Frontier Markets


outstretched

Recently we’ve done a number of articles on emerging markets ranging from Sierra Leone to Thailand. Their are a large number of businesses that operate in these markets or wish to operate in these markets, so which ones are promising and which ones are not? Recently Bloomberg Businessweek came out with an article titled China Lone BRIC Among Top Emerging Markets, while the article talks a great deal about China, it also talks a lot about other emerging markets. It mainly talks about a different group of emerging markets, known as frontier markets. These places are essentially markets that are considered  too small or illiquid for most investors. However, these markets are essentially the next set of emerging markets similar to what places like China and India have become.

Doing business in these markets is usually more difficult and onerous, but their is also much more growth in these markets. The Bloomberg Frontier Markets Index ranked Vietnam at first among the frontier markets, the United Arab Emirates came in second, while Bulgaria and Romania tied for third place. According to Bloomberg, the leading country among frontier markets has been expanding faster than most emerging markets. Vietnam’s GDP has grown 7.2 percent annually on average since 2000. While stocks in the emirates of Dubai and Abu Dhabi trade at some of the cheapest levels worldwide.  It is likely that businesses will start to focus their attention on these newer, smaller, and faster growing markets as the BRICs start to slow down in growth, as they already have.

While China continues to post growth levels that most economies would consider phenomenal, their are already some cracks that are quite visible. The property sector is at the very heart of China’s economy and it has begun to stop growing as the government tries to keep prices down, and fears of a hard landing pick up. While demand for Chinese exports are decreasing as Europe, China’s most important market, is struggling with the Eurozone crises. Plus, it is widely known that official Chinese growth figures are heavily fabricated by government officials. Russia as a BRIC has proven completely inept at living up to its name, with growth rates widely fluctuating and endemic corruption sapping most of its economic vigor. You can read more about the problems with the Russian economy, by reading our Trade in Russia article. While both India and Brazil suffer from high inflation and few economic reforms, due to poor governance. So it is likely that while the BRICs will continue to grow, their will be more promising markets else where.

Which is why Frontier markets are where businesses will find the most growth and stand the best chance of capturing more market share, since these markets are not as crowded as the BRIC markets are. These markets are essentially where the BRIC economies were a decade ago. In talking about the other Frontier markets, Bloomberg Businessweek says the following, Thailand scored well on the index because it’s attracting investors with its agricultural wealth and industrious workforce. Peru, which has grown an average of 5.7 percent annually during the past decade, will benefit from a surge in consumer spending across South America, says Mark Mobius, who oversees about $45 billion as executive chairman of  Templeton Emerging Markets Group. So essentially while the BRICs may be bigger, they are pretty much “settled” as new markets. Its the Frontier markets that businesses can focus on next.

-Jay Zadey

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