Business Blog: Hoover’s Business Insight Zone

As they seek diversification, plenty of money managers are investing in “frontier markets” — i.e. stock exchanges in developing countries. Some of these markets, like those in Vietnam, are especially appealing because they aren’t heavily tied (or “geared”) to U.S. stock exchanges. In other words, they don’t go up or down in lockstep with the bigger bourses of the world.

For more, check out this interesting Marketplace interview (posted in both text and audio) with John Authers, investment editor of the Financial Times:

Prospecting in ‘frontier markets’

One of the things that has driven the emerging markets and which has helped countries like Brazil or Russia truly emerge, at least on some measures, is the huge booming commodity prices. If you’re a mineral-rich, or in other ways commodity-rich country in that band in southern Africa there are ways in which you could become a frontier market. Obviously you need to make some extremely careful decisions about the political system. There could be some very interesting bargains to be found there. You obviously have to do an awful lot of due diligence first.

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Om Malik has this short item about rolling out tech in the developing world to test and learn before rolling it out in the higher-stakes markets of the more-highly-industrialized world.

Emerging Markets As Cutting Edge Tech Test Beds

Worth reading, and worth contemplating how the phenomenon — which Malik addresses in business-technology terms — also applies to boosting environmental and social goods in the developing world, as discussed in this May 2007 post from WorldChanging:

Principle 8: Leapfrogging

Whatever angle you take on this — human development, green business, filthy lucre, whatever — it certainly seems worthwhile to test concepts in markets without an intrenched infrastructure that must be overcome. Doing so eliminates one of the major status-quo inputs to the market equation, which would seem to make experimentation easier.

This Newsweek piece* details Mark Bent’s creation and marketing of the solar-powered BoGo light. “BoGo” stands for “buy one, give one”; as the article explains, “Bent’s light, sold only via the Internet, comes with a special deal: buy one for $25, plus shipping, and Bent automatically gives one to the relief group of your choice or to U.S. troops in Iraq or Afghanistan.”

Citizens of the industrialized world take for granted the availability of bright lights at night. If you want to stay up reading in bed past midnight, no problem. If you want to run a third shift in your company’s production plant, no problem — just leave the lights on. But in many parts of the world, nightfall brings any reading or schooling to an end, and spells the close of productive work for the day.

American entrepreneurs looking to enhance social goods while making their own fortunes from customers at “the bottom of the pyramid” face unusual challenges, as the article explains:

It’s a tough business, though. Mills says Bent isn’t the only one trying to figure out how to make the lights affordable for people in developing countries and how to ship them to regions with a low population density. Bent says he has distributed roughly 20,000 BoGo Lights so far from his Houston headquarters, including 7,500 that were bought by ExxonMobil for refugees at U.N. camps in Africa. […]

Still, Bent says his company has yet to reach the break-even point, despite his having sunk $250,000 of his own savings into it. “No one has done this before,” he says of his business model. “If I had a pizza parlor and was screwing up, I could walk down the street and ask what’s wrong with the sauce. But here, I can’t get any guidance from other people.”

While I still think that appropriately targeted aid programs are vital to development efforts — especially new-look programs like those of the Gates Foundation — in the long run, successful entrepreneurship for (and among) the developing world will play a vital role in improving prosperity there.

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* Pointed out to me by my mother — thanks, Mom!

This item from Foreign Policy’s Passport blog describes how “Ecuador’s government is asking developed nations to pay $350 million for them NOT to drill for oil in a major field in the heart of the Amazon.”

I do take slight issue with FP’s comment that this qualifies as “a unique environmental scheme,” since it appears to be similar to the financial deals that Indonesia has been working out with Australia and other countries.

The general idea behind these moves is the same. The richest countries have something — money — that developing countries need (or want, depending on your viewpoint), and many developing countries have something — environmental goods — that the rich countries need (or want). Sounds like yet another context for supply and demand, of both money and environmental goods, to take over.

It will be interesting to see just how much Indonesia, Ecuador, and their rain-forest-possessing peers will push on this front in years to come, and how much the most developed nations will be willing to pay.

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More context from the FT (via MSNBC):

Forest nations press for carbon credits to help cut greenhouse gas

and (the Australian variety of) ABC:

Indonesia says more money needed to stop deforestation.

