On Monday and Tuesday of this week I attended the Institutional Investors Congress in London. I was invited to speak on a panel discussion of how development in emerging markets affects the future of the European economy.
This congress is one of its kind. It brings together industry professionals from across the global arena for two days of discussion on a range of investment challenges and opportunities in traditional and alternative investments. Leaders and practitioners from the institutional investment community attended and both the formal sessions and discussions in corridors and other meeting spaces were quite lively. Power Point presentations were also prohibited so the formal sessions were more dialogue than prepared talks.
During the session on emerging markets where I spoke, I observed that the term emerging markets has become a legacy we need to move away from. I believe it is more relevant to speak about advanced and less advanced economies, where globalisation, foreign direct investments and trade brings different growth (or stagnation) to nations depending on in which development stage they are currently in.
The more developed an economy is, the more crucial is differentiation and specialisation of its competitive industries as both capital and talents are highly moveable resources today and tend to go where new opportunities are the strongest.
It is no surprise then, that the high growth nations in today’s world are in the nations which are least developed, primarily in Africa, as the illustration below from the Economist shows. In such countries there are numerous interesting investment opportunities, however institutional investor investments in Africa have been focused mainly on government securities and real estate, with smaller proportions in equities and corporate bonds.
One of the factors that often hinders the institutions more sustainable development is the lack of a sufficient depth and breadth of capital markets, the range and number of suitable investments and the fear of corruption and lack of liquidity. Here another speaker on the panel remarked that adherence to international governance rules and procurement procedures can be a tool to reduce the risk of corruption.
Investments related to ample natural resources are an important part of how institutional investors think about Africa but new, more attractive aspects of investing are becoming opportunities related to the consumer power by the growing African middle class. This means basic consumer goods and service companies, such as Ecobank, M-Pesa and African Frontier Holdings. I also made the point that the most interesting companies will be those who have an outspoken ambition to expand beyond national borders.
As the topic of the panel session was also how Europe will be affected by the development in emerging markets, I spoke about the effects of hyper competition and my strong belief that Europe can only recover from initiatives on the local level, from its cities and regions and that the Horizon 2020 strategy from the European Union can be a cornerstone to restore Europe’s economic future.
In general, the congress was very well attended. I met some dear friends and made some new ones, as one tends to do in networking events like this, I also learned quite a lot from interesting discussions.
Just like the direction of the world economy today is uncertain, so the weather in London showed its usual unpredictability. From rain and wind the weather turned to warm sun as I was leaving late Tuesday afternoon.