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Vladimir Kvint 73 Vladimir Kvint3 FORMATION, DEVELOPMENT AND CATEGORIZATION OF THE GLOBAL EMERGING MARKET Key Defi nitions Origination of the Global Emerging Market Emerging1Market2(EM)3is a society transferring from com- as a New Economic, Strategic mand economy to economy strategically focused on mar- and Political Phenomenon ket relations, with the growing level of economic freedom, The GEM’s origination has no certain date. The term consistent integration into the global market space (GMS) “emerging stock market” fi rst appeared in books and pa- and with other parties of the GMS, expanding middle class, pers on fi nance in the end of the 1970s. It was originally improving the standard of living, strengthening social sta- described as stock exchanges, one’s own capital, debts and bility and tolerance as well as developing cooperation with securities market beyond the economically developed coun- multi-faceted institutions. tries.4 By that time there were already 43 such countries and Global Emerging Market (GEM) is a new strategic, eco- they had their national stock exchanges. The term “emerg- nomic and political phenomenon in the global market space, ing stock markets” mostly refers exactly to securities mar- encompassing emerging markets and their regional blocks kets of these countries. However, up to the beginning of the that, notwithstanding differences in a number of geopolit- 1990s there was no category to describe and characterize ical characteristics, are united by comparable risk levels, the maturity of national economies of these countries as a maturity of free market’s infrastructure, orientation of the whole. The original terms started forming at that time, re- vectors of strategic development of emerging markets in the fl ecting vague ideas of emerging markets’ (EMs) develop- direction of economic freedom and global integration. The ment, but yet not the global emerging market (GEM). Cat- GEM motivates further international economic and corpo- egories and defi nitions of such countries lacked fundamen- rate cooperation and competition. tal theoretical basis, generalizing their systemic research fo- cused on the analysis of the nature and special features of the countries with new market relations. Notwithstanding the fact that the GEM has been existing for about 40 years, the fi rst defi nition of the GEM and emerging markets was published only in 2009 in my book5 (which was later trans- lated into Russian)6, directly addressing this issue. For ex- 3 Foreign member of the Russian Academy of Sciences (USA), Head of the Financial Strategy Department at the Lomonosov Moscow State University, ample, International Finance Corporation (IFC) thought in Head of the Department of strategy, territorial development and life quality the 1970s and still thinks in 2017 that all countries with at the North-West Institute of management (The Russian Presidential Aca- GDP per capita below the minimum requirements of the demy of National Economy and Public Administration, Dr. Sc. (Econo mics), Professor, Honorary Figure of Russian Higher Education. Author of more World Bank for high-income countries are the emerging than 500 academic papers, including books “Strategy for the Global Market: countries. The current World Bank classifi cation of coun- Theory and Practical Applications”, “Business and Strategic Management”, tries by GDP per capita is as follows: “Global Forming Market in the Transition Period”, “Global Forming Mar- ket: Strategic Management”, “Originating Market of Russia”, “Capitaliza- 4 Park K., Agtmael A. van. (eds.) The World`s Emerging Stock Market: tion of New Russia” “The Russian Far East: Strategic Priorities For Sustain- Structure, Development, Regulations and Opportunities. Chicago and Cam- able Development” (co-auth) and others. Member of the editorial board of bridge: Probus Publishing Company, 1993. the Economics and Mathematic Methods magazine. Member of the Bretton 5 Kvint V. The Global Emerging Market: Strategic Management and Eco- Woods Committee (Washington) monitoring the World Bank, International nomics. N.Y.; L.: Routledge, 2009. Monetary Fund and WTO. He was awarded the Order of Friendship, the 6 Квинт В. Стратегическое управление и экономика на глобальном Order of Honor. формирующемся рынке. М.: Бизнес-Атлас, 2012. 