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It’s hard for me to say anything detached about Zimbabwe, which has been so disastrously run in recent years by its President/autocrat Robert Mugabe. While the country’s massive fertility, hard-working populace, and common border with economically powerful South Africa should make it a breadbasket and a natural site for foreign investment, Mugabe’s blinkered economic policies and suppression of civil rights have made it into a locus of misery.

Citing economic instability — and driven by a new law that nationalizes foreign business holdings — H. J. Heinz has withdrawn from its operations in the country.

• From Reuters: H.J. Heinz says sold Zimbabwe oil maker over crisis
• From Voice of America news: Heinz Exits Zimbabwe After Writing Down US$111 Million Investment
• From the BBC: Food giant sells out of Zimbabwe

In her blog at The Atlantic, Megan McArdle discusses the economics of Mugabe’s “reforms” at more length.

Cry, the beloved country

After citing some of the statistics that quantify the disaster of the recent years of Mugabe’s reign, McArdle writes:

If Robert Mugabe had set out with the deliberate goal of trashing his country’s economy, he could hardly have been more effective. You might say he’s pioneered his own field: undevelopment economics. Starting with a disastrous land reform that placed land into the hands of political cronies, rather than those who knew anything about farming, or needed sustenance, he has turned a huge net food exporter into a net importer . . . when they can get the hard currency to import. […] He has brought on hyperinflation, decimated the country’s financial system and industrial base, crippled its agricultural output, mired the government in unrepayable debt, and reduced virtually all of his citizens to appalling poverty.

Opinions differ on this, of course, and on what to do about it. Many Africans defend Mugabe from his Western detractors, citing the long, deplorable history of Western depredations in Africa — and especially against powerful black African leaders — as reason to suspect the motives of Western-dominated institutions like the UN and the EU. (They have a point: too often in years past, Western leaders and businesses viewed African assets as ripe fruit to be picked at their leisure.) African institutions such as the African Union have declined to censure Mugabe, in general taking his side, or at least taking the position that outsiders are in no position to talk about his rule or Zimbabwe’s laws. McArdle predicts that no solution will come until the country collapses completely; I’m prone to think she’s right.

Losing H. J. Heinz’s presence in the cooking-oil business probably won’t hasten that day for Zimbabwe. But the reasons for Heinz’s departure probably will. Which makes me far from detached in my sorrow for the suffering of Zimbabwe’s citizens.

Two interesting items on African business this morning:

• “Seeking Riches in Africa” from the Wall Street Journal’s MarketBeat blog — Key items to take away: (1) Africa’s economy is growing faster the worldwide economy as a whole, thanks largely to surging revenues for commodities (primarily oil, but also copper, gold, diamonds, etc.); but (2) risks abound — and in some cases the perception of risks is even worse than the reality.
• “In 10-nation poll, Africans see a better future” from the International Herald Tribune — The nature of the article is well summarized by its opening sentence: “Despite a thicket of troubles, from deadly illnesses like AIDS and malaria to corrupt politicians and deep-seated poverty, a plurality of Africans say they are better off today than they were five years ago and are optimistic about their future and that of the next generation, according to a poll conducted in 10 countries in sub-Saharan Africa by The New York Times and the Pew Global Attitudes Project.” (My old-school journalism teacher would be so proud!) The whole article is worth reading, since it gives a much better view of Africans’ opinions that we usually get from US media.

My own best guess is that, for years or decades to come, some areas of Africa (e.g. the Central African Republic, Zimbabwe, and eastern Congo) will continue to suffer the worst effects of misrule and inter-ethnic strife. When these problems are compounded by drought or other natural disasters, the effects are going to be dire — and they’re certainly not going to encourage business investment from outsiders. But for other areas, the future could be bright: more and more businesses from the US, Europe, and Asia are investing in Africa’s more stable areas, including countries like South Africa and Namibia.

The WSJ item cited above rightly highlights Africa’s “bountiful natural and human resources” — resources that have been grossly under-used and mis-used in the past. Africa is home to roughly 900 million people, yet it received only $39 billion in foreign direct investment last year. According to UN figures, in 2005 Germany alone — with just 82 million residents — drew about as much foreign direct investment as all of Africa. Obviously, even with all its mineral resources and its embrace of democracy, Namibia has a long way to go to match Germany economically. But that also means that there is plenty of headroom for economic growth in Africa’s stable regions, something that savvy enterprises from both the West and the East are figuring out.