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  • 1. DALBERG GLOBAL DEVELOPMENT ADVISORSInside perspectives from BRIC and beyondPresented by James Mwangi and Gaurav Gupta
  • 2. Dalberg offers strategic advice on development, sustainability andopportunities in frontier markets Copenhagen Geneva San Francisco New York Washington DC Dakar Mumbai Nairobi Santiago Johannesburg
  • 3. Our role is shifting with a changing world Integrating efforts to assist in development... ... with moves to create and capture value 2
  • 4. BRIC countries provide a template for rapid transformation 3
  • 5. The BRIC countries show us how transformation has played out in the recent past 1990: From widespread poverty 2010: To mass markets ... BRIC in1990: BRIC in 2010: • Average GDP per capita: $ 1.815 • Average GDP per capita: $ 5.417 • Foreign Direct Investments to the BRICs: $ 4.5 • Foreign Direct Investments to the BRICs: $ 208 billion billion • Still 15.3% of population below the national poverty • India had 36% and Russia 30% of their population line on average below the poverty line • Literacy in India is 66% while the rest are almost • China and India were less than 30% urbanized 100% • India had less than 50% literacy 4
  • 6. There are signs that a new wave of countries is embarking on the same path New emerging economies beyond BRIC are characterized by • Strong, steady growth of more than 3% per year through the global economic down turn • A current wealth base of a GDP per capita of more than $500 • Relatively stable security and governance conditions • Relatively good or improving ease of doing business 5
  • 7. Our entire model for thinking about these countries must shift From meeting a charitable need To commercial engagement • 15 countries beyond BRIC have seen an average annual growth above 5% during the global crisis • By 2020 more than half of African households are expected to have discretionary spending power led by a growing urban middle class • Africa’s collective GDP is now at $1,6 trillion – on level with Brazil’s and Russia’s • Foreign direct investment in Africa has increased from $9 bn in 2000 to $62 bn in 2008 • Since 1990 Western Europe’s share of trade with Africa has shrunk to half while Asia’s has more than doubled 6
  • 8. The transformation of these countries will feed on their untapped human potential • Africa’s labor force is rapidly expanding with more than 40% of the population below 15. It is projected to reach 1,1 billion in 2040 overtaking China and India • Basic adult literacy rates are currently 64% for Africa and 80% for Asia • 1,2 million people from BRIC and beyond are currently studying abroad compared to 5000 from Denmark (Kenya alone has 10,000) • 66% of the international students at MIT- on of the world’s top universities – are from Africa, Asia and Latin America while only 20% are from Europe 7
  • 9. Three illustrative cases highlight some of the potential opportunities in these economies An ATM in every pocket • Access to financial services is often a key binding constraint in frontier markets • New approaches are utilizing mobile phone capabilities to deliver a full suite of financial capabilities and have the potential to create cashless societies Better farmers and hungry consumers • Increasing urbanization and a growing middle class in Asia and Africa is driving up demand for processed agricultural products • Agricultural production beyond BRIC offers significant opportunities to raise productivity and claim domestic and export markets Lighting a hundred million homes • Large segments of the population in these countries lack access to the electric grid and are unlikely to be reached in the near future • New products emerging to affordably and sustainably provide access to clean lighting and power for some domestic appliances and gadgets 8
  • 10. A bank in every pocket: Mobile banking and innovative agent banking modelsare providing millions of people with access to financial services • In 2000 less than 10% of Kenyans had access to a bank account • Today 80% have access to mobile phones • Since the launch of mobile money in 2007 more than 14 million users have signed up • Today more than 60% of the adult population Million users has a mobile money account MPesa • As banks are developing platforms to direct banks access to banking services and new service models a steep increase in the access to financial serices is seen • Services available for mobile and agent MKesho banking are developed at a very high pace 9
