Macro Forum: The Street View

Macro Article

Challenge and opportunity

Ewen Cameron Watt

by Ewen Cameron Watt
Editor-in-Chief Macro Forum
London

Challenge and opportunity Image

In September's edition of Street View our team looks at investment related issues drawing on local knowledge and global presence. If you’re looking for economic forecasts or stock market predictions please look elsewhere. This is the view on the ground and from the street as seen by the Actis Macro Forum and our network of research affiliates.

Nicolas Escallon runs his ruler over Colombia. He points to the growing need for infrastructure investment and economic diversification. For cycling fans like me there is a vivid parallel drawn between the astonishing triumph of 22-year-old Colombian Egan Bernal in the Tour de France and the challenges facing his home nation. We think the hard work is well underway to allow the 4th largest economy in Latin America to continue to win through.  Like this prodigious young talent, we recognise there are many mountain passes to cross in the future.

Felipe Villaneda and Juan Garcia from Actis Energy Infrastructure provide an expert view on the development of electricity supply and distribution in Colombia. Their conclusion is that many of the building blocks needed to translate the country’s amazing natural advantages into sustained foreign investment are in place. Provided that barriers including tariff reform and (outdated) perceptions of corruption risk can be overcome we can see opportunities in this key sector.

In the June 2019 issue we wrote about the role played by effective onshore savings pools in stabilising volatility. The recent passage of a long overdue pension reform through Brazil’s Lower House could mark a turning point for Latin America’s largest economy. Our team on the ground, as documented by Felipe Vivacqua, feel that for all the bombast of President Jair Bolsonaro his economic team are making progress on several fronts. Whilst Brazil is a world class generator of false dawns when it comes to reform this latest iteration is off to a good start.

Switching continents, we look at the sustainability of recent rapid growth in Vietnam. Concerns over trade wars pose risks for Vietnam’s export led model. But far from being gloomy, Simon Ogus, CEO of DSG Asia and a close friend of Actis, believes Vietnam can continue to benefit from China’s rising cost base through relocation of manufacturing foreign direct investment (FDI). Simon focusses in part on the under development of domestic infrastructure and the repositioning of the role of the state as areas where change can yield considerable opportunity.

This is echoed by David Tran from the Asia Real Estate team at Actis. David shares research we have undertaken about the real estate opportunity in Vietnam including logistics as well as housing. His Street View is that the current upswing in Vietnam’s real estate market is solidly based on end demand growth and an improving regulatory and financial climate.

Any journey through the emerging markets includes some focus on political risk. Most commentaries tend to focus on these risks as seen from afar. This results in single dimensional views. As with our investments though we try to understand the problems and challenges from the inside out-a type of Street View of how risk may develop.

The Iran/US standoff provides an example of how risks should be perceived from inside and outside of a country. Actis does not invest in Iran but events there could impact the entire world.  Understanding this high-risk, high stakes standoff, trigger points and red lines is vital.

A Street View from inside the Iranian government or population is hard to come by. So, we commissioned three external experts to look at the crisis through the lens of Tehran. Timothy Voake, Clovis Meath Baker and Nicholas Beadle have backgrounds in intelligence production and analysis which we believe allow them to provide an insider’s view of Iranian priorities and practice. These are their insights and conclusions, but we find them easy to comprehend. No spoilers here-make sure you read their views.