Frontier investor: how to prosper in the next emerging markets

268 Pages·2017·10.934 MB·English

by  Dimitrijević, Marko;Mistele, Timothy

“Really brilliant and a tour de force.”
MICHAEL SPENCE
, WINNER OF THE NOBEL PRIZE IN ECONOMICS
HOW TO PROSPER IN THE
NEXT EMERGING MARKETS
MARKO DIMITRIJEVIC
with TIMOTHY MISTELE
FRONTIER INVESTOR

Columbia University Press
Publishers Since 1893
New York Chichester, West Sussex
cup.columbia.edu
Copyright © 2017 Marko Dimitrijević
All rights reserved
Library of Congress Cataloging-in-Publication Data
Names: Dimitrijević, Marko, author. | Mistele, Timothy, author.
Title: Frontier investor : how to prosper in the next emerging markets /
Marko Dimitrijević with Timothy Mistele.
Description: New York : Columbia University Press, 2017. | Series: Columbia
Business School publishing | Includes bibliographical references and index.
Identifiers: LCCN 2016000994 | ISBN 9780231170444 (cloth : alk. paper)
Subjects: LCSH: Investments—Developing countries. | Developing
countries—Investments, Foreign. | Portfolio management. | Risk management.
Classification: LCC HG5993 .D56 2016 | DDC 332.609172/4—dc23
LC record available at http://lccn.loc.gov/2016000994
Columbia University Press books are printed on permanent
and durable acid-free paper.
c 10 9 8 7 6 5 4 3 2 1
cover design: noah arlow
contents
Introduction 1
PART I: WHY INVEST IN FRONTIER MARKETS? 11
1
Emerging Markets Have Emerged 13
2
Frontier Markets Are the New Emerging Markets 27
3
Frontier’s Bright Economic Outlook 45
4
The Young and the Restless:
Frontier’s Favorable Demographics 61
5
“Can You Hear Me Now?”: Frontier’s Integration
with the Global Economy 80
6
Frontier Equity Markets Offer Value
and Diversification 91
PART II: HOW TO INVEST IN FRONTIER MARKETS 107
7
The Pitfalls of Passive Management and Advantages
of Active Management in Frontier Markets 109
vi CONTENTS
8
Do-It-Yourself Investing in Frontier Markets 122
9
Special Situations in Distressed Debt 136
10
Privatizations 153
PART III: RISKS AND OPPORTUNITIES
IN FRONTIER MARKETS 167
11
Political Risks in Frontier Markets 169
12
Other Risks in Frontier Markets 185
13
Megatrends in Frontier Markets 203
14
Frontiers of Frontier Markets Investing 222
Appendix 231
Notes 237
Index 245
FRONTIER INVESTOR

Introduction
Imagine you are evaluating a new investment opportunity in a faraway
country roiled by civil war and border disputes and considered by most
to be rugged and lawless. Most people have heard of this country but have
never actually been there, and most of the investment community sees this
opportunity as far too risky and unorthodox. But you’ve traveled there, and
you’ve seen for yourself that—despite the stories in the media—the infra-
structure is sound and growing stronger, and many of the cities are stable
and thriving. The investment opportunity offers mouth-watering upside, so
long as the country truly is on a path toward growth and greater stability.
What do you do? Do you pursue the investment shunned by so many of
your peers? Or do you look elsewhere, in more established markets, for an
investment with more modest potential returns but considered a safer bet?
If I tell you the opportunity in question is in Rwanda, you’d likely
choose the safer bet. But if I told you the opportunity was in the United
States at end of the nineteenth century, suddenly the investment sounds
more appealing. Just as it would if I said the opportunity was in South
Korea in the 1960s. If you are one of the billion or so people in the world
who own a Samsung phone, consider that as recently as 1966 its birthplace
had an economy smaller than the Democratic Republic of the Congo. South
Korea’s economy is now forty times larger than DR Congo’s and ranks