The highs and lows of working in emerging economies

By Andrew Sawers

21 July 2015

What's the reality of living and working in emerging markets? Does it match up to the headlines? We asked finance professionals in India, Indonesia, Brazil and Mexico for their views.

Life at the coalface

We are well used to seeing significant GDP growth figures for emerging market economies. But do those headline-grabbing numbers reflect the reality on the ground?


India saw GDP growth of 7.5 per cent year on year in the first quarter of 2015, but Rajiv Sasha Raichand, finance director of Brookfield Multiplex in Mumbai, says that the reality is "very sector-specific". E-commerce and "e-tailing" (online retailing) are seeing massive growth.

"Companies are investing heavily, valuations are at a record high and investor interest is at its peak," he says. On the back of this, the logistics and warehousing market has picked up. But there is significant over-capacity in residential real estate while at the same time there is a shortage of good commercial real estate.

"People have places to live but they have no place to work," Rajiv says. Heavy engineering and mining have been affected by cheap imports from China and the closure of a number of mines because of recent corruption scandals.

Mumbai Mumbai, India


Indonesia was one of the Asian tigers, growing at 8 per cent a year when Alastair Mcleod arrived to join KPMG in 1997 but the Asian financial crisis put paid to that.

"It's survived on its domestic economy and it's consistently been growing at 5-6 per cent over the last few years," says Alastair, who is now director and CFO at coal mining group PT Bayan Resources Tbk in Jakarta.

"Activity and interest is coming back into Indonesia. During the [Asian] financial crisis the rich got richer, the poor got poorer and the middle class just disappeared. Now, the middle class is growing, and their expectations are primarily the same as yours and mine – they want a home for themselves, they want better education, they want to be able to afford white goods, buy a car, have air conditioning or whatever."


Brazil has enjoyed economic fame as one of the BRIC nations (Brazil, Russia, India and China), as well as being the centre of attention for the World Cup and the 2016 Olympics. But as Ivan Clark, lead capital markets partner, Brazil, with PricewaterhouseCoopers in Sao Paulo, says: "We've been very badly hit by the drop in commodity prices. China has slowed down its growth, so the prices of iron ore and agri-business products have dropped. And a very big part of our business today is oil and gas: there, again, the price of a barrel of oil has fallen. If you are living and working in a fast-emerging country you need to get used to the roller-coaster economy. We had 10 great years and now we're back in the trough."

There have been a lot of adjustments and a lot of challenges, but Ivan says: "That makes it extremely interesting for our young accountants who are joining the firm and providing assistance to companies that are struggling to adjust their business to the new cycle. It's great experience."


Mexico, according to Enrique Lorente Ludlow, a partner at Woodhouse Lorente Ludlow, a CMS Cameron McKenna affiliate law firm in Mexico City, has a problem in that "the macro numbers are fantastic – they have been good for 10 years or so. But they have still to impact the general population more widely. We still have a lack of development in many communities. There are a lot of big, very rich companies and yet we need to develop in the country a strong middle class. But in general terms I hope we are moving in that direction."

Doing business

Think global, act local is a common mantra in emerging markets.


India is an economy where it's wise to work through a joint venture, as Brookfield Multiplex did when it partnered with Tata. "There is no way we could have scaled up as significantly as we have without having a local partner," Rajiv says. "Someone who understands how the Indian labour market works, who understands the supply chain, who knows the right vendors to go to."

Rajiv adds that "patience" and "taking a long-term view" are essential: "No-one has come to India, made a quick buck and left. By the time you figure out how to do business you've already spent about two years. To set up and stabilise the operation takes another few years." He says his CA training helps him "appreciate issues and problems from a commercial perspective rather than [just] an accounting perspective".


In Indonesia, as in many Asian countries, so much has to be invested in the business relationship. "Much more is done on a 'trust' basis – an 'understanding' basis," says Alastair. "There are contracts put in place but if you follow a contract with a customer to the nth degree people think you're being strange. With long-term contracts people anticipate that there are likely to be changes that will be negotiated and therefore acceptable and that, yes you know the contract may say this, but you're not going to enforce that, are you?"


