Two major sectors will outperform in emerging markets over the next decade: manufacturing and infrastructure. As Chinese and Indian workers become more expensive and Chinese and Indian factories seek to move up the value-chain manufacturing will once again spread out across countries. As they cede their “world’s workshops” title China will drive infrastructure spending and construction with its Belt and Road Initiative. While risks abound for both, we should expect these two sectors to outperform others.
For decades, China, and to a lesser extent India, has dominated global manufacturing. Yet Chinese and Indian wages have seen a drastic increase in recent years, pushing manufacturers to look elsewhere for cheap labor. According to a former World Bank Chief Economist, 100-million low skilled manufacturing jobs will leave China soon. Many of these jobs will go to Africa, which is in the early stages of a population boom, though other countries, such as Vietnam and Sri Lanka, will also benefit. China’s and India’s move into mid- and high-technology manufacturing will put them in competition with the developed economies. While their workers may be too expensive for low-skilled factories, they will be perfectly priced to attract mid- and high-technology manufacturers from the developed world, further bolstering emerging market manufacturing.
China has paired its manufacturing shift with an ambitious global infrastructure plan, the Belt and Road Initiative (BRI). The Chinese government has planned over $900 billion of investment in global infrastructure projects, such as railways through Central Asia and ports along the African coasts. While the goal is to facilitate trade, the building process will spark an infrastructure boom. As investment attracts investment, we should further expect other countries and businesses to add to the original $900 billion.
While risks such as corruption and war present significant obstacles to both these sectors, we should expect that market forces will ensure that low-technology manufacturing shifts to non-Chinese and Indian markets and that the Chinese government will see through at least a significant part of its BRI plan. Both will ensure that these two sectors outperform others over the coming decade.