finding opportunities in emerging markets in 2016

FINDING OPPORTUNITIES IN EMERGING MARKETS IN 2016

SARAH BOUMPHREY

HEAD OF STRATEGIC, ECONOMIC AND CONSUMER INSIGHT

http://www.euromonitor.com/

© Euromonitor International

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2011 2012 2013 2014 2015 20160

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GDPPrivate Final Consumption Expenditure

Rea

l % g

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Consumers in many growth markets are living in difficult economic times. How exactly is this impacting on consumer spending and behaviour?

At the top line, we see private final consumption expenditure (PFCE) following a similar trend to overall GDP growth.

Despite the difficult start to 2016, we see both GDP and PFCE strengthening slightly over last year. But remaining lower than headline GDP growth for the third consecutive year.

In contrast to the trends we saw earlier in the decade when PFCE was outpacing real GDP.

2016, it is fair to say, will be another challenging year for consumer-facing industries, but the picture is nuanced.

The economy and consumersFINDING OPPORTUNITIES IN EMERGING MARKETS IN 2016

Real GDP and Private Consumption Growth in Emerging and Developing Economies

Source: Euromonitor International from national statistics/IMFNote: data refer to 169 emerging and developing economies



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Latin America

Middle East and North Africa

Sub-Saharan Africa

Emerging and Developing Asia

All Emerging and Developing

0 2 4 6 8

Private Final Consumption Expe...

Real % growth

Divergence is a key theme across emerging markets, so we must look beneath top-line trends; and taking a look at individual emerging market regions we can see this clearly.

The standout here is Emerging Asia – although spending growth is decelerating, the emerging Asian consumer is holding up pretty well and private consumption will even outperform overall economic growth in 2016. Laos, India, Cambodia, Bangladesh in particular are seeing strong growth this year. Even China, where the slowdown is top of mind, is seeing consumption, although slowing, outpacing economic growth as the economy rebalances.

Latin America is unsurprisingly the weakest performer. However, if we exclude Brazil from the picture…

Divergence across regionsFINDING OPPORTUNITIES IN EMERGING MARKETS IN 2016

Source: Euromonitor International from national statistics/IMF

Real GDP and Private Consumption Growth in Emerging and Developing Economies: 2016



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Latin America excluding Brazil

Middle East and North Africa

Sub-Saharan Africa

Emerging and Developing Asia

All Emerging and Developing

0 2 4 6 8

Private Final Consumption Expenditure GDP

Real % growth

There is a large improvement in Latin American figures if we remove Brazil. Brazil, because of the size of its consumer-driven economy, has a huge influence on regional figures. There are some stronger performers in the region.

Divergence across regionsFINDING OPPORTUNITIES IN EMERGING MARKETS IN 2016

Source: Euromonitor International from national statistics/IMF

Real GDP and Private Consumption Growth in Emerging and Developing Economies



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Venezuela

Brazil

Argentina

Puerto Rico

Colombia

Ecuador

Guatemala

Mexico

Chile

Peru

-10 -5 0 5

Real % growth

Spotlight on Latin AmericaFINDING OPPORTUNITIES IN EMERGING MARKETS IN 2016

Real Growth in Private Consumption in 10 Largest LatAm Markets: 2016

Source: Euromonitor International from national statistics/IMFNote: = regional average

Looking at the 10 largest consumer markets, Peru, Chile, Mexico and Guatemala will comfortably outperform the regional average in 2016.

It’s important to distinguish within a country too. Growth in urban expenditure is outpacing rural in 60% of the emerging markets we track. And this is no less true in Latin America.

At the city level we also often – although by no means always - see stronger growth. So in Mexico for instance we track consumer expenditure in 12 cities – only two of them have slower spending growth than the national average – Mexico City and Juárez.

Cuba is also of interest in 2016, it is not amongst the largest 10, but is beginning to open up to many opportunities and offers exciting growth potential.



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Angola

Ghana

South Africa

Cameroon

Nigeria

Congo DR

Kenya

Ethiopia

Tanzania

Côte d'Ivoire

-5 0 5 10

Real % growth

Spotlight on Sub-Saharan AfricaFINDING OPPORTUNITIES IN EMERGING MARKETS IN 2016

Real Growth in Private Consumption in 10 Largest Sub Saharan African Markets: 2016

Source: Euromonitor International from national statistics/IMFNote: = regional average

In Sub-Saharan Africa, all but two of the 10 largest markets, ranked by private final consumption expenditure, are expected to outpace regional growth.

