Emerging markets may not be the flavour of the year – falling growth rates in China and recessions in Brazil and Russia have seen to that.
But make no mistake, they are here to stay. In the decades to come, elevated returns and profits will be located not in labouring western markets, but in the likes of Sub-Saharan Africa, Latin America and South-East Asia, regions abounding with fast-growing markets and blessed with an aspirational and overwhelmingly young consumer base.
In turn, it will be the corporates and investors who most intimately know these often tough and difficult-to-navigate markets – how they tick, where the pitfalls lie, where the richest profits can be unearthed – that are best placed to succeed.
Few multinationals know the emerging world better than Mansour Group. Founded 64 years ago in Cairo by the cotton magnate Loutfy Mansour, it was transformed by his four sons, Mohamed, Ismail, Youssef and Yaseen, into a privately run conglomerate with operations stretching from Colombia to Congo and Pakistan to Papua New Guinea.
Mohamed, a board member of Mansour Group and the founder chairman of Man Capital, the group’s internal investment bank, has spent the past 40 years striving to determine when an emerging market is worth the effort – and when it is not.
“There are four rules of thumb,” he tells The National. “An emerging market has to have rule of law and a good banking environment. Transparency is key. And it needs a business-friendly government.
“If those commercial and political factors balance out positively, you can take the next step forward.”
Sometimes gut instinct has to be used when deciding where to draw the line, if only because so many high-growth markets struggle to combat corruption and, at the sovereign level, erratic tax and protectionism policies. “The question for me is whether I know the products that I am going to be working with and selling in a new market,” says Mr Mansour. “We distribute cars for General Motors and heavy machinery for Caterpillar across Sub-Saharan Africa, so expanding further into that region” wouldn’t be a stretch. “But would I venture into a new market with a new product, neither of which I know well? I’m not sure I would.”
Developing economies have been the investment story of the new century, first emerging as an asset class of note then, post-financial crisis, offering the promise of higher returns and yields. Some if not all of that lustre has since evaporated. Yet the Mansour Group has not extricated itself from any given market – that is not its way.
“We build our local presence, or brand presence, our infrastructure,” Mr Mansour says. “We think long term, wherever we go.”
But a changing world has forced the group to adapt nimbly and flexibly to new challenges. Russia has been a “pretty tough” place to work over the past two years, he says.
“The market has been negatively affected by sanctions, but we believe we can ride the down cycle, cut a few costs, weather the storm and take it from there.”
The group’s Caterpillar distribution business has also been hit hard in Sub-Saharan African markets such as Ghana, because of the end of a long commodity super cycle – where there is less digging, there is less demand for digging equipment – and waning investment in infrastructure by corporates, sovereigns and multilateral agencies.
“We have cut inventory levels and costs, and working capital. But we have kept all our local infrastructure in place,” Mr Mansour says.
Such far-sighted decisions reflect the unlisted group’s ability, unlike many publicly traded multinationals, to remain embedded in a loss-making market, in the hope that good times, sooner or later, must return.
A few countries will remain off the group’s radar for now. Mr Mansour says the “jury is still out on Iran: how the banking sector and the rule of law will work; when sanctions will be lifted; the issue of cronyism; and how you will be able to repatriate foreign exchange. Until there is more clarity, it’s too premature to invest in Iran”.
The group is not wholly focused on emerging markets, as evinced by its willingness to put money to work in Midwestern US real estate, privately run African and European schools and leading technology firms such as Twitter and Facebook. But the developing world will remain its chief focus for years to come, a sign of both a willingness to take risks to earn rewards, and the West’s increasing distaste for any long-term investment that is not a nailed-on certainty.
Mr Mansour believes too many western investors, from multinationals to buyout firms to pension funds, have become fearful of emerging markets.
During a recent investor relations trip to New York, he was approached by a major private equity investor who had flown in especially from Boston.
“He found out that I was from Egypt. He said he hadn’t invested in Egypt or Africa before and he wanted to know what ‘that part of the world’ was like,” Mr Mansour says. “This fear has been there for years now. People tend to invest within their comfort zones.”
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