DALBERG GLOBAL DEVELOPMENT ADVISORS

Inside perspectives from BRIC and beyond

Presented by James Mwangi and Gaurav Gupta

Dalberg offers strategic advice on development, sustainability and

opportunities in frontier markets

Johannesburg

Santiago

New York

Washington DC

Nairobi

San Francisco

Geneva

Copenhagen

Dakar Mumbai

Our role is shifting with a changing world

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Integrating efforts to assist in development... ... with moves to create and capture value

BRIC countries provide a template for rapid transformation

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The BRIC countries show us how transformation has played out in the recent past

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1990: From widespread poverty 2010: To mass markets

BRIC in1990:

• Average GDP per capita: $ 1.815

• Foreign Direct Investments to the BRICs: $ 4.5

billion

• India had 36% and Russia 30% of their population

below the poverty line

• China and India were less than 30% urbanized

• India had less than 50% literacy

...

BRIC in 2010:

• Average GDP per capita: $ 5.417

• Foreign Direct Investments to the BRICs: $ 208 billion

• Still 15.3% of population below the national poverty

line on average

• Literacy in India is 66% while the rest are almost

100%

There are signs that a new wave of countries is embarking on the same path

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New emerging economies beyond BRIC are characterized by

• Strong, steady growth of more than 3% per year through the global economic down turn

• A current wealth base of a GDP per capita of more than $500

• Relatively stable security and governance conditions

• Relatively good or improving ease of doing business

Our entire model for thinking about these countries must shift

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From meeting a charitable need To commercial engagement

• 15 countries beyond BRIC have seen an average annual growth above 5% during the global crisis

• By 2020 more than half of African households are expected to have discretionary spending power led by a

growing urban middle class

• Africa’s collective GDP is now at $1,6 trillion – on level with Brazil’s and Russia’s

• Foreign direct investment in Africa has increased from $9 bn in 2000 to $62 bn in 2008

• Since 1990 Western Europe’s share of trade with Africa has shrunk to half while Asia’s has more than doubled

The transformation of these countries will feed on their untapped human potential

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• Africa’s labor force is rapidly expanding with more than 40% of the population below 15. It is projected to

reach 1,1 billion in 2040 overtaking China and India

• Basic adult literacy rates are currently 64% for Africa and 80% for Asia

• 1,2 million people from BRIC and beyond are currently studying abroad compared to 5000 from Denmark

(Kenya alone has 10,000)

• 66% of the international students at MIT- on of the world’s top universities – are from Africa, Asia and Latin

America while only 20% are from Europe

Three illustrative cases highlight some of the potential opportunities in these economies

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Lighting a hundred million homes

• Large segments of the population in these countries lack access to the electric grid

and are unlikely to be reached in the near future

• New products emerging to affordably and sustainably provide access to clean lighting

and power for some domestic appliances and gadgets

Better farmers and hungry consumers

• Increasing urbanization and a growing middle class in Asia and Africa is driving up

demand for processed agricultural products

• Agricultural production beyond BRIC offers significant opportunities to raise

productivity and claim domestic and export markets

An ATM in every pocket

• Access to financial services is often a key binding constraint in frontier markets

• New approaches are utilizing mobile phone capabilities to deliver a full suite of

financial capabilities and have the potential to create cashless societies

A bank in every pocket: Mobile banking and innovative agent banking models are providing millions of people with access to financial services

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• In 2000 less than 10% of Kenyans had access to a bank account

• Today 80% have access to mobile phones

• Since the launch of mobile money in 2007 more than 14 million users have signed up

• Today more than 60% of the adult population has a mobile money account

• As banks are developing platforms to direct access to banking services and new service models a steep increase in the access to financial serices is seen

• Services available for mobile and agent banking are developed at a very high pace

MPesa

MKesho

banks

Million users

Farmers to consumers: Fast growing urban populations drives vast increase in demand for processed agriculture products

