Innovations In Emerging Markets

Islamic Financing Innovations Establish Malaysia as Financial Hub

Malaysia is fast becoming the world's most innovative country in the area of Islamic financing. Malaysia's central bank governor recently described the strides made by the country's financial sector in a recent speech carried by the Bank for International Settlements.

Despite these recent successes in the financial sector, small Malaysian firms have not regained their pre-Asian crisis levels of energy, a recent IMF study shows. The study finds that low profitability and financing constraints are two reasons Malaysian firms have failed to reclaim their lead as the source of Malaysia's growth before the Asian crises of the 1990s.

Whether the new Islamic financial instruments will attract foreign investors from Asia and the Gulf states and help re-energize the local financial markets and businesses remains to be seen.

Southeast Asia’s Green Energy Industry Fuels Employment

Southeast Asian countries have discovered a lucrative new sector – biofuels, reports the Economist. Palm oil can be turned into biodiesel, which promises to be a cheaper and more environmentally sound energy alternative. Besides reducing dependence on oil and gas, biofuel production helps boost trade surpluses and create employment.

In fact, Indonesia’s biofuel sector already employs 1.5 million people, and with the $110 million in aid the government promised its palm farmers, the number is expected to grow. Meanwhile, Malaysia has already approved 52 new biodiesel plants, which are needed to meet the orders pouring in from the EU and Japan. Neighboring Thailand, Myanmar, and the Philippines are also investing in biofuel plantations. Singapore will be doing refining for producer countries.

Two drawbacks: the time it takes for oil palms to grow fruit and, that as the price of palm oil goes up, food and other cooking oils become more expensive for the poor.

How India's Companies Can Add Value To The Local Economy

India's private sector companies need a more market-oriented playing field in order to contribute fully to the national economy, a McKinsey Quarterly article says. It notes that India's private firms are more productive than their Chinese counterparts, but are hobbled by interest rates that are, on average, twice as much as those in China. Why? Because India's financial system remains under tight government control, suffocating economic performance, the article says.

"...The financial system is inefficient in both of its main tasks -- in mobilizing savings and allocating capital -- Indian borrowers pay more for capital and depositors receive less than they do in comparable economies."

As painful as financial reforms are for India to contemplate, the authors say they are the only way the country can "complete its transition from a poor economy dominated by agriculture to a prosperous one led by services and manufacturing."

African Bourses Mostly Insulated from Recent Turmoil In Emerging Markets

African frontier markets -- including Nigeria, Mauritius, and Ghana -- continue to be largely exempt from the recent downturns that have been jostling other emerging markets, the Financial Times reports. That's because those exchanges are relatively illiquid and less developed and are not necessarily in sync with what's going on in other developing economies, according to a report by Investec Asset Management.

Investec noted that it will be another five years or so before these markets catch up and become more integrated and more vulnerable to broader trends. But right now, the isolation from the broader EM downturn enjoyed by frontier markets in Africa make them an investment opportunity.

In contrast, the region's more developed bourses -- in particular, South Africa, Egypt, and Namibia -- all took the hit that battered global emerging markets in May and June.

Verifying a Company's Contributions to Society

"Trust but verify" is as much a truism in the sustainable development world today as it was two decades ago in the political realm. Klaus Leisinger, president of Switzerland's Novartis Foundation for Sustainable Development talks about the challenges inherent in verifying a company's contributions to society in a recent McKinsey Quarterly interview. The Swiss pharmaceutical company has worked extensively among Africa's rural poor to introduce private health insurance.

Examples of the commitment of business to society are growing, although they have outpaced the ability to measure. The Novartis Foundation's fight against global poverty and disease --leprosy in particular-- is one example that stands out.

South African Banks Give Globals Run for Their Money

Global banks such as Citigroup and JP Morgan Chase are flocking to South Africa to win lucrative black economic empowerment deals – part of the government’s design to reshape South Africa’s post-apartheid landscape by shifting 25 percent of the nation’s assets to blacks by 2014, says Bloomberg News.

