Creating long-term growth in emerging markets

The developed world is still suffering from a period of sluggish growth and wage stagnation.

The costs of doing business remain stubbornly high, and political uncertainty over the United States presidential election and post-Brexit situation in the United Kingdom and the rest of Europe is not giving investors more clarity in the medium term.

But today's fickle markets do not change the underlying factors that signal future growth in emerging markets. There are about 1.8 billion young people in the world between the ages of 10 and 24 - the largest youth population in history - and many of them live in developing nations. Provided with the right opportunities, this cohort's productivity will reshape the world.

Investing in emerging markets like Central and West Africa has long been seen as a "high-risk, high-reward" gamble, often focused on natural resources and commodities. However, volatile oil prices and environmental concerns have caused this to slow, and give pause for thought on longer-term opportunities in the region.

A new approach is needed, one where opportunity and responsibility are shared to create long-term sustainable growth in underdeveloped markets.

Take Gabon for example, a resource-rich country that has long been the target of global oil and mining companies, causing the foreign direct investment figures to appear relatively strong on paper. But the numbers do not show the sustainability and quality of this investment for long-term prospects.

In a word, the first approach can be summed up as reciprocity. The more a company puts into its local investments, the greater the returns will be for all. This means involving citizens in decision-making processes.

Second, paying attention to environmental sustainability. The extraction, production or manufacturing of any material for export is now coming under increased international scrutiny over its social and environmental impact.

Third, a deep awareness of the political and policy environment is always required. Understanding a country's ambitions for itself and where one's investment can play a useful part will always help its early success.

The final unifying guideline is to understand the place in which the investment is placed.

Every developing economy has distinct ways of doing business, and cultural attitudes that should be respected and understood. Tapping local expertise for insight is a necessity for any would-be investor.

The very nature of developing markets comes with a certain amount of risk. However, the long-term outlook for emerging markets remains positive. Favourable demographics and productivity point to a world with a growing future.

Gagan Gupta

A version of this article appeared in the print edition of The Straits Times on July 05, 2016, with the headline 'Creating long-term growth in emerging markets'. Print Edition | Subscribe