By M. Isi Eromosele
The frontier global index has been helped along by positive returns in three of its important markets - Nigeria, Kuwait and Qatar.
It is widely agreed to by most index funds, including MSCI that Nigeria is in the forefront of enabling profitable returns on investment as a frontier market. The country is being touted as the next Brazil, with its large population of 150 million and enormous base of natural resources. Nigeria is blessed with the world’s 9th largest oil reserves. An added advantage in this category is that its light crude oil, which can be more easily refined into gasoline, is very much in demand globally, especially in the United States.
Most of Nigeria’s oil is produced in the Niger Delta area of the nation. This region has been restive for many years, as some of its residents rebelled against what they viewed as unfair treatment in the lack of development in the area. Additionally, they complained that they were receiving too small a share of the oil profits. During the past year, the unrest has ended and the Niger Delta area has stabilized. Politically, the country has also advanced. Nigeria, which was formerly a military dictatorship, has had several democratic transitions, a sign of political stability that is helpful to economic advancement.
The global rise in commodity prices has also helped Nigeria and other African economies that are resource-rich. Economic policy makers in Nigeria have hyperinflation firmly under control and liberalized trade has been introduced. Strictly enforced banking reforms and regulations have been implemented that have elevated the Nigerian banking sector to world class standards of accountability and transparency. This combination of resource wealth and macro economic stability is attracting new investors to the country.
There are diversity in the resources and economic strength of countries in the frontier markets. Kazakhstan, for example, produces oil, metals and minerals, while Argentina sells soybeans, corn, wheat and beef. Vietnam excels at manufacturing. As a result of this diversity, their stock returns tend not to move in lock step with those in developed and emerging markets.
Eastern European frontier markets will trade in line with each other but very differently from the African countries. As such, a small frontier allocation can provide diversification in a portfolio. This does not mean that frontier markets investments are without risks.
Some frontier countries have corruption and other experience more political crises than the typical developed markets. Many are highly volatile, so investors need a very long time horizon. However, investors need not shy away from investing in them. Positives for doing so are that they are relatively diverse, highly populated and growing economically. They may not be fully established but they definitely merit investment consideration.
M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance
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