Global outlook for 2015: Africa rising and the role of Russia in emerging economies
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Global outlook for 2015: Africa rising and the role of Russia in emerging economies

The end of 2014 has seen considerable turbulence in many emerging market (EM) economies, particularly those most reliant on oil – directly or indirectly. This is a reminder that the secular rise of EMs is not a linear phenomenon.

Orcel Riccardo-120x135

Riccardo Orcel, deputy CEO of VTB Group, head of global banking at
VTB Capital

The ultimate rise of EMs is inevitable, but will be interrupted by bumps along the way such as the one we are experiencing. The Russia crisis of 1998 was followed by a doubling of GDP/head over the next 16 years, while the 1989 Beijing protests were followed by the Chinese economy doubling over the next decade and doubling again in the following decade.

The peaks and troughs along the way of an overall rising trend have always been the EM experience: the India crisis of 1991; the Mexican ‘Tequila crisis’ in 1994 and the Asian financial crisis of 1997 were all testing moments that were followed by substantial real improvements in living standards and reductions in poverty.

Despite the bumps, the World Bank has estimated that EM economies have grown from 18% of the global economy 20 years ago to around 40% today and expects this trend to continue. With EM also representing more than 50% of total industrial production and energy consumption, EMs are hardly an asset class on their own.

However, EMs have a less than 5% weighting in a typical investment portfolio and as a result are simply under-exposed to the future growth drivers of the global economy.


It seems that the lesson of the story is that the rise of non-western economies is an inevitability and that this powerful trend will continue regardless of any number of economic and political shocks. While today’s turmoil is a distracting event, it will not change the fact that EM growth will exceed that of the developed world for many decades to come.

Ideally placed

In particular Russia, with its strategic location across Asia, the Pacific and emerging Europe, is ideally placed to link the regions that will drive global economic growth in the coming decades and has a key role to play in the development of new trade flows. In addition, in the longer term, the drivers for a consumer-led growth through a burgeoning middle class and higher living standards remain intact.


Since its creation six years ago, VTB Capital quickly became the market leader first in Russia and then in the Commonwealth of Independent States (CIS) and has consistently been rated the top advisory bank and dominated the debt and equity capital markets league tables.

From the early success in its domestic market, the next geographic development was to use VTB Capital’s EM market and industry expertise to widen its presence and diversify reliance on home market business. This strategy proved to be very important in the past few months with strong growth in VTB Capital’s non-Russia revenues.

Given its heritage, VTB Capital naturally has a strong emphasis on the natural-resources sector and has developed particular expertise in taking on large international transactions on a sole basis, with all the advantages this gives clients in terms of efficiency, confidentiality and speed.


VTB Capital’s ambition continues to be wide recognition as investment bank of choice in key regions of EMs such as Russia, CIS, CEE and Africa. 

After growth in Russian trade flows with key countries, it also built a footprint in China where, for example, it completed five debt capital market (DCM) transactions this year and is actively working to facilitate large trade agreements and investments from Chinese companies into Russia. The recent deal signed with Gazprom to supply 30 years of gas to China is seen by many in both countries as the beginning of a much more strategic relationship.

Emerging markets have weathered many crises ... and it is likely there will be more ups and downs

These are the opportunities for which VTB Capital wants to be positioned for. Deeper economic cooperation between Russia and both China and India is already happening and will continue in the medium to long term, particularly in the energy, power and natural-resources sectors. It is worth noting that VTB Capital is the only Russian investment bank that has organized Hong Kong dollar, local renminbi, Singapore dollar and Aussie debt-raising transactions.


VTB Capital’s progress has been noteworthy in CEE and Africa, two regions where it was involved in many high-profile transactions such as the placement of a five-year €750 million sovereign Eurobond issue for the Republic of Cyprus, the first post-bailout bond that resulted in a swift comeback to international markets just a year after the country’s most serious financial crisis.

Activity was widespread in the region with financings, DCM deals or advisory to companies in Slovakia, Croatia, Bosnia, Serbia, Czech and Bulgaria.


In Africa, VTB Capital followed a focused and cost-effective growth plan that produced encouraging results. Starting with the maiden capital market transaction executed in Angola, the deal pipeline now includes transactions across Mozambique, Ghana, Nigeria and Tanzania. Additional activity is expected in Uganda, the Democratic Republic of Congo and other countries.

VTB Capital is very excited about the opportunities in the region, and the close and historic ties between Russia and Africa make the continent an attractive target market. With its growing middle-class population, increasing sophistication and strong economic growth, we believe sub-Saharan Africa represents priority opportunities.

Throughout the region, VTB Capital has successfully worked with sovereigns to complete complex transactions and is now broadening the business focus on to the private sector.

Local champions

There are some parallels with our home markets in the emergence of local champions in the natural resources, banking and consumer sectors operating as strong regional players across a number of countries. Indeed, many of VTB Capital’s new clients are successful Africa entrepreneurs with whom we are partnering to secure the next step of their development.

While some countries have a strong natural-resources focus – and their currencies and stock valuations are affected by the current uncertainty in commodity prices – there will also be strong growth in African economies without a large commodity resource base.

VTB Capital is also looking for flows that underpin the EM-EM integration. For example, Chinese flows into the continent have been strong for a number of years while we now also see flows from India, the Middle East and Latin America, as well as from some players in Russia and the CIS.


EMs have weathered many crises, and VTB Capital consider them part of the nature of the EMs we operate in, and it is likely there will be more ups and downs, but we believe EMs remain attractive markets for investors.

We are passionate about supporting clients in pursuing EM opportunities during challenging times as well as being there at the best of times. Volatility will continue but the trend is supportive for long-term investors.

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