Frontier market economies long regarded as the next frontier for global investment and economic expansion are falling short of their growth potential, according to a new study by the World Bank. The report highlights slowing investment, rising debt burdens, and missed opportunities for structural transformation across many of these economies.
The study finds that per capita investment growth in frontier markets during the 2020s has dropped to less than half the pace recorded in the previous decade. This sharp slowdown signals a loss of momentum among countries that were once considered attractive alternatives for investors seeking higher returns beyond advanced and emerging markets.
Frontier markets sit between emerging and developing economies in the global financial system. They are less integrated into international capital markets than emerging economies but more open than other developing countries. In the late 20th century, the formal recognition of frontier and emerging market asset classes supported by institutions such as the World Bank Group’s International Finance Corporation helped attract private capital to these economies. However, that early promise has largely failed to translate into sustained economic transformation.
World Bank Group Chief Economist Indermit Gill described the performance of most frontier economies as deeply disappointing. “Excluding a handful of economies that have become investment grade over the past 25 years, frontier markets may well be the biggest disappointment in economic development,” he said. Gill noted that many of these countries possess advantages such as relatively strong education outcomes, longer life expectancy, improving institutions, and, in some cases, abundant natural resources yet have struggled to turn these strengths into durable economic growth.
Today, frontier markets are home to approximately 1.8 billion people, accounting for about one-fifth of the global population. That figure is expected to rise by nearly 800 million over the next 25 years—more than population growth in the rest of the world combined. More than a third of frontier economies are located in Sub-Saharan Africa, a region that also hosts significant deposits of critical minerals vital for renewable energy technologies, telecommunications, and consumer electronics, increasing their long-term strategic importance.
Despite their weak growth performance, frontier markets continue to offer certain investment advantages. Historically, their equity markets have provided diversification benefits, as global financial conditions have explained only about one in eight of the fluctuations in frontier-market equities over the past 25 years far less than in advanced or emerging markets.
The World Bank warns that without renewed investment momentum, stronger policy reforms, and better management of debt pressures, frontier market economies risk missing a critical window to convert their demographic and resource advantages into sustainable growth.
