Myanmar: To Invest or Not to Invest, That is the Question

When we talk to executives who are thinking about expanding into Myanmar, many of their concerns seem to come down to the same thing: politics.  There is a round of elections coming up in late 2015 that has the potential to radically shift the country’s power structures, and the prospect of dramatic change in Myanmar’s leadership is giving companies pause because it adds to the uncertainty already inherent in the market. Many executives are waiting to invest until they see how things shake out.

The problem with this approach is that companies looking for political certainty in Myanmar will have to wait quite a while to get it.  After the new president, cabinet, and legislature take office at the beginning of 2016, it will take at least another 2–3 quarters for businesses to really assess the new government’s priorities and capabilities.  In other words, companies will not have significantly more political certainty in Myanmar until Q4 of 2016 at the earliest.  That’s a long time to wait, particularly if your competitors are already in the market.

This is not to say that all companies should be investing now; it is simply to say that companies should recognize that political uncertainty in Myanmar isn’t going away anytime soon.  And that’s not just true of the overarching governmental structures.  It’s also true of the operating environment.

To give an example, I met with one executive during a recent trip to Yangon who shared a story about his experience with Myanmar’s Internal Revenue Department (IRD).  Apparently, the government had lowered taxes for his company the year before, but he was still made to pay taxes at the original rate. It turns out that there was a communication breakdown within the government, and the IRD simply hadn’t inputted his company’s new rates into their system. (The authorities returned the money once the problem was identified several months later.)

The bottom line is that any company with a presence in Myanmar will have to navigate gray areas for the foreseeable future.  After decades of isolation and stagnation, the country’s institutions are immature and its legal frameworks are weak.  Myanmar’s officials are still learning the basics of government administration, and its legislators are rushing to fill gaps in its regulatory infrastructure.  They are moving quickly, but they have a lot of ground to cover.

With this in mind, executives who are thinking about expanding into Myanmar should not delay their decision on the hope that the situation will clear up sometime next year.  Instead, they should consider whether they would rather invest now with less political certainty or invest two-and-a-half years from now with more political certainty.  Comparing those two scenarios will give executives who are weighing their options a much better idea of the tradeoffs they face.

Multinationals focusing on long-term scenarios for Venezuela

Multinationals are increasingly reevaluating their commitment to Venezuela given that most companies are facing deteriorating economic conditions and a worsening operating environment, regardless of whether they have a direct sales presence or are working exclusively through distributors. While conditions have been difficult over the last 18 months, due to chronic shortages of dollars and delayed payments from distributors and the government, the long-term outlook for Venezuela also remains shrouded in uncertainty.

With that in mind, FSG has built up a series of medium-to-long term scenarios that companies should be taking into account as they develop both their annual operating plans and long-term strategies for the market. These scenarios, in order of likelihood, are as follows:

  1. Gradual economic adjustment is largely ineffective: The government is ineffective at managing a gradual economic adjustment, with the triple-tier exchange rate system providing too few dollars, and price controls continuing to foster widespread shortages. The economy oscillates between small contractions and weak recoveries, with inflation remaining above 40%
  2. Gradual economic adjustment is successful: The government successfully manages an economic adjustment over the next few years, with a covert devaluation and slow contraction of stimulus bringing inflation back to pre-crisis levels and GDP growth stabilizing around 2%-3%
  3. Deepening the revolution: The government moves toward radicalization as attempts to stabilize the economy fail. The government centralizes all imports, suspends dollar debt payments to private sector companies not selling to the state, and pursues a series of even more restrictive and anti-private sector policies that makes a long-term presence for multinationals in Venezuela unviable
  4. Shock therapy:  The least likely scenario, the government moves to unify exchange rate system at a much lower exchange rate for the Bolivar, followed by a contraction in government spending and higher interest rates by the Central Bank of Venezuela, leading to a sharp recession over the short-term. The government follows by taking a more conciliatory stance toward the private sector to incentivize investment

FSG is closely monitoring developments in Venezuela and has resources to support our clients develop both short-term contingency plans as well as long-term scenarios for Venezuela and other emerging markets. FSG clients are encouraged to contact their account manager for more information.

