The relativity of emergence

On the International Finance Corporation (IFC) website can be found the results of a survey conducted by Angus Maddison, a leading British economist. He traced countries' and regions' contributions to world GDP over a timeframe reaching back hundreds of years. The results are fascinating. For example: one of the most notable trends over the last 200 years has been the economic decline of China and India (a decline they are just now starting to reverse). In 1820, China's contribution to world GDP was around 30 percent and India 15 percent. By 1950, these figures had fallen to just a few percent each. In 2000, China had climbed back up to around 12 percent and India 5 percent.

Above all, what Maddison's research demonstrates is that growth rates wax and wane, and that relative economic power over the long term is constantly changing. It is possible not just to transition from an “emerging” market to “emerged” but also to slide from “emerged” to “declining” (and then possibly back to “emerging”). In the wake of the most colossal economic forces having been unleashed since the Great Depression of the 1930s, this is an interesting observation. When people talk of a transfer of power from West to East in the wake of the Crisis, this should not be dismissed as fanciful talk. Such tectonic shifts don't happen overnight – but they do happen.

In this issue of PEI, our focus is not quite as “big picture” as we scrutinise in close-up the current state of all the key emerging markets around the world in a private equity context. Nonetheless, we can get some sense of dynamic forces at work. Take Brazil, for example. In Sao Paolo, David Snow sat around a table with four of the leading local private equity professionals and found plenty of evidence of a market in transition. Turn to page 33 to find the reasons why. In neighbouring Mexico, there are also positive forces at work, with pensions able to access private equity for the first time. Elsewhere, emerging markets face challenges. Progress is not seamless – and it's clear from our discussions and research that the Crisis has done its best to knock confidence.

In the developed private equity markets of Europe, the big “emerging” theme (apologies for that less than seamless link) is regulation. PEI recently took the opportunity to meet with new EVCA chairman Richard Wilson to discover his views on the controversial EC Directive, which will eventually usher in a new framework within which the private equity industry in Europe will be forced to operate (see p.24). Wilson's task is to help make sure that framework is one that he and his peers can live with.

We would like to wish our readers a wonderful holiday season. Here's to 2010.

Andy Thomson