Emerging Markets Still Ripe with Opportunity

Much talk these days focuses on emerging markets as having lost their luster. Once lauded as new economic powers, these markets are now experiencing lowered growth rates and other problems.

Experts from industry, academia and government gathered to examine the state of emerging markets in the third in a series of Emerging Market Forums hosted by the University of Maryland's Robert H. Smith School of Business.

Smith's Centers for Financial Policy (CFP) and International Business Education and Research (CIBER) organized the April 26 event, themed "Emerging Markets at the Crossroads: Current Challenges and Future Prospects," at the Ronald Reagan Building and International Trade Center in Washington, D.C.

“There has been much concern that long-term structural issues pose real barriers to continued prosperity in the BRICs (Brazil, Russia, India, and China) and elsewhere,” said Kislaya Prasad, research professor and CIBER director, “However, the forum’s discussion revealed a widespread sentiment that, while the challenges emerging markets face are very real, they are still ripe with opportunity.”

Forum speakers pointed to several African nations as "hotspots" for tech-diffusion and human capital. These nations are primed to flourish with greater investment from risk-constrained Western banks and companies. "Seven of the world's 10 fastest growing economies are nations in Africa," said CFP Director Lemma Senbet, The William E. Mayer Chair and Professor of Finance for the Smith School.

The rate of mobile phone ownership has gone from 1 percent to 54 percent since 2000 and mobile banking has exploded in Sub-Saharan Africa, said keynote speaker Ian Solomon, the World Bank's U.S. executive director. "A cell phone in the hands of innovative entrepreneurs can bring a host of opportunities."

Moreover, the “power of the diaspora" (scattering of people away from a homeland) has become a hot topic in the emerging market conversation, said Eric Guichard, founding CEO of Homestrings, an investment firm targeting emerging markets. "Many Africans in the U.S., for example, want to invest back into their home countries but are encountering difficulties in trying to sort out the logistics to do so."

African nations, where individuals are developing the "know-how," lack the networks and organizational capacity to more broadly leverage it, Solomon said.

"The challenges are huge, but opportunities are even larger," said Janamitra Devan, vice president of Financial and Private Sector Development for the International Finance Corporation.

Worldwide, about 2.5 billion people in emerging markets are excluded from such financial services as credit, savings accounts and insurance, Devan noted. More than 1.2 billion – including 500 million across Africa and 400 million in India – lack basic electricity access. The overall need for Infrastructure spending is about $57 trillion.

General Electric's success in expanding operations in Nairobi "should be an example" to non-investors, said Solomon. Broadly, the upside "is vital to business growth, export markets and more jobs here in the U.S."

The recent global financial crisis compounded by perceived corruption and shaky leadership fuels the hesitation by foreign banks, said George Allayannis, a University of Virginia business administration professor. Curbing the corruption "would be a difference maker."

Singapore's leadership "literally killed" a "scourge of corruption" that plagued the country for decades, providing a lesson for other developing governments, Devan said. In addition to corruption, the "challenge of competitiveness" encompasses a full set of roadblocks, he added and detailed:

• Appropriating technology and innovation to meet market demands: "Thailand’s food processing industry is a prime example of an effective, structured intervention."
• Access to early stage intervention financing
• Infrastructure development: Rwanda's post-genocide dedication to rebuilding has yielded "a great success story."
• Self-organizing industries, service sectors and inter-ministerial dialogue: "India is very poorly organized in several dimensions."

While there is the "silver lining" of about two-thirds of global growth is coming from emerging markets, "many political regimes simply are ill-prepared to govern a developing economy," said Devan.

"Emerging markets are indeed at a crossroads. ... Americans and Europeans can do more, and it's not about "throwing money at these countries," he said. "Provide enough to be more of a helping hand."

Such help can complement the many entrepreneurs who are leveraging resources and ties in multiple countries to build successful businesses. “The links that members of various diaspora have with their countries of origin can be the basis for a shared prosperity between these countries and the United States,” said Prasad.

Sample or view, in length, forum segments from the Smith YouTube Channel:

Economic Ministers Panel 

• Gheewhan Kim, Minister of Economic Affairs, Embassy of South Africa
• Lorena Palomo, Senior Officer, Trade Policy, Economic Department, Embassy of Chile
• Kenneth Smith Ramos, Director, Trade and NAFTA Office, Embassy of Mexico
• Emirhan Yorulmazlar, Counselor, Economic and Energy Affairs, Embassy of Turkey
• He Ning, Minister, Office of Economic and Commercial Affairs, Embassy of the People’s Republic of China
• Moderator: Kislaya Prasad

Role of Diaspora 

• Eric Guichard, Founder and CEO, Homestrings
• William Kerr, Associate Professor of Business Administration, Harvard Business School
• Caglar Ozden, Senior Economist, Development Research Group, World Bank
• Devesh Kapur, Director of the Center for the Advanced Study of India, University of Pennsylvania
• Moderator: Bennet Zelner, Associate Professor, Logistics, Business and Public Policy (Smith School)

Banking and Finance in Emerging Markets 

• George Allayannis, Professor of Business Administration, University of Virginia
• Stijn Claessens, Assistant Director, Research Department, International Monetary Fund
• Leora Klapper, Lead Economist, Development Research Group, Finance and Private Sector Development, World Bank
• Moderator: Lemma Senbet

Keynote Address: Ian Solomon, United States Executive Director, The World Bank 

Distinguished Luncheon Speaker: Janamitra Devan, Vice President, Financial and Private Sector Development, International Finance Corporation