• On the demand side, Frontier markets are

urbanizing at an unprecedented rate with Africa’s

urban population projected to almost double

from 230M in 2000 to 430M in 2020

• Rising incomes in the middle class are also

changing consumption habits particularly around

food

• This creates opportunities for new products to

capture uncontested market

• On the supply side productivity in most frontier

markets significantly lags behind Europe and the

US (e.g. average annual milk production per

cow in EU ~4700 litres, Africa ~500litres)

• Governments and commercial farmers are

increasingly looking at technology and skills to

close these gaps

• There are also opportunities to introduce

technology and business models around

processing and marketing foods for the growing

consumer segment and for export

100

105

110

115

120

125

130

135

140

145

150

155

160

201820082000

Projected growth in food consumption indexed:

SSA vs. developed countries (2000-2018)

Sub-Saharan Africa

Developed countries

CAGR

2000-2018

2.6%

1.4%

Lighting a hundred million homes: In Africa alone, the potential market for off-gridportable clean lighting solutions is estimated at $10Bn

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• African BOP households and small businesses currently spend over $10 billion on lighting annually - growing to over $11bn

• Most unelectrified households are currently lit with battery driven or kerosene lamps which are costly and inefficient

• Africa’s non-electrified population will grow to 120 million households (630 million people) and over 10 million small businesses by 2015

• In addition 20 out of 60 million on-grid households are “under-electrified”

• The market will easily experience 40-50% annual sales growth, and 5-6 million African households will own solar portable lights by 2015

• It is expected that by 2015 nearly 12 million SPLs will be owned by African households and SMEs

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589809

34 5

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Middle EastAfricaAsiaLatin America

2030

2009

Over the next 20 years, Africa will rapidly surpass Asia to become the largest un-electrified market in the world

US, Canada, Europe, Australia, Japan

China

India

Other

Africa sales

50%

20%

22%

8%

Global sales

19%

49%

30%

9%

Number of manufacturers

20%

27%

40%

6%

The global solar portable lighting market is dominated by India and China

Top performing emerging markets are ranked as some

of the most highly corrupt nations of the world

Rapid accompanied by a dramatic surge in carbon

emissions

Recent media reports of economic, social and

governance controversies in India affecting companies

“Stop the Vedanta Project in Orissa”

Economic Times, November 2010,

on allegations of mining

in sensitive areas inhabited

by indigenous people

“Rs. 1,50,000 Crore 2G scam may leave

69 licenses scrapped”

Business Standard, November 2010, on the

recent mobile license distribution scam

“Tata pulls out of Singur, blames

Trinamool stir”

Economic Times, November 2010,

on the Tata Nano plant being shifted away

after land acquisition issues

Long-term success requires navigating risk through an ESG lens

Investing in growth: Why ESG investments makes sense in emerging markets

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What are the material ESG issues?• Environmental• Social• Governance

Why is it important to investors?• Risk mitigation:

– Sustainable companies better avoid crises– Customer, supplier and employee loyalty

• Earnings and growth impact: – Efficient use of resources can

reduce/control business costs – Forces long term thinking

• Capital flows– Significant capital flows into sustainability

themes – ESG-oriented investors likely to have longer

horizons/hold periods

Percent of LPs who expect to invest in emerging regions by date

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20

43

68

30

40

57

83

52

65

75

89MESA

Asia

Latin America

CEE+Russia

ESG assets under managementUSD trillions

3,6

0,4

2,6

2006

3,6

2,3

Europe

North

America

6,8

2,7

0,5+21%

2008

2,2

1,3

Australasia

2003

2008

2009

2007

Early signs suggest ESG approach in emerging markets pays off

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Much stronger performance for top Corporate Governance quartile in

emerging markets over 5 years

Four crucial questions for you to answer as you approach these new frontiers

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Access Strategy for

frontier markets

Value

proposition

Value chain

Key

Partners

Total

Economics

and

financing

How well does your product and

business model align to the

needs of the local market?

How smoothly

does the value

chain to your target

market function?

Who do you critically depend on

in your value chain and what is

the structure of that relationship?

How much of

the value

created by your

product, are

you effectively

able to capture?

Some fast movers from Beyond BRIC are already having an impact in Denmark

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… can Denmark move fast enough to claim its share of the emerging opportunities?