Latest news with #developingeconomies
Entrepreneur
2 days ago
- Business
- Entrepreneur
Private Equity Eyes Inclusive Growth Amid Digital and Market Transformations
For private equity (PE) and impact firms like Leapfrog, these trends are shaping their investment strategy for the foreseeable future. Opinions expressed by Entrepreneur contributors are their own. You're reading Entrepreneur India, an international franchise of Entrepreneur Media. Emerging markets are undergoing a rapid transformation in access to essential services, driven by both rising demand and expanding digital infrastructure. According to the World Bank's Global Findex 2025 survey, financial inclusion has advanced at an unprecedented pace, with 40 per cent of adults in developing economies now saving through financial accounts, a 16-percentage-point increase since 2021. Mobile-money adoption has been a key driver, with 10 per cent of adults using such accounts to save, underscoring the role of technology in bridging service gaps for low- and middle-income populations. For private equity (PE) and impact firms like Leapfrog, these trends are shaping their investment strategy for the foreseeable future. Pranav Kumar, Partner at Leapfrog Investments, said that the demand from low and middle-income customers for essential services like financial services and healthcare (such as mortgage, small business loans, or diagnostics) is large and still underserved. On the supply side, the key trends like digitization (and now AI), smartphones, and public digital infrastructure have allowed smart-driven entrepreneurs to build solutions to serve this demand at low cost. "Patient and operationally active equity capital such as ours will continue to play an important role in enabling these entrepreneurs and management teams. The increasing depth and sophistication of capital and IPO markets, enabling exits, will continue to encourage equity capital in the private space," said Kumar. Bain & Company reports that in 2024, India was the largest exit market in the Asia-Pacific region, with IPO exit values up 78 per cent year-on-year. S&P Global data further indicates a 156 per cent jump in private equity exits in India over the same period, even as new deal volumes eased. Such trends suggest that patient, growth-oriented capital can now be recycled more efficiently, encouraging deeper investment in high-impact sectors. Leapfrog has announced two successful exits in recent months, the first being Fincare Bank exited through block deals. The firm also sold its majority stake in Goodlife Pharmacy, East Africa's largest pharmacy platform, to CFAO. "Our strategy has been to partner with quality management teams, fund and execute growth through economic cycles, and aggressively leverage technology to drive economics," said Kumar. Kumar added that the firm remains upbeat about the sustained long-term growth of Indian businesses supported by a resilient Indian economy and a deep capital market. "However, it is important to identify resilient business models and high-quality partners. We will continue to back businesses that deliver commercial returns alongside achieving tangible social impact to the underserved population and small businesses."
Arab News
02-08-2025
- Business
- Arab News
Africa's debt crisis demands self-reliant solutions
The much-discussed Jubilee Report, emerging from expert deliberations commissioned by the Vatican, diagnoses the acute debt distress strangling developing economies, particularly in Africa, with commendable clarity. It presents a familiar litany of systemic failures: pro-cyclical capital flows, creditor-friendly legal architectures in New York and London, the inadequacy of debt sustainability analyses, and the perverse incentives perpetuated by international financial institutions. Its prescriptions, including a new heavily indebted poor countries initiative, legal reforms to curb predatory litigation, shifts toward 'growth-oriented austerity,' and massive increases in multilateral financing, echo decades of expert consensus. Yet, a fundamental flaw remains. The report's prescriptions rely on coordinated global goodwill and structural reform that is demonstrably absent in today's fragmented world. For Africa, where public debt has outpaced national economic growth since 2013, and home to 751 million people in countries spending more on servicing external debt than on education or health — waiting for this global consensus is not strategy; it is surrender. The report's morally resonant idealism dangerously underestimates the entrenched hostility to meaningful concessions benefiting African economies and overlooks the imperative for radical, self-reliant solutions. Consider the sheer scale of the crisis versus the proposed global fixes. A total of 54 developing countries now allocate over 10 percent of public revenues merely to interest payments. In Africa, this fiscal hemorrhage directly competes with existential needs: costly climate adaptation for countries contributing minimally to emissions, yet facing devastating impacts, and investment in a youth population projected to reach 35 percent of the global total by 2050. The report rightly condemns the injustice, historical and ongoing, embedded in this dynamic. However, its central remedy, a heavily indebted poor countries initiative, requires unprecedented cooperation from diverse and often adversarial creditor blocs: traditional Paris Club members; newer bilateral lenders such as China; and, crucially, private bondholders who now dominate over 40 percent of low and lower-middle income country external debt. Regardless, historical precedent does not inspire confidence. A predecessor heavily indebted poor countries initiative, while delivering relief, failed to prevent recurrence precisely because it did not alter the fundamental dynamics or the structure of global finance. Why expect a