EMERGING MARKETS Archives

09/03/2016by EOS Intelligence EOS Intelligence No Comments

Succeeding in Myanmar’s Fragmented Grocery Retail Industry

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In recent years, several reports have talked about how the rapid economic growth, expanding middle class, and consumer spending have fueled growth in Myanmar’s retail industry. Although the growth potential is very lucrative, retailers should also look closely at the industry challenges that currently exist. These challenges must be carefully assessed and addressed in order to capture the growth opportunities and succeed in Myanmar.

Myanmar’s rapidly improving growth indicators and demographics have attracted the attention of several investors as well as business consulting firms globally. The country’s growing urbanization, middle class population, and rising disposable income point towards tremendous retail opportunities for players looking for new growth markets.

In the past three years, companies such as Coca-Cola, Carlsberg, PepsiCo, KFC, etc., have already entered and started their business operations in Myanmar, while several others are looking at ways to enter the nation’s lucrative retail market, and to be the part of its growth story. Many industry experts remain upbeat on the nation’s future economic growth prospects, and have projected the retail industry to grow at a strong pace in the future.

EOS Perspective

Rapid economic growth, urbanization, and growing purchasing power, along with consumerization of IT are bringing bigger exposure to international brands for Myanmar’s rising middle class. This is expected to boost the demand for fast moving consumer goods. In addition, the evolving buying preferences of young and aspiring middle-class population, who are looking to spend their rising incomes on bigger and better brands are set to trigger improvements in the range and quality of retail products and services.

Recent FDI reforms and the influx of foreign capital are likely to dramatically change Myanmar’s retail industry landscape in the coming years. International retailers are expected to spur industry growth by creating more jobs, improving supply chain networks and infrastructure, bringing cutting-edge technologies, processes, and management best practices. Furthermore, the increased competition between local and foreign retailers is likely to promote market efficiency, which might also result in better portfolio of grocery products and services on offer.

For foreign players, Myanmar’s retail industry still remains relatively unknown. As the market remains highly fragmented with lack of structured data on consumer preferences and market segmentation, companies need to spend time to study the market.

The best strategy for foreign retailers should be to form a joint-venture with the right local partner, who has comprehensive understanding of the market and its consumers’ buying behavior. Joint ventures remain the preferred strategy for many multinational retailers to enter Myanmar’s retail industry. With the help of trade fairs and road-shows, companies can identify and engage with potential partners. This will help them conduct due diligence, at the same time gain better understanding of the industry as well as first hand market insights. Many companies from Japan and Singapore have successfully reaped the benefits of this approach.

Proven as very challenging, retailing in rural Myanmar remains untapped. There are plenty of growth opportunities for grocery retailers as consumer and market dynamics are expected to continuously improve in the long run. By offering value added services such as bill payments, mobile recharge and top-up cards, and postal services, retailers can truly create a competitive advantage. Retailers can start investing in partnerships with wholesalers and independent retailers to grow their current network. Once the opportunities become ripe, retailers can scale up their operations by acquiring these partners, and thus expand their footprint in new geographies.

In order to succeed in Myanmar’s grocery retailing, foreign and local players will have to form strategic alliances and create a win-win relationship through exchanging technologies and global best practices with sales network and market intelligence. Furthermore, retailers must be agile, flexible, and adaptable enough to seize market opportunities in Myanmar’s fragmented retail sector. Succeeding in Myanmar’s grocery retailing requires unique solutions tailored to meet the evolving demands of various consumer segments.

02/03/2016by EOS Intelligence EOS Intelligence No Comments

Uncertainty Looms over Future of Solar PV Market in Malaysia

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With the support of Feed-in-Tariff (FiT) policy introduced in 2011, cumulative PV installed capacity in Malaysia reached about 225 MW in 2015 – owing primarily to residential and community solar projects. However, the country still has a relatively small installed PV capacity as compared to other emerging countries in Asia such as India and Thailand, due to underdevelopment of utility-scale solar projects.

This article is part of a series focusing on solar PV market across selected Asian countries: China, India, Thailand, and Malaysia.
The series closing article Solar Rises in the East examines challenges and opportunities in all four markets, with additional look into Indonesia and
The Philippines.

