Posted on Jan 21, 2020
The OECD’s most recent Economic Outlook predicts that the global economy will grow by 3% in 2020 – representing the weakest level of growth since the 2008 financial crash, writes George Ramishvili, Founding Chairman of Silk Road Group.
Bill Gross, the well-known asset manager and commentator, recently warned investors to expect slow economic growth globally. In this environment of market uncertainty, investors in search of growth have for the last decade looked to emerging markets.
In the past ten years many emerging markets investors have had their fingers burned by scandals in poorly regulated markets, political instability or ethical concerns. As a result, the search is on for a ‘Goldilocks jurisdiction’ offering the growth opportunities of an emerging market, with the robust governance and standards of traditional investment locations.
The CIS region and Central Asian Republics, where the Belt & Road Initiative and infrastructure investment are helping to keep growth rates high, offer a bridge between the growth of Asia and the political and business norms of Europe. Recognising the potential this position offers, successive governments have implemented reforms to make it easier to do business. This year, Azerbaijan and Turkey have been highlighted by the World Bank as among top global performers.
In this regard, Georgia continues to lead the pack; for example, the country ranks 18 places above any other country in the region according to the World Bank’s Ease of Doing Business Rankings, and has seen consistently high GDP growth over the last 10 years. It is also a rarity for having an association agreement with the EU, which increases market access and facilitates trade with the bloc. As a consequence, there is widespread confidence in the resilience of the economy.
However, while the private sector is strong, there are few domestic corporate opportunities for investors. Globally, the telecoms industry represents a sector with strong potential; and Georgia is no different. Telecoms operators, whether mobile or broadband, are less exposed to business cycles than other sectors, as rising urbanisation and changing lifestyles fuel the expansion of the market for telecoms products.
Earlier this year, JP Morgan highlighted Silknet as their “preferred way to get exposure to the asset Class”. Silknet is Georgia’s largest fixed-voice provider and second largest fixed broadband, Pay TV and mobile operator, having acquired Geocell in 2018. Then the second largest mobile operator, the acquisition has allowed Silknet to substantially enhance its market position, especially in light of predicted increasing mobile data use in Georgia. In 2019, Silknet listed US$ 200mn worth of 5-year Eurobonds, representing one of the largest corporate issuances ever made from Georgia. This bond issue was rated B1/Stable by Moody’s and B+/Stable by Fitch, and has a YTW of 7.78%, making it a reliable investment option.
Historically, Georgia’s telecoms market has led the region; the country was one of the first to liberalise the sector following the collapse of the Soviet Union. Twenty years later, the market displays similar characteristics to many more developed nations, with three leading players providing a full-service offering for Georgians.
Given the positive economic outlook for Georgia as a whole, we can expect to see increased purchasing power and an associated increase in the market size for telecoms products. The country’s young population; which contrasts with the aging population of many European countries, also fuels the sector.
The global telecoms sector has transformed hugely over the past decade, and is facing a number of potentially significant shake-ups in the future, around the Internet of Things and the embedding of communications technology into ever more domains of our lives. In the context of these ambitious and hi-tech trends, investors would do well to remember the markets where standard mobile penetration and ICT take-up are still on the rise; and the investment opportunities which the telecoms sector in these areas represents.
Investment in modern telecoms infrastructure can also help to build a virtuous circle in emerging markets, creating the backbone of an economy built on entrepreneurship, encouraging further opportunities for growth and investment as the market matures. In this regard, Georgia looks a promising choice for investors.
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