What Does The Rise of Manufacturing in ASEAN Mean for Multinationals?

While the rise of Southeast Asia has been discussed widely over the past few years due to its strong consumption demand, the production aspects of the region remain relatively unexplored with many companies not having examined ASEAN’s manufacturing capabilities, its ability to achieve economic integration, and the comparative strengths of the individual members as production units. FSG’s research shows that manufacturing is likely to play a significant role in ASEAN for years to come

The Rise of Manufacturing in ASEAN

Southeast Asia has experienced a strong CAGR of 5.5% in terms of its manufacturing output over the last decade and is now responsible for almost 4% of the global manufacturing output. This growth has been funded both by domestic companies as well as foreign investors; ASEAN surpassed China in terms of the FDI inflow in 2013 and the manufacturing sector received a large chunk of the funds. In fact, more than 30% of all FDI that has flown into ASEAN between 2005 and 2010 (see pie-cart below) has been towards manufacturing, and the sector is likely to continue to be one of the biggest beneficiaries of the growing interest from foreign investors. The major reasons for this drive in investments can be summarized through the ASEAN’s four C’s: Consumption (growth), Cost (low), Commodities (abundant), and Community (single ASEAN trade bloc)


However, even though the majority of the ASEAN countries have moved out of the agrarian state and have seen this growth in manufacturing, many are still in the early industrialization phases; meaning that the manufacturing sector is going to continue to see strong growth over the next 10 to 20 years (see graphic on the evolution of countries below) and will play a significant role in the development of the region


Assess the Direct Impact of the Rise of Manufacturing

  1. Serving the market: As costs rise elsewhere and the addressable market becomes larger in ASEAN, companies should explore the viability of moving production to the region using a “total factor performance” analysis. It is important to make sure that the analysis looks beyond the simple math of labor-cost and considers total factor performance (labor, transport, leadership, material, components, energy, and capital)
  2. Business customers (B2B) movement: Companies serving other manufacturing and production types of businesses should be assessing what types of industries are likely to invest heavily into Southeast Asia and which are not likely to consider moving beyond China

Gauge the Spillover Effects from the Rise of Manufacturing

  1. Productivity impact: The rise of manufacturing is going to positively impact productivity within the region, which has not seen a large improvement over the past decade. Manufacturing makes outsized contributions to trade, research and development (R&D), and productivity. The sector generates 70% of exports in major manufacturing economies, both advanced and emerging, and up to 90% of business R&D spending. Such productivity growth provides additional benefits, including considerable consumer surplus
  2. Rise in consumption will impact all industries: As the less industrialized countries of Indonesia, Vietnam, the Philippines, Myanmar, and Cambodia move from agrarian societies to manufacturing ones, companies should expect consumption dynamics to evolve. As people move from the less predictable farming sector to the fixed-wage manufacturing sector, they tend to experience strong income growth, increasing their capacity to consume. Even companies not exploring manufacturing opportunities in the region need to be monitoring this trend

Establish a Strategic Role for the ASEAN Region in Your APAC Portfolio

  1. Evaluate a “China Plus” strategy- China’s rise to manufacturing prominence over the past two decades has been staggering. However, rising costs, more sophisticated consumers, and fundamental macroeconomic realities mean that current approaches to manufacturing are losing their relevance. As the imperative for companies in China will be to boost productivity, refine product-development approaches, and tame supply-chain complexity, ASEAN has appeared on the horizon as a viable alternative for companies looking to expand their manufacturing footprint into relatively lower-cost locations. ASEAN countries provide cheaper labor, investor-friendly governments, and are part of established supply chains
  2. Compare the competitiveness of ASEAN (to China and India) – China is unlikely to lose its dominant position as the “factory of the world” anytime soon because of its well-established infrastructure, existing manufacturing facilities, ability to scale quickly, and strong involvement in established global supply chains. However, certain low value-added industries are likely to consider moving out of the country or at least setting up their next facility in Southeast Asia, where the cost of labor can be less than half of that in coastal China. ASEAN countries provide access to several raw materials, and certain locations have strong linkages to trade infrastructure
  3. Explore ASEAN’s complementarity to China- ASEAN countries are also likely to be playing a complementary role to China within several industries that depend on Asia for producing parts and final assembly. Given China’s established role as one of the most productive assembly locations in the world, due to its ability to scale quickly and availability of infrastructure, many companies produce their parts and components in cost-effective locations within the ASEAN region, conduct the final assembly in China, and then have the finished product shipped to the end customer. The ASEAN-China free trade agreement has helped companies create such fragmented supply chains