Market Overview

Before 2005, there was only a handful of off-grid PV installations in Malaysia, which were funded by the government under rural electrification project. With the support of United Nations Development Programme – Global Environment Facility (international financial entity providing funds for environment projects), Malaysia government initiated the Malaysian Building Integrated Photovoltaic (MBIPV) project in 2005 with the aim to promote grid-connected PV systems and develop solar PV policy framework to support growth of solar PV market in the country. From 2006 to 2010, approximately 2 MW of grid-connected PV systems were installed on residential and commercial buildings under MBIPV project.

MBIPV can be considered a stepping stone in the development of solar PV market in Malaysia and it was pivotal in formation of National Renewable Energy Policy and Action Plan (NREPAP). NREPAP was approved in 2010, followed by introduction of feed-in tariff (FiT) as a key stimulus for development of renewable energy landscape, including solar.

Under NREPAP, Malaysia aims to install cumulative solar PV capacity of 399 MW by 2025 and 854 MW by 2030. However, observing the current pace of development of solar PV market, the country is expected to reach its target well ahead of time. This rapid growth can be partially attributed to country’s abundant potential for solar PV generation.

Being located in the equatorial region, Malaysia is exposed to ample and constant sunshine – an ideal environment for solar PV power generation. Malaysia receives an average of 17 Mega Joules per square meter (MJ/m2) of solar radiation per day. All regions in Malaysia have sufficient availability of land for PV installations, except for Kuala Lumpur, where the solar PV capacity is limited to 5 GW due to the limited area and locations for solar PV installations.

Key Growth Drivers

High dependence on non-renewable sources for electricity generation

Malaysia is largely dependent on fossil fuels, predominantly coal and natural gas, for electricity generation. Coal and natural gas accounted for about 79% of country’s installed electric generation capacity and 87% of the electricity output in 2012.

Malaysia has limited indigenous coal reserves: in 2012, Malaysia produced 3.4 million short tons of coal, which provided only 12% of country’s coal consumption in that year. Remaining demand was filled in by imports. Such high reliance on imports puts country under the purview of supply risks such as price fluctuation or shortage of supply.

On the other hand, Malaysia has large reserves of natural gas: as per Oil & Gas Journal estimates, as of January 2013, the country had 83 trillion cubic feet of proven natural gas reserves. However, the natural gas supply is located mainly in East Malaysia, which is separated from Peninsular Malaysia (where the country’s power sector is located) by the South China Sea. Due to this geographic characteristic, in 2011, the high demand centers in Peninsular Malaysia experienced power outages because of shortage of natural gas supply in the region.

Thus, in order to strengthen its energy security, Malaysia needs to diversify its electricity generation mix and shift to alternative renewable energy resources such as solar.

Constructive solar policy framework and incentives

Malaysia introduced FiT in 2011 under the Renewable Energy Act 2011. The country has a well-organized FiT mechanism, which is administered and managed by Sustainable Energy Development Authority (SEDA).

The FiT fund is financed by the electricity consumers – with implementation of FiT, consumers started contributing 1% of their total electricity bill towards a Renewable Energy Fund. However, this was not applicable to the low usage consumers (using less than 300 kWh per month). In order to ensure successful implementation of FiT policy, the contribution share was readjusted in 2014 that resulted in increase in monthly electricity bill from 1% to 1.6%.

The FiT rates vary by type of applicant – community, individual, and non-individual, who are subject to capacity limit of 48kW, 12kW, and 1,000 kW, respectively, per application. SEDA proposed 70 MW of cumulative solar PV quota for the year 2016. In case of solar, FiT is applicable for 21 years from FiT commencement date.

Following are the FiT rates by applicant category in 2016:

Key Challenge

Discontinuation of FiT for solar PV after 2017

Due to constraints in RE fund, Malaysia plans to end FiT for solar PV after 2017. Solar PV installations have increased significantly since the introduction of FiT policy. Thus, cessation of FiT might be a major setback for the industry.