  • 11. Farmers to consumers: Fast growing urban populations drives vast increase in demandfor processed agriculture products Projected growth in food consumption indexed: • On the demand side, Frontier markets are SSA vs. developed countries (2000-2018) urbanizing at an unprecedented rate with Africa’s CAGR urban population projected to almost double 160 2000-2018 2.6% from 230M in 2000 to 430M in 2020 155 150 • Rising incomes in the middle class are also 145 changing consumption habits particularly around 140 Sub-Saharan Africa food 135 130 1.4% • This creates opportunities for new products to 125 capture uncontested market 120 115 Developed countries 110 • On the supply side productivity in most frontier 105 markets significantly lags behind Europe and the 100 US (e.g. average annual milk production per 2000 2008 2018 cow in EU ~4700 litres, Africa ~500litres) • Governments and commercial farmers are increasingly looking at technology and skills to close these gaps • There are also opportunities to introduce technology and business models around processing and marketing foods for the growing consumer segment and for export
  • 12. Lighting a hundred million homes: In Africa alone, the potential market for off-gridportable clean lighting solutions is estimated at $10Bn Over the next 20 years, Africa will rapidly surpass Asia to • African BOP households and small businesses become the largest un-electrified market in the world currently spend over $10 billion on lighting annually - growing to over $11bn 809 2009 698 561 589 2030 • Most unelectrified households are currently lit with battery driven or kerosene lamps which are costly 34 13 21 5 and inefficient Latin Asia Africa Middle East America • Africa’s non-electrified population will grow to 120 million households (630 million people) and over 10 million small businesses by 2015 The global solar portable lighting market is dominated by India and China • In addition 20 out of 60 million on-grid households 9% 8% are “under-electrified” 6% Other 30% 22% India • The market will easily experience 40-50% annual 40% 20% China sales growth, and 5-6 million African households will own solar portable lights by 2015 27% 49% US, Canada, 50% Europe, • It is expected that by 2015 nearly 12 million SPLs will 20% 19% Australia, Japan be owned by African households and SMEs Number of Global sales Africa sales manufacturers 11
  • 13. Long-term success requires navigating risk through an ESG lensTop performing emerging markets are ranked as some Recent media reports of economic, social andof the most highly corrupt nations of the world governance controversies in India affecting companies “Stop the Vedanta Project in Orissa” Economic Times, November 2010, on allegations of mining in sensitive areas inhabited by indigenous people “Tata pulls out of Singur, blames Trinamool stir”Rapid accompanied by a dramatic surge in carbonemissions Economic Times, November 2010, on the Tata Nano plant being shifted away after land acquisition issues “Rs. 1,50,000 Crore 2G scam may leave 69 licenses scrapped” Business Standard, November 2010, on the recent mobile license distribution scam
  • 14. Investing in growth: Why ESG investments makes sense in emerging markets ESG assets under management What are the material ESG issues? USD trillions • Environmental 6,8 • Social +21% 0,5 Australasia • Governance 3,6 3,6 Europe 2,6 Why is it important to investors? 0,4 1,3 • Risk mitigation: 2,3 2,7 North 2,2 America – Sustainable companies better avoid crises – Customer, supplier and employee loyalty 2003 2006 2008 • Earnings and growth impact: Percent of LPs who expect to invest in emerging regions by – Efficient use of resources can date reduce/control business costs 2007 68 – Forces long term thinking MESA 83 2008 89 2009 43 • Capital flows CEE+ 57 Russia – Significant capital flows into sustainability 75 themes Latin 20 40 – ESG-oriented investors likely to have longer America 65 horizons/hold periods 4 Asia 30 52 13
  • 15. Early signs suggest ESG approach in emerging markets pays off Much stronger performance for top Corporate Governance quartile in emerging markets over 5 years 14
  • 16. Four crucial questions for you to answer as you approach these new frontiers How well does your product and business model align to the needs of the local market? Value propositionHow much of How smoothlythe value Total Access Strategy for does the valuecreated by your Economics Value chain frontier markets chain to your targetproduct, are and market function?you effectively financingable to capture? Key Partners Who do you critically depend on in your value chain and what is the structure of that relationship? 15
  • 17. Some fast movers from Beyond BRIC are already having an impact in Denmark … can Denmark move fast enough to claim its share of the emerging opportunities? 16