Growth opportunities offered by emerging markets outweigh concerns about the political and economic turmoil that rattled some developing countries in 2013, a survey of global logistics and trade executives shows.
Seventy-four percent of logistics professionals view prospects for emerging markets as “good” or “very good” for 2014, an annual survey of industry executives shows. Respondents remain optimistic despite signs that growth is slowing in China, stalled in Brazil and India, and uncertain in other countries that could suffer if the United States reins in monetary stimulus, as expected.
The logistics industry’s optimism comes despite moves by the International Monetary Fund and the Organization for Economic Cooperation and Development to cut 2013-2014 global growth forecasts, citing concerns about emerging markets. Emerging markets currencies and financial markets came under pressure in 2013 amid worries of a possible ripple effect from tighter U.S. monetary policy.
The survey of more than 800 industry executives is part of the fifth annual Agility Emerging Markets Logistics Index. The 2014 Index ranks 45 major emerging markets and identifies factors that make them attractive for investment by logistics companies, air cargo carriers, shipping lines, freight forwarders and distribution companies. The Index and survey provide a basis to compare countries, weigh their progress and look at their near-term prospects.
The 45 countries featured in the 2014 Agility Emerging Markets Logistics Index were projected to grow at an average of 6.2% in 2013. The U.S. economy expanded 2.9%, while the European Union grew 1.4%, according to IMF projections.
“The industry’s confidence in emerging markets shows that logistics executives take a long view and see beyond today’s headlines,” said Essa Al-Saleh, President and CEO of Agility Global Integrated Logistics. “In the past, currency pressures, investor jitters, political instability or a pause in growth was a major setback that undermined confidence about other emerging markets. This time, the industry is staying focused on their enormous potential.”
“Not only does the majority of the world’s population reside in emerging markets, but these markets offer expanding middle classes and a younger average age compared to the more developed markets of the U.S. and Europe,” said John Manners-Bell, Chief Executive of Transport Intelligence, which compiled the Index. “The need to meet the rising needs of these markets is a great opportunity for logistics providers, but it will also prove a bumpy process as economic, political and other risks will need to be navigated carefully.”
China, Brazil and India – three of the so-called BRIC countries, along with Russia – dominate most discussions about emerging markets because of their size. They rank at the top of the Index again this year, but all three experienced erosion in their raw Index scores, suggesting that they need to take steps to improve their business climate and make additional investment in infrastructure.
Despite a troubled economy, Brazil knocked India out of the No. 2 spot. India fell to No. 4, below Saudi Arabia, amid concern about chronic economic problems, lack of clear direction on the economy and a weaker rupee.
“This probably says as much about India’s weakness as Brazil’s strength,” Al-Saleh said. “Both face tough choices. Brazil has shown more willingness to make them, perhaps because policymakers feel pressure as the country gets ready to host the 2014 World Cup and 2016 Summer Olympics. India continues to put off difficult decisions.”
Strength in the Gulf
Gulf countries Qatar, UAE, Oman, Saudi Arabia and Kuwait, along with nearby Jordan, dominate the Market Compatibility portion of the Index, which looks at whether conditions are favorable for business and trade.
Among the largest emerging economies, no country has improved its position as much as Saudi Arabia, which climbed to No. 3 in the 2014 Index from No. 9 five years ago. Saudi Arabia is in the midst of an unprecedented public spending binge, building and expanding airports, roads, ports, universities, industrial complexes and other infrastructure in an effort to diversify, lessen dependence on oil, and create jobs for millions of young Saudis.
Qatar and Oman – joined by Chile – make up an elite group in the Index. They are relatively small economies (annual GDP of less than $300 billion) that outperform both their peers and larger emerging economies based on the strength of their accessibility, their vibrant service sectors and world-class transportation infrastructure.
Twelve of the 13 countries ranking worst in the area of Market Compatibility were African and Latin American countries.