NEWSLETTER F E B R U A R Y 2 0 1 6

Dear Reader, Welcome to the very first newsletter of this year’s edition of Emerging Markets Business Conference 2016 – the largest student project in the world focused specifically on emerging markets! The papers are issued by the most engaged students from Warsaw School of Economics and University of Warsaw, heading towards bright careers in business and finance.

Due to the fact that emerging markets see robust improvement in economic metrics, we have decided to elaborate on that peculiar topic, providing you with an insight on 2016’s forecast. The February edition of the newsletter is also inviting you to the aspiring emerging markets – you will meet the dandiest Congolese and learn how important it is to be SAPE in Brazzaville. Finally, we are introducing an inspiring made in Poland success story – you will get to know an indie game development studio that someday will fiercely compete with Games Workshop. Hoping that the content of the newsletter comes in as apprehensive and enjoyable,

Kacper Staroszczyk Kacper Staroszczyk editor-in-chief

S O C I E T Y

E C O N O M Y

An inquiry on economic metrics and 2016 forecast for global markets, confronted with reports and papers on economic growth and regulations within emerging markets. Author: Kacper Staroszczyk

A footage on a societal phenomenon called SAPE – the aspiring dandy Congolese that, taking after their former occupants, form club of ambiance-making elegant men. Author: Emil Zwierzchowski

B U S I N E S S

An inspiring story of a Polish game studio founded by two wargame figurines freaks that is now transforming into a game development studio, conquering global markets and acquiring prestigious customers worldwide. Author: Krzysztof Piasecki

E C O N O M Y

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According to basic economic principles,

when something is growing too fast, it overheats. The very same situation took place in nearly every emerging market in the last years. We all witnessed the worst scenario in 2008 during the financial crisis. It took huge taxpayer-financed bailouts to bring the situation back to normal.

In the recent years bank lendings in emerging markets have rocket-ed up from about 77% of GDP in 2007 to 128% of GDP at the beginning of this year, according to JP Morgan Chase. This is surely not earth-shattering news, but some investors and bankers are having sleepless nights due to this situation. The tragedy-around-the-corner atmosphere is easily noticeable.

by Kacper Staroszczyk

People of Mumbai, credit: canadianbusiness.com

The biggest financial institutions have their branches in emerging markets, which results in the whole world analyzing the problems in Shanghai or São Paulo. They have been playing in the big boy league for some time now and have a significant influence on global economic growth. History is the best teacher. Statistics show that during the time of the very rapid growth banks had a lot of dud loans on their way. Fortunately, the regulators are aware of what is coming and they know exactly what to do and how to prevent financial institutions from taking too much risk on their shoulders. The Institute of International Finance says that 2015 will be the first year with net capital outflows since 1988. This is clearly a precedent in emerging market history and strongly affects the ambience among investors and bankers.

According to the International Monetary Fund’s forecast, 2016 will

see the emerging markets grow at 4.5%.

In the analysis we cannot ignore the currency risk. Higher interest rates in the USA combined with the decreasing commodity prices and economic slowdown in China resulted in depreciation against the US dollar. It is a particularly severe situation for financial institutions which have their credits in foreign currencies. The last time interest rates in the USA were on such a low level the economy witnessed gigantic credits, which amounted to $1.3 trillion according to the Bank for Interna-tional Settlements. Luckily, the risk that bad debt will have catastrophic consequences is very low. However, we do have to take into consideration the bad debts and problems with insolvency which were probably swept under the carpet in some cases.

Now the financial world sees the first signs of improvement and that these countries are emerging from the gloom. Investors have acknow-ledged that if emerging markets do not shoot the lights out the situation is not tragic and there is no need to panic. According to the International Mone-tary Fund’s forecast, 2016 will see the emerging markets grow at 4.5%. What is even more important is that the growth will be diversified, which means that Latin America will grow in a comparable pace to the Asian Tigers. The cyclical business conditions in the 10 largest emerging market econo-mies rose for the fourth month straight in December, according to Bank of America Merrill Lynch. It amounts to 4.5% today. Rays of sunshine are, without a doubt, a food for thought for all the investors and bankers. Do we see a clear slow-down in comparison to previous years? No two ways about it. Is this a normal situation after the hectic growth? Absolutely. We cannot forget that the last years were a perfect storm for emerging markets and will probably never occur in the nearest future. KS

