Outlook 2011
The global economy will enter its second year of recovery in
2011, with growth in emerging markets continuing to lead the way.
However, overall economic growth looks set to be slower than in
2010, as companies and consumers in the United States and Europe
continue to deleverage and governments increasingly tighten fiscal
policy.
The macroeconomic uncertainty we saw last year, especially in
parts of Europe and the US, is set to remain. The developing
countries in which we operate are likely to stick to the path of
economic growth, though the outlook is not uniform. We expect
growth rates in Asia, Latin America, the Middle East and North
Africa to slightly decline while in Emerging Europe and Sub-Saharan
Africa, growth will accelerate somewhat. Increasing food and energy
prices are a threat to political stability and thus economic growth
in developing countries with high unemployment rates. Overall,
we expect a moderate increase in demand for our financing.
Capital flows to emerging markets have strongly recovered since
2008 but remain below their 2007 peak. With developed economies
still offering only low yields, commercial investors are
increasingly turning to markets that offer real economic growth and
higher nominal returns.
Commercial investor interest remains largely focused on the most
advanced emerging markets. That leaves a strong role for
Development Finance Institutions (DFIs) such as FMO in frontier
markets. Yet as the markets slowly improve, we expect some
commercial banks and institutional investors to return to our
markets, generating new co-financing leads and opportunities to
serve new clients in our focus sectors. We will fulfill our role as
a DFI until these parties are willing and able to take over and our
role is played out.
Private equity emerging market investment volumes will, we
believe, improve further in 2011.
FMO has set four central themes for 2011:
- Sustainability
- Innovation
- Knowledge management
- Mobilizing finance of (commercial) third parties
Sustainability is an important element in
everything we do. This year, we will focus more specifically on
innovation in sustainability. In
collaboration with development finance institutions and other
partners, we have identified several initiatives that we are
considering actively promoting and investing time in. These include
a feasibility study with cooperation of government institutions to
set up the first privately-run fund to finance feed-in tariffs
(payments to energy users for the renewable electricity they
generate) for renewable energy projects in Indonesia. Another
example is a feasibility study to develop a new market for the
[Reduced Emissions from Deforestation and Degradation of forests]
scheme (REDD).
Keeping our edge as a development finance institution that adds
value for its clients requires us to be a knowledge leader, aware
of key (macro) trends that will drive economic, social and
ecological development in emerging countries. Knowledge
management is therefore high on our agenda for 2011. We
will become more systematic in developing and sharing knowledge and
will build up a knowledge agenda that captures some of the key
challenges we will face in coming years. This agenda can be
practically applied in our day-to-day operations, as well as used
to determine longer-term strategy.
We aim to catalyze (commercial) investors to
frontier markets. For 2011, we aim to mobilize funds committed in
syndicated loans, parallel loans or risk-sharing agreements, where
FMO fulfills an agent role vis-à-vis other investors. We wish not
only to lead peer DFIs in our transactions but also to mobilize
commercial money .
Based on the improving market circumstances, our current
portfolio standings and our well-filled deal pipeline, we expect to
maintain total new commitments at least at €1 billion, 35% of them
in low-income countries (excluding government funds), and with at
least an average EDIS of 64.
There are potential risks to the global economic recovery, such
as a full-blown eurozone crisis, a stagnating US recovery or a
significant slowdown in the Chinese economy. All in all, however,
the recovering markets and our healthy pipeline give us confidence
for 2011.