EP020 - Investing in Emerging Markets

August 10, 2021

Investing in emerging markets such as Africa is the new trend as growth slows in existing emerging markets such as Brazil, Russian, India and China. Cardano looks at these new economies in Africa with its reach into Ethiopia and Tanzania alongside telecommunication companies such as World Mobile. Cardano's mission of banking the unbanked and World Mobile's mission to connect the unconnected are all stepping stones to drive economic reform and investment in a continent with huge potential.

In the 1980s the term 'emerging markets' was coined for investors as a way of describing third world countries. Investors were excited by that term and the prospects of these poorer countries with a few coming out successful such as South Korea and Taiwan.

To grow at such a rapid pace, these countries had to embrace reforms and technologies, which led to implementation in manufacturing and opening up to world trade and globalisation.

Trying to find the next emerging markets to invest in these days is much harder than it once was.

Investing in Emerging Markets: South Africa
Investing in Emerging Markets: South Africa

China began its economic reforms in the late 70s towards economic liberalism and India relented its state control over its economy in 1991 after its economic crisis due to previous poor policies.

Low-interest rates and global finance helped fund a lot of the investments in the emerging economies along with the rise in commodity prices, which Australia even benefited from. It all boosted the growth and fortunes of these emerging markets.

The explosive growth of world trade and the increase in consumer spending in developed nations fueled the demand for goods from these emerging markets. Manufacturing processes became more segmented with countries grabbing at different parts of a supply chain to develop a finished product. For example, with a motor vehicle, the engines may be built in Brazil, various parts such as tyres from Vietnam and then all imported to Thailand where they were assembled and then exported to other parts of the world as finished products. Each one of those countries added value and grew by being a part of a global supply chain.

We saw historic high growth through the 90s and 2000s right up to the Global Financial Crisis.

Trade since then has slowed and began to decline as certain reforms in China had changed with more State-controlled intervention as it pushed for self-sufficiency.

As a country's income grows, it usually outsources work to lower-wage economies. Something that China has resisted in its quest to become self-sufficient.

If you look at other developed economies, such as that of the United States and even Australia, much manufacturing has been moved offshore where electricity and labour costs are much lower than that in their own countries. In Australia, four major car manufacturers had plants building for the domestic and overseas markets. One by one, they have all closed and moved offshore as global supply chains became cheaper. Mitsubishi, Ford, Toyota and General Motors, or more fondly known as Holden in Australia, have all closed their manufacturing plants locally and now import all vehicles from other countries.

It's mind-blowing to think about the manufacturing process where a country like Australia can export iron ore and coal to South Korea, and return with fully built cargo ship Hyundai's and Kia motor vehicles.

Investing in Emerging Markets: Africa The Next Frontier

Where and what are the next and new exciting emerging markets and why is it so hard for investors to find them?

We’ve seen and heard the term BRIC economies, an acronym created by Lord Jim O’Neil, Chief Economist Goldman Sachs in 2001, which was used to describe Brazil, Russian, India and China.

RBA Index of Commodity Prices
RBA Commonidty Price Index - https://www.rba.gov.au/chart-pack/commodity-prices.html

In 2010, Russia and Brazils growth began to slow with the fall in commodity prices and other economic pressures whereas India and China showed signs of being sustainable and mature.

India has great demographics with a growing productive age group and is about 10 years behind in the demographics of China.

China may have issues with their demographic as their ageing population grows and with the one china policy having decades-long effects where we may see GPD growth fall and stagnate, similar to what we saw in Japan as it boomed in the 80s-90s and now we see stagnating population growth and stagnating economic growth.

The next emerging markets need to have similar factors which these former Emerging markets and BRIC economies had in order to see growth similar to what we saw in the 2000s.

  • Reform
  • Low interests rates for investment
  • Technology

Many African nations are in a position for this growth as emerging markets. External investment in African nations is rising with China leading in export trade and investments.

The continent has extensive natural resources, a young and increasingly educated workforce, more stability in terms of governance, and more prospects for economic growth than in years past.

There are certain factors that could hamper Africa's potential growth over the next decade including the slow down of globalisation, climate change and automation making labour intensive jobs, although cheap, obsolete with machines making the process even cheaper.

Telsa has introduced a Giga Press for the formation of the chassis of their new cars and reducing over 100 parts into one single component. The Giga Press replaced a suite of robots and humans. We’re seeing automation, and innovation increases productivity even where automation and productivity already exists.

Countries need reform, as we saw with China and India in the 70s and 90s, and opening up of trade and investment from other parts of the world to have growth.

Makhtar Diop, Former Finance Minister of Senegal and current Managing Director of the International Finance Corporation, IFC which is a branch of the World Bank, believes that the most investment in low-income economies will come from private investors.

Cardano has an interesting play in the market targeting the Government and digitalising and reforming structure to form the base of a reformed economy and governance that a country can grow upon, creating efficiency and transparency from a top-down approach. This is something that developed economies will struggle to do in changing legacy systems that power the countries already.

Digital identity and records helping with transparency and accountability. Simple things that developed countries take for granted such as land titles and property ownership deeds would now be possible with the digitalisation and transformation at a government level with the possibility for creating stable Government leadership where investors feel safe to invest in.

Projects working off the backbone of Cardano such as World Mobile, which plans to build the communication infrastructure network throughout Africa is a great example of innovation and investment in the Continent. 

With innovation, brings productivity & efficiency, which then leads to economic growth and new opportunities.

Interview Antonia Lorenz from Waya Collective

In this interview with Antonia Lorenz from Waya Collective, she talks about her project that looks at connecting the millions of skilled entrepreneurs fashion industry in Africa with ethical fashion designers in other parts of the world that wish to have their designs created by ethical and sustainable means.

Antonia shares her experience living in Uganda, and how she started Waya Collective to do connect the developed world with the emerging markets in Africa.

Watch the Full Video Interview on YouTube

Antonia Lorenz from Waya Collective joins me on this episode to talk about her idea and concept of unifying African manufacturing to create ethical fashion for developed countries around the world.

Antonia places to have a decentralised manufacturing process where small business entrepreneurs can combine their manufacturing power to fulfil larger overseas orders of ethical fashion.

00:00:00 - Intro
00:00:50 - What Is Waya Collective
00:02:08 - Many Independent Manufacturers
00:08:08 - Supply Chain Transparency & Ethical Fashion
00:10:55 - How The Idea Came About
00:15:08 - How Will It Be Implemented
00:18:03 - When Did You Start
00:18:27 - The User Experience
00:20:47 - How It Works with Blockchain
00:22:09 - The Team
00:24:46 - Project Timeline
00:26:18 - Driving Business Purely in Whats App
00:29:19 - Example Products
00:30:59 - How To Follow Updates
00:31:40 - Supply and Local Production Issues
00:32:51 - How Are People Going to Be Trained & Organised
00:36:24 - Enabling By Teaching
00:38:15 - Outro
00:38:52 - Support our podcast
00:39:18 - Disclaimer

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