In FSG’s latest report on the region, titled ‘ASEAN’s Role in Manufacturing’, (a) we explore the rise of ASEAN as a manufacturing hub, (b) diagnose the viability of movement of different types of industries into Southeast Asian countries, (c) conduct a location analysis of the various manufacturing sites in ASEAN, and (d) decipher the impact of the ASEAN Economic Community on manufacturing decisions. FSG clients may click here to see the full report

What Nigeria’s GDP Rebase means for your business


After Nigeria finally announced its rebased GDP calculations, the economy grew by 89% to US$ 509 billion, far more than expected. Nigeria is now the largest economy in Africa as it has overtaken South Africa’s US$ 345 billion economy.

Nigeria’s GDP rebase enhances Africa’s attractiveness as a place that holds significant opportunity because of its size, not just because of its growth rate. There are 24 other African markets planning to recalculate their GDP by 2016. As a result, we expect the overall economy of Sub-Saharan Africa to soon be much larger than currently assumed.

FSG’s report on what the GDP rebase means for your business remains relevant:

  • Brace for increasing competition: Nigeria is now more attractive in every financial and economic model worldwide, luring companies to invest locally. The size of Nigeria’s economy is now larger than that of Poland, Thailand, and the UAE.
  • Recalculate your targets: As the composition of the Nigerian economy has changed, some sectors are now much larger or smaller than previously assumed, altering the addressable opportunity for different industries. Efforts to make the case for additional resources will become easier in sectors that are larger than previously estimated, such as business services.
  • Prepare for rising government spending: The Nigerian government is expected to increase spending as the GDP rebase improved its ability to borrow on global financial markets. Public spending will focus on education, healthcare, transportation, housing, and infrastructure.

The operating environment will be negatively affected this year by heightened volatility in light of upcoming elections in 2015. However, the GDP rebase highlights why it’s important to stay focused on the country’s long-term opportunity.

Argentina’s piecemeal shift toward pragmatism bodes poorly for growth in 2014

While it is too early to say if Argentina’s recent efforts to correct imbalances represent a genuine shift toward pragmatism or are merely calculated forms of damage control aimed at limiting the magnitude of future devaluations and helping Argentina regain access to international capital markets, it is clear that recent adjustments will raise borrowing costs and erode consumer purchasing power and business confidence in the months ahead.

Recent adjustments and their implications for the business environment include:

  • Argentina allowed the peso to fall in January and has also begun to raise interest rates, cut transportation and energy subsidies, and improve relations with external lenders in an effort to stabilize the exchange rate and regain access to capital markets
    • While these efforts are beginning to bear fruit, macroeconomic imbalances, including a dwindling supply of foreign exchange reserves and perniciously high inflation, remain, and the government has resisted a complete shift toward orthodoxy, preferring instead to expand price controls and leave import controls in place.
    • Argentina’s ability to successfully course-correct remains vulnerable and could be undermined by several key events, including wage negotiations, the soy harvest, and a forthcoming US Supreme Court decision regarding Argentina’s obligations to holdout creditors
  • Nearly all key growth drivers, including consumption, investment, and government spending, are expected to contract in the wake of monetary tightening, exchange rate uncertainty, double-digit inflation, falling real wages, and the potential for additional shifts toward fiscal austerity
  • As regional and country heads come under increasing pressure from corporate to make the case for continued presence in Argentina, executives are emphasizing the market’s enduring economic and demographic potential

Ethiopia – cracking the local code

Anna Rosenberg, Head of Sub-Saharan Africa at FSG, is currently on a research trip to Kenya, Uganda and Ethiopia. Here are her latest insights:

As I sit on the plane from Addis Ababa to London, I am gathering my thoughts and impressions of Ethiopia. My trip made me realize just how complex a place it is. Ethiopia is different. Or at least, that’s what everybody keeps telling me. “The first mistake foreign businesses make, is to think that Ethiopia is part of East Africa. Ethiopians are not really Africans, nor are they Arab,” a leading distributor for the healthcare industry told me.

