In as such the frontier markets haveIn as such the frontier markets have

In the constant state of development and rapidly
increasing international relations and partnerships, new economies and markets
are coming on the upfront, especially the developing countries with their
emerging markets and the least developed countries characterized by frontier
markets. The past year saw many abnormalities in the international trades and
union partnership amongst nations, and as such the frontier markets have
increasingly become the face of international business and agreements in every
sphere, be it manufacturing, monetary, service or IT. As a result of which the
emerging nations are at a constant threat of losing their market share and
declining national income. A number of reasons can be identified for the same.

However, before explaining the causes of such global
trend, it becomes important to establish a difference between frontier nations
and emerging nations. This is as follows:

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Where an emerging nation is defined as a country in
the process of rapid growth and development with lower per
capita income and less mature capital markets than developed countries; a
frontier nation, on the other hand, is a subset of the emerging market
category. Frontier markets are in the process of becoming an emerging market.

(Nasdaq, 2012)


A tabular difference between the two will make the
distinction much better:






countries. Such countries have certain characteristics of developed
countries, but not all of them.

economic developed countries. They have the characteristics of emerging
nations but are more dysfunctional.


moving economies with the stable economic environment.

moving economies with fluctuating external business environment.


capital investments and severely liquid.

developed capital markets. Low capital investments with high illiquidity.



more risky than the emerging markets


is the dominant activity, however, these nations are slowly moving towards a
more service-oriented economy

nations still struggle with uplifting their economies and have no major
dominating sectors working

for Investments

by investors as a result of economic stability.

by high-risk takers who enjoy investing in volatile markets.


Brazil, Russia, India, and China

Colombia, Indonesia,
Vietnam, Egypt, Turkey, South Africa, Nigeria, Bangladesh, and


After considering the difference between the
two kinds of markets, it can be said that the difference lies on the borderline
and frontier nations are slowly taking up the shape of emerging nations,
resulting in intense competition and marking the beginning of a fourth

Several reasons that result in some economic
disruptions can be identified and have been explained as follows:


Increasing Manpower: Vietnam, Bangladesh, and Pakistan, for example, have
fast-growing, younger populations that are emerging as major contributors of
competitive labor forces, in both, domestic industries as well as meeting the
international requirements. Such nations benefit as a result of rising
proportion of working age population, and increasing skills and labor
competencies. As a result, such population helps to sustain economic growth (EY
Survey Report). For example, Bangladesh which has a population of more than 169 million, has developed a nook
for world-class textile production. Bangladesh is extremely efficient, and with
the knowledge and skill base, it can integrate and emerge into a global trading


2.     Innumerable opportunities
for growth: Since frontier nations represent only
a small portion of the world economy, much of the exploitation of such
countries resources, manpower, skill building is yet to be explored. Countries
such as Pakistan, Kuwait, and Nigeria, which have been seen as the birth
countries of terrorism and violence, have started coming clean and as a result
of the increasing participation in their international trade pacts, other
developed nations and investors have started showing interest in such countries
competencies and their infrastructural activities. Many of such nations are
abundant with natural resources, which are yet to be exploited and have become
an opportunity digger for other economies. The new wave of urbanization, when
combined with the rising population and basic services industries, give
extensive opportunities to diversify and tap the potential suburb markets
domestically as well as internationally.


3.   Political stability: Less Developing world economies have always been
characterized with their citizenry struggling with the ruling power. However,
in recent times it has been observed, says for example, how Indonesia had done
away with its incompetent government bodies and is functioning supremely well
now. Some of those risks, however, are not of
much concern, as smart companies have emerged upfront. Often, political
disturbances in these economies are restricted to sectors characterized by
large capital investments, for example, natural resource extraction or
infrastructure. On the other hand, sectors where marginal sums of money are
required a call for less political interest, thus an increasing scope for
competing on value and rapidly growing under­developed sectors. For example,
Tiffany & Company has successful diamond-polishing operations in Cambodia,
Botswana, Mauritius, and Vietnam, along with operations in Belgium (HBR, 2016).


A similar case can be studied for
that of Saudi Arabia which has come up with Vision 2030, with the aim of giving
power and recognition to Saudi Arabia, selling government entities to increase
its non-oil revenue and curb its unemployment rates. Institutionalizing capital
market and development of local management asset company are also a part of the
Vision 2030.


Capital Market Advantages: According to a
report by Morning Star UK, the total stock market capitalization of frontier
markets today was about $400bn in 2013, approximately where emerging markets
were in 1994.Where developed and emerging markets have established their own
standing in terms of capital investments for investors, the frontier markets
are also coming forward as a clean chit of long-term investment plans for the
risk-taking investors. For example, the daily trading volume on the Saudi
Arabian equity market is more than $1bn (Morning Star UK). The report also
stated that presently, there are about 140 frontier markets, which offer a large
spectrum of geographical diversification – for investors it is surprising to
discover that the MSCI Frontier Market Index displays lower volatility (of
around 7%) as compared to both emerging and developed market indices (at 15%
and 12% respectively), which shockingly is a proof of the diversification
benefits that frontier markets offer. Accordingly, the frontier markets are
driven by several domestic factors rather than global macroeconomic variables.

With the ongoing fluctuations in the global trade market, these nations are
comparatively less correlated to the dynamic global factors as compared to
individual fundamentals.


Technological Advantages: Increasing
infrastructural activities, combined with advanced technological improvements
are emerging as a boon for the frontier nations. These advantages can result in
efficiency gains and give a competitive edge in the international scenarios.

For example, with mobile services becoming prominent in Africa, financial
services and trade activities have become more prominent. Additionally, the use
of mobile payment solutions has spread to other sectors such as the retail,
healthcare, and education; soaring high the GDP of the country.


All the above-mentioned points can be
established as reasons to why frontier nations are emerging as a threat to
other nations and global economies.