sequel, demanding even greater concessions from powerful financial interests operating within unreformed legal jurisdictions, to succeed now? The Common Framework, hailed as progress, has delivered negligible relief precisely due to creditor discord and obstructionism. Betting Africa's future on such actors suddenly developing a collective conscience is not realism; it is negligence. Additionally, the report's reliance on international financial institutions as engines of reform and finance is equally problematic. It calls for an end to International Monetary Fund bailouts of private creditors; lower surcharges; massive SDR, or Special Drawing Right, reallocations; and transformed multilateral development bank lending models. Yet, the governance structures of these institutions remain frozen in mid-20th-century power dynamics that remain heavily skewed against African representation and influence. For instance, securing a $650 billion SDR allocation during the pandemic proved a herculean task; achieving the regular, larger, and equitably distributed issuances the report envisions, given rising fiscal nationalism and escalating geopolitical rivalries, seems quixotic. Moreover, the notion that these same institutions, historically enforcers of austerity and guardians of creditor interests, can reinvent themselves as champions of unconditional, mission-driven finance for African transformation ignores their institutional DNA and the political constraints imposed by their major shareholders. Meanwhile, the call for MDBs to lend massively in local currencies, while technically sound for reducing exchange rate risk, faces fierce resistance from bond markets and rating agencies wary of currency volatility, effectively limiting its scale without improbable capital increases. Furthermore, the report's focus on grand interventions, from debt buyback funds and global climate funds to international bankruptcy courts, fails to grapple with the toxic geopolitical environment. Historical prejudices framing African governance as inherently corrupt or incapable, combined with rising great power competition, actively work against complex cooperative frameworks perceived as primarily benefiting African countries. Solutions built on African agency, regional cohesion, and financial self-reliance offer a more realistic path out of the debt trap. Hafed Al-Ghwell In addition, resources for global funds are notoriously scarce and fiercely contested; establishing new international legal architectures faces veto points at every turn. The current global context is not merely indifferent to African debt distress; elements within it are actively hostile to solutions requiring hefty financial transfers or perceived concessions of leverage. Waiting for this hostility to abate condemns Africa to prolonged debt traps, draining precious reserves crucial for the continent's 1.4 billion people and, ultimately, global stability. The path forward, therefore, demands a harsh pivot toward solutions Africa controls, minimizing reliance on external mobilization vulnerable to global whims. This is not isolationism but pragmatic self-preservation. It requires, for instance, aggressively developing domestic capital markets. Africa's savings, estimated in the trillions of dollars collectively, are often parked in low-yield advanced economy assets or leave the continent entirely. Redirecting these resources requires efforts to deepen local bond markets, strengthen regulatory frameworks, and incentivize institutional investors to allocate capital locally. Second, the report mentions implementing strategic capital account regulations, but underplays their centrality. African countries must actively deploy tools, from reserve requirements to taxes on short-term inflows and prudential limits on foreign currency exposure, to break the pro-cyclical boom-bust cycle of capital flows. This shields fiscal space and reduces vulnerability to the monetary policy shocks emanating from advanced economies. It is a tool of sovereignty, not retreat. Third, strengthening mechanisms such as the African Monetary Fund and expanding regional swap arrangements is critical for building robust regional financial safety nets. Pooling reserves and establishing regional payment systems, thereby reducing dollar dependency for intra-African trade, can provide vital liquidity during crises without the conditionalities of the IMF. This demands unprecedented political will for regional integration and also offers a tangible buffer against global volatility. Fourth, every new infrastructure project financed in dollars increases future vulnerability. Negotiating harder for local currency loans from remaining bilateral partners and MDBs, even at marginally higher initial rates, is essential. Simultaneously, investing in credible monetary policy frameworks is nonnegotiable to sustain this approach. Lastly, transparency and robust domestic oversight of borrowing, including contingent liabilities from public-private partnerships, are vital to prevent repeating past mistakes. Building domestic technical capacity for sophisticated debt sustainability analyses, independent of existing models often blind to climate vulnerability, strengthens negotiation positions. Ultimately, the diagnoses are accurate — there is no argument there. However, the prescribed medicine is simply a dose the global pharmacy refuses to dispense. Africa's debt crisis, crippling distressed countries and suffocating the futures of 288 million people in extreme poverty, cannot await a global kumbaya moment. The moral imperative remains, but the strategic response must shift. Solutions built on African agency, regional cohesion, and financial self-reliance, however difficult, offer a more realistic, and ultimately, more dignified path out of the debt trap than persistent reliance on a system structurally biased against the continent's development.
