Since the term ‘emerging markets’ was coined in 1981 by the economist Antoine van Agtmael, they have arguably presented global investors with untapped potential for investment opportunities.
With growth in developed economies currently constrained due to a multitude of factors ranging from persistent high inflation to conflicts in the Middle East, the long-promised growth of emerging markets looks set to materialise in 2024.
The Purchasing Managers’ Index reveals that emerging markets are growing at their fastest rate since June 2023. S&P Platts, an independent provider of information and benchmark prices for the commodities and energy markets, notes that this growth is unlikely to stall soon, as investors diversify their investment strategy in search for higher returns.
This growth has resulted in investors and governments in developed countries trying to tap into the plethora of opportunities presented by emerging markets in general and Africa in particular.
Examples of these opportunities include: attendees at the 2023 Africa Investment Forum generating more than $34bn (£27bn) in investment interest for infrastructure, agriculture, health and creative industry projects; as well as the UK government supporting industrialisation in East and West Africa by attracting £1bn in foreign direct investment for new production facilities and creating 90,000 jobs by 2026.
Within the mosaic of opportunity that is the African continent, Ethiopia – predicted to be the 13th fastest growing economy in the world in 2024 – appears to present one of the clearest and most immediate opportunities for investors.
The Ethiopian example
One of the key elements of any successful emerging markets investment strategy is recognising that emerging markets cannot be treated as a homogenous bloc.
A good approach to investing in Mongolia, for example, is unlikely to pay dividends in Bulgaria or Lebanon.
Timing is also crucial with a rapidly evolving geopolitical landscape.
That said, there are still some ‘fundamentals’ that can be relied upon.
When timing and the fundamentals align, it is probable that a good investment opportunity will follow. Ethiopia is a credible example of that.
After a challenging few years, with the Tigray conflict and the pandemic combining to significantly slow Ethiopia’s trajectory, the country now appears to be on the road to recovery.
Part of what has attracted investment into Ethiopia is the government’s 10-year development plan.
The plan, now in its fourth year and still on track despite Ethiopia’s sovereign default in December, is intended to facilitate a move to an economy driven by the private sector.
To achieve that aim, the Ethiopian government has repealed laws that protected state monopolies and established investment vehicles, including Ethiopia Investment Holdings, a sovereign wealth fund that acts as a strategic vehicle to attract foreign direct investment.
EIH has proven particularly effective in unlocking value in previously unused assets across the Ethiopian economy, particularly in energy, infrastructure, renewables, telecommunications, and logistics.
The Ethiopian government has legislated to create a stronger legal framework for foreign investors to remit monies outside of Ethiopia in convertible foreign currency, typically USD, at the then applicable rate of exchange, as well as devised a number of incentives to direct investment towards priority areas.
