Frontier markets are developing countries that are still too small to be considered as emerging markets. This means that these are countries with a lot of potentials but are also too risky for investors to give attention to. The frontier market is a term coined by the International Finance Corporation’s Frida Khambata in 1992.
Such countries are sometimes labeled as emerging markets, but they are still less advanced capital markets in the developing world. Frontier markets are developing countries where it’s risky to invest in, but emerging markets are more stable. The bottom line is that emerging and frontier markets are still different from each other.
Some countries known as frontier markets are Argentina, Lebanon, Vietnam, Nigeria, Oman, Bahrain, and Bangladesh. These are just a few countries from the MSCI Frontier Markets Index. It’s generally risky to invest in any of these countries due to multiple factors.
Investing in Frontier Markets.
Risks that are included when people do invest in these countries include political instability, substandard financial reporting, and large currency fluctuations. Surely, with these risks, investing in such countries is not as easy as purchasing Natural Frontier Market products from mercato.com as that’s a very different thing.
However, Efosa Ojomo, the author of Crackling Frontier Markets on HBR.org believes that understanding these risks when investing in frontier markets is just really part of the process. What investors should think is that leading economies were once frontier markets too.
According to him, where markets are today doesn’t mean that it is where they will always be. With the right strategy and understanding the role of business, innovation, and capitalism in these countries, the return of investment is still possible.
The Role of Nation-building to Reaching Prosperity.
Since frontier markets have risks and issues that can be considered as trailing, then as an investor, you’ll need to understand that it’s part of what you’re trying to profit from. Investing in any businesses in these countries will mean that you are trying to hit two birds with one stone.
You’ll be building a business that could help these countries prosper, and this does sound like an overwhelming task. However, ensuring that this happens can help you make sure that the growth of your investment is secured.
To be able to attain this, you’ll need to make your products simple and affordable to your market. You’ll basically create a new market to pull in the resources you need. Since you’re also ensuring the growth of a nation, this means that you should also make jobs available to their people.
What Role Does Innovation Play Here?
These frontier markets have people who are labeled as poor, and this is why you need to make your services and products affordable in the first place. Many frontier markets are known for efficiency innovations.
Efficiency innovations just really mean making cheaper products available to your market. You can outsource and build a business where you can legally hire people for lower wages. It is also common for frontier markets to exploit their natural resources to lessen the expenses to produce products and services.
Ojomo stated in an interview that the amount of time to wait for profits to come in when investing in a frontier market really depends on multiple factors. The risks are certainly factored in, but investors will also have to predict how well their business can help the country’s economy.
The ability to innovate products and make them more affordable seem to be the main key that Ojomo and his team are pushing when it comes to investing in these frontier markets. It is when people who live in these countries finally afford an investor’s product that profits are ensured.
The impact of a business’ growth will be the stem of a frontier market’s economic growth. Innovation is what will fund many infrastructures and what will start the development of a society.