Emerging Markets: Moving forward with modernization

The world is experiencing major upheaval from increased trade barriers, labor costs, and exponential supply chain risks. According to WTO, there has been a +250% increase1 in the number of trade barriers over the past 10 years. Additionally, over the past several decades, we’ve seen the Asian financial crisis, the internet bubble crash at the turn of the century, political unrest, the war on terror, a global recession in 2008 and now COVID-19.

Prior to COVID-19, the logistics industry and their partners were already evaluating provider networks, technology automation, environmental impacts, and political and legal impacts of expanding within emerging markets. While COVID-19 added complexity to a challenging environment, there are still many opportunities for growth in emerging markets.

The major growth has come from recent changes in U.S.-China trade war negotiations, which have led to an increase of foreign investment, infrastructure development, and merger and acquisition (M&A) activities in other emerging markets. These other emerging markets include, but are not limited to Mexico, India, UAE, Indonesia, Malaysia, Saudi Arabia, Qatar, Thailand, Turkey and Vietnam.

The other major contributors to expansion of emerging markets are increased access to capital, advancing systems and technology automation, and a trend for many toward streamlining import/export customs processes and procedures.

Investment & development activities

Many emerging markets have been affected by COVID-19, although the pandemic has not yet halted investment and growth in rail, road, air transportation, maritime and seaport infrastructure development. Most of these emerging markets are experiencing more investment due to these uncertain and turbulent times, capitalizing on increased investment and availability of a workforce that has been temporarily laid off.

Companies are hiring top talent as they have a pick of choices given higher unemployment rates. In addition, the U.S.-China trade relations continue to be a concern for companies and countries leading to pulling investment dollars away from China and moving toward emerging markets.

The impact of COVID-19 on annual logistics growth rates within emerging market countries is yet to be seen. However, with continued focus on infrastructure development, as people get back to work, projections will likely continue to show good growth.

Each region and country has specific programs in place to increase the logistics infrastructure for the future. For Thailand for example, according to the Thailand Board of Investment (BOI), growth in urbanized cities has created huge demand for transportation improvements, where foreign investment has been met with over $10 billion2 in funding from countries such as Japan, China, Switzerland, Taiwan, Singapore, Hong Kong, Netherlands, Australia, the United States and South Korea.

In January 2020, Turkey announced an investment of $767.5 billion3 dollars into infrastructure projects in road, rail, and shipping vessels within the next 17 years, according to The Daily Sabah.

In Vietnam, the economic growth has taken its toll on existing infrastructure, requiring massive investment in repairs and expansion. The growth in online shopping has also created several challenges and opportunities for transport and logistics expansion of services. Because of this rapid growth, programs are being implemented to improve and expand roads, bridges, air transport and railways to keep up with demand.

There has been a massive growth of economic activity in Mexico over the past 20 years leading to major exports from the United States, as well as production exports out of Mexico to the United States and Canada. This has led to the expansion of transportation, rail and airfreight logistics services. The investment has been focused on construction and modernization of roads, airports, maritime ports and railways.

Per the India Brand Equity Foundation, India recently announced an investment $777.7 billion4 in infrastructure by 2022 due to robust demand. There are many opportunities in India related to road and highway infrastructure development, leading to potential opportunities for outside investment.

This development has led India to secure $14.74 billion in private equity and venture capital investment in 2019. On top of that, government policies such as the “Housing For All” and “Smart City Mission” have increased visibility and investment attraction from major global investment groups. The government of India has laid out a robust infrastructure growth plan that includes highways, renewable energy development and urban transport development of the Metro rail.

Prior to COVID-19 in February 2020, the government budget for India infrastructure development put the goal and focus on transportation, connectivity, and solar power generation. In addition, India has plans for massive investment on roads, railways, airports, ports and waterway infrastructure maintenance and expansion.

The UAE has been rapidly growing infrastructure as well. The Vision for 2021 is to create a “sustainable environment and infrastructure.”5 With that goal in mind, the UAE government has developed a plan to provide safe, affordable, accessible, and sustainable transit. In fact, the estimated spend through 2023 is $6.8 billion6 on infrastructure projects for Dubai alone, with the goal being to increase transit efficiencies through multi-mode transit systems, improving air quality and reducing congestion.

With the advent of COVID-19, Abu Dhabi ports have been entertaining tariff relief for companies who have been impacted by COVID-19, but these decisions will be made on a company by company basis.

Indonesia experienced a 10.5% growth7 rate in 2019, and the disruption from COVID-19 is anticipated to affect growth only slightly as infrastructure development in railways, warehousing and transport logistics investment is continuing through 2020. Despite corrections in the estimated growth rate, Indonesia continues to be optimistic about the growth potential due to expansion of international and ocean freight movements driving demand for domestic trucking.

Some of the major trends in logistics within Indonesia include advanced technologies such as automated trucking platforms and e-commerce platforms that help manage costs better and improve the overall quality of services provided.

In Malaysia, a similar experience to that of Indonesia is occurring where the e-commerce marketplace for road freight transport has seen an increase in utilization. Despite COVID-19, Malaysia sees expansion and infrastructure development going forward.

As of February 2020, Saudi Arabia transportation and logistics services were poised for growth, with investments coming in over $140 billion8 to improve maritime, rail, road, air transportation, warehousing and distribution seaports. In addition, the plans are to raise over $135 billion8 in additional funds for similar projects. Although COVID-19 has created some uncertainty, plans are still in place and expected infrastructure investment will continue through 2020.

Moving forward

Overall, the common theme of the global logistics industry is that COVID-19 has made an impact on growth; however, the long-term effects in emerging markets may not be significant. Regardless of COVID-19 concerns, development continues to move forward, as emerging markets continue to put a significant amount of investment into infrastructure of roads, railways, maritime and ports.

Additionally, while U.S.-China trade relations continue to be a concern, investments are getting pulled away from China where possible and put into emerging markets with strong growth potential. Because shippers are pivoting toward more and more emerging markets, supply chains need to be redesigned.

While the good news is investments in infrastructure seem to be continuing, the question is will the pace of modernization be fast enough to avoid significantly increasing supply chain complexity leading to lengthier and costlier global trade.

Sources:

1. https://www.wto.org/english/news_e/news19_e/report_trdev_21nov19_e.pdf
2. http://www.boi.go.th/upload/content/TIR6_2019_5e2e956d55219.pdf
3. https://www.dailysabah.com/business/2020/01/09/turkey-invests-tl-7675b-in-transport-infrastructure-in-17-years).
4. https://www.ibef.org/industry/infrastructure-sector-india.aspx
5. https://u.ae/en/information-and-services/transportation/transportation-and-vision-2021
6. https://www.prnewswire.com/news-releases/uae-intelligent-transportation-system-market-2017-2023-the-uae-government-plans-to-spend-over-681-billion-on-infrastructure-projects-for-dubai-expo-2020-300584668.html
7. https://www.thejakartapost.com/news/2020/03/16/railways-warehousing-boost-logistics-sector-as-it-grows-by-10-5-in-2019.html
8. https://www.logisticsmiddleeast.com/35020-saudi-transport-and-logistic-services-4-6-february-2020