The hot spots to watch

There are a number of fast-growing global economies poised to take off. Here are our experts’ picks of the top-10 emerging markets offering the best investment opportunities for Canadians today.

Until the late 1990s, McCain Foods Ltd. had no special insight about doing business in India. But the Florenceville, NB-based frozen-food giant did know a thing or two about potatoes — and how to make use of its comparative advantage. Today, more than 100 Indian growers are producing potatoes for McCain’s New Delhi-based subsidiary and the company has a world-class processing plant in the Indian state of Gujarat. A time-pressed and newly affluent middle class is gobbling up its frozen food, and not just the Superfries. McCain Aloo Tikki, a frozen potato patty, and the Idli Sambar Combo, lentil and rice-flour discs with lentil/vegetable broth, are big sellers. As are Chilli Garlic Potato Bites.

How McCain Foods got from the potato fields of New Brunswick to the restaurants and refrigerators of New Delhi is a textbook case of how a Canadian company can prevail in a risky but potentially rewarding emerging market. The company saw the potential, took the long view, persisted in overcoming obstacles and created demand through savvy marketing. It started with a product it knew well but was not afraid to adapt to local tastes.

This is but one example of success in a global economy brimming with opportunity. We asked five experts to name the world’s top-10 emerging markets and from their responses compiled a master list intended to provide insight for Canadians looking to broaden their business horizons.

The question can be answered from many perspectives: there are fast-growing economies with immediate opportunities for Canadians and stalled economies poised to take off when problems are solved. Undeveloped resource-rich countries are expected to have an increasing appetite for Western capital and infrastructure expertise. Emerging countries with huge populations represent potential markets for newly affordable consumer goods. Other countries are seen as regional hubs with potential links to new markets. Another way to frame the debate is to look for countries in which Canada can leverage its most developed industries. Location, ease of doing business and relative risk are other lenses to look through.

CHINA

It’s not a new story, but China is still a top emerging market for new opportunities due to its sheer size and the purchasing power of its emerging middle class. "In terms of market share you’ve got to be there," says Andreas Schotter, assistant professor of international business and global strategy at Western University’s Ivey Business School.

Doing business in China is complicated, but it’s getting easier, says Todd Winterhalt, group vice-president of international business development at Export Development Canada. "It’s still a bit of a challenge, but the raw opportunity and the scope of what’s possible is second to none in the short term."

China is on track to surpass the United States as the world’s largest economy. Like most global players, its growth in GDP is down from pre-2008 rates, but 7.5% projected growth this year still makes it one of the world’s fastest-growing economies. The population is approaching 1.4 billion and incomes are rising. Its huge hunger for resources spells opportunity for Canada.

Challenges include intellectual property protection, financial institutions that favour state-owned companies and the threat of unrest should income growth stall.

INDONESIA

Looking beyond the BRICs, Indonesia is a new favourite on everyone’s list for opportunities in the midterm.

"My focus is on the next round of development," says Richard Harris, a professor at Simon Fraser University who specializes in international economics. "I’m looking at which countries have the potential to take off in terms of growth." He says Indonesia’s rich resource base and seaport access to Korea, China and Japan make it well positioned to become a major supply-chain player. The economy is expected to grow at 5.4% this year and, like China, Indonesia has a rapidly emerging middle class with rising incomes. "Indonesia is going to be the superstar of the region for the foreseeable future," Winterhalt notes, citing opportunities for Canadian companies in transportation infrastructure.

Too many monopolies and an insular ruling class resistant to change are seen as obstacles.

INDIA

It’s been the most disappointing of the BRICs, but experts believe it will eventually take off. "Its current state is far below its potential, so it’s my big country catch-up play," Harris says.

India’s huge population is promising, as well as its progress in information technology and business process outsourcing.

"We need to integrate more into India," says Walid Hejazi, associate professor of international business at the Rotman School of Management at the University of Toronto. "India has English as one of its official languages, a Western-based education system and historical roots to the West, so there is familiarity."

GDP growth is expected to be a healthy 5.4% this year but big challenges remain, including resistance to political reform, ongoing sectarian strife and confusing regulations at the local level.

MEXICO

An increased willingness to open markets and NAFTA make Mexico a hot spot. "We’ll see investment in the energy sector and further down the line, oil and telecom will be important," says Eduardo Suarez, senior foreign exchange strategist at Scotiabank. "You also have an ambitious infrastructure push by the government." He points out that Mexico’s pension system, into which workers contribute a portion of their wages, is now worth about US$170 billion, capital that can be used to finance government and private-sector debt. This model, pioneered by Chile, also applies to Peru and Colombia.