Ethiopians count time differently. It is currently the year 2006. Midnight is 6pm according to “Habesha time.” Unlike its neighbors, Ethiopia has long been closed to foreign exposure. It was famously never colonized, if one ignores the 5 years of Italian rule in the 1930s and 1940s – enough to introduce pasta to the national cuisine. From 1974 to 1991, Ethiopia was under communist influence. Today, Ethiopia is only at the very beginning of opening up to the world.

Yes, Addis Ababa has been the capital of international diplomacy in Africa since the early 1960s. Home to the African Union headquarters and other international organizations, Addis also hosts diplomats from around the world in its swanky hotels and remarkable Chinese-built AU building. Diplomats are easily spotted – they drive big cars and wear expensive suits.

ETHIOPIA 1The Chinese-built headquarter of the African Union is nothing less but a remarkable piece of architecture


The two sides of Addis include swanky buildings and impoverished areas

It seems odd. The majority of the population earns about US$60 per month and cars have a 240% import duty. The result is a stark contrast between rich and poor, diplomat and local. Most shops sell cheap Chinese imports or second-hand clothing. As a result, you can find the odd Ethiopian walking around in a Marks and Spencer shop assistant jacket. Russian Ladas from the socialist area, today widely used as taxis, contrast with the diplomat’s 4x4s. The high import duty means that cars, no matter how old, appreciate in price!


The real economy can be seen in the city’s vast market place Merkato, but Westerners rarely come here


The shop-owners in the Merkato are collectively investing in real estate to move their shops from their little shacks into proper buildings 

However, not all Ethiopians have low income levels. The number of dollar millionaires rose from 1,300 in 2007 to 2,700 people last year. GDP grew by 7.1% in 2013 and the government is implementing reforms to improve the operating environment. Ethiopia is therefore increasingly attractive for multinationals that want to tap into a large population estimated at around 90 million people.

This population figure is nonetheless misleading. Local distributors in the FMCG keep telling me that, “the addressable market is more like 10 million when you count the people living in cities.” Some argue that the addressable market is even smaller. Contrary to other African countries, urbanization is not very pronounced in Ethiopia as about 85% of its citizens live in rural areas. Despite low urbanization, consumer goods companies present in the market are experiencing dramatic growth rates of between 20% to 50%. It seems that growth, while from a low base, is happening fast.

I have come to see that doing business in Ethiopia is a long-term game. Companies must understand it will take time for income levels, and consequently consumption, to grow. It will take time for the government to build the required infrastructure to connect rural to urban areas, so that the addressable market will approach 90 and not 10 million people.

The government’s main objective is to transform Ethiopia first and foremost into an export market before it becomes a consumer market. Industrialization, job creation and poverty reduction are also major priorities – and indeed, it has already made major strides in reducing poverty. The government also wants to tackle the recurrent problem of Forex shortages, which is only possible by having more US dollars come in through exports rather than by importing more. For example, the high import duty on cars has been implemented because the country spends a large amount of its export earnings on importing fuel. The government wants to change this trend.

According to many local and international business leaders, the government differs from other African governments in that it delivers on many of its promises. It has created various industrial zones, given preferential treatment to investors keen on producing locally, such access to land and tax exemptions. The amount of infrastructure being built across the country is nothing less than remarkable.


The railway currently under construction in Addis will provide a much-needed improvement to public transport


This image vividly represents Ethiopia’s ongoing transformation

The government also wants to keep a tight grip on the economy. It will only allow foreign companies to invest in sectors that have a true need. As the minister of Foreign Affairs Tedros Adhanom Ghebreyesus told me, “Multinationals need to bring something we don’t already have, either technology or innovation.”

As a result, some sectors are still closed to international companies. These include retail, telecommunications and banking, among others. The government wants to protect local industries and strengthen them before international players come in. There is nonetheless mounting pressure for these sectors to open up and as many say, it is only a matter of time.