At the current rate of FiT, the payback period on investment is 6-10 years depending on the capacity of the installed PV system. Despite the costs coming down, the upfront installation cost for solar PV is still high. Thus, in absence of FiT the return on investment in the solar PV is expected to be unsustainable. Besides FiT, there is no other strong incentive for investment in solar PV. Malaysia is preparing a framework for net-metering, which will allow the solar PV system owner to sell excess solar energy to the utility companies such as Tenaga Nasional Bhd (TNB) and Sabah Electricity Sdn Bhd (SESB), and earn additional income. However, this is in the trial phase and the actual benefits of this system are yet to be assessed.

Opportunities for Global Solar Companies

Global solar PV module producers eye Malaysia as their key production center

Malaysia has relatively small installed solar PV capacity when compared to its massive upstream supply chain, which mainly caters to demand from overseas markets. The country has attracted many leading global solar PV module producers that have taken advantage of the relatively low cost and English-speaking workforce, as well as generous tax breaks. With around 3.3 GW solar module production capacity in 2014, Malaysia was the third-largest producer of solar modules, after China (33.8 GW) and European Union (4.2 GW). Moreover, the country is also benefitting from the anti-dumping duties levied by the USA and European Union on leading solar PV manufacturing countries such as China and Taiwan. Thus, Malaysia is set to become a hub for production of solar PV modules. Global solar PV module producers have been rapidly expanding their production base in Malaysia. For instance, Hanwha Q Cells, a Germany-based solar PV producer, has an annual production capacity of 1,100 MW in Malaysia as compared to only 200 MW in its home market.

EOS Perspective

Though Malaysia is blessed with abundant solar energy potential, the installed solar PV capacity is quite minimal. The FiT policy, introduced in 2011, has been the main factor encouraging general public and business enterprises to invest in solar PV systems.

The limited installed solar PV capacity in Malaysia can be partially attributed to underdevelopment of large utility-scale solar PV projects. There is no proper policy framework in place to support and benefit the utility-scale solar power developers. Malaysia announced development of its first utility-scale solar PV power plant in Kedah in April 2014. This 50 MW solar farm (which is still under construction) is a 60:20:20 joint partnership between the 1 Malaysia Development Bhd (an independent power producer, 1MDB), Tenaga Nasional Berhad (national electricity utility), and DuSable Capital Management (a USA-based private equity firm). 1MDB signed a 25-year power purchase agreement (PPA) with Tenaga Nasional Bhd following direct negotiations with the Energy, Green Technology, and Water Ministry.

Malaysian government is now preparing a framework for development of utility-scale solar PV projects. Preliminary discussions suggest that Malaysia is expected to target 1,000 MW of utility-scale solar PV capacity by 2020. Thus, we can expect rapid expansion of solar market in Malaysia provided the government introduces favorable policies and incentives for development of utility-scale solar PV projects.
The market for residential and community solar PV has been mushrooming in the past few years, but the investment does not seem to be sustainable without the support of FiT. Hence, after cessation of FiT in 2017, government will need to come up with some alternative incentives in order to protect the interest of investors of residential and community solar PV projects.

Further development of solar PV market in Malaysia will by large depend on the additional support and incentives extended by government.

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US$1 = MYR 0.26 (average 2015)

18/02/2016by EOS Intelligence EOS Intelligence No Comments

Looking for Luxury Accommodation? It’s Time for Nigeria

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Over the years, Nigeria has become Africa’s epicenter of economic growth and hub for investments in the hospitality sector. Nigeria’s hospitality market is the most developed in Africa, however, it is far from mature and still has an immense development potential — it is this trait that is constantly enticing international hoteliers to establish their presence across Nigeria. Leading hotel brands are forging ahead with ambitious growth strategies to fill the supply gap. Consequently, Nigeria is speeding its way to become Africa’s powerhouse with an estimated US$1.1 billion revenue from the hotel business by 2018 — gearing up to increase the number of hotel rooms from 8,400 in 2013 to 24,000 in 2018.

Disposable income is rising across the middle and high income consumers in Nigeria, which has kindled the desire for luxury accommodation and fine dining experiences. This growing demand, along with the constant government support and investments in the sector are driving the hotel industry in Nigeria.

The country is endowed with several tourist attractions that encourage international tourism, however, many of these places are still untapped and Nigeria also lacks modern infrastructure. Consequently, the hospitality industry is driven mainly by business customers and inbound travelers.

