Last week’s fall in shares within the eurozone and UK is evidence of weak economic growth knocking investor confidence. The same can be said about the US, with the Dow Jones also falling.
Oil prices also continued to slide, with Brent crude falling to $83.78. It has actually fallen by over 20 per cent since the summer amid concerns about oversupply with output exceeding forecasts for future demand. The signs of economic recovery are still not visible.
Yet for Malta, with economic growth predicted to rise by 3.5 per cent in real terms in 2015, it is quite possible for local companies to identify business opportunities elsewhere, especially in emerging markets. A weaker euro also reduces the cost of doing business outside the eurozone.
But the key to successful investment lies in innovative ventures in emerging markets, possibly in partnership with reputable and established companies. That may sound overly optimistic, and local companies to date have had mixed experiences of doing business in emerging markets.
It would be vital, therefore, for local companies to get their business models right and focus also on their strengths. Applying our domestic model for manufacturing won’t work in emerging markets. We are only competitive in services, in sectors such as catering, hospitality and education, which is likely to be successful in emerging markets.
And it’s the vast middle market that offers the best opportunities for business ventures. The high-end services market is widely available in these markets for the well-to-do who can afford them. You can go to a luxury resort in an emerging market but the middle market is still developing. And there is no shortage of middle-income consumers in emerging economies!
Of course, anyone intending to invest in emerging markets would need to mitigate the risks by knowing who their partners are, the government they’re dealing with, and other relevant stakeholders. Through its agencies and the Foreign Affairs Ministry, government could play a key role in assisting local companies interested in investing in these markets, possibly by identifying independent and verifiable sources. Business-to-business alliances are generally believed to be the most successful ventures in emerging markets.
The key to successful investment lies in innovative ventures in emerging markets, possibly in partnership with reputable and established companies
A second source of opportunity for investment by local companies is public-private partnerships. The forthcoming budget is expected to announce policy on public-private partnerships. So far, plans to encourage new PPPs have not taken off. The one PPP that comes to mind, the Environmental Landscapes Consortium, helped to embellish the landscaping of our roundabouts, public areas and gardens in Malta.
It comes at a price to the taxpayer, of course, but would we really want to revert to the previous arrangement, run by a government department?
As an economy we could certainly do with fresh ideas on PPPs, possibly in sectors such as transport, medical services, and care of the elderly. The funding arrangements of such ventures, however, cannot be allowed to lean heavily on the taxpayer, as this would defeat the scope of PPPs.
Though government may decide to provide direct support for PPPs through subsidies or grants, in cases where the venture does not on its own merit achieve financial viability, the key motivation for government considering PPPs – the possibility of bringing in new sources of financing for funding public infrastructure and service needs – should not be overlooked.
The two sources of business opportunities mentioned in this article may provide further stimulus for private enterprise but above all they represent opportunities which are not so dependent on the eurozone and its current economic difficulties.