FT SPECIAL REPORT The Mint Economies

Tuesday September 22 2015 www.ft.com/reports | @ftreports

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Central bank needs to Sweet flavour can still entice price in political risk , once described as Europe’s Bric, has Despite tough times, annushorribilis.Hisadministrationhas been hit by scandals, lost its golden glow the emerging markets slowing growth, a stalling economy,and Page 2 of , , public outrage over a mass killing of students and the escape from Is EM the only and Turkey can jail of one of the ’s leading that matters? druglords. still draw investors, As a result, opinion polls suggest that How currencies have writes Gideon Rachman the president is now Mexico’s least been badly affected by popularforsome40years. the dollar bull run One spark of hope, however, is that Page 2 here was a time when coun- stronger growth north of the border tries all over the world might spur demand for Mexican goods. State in need of aspired to be one of the The country may also continue to Brics. The acronym com- benefit from rising labour costs in financial guidance T prised Brazil, Russia, India, China,whichmakesMexicolooklikean Nigeria’s post-election China (later adding ). appealingbaseformanufacturerswant- optimism fades as fiscal These seemed to embody the ingtoexporttotheUS. economicdynamismandpromiseofthe The troubles of the Chinese economy policy remains unclear world’semergingmarkets. are more of a threat to Indonesia. As a Page 3 So there was plenty of investor inter- country in the -Pacific region and a est when, in 2014, Jim O’Neill — the major exporter of commodities, Indo- The next generation former chief economist at Goldman nesia has benefited from many years of of entrepreneurs Sachs and the man who had coined the strongChinesegrowth. Self-starters give an term Brics — began to champion the With China slowing, Indonesia needs economic prospects of another group of imaginative and confident leadership. insight into which countries:theMinteconomies. So it is unfortunate that the current sectors will drive growth Forthisselectgroupoffour—Mexico, president is increasingly Page 4 Indonesia, Nigeria and Turkey — it was being portrayed as ineffectual and diffi- clearly a blessing to be marketed as the dent. Four national stories nextbigthing. More broadly, all the Mints are now Many investors thought the Mints suffering from the fact that investors told in numbers sounded simply delicious. This was across the world are cooling on “emerg- How the countries are anothergroupoffourcountrieswiththe ingmarkets”. doing characteristics that defined the original But while classification as an emerg- Brics: large populations, strong growth ing market might not be regarded as a against rates, rapidly emerging middle classes strong selling point at the moment, the each andentrepreneurialcultures. factors that have driven emerging- other, The past 18 months, however, have market success over the past two gener- been disillusioning for fans of both the ationshavenotdisappeared. from BricsandtheMints.Brazil,SouthAfrica In the medium term, therefore, GDP to and Russia are in the middle of insurgency that has claimed about fresh elections on November 1, as he All at sea: a Pemex oil platform globalisation, expanding international levels of economic crises and China is growing at 20,000 lives and created 1.5m refugees. struggles to secure the parliamentary complex at Campeche Bay, Mexico. , relatively low labour costs and a fraud itsslowestpaceforageneration. Thenewgovernmentseemstobetaking majority he would need to change the The falling oil price is a problem for rising middle class are once again likely Page 5 The Mints also seem troubled. The the fight to Boko Haram with renewed constitution and bolster the powers of Mint nations — Susana González/Bloomberg toproveapotentcombination. problems in each of the four countries energy,butitwillbealongstruggle. the presidency. involved are quite specific. However, in Some of the problems facing Nigeria For a decade after 2003, when Mr broad terms, they tend to include are present in the other Mints. The fall- Erdogan came to power, Turkey political instability and slowing eco- ing oil price is a problem for both Mex- enjoyed strong and non-inflationary nomic growth. Investors who were once ico and Indonesia, both of which are economic growth. That boosted the all too happy to ignore the structural large exporters. Islamist militancy has Turkish leader’s reputation for compe- problems of these emerging markets been a problem in Indonesia in the past, tence and allowed investors to ignore cannowseelittleelse. although things are relatively quiet for someofhismoreeccentricviews—such Inevitably, the picture is mixed and themoment. as his oft-stated belief that there is an there is some good news out there as international “interest rate lobby” that well. Nigeria, in particular, can point to is agitating for Turkey to have inappro- its successful presidential election ear- priatelyhighborrowingcosts. lier this year. This saw the first peaceful The problems these four In the current economic environ- transition of power following an elec- countries face include ment, however, Turkey needs compe- tionfromoneheadofstatetoanotherin tent economic management that the 55 years since Nigeria’s declaration political instability and inspires international confidence. Infla- ofindependence. slowing economic growth tion is at about 8 per cent, unemploy- Better still, the new president, ment is at 11.3 per cent, and the country , seems to be Turkey, however, is suffering badly is running a large current-account defi- genuinely committed to tackling the from the conflict in neighbouring Syria. cit of about 6 per cent of GDP. It looks endemic corruption that has held The prolonged civil war there has cre- vulnerabletocapitalflight. Nigeriabackfordecades. ated millions of refugees, some 2m of Political leadership is also now an Nonetheless, in the short term, the whomarenowinTurkey. issue in both Mexico and Indonesia. country faces several formidable eco- TheoldgrievancesbetweentheTurk- When President Enrique Peña Nieto nomic and political challenges. The fall ish state and the Kurdish militants of first came to power in 2012, he was in the oil price has slashed Nigeria’s the PKK have also flared again into vio- hailed both at home and abroad as a export earnings and government lent conflict. And the general atmos- charismaticanddynamicleader. revenues. phere of political uncertainty has been Over the past year, however, the Nigeria must also cope with further fostered by President Recep Mexican leader has had what the Queen Boko Haram, the extremist Islamist Tayyip Erdogan’s decision to go for of England might have described as an Nigeria’s millennials plug gap in skills and funding