The number of hotels is higher in Nigeria’s political capital – Abuja, and the country’s commercial center – Lagos. Besides the prime locations, hoteliers can focus on the secondary markets, which have potential due to a high demand for quality accommodation as well as a growing influx of business and leisure travelers.

Nigeria has several international hotel brands operating in the country while many others are devising strategies to enter the market. International hoteliers such as Fairmount, Marriott, Starwood, Sheraton, etc., have started expanding their businesses in Nigeria.

EOS Perspective

Undoubtedly, Nigeria has become an hoteliers’ hotspot for investment and the yearning for luxury hospitality services among Nigerians is bolstering the market. Also, the government is endeavoring to support the tourism industry — in 2014, Nigerian Tourism Development Corporation (NTDC), developed an identity campaign titled ‘Fascinating Nigeria’. A website was launched to showcase Nigeria’s attractions and cultural highlights. The website also provides a list of quality and luxury accommodations across Nigeria. NTDC is planning to set up tourism desks at airports to attract visitors by giving out cultural festival calendars, accommodation brochures, etc.

Besides such efforts, hotel chains can focus to build accommodations to attract corporate customers, as the Nigerian hospitality market is currently dominated by business travelers. Hotels providing space to hold conferences, conventions, events, and business meetings are likely to be preferred by these travelers. Also, corporate discounts and tie-ups with business houses — including various airlines, as crew members are mostly accommodated in luxury hotels — are expected to yield high returns for hoteliers. Apart from business travelers, luxury properties are preferred by local communities (middle to high income consumers) for social gatherings. Hence, efforts to improve fine dining, lounging, and other services may lure customers.

It is definitely time for Nigeria as several prominent international hotel brands are battling for a slice of opportunity to enter or expand business in the rapidly growing hospitality market. Let’s see how many of them will sustain and succeed in the race to build luxury empires in Nigeria.

14/01/2016by EOS Intelligence EOS Intelligence No Comments

Have Big Box Retailers Successfully Metamorphosed the Indian Retail Culture?

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With its vast aspirational population, India is among the most favored retail destinations globally. However, the country’s retail market is still shackled by old-fashioned merchants and modern retailers are struggling to draw customers. One of the biggest challenges is the ‘retail structure’ of India – the market is mature but highly fragmented with 12-15 million outlets. About 92% of retail sales is derived from the fragmented unorganized sector.

There are some major impediments that are holding back retailers from realizing their full growth potential to yield desirable profits. Modern retailers in India suffer from regulatory hurdles, supply chain disruptions, soaring real estate prices, and scarcity of skilled workforce, among others. Consequently, several big box retailers such as Carrefour and Shoppers Stop have closed or downsized operations, respectively.

Despite the teething challenges, several international retailers have invested in the market while many others are contemplating to capitalize on the growth and demand potential of world’s fifth largest consumer market. Big box retailers have ushered revolution across the retail sector with their assortment of store formats based on consumer convenience, offering cash on delivery option, installment payment systems, and elevated customer experience by bringing all retail brands under one roof.

Working population and youth have proven to be attractive consumer segments for retailers. Also, rural India, representing a less penetrated market, is a key opportunity segment for retailers.

Several retailers such as Big Bazaar, Metro Shoes, Flipkart, Lenskart, etc., have overcome sustainability hurdles by implementing innovative ideas and deeply assessing the retail market.

EOS Perspective

Breaking through India’s retail market is a grueling experience but several big box retailers have succeeded by implementing innovative ideas and assessing consumer behavior carefully. Retailers need a robust strategy and in-depth knowledge of consumer buying behavior to pave way and survive in the market. It is essential to understand the fundamental features and structure of the market – for instance, India is a highly heterogeneous and segmented consumer market, hence, adopting a single marketing strategy across the country might not reap profits. Income levels, tastes, preferences, languages, lifestyles and fashion, buying behaviors, etc. differ across India. Therefore, it is crucial to develop region-wise marketing plan.

