Global South’s Rising Economies Gain Investor Spotlight
Thursday, June 25, 2015 at 8:22AM
A new book is arguing that the world’s attention should switch away from BRICS countries – Brazil, Russia, India, China and South Africa – and take another look at nations and regions elsewhere across the global South. It argues many are lodestones of future growth and prosperity in the making and will see dramatic changes over the next decade.
The story of the BRIC and BRICS countries is an impressive one. In just eight years from 2000 to 2008, the BRIC countries’ combined share of total world economic output rose from 16 to 22 per cent. This led to a 30 per cent increase in global output during the period, showing how key these countries were to global prosperity in the 2000s. BRIC countries make up nearly half the world’s population and are regional leaders. Taken together, their gross domestic products (GDPs) are not far behind the United States.
Ruchir Sharma’s Breakout Nations: In Pursuit of the Next Economic Miracles (http://www.amazon.com/Breakout-Nations-Pursuit-Economic-Miracles/dp/0393080269) argues that the BRICS are now entering a more stable growth path and thus will not see the rapid-fire expansion and quick profits investors have become used to in the past decade.
“The BRICs,” Sharma told Forbes magazine, “were last decade’s team.”
The BRIC acronym (http://en.wikipedia.org/wiki/BRIC) was coined in 2001 by Goldman Sachs managing director Jim O’Neill, in a 2001 paper titled “Building Better Global Economic BRICs” (http://www.goldmansachs.com/ourthinking/brics/building-better.html). O’Neill predicted that this handful of countries would dominate the growth and economic development story for the years 2000 to 2010. This was because they all shared a similar stage of advanced economic development.
The BRIC states first began meeting together in 2006. South Africa was added in 2010 to form the BRICS acronym.
The buzz surrounding the BRICS countries over the past decade has been justified by their impressive growth rates, declining poverty levels,modernizing economies and societies and growing middle class populations.
China alone had seen its gross domestic product grow by US $5 trillion between 2001 and 2011.
Now, Sharma argues, it is someone else’s turn.
Sharma is head of emerging markets with Morgan Stanley Investment Management in New York, and Breakout Nations looks at where the next economic surprise stories will take place.
“A breakout nation is a nation that will grow above expectations, and will grow more than nations with similar per capita income,” Sharma told Forbes. “You can’t bunch all of the emerging markets together anymore. The last decade saw these countries behaving the same economically, but I think that is behind us now. Investors today will really have to pick their spots.”
He points out that Indonesia was the best performing emerging market in 2011 and has an economy that will surpass a trillion dollars in the coming years.
He also believes Sri Lanka and Nigeria are economies to watch.
Sharma says funds flowing into emerging market stocks grew by 478 per cent from 2005 to 2010, a massive jump compared to 2000 to 2005, when they grew by 92 per cent.
As he sees it, China has now reached middle-income status and its growth rates will not be as high as they have been for the past two decades. In his research, he found that countries like Japan, South Korea and Taiwan all slowed down once their per capita income went past US $5,000.
Investors who watch the emerging markets predict the hot growth areas for the next decade will be around energy, technology, and agricultural resources.
Sharma picks out Indonesia, Turkey, the Philippines, Poland and the Czech Republic for future investment interest, but urges caution with thinking all emerging economies are on course to boom.
“You’ve got to pick your spots, rather than just assume that because you put a tag of emerging on a particular nation, it’s going to boom,” Sharma told The Globe and Mail newspaper.
To make sense of the complexity of fast-emerging economies, a flurry of new investor acronyms has popped up. One of the country clusters is called the CIVETS: Colombia, Indonesia, Vietnam, Egypt, Turkey, South Africa (http://en.wikipedia.org/wiki/CIVETS).
The MINTS (Mexico, Indonesia, Nigeria and Turkey) are also set for great growth in the next decade, many investors believe.
Then there is the N-11 or Next 11. This is the MINTS plus Bangladesh, Egypt,Iran, Pakistan, the Philippines, South Korea and Vietnam.