jobs in Nairobi, Dakar, Johannesburg or Entrepreneurship Cairo,orstayedoninLondon,whereshe had spent the better part of 17 years Energy executive returns to studyingandworking. her homeland to create a Moving back home to last year, however,wasachanceforhertotesther start-up that could benefit feeling that her country is “a land of all, reports Maggie Fick opportunity”. Rolake Akinkugbe heads an incubator Last month, Ms Akinkugbe officially whose name means ‘light has come’ added a “side-gig” to her day job — as One characteristic the Mint economies head of energy and natural resources at promising sustainable energy projects share is that they have younger popula- the Lagos-based investment bank FBN with the investments they need to get tions than their more economically Capital — by founding what she says is off the ground. The incubator is called developed counterparts around the sub-Saharan Africa’s first “curated off- InaTidé, which means “light has come” world. gridenergyinvestmentplatform”. in the Yoruba language that is widely As well as being an appealing target Instead of giving up her work for FBN spoken in south-west Nigeria. It will for foreign companies looking for new Capital — sourcing and structuring source financial and technical expertise consumers for their products, Mexico, funding for Nigerian energy companies forsmall,off-the-gridrenewableenergy Indonesia, Nigeria and Turkey are fer- — she is taking her knowledge of the projectsacrossthecontinent. tilebreedinggroundsfortalentedyoung commercial and strategic aspects of the Ms Akinkugbe thinks that small people who might have considered — or sector and applying this to fill a gap in projects—oftenlessthan5megawatts— have — careers in big national or inter- themarket. using renewable solutions such as nationalcompanies. The35-year-oldworkedastheheadof biomass fuels can have a huge social However,insteadofbeingtemptedby energy, oil and gas research at the pan- impact, given the poor access to what many consider safer careers, African lender Ecobank before she was power supplies across sub-Saharan members of these countries’ millennial hired by FBN to lead the investment Africa. generation — those born since the early banks’ relationships with companies Butthepriority,shesays,istoprovide 1980s—seemtobedeterminedtosetup working in energy and natural funding to promising entrepreneurs theirownbusinesses. resources. withcommerciallyviableideas.“Alotof Nigeria-born Rolake Akinkugbe is Having seen the obstacles that estab- these guys will tell you that’s the main one example (and you can read about lished companies and start-ups alike reason their ideas are not able to be other Mint country entrepreneurs on page often face when seeking funding to implemented.” 4). Given her expertise in Africa’s grow, Ms Akinkugbe says her “pan- She hopes to change that by using her energy sector, she could have picked African incubator” will work to link continuedonpage4 2 ★ † FINANCIALTIMES Tuesday 22 September 2015 The Mint Economies Politics President plays Political uncertainty costs catch up on policy host its golden glow

Kurdish south-east of the country per- as polls show a Turkey Government mitting. Most commentators agree that is putting off what it Mr Erdogan engineered the collapse of coalition talks, preferring to spin the knows will be painful wheel again rather than see his power big fall in support structural reforms, diluted.However,opinionpollshaveyet Little political authority: Joko Widodo to suggest the electorate has decided to writes Andrew Finkel givehimthemajorityheseeks. TheproblemislessthatTurkeymight Indonesia growth year on year in Southeast Asia’s In part, Mr Widodo’s power is being igh on the agenda when enter a period of unstable coalitions largest economy fell below 5 per cent in eroded by Megawati Sukarnoputri, the leaders of the G20 nations thanthattheinformalalliancethatonce the past two quarters. “With the econ- daughter of Indonesia’s first president meet in the Turkish resort made up Mr Erdogan’s AKP has The foremost concern omy currently growing at its slowest and chair of the ruling Indonesian of Antalya this November collapsed,accordingtoSuatKiniklioglu, for many people is the pace since the global financial crisis, the Democratic Party of Struggle (PDI-P), H will be discussion of aformergovernmentMPwhoheadsthe state of the economy, central bank would ideally be cutting who still wields power over decision- woes. They will find Ankara-based think-tank Center for interest rates to support growth,”wrote making. no better illustration of the problem StrategicCommunication. writes Avantika Chilkoti Gareth Leather at Capital Economics in The president faced tough criticism thantheplightoftheirhostnation. What started in 2002 as a conserva- arecentnote. this year after he nominated an ally of In 2011, when then Prime Minister tive-liberal alliance has now become a Indonesia’s president, Joko Widodo, But Bank Indonesia has been para- the PDI-P matriarch, Budi Gunawan, as Recep Tayyip Erdogan volunteered to vehicle under Mr Erdogan’sfull control. wonovervoterswithhisimageasaman lysed,asconsumerpriceinflationticked head of the police, despite allegations of host this year’ssummit, Turkey was the “The party became him. He became the ofthepeople. up to 7.2 per cent in August, and the corruption (which Mr Gunawan has prime example of what then seemed an party,”MrKiniklioglusays. The former furniture salesman made rupiah has depreciated to levels last denied). inexorable global shift in power away Autocratic: Recep Tayyip Erdogan As the economy stumbles, Mr his name as the governor of , seen during the Asian financial crisis in And Ms Sukarnoputri’s daughter was frommatureeconomies. Erdogan has become more autocratic. visiting poor neighbourhoods and thelate1990s. given a cabinet post, as her mother The country had bounced back after Turkey, a commodity importer, is The US-based watchdog chattingtothepublic. Some say the president inherited