The UK’s departure from the European Union is unlikely to damage emerging markets economies and could even help by providing them with wider market access, according to a new survey of more than 500 global logistics industry executives.
The survey findings are part of the 2018 Agility Emerging Markets Logistics Index, an annual ranking of the world’s 50 leading emerging markets as measured by size, economic strength, infrastructure, transport connections and business climate.
In the survey of supply chain industry professionals, nearly 45% of executives say emerging markets will be largely unaffected by Brexit. More than 25% say emerging markets stand to gain, an indication that the UK-EU divorce is seen by some in the logistics industry as a possible catalyst for new trade agreements between emerging markets countries and the UK and EU. Only 12% of industry executives see Brexit damaging emerging markets.
The findings represent something of a turnaround in sentiment. A year ago, 69% of executives surveyed said they worried that the UK’s Brexit vote and breakdown of regional and global trade talks signalled a retreat from free trade.
“The big worry a year ago was that the Brexit vote and U.S. election results represented a desire to pull back from free trade and that an anti-trade backlash would hurt emerging markets economies,” said Essa Al-Saleh, CEO of Agility Global Integrated Logistics. “Those concerns have waned, especially when it comes to Brexit.”
Key survey and index highlights
- In the 50-country Index rankings, Russia climbed three spots to No. 7 after years of declining performance brought about low energy prices, capital flight and U.S. economic sanctions. Russia’s economy stabilized and showed modest growth in 2017 after a wave of corporate cost-cutting, banking industry consolidation and economic reform. Russia also benefitted from Saudi-led efforts to persuade major oil producers to rein in production.
- Turkey slipped one place to No. 10 in the Index, despite blistering 11% growth in the third quarter of 2017. Turkey is still recovering from the after effects of a failed coup in 2016, when the economy shrank nearly 1%. International economists warn that Turkey needs to raise interest rates to control inflation and avoid overheating.
- In volume terms, air freight and ocean freight lanes from the EU to Turkey were among the fastest-growing emerging markets trade lanes in 2017. Automotive assembly locations in Turkey continue to be critical to the strategies of European vehicle makers.
- Kazakhstan slumped six places to No. 20 in the Index, despite increased oil production that helped lift growth and release of a long-term national development blueprint that emphasizes high-tech and green industries, along with diversification from commodities.
- China and India top the 2018 rankings and put more distance between themselves and No. 3 UAE in the Index, a broad gauge of emerging markets’ competitiveness. Brazil, struggling to emerge from political turmoil and its worst recession in a century, slips two places to No. 9.
- Industry executives can’t agree on the future of the North American Free Trade Agreement, which has come under intense criticism from the Trump administration. The United States, Mexico and Canada are in negotiations aimed at updating the agreement. Logistics executives surveyed were sharply split about whether a new pact would help Mexico (24.3%); hurt Mexico (21.8%); or leave trade unchanged (25.7%).
- Egypt surges six spots to No. 14 — the largest jump by any country in the 2018 Index – and rockets up 26 places to No. 21 in the separate category ranking countries’ business conditions, or Market Compatibility. Bangladesh (No. 23) and Uruguay (No. 25) both leapfrogged four spots in the overall rankings.
- Nigeria, Africa’s largest economy, tumbled to No. 31 from No. 24 a year ago. In spite of its potential, Nigeria ranks next-to-last in infrastructure and transport connections, or Market Connectedness, and 46th in business climate. Also falling: Venezuela slumped to No. 48, and ranked dead last in Market Size and Growth Attractiveness; Kazakhstan fell six places despite a resumption in economic growth and announcement of a long-term development blueprint.
- Gulf countries continue to dominate the top of the rankings when it comes to emerging markets business conditions. UAE, Qatar, Oman and Bahrain outpaced all other countries. Saudi Arabia was No. 8; Kuwait was No. 16. Gulf countries also rank toward the top in quality of infrastructure and transport connections: UAE (1), Bahrain (5), Oman (6), Saudi Arabia (7) and Qatar (8) were top performers.
- Fifty-five percent of executives surveyed say small and medium-sized businesses – those with fewer than 250 employees – will benefit most from emerging markets growth. Twenty-six percent said large companies would be the biggest beneficiaries.
- India and China are the logistics industry’s favorite investment destinations, but Vietnam leads a second group that includes UAE, Brazil and Indonesia.
- Algeria, Ukraine and Ethiopia made big improvements in business conditions. The business climate deteriorated in Sri Lanka, Cambodia, Tanzania, Lebanon and the Philippines.
- The percentage of supply chain executives whose companies are considering investment in India jumped to 37.4% from 22.8% a year ago, following the rollout of India’s Goods & Services Tax unification and other reforms.
- The countries improving their infrastructure and transport connections most were India, Indonesia, Turkey, Egypt, Iran, Pakistan, Argentina and Bangladesh. Infrastructure and transport rankings fell for Kazakhstan, Sri Lanka, Colombia, Brazil, Thailand and Kuwait.
Transport Intelligence (Ti), a leading analysis and research firm for the logistics industry, compiled the Index.
John Manners-Bell, Chief Executive of Ti, said: “Emerging markets enjoyed favourable market conditions in 2017 with trade growth the healthiest in years. However, there are many storylines yet to fully unfold, such as China’s debt, the renegotiation of NAFTA and ongoing political and economic transition in the Middle East. While the going looks good for now, there are numerous challenges on the horizon.”