Promising emerging markets for 2021
Atradius Economic Research – February 2021
Summary
SummaryThe Covid-19 pandemic went as a shockwave through the global economy, straining growth in emerging
markets. In 2021 we are looking at new hope as economies are gradually reopening.
We identify Chile, Egypt, Senegal, Malaysia and Vietnam as markets that are well positioned to recover from
Covid-19 and that have relatively stable political conditions.
A rebound of global trade is providing opportunities for investors and exporters, especially in these markets’
export-oriented trade sectors. Furthermore, in many of these markets, there is a growing middle class,generating opportunities in consumer-oriented sectors.

Bright spots in a world economy that only justbegins to recover from Covid-19
Last year our main risk for the world economy was a
possible escalation of the trade war between the UnitedStates and China. However, at the start of 2020, it
became clear that a risk of an entire different nature wascoming to the forefront. A novel coronavirus, later
labelled Covid-19, that first emerged in the Chinese cityof Wuhan, turned into a pandemic and plunged the world
economy into a deep recession. All major emerging
market regions experienced a sharp decline in GDP
growth, and the situation for many of them is still
precarious, as infections continue to spread, andhealthcare systems are burdened. At the start of 2021, weare nevertheless looking at renewed hope. A number of
emerging markets managed to keep the virus well undercontrol since the first outbreak by rapidly expanding
their testing and treatment capacity, and byimplementing local lockdowns if necessary. Moreover,
several vaccines are in the final stages of approval, andothers are already being distributed, also gradually inemerging economies. With economies slowly reopening,pent up demand and a recovery in exports will stimulate
GDP growth in 2021.

Chile’s main export product. Vaccine rollout has begun
and is expected to be one of the fastest in the region.

With the economic outlook improving, there areopportunities to be found. We identify markets that haverelatively strong prospects. Promising markets are
identified based on three criteria: (1) the pace of GDP
recovery in the wake of the Covid-19 crisis, (2) arelatively low number of Covid-19 cases (per 100,000
inhabitants), and (3) stable political and institutional
conditions. We do acknowledge that for some countries
there may be an underreporting of Covid-19 cases, as
testing capabilities differ per country. Therefore, we
attach a higher weight to the other two factors in theselection of countries.

Egypt: ambitions to become a Mediterranean gas
hub

Based on these broad criteria alongside our market
experience, we have identified Chile, Egypt, Senegal,
Malaysia and Vietnam as the most promising markets.

Chile: diversified economy that proved resilient
against Covid-19
Of all emerging market regions, Latin America has been
most affected by the Covid-19 pandemic, both in terms ofinfection cases and death rates. The recovery will be
partial and uneven, depending on fiscal space
governments have to support their economies, howeffectively vaccines can be rolled out, and how
dependent a country is on tourism. Chile has an
attractive business environment, underpinned by soundinstitutions, low corruption and effective macroeconomic
policies. Although the economy was hit by the pandemic,
it proved to be resilient against the Covid-19 shock and iswell placed for a robust recovery in the coming years. Its
economy is relatively diversified, with a share of
remotely workable occupations that is higher than inmost countries in the region. The recovery started inretail sales and manufacturing in Q3 of 2020, while
tourism and hospitality continue to be weak. Export
revenues benefitted from a recovery in the copper price,

Most countries in the region have limited fiscal space tosupport their economies, but Chile has one of the mostsolid medium-term fiscal positions. Its relatively low
government debt allows it to implement a sizeable fiscal
stimulus (5% of GDP). The financial system is wellinsulated from external shocks, with conservative
lending standards and well established central bankcredibility. Chile suffered from capital outflows in theearly stages of the pandemic, but access for both thesovereign and private companies was quickly restored
and is supported by a precautionary IMF flexible credit
line and two sovereign wealth funds.
The best performing sectors in Chile are agriculture,
packaging and pharmaceuticals. In agriculture andpackaging, demand for machinery and industry related
technology is increasing, providing exporters in thosesegments with opportunities. The same accounts forpharmaceuticals exporters, as Chile imports most of therelated items.

We consider Egypt to be a promising market due to its
stabilizing political landscape, progress on reforms andoutperformance of regional peers in GDP growth. The
country has displayed a strong growth trajectory inrecent years, mainly due to a macroeconomic
stabilization programme that was largely successful.
Egypt has an IMF programme and managed to improve
public finances and replenish its international reserves.
It endured several pandemic-related headwinds in 2020,
including a collapse of tourism and a decline of the oil
price, affecting the resource sector. This was cushionedby the substantial easing of monetary policy on top of
low inflation. From 2022 onwards, GDP growth is likely
to converge to its pre-crisis pace. That said, there are stillvulnerabilities in Egypt, including dependence on
remittances from Gulf states and a reliance on tourism.
In terms of sectors, the outlook for gas, pharmaceuticals
and ICT seems more favourable, and those are the ones
that have been attracting the most Foreign Direct
Investment. New gas discoveries will expand gas exports
over the coming years and support Egypt’s ambition of
becoming a Mediterranean gas hub. At the same time it isalso one of the regional frontrunners in terms ofinvestments in renewable energy projects. In addition,
Egypt was the first MENA country to issue a green bondat the end of September 2020.