a strives to maintain the family legacy. the 2008 financial crisis, growing at an instead destroying its large export Freedom House has for the past two A year into his term, however, com- blighted economy as commodity prices “[Mr Widodo] is making sure that he is average of 9 per cent between 2010 and markets,includingRussia. years said the Turkish press is “not mentators say these very qualities are had dropped sharply, while Indonesia not a threat to the Sukarno family,” Mr 2011. The ruling Justice and Develop- “The government knows it has to free”. However, it is the lack of dissent holding him back, as Indonesia’s first remains reliant on the sector for more Sukarsonosays. ment Party (AKP) won its third consec- make structural reforms that will within the government itself that con- leader from outside the political and thanhalfitsexports. Yet, as concerns over a slowdown in utive victory, polling nearly half the increase productivity, but it [is] afraid cerns many investors, as a number of military elite struggles to push through Mr Widodo was initially praised for China and the prospect of a US rate rise popular vote. After a visit to Ankara, to pay the political cost,” Professor ministers seen as safe pairs of hands much-neededeconomicreform. pushing through controversial fuel send tremors through emerging mar- David Cameron hailed Turkey not as a Gurselsays.Heputsgreaterflexibilityin withdrewatthelastelection. Paul Rowland, a Jakarta-based politi- subsidy cuts, while redirecting funds to kets, Jakarta is making an attempt to Mintbut“Europe’sBric”. thelabourmarketandimprovementsin Markets took some comfort from the calanalyst,says:“Justbeforehebecame productive spending, but budget start afresh and push through hard- High growth had been consumer-led, educationhighontheto-dolist. reappearance as a candidate in the a candidate, and even afterwards, we disbursementhassincebeenpoor. hittingeconomicreforms. fuelled by a current account deficit that Unlike the football league, where November elections of Ali Babacan, knew what we didn’t know about him: The Eurasia Group, a consultancy, As Indonesia celebrated 70 years of by2011stoodatanunsustainable10per teams are relegated at the end of a bad former deputy prime minister with his macroeconomic thoughts, his trade estimates that Indonesia’s government independence in mid-August, the cent of GDP. The government had to season, membership of the G20 is not responsibility for the economy, and a policy, where he was going to go with spent just 11 per cent of the $22bn allo- president delivered a much-anticipated takeaction.Growththisyear,likelast,is based on GDP alone. This is lucky for defenderofcentralbankindependence. foreignpolicyanddefence. cated for infrastructure projects this cabinet reshuffle, bringing experienced expected to be just under 3 per cent. Turkey,asthecurrencyhaslost21.4per This has been under threat as the “It is natural for people to put on to a yearinthefirsthalf. policymakers — including a former Until now the government has relied on cent against a euro-dollar basket, which president and his close circle have blank canvas their own views of what “If you have political authority, you central bank governor and a trusted strong fiscal discipline and a healthy means Switzerland and Saudi Arabia blamed high interest rates for sluggish theyhope[politicians’views]willbe.” former four-star general — into top banking system to hold the line. But, growth and publicly equated rate rises The Indonesian public has been dis- posts. despite stronger than expected second- withtreason. appointed. Indonesia Survey Circle The president has since unveiled the quarter growth figures (3.8 per cent), Under such pressure, Erdem Basci, found only 42.29 per cent of the public Jakarta is trying to start first part of what promises to be a big thewritingisstillonthewall. The president and his close the bank’s governor, has been greatly were satisfied with the government in afresh and push through economic stimulus package, cutting red “I am not the only economist who is circle have equated interest restrictedinwhathecando. January, down from 71.73 per cent in tape and simplifying licensing and land warning of the possibility of a technical In January 2014, the central bank August2014,soonafterhiselection. hard-hitting reforms acquisitionforlargeprojects. recession,” said Seyfettin Gursel, who rate rises with treason increased its main interest rate from 4.5 Unaccustomed to politics at the However, analysts say that it is still heads the Bahcesehir University Eco- per cent to 10 per cent to prop up a fall- national level, Mr Widodo is criticised don’t hear these things,” says Achmad too soon to feel optimistic about Mr nomicandSocialResearchCentre. have overtaken it in terms of dollar-de- inglira. for overlooking religious extremism Sukarsono, an analyst at the research Widodo’sleadership. The consumer confidence index is nominatedGDP. Selim Cakir, chief economist for Tur- andforpoorforeignpolicy,afterhefast- house. “There are changes, but I am not sure down to levels last seen at the height of Equally uncertain is how the country key at BNP Paribas, says: “To arrest the tracked the execution of foreigners con- Headds:“Butbecausehedoesn’thave about implementation,” says Yohanes the 2009 recession. is on the will be run. An election in June failed to current sense of drift, either the Central victedofdrugtrafficking. that political authority, we hear all of Sulaiman, a Jakarta-based political rise, expected to be running at a rate of produce a government and now the Bank has to price in political risk or the Yet the foremost concern for many this. It’s not resistance, it’s not defiance analyst. “That’s been his biggest prob- 8 per cent by the year’s end. Cheap oil, county is scheduled to go to the polls politicians have to do something to Indonesians is the economy. GDP even—it’smorelikesluggishness.” lemsincethebeginning.” which might be expected to benefit again — deteriorating security in the reduceriskinthefirstplace.” Only one acronym matters now: EM

Currencies In foreign exchange markets, these countries have had a tough time says Roger Blitz The Indonesian rupiah has fallen 13 per cent against the dollar — Dimas Ardian/Bloomberg

