The writer is chair of Rockefeller International. His latest book is 『What Went Wrong With Capitalism』
With signs of a slowdown starting to surface in the US, India and other recent economic stars, many people are looking for the next promising growth stories.
The 「circle of life」 is one guide: it is the cycle of politics in which crisis forces reform, which generates recovery but then breeds complacency and decay. The cycle then starts again, crisis to crisis, ashes to ashes. At any point in time, a nation』s prospects can depend on where it stands in this circle.
Thus the stagflation of the 1970s led to free market reform in the US, the UK and China. The emerging world meltdowns of the 1980s and 1990s inspired the next big wave of regeneration, from Brazil to Mexico, Russia to Turkey. Flash forward to today, and there are crisis-driven changes for the better under way worldwide.
The Eurozone crisis of the 2010s generated reform — most dramatically in Spain and Greece. The shocks of the pandemic finally forced a financial clean-up in many emerging nations, including Argentina, South Africa, Nigeria and Sri Lanka. In all six of these nations, recovery is visible in rising stock markets and improving credit conditions.
These countries were forced to reform because their finances were stretched to the limit by the pandemic. They had to exercise budget restraint and that has now pushed the primary balance — a key measure of the government deficit focused only on spending — into the black. In coming years, they are on track to run a primary surplus for the first time since the late 2000s.
Each nation has its own style of restraint. Greece imposed spending cuts and tax rises big enough to reverse a record of chronic default that dates to its founding as an independent nation; this decade, its national debt has been falling sharply as a share of GDP.
Spain cut benefits for pampered pensioners but raised them for one of Europe』s largest impoverished populations — a calibrated approach that still produced significantly lower deficits and debt. And with talent hard to recruit in an ageing world, it is welcoming immigrants when much of Europe is closing its doors, and has eased rules on hiring, firing and part-time work.
Sri Lanka, which defaulted in 2022 amid its worst economic crisis on record, has radically restructured its system. It eliminated all subsidies and introduced higher taxes on property, inherited fortunes and the gambling industry.
Nigeria has also cut subsidies for fuel and raised government revenue by increasing oil production. The country has stabilised its wobbly currency by allowing the naira to trade more freely on global markets and largely eliminating the local black market.
Perhaps the most interesting case is South Africa』s Operation Vulindlela, a Zulu word for 「clear the path」. Designed to clear blockages in rail, road, water, and electric power systems, it has significantly reduced chronic blackouts.
The aim is to boost productivity — the key to sustainable long-term growth — rather than to keep artificially juicing it with government spending. Per capita income is set to increase in all these nations after falling or stagnating for years. The stock markets in these six countries have begun to reflect this positive turn, outperforming the global index by 20 per cent a year for the last two years. Over that time, Argentina and Sri Lanka are the world』s two top-performing markets in dollar terms.
Sovereign credit ratings have trended up for all but two of the six countries, and word on the street is that the other two — South Africa and Nigeria — may be in line for upgrades as well. The premium that investors demand to hold their debt is already falling sharply.
Nor is this list exclusive. Other nations reforming under duress include Turkey, Egypt and Pakistan. Germany is the latest illustration of the circle of life in motion: feted as a model 10 years ago, it got complacent, fell into disrepair, and by last week was pushing reform hard enough to lift market spirits across Europe. No success, or failure, is permanent.
There is no perfect nation, either. None of these budding stars are without flaws. South Africa』s growth is expected to triple in coming years but to just 2 per cent, far from dazzling. Argentina』s 「chainsaw」 reformer Javier Milei, having cut some 30 per cent from government spending, is as controversial as he is popular, bruised by a crypto scandal.
Still, particularly in an era of pervasive negativity and extreme polarisation, there is a reflexive tendency to find fault with any country and its leadership. Let』s not forget that when a nation has its back to the wall, it is often forced to carry out serious reform. And recovery follows. The cycle turns constantly, and the circle of life is always creating new stars somewhere.