The Commercial Bank of Ethiopia is one of the few banks allowed to operate in the country

Some companies are in fact already sneaking in through the back door. Leading international telecommunication providers are allegedly acquiring stakes in Belcash and M-Birr, two companies that provide the technology infrastructure for mobile banking. Telecom giants are therefore already positioning themselves for preferential access to the market.

Ethiopians want international brands, and they want them now. The odd coffee shop uses a similar logo to Starbucks, and I saw several shoe shops that call themselves Aldo and Clarks.  “But Ethiopia was long closed to foreign influence, and they don’t have a direct association with international brands. So, a no-name brand from Turkey for example, can become very successful here, because consumers don’t know the multinational brand. Companies are on a level playing field, and it all comes down to marketing,” a distributor whose Turkish nappies enjoyed a much larger market share than P&G’s pampers, told me.


International brands are much aspired to, as can be seen from this Apple logo on a bus


Local brands are widely popular, and for a good reason. I quite enjoyed St. George’s beer 

Understanding the “local code” is crucial when trying to reach the consumer, as I have been told repeatedly. To give you an example, an international FMCG company endorsed a local musician. However, it turns out this local musician was not well-liked by the 30 million strong Oromo tribe because of his praise of a former Emperor who committed manslaughter of the Oromo many decades ago. The company had planned to send this musician on a tour into the Omoro tribal area, which caused a massive outcry. The marketing mishap reveals how companies must understand cultural sensitivities to succeed in Ethiopia.

Several international companies are already tapping into Ethiopia’s opportunity very successfully. They include the typical pioneers for doing business in Africa; namely Coca-Cola, Pepsi, Diageo and Heineken. GE already paid various visits to the country and is planning to set up an assembly factory. Coca-Cola has a long history of being in the country. Apparently Emperor Haile Selassie owned shares in the company – and at a time, Coca Cola was traded for gold!

The pioneers are already here. Their success partly rides of the back of what the head of GE for East Africa described: “in Africa, we are working backwards, we create the infrastructure that will lead to the demand for our products.”

The pioneers of FMCG companies are already present in the market: Heineken, Pepsi and Diageo




I can see that this approach takes time and is expensive, but ultimately, the “working backwards approach” leads to success not just for the companies, but for the socio-economic development of countries.

Given the realities I have seen in Ethiopia, this model makes perfect sense to me.

For additional insight from Anna’s research trip in East Africa, be sure to read her earlier posts: Kenya – A Regional TrendsetterNotes from the Field: Kenya, Nairobi – African Cities Need Urban PlanningKenya – Let the pictures speak for themselves, and The Uganda Trap

Emerging Market View: What Our Analysts Are Reading

EM View

FSG’s analysts are constantly speaking with senior executives in emerging markets and staying on top of the latest headlines from around the world.  In this week’s  Emerging Market View, elections and their implications on emerging market performance tops the list of common themes.

“With many emerging markets in dire need of structural reforms, election outcomes in 2014 will play a pivotal role in determining the performance of these economies in the years ahead,” according to Sam Osborn, Associate Practice Leader in FSG’s Global Analytics practice,  after reading CNBC’s article on elections in emerging markets.  In Turkey, for example, local elections are shifting the country’s political environment and economic outlook.  FSG’s Head of EMEA research, Martina Bozadzhieva, recently recorded a podcast (download the podcast) discussing the implications of the elections for multinationals and what companies should expect from the market in the next 6-8 months.  And Turkey is not the exception.  

FSG’s Senior Analyst for Latin America, Christine Herlihy blogged her thoughts on Chile’s moderate growth path, and recently tweeted The Economist’s article on Bachelet’s struggle to combine equity and growth in Chile since she took office last month. Likewise, in India, “there’s one week to go before the 814 million-strong Indian electorate will start voting for 543 members of the Lok Sabha, India’s lower house of Parliament. Starting April 7, the election will be conducted across 28 states and seven union territories in nine phases and take 36 days,” said Shishir Sinha, Senior Analyst in FSG’s APAC practice after reading The Wall Street Journal’s article.



