They\u2019re known as the \u201cBRIC billionaires.\u201d They are the super-rich tycoons from the BRIC bloc of countries \u2014 Brazil, Russia, India and China \u2014 who have been snapping up companies worldwide in recent years.
In 2007 alone, Stelco Inc., Magna International Inc., Inco Ltd. and Alcan Inc. were all packed, whole or in large part, into foreign suitcases and carted out of Canada. On the international stage, Citigroup Inc., UBS, Morgan Stanley, Corus Group, IBM Corp., Maytag Corp. and Standard Chartered Bank have all sold substantial parts of their businesses to BRIC billionaires.
It\u2019s a global shopping spree that represents the largest transfer of wealth among nations in history. And it doesn\u2019t seem set to stop any time soon. The club of rich nations that dominated the world economy for the past six decades is now admitting new members.
Characterized as emerging economies by the World Bank in Washington, D.C., these are nations with gross national per-capita income ranging from $906 to $11,116. They are home to 84% of the world\u2019s population and 60% of the growth in global gross domestic product.
With economic growth hovering around 10% in the BRIC bloc and around 6% across the emerging economies, many of these countries are also home to swelling numbers of the world\u2019s rich.
\u201cThe axis of wealth and power is shifting,\u201d says Allan Conway, head of emerging-markets equities for money-management giant Schroders PLC<\/b> in London. \u201cIt\u2019s a straight reflection of the growing importance of these economies.\u201d
Of the 946 billionaires tallied worldwide in 2007 by Forbes<\/i> magazine, 178 were newcomers. These included 19 Russians, 14 Indians and 13 Chinese. There are now also 24 Mexicans on the list, whereas 20 years ago, Forbes<\/i> could identify only one Mexican billionaire.
\u201cEmerging-markets tycoons will continue to steal the spotlight,\u201d says the magazine\u2019s editor, Luisa Kroll, of the 2008 Forbes<\/i> list.
RECORD NUMBERS<\/b>
A record number of billionaires from the BRIC bloc are expected to surface when the magazine does its 2008 tally. \u201cOne of these countries,\u201d she says, \u201cwill also overtake Germany, the long-time No. 2 to the U.S., in terms of the nation that is home to the most billionaires.\u201d
Chances are that Russia will be the country taking Germany\u2019s place on the Forbes<\/i> list. Although all the BRIC bloc countries boast dramatic wealth statistics, Russia\u2019s wealth snapshot is extravagant.
With 50 or more billionaires on the lists compiled by the head counters at Forbes<\/i> and London\u2019s Sunday Times<\/i>, there are now twice as many super-rich in Russia as in Canada. That\u2019s an amazing development for a, until recently, deeply depressed country that had per-capita GDP of about $12,000 \u2014 or one-third the Canadian figure.
Beyond billionaires, in the broader category of high net-worth individuals with assets worth more than US$1 million, once again, Russia and Canada are a study in contrasts.
Growth in HNW individuals has decelerated in Canada to 6.9% in 2006 from 7.2% in 2005, while growth in HNW individuals in Russia has surged by 15%, according to an annual international survey of HNW trends produced by Paris-based Capgemini Group and Merrill Lynch & Co. Inc. <\/b> of New York.
The two firms attribute much of Russia\u2019s wealth boom to the strength of several major initial public offerings and the liberalization of the country\u2019s banking market. Share prices of several Russian banks experienced triple-digit growth in 2006.
In the U.S., the HNW population expanded by 9.4% in 2006, after growing by 6.8% in 2005. That\u2019s impressive \u2014 until you consider that India\u2019s HNW population expanded by 20.5% in 2006.
China is also host to a huge HNW boom. In October 2007, thanks largely to stock markets that have doubled in the past year, China was home to 345,000 millionaires, an 8.7% increase over 2006.
The Merrill Lynch\/Capgemini survey report estimates that in 2006, 9.5 million people globally each held more than US$1 million in financial assets, an increase of 8.3% over 2005. Globally, HNW wealth totals US$37.2 trillion, representing an 11.4% gain over 2005. The report suggests HNW financial wealth is expected to reach US$51.6 trillion by 2011, growing at an average annual rate of 6.8%.
Much of this growth can be traced to emerging markets registering strong advances in market capitalization, aiding wealth creation in regions such as Latin America, Eastern Europe and Asia-Pacific.
@page_break@Asia-Pacific was home to five of the 10 fastest-growing markets for HNW individuals, including Singapore, India and Indonesia. In these countries, the HNW populations grew by 21.2%, 20.5% and 16%, respectively, compared with the global HNW expansion of 8.3%. Korea and Hong Kong were also in the top 10 fastest-growing markets in the world.