Further, retailers need to stay on toes persistently to keep themselves updated with new trends and competitive intelligence. For example, the new mantra of several big box retailers is to invest in developing omni-channel presence, which helps to expand their horizon from brick and mortar stores to multichannel selling through e-commerce. Growth of e-commerce in India has got retailers contemplating their multi-channel strategies with a few brick and mortar giants – including Croma, Shoppers Stop, brands such as Nike, Puma, Catwalk, Mango, among others – investing to build an online presence. Most brick and mortar retailers in India don’t have good multichannel offerings with pure play e-commerce companies (such as Amazon and Flipkart) dominating the market. Therefore, an investment to build online presence represents a plethora of opportunities for retailers considering e-commerce share in Indian retail sector is expected to skyrocket from 2% in 2014 to 11% in 2019.

Trends and developments within the Indian retail sector and Indian consumer behavior are complex to understand and predict, a challenge accompanied by several regulatory roadblocks. However, big box stores have changed the face of Indian retail by reinventing and positioning themselves as lifestyle and entertainment hubs rather than aggregators of retail brands. They have successfully instilled in local consumers’ minds the ‘mall culture’, where shopping malls and lavish stores become a weekend destination – not only for picking up groceries but also for recreation. Big box retailers have a long way to go, but the journey has begun.

15/12/2015by EOS Intelligence EOS Intelligence No Comments

Are Intelligent Fleet Management Systems the Way Forward?

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Operating within an environment characterized with increased competition and regulatory pressures, fleet operators globally are in dire need for operational efficiencies that can help them to ‘do more with less’. In recent years, intelligent fleet management systems (IFMS) have become the buzz within the industry with its adoption rates on the rise. However, the key question remains – can IFMS provide fleet companies with the much needed operational excellence?

The fleet management industry is undergoing major transformation driven by internal and external factors. As traditional business models are no longer sustainable due to the constantly evolving market dynamics, fueled by increasing competition, regulatory upheaval, and rising customer expectations, fleet operators have to re-invent their operational strategies in order to compete and win in the current industry environment.

In the past, fleet operators have often overlooked investments in business systems and technologies. Therefore, many firms still operate with legacy systems which are fragmented with poor controls and processes. This eventually results in higher operational costs, misevaluated risks, poor strategies, missed business opportunities, and shrinking profits. Fleet operators need to break these barriers by closely aligning their business and IT systems to streamline firm-wide operations.

There is a pressing need for integrated business systems that can provide firms with holistic enterprise-wide view, allowing fleet managers to gain better control over their fleet operations. IFMS, by harnessing data intelligence, empowers fleet companies with better decision-making capabilities which result in reduced operational costs and optimized fleet performance. Encouraged by these benefits, fleet managers are increasingly utilizing IFMS, and the global trend towards adoption of fleet management systems is on the rise with the industry expected to witness a strong growth between 2014 and 2019 at a CAGR of 24%.

EOS Perspective

With promising growth opportunities for the fleet management industry, especially in emerging markets, competition is going to intensify among players to capture and grow their markets shares. In order to compete and win in the evolving frontier markets, fleet operators must innovate and transform their business models, by investing in integrating people, processes, and technologies that can help them see the bigger picture. IFMS, through data intelligence, can help fleet operators to streamline operations, improve business performance, and strategic decision making. But it comes with its own set of challenges. At present, technology as well as service providers in the market place are evolving, and due to high implementation costs, IFMS adoption is presently limited to large fleet operators. However, in the coming years, as service providers are likely to gain more industry experience and expertise, data intelligence technologies and IFMS service offerings will mature and become more cost effective.

There is no doubt that in the foreseeable future IFMS will play a vital role in the fleet management industry, helping fleet operators to improve business performance and support robust growth strategies.

09/12/2015by EOS Intelligence EOS Intelligence No Comments

Botswana Diamonds – A Mixed Blessing?

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While Botswana has been an important player in the global precious stones industry for years, it has once again received global attention in November 2015, when the second-largest diamond ever unearthed was found in Botswana’s Karowe mine. Diamonds-derived revenues have been the key pillar to the country’s development over years, on the back of Botswana’s considerable deposits and well-performing global precious stones market. However, the outlook for Botswana might not be so bright anymore, as industry experts expect the global diamond production to decline after 2025 when majority of the mines are likely to be exhausted. Botswana, still one of the largest producers and exporters of diamonds, is already facing challenges in this industry. Being a diamond-dependent economy, will Botswana be able to maintain a sustained growth in the future as its shining precious gems industry weakens?