74 Global World: System Shifts, Challenges and Contours of the Future. Reports World Bank’s classifi cation of countries by GDP per dation of which was also laid and described in my book of capita for 2006 and 2013 2009 mentioned above.4 The fi rst periodical printed media specially addressing Income 2006 2013 the research of EMs were presented at the World Congress Low income < $US 905 < $US 1,035 or less of Economic Management and Development, and the World Below average income $US 905–3,595 $US 1,036–4,085 Bank Group and the International Monetary Fund annual Higher than average meeting in October, 1994 in Madrid. For the fi rst time, the $US 3,595–11,115 $US 4,086–12,615 income world community focused its attention on EMs in Octo- High income > $US 11,115 > $US 12,616 ber, 1995 at the World Congress of Economic Management and Development, and the World Bank Group and the In- These fi gures show that according to one of the most ternational Monetary Fund annual meeting in Washington. integrated indicators – GDP per capita – the world econo- Also in 1995, the US Department of Commerce and the In- my has made a giant progress in the quality and standard ternational Trade Administration of the United States de- of living over the seven years. The income of the lower monstrated the understanding of the EMs’ new role and ar- middle class in the past became the income of lower-in- ranged the workshop “Beyond Borders: Big Emerging Mar- come people. The income considered high in 2006 became kets”. Argentina, Brazil, China, Hong Kong, Mexico, Po- the income of people with the income higher than aver- land, Turkey, Sooth Korea, South Africa and Taiwan took age in 2013, high-income class fi gure increased by US$ part in the workshop. Even before the start of the workshop, 1,500. This progress would have been impossible with- experts argued what countries exactly should be qualifi ed out the new level of economic cooperation’s integration as EM. Besides, the fact that EMs were a part of the global on the global market. This data also confi rms the contin- formation – the GEM – was hardly understood at the time. uing decrease of the gap between incomes of people in However, 20 years later it’s hardly arguable that EMs can developed countries and emerging countries. Strategists be grouped according to their general focus and long-term should appraise this dynamics for the strategized horizon development trend in the direction of economic freedom by introduction of the required coeffi cients. This will sure- and integration into the GMS. While some EMs can occa- ly help them provide the best view of the strategized ob- sionally deviate from such course (as Venezuela, Bolivia, jects in future. Zimbabwe, Uzbekistan) and the speed of the others’ move- When on the initiative of Antoine van Agtmael, IFC re- ment differs signifi cantly, fi nally all ways to the GEM lead named “Third World Database” and it became “Emerging to economic and even political freedom and improvement Stock Market Database”1 (which later appeared as two pa- of the quality of life. rallel indexes: S&P/IFC Emerging Market Index acceptable In order to determine the level of the country’s econo- for investments, covering 22 markets, and S&P/IFC Global mic maturity, the degree of its integration into the GMS Index, covering 33 markets2), IFC incorrectly equaled these and possibility of its referring to EM, strategists should re- two terms. Nevertheless even that was a step in the right fer to several sources. There is a fairly wide range of rank- direction of admitting the origination of a new economic ing, including international multilateral organizations, rat- phenomenon which was described and analyzed in detail in ing agencies and various research institutions. There are my book of 20093, directly addressing the Global Emerging several organizations and agencies regularly publishing ap- Market, in which this new category was fi xed. praisals and/or data acceptable for strategic analysis when assessing the country’s maturity. There are World Bank Maturity Appraisals Group, Moody’s, Standard and Poor’s (S&P), Fitch, Dun and Ranking for Emerging Markets and Bradstreet, Heritage Foundation, Wall Street Journal, Economist Intelligence Unit, Morgan Stanley Capital Inter- A single indicator, even so multi-faceted as GDP per capi- national Barra (MSCI Barra) and others among them. ta, cannot fully categorize EM. First of all, it’s very impor- Strategists should compare various agencies’ ratings, tant to view the vector and kinematics of this indicator’s fi nd discrepancies and understand reasons behind these changes as a whole. Exactly the direction of changes of the varia tions. In order to adhere to this practice, it’s required to standard and quality of living of the people had a signifi - have considerable theoretical knowledge and practical ex- cant impact on the maturity of the economies of these coun- perience. It’s absolutely necessary to emphasize the fact that tries. However, there are examples when certain states were all above mentioned agencies and organizations lack clear- categorized as EM but returned to their original category of ly defi ned systems for classifi cation of countries to ground developing and/or underdeveloped. For example, Zimba- their ranking, forecasts or assessments on. As a result, strat- bwe where the government changed political and economic egists should be very careful and conscientious when us- course and attitude to international cooperation. However, ing reports by organizations and agencies describing such even description of a country exclusively as appraisals of groups of countries as EMs, developing or developed coun- the GDP per capita vector does not create an adequate basis tries.

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