x Abu Dhabi, UAESaturday 20 January 2018

Emerging markets plan ahead for growth

A World Economic Forum report highlights how leaders should be looking beyond the financial crisis.

The convergence of the subprime crisis and the ensuing credit crunch, uncertainty about inflation and a slowdown in the US and Europe, even a global slowdown next year, have all given rise to a high degree of uncertainty about the short-term outlook for economic growth. However, as a recent report by the World Economic Forum's Global Risk Network entitled Global Growth@Risk highlights, leaders from all walks of life, particularly those heading growing companies, should be looking beyond immediate problems.

The report finds that the world may seem a very divided place today, as some economies experience unprecedented growth while others appear to be drifting into the doldrums. However, decision makers and particularly those heading a new generation of fast-growing companies should be looking beyond immediate problems for the next growth opportunities. Behind the figures of the International Monetary Fund forecasting a slowdown in global growth next year lie a myriad of different success stories.

China, India, Russia and several of the Gulf states will all still have very robust growth next year. Beyond the current negative headlines, we are in fact witnessing the entry of a new cast of players who are fast emerging as the future drivers of global growth - on a national, company and individual level. It is these "new champions" who will play a greater role in the world economy and who are in a strong position to benefit from new growth opportunities.

At the industry level, and despite the volatility on stock markets from New York to Mumbai, the energy, food, telecommunications and professional services sectors are all still performing strongly. Chief executives from many of these industries say the same thing: the outlook is more uncertain but new markets are opening and there are opportunities to be taken. With the current credit crisis, access to capital may have become more difficult in certain markets, but there is not a shortage of capital globally. Gulf states alone added US$215 billion (Dh790bn) to their stock of foreign assets last year, according to the Institute of International Finance.

Their total assets, including those of their central banks, sovereign wealth funds and wealthy individuals, are estimated at $1.8 trillion, with some estimates as high as $2.4tn. The question will be: who is ready to take advantage of this constellation? Looking forward, three trends are emerging as influential for future growth prospects at the corporate, national and global level: first is the emergence of fast-growing economies with large populations and rising middle classes, with China and India at the fore; second is the related increase in demand - and international competition - for capital, energy, goods and skills to meet demand and sustain growth; and third is the growing importance being placed on innovation and technology as sources of solutions to a range of global problems. The intersection of these trends will pose challenges, but will also offer opportunities to both business and societies that have positioned themselves to meet them.

One of the biggest of these challenges - and opportunities - at this intersection will be sustainability. The demographic and economic shifts that are taking place in those emerging economies represent huge growth opportunities and will equally place pressures on and increase demand for resources - in particular on energy and water, but also on human and financial capital. Clearly those emerging, fast-growing "new champion" companies will have to compete strongly and internationally for these resources. But their structure, size and location may in fact work in their favour. Most are already operating in dynamic economies or market sectors and many are privately held.

They are often led by their founders, giving them the impetus that comes with their enthusiasm and focus on growth. For those seeking capital, they may find that the lack of confidence in the major capital markets means private investors are more open to financing private corporations active in emerging markets with whom they can build a relationship of trust. When it comes to attracting talent, two factors may work in the favour of smaller companies. The first is the appeal of fast-growing, more entrepreneurial structures. The second is that many are operating in markets experiencing a reverse brain drain, with internationally experienced people returning home, or graduates choosing to stay at home to be part of the rise of their country.

While still modest in numbers, the reverse brain drain effect is growing, as is the entrepreneurial activity within many markets and sectors. The past two decades have also seen a new class of entrepreneurs appearing in countries where previously they would have to go abroad to build a business. More than 200,000 Chinese of the 800,000 who went abroad between 1974 and 2004 have returned to China in the past few years.

In India, offers from Indian companies for recent graduates from the respected IT schools are rivalling those of international companies trying to lure them abroad. In this context, companies expanding from or into some of the world's fastest-growing markets can be in a unique position, but they will need an understanding of global risks to build their strategies. Despite the uncertainty involved, identifying emerging global trends and risks can sometimes be easier than identifying strategies to mitigate them.

However, tracking and analysing global issues not only helps to ease strategy adjustments for risks and events, but also helps leaders to identify emerging business opportunities sooner. More importantly, given the scale and scope of global risks, neither business nor governments can deal with them in isolation. As they grow their businesses, leaders must actively engage with the wider business community, with governments and with other stakeholder groups at local and international level to explore new solutions and to leverage existing ones.

As the Global Growth@Risk report concludes, companies and economies that steer through the present uncertainty should already be looking ahead and exploring where the next wave of growth will come from. If companies can combine their strengths and valuable market knowledge with an understanding of global trends and risks and how they can be mitigated, then they can start preparing for the future rather than waiting for it to happen.

Sheana Tambourgi is the director and head of Global Risk Network, World Economic Forum. The World Economic Forum's Annual Meeting of the New Champions took place in Tianjin, China from Sept 26-28.