Innovations In Emerging Markets

East Asia's Firms: Starved for Financing and Nowhere to Go

Local investment in East Asia’s financial markets is being stunted – by the region’s own inadequate banking sectors and uneven growth of its securities markets, Oxford Analytica argues in a recent analysis (restricted access). As long as that remains the operative characteristic in East Asia, cross-border investments will remain weak and capital flows will go to bolster reserves instead of funding development projects.

Starved for financing, East Asian firms should look to equity and bond markets, says OA, rather than banks. In turn, the region's banks must focus on private sector financing, particularly small and medium companies, which are responsible for most of the production and jobs in regional economies.

Africans Aim for Bigger Slice of Global Investments Pie

Africa attracted 3 percent of last year's international investment, according to a senior South African official quoted in EngineeringNews.com. That's 3 percent of net private capital flows to developing countries, which World Bank Group data showed reached $491 billion in 2005.

What must Africa do to capture more of the private capital looking for sustainable investments around the globe? The official says local promotion agencies should work on expanding investments in the region to the agribusiness and manufacturing sectors. So far, the bulk of investments has gone to resource-rich countries and has bypassed others. And more emphasis should be put on the burgeoning Asian investment in the region.

That would be working in step with local government and global initiatives underway (see Investment Climate Facility for Africa in which IFC is a partner) to help Africa get a bigger slice of the global foreign investments pie.

 

South African Companies Overtaking India as FDI Destination

South African companies are on the global radar screen, reports South Africa's Business Day. It goes on to quote an Ernst & Young report noting that the value of mergers and acquisitions in South Africa soared 63 percent last year, "helping the country eclipse India for the first time in terms of foreign direct investment." Global buyers are particularly interested in South African banks. The country's mining sector is also attractive to foreign investors.

Surplus Foreign Exchange Reserves in EMs Could Go to Private Sector

Emerging markets circles are abuzz over former U.S Treasury Secretary Lawrence Summers's recent speech, underlining the levels of surplus foreign exchange reserves being held by the central banks of most developing countries, especially in Asia. A Financial Times editorial notes the level of excess reserves: in the order of $1,500 billion above what is needed to guard against foreign exchange crises.

The Financial Times editorial, however, offers an alternative to Summers's suggestion for putting the excess exchange reserve to good use. Summers suggests an investment fund overseen by the IMF and World Bank. Asset management, opines the Financial Times, is not part of the IMF or World Bank expertise. It argues for another option: transferring surplus reserves to the private sector. China, the editorial article says, could write a check of several hundred dollars to each of its citizens. More realistically, it continues, the transfer would be effected in the same way India now roughly achieves it: by aiming for a measure of progressive capital account liberalization to allow private citizens to accumulate foreign assets.   

Capital Markets Can Be Alternative Source of LAC Infrastructure Financing

If they can offer lower interest rates, capital markets could well take up the slack in infrastructure financing in Latin America left by dwindling overseas investment, Oxford Analytica predicts in a January 30 article.  Bank loans continue to be the main source of infrastructure finance in Latin America. But with no recovery of overseas investment in sight for the region’s private water, power, transport, and telecommunications projects, local bond and equity markets are now part of the equation, Oxford Analytica says.

Emerging Markets Head For Banner Year In 2006

IFC said booming Emerging Markets are destined for another super-profitable year in 2006 but their economies are suffering from uneven growth rates and widespread poverty, Reuters, Dow Jones, and International Trade Finance reports. IFC EVP Lars Thunell said, "Emerging markets as a group have proved they can sustain high growth and attract capital. There is a tremendous dynamism, but there is a huge unfinished agenda."

To learn more about IFC's vision for Emerging Markets, click here.

Private Capital Flows To Emerging Market Economies

A paper by the Institute of International Finance says that private capital flows to emerging economies will remain relatively high in 2005, but risks have increased as investors are concerned about a less-friendly global economic environment.

IFC's 2005 Strategic Directions Paper agrees that private capital flows continue to recover, with concentration in larger economies, and emphasizes the growth of South-South opportunities.