In the world of currencies, it no longer 11.3 per cent, the Turkish lira by more traditions. Its problems include a large matters whether you are a Mint or Bric, than 22 per cent, the Indonesian rupiah current account deficit and a sputtering or even a Civets economy (, by 14 per cent. On the official exchange economy that makes the central bank Indonesia, , , Turkey and rate, Nigeria’snaira had fallen by 7.5 per reluctanttomoveonrates. South Africa). Only one acronym cent. But Nigeria has resorted to a series Mexico and Turkey offer better pros- matters:EM. of measures to defend the naira follow- pects for FX traders in the medium All year, emerging market currencies ing two devaluations, creating a black term. According to Daniel Tenengauzer, have suffered. First, heightened expec- marketforthecurrency.Theblackmar- head of EM FX strategy at RBC Capital tations of the Federal Reserve raising ketrateis“muchweaker”,saysMrThin. Markets, Mexico presents “good fiscal interest rates caused damage and, Political risk is one reason why trad- and inflation credentials” and a strong although its decision to keep rates on ers short certain currencies, which percapitaincome. hold in September may give some relief explains some of the weakness in the Compared with other Mint econo- toEMcurrencies,analystsexpectthisto lira, the naira and the peso. The falling mies, its economic fundamentals are “a be shortlived. The dollar went on a bull oil price is another, and one that has lot more benign”,says Mr Costa, though runanddrovecapitalflowsoutofEM. weighedparticularlyheavilyonNigeria. thepesoishurtbyMexico’sproximityto Then, commodity prices fell. Finally, “Sincelatelastyear,therehasbeenno theUSandapossibleFedraterise. concerns about China’s economy, bub- two-way FX market in Nigeria,” says Turkey’slira looks like one to avoid in blingawayallyearinemergingmarkets, LuisCosta,anEMstrategistatCitigroup. the short term, not just because of tipped over into the developed world, “The central bank in Nigeria has been heightenedtensionsintherun-uptothe rattlingglobalequitymarkets. reluctant to allow some depreciation of November elections, but because of its These factors may or may not be the naira as a response to the abrupt balance of payments deficit and corpo- related, but the upshot is that EM have collapseinoilprices.” ratedollarindebtedness. beenagrimplacetobein2015andtheir On the other hand, Turkey is an But Bernd Berg, EM strategy director currencies, save for a few isolated oases energy importer and so benefits from at Société Générale, says traders are of calm, have invariably been volatile cheaperoil,whileMexico,thethird-big- seeking to identify those EM currencies andaregrowingweaker. gest oil producer in the Americas, is likelytoescapetheworstofthestorm. As Win Thin of Brown Brothers Har- hedgedagainstoilpricefluctuation. “Turkey and Mexico are expected to riman puts it, all the Mint countries are Indonesia is dependent on commod- outperform.Theyarelessdependenton “vulnerabletoongoingEMweakness”. ity exports and is a net oil importer. Its volatility in global commodity prices Declines against the dollar this year per capita income is low, though infla- over the medium term and their econo- are par for the course. At the time of tion is above target, and FX strategists mies are more isolated from this global writing, the Mexican peso had fallen think it has reasonable democratic EMstorm,”hesays.

Contributors

Gideon Rachman Elizabeth Durno For advertising details, contact: Mark Chief foreign affairs commentator Christina Madden Carwardine, +44 (0)20 7873 4880, e-mail Sub-editors [email protected], or your usual Maggie Fick FT representative. correspondent Adam Jezard Commissioning editor All editorial content in this report is Andrew Finkel produced by the FT. Our advertisers Freelance journalist in Steven Bird have no influence over or prior sight Designer of the articles. Jude Webber All FT Reports are available at: Mexico and Central America Andy Mears ft.com/reports correspondent Picture editor Follow us on Twitter: @ftreports Tuesday 22 September 2015 ★ FINANCIALTIMES 3 The Mint Economies Politics When it comes to Concern grows over a lack corruption, ‘words of economic direction

the second quarter to less than half the by the previous administration. Mr can be blown Nigeria Post-election rateofayearago. Emefiele’s view that the currency is optimism fades as The naira has lost more than 15 per “appropriately priced” — despite the cent of its value against the dollar in the divide between official and black mar- fiscal policy plans past year. The central bank devalued ket rates and controversial measures away by the wind’ remain unclear, the currency in November and Febru- such as effectively blocking certain Public disquiet: Enrique Peña Nieto ary and has introduced capital controls imports, like rice — has bewildered writes Maggie Fick andspentbillionstoavoidathirddeval- economists. uation.Tradersandanalystssaythishas If the currency is not devalued, mar- Mexico asked people to identify Mexico’s top ask if Mexico needed similar help. obody, least of all Nigeria’s caused liquidity to dry up and most are ket uncertainty and foreign outflows problem.Whilestillbehindsecurityand Unlike Brazil or Guatemala, where newpresident,hassaidthat callingforadevaluation. could cause foreign reserves to drop crisis, corruption saw the biggest year- people power took the fight against cor- rooting out the rot in the Many agree with Mr Buhari’sfocus on below the $30bn critical level needed to After the homes scandal, the on-yearrise. ruption into the streets and gave it political system will be tackling institutionalised corruption cover four months of imports, such as president seems to be losing Marco Fernández, a researcher at the momentum,lastyear’sbigMexicanpro- N easy. and understand that it takes time, says importantfoodstuffs,saysMrEbo. the battle for hearts and Wilson Centre, a think-tank says: “I’m testsagainstthedisappearanceofthe43 When he took office in late May, Ayodeji Ebo, head of research at “Nigeria is digging itself into a deeper concerned that this supposed self- andthehousescandalshavefizzledout. Muhammadu Buhari described Africa’s AfrinvestinLagos. hole as the days and weeks go by,” says minds, writes Jude Webber criticism is not accompanied by con- Meanwhile, Mexico’s problems biggest economy as being “in a precari- “It’s a challenge we have that cuts Angus Downie, head of economic crete actions to correct the problem of appear to be getting worse, according to ous