Emerging Markets' Risks

Emerging markets conundrum

Does growth equal risk?

Organizations are expanding into promising emerging markets. But they’re often encountering market volatility, geopolitical risks, weakening currency and fluctuations, and complex local laws, which can cause fraud and corruption risks. Here’s how to avoid some pitfalls.

Emerging market countries have seen unbridled development over the last couple of years. They’ve transformed into economic powerhouses to accelerate global growth. High investor returns, rapid industrialization, multiple international trade agreements and pacts, substantial labor pools, job opportunities and untapped resources in these markets have made them frontrunners in generating business opportunities.

Projections from the International Monetary Fund and World Bank show that the GDP growth rate for emerging markets and developing economies has increased from 4.1 percent in 2016 to 4.5 percent in 2018 and is expected to reach 4.7 percent by 2019-2020. (See Global Economic Prospects: The Turning of the Tide? World Bank Group, June 2018.)

Emerging markets have outpaced many developed markets, and the potential of future growth remains fairly bright. With soaring business confidence, many emerging regions have extensive opportunities available for global organizations that are looking to invest, develop and expand their operations. As per the World Bank report, some of the fastest growing nations in 2018 included Ethiopia, India, China, Ghana, Côte d’Ivoire, Philippines, Cambodia and Laos.

However, these markets have their own set of challenges: market volatility, geopolitical risks, weakening currency and fluctuations, complex local laws, cultural sensitivities and infrastructure concerns. The reality is that global multinational corporations entering, investing and expanding in emerging markets will have to be aware of relevant regulations, be familiarized with local complexities and implement global leading practices to tackle fraud and corruption risks.

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