T is for turmoil

disaster_catastrophe_410What to make of recent events in Tunisia? Anyone has visited this beautiful country will gaze in astonishment at the images of violence nightly filling our TV screens. Investors who have dabbled in, or would like to dabble in frontier markets, will be asking themselves what these developments mean for such investments.

Frontier markets specialist, Silk Invest, compares Tunisia to Thailand in its analysis of the current situation. Apart from beginning with ‘T’, the two countries have three things in common, according to  Zin Bekkali, CEO of Silk Invest:

  • Both have an almost identical GDP per capita of around US$9,000.
  • Both doubled their GPD per capita in the last 10 years and are regarded as economic success stories.
  • Both open economies and score well in terms of business environment.
And now they have a fourth thing in common: both have experience violent social unrest.

The problems in Thailand took three months to sort out, but Silk Invest predicts that resolution will be achieved more quickly in Tunisia.

“The Tunisian political leaders seem to be learning,” says Bekkali. “The sacking of the interior minister and the increased openness about the issues should be seen as a positive development.”

Another important concern for frontier-market investors will be whether the unrest spreads to neighbouring North African countries. Silk Invest believes that this will not happen.

“The various North African countries may share borders, but in reality they are as different to each other as are Chile, Argentina, Brazil or Paraguay,” says Bekkali. “The challenges faced by each North African country are real but each one of them will need to define its own path to deal with them.”

Overall, Silk Investment remains optimistic about these nations’ future, believing that the “middle class and the corporate leaders in these countries” provide reasons for optimism.

Time will tell, and you might think that a firm that specialises in frontier markets would say that.

One thing is clear: the crisis in Tunisia may not just represent a turning point in the history of the North African nations – with the possibility of either the first North African democracy being created or a much less palatable alternative – it may also be a turning point, good or bad, for the rising trend towards investment in frontier markets.

©2011 funds europe