These are hardly easy markets: there are good reasons why they are underexplored. Mexico is wracked by a drug war. Saudi Arabia is a closed society. Frontier markets are by their very nature unpredictable—prey to the wiles of dictators and the whims of nature. But they present numerous things that are irresistible to the West’s growth-starved companies. They offer huge opportunities for investment in infrastructure. General Electric wants to provide Africa with the machinery that it needs to grow: any young GE-er who wants a chance to rise to the top has to spend some time working in Africa. IBM wants to provide the computing power.
Africa contains a disproportionate share of the world’s mineral wealth at a time when mineral prices are soaring. It also contains a disproportionate share of the world’s young people at a time when the West faces a demographic squeeze: by 2040 it will be home to one in five of them. Many local stockmarkets are booming: Egypt’s market produced annual returns of 39% between 2000 and 2008, in a period when the average return was 2%. True, this growth is volatile. But in 2011 an increasing number of companies, looking at the West’s flat markets, will decide that volatility is at least a sign of life.
Above all, the overlooked and frontier markets offer businesses a chance to get in on the ground floor. Companies that move first will enjoy lots of advantages. They will be able to forge deals with aggressive young companies: companies such as Angola’s Banco Africano de Investimentos, which is expanding in Europe and Brazil, and Egypt’s Orascom Telecom, which is expanding across the Middle East and beyond. They will be able to strike infrastructure deals with local governments. And they can shape the tastes of future consumers.
Companies that succeed in these neglected emerging markets are not only putting down roots in the world’s most fertile soil. They are giving themselves a chance to establish business habits for years to come.
Adrian Wooldridge The Economist (from the The emerging emerging markets)