Arab News
20-07-2025
- Business
- Arab News
Global banking rules are failing emerging markets
In an era of shrinking resources for development finance, global policymakers must shift their focus to making better use of existing funds. Identifying and removing regulatory barriers that hinder the efficient deployment of capital to emerging markets and developing economies is a good place to start. The Basel III framework, developed in response to the 2008 global financial crisis, has played a crucial role in preventing another systemic collapse. But it has also inadvertently discouraged banks from financing infrastructure projects in emerging markets and developing economies. At the same time, advanced economies, with debt-to-gross domestic product ratios at historic highs, face mounting fiscal pressures. Servicing these debts consumes a growing share of public budgets just as governments must ramp up defense spending and boost economic competitiveness, resulting in cuts to foreign aid. Together, these pressures underscore the urgent need to mobilize more private capital for investment in emerging markets and developing economies. Building resilient and sustainable economies will require transformational investments across the developing world in infrastructure, technology, health and education. According to the UN Conference on Trade and Development, emerging markets and developing economies must raise more than $3 trillion annually beyond what they can raise through public revenues to meet critical development and climate targets. Amid these challenges, prudential regulation impedes the ability of emerging markets and developing economies to raise private capital. This issue can be traced back to the global financial crisis, which wiped out $15 trillion in global GDP between 2008 and 2011. Since the crisis stemmed from weak capital and liquidity controls, as well as the unchecked growth of innovative and opaque financial products, Basel III was designed to close regulatory loopholes and bolster oversight, particularly in response to the rise of the nonbank financial sector. While the revised framework addresses the vulnerabilities that triggered the 2008 crisis, its focus on advanced economies and systemically important financial institutions inadvertently imposes several requirements that restrict capital flows to emerging markets and developing economies. For example, Basel III requires banks to hold disproportionately high levels of capital to cover the perceived risks of financing infrastructure projects in emerging markets and developing economies. But these risks are often overestimated. The riskiest period of an infrastructure project is typically the preoperational phase. By the fifth year, when projects begin generating revenue, risks tend to decline significantly. In fact, the data suggests that, by year five, the marginal default rates for development loans are lower than those for corporate loans extended to investment-grade borrowers. But despite the lower risk profile, banks are required to hold more capital against development finance loans than they do against loans to unrated companies over the life of the project. Insurers encounter similar regulatory barriers. Under the EU's Solvency II framework, an insurer investing in an emerging market and developing economy infrastructure project faces a capital charge of 49 percent — nearly double the 25 percent required for a comparable project in an Organisation for Economic Co-operation and Development country. Yet there is no empirical justification for this unequal treatment. Historical data show that infrastructure loans in emerging markets and developing economies perform just as well as those in advanced economies. Even when multilateral development banks share the risk, the resulting exposures often remain subject to a 100 percent capital charge. Vera Songwe, Jendayi Frazer and Peter Blair Henry The significantly higher capital costs that banks incur when making infrastructure loans to emerging markets and developing economies deter them from supporting transformative, high-impact projects, steering capital toward safer, low-impact investments. Blended finance — often touted as a promising path to de-risking investments to emerging markets and developing economies — is also hampered by prudential regulations that impede effective collaboration between multilateral development banks and private sector entities. Multilateral development banks, backed by guarantees from developed economy shareholders and AAA credit ratings, can help reduce capital costs by co-financing projects in emerging markets and developing economies and providing lenders with additional assurances. But even when multilateral development banks share the risk, the resulting exposures often remain subject to a 100 percent capital charge, undermining the very benefits that multilateral engagement is meant to provide. Moreover, only a limited number of multilateral development banks currently qualify for zero percent risk weighting under Basel III. Expanding the list would enable commercial banks to work with a broader range of multilateral development banks, increasing the impact of each taxpayer dollar invested in development aid. Compounding the problem, even eligible multilateral development banks are required to provide