Mexico has a young population but growth in income has stalled, meaning, like India, there is plenty of room to catch up.

"You could argue that it could easily make the next jump, especially with the large investment boom," Harris says, particularly if there is labour-market reform and continuing market liberalization.

Low productivity, crime and illegal drugs remain big hurdles.

SOUTH AFRICA

Some believe corruption and violence place Africa so far behind globally that Canada is best to stay focused on other areas of the world. But South Africa is seen by others as a bright spot, promising in and of itself and as a hub connecting to other markets with long-term potential. "There are regional hub countries that will accelerate development within and around them," says Schotter. "And South Africa is a critical hub country."

Winterhalt agrees, saying he believes that South Africa will be a gateway to the rest of the region in the long term, with opportunities for Canadians in mining, energy and infrastructure. "Sub-Saharan Africa is the last untapped region for Canada," he says. "It could turn the corner in the next four to six years and beyond."

Other African countries mentioned as having potential for those willing to take a risk are Kenya, Ghana and Nigeria.

TURKEY

It is seen as another key regional hub. "Geopolitically, it sits half in Europe and half in the Middle East and is a moderate Muslim nation that serves as a cultural bridge toward the Middle East," Schotter says. There is a strong consumer base and a connection to Saudi Arabia and the Gulf states of Bahrain, UAE, Qatar, Kuwait and Oman, which enjoy relative stability in a volatile region.

"Turkey is really on the move," says Hejazi, noting the country’s economic diversity and strength in finance, tourism and manufacturing. The downside is political uncertainty.

BRAZIL

The country’s economic growth rate, projected at only 1.8% this year, has stalled, but Brazil is still expected to become the world’s fourth-largest economy in the coming decades. "It’s No. 7 now but growing," Hejazi says. "It has a large population and is very rich in natural resources." A growing and urbanized middle class is also seen as a plus, as is Canada’s established presence in the country’s mining sector.

"All the BRICs will continue to play a major role and need attention from any company that wants to be a global player," Schotter says. "But Brazil needs to get its act together in terms of infrastructure and education." Neighbouring Chile received mention as holding future potential for Canadians, as did Argentina, Panama, Peru and Colombia.

PHILIPPINES

The economy is expected to grow 6.5% this year, making the Philippines the only country on the list with a growth rate consistent with pre-crash levels of 2007. Ties to the West and its location as a transit point for Asian markets are seen as benefits.

"It has an educated and quite young population and a lot of people speak English," says Harris. "Wages are still quite low, so there is a lot of potential for growth based on that advantage."

US and Chinese foreign direct investment in the resource sector is also expected to spur growth, which will create more opportunities for Canadians.

"They have had political problems, but [it appears they are] being resolved and I would expect that trend to continue," Harris says.

THAILAND

Seen as a hub country for expansion, Thailand is a transit point for goods moving throughout Asia, especially food. It has been successful in developing its communications and technology sectors and is now playing a critical role in auto-sector manufacturing.

"Thailand has a good population but lots of infrastructure deficit," Winterhalt says, which means there is opportunity for Canada to capitalize on its expertise in that area. One negative is potential political unrest.

Vietnam was the other southeast Asian country that received mention as an emerging market to watch, as more developed Asian countries move manufacturing to lower-cost areas.

POLAND

For companies seeking to explore eastern Europe, Poland is seen as a must, provided things don’t get worse between Europe and Russia. "Poland is well-situated, it has a pretty good demographic and has been very good with direct investment," Harris says. "Due to its willingness and ability to undertake reforms, it represents the best bet for any company looking to undertake a significant investment in the region."

Reverse migration from the EU means the country has a skilled workforce ready to take it to the next level in terms of living standards. Its overriding challenge is to stay politically neutral.

The Czech Republic was also mentioned as an eastern European hub that might provide a jumping off point to countries such as Slovenia, Hungary and Ukraine.

About the Author

Susan Smith


Susan Smith is a freelance writer in Toronto.

comments powered by Disqus

Highlights

Gain practical organizational insights and learn from industry experts at this annual event for not-for-profit financial leaders.

Our Firm Directory allows you to search for Canadian CPA firms using our interactive map as well as other criteria.