Emerging markets in the spotlight 2021
Country

Chile
Egypt
Senegal
Malaysia
Vietnam

Population(mln)

PrivateReal fixed
GDP (USD
consumption investment
billion)(% y-o-y)(% y-o-y)

GDP growth% 202110-year avg.
GDP growth

4.6

3.4

19.1

251.9

5.9

9.4

1.0

3.9

102.3

368.1

1.6

18.6

5.7

5.1

16.7

24.5

8.9

11.5

5 negative Moderate

6.2
7.7

5.3
6.5

32.4
97.3

340.9
341.0

6.6
7.2

13.5
11.9

3 negative Moderate-low
5 negative Moderate

Political risk rating

3 stable Moderate-low
6 stable Moderate-highSources: Atradius, Oxford Economics

The government is focused on moving towards a digital
economy and accelerating the country’s digitaltransformation, which offers opportunities for ICT
companies. Besides the need to combat the coronavirus
pandemic, demand for pharmaceuticals will be driven
by a growing population, leading to higher health carespending. The construction sector will benefit fromseveral infrastructural projects alongside the completionof the new capital city.

Senegal: stable political climate combined withstrong institutions
Africa was one of the latest continents to experience
reports of Covid-19, and many feared the worst. There
were significant concerns that some of the least
developed countries with weak health care systems
would not be able to contain the virus. Senegal is doingcomparatively well. It reacted to the pandemic byimplementing a three-month state of emergency,
declared by the president Macky Sall. This state of
emergency was lifted at end-June, owing to theeconomic fallout from the lockdown and large-scaleprotests in Dakar. A second wave of the pandemic has
been underway since November 2020, though theabsolute number of cases remains low. Senegal benefits
from a stable political climate, relatively strong
democratic institutions and high GDP growth.
Policies will focus on addressing the fallout from thepandemic while sustaining a broadly pro-businessagenda. The country has developed a national response
plan to tackle the fallout from the pandemic, costing
about 7% of GDP. Growth in the coming years will be
driven by construction of hydrocarbons projects and by
new exploration and expansion in the minerals sector,
notably gold. Growth will be supported further by major
oil and gas fields that are expected to come online in
2023-25, though there may be delays as a result of thepandemic. The government will also continue to drive
public works to upgrade the country's infrastructure(particularly transport network and power supply). The
government has adopted a development plan for thecountry, the so-called Plan Sénégal Emergent (PSE),
which is entering its second phase in 2019-23. The PSE
includes structural reforms to support private
investment and increase economic diversification.
The sectors that offer good investment opportunities areoil & gas and infrastructure. Oil and gas production isdue to commence as of 2022, giving rise to substantial
Atradius Economic Research

investment opportunities in the coming two to three
years. Phase two of the PSE will focus on improving
productivity, rail and rural road construction and theelectrification of villages. Additionally, the Senegalese
government is planning large investments in energy (i.e.
wind farms and solar power plants) and the developmentof the mining sector – gold in particular. All this will
create important long-term opportunities for exporters(of capital goods in particular), but also for providers oftransportation, storage and logistics services.

Malaysia: attractive business climate and skilledworkforce
Emerging Asia was the first region hit by the Covid-19
pandemic, which initially developed in the Chinese cityof Wuhan at the end of 2019. While the region entered arecession in 2020, it was short and not as deep as in therest of the world. The region proved relatively resilient
against the pandemic due to strict lockdown measures,large scale testing and perhaps because of a relatively
young population. Many countries in the region showrobust growth in 2021. We see Malaysia as one of thebright spots due to its attractive business climate, qualityof infrastructure and skilled workforce. The country is
doing relatively well compared to the rest of the region interms of Covid-19 infection and death rates, and it is wellplaced for quite solid GDP growth over the coming years.
Even though it was in recession in 2020, GDP growth isexpected to rebound to 6.2% in 2021. The government hasannounced a strong fiscal stimulus package for 2021,
with measures totalling RM 322.5 billion (EUR 65
billion). This includes boosting spending on social sectors
and infrastructure. Given the country’s membership of
ASEAN, it benefits from strong trade links withneighbouring countries. A relatively skilled workforce isgiving the country a strong position in medium-skilled
electronic manufacturing. Its competitive position in
manufacturing is furthermore bolstered by rising wages
in China.
The acceleration of global growth makes 2021 an
attractive year for export-oriented sectors, such as theelectronics sector, with the agriculture sector also being
fairly resilient. The better performing segment was
health care related plastics and rubber manufacturers,
seeing 212% year-on-year growth, as the global demand
for rubber gloves and packaging continued to increaseOpportunities by sector
SectorCountries