an 'unconditional' guarantee for a zero percent risk weight to apply. But it remains unclear how regulators define unconditional and this ambiguity prevents commercial banks from making full use of multinational development bank risk-sharing tools. To be sure, Basel III's foundational principles are sound. Capital buffers and liquidity ratios that reflect institutional risk profiles are essential for maintaining financial stability. But several rules within the otherwise well-designed Basel III framework limit emerging markets and developing economies' ability to pursue sustainable development while doing little to mitigate systemic risk. At a time when net capital inflows to emerging markets and developing economies are declining due to debt-service obligations to advanced-economy creditors, prudential regulations must not inadvertently impede private capital flows to productive projects in these countries. To improve the regulatory framework for emerging markets and developing economies, the G20 must take four key actions as a platform for cooperative leadership. First, recalibrate capital requirements for infrastructure project finance to reflect real-world default performance, particularly in the postconstruction phase. Second, expand the list of multilateral development banks eligible for zero percent risk-weighting under Basel III to include high-performing regional institutions, such as the Africa Finance Corporation, which have investment-grade ratings. Third, clarify the definition of 'unconditional guarantees' so that more multilateral development bank-backed risk-sharing instruments can qualify for favorable regulatory treatment. And lastly, introduce capital charge discounts for blended finance structures co-financed by A-rated institutions, with the level of discount varying by rating. These reforms do not require new taxpayer commitments; they simply align regulation with actual risk. Implementing them would crowd in more private investment, reduce borrowing costs for developing countries and accelerate progress toward transformative development that creates much-needed jobs. The G20 must address these regulatory roadblocks so that capital can flow to where it delivers the greatest value. Reaching consensus on how to lower capital costs for emerging-market economies is one of the top priorities for G20 finance chiefs. Reforming the Basel III framework would be a relatively low-cost, high-impact way to mobilize investment, drive job creation and support sustainable growth.
Arab News
19-07-2025
- Business
- Arab News
North Africa must look south to boost trade
Rising tariffs, geopolitical fragmentation, and persistent supply chain disruptions are roiling international trade. The World Trade Organization projects a 0.2 percent contraction in the global goods trade during 2025, which could deepen to 1.5 percent if tensions escalate. UN Trade and Development warns that policy uncertainty is eroding business confidence and will slow global growth to 2.3 percent in 2025. Against this backdrop, developing economies are under mounting pressure to diversify partnerships and reduce external dependencies. The pressure is particularly acute in North Africa. The region, comprising Algeria, Egypt, Libya, Morocco, Mauritania, and Tunisia, has long been tethered to European economic cycles. In 2023, the EU accounted for 45.2 percent of North Africa's trade, making the region vulnerable to any slowdown in European demand. At the same time, North Africa has played a marginal role in international commerce, accounting for only 3.7 percent of global trade in 2023. But this moment of uncertainty also represents a strategic opportunity for North Africa to look southward toward the fast-growing markets of Sub-Saharan Africa, which currently account for just 2.4 percent of North Africa's total trade. As I, and others, argued nearly a decade ago, stronger economic ties within the continent could reshape regional growth trajectories. That continues to be true today. With economic growth in Sub-Saharan Africa estimated at 3.7 percent in 2024 and projected to rise to 4 percent in 2025, the rest of the continent offers many opportunities to North African businesses as an emerging market for manufactured exports, and as a region for the expansion of value chains. North African products, particularly from the automotive, fisheries, food processing, pharmaceuticals, and textiles sectors, would likely be well received in Sub-Saharan Africa, owing to their higher quality and competitive prices. The region's full integration with Sub-Saharan Africa would bring the largest gains in trade. Audrey Verdier-Chouchane Some progress has been made toward increasing intra-African trade and North Africa's role in it. Morocco recently became the continent's leading automobile exporter, for example, with sales of $6.4 billion in 2023. Many of these cars went to West Africa, in part as a result of regional free-trade agreements. Some North African countries belong to economic communities in other regions, including the Common Market for Eastern and Southern Africa, and the Community of Sahel-Saharan States. But it is the ambitious African Continental Free Trade Area, or AfCFTA, that offers the best chance for deeper continental integration. It came into effect in 2021 and has 54 active