The Emerging Markets: Economic Outlook

The International Monetary Fund has forecast that over the next few years, around 70 percent of world growth will come from developing countries. Emerging economies - such as Nigeria,Indonesia, the Philippines, Saudi Arabia and Mexico - are expected to see significant growth over the coming decade. Economic advances in these countries has supported the world economy through tough financial periods in recent years, with particularly strong development in the construction, real estate, and technology sectors.

Looking forward to 2015, the economies of emerging markets in Southeast Asia, Latin America, the Middle East and Africa are projected to further strengthen. Due to rising domestic imbalances and a challenging external environment, Southeast Asia’s gross domestic product (GDP) growth in 2012-2013 was below average for the past decade; despite setbacks and lower than expected growth levels in the first half of 2014, a steady GDP growth is projected for the coming years. Figures from the OECD Development Centre’s Medium-Term Projection Framework (MPF-2014) reveal that the real gross domestic product (GDP) rate in Southeast Asia is forecast to average 5.4 percent per annum between 2014 and 2018.

Paul-Philipp Hermann, Co-Founder and Managing Director of Lamudi, commented: “GDP strengthens the property market in the emerging countries. Alongside the rapid growth of internet technologies, less developed countries in Southeast Asia, Africa, the Middle East and Latin America are emerging as competitive players in the global real estate market, and thus becoming increasingly attractive to investors.”

Figures from the World Investment Report 2014 , published by the United Nations Conference on Trade and Development (UNCTAD), reveal that foreign direct investment (FDI) inflow into Africa increased by four percent to $57 billion in 2014.

As a result of infrastructure developments, emerging middle classes and local innovation, industries such as automotive, IT, construction, real estate and retail are becoming increasingly attractive investment opportunities. Developing nations in Asia accounted for almost 30 percent of the global FDI total in 2013, with a total inflow of $426 billion. In Southeast Asia, inflow increased by seven percent, to reach $125 billion. In Latin America, Colombia has experienced an eight percent increase to $17 billion in 2013, providing exciting new opportunities for foreign investors in the financial industry.

The emerging markets present an impressive number of opportunities for investors. FDI Intelligence reports that in 2013, Asia-Pacific remained the leading destination for foreign direct investment, with projects bringing capital investment to $184.76 billion. The Middle East, Latin America and the Caribbean, both saw strong growth in greenfield FDI, with major growth recorded in Jordan and Mexico. Africa also saw an increase of 10.76 percent in inward capital investment from 2012 to 2013, attracting $51.98 billion. According to FDI, the top five sectors by capital investment in 2013 were: coal, oil and natural gas; communications; renewable energy; business services; and real estate.

Most emerging markets have large, young working populations. The Middle East, Africa and Latin America have the largest number of citizens under 30 years old, with countries such as Mexico, Jordan, Saudi Arabia and Nigeria home to some of the world’s youngest populations. According to market intelligence firm Euromonitor International, emerging and developing countries house 89.8 percent of the global population under the age of 30 - up from 85.3 percent in 1980. These young populations are not only contributing more to the economy through work, but also spending more on consumer goods and more enthusiastic to spend time and money on technology.

Property in the Emerging Markets

Markets in Asia, Latin America and the Middle East are experiencing booming real estate sectors, fueled by a growing middle-class and strong economic performance. Southeast Asian cities are seeing the fastest increase in apartment, condominium and commercial property prices across Asia, according to property consultants Knight Frank.

The company’s Prime Asia Development Land Index - analyzing property prices across the continent - reveals that over the past two years, prime residential and office development prices in Asian increased by 50.4 percent and 38.3 percent respectively.

The high-end property segment in Southeast Asia, Latin America, the Middle East and Africa is growing, and is forecast to continue this expansion in the coming decade. Over the past two years, house prices in Jakarta have grown by 184 percent, fuelled by Indonesia’s fast-growing middle class and the increasing demand for high-end property in the city. Furthermore, capital cities Manila and Yangon have also been highlighted by experts as cities with property markets to watch, in terms of residential, industrial and commercial real estate.

With a strong economy and improvement in areas like transparency and governance, more investors have turned their attention to the Philippines’ capital. Manila has a young demographic, receives a significant amount of capital from Filipinos working overseas and a similar workforce culture to the west. Its residential, retail and office sectors all have strong investment prospects. Global bank HSBC last year named Mexico the “the safest bet for investors in the region”.

In a study of the top emerging markets from 2013, the bank chose Mexico ahead of Brazil and Argentina as Latin America’s investment hotspot. Investors see signs of change in Mexico, with drug-related violence and crime on the decline and businesses benefiting from reforms enacted since the 2012 elections. Foreign investors are attracted to Mexico due to perks such as value for money, which is more favorable than in the US and Europe, and appealing exchange rates.

A number of countries, expected to become economic powerhouses of the future, have been grouped into the so-called MINT – Mexico, Indonesia, Nigeria and Turkey – and PINE countries - the Philippines, Indonesia, Nigeria and Ethiopia. The young populations, increasing wealth and economic stability and attractive geographical locations make these particularly good options for investment, infrastructure development, and construction.