The Uganda Trap

Uganda 1

Kampala’s skyline

Anna Rosenberg, Head of Sub-Saharan Africa at FSG, is currently on a research trip to Kenya, Uganda and Ethiopia. Here are her latest insights:

Apparently Ugandans very rarely say no; they much prefer to say maybe. As I sit (without a previous appointment) in Prime Minister’s Amama Mbabazi waiting room hoping for a slot to open up in his busy schedule, I can see this cultural practice work to my advantage. His secretary is doing everything in his power to find the time for Mbabazi to see me.

To have the chance to speak to the prime minister reflects my impressions of Uganda in a nutshell. Unlike Kenya where I spent the previous week, Uganda seems less intense, much safer and above all, has a more relaxed competitive spirit. It is therefore easier to access high profile individuals and business opportunities.

Then again, I might have fallen into the “Uganda trap.”

“Uganda is very attractive when you look at macroeconomic indicators, the country is growing at 5.6% average in the last 5 years. Now we have oil, which will come online in 2016, which means we will grow even faster. But to be honest, the addressable market is much smaller than it might appear on paper,” says the CEO of a leading bank in the country. “If you want to be successful here, you have to own the market, invest heavily to become the number one player. Many investors don’t know that, they are lured by the figures rather than seeing it for themselves. That is what I call the ‘Uganda trap’.”

While this might be true when looking at Uganda as a single market, I cannot help but see its many advantages. The country benefits from a strategic geographic position – despite being land-locked, it serves as the main access point to neighboring Eastern DRC, Rwanda, and South Sudan. The nascent oil sector will be a game-changer and there are many gaps in the market waiting to be filled.

Uganda 2

I visited DEMBE in Kampala– a regional FMCG distributor servicing Uganda, Rwanda, Tanzania and Kenya, Burundi, South Sudan and Zambia

Although Uganda’s addressable market is smaller than Kenya’s – in part due to past political instability that hindered economic development – there is still strong demand for a wide variety of goods. Wealth is evident. I passed a well-maintained golf course in central Kampala and sipped a creamy cappuccino in the city’s new shiny Acacia shopping mall.

Uganda 3

The Ugandan elite playing golf in central Kampala

Uganda 4

Uganda 6

The recently opened Acacia shopping mall has Western products and African designer fashion on display

In addition to offshore oil finds, Uganda is also building an oil refinery and hopes to become an exporter of refined oil in East Africa. Hopes are high that the government will properly manage this natural resource as did Botswana with its diamonds. To that end, a special government task force was sent to oil-producing countries in order to learn from their successes and mistakes. The government eventually decided to follow the Norwegian model.

Despite strong upstream and downstream potential, Uganda’s main advantage vis-à-vis its neighbors lies in agriculture. A common prejudice in the region states that Ugandans are less productive than Kenyans because they never had to worry about getting enough food on the table. “In Uganda, if you throw something out of the window, next thing you know, a tree has grown there. Uganda is so fertile, no one stays hungry,” someone told me.

Uganda 7

A vendor offering tropical fruits to passersby in Entebbe. The lush and fertile countryside lends itself nicely to agriculture all year round

Uganda contributes to a large portion of arable land in East Africa and is surrounded by countries that have difficulty feeding their populations. Large opportunities abound for the country to turn its raw materials into processed foodstuff and export it into the region. However, the capital required for a supply and marketing chain is missing, although new revenues from the oil sector might help.

Agriculture and oil are not the only opportunities. On my way to the ministry of finance, I bumped into a group of Turkish businessmen waiting for the elevator. They told me they worked in construction, “building a lot of roads to be precise.” I asked them about Chinese competition, given that many Chinese companies tend to win most infrastructure tenders in Africa. The businessmen answered that, “the roads that were built by the Chinese, are already in decay. African governments now want good quality.”

Uganda 8

Currently, there is not much danger in getting run over by a train, as it only passes Uganda every 2 to 3 days. But this might change soon as the rail network expands

Uganda might be less mature than some of its neighbors, but I find that it will become a small and important market in itself.  In a few years down the line, the country could become a hub to service Anglophone central Africa for international companies.