But the competition will be tough – local banks dominate the market and receive fees on average equaling 2.5 percent of the deal. South Africa's fourth-largest lender, Nedbank, was the top arranger in 2005, putting together 7.7 billion rand in deals, says consulting firm BusinessMap. Rand Merchant Bank came in second at 5 billion rand.

Participating banks are eligible to finance 372 billion rand in public works over the next three years. And lenders who don't fund empowerment deals or have black investors won’t be eligible for state contracts.

International banks may still find it too hard to pass up the South African financial market. Global players are positioning themselves for the long haul in South Africa’s economy, the continent’s biggest. The IMF forecasts it will grow 4.3 percent this year.

Global Firms Lead on Environmental Standards, Have Trickle-Down Effect on EMs

In the old days, U.S. regulators forced environmental rules on unhappy corporations. In recent years, things have changed as companies weigh reputational risk and preserve brand image. Firms themselves have imposed their own social and environmental standards, said a recent Washington Post column. For example, in the wake of global warming – and the rise of issue-conscious consumers -- Wal-Mart has vowed to double the efficiency of its vehicles and has cut its stores’ energy consumption by 30 percent. Meanwhile, both BP and GE have adopted environmentally friendly policies.

The trickle-down effect on companies in emerging markets is clear to see. The furniture-making industry is a case in point. Most developing countries do not, as yet, have regulation related to the exploitation of forests for furniture-making. But American firms that want to protect their brands are adamant on certification from the Forest Stewardship Council.

Because brands do not face the bureaucratic red tape generated by governments, they can more easily set their own social and environmental standards. Brands, in fact, are ahead of the curve and have become a kind of "shadow government." They are of course not the real thing. But, says the Washington Post, they are better than nothing.

UAE Firms Expanding into Africa and Asia

Angola's Sistec company -- eight branches and 400 staff-- is the local partner and distributor in a services deal just completed with the UAE's Thuraya Satellite Telecoms Company services. Gulf News says Thuraya executives consider the Angola deal a major step in their expansion into Africa's emerging markets.

"Our service launch in Angola is the latest among several recent launches in African markets that signify our focus and commitment towards Africa, as developing nations that constitute a substantial part of our coverage area," Thuraya CEO Yousuf Al-Saeed said.

South-south investments originating in the Arab Gulf countries are on the rise in Asia. Business Times Singapore (closed access) reports Gulf investors are becoming players along the old commercial Silk Road, once again linking the markets of Europe and the Levant to those of China. That expansion promises to be as steady as UAE inroads into African markets.

Entrepreneur Central To India's Economic Success

The entrepreneur is at the center of the Indian economy's phenomenal success, says Foreign Affairs Magazine. Despite the burden of indirect taxes, stringent labor laws, and a massive bureaucracy, Indian companies continue to thrive, with a booming stock market and modern financial sector. Over 100 Indian companies have a capitalization of more than a billion dollars, and some of these, such as Bharat Forge and Wipro Technologies, will probably be successful brands. Foreigners have jumped into India's stock market, investing in over 1,000 companies.

But there are still obstacles to continuing development: high public debt, a deterrent to infrastructure investment, an unwieldy, inefficient public sector, and lack of a broad-based industrial revolution that can generate the employment that goes along with growth.

China's Entrepreneurs -- this Century's Most Intriguing Stories in Development

It must feel like the 'China-entrepreneurs-24-hour-news-channel' on this blog lately. The truth is, the increasingly central role of the entrepreneur in China is a phenomena, which is captivating the attention of many of us in the business of international private sector development -- not to mention a whole host of social scientists, economists, and lawyers ... to name a few.

One case in point is the China Law Blog. It recently carried our posting on Chinese firms driving investment expansion to illustrate how facts on the ground, combined with government planning and strategy, are putting Chinese entrepreneurs squarely in the middle of China's economic development trajectory.

The China Law Blog posting flagged a new China Daily article, entitled "Professionals, entrepreneurs: new pillar of China," which describes how China's 150 million entrepreneurs and "freelance professionals" are a "new pillar" of Chinese society and economic development.

It's no accident then that it feels like the 'China-entrepreneurs-24/7'  channel on this blog and other business news platforms sometimes. For international business and development trend watchers anywhere, that's easily among the most intriguing stories unfolding in the 21st century.