Government backed enterprises are more competitive

Emerging market countries are using state owned companies and sovereign wealth funds to increase government control of their economies and strengthen the ruling elites, warned Eurasia Group.

The 2008 financial crisis has prompted many developing market economies to question the basic premise of the free market, claims the group in a new report. In Russia, for example, the government has assumed control over a number of strategic industries, whilst Brazil has intervened in the oil sector. This process gives state-backed firms a competitive edge, warned the research, particularly when they compete for deals in other emerging markets.

In major oil producing countries, for example, companies will have to partner with a national oil company to gain access to resources. In addition the research warned that foreign brands may face greater scrutiny. Governments could seize on quality issues with foreign produced products so that state backed local rivals can take advantage. Or they might encourage a boycott.

A better understanding of state capitalism will help companies protect themselves against this blurring of the line between politics and markets, argued Eurasia Group.

PLUS: A slide show of the Top Ten Global Risks