To quote the Prime Minister, who I have now seen and who emphasized the country’s readiness for agro-processing, fisheries and minerals as areas of investment, “Uganda is not a land-locked country, but a land-linked country, ready to export more of its products into the region and the world.”

Uganda 9

Prime Minister Amama Mbabazi showing me the flag of the East African community 

For additional insight from Anna’s research trip in East Africa, be sure to read her earlier posts: Kenya – A Regional TrendsetterNotes from the Field: Kenya, Nairobi – African Cities Need Urban Planning, Kenya – Let the pictures speak for themselves.

Kenya – Let the pictures speak for themselves

Anna Rosenberg, Head of Sub-Saharan Africa at FSG, is currently on a research trip to Kenya, Uganda and Ethiopia. Here are her latest insights:

I am currently sitting on a plane bound for Uganda, gathering my thoughts and impressions of a busy week in Kenya.

Kenya’s business landscape is buzzing with activity – there is no doubt about it. The past two years have seen international companies set up their regional offices in the country to benefit from strong human capital and good infrastructure links.

Western, local and other emerging markets companies are all competing for market share of Kenya’s expanding consumer class. Kenya is therefore becoming an increasingly competitive place to do business.  The pictures I took during my travels through the country speak for themselves:

Nakumatt, a Kenyan supermarket chain, sells a variety of local and international products:
Nakumatt Shelves

Whether in Nairobi or in the countryside, one is bombarded with billboards advertising Huggies nappies, Nivea deodorants, Colgate toothpaste, Samsung electronics, Tusker beer, Johnny Walker whiskey, Coca Cola and Kentucky Fried Chicken, among many others:

Commercial Billboards


Kenya 1

Kenya 2

On my way to the airport, I saw two workers put up the Porsche sign at the company’s new outlet in the industrial district, nearby other car retailers such as Toyota and Foton of China:

Kenya 4

High rise apartment blocks and large villas are mushrooming throughout Kenya’s major towns:

Kenya 5

Construction is everywhere. New roads and railways are being built, and the airport and port are expanding. The upsurge in infrastructure will make the distribution of goods in the country much easier:

Kenya 6

Kenya 7

For additional insight from Anna’s research trip in East Africa, be sure to read her earlier posts: Kenya – A Regional TrendsetterNotes from the Field: Kenya, and Nairobi – African Cities Need Urban Planning.

How to Avoid Currency Losses in Emerging Markets

In 2013, many executive missed performance targets despite meeting volume and market share goals. The culprit was exchange-rate volatility, which caused many companies to miss revenue and profit targets after local currencies were translated to dollar or euros. According to FiReAPPS, US-based multinationals lost an estimated $17.8 Billion dollars in 2013 due to exchange-rate fluctuations in emerging markets.  For an emerging market executive, a 10% gain in profit and sales in a given market was wiped out by a 10% decrease in the value of the local currency.  The list of emerging market currencies that depreciated by more than 10% against the US dollar is extensive, including: The Russian ruble, Indonesian rupiah, Brazilian real, South African rand, and Turkish lira.  Currency depreciation turned local-market success stories into earnings disappointments.

FX Quarterly Q1 2014 Blog Post Image 1

*Source: Frontier Strategy Group analysis, Bloomberg

With the risk-return payoff for shifting towards developed markets, executives should consider high levels of emerging market currency volatility to be a given in 2014.  Exchange-rate volatility can wreak havoc on internal operations and business partners, but its effects can be mitigated. A cross-functional approach to contingency planning ensures that all key elements of a business including, sales, supply chain, talent and finance are ready for the next bout of turbulence.  The question for emerging market leaders should be how to manage volatility, not how to avoid it.  This problem should be solved at the local and regional level, no longer just at the corporate treasury. Emerging market executives have a number of operational strategies in their arsenal for minimizing the impact of FX fluctuations.

Before choosing or recommending a course of action, it is vital to determine an organization’s objective in managing currency volatility. Many companies focus simply on maintaining margin in an environment characterized by currency volatility. More opportunistic companies will use the environment to build market share.   The strategies detailed in our FX Quarterly series can be implemented with little to no support from the corporate treasury.

FX Quarterly Q1 2014 Blog Post Image 2

*Source: Frontier Strategy Group analysis