Recently, I enjoyed Matt Bohlsen's article on the World in 2020. It includes a host of interesting ideas. However, my first thought was that most of which is presented there is rich peoples' technology. The vast majority of households on earth won't be able to afford them. This is why in this article, I focus on technologies and products that I expect to serve the other 5 to 6 billion people by 2025. Let me start with a description of the current situation in a typical country of the southern hemisphere.
Technology adoption in Bolivia
Among all countries I have been lucky to visit or live so far, Bolivia is clearly the one I know best. The country is located at the heart of South America and I believe that it serves as a good proxy for the not-so-rich and poorer world. Bolivia is classified as a lower-middle-income economy with medium human development index. The living standard in Bolivia has almost caught up with the Latin American average and is above many African, Caribbean and South Asian countries.
Bolivians in general are open to new technologies, especially the younger urban population. However, it's not a priority in most families. First and foremost, they spend on real estate, whenever there is money available. Other things many seek to own are cars, household equipment like washing machines and of course fashion items. Besides, they love to spend their money to enjoy festivities with family and friends.
Non-nutritional stimulants are not on the shopping list of the typical Bolivian which is why coffee-to-go is almost non-existent and I can't imagine it will be a big thing even in 9 years from now. Bolivians are very conservative when it comes to their favorite dishes and how to enjoy tea time.
The photovoltaic energy opportunity for private homes is very limited, too, in my opinion. While it is applied in some remote areas, most households are connected to gas and electricity grids. Nobody thinks about investing into renewable energy generation. No doubt, by 2025 it will still be public utilities to care for the right energy mix. For them wind turbines and geothermal should be more attractive options.
The Bolivian car fleet currently is still dominated by Japanese models dating back to the 1980s and 90s, though newer pick-ups, hatchbacks and SUVs are always more common. Older cars are never scrapped. There are repair shops in every urban quarter that seemingly keep them alive forever. In Bolivia, most cars run on cheap natural gas. My expectation is that only a handful of electrified vehicles will be sold in this country until 2025. At best there are some opportunities for two-wheeler vendors. This might change some years later, boosted by the local lithium and battery industries which are currently in planning stage.
Similar to cars, electronic equipment can have a very long life in Bolivia. While large flat-screen models have been sold in higher volumes for some years now, there are still CRTs everywhere. With replacement parts in stock, local technicians make defective devices work for many years to come.
Assuming that the situation is similar in many other comparable regions, these examples show that technology adoption cycles are much longer in lower-income countries compared to the US, Europe or East Asia.
Nonetheless, some innovations have the potential to penetrate such markets at higher speed. Below I make the attempt to envisage some technology areas that can have a major impact both on Southern Hemisphere economies.
City automation, public transport
Whenever government representatives come back from international trips, it is probable they take some impressions with them about how to improve their countries. Public transport is something that characterizes a city at first glance and the systems applied usually differ substantially between high-income and low-income geographies. Sleek tramways, calm sliding-door buses and subways contrast with old and sooting minibuses or loud truck type buses.
Private car ownership is increasing and inner cities are notoriously over-crowded. After years of only little innovation, there are currently several developments that should make investments into public transport more attractive than ever. Urban ropeways like in El Alto or Bus Rapid Transit like in Lima are examples of new solutions.
I except that a combination of electrification, connectivity, autonomous driving technologies, digitization and out-of-the-box thinking should lead to attractive offerings for most cities worldwide, thus increasing the market potential significantly. Of course, transportation technology Groups like Alstom (OTCPK:AOMFF), one of the rare exchange listed pure plays, are already anticipating more demand from lower-income countries.
Cities and regions that start ramping up public infrastructure might also invest into advanced monitoring & security technology, smart lighting, digital public services, and much more. Many sophisticated solutions that were only available for the richest cities just a few years ago now can be realized everywhere with cheap and easy to implement standard components.
Opportunities are vast and a company with the right product or solution can grow fast in these often untapped markets.
Additive manufacturing technology is already sprawling everywhere in industrial countries, while awareness in lower-income countries still remains very low. However, in just a few years it might enable a giant leap for the latter. They will be able to build up a competitive distributed manufacturing base with much less capital investment compared to what has been necessary to finance something like the Chinese uplift.
In the case of Bolivia, inputs can be partially produced domestically, because the state-owned oil&gas company YPFB is currently constructing a major polypropylene plant.
Once standards are in place and the market is understood better, I'm confident that many Southern countries will invest heavily into different additive manufacturing technologies. I even expect that the creativity of these new users will lead to completely new applications and have a major impact on the future development of 3-D printing equipment.
The market potential for additive manufacturing is almost unlimited due to the wide variety of input materials and manufacturing technologies. However, like in almost every growth market, there will be winners and losers. Only those companies with a balanced mix of product performance, TCO and corporate expenses will prevail.
Many low-income countries don't have comprehensive public healthcare. Even if they have, people usually have to pay for medical aids like hearing devices, wheelchairs and blood sugar measuring devices.
I see billions of people joining the middle-class by 2025. People that have the financial means to secure a longer, healthier and more active life - or as Trade.gov puts it: "aging populations in developing economies now tend to expect therapies for health conditions that previous generations simply endured or that were life-ending"
Companies that adapt their products to local requirements and establish a strong marketing approach should be able to sell large volumes of medical equipment, devices and services.
E.g. hospitals will increasingly invest into new imaging equipment, there will be more demand for laboratory services and patients will buy more health monitoring devices; even cloud based healthcare services supported by artificial intelligence as put forth by IBM (NYSE:IBM) and others probably will find widespread adoption in many geographies by 2025. Keep in mind that already as of 2016 Bolivia has established a countrywide satellite based telemedicine network.
For current low-income countries it is much more difficult to grow the same way like Western countries did decades ago. Industrialization and fast growing population lead to more water withdrawals, an element that is already scarce in many regions. From Chile and Arab countries to Central Asia and Indonesia, many geographies already suffer from water stress, particularly lower-income countries.
Smart investments into water management facilities are urgently needed in large parts of the world. Relevant suppliers of advanced and affordable systems should be able to increase business volumes significantly during the upcoming decades.
Opportunities are huge for suppliers of desalination solutions, pumping equipment, filters, disinfection, wastewater treatment solutions, smart agricultural irrigation systems and even flood control facilities and hydroelectric power stations.
Many important businesses in the water management industry are part of large conglomerates like Berkshire Hathaway (NYSE:BRK.B), Sulzer (OTCPK:SULZF) or General Electric (NYSE:GE). More exposure have companies like Pentair (NYSE:PNR), Ebara Corp (OTC:EBCOF), Xylem (NYSE:XYL) and Evoqua (private)
Picking the Winners
Although I believe that the megatrends presented above are very strong, it's not as obvious, which companies will come up with the right product mix and go-to-market strategy to leverage them. Before investing in a relevant company, readers should further investigate how it approaches low-income regions and if it has made some reasonable investments or acquisitions in interesting geographies.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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