state” because of external factors — across all sectors,” Mr Ebo says, adding research at Ecobank. And, with oil corruption and . . . transparency. the Control of Corruption index, pro- mainly falling oil prices — that intensi- thatthepresident’sapproachintermsof prices unlikely to rise soon, Mr Downie Three things hold Mexico back, accord- Wordscanbeblownawaybythewind.” duced by the as one of its fied internal problems: namely poor restructuring various sectors to clean says the government cannot rely on ing to President Enrique Peña Nieto: In his speech, the president promised globalgovernanceindicators. management that enabled or encour- up state institutions could yield fruit externalforcestocometoitsaid. inequality, a tricky international eco- to work with Congress on secondary Anne Van Praagh, managing director agedmasstheftofstaterevenues. onceheappointsacabinet. This month, JPMorgan ejected nomicenvironmentandcorruption. legislation to implement an integrated at Moody’s sovereign risk group, says: In his inauguration speech, the Mr Buhari has promised to appoint Nigeria from its influential emerging That last factor has long been a approach to fighting graft through a so- “Mexico underperforms its A3-rated former military ruler, aged 72, said ministers this month and has said the markets bond index. The move trig- problem. As one influential politician calledanti-corruptionsystem. peers [indicating its securities are sta- “carefulmanagement”wouldbeneeded long wait was needed to ensure that the gered outflows, but some said the big- notoriously said,“a politician who is Juan Pardinas, head of Imco, a think- ble] in terms of government effective- tobringtheNigerianeconomyoutofthe individuals he selects as ministers are gestimplicationoftheexclusionwasthe poorisapoorpolitician”. tank, applauded the plan to implement nessandregulatoryquality. “deeptrouble”itwasin.Healsopledged capable of carrying out the root-and- hit to confidence about the manage- Mexico ranks 103rd out of 175 coun- greaterchecksandbalances,stifferpen- “Corruption and political stability are to take action to tackle the Boko Haram branchreformshehaspromised. ment of Nigeria’seconomy.“People will tries in Transparency International’s alties and better co-ordination. But both weak links. We’ve seen a down- insurgents who have terrorised the peo- But because of the president’srelative start asking questions about ‘do these 2014 Corruption Perceptions Index. experts say that is the work of a decade. ward trend in Mexico’s scores [in the ple of the impoverished north-eastern silenceandthelackofafinanceminister peopleknowwhattheyaredoing?’”says Among the three Mint nations that “The government says, this is where ratings].” regionandneighbouringnations. or named economic policy team, the a Nigerian economic expert familiar improvedtheirrankingscomparedwith there is going to be a fantastic building,” Among the Mint nations, Mexico is Almost four months later, the coun- only person seen to be dictating econ- withtheadministration’sthinking. 2013, it made the smallest advance, saysMrPardinas.“Allyouseeisahole.” the only country that appears be going try’s economic woes have deepened, omy policy publicly since Mr Buhari SomeNigeriawatchersareoptimistic. whileTurkey’srankingworsened. With the house sales, last year’s chill- backwards in fighting corruption, com- while a rise in Boko Haram attacks has took over is the central bank governor, “He’s trying to do the right thing and In his state of the nation speech in ing disappearance of 43 students at the pared with 2003. Economists estimate forced 800,000 people from their Godwin Emefiele, who was appointed maybe it’s taking a bit longer than any- August, Mr Peña Nieto acknowledged corruption may be eating up as much as homes since June, according to UN fig- one expected, but he’s still fighting for that scandals over houses he, his wife 2-10 per cent of GDP, and given that the urespublishedthismonth. the good cause”, says Miguel Azevedo, and his finance minister had bought central bank is sketching a worst-case Mr Buhari has changed the military’s headofinvestmentbankingforAfricaat from favoured government contractors Many were incredulous scenario this year of about 1.7 per cent top brass and sacked the leadership of Citigroup. hadcaused“angerandindignation”. when a government probe growth,thatishardtoswallow. the state-run oil company, the Nigerian Mr Azevedo says the president has He apologised, but appears to have MsVanPraaghsays30percentofsov- NationalPetroleumCorporation,buthe appointed people to take charge of the missedtheincredulitymanyfeltwhena exonerated Peña Nieto ereign defaults globally are related to is facing increasing criticism for not shaky oil industry, citing the new head government probe exonerated them of institutional or political weakness, articulating a vision for Nigeria’s econ- of the state-run oil company, conflicts of interest. Indeed, the con- handsofcorruptlocalpoliceinthewest- includingcorruption. omy. Change was not expected over- Emmanuel Ibe Kachikwu, a former tractor at the centre of the scandal, Juan ern state of Guerrero, and the suspicion “For us, corruption is an important night, but the wave of optimism that ExxonMobilexecutive,asanexample. Armando Hinojosa, was a guest at his that bribes may have helped Mexico’s part of how we look at creditworthi- sweptthecountryafterMrBuharimade However, Nnamdi Obasi, senior speech. top drug lord, Joaquín “El Chapo” Guz- ness,”shesays. historybybecomingthefirstopposition Nigeria analyst at the International Mr Peña Nieto, halfway through his mán, escape from jail, Mexicans are Mexico already has investment-grade candidate to defeat an incumbent has Crisis Group, says: “Clearly, there is a six-year term, seems to be losing the impatient. status. That ought not to make it com- faded. Nigerians and foreign investors sense of anxiety and concern about eco- battle for hearts and minds. A Pew In next-door Guatemala, Otto Pérez placent, but as Ms Van Praagh says, the worriedly await signs of a plan, particu- nomic direction, also because the ResearchCenterstudylastmonthfound Molina, the former president, was risk for Mexico, an oil exporter, is that larlyasoilpricescontinuetofall. president himself doesn’t only 27 per cent of respondents forced to resign and was imprisoned to an anti-corruption drive will bring Economic growth slowed sharply in have any economic cre- approved of his handling of corruption, face corruption charges in a move short-term economic pain in an operat- dentials whatsoever aplungeof15pointsfromayearago. spearheaded by a UN-backed commis- ing environment that is already pretty Seeking economic direction: and it’snot clear who Arecentsurvey,bypollstersMitofsky, sion.ThispromptedmanyonTwitterto fragilebecauseoflowoilprices. Muhammadu Buhari isadvisinghim.” 4 ★ FINANCIALTIMES Tuesday 22 September 2015 The Mint Economies Young Entrepreneurs High flyer quit Innovator was told to ‘forget Silicon Valley’

