Recent trends in emerging markets

The global economy has proved resilient against a backdrop of geopolitical tension and tighter monetary policies to counterbalance inflationary pressures. In 2023, emerging and developing economies exhibited robust growth rates, close to those observed prior to the COVID-19 pandemic. Emerging Asia is the world region predicted to experience the highest gross domestic product (GDP) increase in the period 2023‑25, at 5.2% in 2024 and 4.8% in 2025. Latin America and Sub-Saharan Africa are predicted to grow respectively by 1.9% and 3.8% in 2024 and 2.5% and 4.1% in 2025.

Foreign direct investment (FDI) into emerging economies rebounded in 2021, although the positive momentum following the announcement of greenfield investments slowed down in the first six months of 2023 compared to the second half of 2022. In Africa, the potential of FDI to foster sustainable development remains largely untapped, primarily due to its limited integration into domestic productive activities. Latin America and the Caribbean (LAC) exhibits high FDI inflows, becoming the leading recipient of FDI relative to its GDP at 4% in 2021. Emerging Asia is predicted to remain attractive for FDI, thanks to competitive wages, increasing domestic demand, and improved business regulations and infrastructure.

Private sector insights on emerging markets

Throughout the year, member companies and partners participated in several initiatives organised by the OECD Emerging Markets Network, sharing insights to help policy makers in emerging markets improve the business environment, attract more quality investment and ultimately advance sustainable development. The following policy recommendations summarise the key findings from these discussions.

Policy harmonisation can reduce costs, mitigate uncertainty and enhance sustainable business practices for companies in emerging markets. In this context, a whole-of-government approach can ease the complexities of the regulatory environment and ensure consistency throughout the decision-making process. Africa is a case in point: the African Continental Free Trade Area could promote tariff removal and harmonise fiscal regulations, but its implementation needs investment in infrastructure, monitoring mechanisms and partnerships with the private sector. On the other hand, LAC has one of the lowest levels of intraregional trade in the world, with only 13% of its exports staying in the region in 2021.

Sound investment policies and streamlined administrative procedures can boost FDI. Governments should ensure a level playing field between domestic and foreign investment, and address security concerns, where relevant. Legal and regulatory stability can mitigate risk perception and increase FDI in emerging markets. There is a need to promote more collaboration between public and private sectors on policies related to skills development, investment in information and communication technologies, and investment regulations and policies.

Collecting sector-specific data at a granular level can help better estimate the feasibility of projects and their return on investment. In 2023, Africa still encountered difficulty in acquiring high-frequency macro-economic and project-level data, leading to increased due diligence expenses, and further complicating investment evaluations. Data production and sharing between governments and the private sector can inform sound policy measures and foster policy dialogue, to address social and environmental concerns. Amplifying success stories can help support the private sector’s perception of the viability of green investment projects.

To promote socially responsible practices, it is important to develop sustainable financial markets, further promote the harmonisation of frameworks and standards for ESG criteria and facilitate access to reliable ESG metrics. Integrating gender equality and diversity and inclusion policies should be a fundamental component of a company’s strategy to enhance productivity and innovation.

Encouraging circular business models, leveraging innovative financial tools and adopting key performance indicators to monitor sustainability performance across value chains, are key actions policy makers should prioritise. Improving the implementation of sustainable finance mechanisms can also help accelerate the green transition in emerging markets. Governments can help facilitate private sector adoption of these instruments by ensuring a sound legal framework for investors.

Policy makers should implement sustainability requirements that align with the capacities of small and medium enterprises (SMEs), including designing realistic objectives that can be fully integrated into business operations. SMEs play a central role in emerging economies: in LAC, they represent 99.5% of firms and created 60% of formal productive employment in 2019. Governments and foreign investors should work together to support domestic SMEs’ development and encourage the adoption of more green and digital technologies. Facilitating access to finance is imperative to providing support to small-scale farmers, particularly in sub-Saharan Africa.

Public-private dialogue results in more stable investment policy frameworks, more long-term infrastructure investment and sound fiscal policies. Public-private collaboration on innovation, infrastructure and clean technologies can accelerate sustainable economic and social development across emerging and developing economies. Public-private co-investment in innovation, infrastructure and clean energy, like the European Union’s Global Gateway Initiative, can foster the green transition in emerging economies.

Companies should further tailor sustainable business models to local contexts, aligning strategies with the needs of local communities and forming partnerships with local suppliers and SMEs. Ongoing green and digital transitions will require innovative policies in workforce reskilling, job creation and support of displaced workers. As much as 10.5% net jobs could be created in LAC by 2030 with a green and just transition.

Central Bank Digital Currencies (CBDCs): What is in it for Emerging Markets?

The 2008-09 Global Financial Crisis challenged the foundations of modern banking. This watershed moment, coupled with rapid advances in financial technology, has led to a proliferation of new financial products and processes in economies around the world. Significant global trends include the end-to-end digital transformation of financial services, the rapid adoption of digital payment products and, more recently, cryptocurrencies and blockchain-enabled products.

Over the past five years, central banks across the world – particularly in emerging markets – have considered or initiated the digitisation of their currencies by introducing some form of Central Bank Digital Currencies (CBDCs). CBDCs could bring disruptive change to the global financial system and facilitate financial inclusion in emerging markets. Many central banks have produced concept notes and launched pilots of CBDCs. It is useful to explore the potential benefits and risks associated with the introduction of CDBCs in developed and emerging economies. Our case studies of the Bahamas, Brazil, the People’s Republic of China, India and Nigeria demonstrate the effects related to specific design and implementation processes of CBDCs.