Dalberg - Beyond BRIC
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Transcript of Dalberg - Beyond BRIC
DALBERG GLOBAL DEVELOPMENT ADVISORS
Inside perspectives from BRIC and beyond
Presented by James Mwangi and Gaurav Gupta
Dalberg offers strategic advice on development, sustainability and
opportunities in frontier markets
Johannesburg
Santiago
New York
Washington DC
Nairobi
San Francisco
Geneva
Copenhagen
Dakar Mumbai
Our role is shifting with a changing world
2
Integrating efforts to assist in development... ... with moves to create and capture value
BRIC countries provide a template for rapid transformation
3
The BRIC countries show us how transformation has played out in the recent past
4
1990: From widespread poverty 2010: To mass markets
BRIC in1990:
• Average GDP per capita: $ 1.815
• Foreign Direct Investments to the BRICs: $ 4.5
billion
• India had 36% and Russia 30% of their population
below the poverty line
• China and India were less than 30% urbanized
• India had less than 50% literacy
...
BRIC in 2010:
• Average GDP per capita: $ 5.417
• Foreign Direct Investments to the BRICs: $ 208 billion
• Still 15.3% of population below the national poverty
line on average
• Literacy in India is 66% while the rest are almost
100%
There are signs that a new wave of countries is embarking on the same path
5
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
Our entire model for thinking about these countries must shift
6
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
The transformation of these countries will feed on their untapped human potential
7
• 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
Three illustrative cases highlight some of the potential opportunities in these economies
8
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
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
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
A bank in every pocket: Mobile banking and innovative agent banking models are providing millions of people with access to financial services
9
• 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 has a mobile money account
• As banks are developing platforms to direct 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 banking are developed at a very high pace
MPesa
MKesho
banks
Million users
Farmers to consumers: Fast growing urban populations drives vast increase in demand for processed agriculture products
• On the demand side, Frontier markets are
urbanizing at an unprecedented rate with Africa’s
urban population projected to almost double
from 230M in 2000 to 430M in 2020
• Rising incomes in the middle class are also
changing consumption habits particularly around
food
• This creates opportunities for new products to
capture uncontested market
• On the supply side productivity in most frontier
markets significantly lags behind Europe and the
US (e.g. average annual milk production per
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
100
105
110
115
120
125
130
135
140
145
150
155
160
201820082000
Projected growth in food consumption indexed:
SSA vs. developed countries (2000-2018)
Sub-Saharan Africa
Developed countries
CAGR
2000-2018
2.6%
1.4%
Lighting a hundred million homes: In Africa alone, the potential market for off-gridportable clean lighting solutions is estimated at $10Bn
11
• African BOP households and small businesses currently spend over $10 billion on lighting annually - growing to over $11bn
• Most unelectrified households are currently lit with battery driven or kerosene lamps which are costly and inefficient
• Africa’s non-electrified population will grow to 120 million households (630 million people) and over 10 million small businesses by 2015
• In addition 20 out of 60 million on-grid households are “under-electrified”
• The market will easily experience 40-50% annual sales growth, and 5-6 million African households will own solar portable lights by 2015
• It is expected that by 2015 nearly 12 million SPLs will be owned by African households and SMEs
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589809
34 5
698561
13
Middle EastAfricaAsiaLatin America
2030
2009
Over the next 20 years, Africa will rapidly surpass Asia to become the largest un-electrified market in the world
US, Canada, Europe, Australia, Japan
China
India
Other
Africa sales
50%
20%
22%
8%
Global sales
19%
49%
30%
9%
Number of manufacturers
20%
27%
40%
6%
The global solar portable lighting market is dominated by India and China
Top performing emerging markets are ranked as some
of the most highly corrupt nations of the world
Rapid accompanied by a dramatic surge in carbon
emissions
Recent media reports of economic, social and
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
“Rs. 1,50,000 Crore 2G scam may leave
69 licenses scrapped”
Business Standard, November 2010, on the
recent mobile license distribution scam
“Tata pulls out of Singur, blames
Trinamool stir”
Economic Times, November 2010,
on the Tata Nano plant being shifted away
after land acquisition issues
Long-term success requires navigating risk through an ESG lens
Investing in growth: Why ESG investments makes sense in emerging markets
13
What are the material ESG issues?• Environmental• Social• Governance
Why is it important to investors?• Risk mitigation:
– Sustainable companies better avoid crises– Customer, supplier and employee loyalty
• Earnings and growth impact: – Efficient use of resources can
reduce/control business costs – Forces long term thinking
• Capital flows– Significant capital flows into sustainability
themes – ESG-oriented investors likely to have longer
horizons/hold periods
Percent of LPs who expect to invest in emerging regions by date
4
20
43
68
30
40
57
83
52
65
75
89MESA
Asia
Latin America
CEE+Russia
ESG assets under managementUSD trillions
3,6
0,4
2,6
2006
3,6
2,3
Europe
North
America
6,8
2,7
0,5+21%
2008
2,2
1,3
Australasia
2003
2008
2009
2007
Early signs suggest ESG approach in emerging markets pays off
14
Much stronger performance for top Corporate Governance quartile in
emerging markets over 5 years
Four crucial questions for you to answer as you approach these new frontiers
1515
Access Strategy for
frontier markets
Value
proposition
Value chain
Key
Partners
Total
Economics
and
financing
How well does your product and
business model align to the
needs of the local market?
How smoothly
does the value
chain to your target
market function?
Who do you critically depend on
in your value chain and what is
the structure of that relationship?
How much of
the value
created by your
product, are
you effectively
able to capture?
Some fast movers from Beyond BRIC are already having an impact in Denmark
16
… can Denmark move fast enough to claim its share of the emerging opportunities?