Harvard to get bus company,for example, had an aver- Mexico age chargeback rate of 8 per cent but this fell to to 1.2 per cent after about An online payments system three months, the time it takes the soft- is helping beat endemic waretounderstandfraudpatterns. travel start-up “We’re on the verge of launching alli- fraud, writes Jude Webber ances with almost all the banks here for us to be their [anti-fraud] software. The Héctor Cárdenas thought he had it all banks realised we were doing it better figuredout.Ayoungmechatronicsengi- than them.” Such statements may off the ground neering graduate from the University of sound cocky, but the 28-year-old chief Waterloo in Canada, he was back in his executive brims with a millennial’s native Mexico with two university assurance:“Wearethetechnology.” friendsandhungrytostartabusiness. Mr Cárdenas grew up in the business Indonesia Would-be executive had to move fast to The team raised $30,000 seed capital world, working from the age of 10 in his from a Mexican venture capital fund to father’s electronic sales business. He seize his net opportunity, writes Avantika Chilkoti set up a local equivalent of US-based and his friends were, by his own admis- Yelp, which provides crowd-sourced sion mirreyes (“my kings” — the pam- t may be difficult to get into Har- expected to reach 102.8m by 2016. reviewsofservices. peredchildrenofthewell-offelite). vardBusinessSchool—butitisalso Mr Unardi and his business partners, There was just one problem: “The Canada,wherehemovedwhenhewas difficult to leave after just one Derianto Kusuma and Albert (who goes market didn’t want what we thought it 18, not only taught him about technol- semester, which is exactly what by that one name) stand out in Jakarta, did.” Mr Cárdenas and his colleagues ogy but also the need to generate value. I FerryUnardidid. where many start-ups are led by slick were considering their options when a Mexicans, he says, focus on making Three years on, he is running one of former investment bankers and con- talk at a conference in by money fast and avoiding risk because of Indonesia’s best-known start-ups, the sultants. “We are definitely engineers VivekWadhwamadethemthinkagain. culturalpressurenottofail. onlinetravelagentTraveloka. through and through,” the chief execu- Tech-led: Ferry Unardi, chief executive of website Traveloka Mr Wadhwa is from the Singularity Conekta’s big-name backers include “Everybody knows internet time tiveexplains. University in California, which has the investment companies Jaguar Ventures, works differently from normal time,” He met Mr Albert while studying would be able to tackle.”But users com- few Indonesian websites were well goal of using technology to benefit the 500 Startups and, through a syndicate explainsMrUnardi,27.“WhenIarrived computer science at Purdue University plained that booking was still compli- designed or even reliable, and many world as well as make a profit. He said, at school, I underestimated the speed of and Mr Kusuma was a fellow intern at cated, prompting the group to relaunch consumerswereuncomfortablemaking “Forget Silicon Valley. Here there are change.”Tech start-ups are mushroom- Microsoft. “We always discussed the thesiteayearlater. transactionsonline. problemswithwater,payment,logistics ing across Indonesia, and Traveloka has development of the internet industry in They started taking bookings for air- Indonesians are among the most risk- —focusonsolvingthoseproblems.” ‘We focus on making money swiftlybecomeahouseholdname. Indonesia and always thought about linesbeforeexpandingtotakehotelres- averse customers in Southeast Asia, And so Conekta was born in a sparse and avoiding risk because Thewebsitehad10mvisitorsamonth comingback,”MrUnardiexplains. ervationslastyear. accordingtoSPEcommerce,with80per apartment, handling payment logistics by the end of last year,its workforce has Itwasnotuntilearly2012thatthetrio As with many start-ups up across cent of people comparing prices online in a country where two-thirds of people of pressure to succeed’ grown to about 400 employees, and the felt the Indonesian market was ripe, Southeast Asia, the idea was not new. before buying in stores, compared with havenobankaccountsandinwhich,Mr company has attracted investment with interested investors and a ready “We definitely had a lot of companies aregionalaverageof60percent. Cárdenassays,“thecultureisfraud”. run on AngelList, which puts entrepre- from Global Founders Capital, the ven- consumer base. Traveloka raised seed that we looked up to,” Mr Unardi says, “Scaling is very difficult, because it is The company now has 17 staff in an neurs in touch with backers, other ture fund set up by two of the Samwer funding from East Ventures, a venture and mentions Expedia and Priceline of like building a skyscraper on top of open-plan office that looks as slick as individual investors. Conekta is now brothers, part of the super-ambitious theUS. muddy and unstable ground,” Mr any in San Francisco. Conekta, which is working on a $5m series-A fundraising team behind Berlin-based start-up “Now, the rate of creativity and inno- Unardi says. “That takes a certain type invisible to the consumer, has been in the US, selling preferred stock to conglomerateRocketInternet. vation is so high that it’s inevitable ofingenuity.” adoptedbyinternationalbrandsinclud- investors, which it hopes to close at the Traveloka now has partnerships with ’Internet time works somebodyhasdoneitpreviously.” The young entrepreneur grew up in ing Coca-Cola and Tommy Hilfiger, as startofnextyear. 