Emerging markets is a slightly patronizing term, says Arif M. Naqvi, founder and CEO of The Abraaj Group. At the St. Gallen Symposium he gave his take on the future role of these markets and how they have succeeded in making a billion dollar company by strong community engagement.

“The first thing I am gonna disagree with you about is the slightly patronizing term of Emerging Markets”. Arif Naqvi had just received the opening question from anchor Nino dos Santos. The panel was on the promises and pitfalls of emerging markets and he started out by questioning the core frame.

“We have emerged. These markets exist and they are gonna drive and be responsible for global growth in the coming years and decades. That is why I and a lot of other investors in those markets call them Global Growth Markets”, he continued.

Arif Naqvi’s company The Abraaj Group has to a large degree been a part of this growth itself. Since he founded the company in 2002 with $60 million in assets it has developed into managing $7,5 billion today and being engaged in 36 different emerging markets around the hemisphere.

Engagement is key

The Abraaj Group is predicated in stakeholder engagement. Five percentage of the company’s topline (not bottomline) is invested in engagement with communities. The philosophy behind is that stakeholder engagement leads us to sustainable business, which leads to good practice, which leads to profit, or as Naqvi puts it quite directly: “The more you engage the community, the faster your route to profitability will be.”

Private equity has according to Naqvi an obvious interest in such engagements. By buying businesses rather than stocks, they are not interested in fluctuations on the market, but would like a sustainable environment for their investments.

According to Naqvi all equity funds is interested in a sustainable development and he does not make any sharp distinction between private and public ones. “It is not about private or public equity, but being a part of the main lane,” says Naqvi, pointing at equity funds’ ability to develop sustainable markets.

No substitute to local knowledge

At the Arab Spring The Abraaj Group had just as good relations to the rebels at the Tahrir place as to the government. Instead of thinking a market as a hierarchy, Naqvi emphasizes the importance of understanding that it is a community, where you need to engage multiple stakeholders.

By engaging in communities The Abraaj Group make the locals more supportive of their actions. Moreover it makes the community open to collaborate and let The Abraaj Group tap into their local knowledge, creating a strategic advantage.

Even though The Abraaj Group is engaged in 36 countries, they do not describe themselves as a multinational company. They use instead the term multilocal. “It is about understanding the local situation and in this effort there is absolutely no substitute to local knowledge”, says Naqvi.

The Abraaj Group is a multilocal company present in 36 countries - photo credit the Abraaj Group

The Abraaj Group is a multilocal company present in 36 countries – photo credit the Abraaj Group

The Western Risk

The term “emerging markets” stresses the fact, that the markets labeled are markets on the rise, fragile and immature. A description that definitely fits lots of markets around the globe, but it is hard to find it a suitable label for big economies as India or China. Economies, which seems to have already emerged and matured, although they are still described as Emerging Markets.

Naqvi explains that we have always talked about emerging markets as being more risky than the West. And we might keep on doing so, while the risk parameters might evolute. While the emerging markets become more and more emerged, the risk might change from fragile states to simply cultural barriers.

The risk being that Western countries are not able to leave preconceived notions and understand that their models do not necessarily apply everywhere. This seems to be the lesson The Abraaj Group has learned early in the process and made a principle of theirs, creating a decentralized organization with six regional hubs.

The West needs local knowledge, to not be left with the very general descriptions of Western media. “That is the quality of having local presence, understanding the difference and not paint everything with the same brush”, Naqvi says.

We are making up for lost time

Instead of talking about Emerging Markets it might make sense to acknowledge the fact that these markets will be delivering ⅔ of the future global growth. That is at least Arif Naqvi’s point.

“They got liquidity, they got strength. They are gonna make up for lost time. Just look at the region I am investing in: MENASA (Middle East, North Africa and South Asia). We account for about 30 percent of the world’s population, half of which is under 25, that means 800 mio. young adults and children, looking to enter that consumer society that everybody craves.”

The same goes if you see it in a broader perspective: “Half of mankind is becoming urban for the first time. 1 mio. more urban inhabitants a week, that is 8 New York cities a year. They need more of everything: infrastructure, real estate, consumer products and so on”, Naqvi explains.

For the first time emerging markets have found their feet and you see more and more african people leaving the west to go back to the Africa and Chinese people to China.

According to Naqvi the West is caught up in an unlucky correlation between wealth and arrogance, where there is no direct relation between salary and social impact. This is the result of a prosperous growth in the Western markets, while the future seems to belong to what the Western world, maybe patronizing, calls Emerging Markets.

 

About The Author

Anders Møller
Lab Director

Anders is Lab Director and co-founder of Grasp. As a modern alchemist he uses the clash of philosophy and business as a disruptive force and is always collaborating on new mutations in the cross-breeding hereof. He is inspired by Nietzsche and Parkour, a World Economic Forum Global Shaper and always equipped with a notebook.