Innovations In Emerging Markets

Corporate Governance: What Separates Asian Financial Markets from the Best

The latest "it" thing in Asian countries, eager to attract a greater share of global capital market deals, is to develop international financial hubs in the region, says Financial Times columnist Guy de Jonquieres. Before building those "fields of dreams", de Jonquieres cautions, Asian countries would do well to set up the prerequisites of a modern financial market. Corporate governance is one such prerequisite. So is efficient capital allocation, as well as transparent and competitive market practices.

How far are Asian markets from matching the global reach and depth of New York and London? Not even in the ballpark, de Jonquieres argues. He adds: Asia has some hard work ahead to institute good corporate governance practices, among others. The payoff, however, will be well worth it and measured in better, sustainable economic performance.

For IFC activities on corporate governance, click here.

Emerging Market Firms as Socially Responsible as Global Peers

There are no significant differences between the level of corporate responsibility exhibited by companies in emerging markets and companies operating in OECD member countries, according to a 2005 OECD study. This myth-busting conclusion of the fact-finding study "Corporate Responsibility Practices of Emerging Market Companies" came as a surprise, even to its authors.

Another finding is that the business case for corporate responsibility --such as attracting  employees, improving product market positioning, and protecting reputation -- is equally compelling for emerging market companies.

Finding no. 3: Emerging market companies are the ones leading the way in corporate responsibility. South African firms are singled out for their record in this area in more sectors and across more dimensions than their OECD peers. WRI's NextBillion.net and IFC's Innovations in Emerging Markets blogs have both showcased the leadership of Egypt's Sekem company in this area.

This OECD study deserves revisiting, despite its 2005 publication date. It provides a still rare snapshot of corporate responsibility practices by emerging markets firms that are steadily working to expand their share of global investment flows.   

Fall in Emerging Markets Financial Vulnerabilities Not Temporary

The financial vulnerability of emerging market economies has decreased dramatically in the past four years, and the trend is not temporary, an International Monetary Fund official said at the April launch of the institution's Global Financial Stability Report. Emerging market economies have their macro-economic fundamentals on the right track, the IMF says, but risks still exist.

For fIrms, there is one note of caution: the increase in corporate borrowing might lead some to find themselves in trouble if profits fall short of expectations.

More on emerging market financing flows in the appendix of the Report's first chapter. Credit markets and emerging sovereign debt are discussed in chapters II and III, respectively.

Innovations in Water, Sanitation, and Energy Services

Private businesses, NGOs, and government agencies are among 118 finalists in the World Bank Group's 2006 Global Development Marketplace competition. This year's theme is "'Innovations in Water, Sanitation, and Energy Services for Poor People."  Jury selection for the most innovative approach will be held May 8-9 at World Bank headquarters in Washington, D.C. A $4 million award pool is available for winners.

Watch this space for the outcome of this global exercise to support the best ideas for improving water, sanitation, and energy delivery services to the poor.

Firms Like Africa's Celtel Get Economies Moving

"You cannot underestimate the effect a cellphone can have on the lives of people who live in conditions where there are no roads, no transport networks, and no postal service." That's how Africa's Celtel telecommunications chairman Mohamed Ibrahim explains the revolution that the cellphone is bringing to the lives of poor and rich in developing countries.

A recent International Herald Tribune article says the revolution produced by emerging market companies such as Celtel -- which last year had $1 billion in revenue -- affects whole economies. In Congo, isolated farming communities now have access to price rates in the capital, and farmers can earn four times what they did before. Tanzania's banana trading has been boosted by improved connectivity between farmers in remote areas and trading centers in the capital.

Extending telecommunications systems in developing countries is not without challenges, including crushing regulations and high taxes. Governments have a role to play in reducing obstacles, as China recognized early on. Today 96 percent of its territory has coverage. By contrast, 22 percent of India has cellphone access.

And revenues are on a different scale. The IHT article says monthly revenues per subscriber for companies operating in the poorest countries are sometimes $5, compared to charges that can exceed $50 in the developed world.

Celtel Chairman Ibrahim, speaking at IFC's Private Equity Conference last year, explains the twin drivers behind his company's success: extending sustainable development of telecoms in Africa and making life better in the region. Celtel's contributions were recognized in 2004, when it received IFC's Client Leadership Award. Click here for more.

Morocco, Madagascar Find Niche in U.S. Sustainable Business

Organic farmers in Morocco and Madagascar are among the suppliers of Simplers Botanica, an organic foods company based in Sonoma County, California. It is one of many businesses, small and large, that have embraced sustainable business practices -- "a concept that recognizes the need to both earn profits and be socially responsible."

An April 3 article in the county's Press Democrat says, together with high-tech firms such as Agilent Technologies, these companies are "making strides toward sustainability by limiting demand on natural resources and reducing waste. And they are profitable."   

Scaling Up Businesses That Offer Biodiversity Services

Small and medium enterprises that offer biodiversity services have a new lease on life, according to a recent NextBillion.net posting. The World Resources Institute blog notes the recent landmark Convention on Biological Diversity in Brazil, which has re-energized initiatives in this area. Its representative at the Convention called for increasing efforts to create the markets and opportunities that allow the private sector to contribute to biodiversity conservation at a larger scale.

WRI itself has been involved for a while in programs aimed at supporting companies pursuing sustainable business ventures in a whole range of sectors. One program in particular is worth checking out: WRI's New Ventures and its growing network of companies.

Business Cannot Afford to Ignore Social Issues

Business leaders today have a strategic interest in getting involved in the sociopolitical debate, notes the McKinsey Quarterly in its current issue. "When Social Issues Become Strategy" says the case for incorporating an awareness of social and political trends into corporate strategy has become overwhelming and underlines the role of the CEO in pushing for such awareness. 

"For stakeholders, companies are, in many ways, already agents of social change and must become much more deliberate in understanding the way they affect society. Businesses that .... proactively understand and engage with social issues will benefit most. They will be better able to shape the social contract and to identify ways of creating value from the opportunities and risks arising from sociopolitical issues."

China Firms Least Financially Hooked Up in Asia

Only a third of the top 1,000 companies in Asia -- minus Japan -- have financial links beyond their domestic markets, says a recent Greenwich Associates survey. Chinese companies were the least financially hooked up globally, although 80 percent did use regional financial services. A Hong Kong-based analyst quoted in the April 10 Financial Times article on the survey explains:

"A lot of the trade in China and other parts of Asia consists of manufacturing goods and shipping overseas. It does not require banking services."

South Korean and Indian companies lead the region in their reliance on financial services to access markets in the west and in emerging markets.

Clean Energy Firms Have Moment in the Sun

Spurred by severe energy shortages and oil price volatility, private equity firms in countries such as India and China are looking to invest in renewable energy and energy-efficient projects. An industry specialist quoted in the Economic Times of India describes the impetus: “Oil is scarce and access is limited to a select few, while alternative energy is freely available."

Private equity firms have noted the trend and, in India, the latest investments have been in windmill and wind power technologies, among others.