While Brazil, Russia, India and China continue to be considered the most attractive emerging markets for logistics companies, the next wave of fast-growing economies set to become the new trade hubs of tomorrow is clearly outlined in the 2011 Agility Emerging Markets Logistics Index, published today from the World Economic Forum in Davos.
The Index compares 39 emerging markets and identifies key attributes that make these markets attractive for investment. It was developed by Transport Intelligence, a provider of expert research and analysis in the global logistics industry.
“While the Index confirms much of what we see happening from Agility’s vantage point of well-established operations across the world’s emerging markets, it offers the logistics industry many useful, longer-term insights into important but less visible developments – especially important for those markets on the industry’s watch-list,” said Christopher Logan, Agility’s chief strategy and marketing officer.
“It is clear that emerging markets are playing an increasingly important role in global supply chain strategies as manufacturers look to the next wave of low cost production locations,” said John Manners-Bell, chief executive officer, Transport Intelligence. “However, investors need to be cognizant of the specific challenges which exist in each market as well as the opportunities. Our Index enables companies to differentiate between those markets which offer immediate potential and those which will take much longer to develop.”
Saudi Arabia – The rising star of the Middle East
The Middle East featured some big movers up the Index with Saudi Arabia the undoubted star. Emerging in sixth place overall, Saudi Arabia is positioning itself as one of the most promising investment markets for logistics companies. The country enjoyed the biggest leap in its overall score, with significant improvements in its market compatibility score, which rose above those of Brazil and China. As it boosts its energy, industrial, financial and real estate sectors, Saudi Arabia is continuing to attract strong foreign direct investments (FDI) – all the more impressive as most countries saw declines in FDI during the global economic crisis.
In the global survey of more than 330 logistics executives that accompanied the data-based index, Saudi Arabia was the fifth country most often named to likely grow into a major logistics hub. This perceived attractiveness can be attributed to Saudi Arabia’s role as the world’s largest producer of oil as well as to the wealth of its population and growing desire for western luxury goods. Saudi Arabia is also developing six ‘economic cities’ to replicate the success of Dubai. The largest of these will be the King Abdullah Economic City which, when completed, will be a hub for 2,700 manufacturing companies and will boast one of the world’s top five largest industrial ports.
The United Arab Emirates – Emerging as a promising logistics hub
The UAE came in ninth and topped the ranking of smaller markets (those with less than $300 billion GDP). Its transport connectedness score increased further from 2010 – higher than any other market and ahead of China and Chile. UAE’s border administration improved further as did the country’s liner shipping connectivity. According to the survey, a little over 10% of all respondents expect the UAE to emerge as a more attractive market for third-party logistics than Brazil, in recognition of the UAE’s growing role as an important gateway into member countries of the Gulf Cooperation Council as well as an important transit hub for goods between Asia and Europe/ Africa.
Oman – Strong market compatibility and connectedness, but market size and growth hinders attractiveness
Oman (14) moved up a full four places with strong improvements in its market connectedness and compatibility scores. Improved connectedness was driven by developments in its airport infrastructure: the country is currently undertaking major improvements to its airport network including an expansion of Muscat International airport and new airports in Sohar and Duqm. Oman scored highest overall in terms of market compatibility – ease of doing business – enjoying low business costs associated with crime and terrorism, high levels of FDI, good market access, a high degree of service sector development and urbanization. However, its market size and growth – the fifth lowest of all surveyed emerging markets – hinder its attractiveness to logistics companies.
Qatar – Oil and gas sector slows but major infrastructure projects to balance
Qatar (19) fell three places as a result of a decline in its growth prospects. Although the country has enjoyed rapid economic growth on the back of the energy sector, it is expected to have reached peak oil and gas in 2011. As a result, investments in its energy sector are expected to come to a halt – and Qatar’s GDP growth forecast for 2015 has fallen. Qatar is currently undergoing major infrastructure and tourism developments in an attempt to replace energy revenues in coming years and is, therefore, likely to improve its position in the future.
Moving four places down the rankings was Egypt (13), on the back of increased business costs associated with crime, violence and terrorism.
At the bottom of the rankings, Paraguay (39) performed the least well, falling below Kenya (37) and Bolivia (38). A weak economy, poor infrastructure developments and security threats (especially the latter in the case of Kenya) make these markets the least attractive for investment by logistics companies.
Africa, in general, is seen as a distant potential alternative to the Asia Pacific region as a future manufacturing hub, although many infrastructure, security and business compliance challenges remain to be overcome.
