Image: Reuters
The nature of frontier or pre-emerging markets in terms of the lack of transparency and the high investment risk give them a competitive advantage over other emerging and already developed markets.
It is not possible to imagine the loss of this competitive advantage in favor of becoming an emerging market knowing that it is the main or the only factor to attract investors with a wide risk appetite, also that will make these markets in the context of competition with stable markets that have earned the confidence of international investors thanks to spatial-temporal and spatial conditions of their own often will not be repeated.
Taking the Egyptian market as an example, the Egyptian economy is severely controlled under the authority of the military institution as the only economic player due to the disappearance of the productive role of the public sector and the unfair advantage it enjoys over the private sector in terms of its ability to seizure the state-owned land and the access to unlimited energy resources free of charge! not to mention the advantage of information/intelligence which allows it to invest in the stock market and complete M&A deals, and even to enforce collecting protection rackets from business running or entering the market.
The military has successfully established itself (at least in the eyes of the western world) as a safe oasis in the midst of a region which is plagued by conflicts and various types of terrorism.
That was more than enough to ensure that the military had large inflows of financial aids from Western, Arab and other donor countries in the form of loans, weapons, and foods.
Combining the fighting of terrorism and developing the country by investing in infrastructure projects, roads and industrial zones, a delicious dish that is rich in flavors is served to satisfy the appetite of the hungry brave investors.
The whole situation foresees the creation of a dual character market. On one hand, the military directly controls through its own ownership of currency exchange offices and indirectly through its authority on the Central Bank of Egypt the movement/flow of foreign currency to and from the country, but makes it almost impossible to take out your profits in foreign currency without resorting to very twisting ways!
On the other hand, it promises the birth of a morally free market as there is no real control over the nature of the investment or source of funds as long as the shares are shared as agreed!
In this situation we find that there is an investor who aspires to achieve the highest interest/profit in the shortest possible time and does not mind the high degree of risk generated by the investment environment such as political fluctuations and waves of public anger and doesn’t mind sacrificing a large proportion of profit in exchange for a safe exit plan. This investor, of course, doesn't care about the real entity that invested the money or the nature of the investment itself.
The military institution is the other party responsible for completing these suspicious deals, relying on its secret channels and hidden pockets, which ensures that no regulatory body is aware of the nature of such actions. And of course, citizens who are unable to benefit from or fit into this pre-emerging market due to the nature of these suspicious and illegal investments.
This market model can be defended on the pretext that the investor with a high-risk appetite will go to invest through the sponsorship and financing of emerging companies and startups in that country, which will, of course, involve citizens in the privileges of the new market. The flows of foreign currencies and accelerator programs will be sufficient to market and develop these local startups into well-established companies. Although this model seems very promising, it is also unrealistic.
It is not logical for the investor to sacrifice the first profit model doing deals with the dominant power in our case it is the military institution. Knowing that this model can secure an unusual profit margin due to the nature of the investment itself, to choose the second model by investing in startups and emerging companies for several reasons:
The scarcity of the ideas that are nominated for growing as a multi-million companies as a result of the poverty of the local environment, the low level of education and the increasing number of graduates who aren't qualified in terms of technical and soft skills.
Even in the case of the availability of such pioneering and promising ideas, the investor will find himself immersed in a local environment which he doesn't know the nature of its governing laws and its social and political volatility. Not to mention the sterile banking system that wouldn't allow taking profits outside the borders in foreign currency. As a result, this investor doesn't have an exit plan!
Frontier or pre-emerging markets in the environment of economic globalization are markets based on investing in existing corruption and maintaining it at certain levels that can be managed by relying on unusual repressive policies to ensure that conditions do not spiral out of control.
This article is originally published on my Linkdin: /in/ahmed-gab-allah/