Last week, Tim Curtis Director of ERS International Operations defined Pre Frontier Markets and their key characteristics of volatility. This week Tim identifies the risks of Pre Frontier markets and their beneficiaries.
Part 2: Pre Frontier Markets- Risk Identification and Reward Tradeoff
Pre frontier market opportunities present quickly. Most recently they have developed with rapidity out of regime change, secessionism and conflict in Afghanistan, Iraq, Yemen, South Sudan and Libya but are also present in lesser known locations such as Mozambique and Myanmar. In the perennial ‘risk versus reward’ tradeoff, pre-frontier markets typically carry higher levels of risk but also offer higher rewards. Rapid change characterizes pre-frontier markets. In some cases developing countries have regressed into being pre-frontier countries; most often through conflict. However in most, if not all pre frontier countries, there is newfound opportunity accompanying this rapid change. This opportunity is presenting for businesses but is also present in the microeconomics at village level.
For example, recent regime change, or at least regime pressure, in places like Afghanistan, Iraq and Libya is demanding improved governance and changed democratic systems. Equality and tolerance is becoming more accepted, if not more commonplace. Education is being improved. There is true micro economic movement, less socialism and more commercialism. Small to medium enterprise development is omnipotent. As a result, free market economies are developing.
In some pre frontier countries there have been real accompanying advances in the standards of living. Local labor and improved local industry participation is increasingly being unlocked. The improved economics are creating higher incomes and greater consumerism. Indeed deregulation, the dismantling of the monopolistic business reigns of rulers and the accompanying changes in the business operating environments are creating markets that are truly being influenced by supply and demand principles.
Populism always has an important role in creating stability.
Part 3: Pre Frontier Markets- There’s No Stereotyping – Who are the Beneficiaries
Pre frontier countries are highly attractive to companies in the extractive industry. International oil, gas and mining companies are typically the key beneficiaries. In these environments they have the experience and the capital that is not present locally but is required to overcome the typical start up challenges. It is also relatively simple for local Governments to tender their natural resource concessions and tenements and the yield from doing so makes significant GDP contributions for limited outlay. Resource sector companies entering pre frontier markets also bring with them other aligned industries and sectors that provide the critical side lobes to enabling their businesses. These include logistics and transportation, engineering and construction and insurance and banking and finance organisations. Not for profit, humanitarian and development organisations are also at the forefront of pre frontier markets as well as the international actors such as the United Nations, the World Bank and the European Union. All should be considered key beneficiaries.
Next week, Tim will discuss the Resident Challenges and Opportunities in Pre Frontier Markets. Make sure you follow our page to not miss out.
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