And after that there is VISTA (Vietnam, Indonesia, South Africa, Turkey and Argentina). While clearly the creative juices are flowing at investment houses as they come up with ever-catchier acronyms, a more serious point is being made: many countries in the global South, for the first time in history, are no longer solely dependent on the Western economic system for demand.
These countries, investors note, now have an unprecedented range of options uncoupled from the political, financial and economic legacy of Western developed nations. They say that many nations in the global South are set for a runaway investment boom because they are making changes and modernizing their economies faster than many expect.
As the BRICS economies mature and slow down and take on different priorities based around improving the quality of life of their citizens, those seeking faster profits will look elsewhere. This trend is even happening within the BRICS, as Chinese and Brazilian companies offshore work to Vietnam and Colombia.
There are many new centres of economic activity and rising prosperity across the emerging markets that often fail to gain wider attention. Few would probably know that the Northeast Asian nation of Mongolia – mired in the 1990s in the worst peacetime economic collapse in half a century (http://www.scribd.com/doc/20864541/Mongolia-Update-1998-Book) – is now the world’s fastest-growing economy (http://www.worldbank.org/en/news/2012/02/28/what-behind-mongoliaeconomic-boom) and one of the top places for mobile phone usage and penetration (http://www.businessmongolia.com/mongolia/2012/03/19/mongolia-ringing-the-changes/).
Then there is Myanmar (formerly Burma), where many are hoping recent moves toward democracy and improvements in diplomatic relations will lead to an economic boon for the region. Investors are also targeting Kazakhstan in Central Asia.
Reflecting these changing realities, Standard Bank, Africa’s largest bank, has been documenting the rising role played by the Chinese currency in international trade. A recent report forecast US $100 billion (R768 billion) in Sino-African trade would be settled in the Chinese currency, the renminbi, by 2015. This would be double the trade between China and Africa in 2010. It also found 70,000 Chinese companies are using the renminbi in international trade transactions.
By David South, Development Challenges, South-South Solutions
Published: April 2012
Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.
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New Cuban Film Seeks to Revive Sector
Thursday, June 25, 2015 at 8:10AM
Since Cuba’s 1959 revolution, the country’s film sector has largely survived on the largesse of the state. The switch to Communism as the guiding economic model of the country after the revolution led, at first, to generous support to filmmakers. The government ranked cinema ahead of television seeing both cinema and television as the two most important forms of artistic expression in the country. But as state funding has dwindled in recent years, adventurous independent filmmakers have tried to keep the Cuban film tradition going using other sources.
Prior to the revolution, Cuban cinema had been dominated by American and Mexican companies that used Cuba as an exotic backdrop for their productions and dominated the distribution of film in the country.
In the 17 years after the 1959 revolution, generous funding for filmmaking in Cuba produced 74 full-length films and 600 documentary shorts (Julianne Burton: Revolutionary Cuban Cinema). Soon Cuba had established a reputation for making its own, interesting, high-quality films. These range from “Memories of Underdevelopment” (http://en.wikipedia.org/wiki/Memories_of_Underdevelopment) released in 1968, with its innovative narrative technique, to Academy Award-nominated “Strawberry and Chocolate” in 1993 and 2006’s “Tomorrow” (http://www.cubaabsolutely.com/articles/art/article_art.php?landa=23).
But funding for Cuban film has been dropping since the ending of generous state supports with the collapse of the Soviet Union in 1991. Cuba had received extensive subsidies from the Soviet Union and enjoyed preferential trading privileges.
But a new Cuban film is grabbing fistfuls of international accolades and shows it is possible to make films with a combination of foreign investment and state support.
The zombie horror-comedy “Juan of the Dead” (juanofthedeadmovie.com/lang/en/) has raised more than a few eyebrows but it is also showing a more commercial instinct among Cuban filmmakers and points the way to greater diversity in Cuba’s film sector.
The film’s poster declares: “50 years after the Cuban revolution a new one is about to start.” The film’s website is a colourful feast of images from the film and uses slick graphic design. It has previews, background resources and online clips for viewers to sample.
Calling itself a “zombie comedy”, the film was written and directed by Alejandro Brugués and produced by Gervasio Iglesias, Inti Herrera and Claudia Calviño.
