Emerging markets, whilst representing tremendous opportunity for early delvers, can also represent great challenge whilst they slowly connect to the global system.
Export Trading Group, a Tanzania-based agricultural company that sources commodities from Africa's small farmers and sells those goods to China, India and elsewhere, will be participating at ComRisk via their CRO, Abhishek Jain.
Ahead of his presentation on Managing Risks in Emerging Markets, we got the chance to get a feel for what he’ll be covering on the day.
What do you think is the most challenging when it comes to emerging markets? I.e. farmers, storage, transport etc.?
The most important thing is to understand the local market and the rules of the game at a local level. For example, if you have a look at the commodities market, all the emerging markets are basically the producers of commodities and all the developed markets are the consumers of these commodities.
Another important factor to look for is the local laws and compliances. Local laws in agri-commodities sector has significant amount of government intervention. If we take example of India, pulses have been under regulatory control, and so similar regulations in China, Malaysia and various parts of Africa. The mention of capital controls in Zimbabwe is classic example of real challenge faced by commodities companies in specific locations.
In short, the real challenges are to understand the local market and its rules, the local laws and compliance followed in the local market, the culture differences any company faces across the different areas they are working.
The problems are caused from the transparency in the emerging markets, the implementations, the loopholes, the policies and the process. These problems could be because of the infrastructure, the farmers, and the transports but these aren’t constraints for the business. This could create more opportunities for the traders because that makes the market slightly inefficient and they would want to invest their money in terms of regulations and information.
“The mention of capital controls in Zimbabwe is classic example of real challenge faced by commodities companies in specific locations.”
Which countries do you find the most challenging? Why?
There are two definitions of emerging markets. One of it is going by the books; the African countries come from developing markets and not emerging markets. Emerging markets, according to definition laid by IMF includes only South Africa from African continent. I will take the liberty to include developing markets also as an emerging market, in a practical sense. In my view, East and West Africa gather the most challenging countries in term of doing business. This is due to political reasons, the currency risk, the compliance risk are some of the reasons. If a company is coming from a developed market and is looking into the developing market, the political risk is basically the first concern they should look at. Then there’s the currency risk followed by the compliance risk and several other categories of risks. On the other hand, if there is a company coming from an emerging market, they basically look at the market, the competition is a primarily risk, followed by the currency, the compliance and the political comes way after that. In short, it all depends on where the company is coming from and where it’s trying to set up. For example, if a company in North America is trying to do business in any of the developing markets, like in Africa, the political risk will be first in order, followed by the currency, the compliance and other risks. However, if a company is coming from Vietnam or India, first in line would be the market and the competition risk, followed by the currency, the political and only then the compliance risk.
There’s isn’t a common answer for everything; it all depends on which market the company is coming from.
“…the African countries come from developing markets and not emerging markets. Emerging markets, according to definition laid by IMF includes only South Africa from [the] African continent.”
Could you give us the top 3 tips when managing risks in emerging market?
In the commodities market, there has to be a new risk management playbook which should be followed. If you connect the dots with what I said earlier, understanding the local market and the rules of the game, you will need to understand the political risk in the country.
Secondly, it’s most important when it comes with a lot of the macroeconomic development happening such as new norms coming in, the currency and of course easing in with the compliance. If you have the risk management of a company around these three things, you will find to have a better and more efficient strategy.
Any chance you can give us a sneak peek of the topic you’ll address at COMRISK: “Managing the risks in emerging markets”
I’ll be mostly talking about the new risk management playbook with a new normal of unset energy in the global market. This theory goes with the macroeconomic exchanging and microeconomics which is becoming more and more uncertain. It’s still too early for me to get into the details, but I’ll be talking around those lines.
Please tell us briefly about your role as well as what you’re currently working on?
Currently, I am working with Export Trading Group (ETG) as a Chief Risk Officer. It’s a position where we look into the market risk around commodity and currency, the credit risk around counterparty and country, Operations risk and insurance risks for the entire ETG group. I’ve been working for the past 15-16 years with the leadership in risk management from Exchange to NBFC (Commodities Structured Financing and Trading) to Commodities Trading markets. I’ve been setting up the risk management practices, policies and practices & process for the various supply chain risk at National Commodity and Derivatives Exchange which is India’s largest derivatives exchange. Moving from there implemented the trading policies & process for the Indian Commodities market. The most recent profile involves setting up risk appetite framework for global agri trading company. The strength of the execution skills has been around laying effective and practical policies, process, SOPs, framework and models related to various kinds of risks involved in global value chain.
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Abhishek Jain, Chief Risk Officer, ETG World.
Accomplished senior level executive with 17 years track record of successful leadership in risk management in finance industry. Currently working as Global Risk Head – ETG group and providing functional leadership to ensure Governance, Risk, Compliance and Control framework involving credit risk, market risk and operations risk. Risk leadership role involves laying down enterprise risk management framework, risk appetite frameworks, policies and systems for the group. I have been instrumental in formulating and articulating a coherent risk appetite, including operating and financial risk models, risk systems and risk infrastructure of India’s Leading Agri Commodities Exchange – NCDEX. During the role I have partnered effectively with third parties, regulatory bodies and financial institutions across geographies. The synergy of management degree from Indian Institute of Management Bangalore with engineering background have helped in establishing and maintaining corporate governance systems and committee structures and reviewing & confirming investment processes.