Latin America\u2019s HNW population also grew faster than the global average, expanding by 10.2% in 2006, up from 9.7% in 2005. Wealth in the region grew by 23.2% in 2006.
In the Middle East, the wealthy elites of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates are flourishing, as the Middle East\u2019s HNW population expanded by 11.9% in 2006, up from a 9.8% growth rate in 2005.
$30 MILLION-PLUS<\/b>
In large measure, the HNW boom is driven by the world\u2019s wealthiest people \u2014 \u201cultra-high net-worth\u201d individuals, whose financial assets exceed US$30 million, the Merrill Lynch\/Capgemini report says.
In countries with relatively small per-capita GDP, such as India and China, \u201cthis sort of wealth is astronomical by most measures of their economies,\u201d says Raj Desai, a visiting fellow with the Brookings Institute in Washington, D.C., and a professor at Georgetown University\u2019s School of Foreign Service.
In 2006, the number of ultra-HNW individuals in the world is estimated to have grown to 94,970, an 11.3% gain \u2014 on top of a 10.2% gain in 2005.
This is a pattern that makes emerging-markets analysts such as Schroders\u2019 Conway wary. His view is that the massive accumulation of extreme wealth in a small number of hands represents a risk to the economies generating this wealth.
\u201cIt\u2019s crucial that you get trickle-down,\u201d Conway says. \u201cIf you don\u2019t see wealth trickling down in these economies, you will get instability. It\u2019s vital that the new rich reinvest in their economies. If you look at China and India, you see a strong record of that. Russia is something of an exception.\u201d
Desai feels the growing concentration of extravagant wealth in many countries is often the legacy of cronyism. \u201cThe extremely uneven playing field is of deep concern,\u201d he says. \u201cIn many of these plutocracies, \u2018crony capitalism\u2019 has high costs.\u201d
Desai doesn\u2019t deny that \u201ctremendous industrialization and economic growth has occurred,\u201d and that companies acting as \u201cnational champions\u201d in BRIC countries can act as locomotives propelling broader economic growth in much the same way as Korea\u2019s famous chaebols have done.
But often these companies are led by ultra-rich individuals who are offered inside deals on public assets, such as Carlos Slim, the enormously wealthy Mexican who has gained control of his country\u2019s telephone monopoly.
Companies controlled by highly connected political favourites are often less productive than companies created by genuine entrepreneurs.
\u201cThe evidence is mixed,\u201d Desai says, as to whether people made enormously rich through political favouritism \u2014 a common description for many BRIC billionaires \u2014 generally bestow economic benefits. \u201cWe did a survey and found that the most politically favoured companies are the least productive. But there are examples of people who have benefited from wealth transfers from the state who have gone on to build empires and raise capital under competitive conditions.\u201d
MAGNA DEAL<\/b>
Desai points to Russian billionaire Oleg Deripaska\u2019s Basic Element Group, which last year bought a major stake in Aurora, Ont.-based Magna International Inc. Basic Element is an example of a company \u2014 launched a decade ago amid evidence of corruption and cronyism \u2014 that now seems determined to help forge Russia\u2019s ongoing reindustrialization.
But tracking whether the BRIC billionaires are reinvesting the balance of their wealth at home or squirrelling it abroad is a tricky task. According to the Merrill Lynch\/Capgemini report, in 2006, large numbers of HNW individuals shifted their allocations from \u201calternative investments\u201d \u2014 including hedge funds, structured products, foreign currencies, commodities, private equity\/venture capital and derivatives \u2014 and into commercial real estate and REITs.
\u201cGlobal direct real estate transaction volumes reached US$682 billion in 2006, up 38% from 2005,\u201d the report notes.
Whether the swelling flow of wealth into real estate will prove beneficial in emerging economies is something that puzzles analysts such as Nancy Birdsall, president of the Center for Global Development<\/b> in Washington, D.C., and former executive vice president of the Inter-American Development Bank.
EYE ON MIDDLE CLASS<\/b>
Birdsall strongly recommends that investors concerned about the direction in which the emerging economies are being steered by their increasingly wealthy and powerful elites keep their eyes on data regarding middle-class income growth \u2014 even as they hear about the growing number of rich people in these countries.
\u201cYou can use the increase in the middle class in these countries as a proxy for their underlying economic health,\u201d she says, noting that the middle classes in mature economies act to enforce government accountability while driving consumption.
\u201cThe explosion of the super rich in emerging economies can lay the roots of political disaster,\u201d Birdsall warns. \u201cInvestors looking at the emerging economies should probably demand more information about the middle class in these countries than they do about
the rich.\u201d\tIE<\/b>
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