The plot revolves around Juan, a 40-year-old man who has spent most of his life doing nothing. He and his lazy pal Lazaro witness people starting to attack each other. Mistaking this for another stage in Cuba’s revolution, the pair at first believe the government media when it says the incidents are provoked by dissidents paid by the U.S. government. But it begins to dawn on the two men they are surrounded by zombies. Taking a Cuban approach to the problem, Juan decides to get rid of the zombies while making some money at it.
“Cubans have basically three ways of dealing with problems: they try to make a business out of it, they get used to it and keep going with their lives; or they throw themselves to the sea to run away from the island,” Brugués says on the movie’s website. “‘Juan’ gave me the opportunity to make things really difficult for Cubans, filling the country with zombies, which is in a way what we have become after all these years, but also gave me a leading character that could take a different option, that could stand and say ‘I’m not going to allow this, this is my country, I love it and will stay to defend it’ … after trying to make a business out of it and keep going with his life, of course.”
The film has received enthusiastic praise from international film festivals and audiences, and its producers are hoping it will give a boost to Cuban cinema.
Released in 2011 as a joint Spanish/Cuban co-production, “Juan of the Dead” was filmed on location in Cuba’s capital, Havana. The country’s first feature length horror film in half a century, its title is a play on George Romero’s 1978 zombie classic “Dawn of the Dead”, which also inspired the successful 2004 British comedy “Shaun of the Dead”.
It cost US $2.7 million, and the funds were raised from Spanish investors and the Cuban Institute on Cinematographic Industry and Arts (ICAIC) (http://www.cubarte.cult.cu/paginas/servicios/directorio/directorio.php?id_institucion=77&selected=&offset=36&windowstart=1&letra=&canal).
Brugués was born in Buenos Aires, Argentina in 1976 and graduated from the International Film and Television School of San Antonio de los Baños, Cuba.
He built up his expertise in the Cuban film industry as a scriptwriter for several Cuban films and is one of the partners at the Cuban indie film production company Producciones La 5ta Avenida (http://eses.facebook.com/pages/Producciones-de-la-5ta-Avenida/110339122340016).
His first feature film was “Personal Belongings”, which received worldwide distribution.
“I have been a follower of the zombie movies since I was a little kid (zombie movies have followers, not fans),” Brugués said. “The idea of ‘Juan’ simply came from watching the reality around me. That reality is Cuba, so one day inevitably, I was asking myself if we were so different from film zombies. Besides that, Cuba is a country that has been preparing itself for a confrontation with the United States during the last 50 years. So, what if instead of that, have to confront zombies?”
Brugués sees a coming together of independent filmmakers and state-funded filmmakers in the future: “At the moment there are two trends, films produced by Cuba’s state production company and films made outside of that,” he told the BBC.
“There needs to be a balance but I think the two will eventually merge. When this happens I think this will produce the best Cuban cinema.”
By David South, Development Challenges, South-South Solutions
Published: March 2012
Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.
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African Trade Hub in China Brings Mutual Profits
Tuesday, June 23, 2015 at 9:01AM
South-South trade is the great economic success story of the past decade. World Trade Organization (WTO) (www.wto.org) figures show South-South trade accounted for 16.4 percent of the US $14 trillion in total world exports in 2007, up from 11.5 percent of the total in 2000. While the global economic crisis has slowed things down, the overall trend is firmly established.
Trade between China and Africa has surged over the past decade since China joined the WTO in 2001, from around US $10 billion in 2000 to US $73.3 billion in 2007, registering a year-on-year increase of 32.2 percent. In 2008, it soared by 44.1 percent to reach a record high of US $106.84 billion, registering a year-on-year increase of 45.1 percent, according to Zhang Yongpeng of the Institute for West Asian and African Studies (IWAAS).
