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Emerging markets to stay afloat

By Vision Reporter

Added 16th May 2010 03:00 AM

EMERGING markets in general have excellent fundamental growth drivers such as faster growing and younger populations, higher productivity growth and much less debt at the national, corporate and household levels.

EMERGING markets in general have excellent fundamental growth drivers such as faster growing and younger populations, higher productivity growth and much less debt at the national, corporate and household levels.

By Dr. Ahmed Heikal

EMERGING markets in general have excellent fundamental growth drivers such as faster growing and younger populations, higher productivity growth and much less debt at the national, corporate and household levels.

Emerging markets also offer plentiful natural resources, including 80-90% of the world’s oil and gas reserves, over 80% of the world’s copper, 60% of the arable land and over 70% of the world’s freshwater resources.

Emerging markets are thus likely on a fundamental basis to outperform developed markets for the foreseeable future.

As a matter of fact, the coming two years present unparalleled opportunities for private equity in emerging markets, particularly those in Africa and the Middle East.

Many countries in these regions have governments that are simultaneously open to the private sector and possessed of over-stretched balance sheets and an under-developed private sector.

Moreover, the global economic crisis and the tightening of regional credit it prompted has created a new market for corporate control as more and more distressed sellers are disposing of good assets at reasonable prices.

All of these developments create new room for private equity players such as our selves.

Regulatory reforms that came about as a result of the global financial crisis will create new opportunities for private equity players.

Banks for example, will be forced to differentiate between their own balance sheets and risk-taking activities within banks.

The result will be that pools of capital now within confines of banks will have to be sub-contracted to third-party asset managers — private equity in general, and emerging markets private equity in particular, stands ready to benefit from this development.

Emerging markets private equity has never been as heavily dependent on debt to turbo-charge returns as have PE firms in mature markets.

As a result, regional players have remained on solid ground throughout the crisis.

Some, including Citadel Capital, made progress on fundraising during the crisis while simultaneously ensuring all of their existing investments were on track.

The economies of Africa and the Middle East will continue to grow as strong sovereign fiscal positions based on historic and projected earnings continue to support the substantial economic diversification and infrastructure spending programs announced by many regional governments.

We can also expect the outlook for commodity plays in Africa and the Middle East to continue to be favourable, whether we are discussing oil and mining or soft commodities.

On this front, we can expect stable, if not increasing prices in the coming period. The key will be not just to unearth the right investments, but to tackle each according to their own needs.

Emerging markets will thus favour regional specialists and control investors with clearly defined investment thesis who can deliver the substantial added value that national companies need to become platforms for regional growth.

The writer is the founder and chairman of Citadel Capital

Emerging markets to stay afloat

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