If you have read Gavin Serkin’s “Frontier: Exploring the Top Ten Emerging Markets of Tomorrow”, then you are very favoured. But if you have not, then let me be the privileged one to fire the first shot in your direction.
The book is a gripping, powerful tale of the future flow of wealth and investment, told in a convincing free-flowing gusto and which certainly pulls some lever on how an investor should think about his next destination. It is an absorbing story of ten countries whose face value looks deadpan, but hides underneath a massive pot of possibilities.
They are countries less developed than emerging markets with smaller market capitalisation and liquidity, and tend to have a lower correlation with price movements in other emerging or developed markets.
They are all considered “safe” because they have lower debt and higher foreign exchange cash piles in relation to GDP and boast enormous reserves of natural resources, including young populations. Their stock exchanges thrive with returns; businesses innovate amidst the chaos and one thing common amongst all is the desire to introduce market mechanisms to boost economic growth and development.
Gavin amazingly travelled through the ten countries (from Kenya to Myanmar to Ghana, Sri Lanka, Egypt, Romania, Nigeria as well as Saudi Arabia, Argentina and Vietnam) and captured the uncertainties often reflected about these countries in a rather surreal form. The sheer industriousness in his effort is exhausting: so much commitment, so much coordination, thousands of kilometres travelled and scores of people met along the way packing so much belief and hope.
It is interesting how he uses the visible facts about a country to take it apart and then knit carefully together the positives they present to underscore the unwavering belief in the potential they hold.
The people he meets on the journey tell the positive stories and not just him affirming what many in the country want to see happen already, but them seeing it happen. The transfer of economic activity away from government underlies the thinking of the youthful segment and the invincible transition and graduation that is taking place. That is the strong message he brings in this book.
The stories of these countries in desperate political flux, ravaged also by corruption, are heart-rending. But their positive similarities are also captivating as underscored by Mark Mobius, the executive chairman of Templeton Emerging Markets Group, who wrote the ‘Introduction to Frontier’.
“The potential for further growth is striking,” Mobius writes. “While frontier markets account for 24 percent of the world’s land area and 22 percent of the global population, only 8 percent of international gross domestic product comes from these countries. That gap is being closed rapidly as they catch up in production and consumption.”
The signs of awakening in these countries are clearly visible. In Kenya, for instance, fixed investors have seen all possible destabilizer of the market, but they remain confident that none of those issues could go far enough to hugely disrupt the financial market in substantial ways. They are seeing improvements in transparency, which is also helping to improve creditworthiness and bond prices.
Myanmar is modernizing and attracting investments into tourism and telecommunications sectors. Here, Telecoms represents one of the biggest opportunities.
Its huge gas deposit in the black sea underscores Romania’s potential and it is driving privatization. Argentina is seeking competitive efficiency, which is good news for investors. Vietnam is a $171 billion economy with 90 million people. Investors like Mobius say “boom or burst” they stay with Ho Chi Minh.
Egypt “is likely to enjoy a better macro-economic outcome than doomsayer predicts”, to quote from the book. Saudi Arabia is a more relaxed economy in contrast to the tension soaked Saudi of the past. Sri Lanka is not struggling with inflation figures.
“Just what is achievable here was demonstrated by Enterprise Group,” writes Serkin of the company’s rapid expansion of the insurance industry in Ghana. “The country’s reputation for peace and low corruption is fairly unique in Africa.”
The contrasting comparison of Makoko and the Eko Atlantic city portrays the irony that is Nigeria. A country so rich, yet its people are so poor. But the signs of its potentials are there. The swathe of young population defying poverty to get that education that they know will ultimately put them up there as well as the army of young entrepreneurs that are defying the bureaucratic and political challenges to create wealth for themselves speak volumes of Serkin’s conviction of this Frontier market. The country has 180 million people. It is just a huge market and all the elements, says Serkin, are starting to fall in place.
The great side of the story is that investors have “become more clinical in calculating opportunities rather than focus on the dark sides.”
They have to be confident and correct too because in all of these countries “corporate executives now effortlessly speak the language of the markets. Investor relation managers understand KPIs, management incentives, bonus structures for individual employees-they understand how modern retails works. Businesses are happy just making money amid perceived or hyped security or political uncertainties.”
Great book. But my takeaway is that the Frontier narrative is a long haul. These countries are not for the faint-hearted. It will take the might of ‘Thor’ to shake up the logistic tangles to doing business. In Nigeria, for instance, poor infrastructure, low productivity and epileptic electricity add hugely to cost. That is not going to go away overnight. So, those enthralled already about the Frontiers in the short term will readily lose money. But those who are betting long term should pitch in now and pay great attention because they could be the ones smiling to the banks 10 years from now.
Review by Charles Ike-Okoh
FRONTIER: Exploring the Top Ten Emerging Markets of Tomorrow
Author: Gavin Serkin (2015), (Emerging Capital Markets Editor-at-large, Bloomberg News)