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MINT 2016

Client Intelligence > MINT insight July 2016 > The legal challenges of working and investing in emerging economies

MINT - The legal challenges of working and investing in emerging economies

Global demographics are changing. Over the next 15 years, the global middle class is set to double with three billion people entering its ranks. Many of these new consumers will come from emerging markets. As the balance of global trade shifts away from G8 economies, businesses and investors are increasingly looking to diversify into emerging markets.

For much of the 2000s, discussion of emerging markets was centred on the Bric nations (Brazil, Russia, India and China, with South Africa sometimes added as a fifth member of the group). The recent commodity price crash and Chinese slowdown has turned investors toward a second-generation of emerging markets characterised by favourable demographics and a rising middle class. The Mint nations – Mexico, Indonesia, Nigeria and Turkey – have become synonymous with this new focus.

Growing pains: Is demography destiny?

The Mint nations’ demographic trends are set to become even more advantageous in the coming years. Fertility trends projected by the United Nations’ Department of Economic and Social Affairs suggest that by 2050 China will have one of the oldest populations on earth. The Mints will be among the youngest nations.

While many countries have large, young populations, the Mints also benefit from geostrategic or political influence: Mexico benefits from close trading relations with the US, its historical and linguistic ties to Latin America, and extensive coastlines along the Atlantic and Pacific oceans that allow it to access global markets with ease; Indonesia is the largest member of the Association of Southeast Asian Nations (ASEAN) and is one of the most developed economies in a region certain to become the next centre of global power; Nigeria is now Africa’s largest economy and by far the dominant member of the Economic Community Of West African States (ECOWAS); while Turkey is a geographic connector between Europe and the Middle East that benefits from huge potential consumer growth.

The origin of the acronym

The birth of the Mint acronym is popularly attributed to Goldman Sachs banker Jim O’Neill, who selected Mexico, Indonesia, Nigeria and Turkey as the four most promising candidates from a list of countries with high-potential to grow rapidly in the twenty first century. Since that time, Turkey and Indonesia, have already been added to a less auspicious group: ‘the fragile five’, a group exposed to high risk of capital outflow from the US Federal Reserve’s proposed stimulus reduction. The fact that all of the fragile five were Bric and Mint economies shows just how precarious the emerging market business can be. As Warren Buffet once said, it’s only when the tide goes out that you can see who's been swimming naked.

The coherence of the Mint grouping is further challenged by the economic differences between the four countries. Nigeria and Indonesia have largely commodity-driven economies. Turkey, which has little in the way of natural resources, depends largely on agriculture, and Mexico, though a significant exporter of hydrocarbons, is much more oriented toward manufacturing and value-added production. Indonesia and Nigeria are lower-middle-income economies by World Bank classification while Turkey and Mexico are upper-middle-income economies more solidly connected to global value chains. In many ways the Mint economies form a group in which every member is an outlier.

It would be more accurate to say that the Mint economies are connected by undesirable commonalities such as informality and corruption. All suffer from high levels of unemployment, growing security issues, low levels of education and development, and high levels of inequality. All fare poorly in Transparency International’s Corruption Perceptions Index: out of 167 countries ranging from Denmark in first place (most transparent) to North Korea and Somalia in joint last, the Mints rank 136 (Nigeria), 95 (Mexico), 88 (Indonesia) and 66 (Turkey).

A notable characteristic of the Mints is that each is now led by a strong, ambitious president who came to power promising to deliver sweeping structural reforms.

Mexico’s Enrique Peña Nieto has opened the market to foreign competition while promising to invest hundreds of billions in new infrastructure; Indonesian president Joko Widido came to power in 2014 promising to push through dozens of ambitious reforms in an attempt to open the country’s protectionist and heavily regulated markets; Recep Tayyip Erdoğan became President of Turkey in 2014 after more than a decade as Prime Minister, during which time he outlined ambitious reforms to make the country a world power; while Nigeria’s Muhammadu Buhari, who became the country’s first democratically elected opposition leader in 2015, is pledging to build new infrastructure and move the country’s economy away from resource dependence.

These reforms may look good on paper, but international and domestic businesses and their legal counsel will be more interested in following the steps to their implementation. What secondary legislation be passed to enact the reforms and how will this change the responsibilities of businesses operating in the market? Who will administer and enforce the laws? Will national champions that had formerly benefitted from closed markets change their behaviour in response?

In this report we offer insight and analysis from some of the leading market experts, investors, decision makers and general counsel in each of the Mint economies. Taking our cue from those who have gained extensive experience of the relevant markets, we get behind the data and look at the actual issues businesses and lawyers need to be aware of.

How to succeed in Global Markets

Don’t be a ‘Google advocate’

The most common mistake made by international counterparties and investors is assuming published laws and regulations offer a reliable guide to doing business in an emerging market. The Mint nations in particular tend to have rapidly changing laws and regulations. All four countries are currently undergoing significant reforms. The speed of this regulatory change can be baffling, even for local regulators. In-house counsel warned that knowing how a law or regulation will be applied is not something than can be discovered by reading the published law. In short, the text of the law is often a poor guide to knowing how it will be interpreted in practice.

Build relationships

The above makes establishing a working relationship with the regulator essential to doing business in these markets. This may not be practical for many international businesses, which makes finding a reliable and well-connected local partner or counsel all the more necessary. As joint venture remains the most common route to market in many emerging economies, close relations are also essential for successful commercial operations.

Expect delays

In-house counsel and investors frequently stated that the slow pace of legal processing came as a shock. Respondents advised those with limited experience of emerging markets to factor in significant delays when planning a deal and to anticipate bottlenecks and challenges well in advance.

Working in an emerging market is a two-way street

International investors that have decided to enter an emerging market must take the necessary steps to understand how it works. While emerging-market business partners are sympathetic to the challenges and frustrations international investors encounter in their jurisdictions, they often experience frustration when dealing with counterparties who expect to behave as they do in more developed markets.


Over 200 clients – general counsel, senior in-house lawyers, chief executives and other c-suite – provided their input on the main challenges, opportunities and legal risks they have faced. Many were based at companies operating in Mexico, Indonesia, Nigeria and Turkey, though some were foreign investors or international counsel with extensive experience of at least one of the four markets.

The fraction of respondents based in, or chiefly commenting on, each of the four countries was: Mexico, 34%; Indonesia, 32%; Nigeria, 14%; Turkey, 20%.

For the sample as a whole, 78% were based in the country they provided comments on while 22% were based elsewhere, either as a foreign investor, analyst or a GC/decision maker at an international organisation with significant experience of the Mint economies.

Just under half (47%) of those based in a Mint economy represented companies conducting the majority or all of its trade within the nation, with the rest dealing primarily with a regional partner/trading bloc (34%) or other international markets (19%).

This research was conducted by a mix of telephone interviews and written responses to questions about experiences in the Mint economies. In cases where respondents’ comments have been provided on condition of anonymity, their job title and organisation has been reported as accurately as possible within the confidentiality limits requested.

Across all four countries, those we spoke to can be classed as: general counsel, 38%; chief executive or other c-suite, 24%; senior in-house lawyer, 21%; other (including investor or analyst), 17%.

Respondents were drawn across a range of sectors and no single type of organisation dominated the sample.