Global economic uncertainty and Middle East political turmoil are doing little to dim the attraction of emerging markets, which show signs of reducing their dependency on developed markets as they compete to be the trade hubs of the future, a new study shows.
A second-half slowdown in 2011 cooled growth in virtually every region of the world at a time when regimes in Egypt, Libya, Tunisia and other Middle East countries were collapsing in the face of popular unrest.
In spite of the economic slowdown and political upheaval, output in powerhouse economies such as Brazil, China and India remains high, and the so-called “Arab Spring” countries are now viewed as more attractive places to do business, according to the 2012 Agility Emerging Markets Logistics Index released in January.
The annual Index spotlights 41 emerging markets and ranks them by their investment potential and progress each year. Attractiveness is measured by: market size and growth, market compatibility (foreign direct investment, security, urbanization and wealth distribution) and market connectedness (international and domestic transport infrastructure). The report, sponsored by global logistics provider Agility, is compiled by Transport Intelligence, a leading provider of expert research and analysis to the global logistics industry. As part of the Index, 550 senior logistics executives were surveyed, making this the biggest survey to date in the emerging markets logistics sector. For the first time, the Index offers trade lane analysis from 2005 to 2011.
Dependence on developed economies lessening
While emerging markets cannot avoid the impact of economic downturns in the U.S. and Europe, the Index points to developments that are providing a cushion. First, domestic demand in emerging markets such as China is growing. Second, trade volumes between key emerging markets are growing – and offsetting declines in trade with traditional developed markets. At the same time, worries of overheating in Asia have lessened.
The developing world will be the engine of global growth in 2012, offering business opportunity few global companies can afford to ignore.
Top 10 performers – investment attractiveness powers ahead
The countries that dominated the rankings continued to be those that combine size and robust growth. China ranked first; India second; Brazil third. Saudi Arabia and United Arab Emirates (UAE) came in Nos. 4 and 5, and Indonesia and Russia at Nos. 6 and 7, respectively. Malaysia moved up three places from last year’s rankings to land at No. 8. Chile was No. 9, and Mexico was No. 10, falling two places.
“Emerging markets are more resilient and independent than they’ve ever been,” said Essa Al-Saleh, Agility’s President and Chief Executive Officer, Global Integrated Logistics. “There’s growing evidence that their dependence on the established markets is diminishing as new trade lanes grow and consumer demand in huge markets like China and India gathers strength. In the Middle East, where we saw old regimes fall, the Index indicates that logistics professionals see the region as ‘open for business’ in a way that it wasn’t before.”
“Emerging markets have never been so important to the global economy,” said John Manners-Bell, Chief Executive of Transport Intelligence. “However operating in these markets requires a great deal of attention and preparation as the business environment is often highly challenging. The Agility Emerging Markets Logistics Index highlights many of these challenges and points towards the markets that will deliver the greatest opportunities.”
The Index top 10 – China pulls further ahead, while Middle East forges on
China and India increased their Index scores, an indication that they took steps to enhance their attractiveness as markets. China distanced itself from other emerging markets, including India (2), which remained hampered by below-average scores in market compatibility and connectedness. Though Brazil’s infrastructure score remains weak, investment is set to intensify in the run up to both the 2014 World Cup and 2016 Olympic Games.
Underlining the resilience of the Middle East, Saudi Arabia saw a strong increase in its score and topped the compatibility index, meaning its market is easily accessible for foreign companies and poses few barriers to entry. Neighboring UAE moved up to fifth place, overtaking Indonesia. The UAE continues to top the “connectedness” table, the result of its massive investment in infrastructure in recent years, along with its strong shipping connections and liberal market access.
In spite of having more raw materials than China, India and Brazil, Russia finished the lowest of the BRIC (Brazil, Russia, India and China) economies. Reliance on energy exports makes Russia vulnerable to price fluctuation. At the same time, security threats, market barriers, corruption and political unrest continue to handicap Russia. In spite of its market size and growth prospects, Indonesia fell one place to No. 6 in the 2012 rankings, dragged down by poor “compatibility” and “connectedness.” In Mexico, crime, violence and drug trafficking lowered the country’s score for market compatibility and dropped it to No. 10 in the Index.
While the BRIC economies have attracted large amounts of foreign investment since the 1990s, other rising stars – including Indonesia (6), Vietnam (27) and Turkey (11) – present increased opportunities for logistics companies as the “near-sourcing” trend of optimizing the distance between supplies, production and markets intensifies. These economies offer stable environment and fast growth.
