Why Good Investments Underperform in Emerging Markets

In emerging markets, it is not uncommon for investments that appear strong on paper to underperform in practice. The fundamentals may be sound: demand is real, the asset is viable, the structure has been carefully considered, and yet, over time, performance begins to diverge from expectations. Timelines extend, costs increase, approvals take longer than anticipated, and management attention shifts from building the asset to managing the environment around it. This is rarely the result of a single failure, more often, it reflects a gap between how the investment was understood at the point of decision, and how the operating environment functions in practice.

Investability and Executability

Most investments that underperform in emerging markets do not look obviously flawed at the point of decision. They are investable, the numbers work, the structure is sound, the risks are identified and, on paper, manageable. The issue tends to emerge later, what looked investable proves harder to execute. Approvals take longer than assumed, alignment shifts, delivery is slower, more complex, and more fragile than expected. The distinction is not always explicit at the point of investment—but it is often where outcomes diverge. Most investments that disappoint were not mispriced, they were misread.

Where Underperformance Emerges

The drivers of underperformance are rarely unknown. More often, they are recognised—but underweighted. One example is how regulatory systems function in practice. Processes may be clearly defined, the sequence of approvals may be understood, but in reality, approvals do not always move in sequence. Requirements evolve, coordination across institutions introduces delays that are difficult to anticipate. Timelines are rarely wrong because the process is unclear. They are wrong because the process is assumed to function as designed.

A second area is the role of government. In many sectors—particularly natural resources, energy, and infrastructure—the state is not simply a regulator, it shapes outcomes over time. Fiscal pressure, political cycles, and leadership changes can all alter how an asset is viewed. Alignment at the point of entry is often treated as sufficient. In practice, it is something that shifts—and needs to be managed.

A third area is stakeholder understanding. At the point of investment, stakeholder maps tend to be relatively clean—focused on defined counterparties and formal structures. In practice, influence is more distributed. Regulators, sub-national actors, state-owned entities, and others all play a role in how decisions are made. This becomes visible only once issues emerge.

Delivery Is Where Assumptions Break

The most consistent source of divergence, however, lies in delivery. Execution risk is usually acknowledged. But it is often treated as something that can be managed within standard contingencies.

In practice, this is where investment cases begin to break. Labour availability may be tighter than expected, particularly for specialised roles. Contractor ecosystems are often thinner than assumed, with Tier 1, 2, and 3 suppliers operating under real capacity constraints. Logistics may be slower, more complex, and less predictable than planned.

Projects are frequently dependent on infrastructure—power, ports, roads, rail—that is assumed to function, but does not always do so reliably or at the required scale. Land access can take longer than expected. Weather and climate conditions can disrupt construction and operations in ways that are difficult to fully anticipate.

None of these issues are typically unknown, what is misjudged is the extent to which they compound. Small delays across multiple areas do not remain small. They accumulate. A project that appears robust in isolation begins to drift once exposed to the realities of execution. At that point, the investment case is not invalidated—but it is no longer the same.

Why This Is Missed

Standard diligence processes are effective at assessing structure, market fundamentals, and financial performance. They are less effective at assessing how an environment behaves under pressure. As a result, certain assumptions tend to remain implicit, that approvals will proceed in sequence, that institutions will act predictably, that delivery constraints can be absorbed. These assumptions are rarely tested in a systematic way and in more complex environments, this is where divergence begins.

What Experienced Investors Do Differently

Experienced investors tend to approach these situations with a different emphasis. They focus less on whether risks exist, and more on how those risks are likely to play out in practice. This shifts the analysis:

• Instead of asking whether a process exists, they ask whether it is likely to work as expected.

• Instead of mapping stakeholders formally, they consider how influence is actually exercised.

• Instead of assuming delivery can be managed, they test whether the underlying systems—labour, contractors, logistics, infrastructure—can support the plan.

They also place more weight on how alignment with government and other stakeholders may shift over time, rather than assuming it is fixed at entry. This does not eliminate risk, but it changes where attention is placed—and how decisions are made.

A Final Reflection

Good investments underperform in emerging markets for many reasons. But one of the most common is not a lack of insight—it is a misreading of how the environment will behave in practice.

The distinction between what works on paper and what works on the ground is not always obvious at the outset, but it is often decisive.

Investors who recognise this earlier tend to make different decisions—not necessarily avoiding complexity, but approaching it with a clearer understanding of how outcomes are shaped.