How Investors Can Navigate Pandemic-Related Risk in Emerging Markets

Long after developed markets have COVID-19 relatively under control, the virus will remain a threat in emerging markets, where uneven governance, weak health systems, dense urban slums and high rates of poverty multiply the challenges of fighting the pandemic. In a few countries there are already early signs of political instability and civil unrest.

This dynamic creates unique disadvantages for foreign investors in emerging markets. The pandemic makes the politics even more complicated and the relationships and information needed to navigate this unstable environment even harder to access.

Having twice served in the White House, including as senior director for Africa during the Ebola epidemic, I’ve witnessed how a crisis and its aftermath can overwhelm governments in developing countries. I’ve also seen investments stall and money wasted as companies struggle with limited information or cope with shifting government priorities. Years of advising companies navigating uncertain business environments since then informs the following advice:

— REVISIT HOW TO ACQUIRE AND ACT ON MARKET INTELLIGENCE: Seek out competitors, local representatives of international financial institutions, journalists, commercial officers at your embassy, business associations and other sources to compare notes on what’s happening on the ground. Reexamine in-country teams and whether changes to the mix of local and expatriate staff could help. To wield this information effectively, you’ll need policy and political expertise in-house or on contract.

— TAKE A FRESH LOOK AT YOUR LOCAL PARTNERS: How capable — or not — a local partner is will materially influence an investor’s risks and options. If physical distance forces greater reliance on local partners than would otherwise be ideal, now could be the time to beef up or refresh training and compliance safeguards. Solid local legal counsel can also help — and, if it’s good, be another source of market intelligence.

— IDENTIFY THE GOVERNMENT’S CURRENT PRIORITIES: Political antennae are required to figure out which deals will proceed and which will stall in this new environment. This may mean more time and attention from C-suites to reach out to (and stay in touch with) senior government officials, or hiring more local staff and consultants who have connections with governments and who can advocate for priority investments.

— KEEP THE HUMAN DIMENSIONS IN MIND: Like everyone, the officials you interact with and your local staff and partners will be worried about their health, their loved ones and the economic crisis in their communities and countries. Government officials will be under tremendous stress. Go back to basics: Text colleagues in the market asking about their health and families, and be extra sensitive to how things may be interpreted. Investors should also emphasize their commitment to the country and optimism for its recovery, stressing how an investment will support local jobs and communities. Environmental, social and governance programs can help strengthen the narrative.

The political risk deck has been reshuffled the world over. New risks in some countries will be extreme. Yet redoubling efforts now to stay as current and plugged-in as possible will help foreign investors spot risks and opportunities in these uncertain times.