Brazil is a difficult place to do business, says Ivan. "It's complex and it's high-risk, if you don't have the proper advice, the right consultants or the right local business partners you can trust. It's not for the faint-hearted. Having said that, it's a market that provides a very generous rate of return for those companies that are well prepared, and that understand how to manage those risks. You could very easily get into trouble with legal, labour, tax issues – and that's not a route you want to go down." Be wary of treating Brazil as a beachhead for Latin America: with the language and culture being Portuguese rather than Spanish, Brazil is "somewhat insular in terms of focusing its business within its own country," Clark says.

Rio, Brazil Rio de Janeiro, Brazil


Mexico is no more difficult a place in which to set up a business than many others, says Enrique. The process is "a bit cumbersome". He says it's generally advisable, but not necessary, to have a joint venture partner: "It's sound practice to have local knowledge when you are investing in a country – not just local knowledge from your lawyers or advisers: you need local business knowledge and local business access."

Regulation and tax

Governments are slowly recognising the burden of bureaucracy and exploring ways to reduce it.


India, with its federal structure, has particularly difficult regulatory and tax requirements. "There are 29 states in India and each state has its own service tax and own local tax," says Rajiv. "Then there's the central tax. Each state has its own compliance requirements and its own forms. The first year I spent here was just getting my head around the tax regime. One of the best jobs in India right now is to be a tax consultant because you are guaranteed to make money." Also, some of the labour laws go back to the 19th century. It's difficult, therefore, "trying to work in a modern economy with modern application of certain archaic rules".


Indonesia has a regulatory regime that is getting easier, "but it's an immense long haul," says Alastair. Tax is a nightmare: his company applied for tax refunds that it was due, only to learn that "actually asking for tax back from the government is deemed 'not nice'. The request for a refund automatically triggers a tax audit on every single tax – and that will go on for years until you prove your case. We're only now getting the VAT back for 2007, 2008, 2009 and 2010."

Jakarta, IndonesiaJakarta, Indonesia


Brazil has 26 different states. "That makes things somewhat complex particularly from a tax perspective," says Ivan. "Each state has its own VAT tax legislation." The finance minister said on a recent trip to the UK that the Brazilian Government would try to simplify some of those regulations. "Good luck to him, because that will not be an easy task," he says.


Mexico has 32 states but where they have their own taxes their laws are almost "exact copies" of each other, which helps, and there is only one VAT regime nationwide. Bureaucracy is an issue, however, and, for major projects where public-private partnership (PPP) structures are being used, the learning curve for government officials and private sector employees is steep.

Bribery and corruption

Corruption is a cancer that attacks businesses and feeds off the livelihood of ordinary people.  It is common sadly, but slowly it is being eradicated in many emerging markets.


India is waking up to the fact that foreign investors, particularly those from the likes of the US and Britain, must comply with their own domestic anti-corruption legislation. Rajiv says that, before his company partnered with Tata, it had been in negotiations with another potential partner. These talks came to a halt at the 11th hour: "Our partner refused to sign off on an anti-bribery and corruption clause in our joint-venture agreement and so we pulled out. Talk about a steep learning curve: we assumed our partner would have a similar work ethos and a similar understanding of ethical standards – but that wasn't the case. It just goes to show that making money wasn't as important [for us] as making money the right way and following all the requirements."

Things are changing, Rajiv adds: "The more local companies here in India interact with foreign companies, the more they realise that there are certain systems and procedures and policies that need to be followed."


Indonesia, a fledgling democracy, has been trying to deal with corruption, says Alastair. "But it's still slightly ingrained, and it will be generations before it's completely solved." Dealing with it is "a continual education process", not least the challenge of trying to explain the nuanced difference between, on the one hand, a legitimate gratuity or payment for express or fast-track service and, on the other hand, an unacceptable bribe.


Mexico, says Enrique, will more typically see corruption when it comes to public sector procurement, but not for the sorts of major infrastructure or energy programmes in which his firm has been involved as they are all open tenders. Anti-money laundering regulations targeting the drug cartels mean "it's now almost impossible to do any form of big transactions in cash in Mexico. Everything has to be notified and made via banking institutions so that helps [counter] corruption."

Andrew Sawers is a Freelance Business Journalist. This article first appeared in the July 2015 edition of The CA.


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