Diamond-fueled economic growth

Botswana, a small African country with a population of around two million people, has witnessed huge success since its independence in 1966. From being one of the poorest countries in the continent, Botswana has grown to be now considered one of the fastest developing countries in the world (with average annual GDP growth rate of 4.45% from 1995 until 2015). The success of the nation is largely attributed to the diamond deposits and the associated extraction industry. The discovery of the gems in 1967 led the way to the country becoming the poster child of the continent’s success. As of 2015, the diamond industry contributed 80% to the country’s export revenues and 30% to public revenues. In 2013, it accounted for around 25% of the country’s GDP. The success of the industry paved the way for the development of several roads, schools, and clinics in the country. Gaborone, the capital of Botswana, has transformed from a village to a city of malls and office buildings, all largely thanks to the diamond industry. Further, the sector has created job opportunities in the country and greatly contributed to raising standard of living of the country’s citizens.

“For our people, every diamond purchase represents food on the table, better living conditions, better healthcare, potable and safe drinking water, more roads to connect our remote communities, and much.” – Festus Mogae, Botswana’s President, 2006

As of 2014, Botswana was the largest producer of diamonds in terms of value and the second largest, after Russia, in terms of volume. The country’s production increased from 17.73 million carats in 2009 to 24.67 million carats in 2014. This represented a hike of almost 40% in the span of only five years.

Diamond mining operations in Botswana are controlled by Debswana Diamond Company, a joint venture between De Beers, world’s leading diamond company engaged in exploration, mining, and marketing of rough diamonds, and the Botswana government.

In the past years, the government has undertaken various initiatives to make the country a global diamond hub. In 2013, Dee Beers and the Botswana government formed the Diamond Trading Company Botswana (DTCB) to encourage the practice of sorting and marketing rough diamonds in the country itself, rather than sending them to De Beer’s Diamond Company based in London. This move facilitated job creation and upliftment of the local businesses in Botswana. Further, a state-owned company called Okavango Diamond Company was set up in order to sell 15% of the diamond production of Debswana independent of De Beers.

Grim future for Botswana

Despite being amongst the leaders in the global diamond industry, a grim future lies ahead for Botswana, driven by a range of reasons.

A weakened global demand: The global jewellery industry has been observing a sluggish demand, which has led to the global prices of diamonds witnessing a 12% decline from 2010 until 2015. To compensate for the stagnant sales, Botswana had been relying on opulent Chinese and Indian customers. However, the strengthening of the dollar and the decreasing price attractiveness of Chinese exports have weakened the Chinese economy. This was followed by a 2% devaluation of the Chinese currency, Yuan, which in turn has adversely affected the spending and demand for Botswana diamond by Chinese consumers.
Difficulty in diamond extraction: Botswana mines have reached a plateau as most of the diamond volume has already been extracted from the surface. Deeper extraction has now become a costly and time-consuming affair, showing an early sign that diamonds are likely to gradually become inaccessible in the country.
Competition from India: It is becoming increasingly difficult for Botswana to compete with a low-cost country such as India where majority of diamond cutting takes place. Although the wages in both countries are almost the same, India has levelled up its game by increasing its productivity by two to three times higher than that of Botswana’s. The cutting and polishing costs in 2013 ranged between US$ 60 and US$ 120 per carat in Botswana, whereas, in India it was between US$ 10 and US$ 50 per carat.

The above challenges have had an adverse impact on the country’s economy, particularly the employment sector. Teemane Manufacturing Company, a 20 year old diamond cutting and polishing firm in Botswana, shut down in January, 2015, leaving around 350 workers jobless. In the same period, MotiGanz and Leo Schachter, diamond cutting companies, also released almost 150 employees, and Debswana shut down two of its mines. These companies are offering retrenchment packages to their employees and ending their contracts with third parties which is likely to be affecting over 10 thousand jobs in the country. Shutting down of companies has also led to a decline in the various CSR programmes. The villages near the mines will no longer benefit from initiatives such as electrification of schools and development of roads.

