican nominee Donald Trump has built his campaign largely on blaming the loss of jobs on the U.S.’s trade deals.
Malaysia. According to a 2004 report by the United Nations Human Development, Malaysia has Southeast Asia’s largest disparity between rich and poor. But its Gini coefficient has gone down at a rate of 1.32 percent per year from 2004 to 2014, now standing at .401. The country’s industrialized market is drawing investors in such sectors as technology, defense, oil and gas, tourism and finance.
Companies looking for investment opportunities should consider the fastest growing economies in the top 10 emerging markets and develop strategies to manage risk and maximize ROI in these emerging markets. Expats and individuals working in international business should monitor political violence.
Doing business in these hot spots requires insurance protection because of the risks of political unrest, crime and other factors. Clements’ risk assessment guide has up-to-date information on safety and security, terrorism, and health risks that can affect doing business in these emerging markets. Businesses should secure coverage to protect their organization and employees with war and terrorism and political violence insurance.
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