members, making it the world's largest free-trade area in terms of membership. North Africa could play an important role in driving growth and enhancing trade within this area. The region has about 200 million consumers and occupies a strategic geographical position between Europe, the Middle East, and Sub-Saharan Africa. It also possesses significant natural resources, a diversified industrial base, and relatively well-developed human capital, and economic infrastructure. AfCFTA is widely expected to boost economic growth, private-sector development, investment, and capital flows across the continent. A forthcoming study by the African Development Bank to assess the effect of the free trade area on regional economies, using the Global Trade Analysis Project model, suggests that this is especially true for North Africa. Under every scenario, North Africa's gross domestic product, and its components, are projected to increase by 2031. The region's full integration with Sub-Saharan Africa would bring the largest gains in trade (5.5 percent) and GDP (0.77 percent). The study also predicts that implementing AfCFTA will lead to a decline in poverty and an increase in wages for both skilled and unskilled workers in the region. The main downside of AfCFTA is in the fiscal domain. The African Development Bank study anticipates a reduction of customs revenues in North African countries; the least affected will be those that have already entered into bilateral free-trade agreements, or have relatively high levels of economic diversification and strong productive capacities. There are also major barriers to realizing the potential of intracontinental trade, including inadequate infrastructure, tariff-harmonization challenges, and limited institutional coordination across Africa's regional economic communities. But given the overall potential benefits, North African economies should make implementation of AfCFTA a high priority. Enhanced intra-African trade flows would promote further economic diversification, job creation, investment, and GDP growth, generating long-term prosperity and private sector development in North Africa. In a fracturing global economy, regional solidarity has taken on new importance. By fully committing to AfCFTA and strengthening ties with partners in Sub-Saharan Africa, North Africa can chart a new path toward inclusive, resilient, and sustainable growth. • Audrey Verdier-Chouchane is lead economist for the North Africa region at the African Development Bank. ©Project Syndicate
Zawya
17-07-2025
- Business
- Zawya
Mobile-phone technology powers saving surge in developing economies
WASHINGTON: More adults than ever in low- and middle-income countries now have bank or other financial accounts, leading to a rise in formal saving, according to the World Bank Group's Global Findex 2025 report. This momentum in financial inclusion is creating new economic opportunities. Mobile-phone technology played a key role in the surge, with 10 percent of adults in developing economies using a mobile-money account to save—a 5-percentage point increase from 2021. In 2024, 40 percent of adults in developing economies saved in a financial account in 2024—a 16-percentage-point increase since 2021 and the fastest rise in more than a decade. Higher personal saving—through banks or other formal institutions—fuels national financial systems, making more funds available for investment, innovation, and economic growth. In Sub-Saharan Africa, formal savings increased by 12-percentage points to 35 percent of adults. World Bank Group President Ajay Banga said, 'Financial inclusion has the potential to improve lives and transform entire economies. Digital finance can convert this potential into reality, but several ingredients need to be in place. At the World Bank Group, we're working on all of them. We're helping countries get their people access to new or improved digital IDs. We're constructing social protection programs with digital cash-transfer systems that deliver resources directly to those in need. We're modernizing payment systems and helping to remove regulatory roadblocks—so that people and businesses have the financing they need to innovate and create jobs.' Bill Gates, Chair of the Gates Foundation, one of the supporters of the Global Findex, added, 'More people than ever have the financial tools to invest in their futures and build economic resilience, including women and others previously left behind. This is real progress. The case for investing in inclusive financial systems, digital public infrastructure, and connectivity is clear—it's a proven path to unlocking opportunity for everyone.' The Global Findex is the definitive source of data on global access to financial services—from payments to saving and borrowing. It highlights a major milestone in financial inclusion: nearly 80 percent of adults worldwide now have a financial account, up from 50 percent in 2011. But 1.3 billion adults still lack access to financial services. Mobile phones could help close this gap: about 900 million adults without financial accounts have a mobile phone, including 530 million with smartphones. Meanwhile, in the Middle East and North Africa, account ownership rose to 53 percent from 45 percent in 2021. In 2024, 17 percent of adults save formally, up from 11 percent in 2021.