The weakening demand also meant that early this year, De Beers failed to dispose off 30% of its diamonds stock. The company had to reduce its 2015 production target from 23 million carats to 20 million carats. And the impact of the sluggish demand goes beyond the industry as well. In the first half of 2015, the country witnessed a year-on-year decline of 16.8% in the export of rough diamonds. Further, since the production of diamonds is a critical element in Botswana’s GDP composition, a fall in the diamond output has reduced the country’s GDP growth forecast for 2015 from 4.9% to a mere 2.6%. Botswana’s government has decided to use its foreign reserves amounting to around US$ 8.3 billion to fuel growth in the country.

EOS Perspective

The Botswana economy has relied heavily on its diamond industry for survival for a long time. Since the revenues from diamonds are now becoming uncertain, the country is in a dilemma of how to keep its economy moving. Encouraging economic diversification could be one of the ways to help the country reduce its dependency on diamonds. Apart from diamonds, Botswana also produces other minerals such as coal, copper, iron ore, and nickel. The country should focus on developing a suitable industrial policy to promote the production and export of these minerals. However, whatever the alternative growth-fuelling path is chosen by Botswana, the country has a long way to go in order to shift away from over-dependence on diamonds, its largest structural weakness, to make its economy sparkle even when diamonds run out.

26/11/2015by EOS Intelligence EOS Intelligence No Comments

The West vs. Russia: Will Russia Really Survive The Impact Of Sanctions?

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Russia trampled international laws with annexation of Crimea (previously part of Ukraine) to its territory and is reeling under wrath of sanctions imposed by the EU, the USA, Australia, Canada, Norway, and Switzerland, among others. Over a period of time, the sanctions have expanded to inflict economic damage to Russia by targeting its financial, energy, and military sectors. Even though the ball has always been in Russia’s court, the country has only deepened the damage by retaliating with food embargos and standing adamant on its decision to hold on to Crimea against Ukraine’s sovereignty.

The sanctions are intended to limit trading relationships with Russia, which in turn have adversely affected both the EU and the USA. The economic impact is more intensive on the EU member countries and Russia, as they were engaged in high volume and value trading relationship.

Russia’s economy is suffering under the contracting GDP, growing inflation, capital flight, as well as Ruble depreciation. Economic turbulence has been further intensified with plunge in global oil prices — as Russia’s is one of the world’s largest oil producers, with oil and gas exports accounting for 70% of its export income.

The sanctions also had a crumbling effect on the Western companies operating in Russia. Several luxury and consumer goods companies had previously flocked into Moscow to capture the growing middle class market, however, Russia lost its attractiveness and image to being a ‘malignant country’ post Crimea annexation. After the sanctions were imposed, several consumer goods companies shut down their operations — Zara, a Spanish fashion brand, closed flagship store in Moscow in 2014. Wendy’s (an American international fast food restaurant chain), Esprit (China-based clothing brand), and River Island (British fashion shop) are also planning to end their operations in Russia. Consumer spending and retail sales reflect the economic sanctions with retail sales falling 7.7% y-o-y in February 2015.

In August 2014, Russia devised a strategy to retaliate against Western countries by banning agricultural import of certain products from the USA, the EU, Canada, Australia, and Norway. Presently, the Russian government is encouraging domestic production to reduce reliance on imports. However, it will take at least five years, if not more, before import substitution starts yielding real impact on domestic food availability and the Russian economy.

EOS Perspective

There is no doubt that sanctions along with falling oil prices have damaged Russian economy. Decline in oil prices strained the availability of domestic liquidity, which could normally be compensated with foreign debt market borrowings. However, borrowing has been prohibited by the ban on Western debt and credit, which intensified the situation and put crushing pressure on the Russian economy.

It is expected that the sanctions are not going to be lifted any time soon, which is projected to bring absence of foreign loans, which in turn is likely to be paired by significantly reduced of foreign investment. This could be a major challenge for Russia, as the FDI tends to be one of the key sources of capital and technologies in emerging nations. With this isolation, Russia might not be able to keep the necessary pace of growth due to lack of capital and limited trading relationships.