Agriculture & food

Chile, Malaysia, Vietnam

Transportation & logistics Vietnam
Chemicals &pharmaceuticals

Chile, Egypt

Construction &infrastructure

Egypt, Senegal, Malaysia,
Vietnam

Electronics & ICT

Egypt, Malaysia

Retail & consumer goods

Vietnam

TextilesVietnamPaper & packaging

Chile
Source: Atradius

during the pandemic. Infrastructure is another sector
that provides opportunities. While a number of
infrastructure projects were postponed or scaled backfollowing a review of all major infrastructure projects in
2018-19, planned medium-term development
expenditure and FDI inflows are still likely to result inhigher investment in the long term.

Vietnam: regional outperformer for exports
Vietnam proved to be very resilient to the Covid-19
pandemic, as infection cases and death rates haveremained low. The national lockdown was lifted in April,and Vietnam is working with local isolation measures incase there is a virus outbreak. The government
introduced a fiscal support package valued at VND 291.7
trillion (3.6% of GDP). There is also space for monetarystimulus, but as economic activity is picking up
relatively fast, this option has not been used yet. As oneof just a few countries, Vietnam managed to avoid
recession in 2020, and GDP growth is forecast toaccelerate to 7.7% in 2021. It has been one of the brightspots in the region for a while, being one of the fastest
growing ASEAN economies and a regional outperformer
for exports. Vietnam is an attractive destination forcompanies that want to shift low-skilled manufacturing
out of China. Besides low wage costs, the country

Atradius Economic Researchbenefits from its participation in several trade
agreements (including recent EU-Vietnam and UKVietnam trade agreements) and policies favouringincoming foreign direct investment. The ease of doing
business, for which Vietnam traditionally was ranking
relatively poorly, is improving.
After a difficult 2020, the transportation and logistics
sector has strong growth potential again in 2021 asglobal demand is picking up. Textiles is set to benefit
from stronger global demand and from recently closed
free trade agreements with the EU and UK. Robust
economic expansion and low unemployment bolster
wage growth in the medium-term. Higher private
consumption offers especially compelling opportunities
for businesses. The retail and consumer goods sector is
likely to be one of the main beneficiaries, with an
expected value added retail sector growth of 8.8% in
2021.
High growth in building and real estate investment islikely to help the construction sector. There may be asetback in tourism real estate, which attracted strong
domestic and foreign investment capital in previous
years, but residential construction will continue toperform well. Construction value added is forecast to
increase 6.7% in 2021. After growth dipped in 2020, value
added growth for agriculture is also expected to pick up
again in 2021. Demand for pesticides and fertilisers will
increase in order to support the higher agricultural
production.

Conclusion
After the Covid-19-induced global recession in 2020,2021 brings hope that the world economy will gradually
emerge from the pandemic. Opportunities for trade arise
in several emerging markets. The countries listed above
are positioned to emerge from the pandemic with good
growth prospects. Their economies are also known for
their favourable business conditions and growth
opportunities across several sectors.
Theo Smid, economist
theo.smid@atradius.com+31 20 553 2169

If you’ve found this economic update useful, why not visit our website www.atradius.com, where
you’ll find many more Atradius publications focusing on the global economy,
including country reports, industry analysis, advice on credit management andessays on current business issues.

Connect with Atradius
on social media

Disclaimer
This report is provided for information purposes only and is not intended as investment advice, legal advice or as a recommendation as toparticular transactions, investments or strategies to any reader. Readers must make their own independent decisions, commercial orotherwise, regarding the information provided. While we have made every attempt to ensure that the information contained in this report has
been obtained from reliable sources, Atradius is not responsible for any errors or omissions or for the results obtained from the use of thisinformation. All information in this report is provided ’as is’, with no guarantee of completeness, accuracy, timeliness or of the results obtained
from its use, and without warranty of any kind, express or implied. In no event will Atradius, its related partnerships or corporations, or thepartners, agents or employees thereof, be liable to you or anyone else for any decision made or action taken in reliance on the information inthis report or for any loss of opportunity, loss of profit, loss of production, loss of business or indirect losses, special or similar damages of any
kind, even if advised of the possibility of such losses or damages.
Copyright Atradius N.V. 2021

Atradius N.V.

David Ricardostraat 1 – 1066 JS Amsterdam
Postbus 8982 – 1006 JD Amsterdam
The Netherlands
Phone: +31 20 553 9111
info@atradius.com
www.atradius.com