Book Review – Breakout Nation: In Search of the Next Economic Miracles

Title: Breakout Nation: In Search of the Next Economic Miracles

Author: Ruchir Sharma

Publisher: Norton, W. W. & Company, Inc.

Website: http://breakoutnations.com/

Pages: 304

Cost: Rs.362

ISBN -13: 9780241957813

Reviewer: Namrata Shah

Breakout Nation offers a picture of state of economy in different countries across the globe. It highlights the author’s search to identify which is the next big nation that offers good investment opportunities for the investors. The book is divided into 14 chapters. Each chapter provides synopsis of economic event and social profile of each country over past three – four decade. Sharma has added humor to its analysis by providing a unique and catchy adjective to each country’s name as chapter title like ‘the Great Indian Hope Trick’.

To identify ‘Breakout Nation’, Sharma focuses on two parameters: growth rate of the country and whether the country is in advantageous position to grow at rapid speed than its peer with similar per capita income. Thereby it builds a road to analyze each country for coming years.

The book is dedicated to most growing economies across Asia (China, India, Indonesia, South Korea, Taiwan, Philippines, and Thailand), Latin America (Brazil, Mexico), Eastern Europe (Turkey, Czech Republic, Poland, Russia and Hungary) and Middle East & African countries like South Africa. Sharma also identifies some fourth world Countries like Nigeria, Sri Lanka and Vietnam, which would take longer than emerging market countries to be breakout nation.

Sharma has accompanied number of parameter of success with unconventional metrics to identify the next Breakout Nation. Some of the measure includes GDP growth, per capita income, total debt as percentage of GDP, friendliness of foreign policy, tax rate, proportion of export and dependence on foreign investment.

It also analyzed the state of economy by distribution of wealth within the country (number of and proportion of wealth with billionaire and millionaire in the economy, how long an individual remains to be billionaire, millionaire), proportion of GDP spent on consumption and investment. With respect to demographic, Sharma considers the trend in population, along with skill, productivity and employability of youth. The development of financial sector, functioning of legal system in the country and availability of basic infrastructure are also regarded as factors driving economy’s growth. From political point of view, political stability, and ability of political leader to drive changes are important for long term growth of country. The economic factors like whether the currency of the country command premium or discount compare to currency of other emerging markets are also analyzed. Further, the author provides a convincing explanation to each of the selected metrics for evaluation.

Sharma highlights different economy by drawing parallel of its current state with the past state of other country in similar situation. Also, the economic scenario of each country is compared to “Rule of the Road” (as quoted by the author) – the dated rules (that is, the performance of other economies in similar situation) and whether they are relevant in today’s scenario.  Few ‘Rule of the Road’ pointed are:

  • While analyzing Chinese economy, Sharma highlights the importance of good governance and capability of political leader to drive growth. He is neutral to either form of government – democratic and communist.
  • Though India have an advantage in form of English speaking population, high proportion of youth  and entrepreneurial zeal, the lack of infrastructure acts as a major hindrance for its growth.
  • The balance economy’s growth was analyzed in case of Indonesia and importance of population residing in second city in the country must be lest one-third of first city was noted.
  • The sign of national weakness was bought to notice in case of South Africa, as local companies prefer to invest abroad in spite of large local market.
  • Normality and regional balance in economy is required to sustain growth. Excess of any particular thing, even excess reliance on export makes the economy loop-sided and increases the vulnerability to fall if quantum of exports falls, as seen in case of Thailand.

Sharma highlights that all the emerging markets are at different stage of their economic growth and have different set of challenges to overcome to be a Breakout Nation

According to Sharma major issues faced by BRICS nations are: Brazil (excess reliance on commodity), Russia (nexus of oligopolies and politicians, graying population), India (poor infrastructure, ineffective government policies), China (aging population) and South Africa (non-willingness to invest in home country). Accordingly, he is of opinion that BRICS nations have to overcome some social and political issues before they can be next Breakout Nation. Among BRICS nations, Sharma is positive about China and highlights 50% chances of India.

Sharma’s Gold medal goes to South Korea as he is of opinion that the Country has reinvented itself in face of adversity and is positive about its growth and capability. Other Breakout Nations identified by Sharma are Czech Republic, Turkey, Poland, Thailand, China and Philippines.

–          N S

About IAIP

India Association of Investment Professionals (IAIP), which is established April 2005 and located in Mumbai, is an association of local investment professionals. As one of the 136 CFA Institute member societies, IAIP connects members to a global network of investment professionals. Consisting of portfolio managers, security analysts, investment advisors, and other financial professionals, IAIP promotes ethical and professional standards within the investment industry, facilitates the exchange of information and opinions among people within the local investment community and beyond, and works to further the public’s understanding of the CFA designation and investment industry.
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One Response to Book Review – Breakout Nation: In Search of the Next Economic Miracles

  1. I have not read the book – but it seems to be an “eagle’s view” glance after seeing his comments on South Africa.
    The reason that off shore investments are happening is not due to lack of investments in South Africa (which is a small reason) but more importantly because only South Africa has the investment infrastructure and capital raising credentials to sustain investment into Africa. Additionally most fund managers who come to Africa are from Europe of UK and prefer to stay in South Africa – as that is akin to a European lifestyle given SOuth Africa’s world class infrastructure. This coupled with South Africa’s strong legal system makes South africa the gateway for Investments as far as Kenya, Nigeria or Ethipoia.
    Hence a top level analysis will show Investments going out of South Africa – but a detailed analysis will show that these investments were never meant to be for South Africa.

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