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What are frontier markets — and why do they matter now? In this episode of Expert Answers, Ayhan Kose, Deputy Chief Economist of the World Bank Group, explains what defines frontier markets, why growth and investment have slowed, and what policy priorities can help unlock jobs and more durable growth. We’ll look at the frontier markets that have done well and what we can learn from their success.
Timestamps
00:00 Why Frontier Markets Matter for Global Growth
00:15 What Are Frontier Markets?
00:58 Frontier Markets vs Emerging Markets Explained
02:15 Why Frontier Markets Matter for Jobs
03:34 How Many Frontier Markets Are There?
03:45 Top Policy Priorities for Frontier Economies
04:16 Countries That Graduated to High Income
04:30 25 Years of Frontier Market Growth
05:33 Lessons From Top-Performing Frontier Markets
07:02 Rwanda and Vietnam as Success Stories
08:09 Final Thoughts
Transcript
If you think about over the next 25 years, frontier markets are going to bring more people to the global labor force than the rest of the world combined.
Hey, everyone, welcome to Expert Answers.
Within the landscape of emerging market and developing economies, or EMDEs, there is a set of countries that sit between emerging markets and other developing economies. These are frontier market economies. More open to global financial markets than many other developing economies, they have enormous potential for growth and transformation, so they hold a special appeal for investors. But there is also greater exposure to risk and volatility.
Why do frontier markets matter for development, investment, and global growth today? What challenges might be holding them back, and how could they break through?
Let’s find out.
It is great to have Ayhan Kose back in Expert Answers. Today we’re unpacking new research on frontier markets featured in the latest World Bank Group Global Economic Prospects Report. So let’s jump right in and start with a question that many might have: What are frontier markets, and what are some common characteristics they share?
So frontier markets are kind of in between. On the one hand, you have emerging markets. They have quite a bit of market access, they’re able to issue bonds, and they have open capital accounts. On the other hand, you have other developing economies. They are somewhat closed. Most of the time, their access to financial markets is quite limited. They get concessional loans or grants.
Frontier markets sit in between. They have a little bit of market access, not as much as emerging markets. These are economies in pretty much every continent we operate in. And when you think about their potential—in terms of natural resources, the labor force, human capital, and physical capital—the sky’s the limit.
Thinking about the jobs challenge and the potential that these economies have to address it, why are they so important?
When we think about the global jobs challenge, frontier markets really are at the center of it. About 1.2 billion young people will join the global labor force. More than 1.8 billion people—over one-fifth of the global population—live in frontier market economies.
Over the next decade, hundreds of millions of young people will join the labor force in frontier market economies. In advanced economies, population growth is slowing. In some emerging markets, population growth is also slowing. But in frontier market economies, population growth remains rapid.
Over a longer time period—over the next 25 years—frontier markets are going to bring more people to the global labor force than the rest of the world combined. Our ability to address the global jobs challenge will hinge on our ability to create jobs on the ground in these economies.
Now let me ask you some quick questions. First, how many frontier market economies are there currently?
Nowadays we have 56. Back in 2012, there were only 39 frontier market economies.
What are the top three policy priorities they should focus on?
The number one priority in the near term is creating a stable macroeconomic environment. The second is investment—especially investment in infrastructure and in physical and human capital. The third, given the high debt levels we see, is managing debt and managing fiscal positions.
Have any of them graduated to the next level?
Yes—Panama, Bulgaria, Costa Rica, and Romania have all graduated to high-income levels.
Looking at frontier market economies as a whole, how have they performed over the last 25 years?
When you look at the big picture, yes, they have performed well and delivered higher growth. The issue is that over time, growth has slowed—very sharply. For example, investment per capita growth today is about half of what it was in the 2000s.
There is a serious growth challenge ahead, given both the potential of these economies and the need for jobs. Frontier markets account for only about 3 to 3.5 percent of global capital flows, despite accounting for roughly 5 percent of global output. They should have a much larger impact on global financial flows and global GDP.
What lessons can we learn from those economies that have been performing well?
The report looks at success stories and the best-performing frontier market economies. There is no silver bullet, and experiences vary. But there are some common threads.
First, consistently strong performers have stable macroeconomic policies, with well-defined monetary frameworks and fiscal frameworks that support better debt and deficit management. Second, investment—particularly in infrastructure and human capital—is critical. Third, these economies are able to manage greater financial integration. Opening capital accounts can bring volatility, and managing those capital inflows is essential.
Finally, attracting foreign direct investment matters. That requires strong institutions and a business climate that supports investment, while also mobilizing private investment at home.
One last question before we wrap up. Are there any frontier market economies that stand out?
Yes. Rwanda is a strong example. After a very difficult period in the 1990s, it undertook reforms and built a strong services-based economy. Vietnam is another, with incredible per capita income gains in a short period of time, driven by serious investment in human capital and becoming a manufacturing powerhouse.
These are good stories for other frontier market economies to think about and emulate. The bottom line is that when these economies get their act together and push growth-friendly reforms, their ability to generate jobs means the sky is the limit.
Thank you so much, Ayhan, for unpacking this topic with us today.
Thank you.
Thank you for joining me on Expert Answers. Check out the link on the screen to find out more about the most recent Global Economic Prospects Report. See you soon.
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