Firms focus on vibrant emerging economies
THE explosive growth of emerging markets is proving a powerful magnet for the world's biggest countries, a survey by public accountants Ernst & Young has revealed.
About 80 per cent of the Global 1,000 multinational companies are already active investors and another four per cent are preparing to make a play over the next five years.
But the billions of dollars in the pipeline for the world's developing markets is still eclipsed by investment budgets for more mature economies.
More than half the companies surveyed still list the European Union and United States as their main focus.
Political instability, financial risk, potential legal problems and exchange issues are the barriers to foreign investment emerging countries continue to face.
Developing countries account for nearly 80 per cent of world population and 40 per cent of world gross domestic product, on a purchasing power parity basis.
It is estimated that in the past 10 years emerging markets increased market capitalisation 11-fold and trading volume 25 times.
The underlying growth is encouraged by the collapse of communism and moves toward trade liberalisation through organisations such as the General Agreement on Tariffs and Trade, its imminent successor, the World Trade Organisation, and the North American Free Trade Agreement.
The world's biggest companies, in sectors ranging from utilities to finance, are alert to the potential.
According to the survey, they are optimistic about the expected rate of return in emerging countries compared to mature markets, with around one quarter predicting 'much better' and a third 'slightly better' returns.
It says: 'China is clearly the critical area of focus for future investment and will be a competitive target. It is one of the top three priority markets for half of all companies.
Apart from China, the priority given to individual countries is fairly diverse, with only Indonesia, India and Mexico being mentioned by more than 10 per cent of companies.
'A comparison of the current distribution of largest operations, and future priorities for investment, underscores further the growing prominence of China, while the secondary focus of each investor region is different.' More than half the companies expect their operation to be staffed 75 per cent by locals.