In the southern Chinese city of Guangzhou (http://en.wikipedia.org/wiki/Guangzhou) , a trading hub nicknamed “Africa Town” has emerged since 1998. A conglomeration of buildings around the Xiaobei road in Yuexiu district of the city, it has been equated to the famous Chungking Mansions of Hong Kong (http://en.wikipedia.org/wiki/Chungking_Mansions) . There are officially 20,000 African traders and entrepreneurs in the city of 18 million, but unofficial estimates put the number at more than 100,000. This African trading hub has emerged to the benefit of both the Chinese and Africans. It is a coming together of small traders matching Africa’s strong demand for consumer goods with China’s manufacturing powerhouse.
The traders export generators, toys, mopeds, construction equipment and other products back to Africa. The traders act as go-betweens, bringing their local knowledge of African market demands to the Chinese manufacturers.
Citizens from over 19 African countries are represented, the majority from Nigeria.
“Almost 90 per cent of goods in African markets come from China, Thailand and Indonesia,” Sultane Barry, president of Guangzhou’s Guinean community, told the Globe and Mail newspaper.
Barry has an entire floor for business in a 35-storey building packed with shops, offices, freight-forwarding companies, African restaurants, hairdressers and furnished apartments for rent by the week.
“We’re not here for fun,” said Ibrahim Kader Traore, an entrepreneur from Ivory Coast. “We work hard and do well. In Abidjan, people still swear by France, where you might be able to save US $13,000 over 25 years; in China, you can have US $130,000 in just five years.”
A trading success story, the hub has run into problems over visas and the upcoming November Asian Games in Guangzhou, which is increasing identity checks.
“I sell more than 50 per cent of the output of my brother-in-law’s TV factory to Africans,” one saleswoman told the Globe and Mail. “We need them and I’m worried there are going to be fewer of them.”
Brought together by trade and mutual interest, both communities still have much to learn about each other. Relations have had their ups and downs and Africans can face discrimination.
But the trading relationship is teaching both sides important lessons. “The arrival of the Africans taught the Chinese how to look for business opportunities,” said Barry. “The secretaries we had here didn’t speak a word of English. Our presence started a craze for learning languages: English and French. The Chinese didn’t know the basic rules of international trade. They knew nothing about documentary credit. They paid for everything cash in hand.
“The Chinese people will soon realize that it’s better for business to deal directly with ordinary Africans.”
And the pressure is on to see who will keep trading relations with Africa positive. “The door to the Chinese market has only opened a crack, mostly because visa requirements are so tough,” said Zango, a trader from Mali.
By David South, Development Challenges, South-South Solutions
Published: July 2010
Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.
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West African Chocolate Success Story
Tuesday, June 23, 2015 at 8:22AM
A Ghanaian chocolate company has become a big success in the United Kingdom and shown how it is possible to develop and market a high-quality product grown in West Africa. While the chocolate bars are manufactured in the Netherlands, the cooperative that owns the company initiated the push into producing a mass-market chocolate brand – and shares in the profits.
The Divine chocolate brand is available in shops and supermarkets across Britain and is the product of the Kuapa Kokoo (http://www.kuapakokoo.com/) cocoa farmers cooperative. The Divine brand was launched in the U.K. in 1998 as the first Fairtrade (http://www.fairtrade.org.uk) chocolate bar aimed at the mass market. Previously, most Fairtrade chocolate was made for high-end customers.
Apart from the chocolate bars, the co-op also sells its cocoa butter to The Body Shop (http://www.thebodyshop.co.uk/_en/_gb/index.aspx), a chain of natural beauty retailers.
In 1997, at the co-op’s annual general meeting, members decided to create a mass-market chocolate bar of their own. Ambitiously, they did not want to just be a small, niche-market chocolate bar. They wanted to take on the big brands. They set up The Day Chocolate Company in 1998 and received support from a collection of international charities, aid agencies and businesses.
The Chocolate Company is structured to have two members of the co-op on its board of directors, with one out of four yearly board meetings held in Ghana. As shareholders, the farmers also receive a share of the profits of chocolate sales. Britain’s chocolate market is worth £4 billion a year (US $6 billion) and the country has hundreds of chocolate brands, making competition for customers fierce. The Divine range of chocolate has been designed to match U.K. market tastes.
