There is a new global economy emerging. The countries that formerly dominated international trade are giving way to new markets in new regions that present important opportunities for the logistics industry. New middle classes in places like Latin America and Asia-Pacific are creating demand for products that were formerly out of reach. At the same time, these regions are stepping up manufacturing and their industries are growing. Satisfying new demands and markets requires logistics professionals in many forms, air forwarders and carriers included.
To better understand these issues, Business Insights spoke with Toby Edwards, vice president at Agility Logistics. His company recently released the Agility Emerging Markets Logistics Index, which compares 41 major emerging markets and identifies the key attributes that make a market an attractive investment for logistics companies. This is an important study revealing global economic trends and the opportunities they hold for air cargo and other logistics providers. In this two-part article, we present Edwards’ insightful perspective on the findings.
Business Insights: What are some of the highlights from the 2012 Index?
Toby Edwards: I think this year’s key findings were illuminating. First, emerging markets are showing unprecedented signs of strength, despite indications of a global economic slowdown. Output in a number of countries in the Index remained strong, a sign those countries are becoming less dependent on traditional markets in Western Europe and the United States.
Second, unrest across the Middle East has not destroyed confidence. In fact, many senior logistics professionals view the region as more attractive following the political unrest of the Arab Spring.
Third, origins and destinations in African and Latin American countries are among the fastest-growing air freight trade lanes because of rising demand for commodities and perishable goods.
BI: Speaking of Africa, you describe it as an important Frontier Market. What are your thoughts on the growing opportunities in Africa, and how do you think recent oil and gas discoveries there impact this?
Edwards: Africa is, and for the foreseeable future will continue to be, one of the fastest-growing economic regions in the world. The World Bank states that since the mid-1990s, the 15 fastest growing African countries (excluding the oil-rich countries) have had an average growth rate of at least 4.5 percent. In 2011, Africa’s IMF-projected 4.8 percent growth rate is the highest in the world outside Asia, and multinationals from across the world are growing their presence there.
We should also remember that Africa is a young continent – 60 percent of the population is below the age of 25, and it is projected that in 2040, the continent will be home to 1.1 billion working-age people. In addition, young African leaders are emerging, taking on executive positions in both the private and public sector. For companies willing to invest in Africa, these young leaders have great growth potential.
With an increasing middle class, the continent’s domestic market has evolved into the largest outside of India and China and consumer spending in Africa is growing two to three times faster than in the wealthy developed countries. Of course, oil and gas discoveries are consolidating the great opportunity Africa represents. With the world’s needs for natural resources increasing, Africa will remain an important source in the future as well.
However, we should remember that only one third of Africa’s growth comes from natural resources, with telecommunication, financial services, agribusiness and infrastructure playing an increasingly important role. This shift towards economic diversification in Africa is providing a well-balanced foundation for growth.
BI: You mentioned the Middle East remains an attractive region, despite the political unrest. Yet, the region appears to have dropped in terms of ranking. How have the Arab revolutions impacted logistics opportunities in North Africa and the Middle East?
Edwards: Anytime you have strife or uncertainty, in the short-term, it’s bound to have a negative effect. However, our business tends to be focused on essential goods and services and the consumption of those goods and services continues even during times of conflict. People still need to eat, they still need medicine, and our business manages distribution and supply chains around these essential goods. So even in challenging environments, companies still need our services to operate. And that’s really our role, to continue to do business and continue to give value propositions to our global customers that require solutions in emerging markets.
Longer term, we are very bullish on markets like Tunisia, Egypt and Libya. Some of the political turmoil we are seeing in the Middle East is bound to be good for business because as a result of the changes taking place, the government will become hopefully more responsive to the need for growth and development and be more private-sector oriented. They will need to actually create jobs to satisfy the demands of their constituents.
I think the biggest problem facing the Middle East is the public sector crowding out the private sector. You can look at this in two ways. If we look at the GCC countries, there are large public sectors relative to the private sector. This is reinforced by a surplus of oil funds and in the long run, the size of the public sector will crowd out investment and stop the private sector from reaching its full potential. If we look at some of the other countries in the Middle East, like Egypt or Syria, it’s surprising to see that these countries also have very large public sector concepts, but they tend to stifle growth and entrepreneurship to create new businesses.
I think the hope is that the Middle East has a public sector that is diminished in size and a private sector that grows exponentially to create jobs and opportunities for the population. The population is very young – about 50 percent of the population in many Middle East countries is between 14 and 25 years old. Failure to create opportunities for them in the long run is a recipe for disaster. So, we are hoping to see a diminishing public sector and an exponentially increasing private sector.
Check back with Business Insights for Part 2 of this important interview.