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Perspective

The Next Big Thing - Frontier Markets

March 06, 2014| By Oscar Edelsvärd | L/H General Industry, P/C General Industry | English

Brazil, Russia, India, China (and subsequently South Africa) have been poster countries for rapid growth, progress and economic potential for over a decade. International insurance companies have opened branch offices in those countries and many national insurance companies have exposures in them, coming from local clients. However, slowing growth rates mean the BRICS’ glory days are over, some economists argue.

Looking forward, these economists are now suggesting that future growth will emanate from so called “Frontier Markets."

Ruchir Sharma, author of the book “Breakout Nations (In Pursuit of the Next Economic Miracles),” defines frontier markets as smaller countries, not yet fully connected to the global flow of trade and money, “in which political leaders have yet to buy fully into the global market consensus, and where economic expansion and stock market growth are still more erratic than the norm.”

Frontier markets are countries such as Ghana with a GDP per capita of only USD3,400, but can also be among the richest countries in the world - Qatar, for example, with a GDP per capita of USD103,900. The Frontier markets are not defined by their wealth but rather by their rule of law, or lack thereof. What these countries have in common is that their development could be volatile and that, if history is any indication, they will most likely be on both the “best” and “worst” lists in terms of economic growth and political stability in the coming decades.

Frontier markets around the world are all different and offer unique opportunities and challenges for insurers. For example, the cost of doing business in the Democratic Republic of Congo is twice that of a coastal nation such as Kenya; the cost of hiring a CFO in Uganda is reported to be close to USD250,000, similar to London.

At Gen Re we can’t tell you unequivocally which countries will grow in the future and need insurance to sustain their growth. But we believe that the key to doing business in frontier markets is understanding each country on its own merits. Engaging with a reinsurer that has true international scope, with local offices and staff in the region, will help you to avoid potential pitfalls and hopefully to participate in the coming high growth that frontier markets promise.

 

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