The Emerging World of Opportunities: Insights from MI's Global Opportunity Index | Global Conference

Milken Institute Global Opportunity Index Panel Summary

Index Overview and Methodology

• The Global Opportunity Index is a 10-year publication covering approximately 130 countries and 130 variables.
• The index scores countries across five primary categories: Business perception, Economic fundamentals, Financial services, Institutional framework, and International standards and policy.
• A strong positive correlation exists between higher index scores and increased Foreign Direct Investment (FDI) inflows.

Sub-Saharan Africa: Opportunities and Challenges

• South Africa (Rank 50/129):
  • Scores are driven by strengths in institutional framework, financial services, and business perception.
  • Key infrastructure challenges persist, specifically regarding power generation and transport logistics for mining.
  • The banking system is robust despite a "grey listing" risk, which panelist Jared Glanzbeck views as temporary.
  • Local equities offer significant value; many listed companies derive less than 30% of revenue from South Africa, with a currency discount of ~30% creating attractive entry points.
  • Government incentives, including tax points for youth employment schemes ("Yes Schemes"), aim to mitigate high youth unemployment.
  • Riskura manages a ~$250 billion client base in emerging/frontier markets, utilizing incubation schemes to support asset managers from previously disadvantaged backgrounds.
• Nigeria (Rank 114/129):
  • Recent low scores reflect challenges in international standards, financial services, and economic fundamentals.
  • Optimism is anchored in three pillars: a reform-minded new administration, financial sector restructuring, and energy policy shifts.
  • The financial sector saw the Nigeria Exchange return over 31% year-to-date and 45% the previous year.
  • The government has unitized the foreign exchange regime to end multiple platforms and improve transparency for investors.
  • A private sector-led tax committee is working to eliminate multiple and duplicative tax regimes.
  • The administration has withdrawn petroleum subsidies to restore economic reserves and improve efficiency.
  • Nigeria boasts a market of over 200 million people, with five of Africa's nine unicorns originating from the country.
  • 50% of the population is female, with women holding 30% of board seats and CEO roles in Nigerian commercial banks.
  • Dr. Toyin Sani emphasizes a "just transition" for energy, ensuring sustainable financing does not delay basic development or create darkness for the poor.

Latin America and the Caribbean

• Regional Strengths:
  • Mexico and Brazil have received the bulk of FDI inflows from 2018–2022, with Mexico showing stable equity inflows despite the pandemic.
  • Latin America ranks highly in economic fundamentals but lags in business perception and financial health.
  • Chile is a regional outlier with strong scores across all index categories.
  • Brazil is a major hub for fintech innovation, notably led by players like Nubank.
• Mexico-Specific Insights:
  • Financial inclusion challenges remain: 49% of adults have bank accounts, while 90% of the population lives day-to-day without savings capacity.
  • 70% of Mexicans report financial stress and insecurity.
  • Talent is a primary opportunity, with Mexico graduating 130,000 engineers annually and hosting 700,000 developers.
  • Nearshoring and value chain reconfiguration are driving sustained interest in the region.
  • Female entrepreneurs represent 27% of founders in Latin America but receive only 13% of venture capital; female-led teams receive just 2%.
  • 97.4% of Mexican companies are micro-enterprises, many owned by women, yet these businesses face a loan gap, receiving only 11% of available loans compared to male-owned counterparts.
  • Solar utility-grade energy capacity is targeted to increase by 460% by 2030.
  • Brazil's recent government has decreased deforestation by 34% in its first year.

Emerging and Developing Asia

• Philippines (Global Rank 91/129):
  • The Philippines ranks among the top 10 in Asia but faces low scores in business perception and institutional framework.
  • Dispersion exists within the region, with Malaysia (27) and Thailand (37) ranking significantly higher than the Philippines (91).
  • The "Ease of Doing Business" law has standardized processing times and automated government services.
  • Investment laws have been amended to allow 100% foreign ownership in previously restricted sectors like air transport and communications.
  • The Central Bank of the Philippines (BSP) is liberalizing foreign exchange regulations by removing registration requirements for certain capital flows.
  • Financial inclusion efforts have mainstreamed microfinance, electronic money, and digital payment systems, with a goal of 50% digital retail transactions.
  • The Philippines ranks high in budget transparency within Southeast Asia but faces corruption challenges (ranked 118/180 in the Global Corruption Index).
  • Climate risk is a critical focus, driven by historical disasters like Typhoon Haiyan, leading to green bond investments and sustainable central banking policies.

Investment Barriers and Strategies

• Perception vs. Reality Gap:
  • Developed market investors often avoid emerging markets due to a binary view of risk (invest or do nothing) rather than viewing small allocations (0.1%–0.2%) as portfolio diversifiers.
  • Institutional investors often lack "boots on the ground," leading to governance paralysis when specific questions about local markets arise.
  • Local markets have historically outperformed developed markets on earnings growth (e.g., African PE portfolios outperforming Nasdaq since the financial crisis), though valuations have compressed due to sentiment.
• Strategic Recommendations:
  • Investors are encouraged to co-invest alongside local partners to better understand nuances and manage risk.
  • Incubation programs (e.g., Riskura's $2 billion initiative) are creating local asset managers, reducing the need for external consultants and improving local governance.
  • Valuation opportunities are significant; current P/E multiples are often half of those seen during the credit crisis, suggesting potential for revaluation.

Cross-Cutting Themes: Gender, Youth, and Climate

• Gender Dynamics:
  • Female entrepreneurs in emerging markets often outperform male counterparts but face systemic barriers in access to capital and skills training.
  • Mexico has the lowest female labor force participation (45%) among the panel's focus countries, while Nigeria has the highest (>50%).
  • In tech sectors, less than 20% of professionals in engineering and tech jobs in Latin America are women.
• Education and Workforce:
  • The half-life of technical skills has dropped to 2.5 years, necessitating continuous reskilling and upskilling via immersive technologies (VR/AR) and AI.
  • 68% of workers are aware of the need to upskill but lack clear pathways to access these opportunities.
  • Youth represent a dominant demographic, with 70% of Africa's population under age 30, driving innovation in creative industries and fintech.
• Climate and Sustainability:
  • Africa experiences a warming rate three times the global average, making climate resilience a critical investment imperative.
  • Sustainable financing is shifting from "nice to have" to a survival requirement, with green bonds and renewable energy projects (solar, wind, hydro) seeing increased momentum.
  • The transition must be "just," balancing immediate development needs with long-term sustainability goals to avoid leaving populations in energy poverty.

Forward-Looking Statements

• Valuation: Jared Glanzbeck predicts that a sentiment shift regarding governance in currently undervalued markets will yield incredible performance, similar to the recent revaluation in Japan.
• Timing: Dr. Toyin Sani suggests the optimal time for investment is when "nobody else is looking," as this is where the most unexploited wealth creation opportunities exist.
• Human Capital: Richard Jadulan emphasizes that developing human capital and integrating technology are the primary drivers for future economic competency and investment appeal in the Philippines and the region.
• Diversity: Leticia Haureyi-Casanueva identifies young women as the single most impactful demographic for future investment, mentoring, and growth in Latin America.