Emerging markets will add 1 billion people to the workforce from now until 2050. Other than sheer scale, these markets offer multi-generational structural growth potential that is far superior to developed markets. In India, there is a 900 million strong workforce amongst the country's 1.4bn population and it is the fastest growing economy at 5.9% in 2023 (IMF), ahead of China and the US, says Rebecca Lewis, co-CEO of Arisaig Partners.
As an investor in emerging markets, we believe that investing these countries in areas where development is most needed - education, healthcare, financial inclusion, climate solutions - is the best growth opportunity. Technology has been an important driver of improving outcomes at scale.
Microentrepreneurs can access financial solutions from their smart phone in the same way children can access the best teaching. AI is even starting to play a role in healthcare with businesses using AI to enable digital medical devices to ‘speak' to each other and filter the right information to help doctors to make better decisions.
Writing off technology and AI as ‘bad' would be a mistake. Markets like India are just getting started. Where over 70 percent of the population are living in rural areas and 50 percent still depend primarily on agriculture to for their living, will AI and automation pull the rug on the country's development? After all, this is a country that has to create 12 million jobs a year.
Goldman Sachs was recently reported to estimate that the proportion of jobs vulnerable to AI is highest in high-income countries. India is at the bottom of this table with jobs being the least affected. However, they also estimate that India is not well positioned to reap any productivity gains from AI. But is this really the case?
Debating the numbers seems to be missing the point. If we accept that AI will fundamentally reshape work and the role of technology in the workplace, then who better to adapt to this than an emerging market like India that is not yet set in their ways? This is a country that doesn't yet have a majority of its retail landscape formalised and its road networks have some way to go to match higher income countries.
Building new ways of working and ‘leapfrogging' the development seen in developed markets is accepted as the norm. From a technological standpoint this is also a country with the world's lowest data costs and IT services its greatest export for an increasingly highly educated population. It already houses and manages some of the key nodes - the central nervous system if you like - of the world wide web.
India's Prime Minister, Narendra Modi, is unafraid of taking tough decisions. In 2016, 90 percent of Indian bank notes were taken out of circulation to prevent ‘leakage' in the system and drive Indians into a formal economy. Overnight, everybody had to have a bank account and every business needed a card reader. In the short term, the stock market crashed, and tax collection ceased, as well as the incomes of low wage families being significantly crimped. In the longer term, a national banking system has been introduced to the country, and this technological change (automation) should plug leaks, improve liquidity and possibly help curtail some corruption.
By the same token, there may well be increased Government control and regulation, signposted by the fact the Government launched a payment system which effectively knocked out many local systems that were trying to establish their businesses as the Paypal of India.
As long-term investors, we accept that the future is not yet written and our job is to find Indian entrepreneurs that will help create it, invest behind them and back them over the long term. In our experience, local knowledge and understanding of the market is still vital to understanding how this will play out.
Arisaig Partners has been established for 27 years and our Mumbai team has been based there for nearly half this time, all born and raised in India. We believe that the success of investing in India lies, in granular, local intelligence.
A great example of technological enablement is a business called Indiamart. In the offline world, small businesses in India could only really grow in their local markets through word of mouth. Indiamart has built a B2B online marketplace that is helping SME entrepreneurs sell outside of their local community for the first time.
This is a marketplace that sells 87 million products and is where you go in India if you are a builder who wants to buy a ton of bricks or a mechanic who needs some spare auto parts or a dozen tyres. It is profitable business as it is a subscription service that provides huge utility to its consumers.
While global investors have been fixated on unenviable task of finding profitable B2C businesses that can access India's 1.4bn consumers in an attempt to battle Amazon, this business is selling shovels to those who are digging for opportunities.
Despite the headlines of ‘AI will take our jobs' the Indian agriculture space is affected by labour shortages. Given rising demand and the challenges of climate change, technology can improve food security by enhancing productivity. Bayer CropScience is using technological solutions to support improved productivity at small holder farmers, whilst this can start as an advisory service guiding on planting and growing techniques, it is developing to support the utilisation of drip irrigation technology.
At the cutting edge of technological input, Bayer became the first agrochemical company to obtain approval to conduct drone-based spraying trials at 10 R&D locations across the country.
Whether in Asia, China or LatAm, we see the impact of technology and AI. The best businesses adapt to it and see it as an opportunity. Emerging market countries have seen the benefit of technology already in improving access to finance, education and health solutions. A simple phone already can help revolutionise the economy of these nations.
By Rebecca Lewis, co-CEO Arisaig Partners
