Wednesday, May 22, 2013

China’s and India’s dominance on saving and investment in 2030

The latest Global Development Horizons, published by the World Bank, report titled ‘Capital for the Future: Saving and Investment in an Interdependent World’ projects developing countries’ share in global investment to triple by 2030 to three-fifths, from one-fifth in 2000. It states that improvements in institutional factors will co-evolve with ongoing regional and global integration of developing countries’ financial markets, rendering developing countries much more significant sources, destinations, and potentially also intermediaries, of global capital flows.

By 2030, half the global stock of capital, totaling $158 trillion (in 2010 dollars), will reside in the developing world, compared to less than one-third today. Also, the report estimates the developing world’s infrastructure financing needs at $14.6 trillion between now and 2030.

China and India will be the largest investors among developing countries, with the two countries combined representing 38 percent of the global gross investment in 2030, and they will account for almost half of all global manufacturing investment.

The report notes that productivity catch-up, increasing integration into global markets, sound macroeconomic policies, and improved education and health are helping speed growth and create massive investment opportunities, which, in turn, are spurring a shift in global economic weight to developing countries. It finds that:
  1. Developing countries’ employment in services will account for more than 60 percent of their total employment by 2030 and they will account for more than 50 percent of global trade.
  2. This shift will occur alongside demographic changes that will increase demand for infrastructural services. Indeed, the report estimates the developing world’s infrastructure financing needs at $14.6 trillion between now and 2030.

South Asia: Saving and investment 
  • One of the highest saving and highest investing regions until 2030.
  • In a scenario of more rapid economic growth and financial market development, high investment rates will be sustained while saving falls significantly, implying large current account deficits.
  • By about 2035 is likely to have the highest ratio of working- to nonworking-age people of any region in the world.
  • The region’s share of total investment in manufacturing expected to nearly double, and investment in the service sector to increase by more than 8 percentage points, to over two-thirds of total investment.
Policy implications
  • National policy makers seeking to support investment activity in their economies should concentrate their efforts on establishing a favorable investment climate.
  • Financing for infrastructural projects will pose a major challenge. To meet their future infrastructure financing needs, policy makers in developing countries will need to leverage private sector financing through public-private partnerships as well as tap structured financing from global capital markets.
  • Governments will have to sustainably manage public finances with an eye toward the forthcoming demographic changes.
  • Demographic shifts due to changes in household structure will increase the importance of financial markets in providing for income support during old age.
  • Policy makers in developing countries have a central role to play in boosting private saving through policies to raise educational attainment, especially for the poor.
  • Policy makers will need to prepare for a greater role of capital markets in international financial intermediation and promote the development of domestic capital markets.