33 airlines and hotels across Southeast differently; I underestimated The company does not disclose reve- West Sumatra, where he developed an well as Mexican brewer Modelo, taxi Conekta could break even, but is Asia, taking between 10 and 15 per cent nues, but Mr Unardi says month-on- interest in technology through pro- app Yaxi, and Fondeadora, a crowd- focused on growing. The number of commissionfrombookings. the speed of change’ monthgrowthisnowindoubledigits. gramming competitions at school. His funding platform. It is even used for tax transactions being processed has grown “I think travel products are the first The biggest hurdles for the company family initially struggled to understand payments to local authorities. For those by 29,000 per cent since the company thingthatpeoplebuyonline,soifweare capital firm, and launched as a search include working with small hotels that whatTravelokadoes. without bank accounts, cash payments started in 2012, and is increasing at an growing then you can bet the other engineforthetravelindustrybytheend manage bookings manually across the Butthechiefexecutivepointsoutthat canbemadeatconveniencestores. average of more than 20 per cent a ecommercewillfollow,”saysMrUnardi. oftheyear. region, and building partnerships with Indonesia’s start-up scene is changing. Conektaalsohelpscompaniescombat month, Mr Cárdenas says. He is hoping With a population of 250m and a “The biggest challenge in the travel establishedairlines. “That’s the thing about programming identity theft and disputed credit card to expand into South America, and growing middle class, Indonesia offers a industry is the availability of informa- “Gainingtrustwasverychallengingat andsoftware—it’sfashionablenow,”he charges(“chargebacks”). planstogopublicinfourtosixyears. largemarketforecommerce.Asof2013, tion,”MrUnardiexplains. thebeginning,especiallyforus,because says. “Now, you’re cool if you do this, so “Mexico has the world’s highest rate “Mexico is full of people who want there were 74.6m internet users in the “The key to making it useful was to we are a start-up and these are pretty it’sinterestingtoseewhattypeofpeople of bank card fraud,” Mr Cárdenas says. start-ups,butnooneknowswhattodo,” country, according to SP eCommerce, organise the information, which I sizeablecompanies,”MrUnardisays. come in, and how they will take the Conekta uses artificial intelligence to he says. “You need a success story for part of Singapore Post. This figure is thought that we, as software engineers, When Traveloka started out, he adds, industryforward.” recognise suspicious transactions. One peopletoseesomethingisviable.” Bus idea was just the ticket for founders

Turkey companies owned by some of the coun- try’s most powerful firms. Last year, Engineers were the right age oBiletbookedabout1minter-citycoach tickets, representing £10m in turnover. to take a risk, and a journey, With Turks making 200m journeys a reports Andrew Finkel year,theybelievethereisroomtogrow. The figures attracted two backers: Earlybird, a venture capital firm that For two Turkish industrial engineering runs its £95m Digital East Fund from students, Ali Yilmaz and Yigit Gurocak, Istanbul; and the Turkish angel inves- One half of the sketch: Yigit Gurocak entrepreneurial inspiration struck tor,AslanobaCapital.MrYilmazandMr when they found themselves unable to Gurocak say they now have enough Earlybird,whichhasa20percentshare gethomefortheholidays. working capital for five years and still in oBilet. However, he says that things “We forgot to book bus tickets and retain 70 per cent of the original shares. arechangingfast. discoveredtherewasnoeasywayofget- They have taken on more staff and plan A primary reason is that the cost of ting one online,” said Mr Gurocak. The toexpandthebusinessintotheBalkans. starting a business has plunged. pair transformed misfortune into ThesuccessofoBiletwouldseemtobe Another is that going into business for oBilet (which means “that ticket”), now a confirmation of Turkey’s bustling yourself has become more attractive as oneofTurkey’sleadingtravelapps. entrepreneurial culture. Small and the economy slows and there are fewer Unable to raise seed capital from gov- medium-sized enterprises account for plum jobs. The founders of oBilet began ernment development agencies, they 99.9 per cent of all businesses and pro- their business while at Ankara’sBilkent gave a PowerPoint presentation to their duce 53 per cent of value added in the University, joining a club devoted to families.Inreturn,theirlovedonesgave whole economy, according to 2014 helping its members go into business. them £6,500 to fund a learning experi- figurespublishedbytheEuropeanCom- But most of their friends ended up with ence. mission. moreconventionalcareers. The pair registered the domain name Yet, while Turkish workers in Europe “It’sa bit of a sore point,”Mr Gurocak in 2012, spent a year preparing the are known for repatriating savings into says. “At least we proved founding our ground and began operations in 2013, “mom and pop” stores or other family ownbusinessisnotjustadream.” signingupthecountry’s300coachoper- businesses, such as taxi services or “We were at the right age to risk eve- ators, for whom marketing tickets at cafés, graduates still come under pres- rything,” says Mr Yilmaz, who turned lowercommissionwasawin-win. suretoseekasteady,well-paidjob. down a job with management consult- The company is now Turkey’sbiggest “The ecosystem that nurtures entre- ants McKinsey, even though the com- onlinecoachbookingserviceintermsof preneurial talent is still in its early pany,impressedbyhispluck,givehima sales, despite competition from travel stages,” said Cem Sertoglu, a partner in wholeyeartothinkaboutit. Millennials plug gap in skills and funding

