If your capital is considering a bit of international travel in search of sunnier returns, be sure to ask the locals. They always know the best places to invest
 

Investors and economists have various ways to determine the economic growth potential of a given country. They look at population growth, natural resources, levels of urbanization, infrastructure, export growth, manufacturing, the local stock market and other aspects. In deciphering a mountain of statistics, they often forget to ask the real experts: the locals. I have already written another column about flight capital, but there is an even stronger indicator: when the locals vote with their feet. For long-term growth this is perhaps the more important number, because although a local investor may seek other investment opportunities on a temporary basis, an emigrant is facing a major and very uncomfortable change in his life which is never undertaken without very serious consideration of his prospects at home. This is especially true for the best educated and most highly motivated.

Although wars and ethnic or religious persecution certainly create a fair share of refugees, most of the emigrants leave for economic reasons. A recent example is Greece. Greece has been sending its people in large numbers to various parts of the world for the past two hundred years. This emigration recently slowed until the crisis. Now with the economy in free fall, many skilled Greeks including successful academics and bankers have already left. Students are opting for study in other countries. Professionals are opting for advanced training abroad. Like most emigrants, they prefer countries with a strong diaspora like the US and Canada or Australia.

The Mexican emigration to the United States is another example. One in ten Mexican citizens lives in the US. Together with their US born children, they make up a population of 33 million. Prior to the year 2000, Mexico had little economic growth and less opportunity. Between 1995 and 2000 some 3 million Mexicans moved to the United States and only 700,000 returned. But that began to change in 2005, when the emigrants to the US started to equal the ones who went home. With slow growth in the US, and much more vibrant economy in emerging Mexico, the brain drain has moved into reverse toward Mexico. Migrants decided there was a much better economic future south of the border than in the north.

Most of the investment community sees the BRIC countries (Brazil, Russia, India and China) as hot beds of sustainable growth. This appears to be true if you look at many of the usual metrics. But the locals don’t see it that way. The citizens of Russia and China want out. Brazilians and Indians are far more interested in staying home.

A poll taken last year showed that 22% of the adult population of Russia would like to leave. Four years ago it was only 7%. The most recent number is even higher than the 18% who wanted to leave the mess left after the collapse of the Soviet Union. As usual the most motivated are often the most talented entrepreneurs and students. Almost a third of people aged 25 to 39 living in large cities earning five to ten times the average income want to emigrate. The best students try to get educations in the US. Once there 77% of the Russian science and engineering students stay back. The very rich have left as well. A study of 19 Russian businessmen with more than $50 million showed that 88% had moved their personal wealth abroad along with their families. The joke in Russia is that the Soviet government used to punish dissidents by expelling them, now they punish them by keeping them in.

The wildly optimistic view of Chinese growth prospects that seems to inhabit most investors’ imaginations is definitely not shared by those closest to it. This is true of all levels of society. A survey of Chinese merchants with personal wealth over $16 million showed that 27% had already emigrated and another 47% were considering doing so. They did not only take their talent, between 1997 and 2010 it is estimated that $2.7 trillion left China as well. The skilled professionals are also leaving. In 2010, the last year for which data is available, 500,000 left for OECD countries.

In contrast, the according to the locals, the prospects of India and Brazil are quite bright. Although there are 22 million Indians living all over the world the net migration over the past decade has been falling and there has been a sharp increase of people of Indian descent returning home. Like India, Brazil also has a large diaspora of 3.1 million people and 1.2 Brazilians go to the US every year, but as tourists not as immigrants. 

So if your capital is considering a bit of international travel in search of sunnier returns. Be sure to ask the locals. They always know the best places to invest.

Read other articles from William Gamble by clicking here.

(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and has spoken four languages.)