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.
Yet 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.
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 provider of 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.
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. "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."
Brazil holds steady at third - but infrastructure remains a challenge
Brazil ranks third behind China and India and saw an overall score increase driven by improvements in its market compatibility and market size and growth. Although 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.
Brazil also placed third in the survey, when respondents were asked to rank countries with the biggest potential to become a major logistics market in the future.
Trade lane analysis ranks the Brazil/EU sea freight trade lane third largest after China/EU and China/U.S. Exports from Brazil to the EU (by sea) in 2011 were estimated at 33.2 million tons. Looking at air transport, the trade lane Brazil/EU ranks No. 7 with an estimated 100 million tons in 2011.
Mexico: FDI holding up in face of violence and crime
Mexico clings onto top 10 status in this year's Index. It has seen a continuous decline in its score due to high levels of crime and violence caused by drug-related trafficking. In consequence, the country's score for market compatibility, already much lower than other same-size economies, declined further. Mexico's geographical location and strong connections with the U.S. have been major advantages for the country and its investment potential. Global recession has hit Mexico hard and has resulted in reduced exports to the U.S.
On the plus side, the country has seen reasonable economic growth in recent years and also benefits from a strong service sector. In addition, FDI into Mexico remains high and does not seem to be deterred by crime levels - reflecting the relatively easy access to its market and economy Mexico offers international companies.
While the trade lanes Mexico/U.S. and Mexico/EU are not ranked top nor considered a fast growing route by sea, the Mexico/EU trade lane (by air) makes the top 10 with a volume of 95.4 million tons in 2011. The same trade lane also ranks No. 10 when looking at fastest growing routes with an increase of CAGR of 9.5 percent in the past six years. Mexico also makes the top 10 of emerging market importers, importing 95 million tons by sea from EU, underscoring the size of its economy as well as a growing domestic economy.
Trade lane analysis - Argentina, Bolivia and Paraguay all markets to watch
Argentina ranks No. 4 in the top 10 sea freight trade lanes, exporting 28.44 million tons of agricultural goods and raw materials to Europe in 2011. Underscoring the development of Argentina as a market to watch, the country takes a top 10 place in the survey ranking of markets targeted for further expansion. The fastest growing trade lane out of South America is Bolivia sea freight exports to EU, growing at an impressive CAGR of 20 percent in the last six years.
In terms of imports to emerging markets, Paraguay leads the ranking given its considerable growth in imports from both the EU and the U.S. by sea over the last six years. The country also takes top place with imports from the EU by air at a CAGR of 27.1 percent since 2005. However growth has been driven from a small base. In terms of total tonnage shipped, the country still ranks poorly compared with other emerging markets included in the Index.
In terms of air transport, the largest trade relationship is between China and the EU, but Colombia, Chile and Peru also rank in the top 10. These countries export a large quantity of perishable goods which, due to their short shelf life, tend to be transported by air.
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