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5 February 2009.

IMF PREDICTS CONTINUED GROWTH IN DEVELOPING COUNTRIES

In a new report from the International Monetary Fund (IMF), growth is forecast to fall significantly throughout the world. But while the industrialised countries are facing recession and a negative growth of 2 percent in 2009, the average growth in the developing countries is estimated at 3.3 percent. Danish companies should therefore consider the possibility of investing in the developing countries, as they are the only growth markets in 2009.

The latest report from the IMF is indeed very pessimistic. Total world growth will fall to ½ percent in 2009, the lowest rate since World War II. The developing countries will be hit hard as well. But since a number of these countries have shown high growth rates in recent years, the difference between the developing countries and the western world will continue to be significant.

The developing countries are now the reason why the world economy won’t fall deep into recession in 2009. Especially China, India and the rest of the developing countries in Asia have a positive influence, but the economic development in Africa also contributes positively.

The IMF predicts that the growth in China will be 6.7 percent in 2009 and 5.1 percent in India. For the African continent growth of 3.4 percent is expected. The prognosis for 2010 predicts total growth in the developing countries of 5 percent.

In the coming years, it will therefore be possible to make sound investments in the developing countries in Asia and Africa, and Danish companies should consider their investment strategy and assess the possibilities of venturing into markets with the possibility of continued growth.

As a consequence of the global crisis, imports have dropped in the Western world. Investments in developing countries should therefore focus on production and sale in markets close to the countries in question. This goes for both Asia and Africa.

The Industrialisation Fund for Developing Countries (IFU) has many years of experience from investments in Asia and Africa, and IFU views infrastructure, energy, food, tourism and industrial production as good investment opportunities. In the years to come, increased focus will be on climate and environment.

IFU can help with financing
Currently, one of the biggest challenges for the companies is to secure the necessary financing. The reason why the financial sector is hesitating to grant credit is a general lack of liquidity and the fear of incurring losses.

So far, however, IFU’s investments have not been affected by the financial crisis. IFU expects to invest approximately DKK 500m in companies in developing countries in 2009 as well. So far, the foreign investment funds, development banks and infrastructure funds, etc, with whom IFU cooperates, have not been affected by the financial crisis, either.

Thus IFU can continue to invest on its own, and through our foreign collaborative partners we can contribute to putting together a full financing package for Danish companies who wish to invest in a developing country.

An example is the investment of DKK 850m in Kenya, where Burmeister & Wain Scandinavian Contractors A/S is to deliver, install and operate a big power plant. IFU has invested DKK 40m in the project, and a large part of the remaining financing has been supplied by other investment funds and development banks.

Working with IFU also means that the investments in the developing countries do not affect the balance of the Danish company, because IFU’s investments are made in share capital or loans directly to the foreign company.

The IMF’s latest analysis can be found here