Ghana has an excellent reputation for the quality of its cocoa beans and has been growing cocoa since it was first brought to the country from Equatorial Guinea in 1878 by Tetteh Quarshie (http://www.ghanaweb.com/GhanaHomePage/people/pop-up.php?ID=128).
Kuapa Kokoo’s success story has its origins in responding to the structural adjustment programmes (http://en.wikipedia.org/wiki/Structural_adjustment) which started liberalizing Ghana’s cocoa market in 1993.
The lock the government had on selling cocoa to the Cocoa Marketing Company had been lifted. Now the opportunity was there for others to sell to the Marketing Company and some farmers decided to form a cooperative, Kuapa Kokoo – “the best of the best”. They wanted to get a better price for the cocoa and to improve working conditions and lives of the pickers.
The cooperative does all the processing of the cocoa and delivers it to market. One of the great advantages for the farmers is the honest weighing of the beans – something previous buying agents would cheat doing. By creating a more efficient and fair process, greater savings are made on the price paid for the beans and this is passed on to the co-op’s members.
The farmers are also trained to do tasks like weighing and bagging the cocoa, removing the need for outside help. Every year the farmers receive cash bonuses based on the co-op’s profits and any efficiencies made.
With this success, Kuapa Kokoo grew and now has more than 40,000 members spread over 1,300 villages.
The co-op offers various services to the farmers including a credit union to help with finances. There are also 33 Research and Development Officers employed by the co-op to oversee training and election.
The number of women farmers has grown over the years, from 13 percent to 30 percent.
Extra income-generating skills are encouraged for the women farmers as well. One project is to make soap from the potash produced from burnt cocoa husks. Women have also been given machines to crack palm kernels for cooking oil.
Comfort Kumeah, a 62-year-old co-op farmer, lives in the village of Mim in the Ashanti region. A former teacher for 39 years, she inherited 20 acres of land from her husband’s family.
“Each farmer has a passbook to record weight and payment. In the whole of Ghana, only Kuapa Kokoo … is certified Fairtrade,” she told the Sunday Times.
“I was voted chair of the farmers’ trust and national secretary for the union; once a year I attend a conference to vote on how the Fairtrade premium is spent. Last year we bought a palm-nut crusher and we sell the red oil on the market.”
“Before, I was always cheated. Purchasing clerks would come and weigh the beans and you never knew if their scales were correct, as no one checked them. Some embezzled the money instead of paying it to the farmers.”
“Owning this company has given cocoa farmers a voice for the first time.”
Kuapa Kokoo sells around 1,000 tonnes of cocoa every year to the European Fairtrade market (http://www.etfam.com/index2.php). This has many advantages for sellers if they meet certain conditions. These conditions include health and safety requirements and democratic decision making. If they are met, the producers receive a guaranteed price for their goods and long-term trading contracts. This means a stable price despite market fluctuations. With a stable price, it is easier to plan and save money.
Ghanaian cocoa has a good international reputation and trades at a higher price because of this. Cocoa once made up 66 percent of Ghana’s foreign exchange, but is now down to 35-40 percent as the economy has diversified into areas like information technology.
Cocoa is usually grown on small family farms in Ghana. Farmers also grow crops like plantain to provide food for the family. Around 1.6 million people are involved in growing cocoa and its business in Ghana. Cocoa trees grow to 15 metres in height and take three to four years to start producing a crop. An entire year’s worth of a tree’s crop can make three large chocolate bars.
A tree can produce two crops a year. Each cocoa pod produces around 40 seeds.
“A cocoa farmer’s life is hard,” admits Comfort. “In the lean season, we have no income. Also, cocoa is controlled by climate. Drought followed by too much rain causes fungus and rot, and then every farmer is poor.”
“I have saved money for my children’s education but my own needs are few: clothes, soap and toothpaste. Generally, you know, women are strong. Last year more women than men were voted onto the Kuapa Kokoo national executive and now hold some of the most senior positions.”
By David South, Development Challenges, South-South Solutions
Published: April 2010
Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.
Follow @SouthSouth1
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Indonesian Middle Class Recycle Wealth Back into Domestic Economy
Tuesday, June 23, 2015 at 8:13AM
The global downturn and economic crisis is now into its third year. Economic growth has dropped across the South, as the knock-on effect of shrinking credit and slowing global markets took its toll.
