Asia, Africa: engines of growth

The shift of economic power from West to East is inevitable as reflected by the survey conducted by Barclays Bank. The annual corporate global banking survey conducted by Barclays shows that banks are increasingly focused on Asia, as it is the leading region in terms of growth. The survey gathered responses from 200 bank executives. Its findings show that banks believe Asia is the hub of global trade, while North America and the EU countries lack the potential for significant growth in the foreseeable future. But, perhaps the most interesting findings of the survey are related to the future of worlds reserve currency. High growth rates in developing economies of Asia are largely driven by high exports, vigorous private demand and expansionary monetary and fiscal policies. This high growth rate has made developing economies the apple of the eye for most banks. The region has witnessed enormous development in business and there is still great demand for banking services. Banks believe that there is big market for consumer and wholesale banking in this region. However, it is noteworthy that some of the fastest growing economies of Asia have been driven by demand from other countries, instead of domestic demand. High reliance on exports to advanced economies leaves these Asian tigers at risk, especially during a time when the Western markets have cringed due to liquidity constraints and overall economic slowdown. Bankers are also keenly observing Africa, which is just behind Asia in terms of growth, with an aggregate increase in the continents GDP of 4.9 percent in 2010. If uncertainty in the region diffuses, this growth rate could jump to about 5.8 percent in 2012. The prospects for Africa are very bright since Africa is becoming more integrated in the global economy and African economies are consistently diversifying their trade partners. In 2009, China became Africas main trading partner, surpassing the United States. China, India and other developing nations are fast becoming vital trading partners for Africa. But opportunities for banks in Asia and Africa will come hand in hand with higher competition and unique challenges. The survey found that there is wide consensus among bank executives on the extreme competition in banking industry in coming years. This will make garnering increased market share a hard-fought battle for banks. The survey showed that the majority of respondents (61 percent) expect that the US dollar will remain the world reserve currency over the next 10 years. The core reason why most bankers voted in favour of the greenback may be the fact that it remains the most situated currency for corporations, central banks and governments. Innumerable debt securities and derivative instruments are also denominated in US dollars, building the case for the dollars continued hegemony as an international currency. To date, no other currency has this much depth when it comes to financial instruments. But, a significantly high proportion of respondents, i.e., 21 percent, believe that the Renminbi would become the reserve currency of the world in 10 years. This sentiment is strengthening since the sense of security that investors used to have in holding dollars as fading. With Americas federal debt approaching almost 75 percent of its GDP, more and more people are raising questions regarding Americas fiscal capacity to meet its obligations. This increasing sense of insecurity is apparent and symbolised by the downward trend of the dollar as a percentage of total reserve currencies. The shift of power from West to East has certainly opened new opportunities for banks and other industries, but, if the advanced economies fail to resolve their financial problems then the world would see a decrease in international demand which would directly affect the export-based developing economies; resulting in shrinkage of banking opportunities in Asia. The importance of advanced economies cannot be ignored as mentioned by heads of financial institutions, Barclays corporate - Matt Tuck, who contend that although focus on Asian and African economies is increasing; it is largely an attempt to reduce risk by diversifying into other markets. However, Tuck believes that Europe remains an incredibly important market for the banking industry. It appears that in short run, the dollar will remain the reserve currency of the world since there is no other currency with this much depth. But in the long run, prospects for the greenback appear fragile at best, since the sense of insecurity among investors and economies is increasing day by day.