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We cannot forget that the last years were a perfect storm for emerging markets and will probably never occur in the nearest future. KS

DANDIES

by Emil Zwierzchowski

When they walk in the streets of

Brazzaville, they dance merrily and tread carefully on the devastated sidewalks. $3900 tangerine Kenzo suit, $3500 neatly polished Weston monk strap shoes. When passing by pedestrians, they are treated like heroes. They are used to giving handshakes to random people and receiving applause from their pauper comrades. They make no more than $2 dollars per hour, but they just can’t say no to Armani.

Being a sapeur in Republic of the Congo is not just dandy clothing. La SAPE - Society of the Ambiance-makers and Elegant People, is a way

of living. Obviously it’s not limited to what’s in your wardrobe. If you want to be part of the society, you need to follow the code. Apart from possessing a wide range of colourful suits and posh shoes, you also have to behave sape. No fake apparel’s accepted. Once noticed wearing a counterfeit Rolex, you can never be a true dandy. What matters, is also the way you move. You cannot hunch and shamble when wearing a $7000 outfit - you are obliged to swirl around as if dancing in the rain.

La sape movement in Brazzaville can be traced back to early French colonialism era. The French mission was to civilize the indigenous people of the Congo River. Europeans brought second-hand clothes and offered them to naked Congolese, who promptly

S O C I E T Y

fell in love with the Western attire. Mostly slaves, they dreamed of resembling their masters - as a result, this was the first place where slaves were given clothes instead of money for their service.

A major role in the process of adaptation was also played by African servicemen coming back home from the second world war. Formerly unfamiliar with glamour of the allied soldiers, they were immediately impressed by their taste in clothing. When their service came to an end, the Congolese made sure to introduce suits, bowties, oxfords and tuxedos to their kin.

The Sapeurs have passion for vibrant colours.

They would have done anything just to return to their homeland as heroes - so they got into massive debt to purchase Western clothes.

Their glorious homecoming met an incredible enthusiasm. The combatants became centre of attention and role model for the Congolese youth. They soon created sort of a club, where they’d meet each Sunday just to admire one another’s clothing. Before long, every male in Brazzaville aspired to be part of the club.

The sapeurs are all different in terms of age, possession and marital status, but they all follow the code. Even despite social discrepancies, they would never give up on la sape. Maxime Pivot, one of the “Brazzaville dandies” shows us around his dwelling - he is proud of his collection of Kenzos and Armanis. The neatly folded suits are hanging all around surrounded by his wife’s and children’s dilapidated clothes. When presenting a hundred colourful ties and bowties, he proudly admits that his bank account is deeply overdrawn. “What I like, I buy”, is his saying. Apart from fancy apparel, the wealth is nowhere to be seen. He doesn’t possess a car, not even a PC. What’s more, his family has no access to running water and the walls of his dwelling are severely devastated. Surprisingly enough, his wife is highly supportive.

She seems to be proud of what Maxime represents, even though they live in a sorry state.

The rocketing consumptionism and materialism of certain Brazzavillers has its bright sides, though. The third world’s countries, such as Republic of the Congo, face severe socio-economic challenges, including unem-ployment rate equal to 26.6%. In fact, this hedonic way of living pushes the aspiring sapeurs to work hard to afford a new pair of Westons. The youth are willing to save their modest income for a year or two just to purchase Italian footwear. The self-conscious people of Brazzaville feel more confident when dressing expensive clothes. It gives them spirit, they say. They believe to be admired by their colleagues based on clothing.