Markets to watch – Africa showing more promise for investors
Africa continues to make steady progress thanks to performers such as South Africa, Morrocco and Ethiopia. Huge natural resources continue to benefit the region, and demand for these resources from Asia and the Middle East is growing. Despite a number of long-standing obstacles, African markets show increasing promise for investors. Africa’s exposure to fluctuations in commodity prices will be limited if global demand remains reasonably strong.
Trade lanes – the figures tell the story
With changes in world trade flows driving the emergence of new sea and air trade lanes, the Index has spotlighted the major shifts and trends in trade lanes between 2005 and 2011.
Overall ocean freight volumes – Argentina and Turkey stake their claims
• Argentina’s exports to Europe rank a surprising fourth among emerging market trade lanes, outstripping those of Russia, Turkey, Ukraine, South Africa, India and Egypt.
• Among emerging markets, China is the leading importer of goods from the U.S. and EU, but Turkey comes in a close second.
• Europe overtook the U.S. as China’s top trading partner. China’s imports from the EU showed a huge increase — 96% between 2005 and 2011 – with domestic demand an increasingly significant driver.
• The biggest emerging market trade lane of all involved sea freight shipments from China to the EU, estimated at 50.48 million tons in 2011.
Fastest growing ocean freight volumes – rising stars include Middle East, Africa and Americas
• Top of the table is Oman: non-oil trade from Oman to the EU increased almost tenfold between 2005 and 2011. Qatar, Saudi Arabia, UAE and Kuwait also feature reflecting successful diversification outside the energy sector.
• Rising export stars also include Morocco, Bolivia, Paraguay, Vietnam, Peru, Uruguay, South Africa, Tunisia, Argentina and Mexico.
• In the reverse direction, the fastest-growing sea freight trade lanes are those that carried goods from the U.S. and EU to Paraguay, Vietnam, Morocco, Nigeria, Tunisia, Uruguay, Oman and India.
Overall air freight volumes – perishable goods place Kenya and Americas up with the leaders
• Top 10 surprise rankings by volume to U.S. / EU include Kenya, Columbia, Chile and Peru, driven by exports of perishable goods. Kenyan exports by air to the EU increased an amazing 134% between 2005 and 2011.
• Largest air-freight trade lane by volume is from China to EU 1.13 million tons in 2011.
• Top 10 importers from U.S. / EU include the BRIC countries, but with the UAE amongst them. The UAE ranks an impressive fourth; and with South Africa (8), Turkey (9) and Mexico (10).
Africa and Americas dominate fastest-growing air-freight trade lanes
• Ethiopia exports to EU and to U.S. top the table on the back of coffee and non-coffee products.
• African countries Nigeria, Kenya, Morocco and Tunisia all feature in the top 10 fastest-growing exporters.
• America’s countries in the top 10 include Chile, Ecuador, Peru and Mexico.
• In the reverse direction – Paraguay tops the table (from a very small base figure), and with Qatar and Oman showing strongly increasing import volumes by air.
How the industry sees it: Confidence in Middle East; Americas, Turkey, Vietnam on the rise
As part of the 2012 Agility Emerging Markets Logistics Index, 550 senior logistics executives were surveyed, making this the biggest survey to date in the emerging markets logistics sector.
Confidence in Middle East remains high in wake of Arab Spring
43% of respondents view the Arab Spring phenomenon as making the region either more attractive or much more attractive as an investment target, with a further 24% seeing “no impact” from the tumult of the past year.
Turkey, Vietnam and UAE slated for a big future
After the BRIC countries, professionals pointed to Turkey and Vietnam with massive near-sourcing potential as major markets of the future, and the UAE for its massive port, airport, road and rail spending. South Africa, Mexico and Indonesia also make it into the top 10 “markets of the future.”
Asia dominates nominations for “trade lanes of the future”
Top nominee as having the greatest potential for future growth was the Intra-Asia trade lane, followed by Asia-Europe. Other big future routes highlighted by the survey were Asia-South America, Asia-Africa and Asia-Middle East, driven partly by the expansion of Chinese investment in these markets.
Future investment stars include Americas; confidence strong in Middle East
Professionals tapped Brazil as the top destination for new investment over the coming five years, in part because of global demand for Brazil’s natural resources. Brazil’s selection was something of a shift away from China and India as top investment targets. Russia, the fourth BRIC market, makes up the last of the top four. Next come Vietnam, Mexico and Turkey, all high-profile emerging markets. South Africa and Argentina are both surprise markets to make the top 10. Morocco and Algeria shrugged off Arab Spring impact, and did well. Venezuela and Chile both fared well also.