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Olam

Opportunities are still abundant in the developing world if you take the time to understand the local way of doing things.

The developed world is still suffering from a period of sluggish growth and wage stagnation. Costs of doing business remain stubbornly high, and political turmoil around the US election and the UK’s EU referendum are not giving investors any more clarity in the medium term.

Slowdowns in the once promising BRIC nations mean the search is truly back on to find new sources of sustainable growth and returns in the 21st century. The fickleness of today’s markets doesn’t change the underlying factors that signal future growth in emerging markets. There are about 1.8 billion young people worldwide between the ages of 10 and 24, the largest youth population in history, and most of them live in developing nations. Give the right opportunities, their productivity will reshape the world.

Investing in emerging markets like central and west Africa has long been seen as a high-risk/high-reward gamble, often dependent on natural resources and commodities. However, volatile oil prices and environmental concerns have caused this investment to slow, and give investors pause for thought on longer-term opportunities in the region.

A stake in the future

A new approach is needed, one where opportunity and responsibility are shared to create long-term sustainable growth in underdeveloped markets. At Olam International, we have learned some key lessons through our work in west and central Africa, especially in Gabon, for investors looking to take advantage of what the region has to offer. Gabon, a resource-rich country, has long been the target of global oil and mining companies, meaning its FDI figures to appear relatively strong on paper. But the numbers do not show the sustainability and quality of this investment for long-term prospects.

In a word, our approach can be summed up as ‘reciprocity’. Trade is the way of the land. The more a company puts into its local investments, the greater the returns will be for all.

Involve citizens on the ground. Our palm oil plantations in Gabon involved extensive consultation within affected communities, concerning everything from training and employment opportunities to local infrastructure and housing. These rural communities have seen large populations migrate to cities. However, with new opportunities and local involvement, the country expects to see this migration reversed, ensuring a supply of labour and revitalising the local economy.

Pay attention to environmental sustainability. The extraction, production or manufacturing of any material for export is coming under increasing international scrutiny concerning its social and environmental impact. Early industrial-scale cultivation of palm oil in south-east Asia was rightly condemned for the unsustainable deforestation it caused. As a result, new global standards are in place for importers, and these will only become more restrictive.

Know your place

It is good business to stay on top of these thorny challenges and ensure any intensive industrial or agriculture work goes beyond existing regulation. Even if they meet domestic guidelines, conditions may not conform to to regulations in export markets.

A deep awareness of the political and policy environment is a must. Understanding a country’s ambitions for itself and where your investment can play a useful part will ensure early success. For example, to encourage higher-value timber manufacturing, the Gabonese government banned the export of untreated timber to keep more jobs at home. Aware that this will not happen by itself, tax breaks and other incentives now exist for international companies to treat and process timber before export.

The final unifying rule is to understand the place in which you are investing. Every developing economy has its own way of doing business and cultural attitudes that must be respected and understood. Tapping into local expertise for insight is a necessity for any would-be investor.

The very nature of developing markets means a certain amount of risk. However, the long-term outlook for emerging markets remains positive: favourable demographics and productivity point to a world with a growing future.

Gagan Gupta is president and country head of Gabon for Olam International Ltd. (Singapore), an agribusiness company.

This article is sourced from fDi Magazine
fDi Magazine

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