1. Agricultural price inflation. Biggest component of consumption in frontier markets - could kill growth story.
Frontier market food prices are local and not related to key world foods such as wheat and rice.
2. Make up of capital markets. New FTSE Frontier markets index is 73% in banks. Call that diversification!
As this is a liquid index, makes the case for investing with a hedge fund rather than an ETF.
3. Transfer pricing. If the story is linked to commodities, what is the risk that the profits just get siphoned out by multinational companies.
We have already seen mining reform in Zambia that addressed this issue and this is being used as a blueprint in Tanzania and others.
4. Dependence on aid (makes stupid decisions such as currency stabilisation to manage FX inflows).
Aid providers are starting to realise this issue thanks to the work of the IMF. Aid is now being attatched with conditions such as corruption reduction initiatives.
5. Health of workforce (Aids etc).
Health is a global issue. Private investment tends to focus on the healthy part of the population so this is more of a Public sector problem.
6. Lack of property ownership - and hence free title transfer.
This is acknowledged and is changing.
7. Lack of yield curve (unable to price risk and return)
As investment banks move into frontier markets this issue will be addressed by market forces.
8. Corruption (obviously)
The trend is important and the trend is clearly towards less corruption and for action to be taken when corruption is unearthed.
9. Control of refining and energy prices
Price fixing is never a long term solution and this will change.
10. Lack of generating power (Caused by aid agencies crowding out real investment).
Hopefully, an issue that is being addressed at policy level.