continuedfrompage1 She believes this approach is partly Nigeria, hit hard by the oil price crash experience in raising finance, and her because “of the recognition that our and investor uncertainty about the connections. societyhasalotofproblemsthatrequire economic plans of the new president, Ms Akinkugbe says: “I’m going to be solutions. MuhammaduBuhari. leveraging my network of investors to “We’re people who like to debate, MsAkinkugbesaysthatthe“go-getter tapfundingforprojects[thatmany]off- we’re constantly talking about why attitude” among Nigerians “now mixes gridentrepreneursarerunning.” thingsdon’twork.” with opportunity” in terms of the sheer She thinks her two client bases — Sheaddsthatatsomepoint,individu- demographicsofhercountry. energy companies with cash flow at “If you come up with a product today, FBN, and small and medium enter- and you sell it to 1m Nigerians, you’ve prises at the incubator — will comple- madesomeprettydecentmoney.” menteachother. ‘I will leverage my network Investors and the government are Ms Akinkugbe says an entrepreneur- of investors to support the interested in building a local entre- ial spirit can be found right across preneurial class that, with the right the nation. “The time will come [to] off-grid entrepreneurs’ policies and funding, could itself make that decision to be a full-on be an engine for growth in the years entrepreneur, but I’m not yet at that alshavetoconsiderifthereissomething tocome. point. theycandototakeresponsibilitytofind Heradviceforyoungentrepreneursis “Ithinkyoucouldspeaktoalmostany a solution and “knock heads together” to develop a personal brand and be con- Nigerian today, and they would tell you tomakethingsworkbetter. sistent and diligent in their area of that they have one side-gig or the other There are more than enough prob- expertise to gain respect, as she has thatthey’repursuing.” lems for crude-revenue-dependent doneintheenergysector. Tuesday 22 September 2015 ★ FINANCIALTIMES 5 The Mint Economies

The Mint story in numbers Extreme volatility While the Brics reigned in 2007, the Mints may now be strong competitors ... GDP growth estimates for 2015 Annual % change GDP growth slowdown Difference 2015 and 2007, % points 8 Mint countries Bric countries 8 saps sentiment 6 6 4 4 remains low and they are vulnerable to 2 2 Markets 0 0 externalshocks.” -2 -2 Withanalystsatbanks,includingBNP -4 -4 Vulnerability leads investors Paribas, recommending that investors -6 -6 to seek safety elsewhere, avoidenergyandcommodityproducers -8 -8 as prices drop, even Turkey, an oil -10 -10 reports Elaine Moore importer,hasseenanoutflowofcapital. -12 -12 While the country will probably con- Indonesia Nigeria Turkey Mexico India China Brazil Russia tinue to grow thanks to its demograph- cute volatility has defined ics, the conflict with Kurdish separatists ... and most of the Mint economies are getting richer ... emerging markets this and failure to establish a coalition year, as investors have governmenthaveunsettledinvestors. GDP per capita at purchasing power parity As % of US (2015-16=f orecasts) come to terms with lower Michael Ganske, who manages about Mexico Indonesia Nigeria Turkey A oilprices,apossibleUSrate $4.5bn as head of emerging markets at riseandaslowdowninChina. Rogge Global Partners, prefers Indone- 35 20 11 36 The MSCI index of emerging market siaofthefourcountries. 34 18 10 34 9 32 equities has dropped by close to 15 The president of the world’s third- 33 16 per cent since June, led by a rout in biggest democracy, Joko Widodo has 8 30 32 14 China.Theturmoilhasledsometoaskif pledged to accelerate reforms. “Some 7 28 thegrowthmodelforemergingmarkets people say he’s not delivering, but it’s a 31 12 6 26 has collapsed, while concerns about a tough job to come to the leadership role 1990 2000 10 16 1990 2000 10 16 1990 2000 10 16 1990 2000 10 16 global slowdown led the US Federal ofacountrythissize,”saysMrGanske. Reserve to delay raising interest rates in “If you look at the underlying quali- ... their human capital is improving ... September. ties, then Malaysia and Indonesia look Enrolment in tertiary education (% of population of the five-year age group after leaving secondary school) For the Mint economies of Mexico, relatively solid. Low debt to GDP and 79.3 Indonesia, Nigeria and Turkey,investor reform agendas, for example. Nigeria 2012 sentiment remains broadly negative. In has a lot of issues. Not just civil unrest spite of youthful populations, relatively but corruption and the fact that it’s an lowlevelsofexternaldebt,enviableeco- oileconomy.Turkeyhaspoliticalissues, 5.2 31.5 5.1 nomic growth rates and booming mid- even though it should benefit from 29.9 2.9 0.7 1971 2012 1971 dle classes, countries that were former lowercommodityprices.” 2013 1971 1975 10.4 outperformers against the S&P 500 This is why he concentrates on 2005 haveflippedtheirposition. current account dynamics. He does not take the view that all emerging econo- mies are bad. “The most convincing ... as are their infrastructures ... Michael Ganske: cases are Malaysia and Indonesia. The ‘Nigeria has a lot of Logistic performance Largest exports issues . . . civil nextfewmonthsaremorelikelytooffer index* (1=low , 5=high) product 2014 volatilitythanawholesalesell-off.” oils unrest, corruption Petroleum oils Vegetable fats $79bn Motor vehicles and the fact that For Nigeria, the situation could be 2.7 $36.2bn 2.8 $19.4bn 2.2 Natural gas 2.9 $7.3bn it’s an oil economy’ more difficult. It is struggling with a 2007 2007 2007 2007 weak currency and the continued Motor vehicles Natural gas $10.9bn Iron/steel bars Fixed-income investors have also deadly attacks by Islamist group Boko 3.1 $32.4bn 2.9 $17.7bn 2.6 Propane and 3.5 $6.3bn seen a sell-off, as prices for government Haram, as well as the impact of falling 2014 Vehicle parts 2014 Coal 2014 butane 2014 Articles of apparel debt issued in local and foreign curren- pricesinitsmainexport,oil. $22.9bn $17.4bn $1.6bn $5.9bn cies such as dollars and euros have Emily Fletcher, co-manager of Black- ... but there are still hurdles to overcome fallen. Since the start of the year, Tur- Rock Frontiers Investment Trust, has key’s benchmark 10-year government reduced investment in Nigeria from People reporting paying bribes to the police in the last 12 months 2014 borrowing costs have jumped by almost about 10 per cent of her portfolio to less 1percentagepointto5.18percent,while than5percentoverthepastyear. 61% 75% 81% 23% Indonesia’sareup50basispoints. While there are good things to say Charles Robertson, global chief econ- about Nigeria, including low levels of Ranking in ease of doing business 2014 (1=world best , 189= worst ) omist at Renaissance Capital, says: external debt and a young population, “Like the Brics [Brazil, Russia, India, Ms Fletcher has concerns over currency 1 Mexico 39 Turkey 55 Indonesia 114 Nigeria 170 189 China], the Mints’ problem is that while expectations: “There are few emerging they are expected to enjoy good growth markets that look like safe havens and FT graphic Sources: IMF; World Bank; Unctad; Transparency International * Refers to quality of logistic infrastructure and services in the long term, their per capita GDP noneoftheMintsareconsideredsuch.” 6 ★ FINANCIALTIMES Tuesday 22 September 2015