One solution to re-starting growth and building up domestic industries is to target local products at the existing middle class, which in turn grows the middle class by creating better paying jobs.
Globally, 2009 saw 70 million people join the emerging-market middle class, with incomes between $6,000 and $30,000. And 1 billion people are expected to join the middle class by 2020. It has been called “the story of the decade,” by Goldman Sachs’s chief economist Jim O’Neill, who forecasts their global spending power will outstrip the developed world in two decades.
Indonesia’s middle class first began to grow in the 1980s. But rising prosperity took a heavy blow with the Asian economic crisis of the late 1990s, when the currency was devalued, pitching millions of people back into poverty.
Even so, Indonesia’s middle class is estimated to be between 35 and 40 million people (out of a population of 230 million) and they pay out roughly US $750-1000 on monthly household spending.
They are a mix of people, including professionals in management, banking, accounts, specialized law, bio-technology, engineering and other areas – all skills needed to run the market economy.
Like members of the middle class around the world, increasingly affluent Indonesians forge their identity through consumerism and lifestyle. This desire for goods and services represents a huge business opportunity. Often, this is captured by large multinational companies with long experience of selling branded goods and services.
Indonesia, however, is having great success growing its middle class despite the global economic downturn by building up the domestic market. Millie Stephanie, the director of Indonesia Tatler Magazine, told the BBC that two-thirds of the country’s economy runs on domestic consumption.
New middle class housing is springing up around the capital Jakarta. Home ownership for many, unthinkable a decade go, is now possible as banks make more loans possible. This in turn feeds into more consumption.
By turning to local products – something the Indonesian government is encouraging by increasing its own spending on local goods and services in 2010 by US $21.32 billion, according to Industry Minister MS Hidayat – a cycle is created where middle class wealth creates middle class jobs in local companies.
The department store chain of Matahari (http://www.matahari.co.id/) – the largest local department store in Indonesia – is a good example. Eighty percent of the goods it sells are made in Indonesia. The store targets the middle class with products like jeans that Indonesians can afford. And this strategy has helped Indonesia to get through the downturn.
According to Widia Augustinia, who runs the PT Inti Garmindo Persada jeans factory, the company was able to triple production despite the downturn.
“In the last few years we kept getting calls from our clients saying they had sold all our jeans and they wanted more, so we had to expand our business and had to hire more people,” she told the BBC.
One of the factory’s workers, 37-year-old Miriam, has seen her salary increase annually over the last four years while she has worked in the factory. The increasing wealth means she can now educate her children and buy a TV and a motorcycle.
This matters when half the population are living on less than two dollars a day. This recycling of middle class wealth into the Indonesian economy is making more workers become part of the emerging middle class with the jobs created.
In Africa, the Aureos Advisers (http://www.aureos.com/) private equity firm specializes in investing in African small and medium size enterprises, and is having great success with it despite the downturn. Its niche is finding and investing in companies that sell quality local products.
Run by Sri Lankan-born Sev Vettivetpillai, it raised US $150 million in 2009 to invest in Africa, much of it from pension funds.
“That’s a large sum of money in a market where raising capital is tough,” he told The Guardian newspaper.
Leverage was a game when cheap debt was around,” he says of the old private equity market that went up in flames in 2008. “Today a large chunk of growth is in emerging markets and we have proved you can invest responsibly in these markets and achieve attractive returns while paying attention to building sustainable businesses.”
And the faith in small and medium-sized African businesses has been paying off despite the economic turmoil: since most of the companies have little debt, they have not suffered in the downturn. And since many do not export much to Europe or the United States, they have not suffered from the consumer slump.
“When markets crashed 60 percent, good management teams were making sure they had cash, not much debt,” said Vettivetpillai. “Most banks don’t lend to these SMEs. And that has saved a number of those businesses. So we had an upward lift in earning growth in 2008 when many people showed a drop.”
By David South, Development Challenges, South-South Solutions
Published: March 2010
Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.
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