Derek Newberry

The World Investors Should See

Country size adjusted to reflect population in 2050
Map adjusted to reflect national populations in 2050

Investment in emerging economies is on the rise, following an increasing awareness of the improving business climate in these countries as well as burgeoning, high-growth green sectors. These were the thoughts of participants in a recent session on investment opportunities in emerging markets hosted by WRI’s Enterprise and Innovation Program.

The discussion took place on November 9-10 at the Triple Bottom Line Investing (TBLI) Paris Conference, which convened 400 members of the socially-responsible investment (SRI) community to discuss the state and future of the SRI world. Luiz Maia of Rio Bravo Investimentos in Brazil, Pramod Shedde of BTS Investment Advisors Pvt., India and Michael Feldner of InSpire, South Africa were the featured speakers, representing three of the most important economies to watch in coming years. They drew on their experience as fund managers to analyze recent trends in developing country and sustainable investment.

Explaining Growing Interest in Emerging Economy Investing and SRI

The speakers attributed the attractiveness of emerging market investing to the low cost of failure and the high potential returns associated with countries like South Africa and Brazil. They also noted that venture capitalists getting involved in these countries early will have significant leverage in dictating the terms of investment since competition is currently low.

Feldner explained that based on his experience in Africa, investors would be wise to incorporate a sustainability component in their portfolios as well as focusing on bottom of the pyramid (BOP) companies. He used the example of micro loans in Africa to show how, much like the I-Pod in the US, business solutions that worked in one city or village were likely to work in most places, generating the kind of success experienced by the Grameen Bank and other micro-lenders.

Obstacles and Opportunities

The three fund managers then spoke to the challenges in emerging economy investment. They noted that unpredictable government policy is a major roadblock for potential investors, as well as incomplete or inadequate infrastructure for transportation, energy and communications.

With sustainable investment in particular, the speakers agreed that in-country experience was the biggest barrier, with investors not having a strong awareness of skilled entrepreneurs or reliable businesses. What is needed, the investors explained, are fund managers with some on-the-ground, emerging market background who are willing to make smaller investments in long-term deals.

Despite these obstacles, sustainable and BOP sectors in emerging economies are gaining recognition for their rapid growth and strong investment prospects. Renewable energy and organic agriculture were mentioned as two sectors to watch in coming years, particularly in India where companies like Suzlon, a wind turbine manufacturer that recently achieved an IPO are becoming more common. Mr. Feldner gave the example of Orlando West, a micro-lender in Soweto whose projects have outperformed similar government initiatives, to show how successful the private sector in these countries can be at making profits while providing social benefits. New Ventures companies attending the event, including Beijing Shenwu, Solar Trade Corp., and Linax served as further examples of the newest generation of outstanding prospects to emerge in developing countries.

For more information on the background of each speaker as well as an outline for the emerging markets panel, see the agenda.