Colombia is one of the CIVETS, a set of six developing nations in which investors see particularly interesting potential. To meet this potential, Colombia’s priority should be the establishment of political stability.
Look up the word “civets” in Oxford’s English Dictionary and you’ll find the following definition:
“Civet – a slender nocturnal carnivorous mammal with a barred and spotted coat and well-developed anal scent glands, native to Africa and Asia.”
I presume that most people don’t know what a civet is, and that it wouldn’t make a very big difference in their lives if they did.
However, savvy investors should know about the CIVETS nations: Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa.
The term was coined by The Economist and made popular by HSBC CEO Michael Geoghegan in April 2010. He and many others in the international investment and finance community see CIVETS as the new BRIC (Brazil, Russia, India and China) in terms of potential growth in the decades to come.
While the BRICs have promising futures and are almost certain to continue to boast high growth rates over the next ten years and beyond, asset prices in these nations have already begun to reflect this positive outlook, causing many international investors to look beyond the BRICs towards CIVETS.
Like the BRIC nations, where China is the star of the group, CIVETS countries are also quite diverse and have very different economic profiles.
By looking at some key measures we can see how Colombia stacks up against its CIVETS siblings.
GDP per capita
GDP per capita measures the dollar value of all final goods and services produced in a given country divided by its average population for the year and it is a benchmark measure of a country’s economic progress.
As a country’s output per person increases, standard of living generally follows suit meaning that a relatively high GDP per capita usually translates to a relatively high standard of living.
The following figures are from 2008 according to the World Bank.
1. Turkey – $9,942
2. South Africa – $5,678
3. Colombia – $5,416
4. Indonesia – $2,246
5. Egypt – $1,991
6. Vietnam – $1,051
Foreign Direct Investment (% of GDP)
Looking at FDI as a percentage of GDP (in current U.S. dollars) is a good way to compare foreign investment across these six economies. These figures are calculated based on 2008’s FDI and GDP numbers as provided by the World Bank.
While all of the CIVETS nations have begun to attract significant amounts of foreign capital over the past few years, we can see that in some of these nations, namely Vietnam, FDI has played a much larger role in the economy than it has in others.
1. Vietnam – 10.6%
2. Egypt – 5.9%
3. Colombia – 3.8%
4. South Africa – 3.5%
5. Turkey – 2.5%
6. Indonesia – 1.8%
ETF Performance
An Exchange Traded Fund, as defined by Bloomberg, is “an investment product representing a basket of securities that track an index such as the Standard & Poor’s 500 Index. ETFs, which are available to individual investors only through brokers and advisers, trade like stocks on an exchange.”
You can think of buying into an ETF like buying a share of an entire stock index. For example, Colombia’s GXG seeks to mimic the FTSE Colombia 20 index by investing at least 80% of its funds in companies that trade on that index.
The funds’ year-to-date (YTD) returns (as of September 20, 2010) are as follows:
1. Colombia GXG: 41%
2. Indonesia IDX: 22%
3. Turkey TUR: 13%
4. South Arica’s EZA: 3%
5. Vietnam’s VNM: -5%
Egypt’s fund (EGPT) has only been trading since February of 2010 so a YTD return is not yet available. However, it has increased in value by roughly 3% over the last three months.
Digital Economy Rankings
The Economist Intelligence Unit’s Digital Economy Rankings are a measure of how well countries maximize the use of Information and Communications Technology (ICT).
The 2010 survey included 70 countries with Sweden, Denmark and the USA coming in first, second and third, respectively. Colombia came in third among its CIVETS siblings behind South Africa and Turkey in terms of “e-readiness.”
1. South Africa – 40th
2. Turkey – 43rd
3. Colombia – 50th
4. Egypt – 57th
5. Vietnam – 64th
6. Indonesia – 65th
Political Instability Index
The Economist Intelligence Unit’s Political Instability Index for 2009-2010, “shows the level of threat posed to governments by social protest. The index scores are derived by combining measures of economic distress and underlying vulnerability to unrest.”
Colombia and South Africa are tied for last place with the highest scores of the CIVETS nations meaning that they are the most politically unstable countries of the group with scores placing them, along with Indonesia and Turkey, in the “high risk” category. Vietnam and Egypt are both in the “moderate risk” range.
1. Vietnam – 4.3
2. Egypt – 5.4
3. Turkey – 6.8
4. Indonesia – 6.8
5. South Africa – 7.0
6. Colombia – 7.0
Adult Literacy Rate (% of people ages 15 and above)
According to the World Bank the adult literacy rate is, “the percentage of people ages 15 and above who can, with understanding, read and write a short, simple statement on their everyday life.”
By this measure, Colombia comes in at the top of the group alongside Vietnam. Adult literacy is tremendously important for the development of an emerging economy as the competitiveness of its labor force depends on workers’ abilities to quickly learn new skills and adapt in a rapidly-changing economic environment.
1. Colombia – 93%
2. Vietnam – 93%
3. Indonesia – 92%
4. Turkey – 89%
5. South Africa – 89%
6. Egypt – 66%
The Scorecard
In looking at these six criteria, Colombia fares well among its CIVETS siblings in terms of economic progress, attracting foreign investment, growth in financial markets, economic integration of technology, and literacy rate with an average position of 2.83 out of 6. However, political risk continues to be a threat to the nation’s economic future.
Politics will play a large role in the jockeying for position among the CIVETS nations and will more than likely define which one of these nations comes out on top of the group.
These are all diverse, very different countries with different industries and economic structures but they are all appealing in their own way.
Still, each of them also has its own unique challenges and difficulties to overcome in order to prosper in a globally competitive environment.
Whether it’s Colombia’s long-standing battle against leftist guerillas and drug cartels, South Africa’s deep social wounds inflicted by prejudice or Turkey’s struggle to integrate with the west, all of these nations must continue to press forward on all fronts – political, social and economic – in order to rise to their potential.