In fact six of the largest consumer markets are expected to grow by 5% or more this year. So good opportunities remain despite the region’s reputation as a supplier of commodities.

Ethiopia, for example, continues to see strong economic growth, driven by consumer spending, higher levels of agricultural production, a large public sector and foreign direct investment.

This kind of trend is evident across emerging markets, there are pockets of stronger growth in all regions.



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Economic fundamentals

Reliance on commodities

Exposure to global risks

Demographics

Middle class

Savings and debt

There are certain factors which point to a stronger performance. These include:

Economic fundamentals – those where inflation is in check, government finances strong and unemployment low are in the best position.

Those that are more reliant on commodities are particularly affected – especially if this combines with weak fundamentals.

Some economies are simply more exposed to global risks. Those who trade heavily with Brazil, China and Russia for example.

Demographics play a part. Population growth is a key driver of economic growth.

The strength of the middle class is another deciding factor. The middle class are a key consumer segment and reinforce growth.

Household exposure to debt is also important. Low savings and high debt make it difficult to maintain consumption levels.

Why are some consumers withstanding economic turbulence better than others?

FINDING OPPORTUNITIES IN EMERGING MARKETS IN 2016



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Food & Non-Alcoholic Beverages

Alcoholic Beverages & Tobacco

Leisure & Recreation

Transport

Hotels & Catering

Housing

Clothing & Footwear

Household Goods & Services

Education

Communications

Health Goods & Medical Services

Misc. Goods & Services

0 2 4 6

Real % growth

Winners and losers in 2016FINDING OPPORTUNITIES IN EMERGING MARKETS IN 2016

Source: Euromonitor International from national statistics/OECD/EurostatNote: = average growth

Real Growth of Consumer Expenditure in Emerging and Developing Economies: 2016



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Health goods and medical services is expected to see strong growth across emerging markets in 2016 and beyond. This is because it is an example of a sector less impacted by economic growth. Drivers include:

Demographics – emerging market consumers are living increasingly long lives and there will continue to be a huge increase in numbers of those aged 65+ with a 77% increase forecast between now and 2030.

Urbanisation and lifestyle changes have led to an increase in lifestyle diseases. In countries where infectious diseases are still common this represents a double burden. Almost 1-in-5 adults in the GCC countries have diabetes, and obesity is not just a developed country problem – it’s a particularly serious concern in the Middle East and Latin America.

Rising incomes and a growing middle class prioritise spending on health and are continuing to do so even in troubled economic times. In Iran, 40% of consumer expenditure on health is by the highest-earning 10% of households.

A lack of public healthcare in some markets means a greater proportion of out-of-pocket expenditure on health. In Egypt for instance, consumer spending on health is 5 times that of government spending. Brands are more important because people are paying. So quality and brand recognition are crucial and this commands a price premium.

Demographics

Lifestyles

Income

Lack of public provision

Spotlight on health goods and medical servicesFINDING OPPORTUNITIES IN EMERGING MARKETS IN 2016



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1990s 2000s 2010s 2020s0

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Developed CountriesEmerging and Developing Countries

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Will we see a return to the glory days?FINDING OPPORTUNITIES IN EMERGING MARKETS IN 2016

Global Growth of Consumer Expenditure: 1990s-2020s

Source: Euromonitor International from national statistics/OECD/Eurostat

• Emerging and developing market growth in consumer expenditure is expected to continue to decelerate through to 2030.

• But it’s important to put this into context – growth will still be more than 2.5 times stronger than that of developed countries.



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US$25,920 bnIn GDP

1.1 bnPeople

US$13,424 bnIn consumer expenditure

Underlying trends such as urbanisation, population growth, employment growth, increasing access to technology and finance, the continued development of the retailing sector and improvements in the business environment will underpin growth in consumer expenditure in many emerging economies.

Divergence is a key theme though and a granular approach is one that will work best. Any emerging market strategy will face ups and downs so whilst tactics to withstand a slowdown are key, an eye on the long game is just as important.

Will we see a return to the glory days?FINDING OPPORTUNITIES IN EMERGING MARKETS IN 2016

Source: Euromonitor International from national statistics/OECD/Eurostat

Between 2016 and 2030 emerging and developing economies will add a further:


FOR FURTHER INSIGHT PLEASE CONTACTSarah BoumphreyHead of Strategic, Economic and Consumer [email protected]@SarahBoumphreyhttp://blog.euromonitor.com/economic-and-consumer-insight/

mailto:[email protected]

https://twitter.com/SarahBoumphrey

http://blog.euromonitor.com/economic-and-consumer-insight/


finding opportunities in emerging markets in 2016

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