As globalEDGE has discussed in the previous posts for this month’s blog series, not only are frontier markets growing extremely fast, they also have a lot of systematic risks. These risks can range from extremely prohibitive government regulations to a communist run government that feels it’s appropriate to expropriate private assets when it deems necessary. To transition to a stable growing economy these countries must remove these risks and increase its population’s education and consumption. These will create sustainable investment opportunities and the increase in consumer spending will continue to fuel economic growth.
All of the frontier markets have extremely diverse cultures, and are suffering from different issues in different stages of transition. Some examples include (growth rates for 2007, 2008, 2009):
Colombia (7.5%, 2.4%, 0.5%)
Most known for being a center for illicit drug trading, the country is now trying to rebrand itself as a tourist destination and a supporter of biofuels. However, rebel forces are still a threat and the Colombian government must still take steps to ensure that nuclear weapon making material do not fall into their possession.
Romania (6%, 5.8%, -8.5%)
The Romanian judicial system is known to have about 5,000 people per judge and the number of judges has been growing very quickly. At first glance this seems like a very good thing however, recent reports suggest that this is because of inefficient allocation of human resources and is not helping the system. There are undoubtedly more inefficiencies in the government that must be fixed to make it streamlined and conducive to business investment.
Kenya (7.1%, 1.7%, 2.2%)
For many years Kenya has had a very unreliable infrastructure and their high tariffs on electricity have made many multinational companies leave the country. To fix this problem the government has created Vision 2030 – attain 100% electric connectivity by 2030. This project is making massive investment in electric infrastructure and is helping revive the telecom, tourism and agricultural industries.
UAE (6.1%, 5.1%, -0.7%)
The UAE Minister of Higher Education recently noted that the UAE has managed to position itself as a leader in developing a knowledge-based economy during a short period of time. The country has found the perfect balance between adopting international educations standards and retaining their national identity. This has led many graduates to stay in the country and help their industries prosper.
Vietnam (8.5%, 6.2%, 5.5%)
Vietnam currently has a steady flow of young people and a small population of older people. This creates an increasing amount of consumers to buy your products and less retirees for the country to support.
Regardless of what country your business is thinking of expanding into, you must research the current issues of the country and what they are doing to promote education, governmental reform, and new industries.