In the long run, the financial irresponsibility will affect the dandies’ lives. When denied the next loan, they’ll seek for less confidential sources of cash. This social phenomenon could also provoke insolvency of both individuals and financial institutions, failing to collect the cash they borrowed for the sapeurs’ high spendings. Although the banking policy in this specific case starts to resemble the Ponzi’s scheme due to the pyramidal shape, the borrowers might feel relatively safe thanks to a stable interest rate that amounts to 2.5%. Even though, my biggest doubt concerns the deteriorating aspiration of Republic of the Congo to be an emerging market, so this could lead the country to economic downfall in the following decade - assuming that the SAPE way of living will still be in fashion. EZ

No one would ever suppose that a

production of figurines designed and painted in an ordinary block of flats would become so lucrative that the today’s revenue reached million Polish zlotys which is around 250,000 USD. In 2014 Awaken Realms was created by two young fantasy games fanatics - Marcin Swierkot and Adrian Ko-marski – and is now one of the biggest miniatures painting studios world-wide. While Adrian was still a student, Marcin gave up his prospering career as a journalist in a financial online newspaper. Nowadays, most of the young entrepreneurs dream of becoming successful in a Mark Zuckerberg’s way - they invest mostly in the internet operations. ‘We have decided to do it in a slightly different way’ says Marcin.

There is no telephone number to the HQ. Polish version of the website is not available. Although this kind of hobby is getting more and more popular in Poland, the main market is in the West. So far there were barely two clients from their homeland. Wargame miniatures are sent mainly to the USA, Canada, Western Europe and Saudi Arabia. The most loyal clients are capable to pay £3,000 for a nicely painted figurine or £5,000 for a whole army of the smaller ones.

B U S I N E S S

by Krzysztof Piasecki

Marcin Swierkot with a figurines collection.

Thus it is an expensive hobby that ordinary people cannot really afford. Among the buyers we can find the names of the politicians, managers, CEOs and chairmen of the world-famous companies and conglomerates - ‘Our loyal customer is, for example, the owner of the one of the biggest bodice storess from the UK or the main producer and distributor of the fire-extinguishers from Australia’. They are either players or collectors who convert rooms in their houses or offices into the battlefields where they can peacefully run away from their busy life. Currently, there are 18 employees working in Awaken Realms and the company does not want to remain only a miniature-painting enterprise - they have decided to take things further. To acheive something more, they reached out for crowdfunding. Marcin and Adrian put their new project ‘Edge’ on Kickstarter, a fundraising website, where they have managed to collect £55,000 and established cooperation with artists who worked with Peter Jackson or Luc Besson during production of fantasy movies. ‘The Edge’ is a board game in a post-apocalyptic world, in which there are three sides: humanity, Demons and the mysterious Faceless. What is exceptional about it, is the simplicity which is rarity in this field. The creators guarantee that rules are intuitive and easy to remember.

What is more, it is not meant to be only a miniature war game. It will be accompanied by both a storybook and a comic book. The aim is to gain loyal clients not only in Poland, but also all

over the world. Marcin and Adrian dream of creating a video game out of their project. They are convinced that the plans are becoming more and more realistic. Right now they are at the stage of negotiations and getting investors. Are the owners already making profit out of their business? Surprisingly yes. Usually for the first two years a start-up cannot meet the break-even point. Marcin assures that most of the money they earn is reinvested and they have no problem with liquidity - ‘We are ambitious. We like what we do, we fulfill our passion and now this is the most important’. Their core values at Awaken Realms remains the same as they were in the beginning. Passion, inspiration and community - the owners admit that of course causes are not enough to run a company and money is very important but they gave up their prospering lives to do what they are passionate about and to inspire the people to follow their needs and values. KP

Kacper Staroszczyk editor-in-chief

kacper.staroszczyk@embswarsaw.com

The Newsletter makes part of the Emerging Markets Business Conference, which is to be held in collaboration with the Warsaw Stock Exchange on 24th June, 2016. EMBC is the largest student emerging markets event in the CEE region, and is a prestigious project attended by both the most ambitious students from Warsaw and their visitors from emerging countries. The Conference covers the most up-to-date issues faced by developing countries – speakers are the most renown acedemic and corporate professionals from Poland and abroad. For the last five years we’ve worked with dignified corporate partners, such as the Boston Consulting Group, Deloitte, KPMG, Standard&Poor’s, Goldman Sachs, alongside with Poland’s blue chips – KGHM, Polish Railways Company (PKP) or BZ WBK (Santander Group). We strongly encourage to give valuable feedback – we are open to discuss our project’s improvements and engage in international partnerships. EMBC Team

Aleksandra Świercz EMBC Project Manager

aleksandra.swiercz@embswarsaw.com

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