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Agility Emerging Markets Index: GCC countries show resilience

The UAE and KSA emerge even stronger in the annual Agility Emerging Markets Logistics Index despite the challenge of COVID-19

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The UAE and Saudi Arabia have retained their top positions in Agility’s annual look at emerging logistics markets.

Agility first created its Agility Emerging Markets Logistics Index report with research partners Transport Intelligence (Ti) 12 years ago to look at the competitiveness of countries that were capturing foreign investment, expanding the global middle class, joining the knowledge economy, and becoming indispensable as suppliers, markets and innovators.

In that time the UAE and Saudi Arabia have risen through the ranks of the 50 leading emerging economies and today stand at three and sixth in the top ten on the list. Both are firmly among the leading markets of their peers and have only strengthened their positions in a year ravaged by the Coronavirus pandemic.

Chris Price, CEO, Agility Global Integrated Logistics says the 2021 Index and its survey of 1,200 supply chain executives offers a few clues as to how COVID-19 is reshaping the logistics sector globally.

“Industry executives don’t foresee a full global recovery until 2022 or beyond, despite a surprising rebound in key Asia-Pacific markets such as China and Vietnam. While= the Eurozone economy was shrinking 7.4% in 2020 and the U.S. economy contracted 3.6%, China overcame a disastrous first quarter to post year-on-year GDP growth of 2.3% in 2020,” he remarks on the report.

“By a two-to-one ratio, companies are choosing to build supply chain resilience by speeding their adoption of digital technology and moving more of their business online vs. moving production to markets that they feel are somehow safer. Nineteen percent of executives surveyed say 2020 sales decreased as a result of the pandemic but only 10% say Covid-related employee safety measures have decreased efficiency.”

According to Price, cost is driving emerging markets investment and globalisation, “but low-cost labour is barely a consideration today. After total cost, the executives we surveyed say the most important factors are government bureaucracy and regulation; infrastructure quality; and supply of skilled labour. The pandemic accelerated the e-commerce revolution in every region of the world. Online sales growth eclipsed pre-Covid forecasts, and digital purchases gained a larger share of wallet.

“What we don’t know – because there is little reliable data – is how small and medium-sized companies have weathered the storm,” he says. “A number of factors continue to cloud the emerging markets outlook for 2021. Most worrisome is the slow, uneven rollout of Covid vaccines and the prospect that populations in many emerging markets could be the last to get access.”

He adds: “A worry of mine is creeping trade protectionism and, with it, the increasingly costly and complex burden of compliance. Here’s hoping we keep it from choking off trade, the lifeblood we need to speed the global economy and emerging markets toward recovery.”

In the survey of 1,206 logistics industry executives, 51.5% believe the global economy will not fully recover from the Covid-19 pandemic until at least 2022. However, many are more optimistic for the recovery prospects of Asia Pacific, Europe and North America ahead of that timeline. While this will clearly benefit Asia Pacific’s emerging markets, recovery in the key consumer markets of North America and Europe will drive demand for commodities and goods produced in emerging markets globally, powering a wider recovery. Latin America and Sub-Saharan Africa are likely to be the last regions to recover, according to survey respondents.

Reinforcing the caution over recovery prospects, 49% of survey respondents say the International Monetary Fund’s 2021 forecast of 5.9% GDP growth for emerging markets is too optimistic; 42% say it’s about right.

Despite the caution, the global downturn has the logistics industry feeling opportunistic – if not optimistic – about emerging markets. Fifty-two percent of respondents say they plan to increase business activity in emerging markets or are expressing more confidence in those markets. Only 19.5% say they are less confident in emerging markets.

Logistics executives felt disruption across the entire supply chain in 2020. Significant percentages say they have struggled to cope with port congestion, transportation capacity, supplies of parts and inputs, distribution and delivery, maintaining international operations, and storage. In their own operations, industry executives say the most acute pain points in 2020 were planning and forecasting for both supply and demand. Managing orders and cash flow were the areas next most affected by the pandemic.

Nineteen percent of executives surveyed say 2020 sales decreased as a result of the pandemic. But only 10% say COVID-related employee safety measures have decreased efficiency.

Sixty percent of logistics executives in the survey say the pandemic has resulted in permanent changes to the way their businesses operate globally or regionally. About 25% said it’s too soon to tell.

How are logistics executives trying to build more resilient supply chains? By a two-to-one margin, they favour accelerated adoption and integration of technology plus enhanced digital business (40.3%) over movement of production through multi-shoring, near-shoring or reshoring strategies (20.9%).

Logistics executives plan to harden their operations and build supply chain resilience in 2021 by focusing on business-continuity planning; tech and automation improvements; and strengthening their financial viability.

Shifting production to other manufacturing locales is a low priority for them.

The online retail and healthcare/pharma sectors are expected to see extremely strong growth in 2021. The automotive, store-based retail and industrial sectors will struggle. No one type of business is seen as powering the recovery: small and medium-sized businesses, multinationals, and large regional players in emerging markets are expected to play roles.

China and India are executives’ choices as the top future logistics markets, although the two countries flipped positions with China on top and India now No. 2. Saudi Arabia and Kuwait gained the most ground. Logistics  executives rank Saudi Arabia No. 7 among countries with the most potential to grow as logistics hubs, a leap from No. 10 a year ago; Kuwait climbs three spots to No. 20. Egypt and Qatar both rise two spots, to No. 15 and No. 19, respectively.

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