Renaissance Capital: The revolutionary nature of growth entrenches democracy

Groundbreaking report by Research team tracks GDP to “immortal democracies”

Economies underscore that change is due in Russia and China

Renaissance Capital, the leading emerging markets investment bank, has issued a groundbreaking report that analyses 150 countries and 60 years of history, and concludes that rising levels of wealth are entrenching democracy in many emerging markets.

According to the report, Russia is highly likely to become a strong democracy within the next few years; China will become a democracy by 2017; and Kenya and Ghana are set to follow Nigeria towards ever-safer democracy levels.

It concludes that trade and investment in “non-democracies” should be increased, rather than imposing sanctions on them.

“Political risk can be measured. Revolutions can be predicted,” said Charles Robertson, Renaissance Capital’s Global Chief Economist and the report’s lead author.

“There are sufficient data on political history to give us guidance on which countries are most likely to make the shift from autocracy to democracy, and when. We can also look at the risks along the road to democracy that might see a country temporarily become an autocracy again.”

The report asserts that democracies are “immortal” above the per-capita GDP level of $10,000, which probably now includes Mexico, Brazil and Turkey, as well as all EU member states and South Korea.

It notes that autocracies have less chance of becoming democracies than vice-versa up to the $3,500 per-capita GDP level; and that rising income levels will lead to democracy unless the country is an energy exporter.

“Controversially, it would appear that trade, investment and even tourism to foster growth is a better policy option than sanctions for Western governments hoping to promote democracy in non-energy exporting states,” the report concludes.

“To put it in per-capita income terms, once we have fed ourselves, housed ourselves and are thinking about buying a car, we begin to demand political rights,” adds Robertson.

While economic growth is considered the fuel for democracy, the report analyses what will happen if it does not continue, and looks at the impact of food and oil prices on the growth trajectory in emerging, and even developed markets.

The key findings of Renaissance Capital’s report are that: 

Only five democracies above the $6,000 income level have “died”.  Democracy is most fragile at the lowest income levels, and when incomes are shrinking.  High levels of wealth protect democracies, but they threaten autocrats.        

China has entered a dangerous political period, with per-capita GDP at $6,200 (2009).  Russia is now the richest “weak” democracy in the world, and there is close to a 30% chance of it becoming a strong democracy in any given year (although Russia remains its own unique case).

About Renaissance Capital (www.rencap.com)Renaissance Capital is a leading investment bank focused on the emerging markets of Russia, CIS, Eastern Europe, Asia and Africa.

The Firm also offers its clients access to these markets through financial centers such as London, New York and Hong Kong.

Renaissance Capital has market-leading positions in each of its core businesses - M&A, equity and debt capital markets, securities sales and trading, research, and derivatives.

The Firm is building market-leading practices across emerging markets globally in metals & mining, oil & gas and agriculture. Renaissance Capital is part of Renaissance Group