Under the pressure of sanctions, Russia can be expected to undergo a transformation to rebalance its economy — with Western companies exiting Russia, their place could be taken by Asian counterparts or domestic companies. For instance, in October 2014, Russia signed 40 agreements with China spanning energy, financial, and technology sectors. Further, Chinese banks agreed to offer credit lines valued at US$ 4.5 billion to Russian banks and companies. These recent agreements clearly show that Russia has been seeking to deepen its strategic ties with Middle Kingdom, intending to improve trade between the two countries to double it to US$ 200 billion by 2016 end.

Sanctions are likely to continue to deeply impact Russia’s key choices in its internal policies as well as the international arena, with expected focus to increase domestic production and choosing Asian allies over Western partners to establish trading relationships.

10/11/2015by EOS Intelligence EOS Intelligence No Comments

Central Asia – A Region of Uneven Growth and Investment Potential

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Although all Central Asian countries have been performing well on the overall economic growth front over the past several years, this good performance cannot be assumed to imply an investment growth (especially FDI-related growth)registered by all these countries. Despite government efforts and certain industries playing a critical role in bolstering growth of each Central Asian economy, various factors are standing in the way for these countries to realize their full growth and investment potential. Frequently, FDI-driven investment is hindered by unfavorable government policies, among other reasons. Central Asia remains a region of uneven development, with a need for a holistic approach to boost both economic and investment growth.

Projected to record a positive GDP CAGR in medium term with the aid of governments’ initiatives to boost both growth and investment, Central Asia’s economic progress can be characterized as unique in nature. Unlike in most cases where a country’s overall prosperity goes hand-in-hand with, say, FDI growth (such as in case of Kazakhstan, Kyrgyzstan, and Tajikistan), Turkmenistan and Uzbekistan are gearing towards around 10% GDP CAGR during 2013-2020 with negative FDI growth rates recorded in the period of 2010-2013 (which can be attributed to factors such as restrictive visa regime and constrained access to foreign currency).

While certain industries such as oil and gas, construction, and agriculture are playing an important role in driving Central Asian economies’ growth and investments, weakening Russian economy, among other challenges, is expected to have an adverse effect on the overall growth in the region.

Key Government Initiatives to Boost Growth and Investment

Chief Industries Driving Growth and Investment in Central Asia Region

While these Central Asian countries show good growth and investment performance, aided by government initiatives to propel development and selected industries that continue to fuel economy growth, still an unequal growth and investment potential prevails in Central Asian countries.

Uneven Growth and Investment Potential in Central Asia Region

Growth Challenges and Proposed Solutions

EOS Perspective

To remain competitive in the global market, Central Asian countries will be required to overcome, or at least considerably minimize the growth hurdles. All of these countries rely on Russia in varying degrees, thus deteriorating Russian economy is likely to have an adverse effect on these countries in different ways, e.g. as inflated poverty rates primarily due to reduced remittances. Since Russia’s growth projections are almost negligible in short term, it might make sense for these countries to strengthen their trade relationship with the Eurozone countries which have started to experience nascent recovery.

Cases of Central Asian countries such as Kazakhstan (equipped with the maximum investment potential and minimum growth potential) and Turkmenistan (holding the minimum investment potential and maximum growth potential), indicate the fact that the region has an uneven growth and investment potential. In order to reduce the level of unevenness, reforms which encourage investment driven growth need to be implemented. It is of utmost importance for Central Asian countries to make their economies resilient (to a larger extent) to prevailing harmful extrinsic factors as well as to overcome intrinsic challenges. Also, it would be beneficial if the countries created a more suitable environment for private sector growth, improve quality of workforce, promote inclusive growth through better access to finance for SMEs, and create a dynamic non-oil tradable sector to diversify economies.

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Who We Are

Connect With Us

Work With EOS

Who We Are

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Work With EOS

This article is part of a series focusing on solar PV market across selected Asian countries: China, India, Thailand, and Malaysia. The series closing article Solar Rises in the East examines challenges and opportunities in all four markets, with additional look into Indonesia and The Philippines.

This article is part of a series focusing on solar PV market across selected Asian countries: China, India, Thailand, and Malaysia.
The series closing article Solar Rises in the East examines challenges and opportunities in all four markets, with additional look into Indonesia and
The Philippines.