Emerging Markets Look To Capitalize On Shifting Supply Chains
Logistics challenges weighed on global economic growth in 2022. Capacity constraints highlight the need for greater infrastructure investment. Emerging markets are investing to capitalise on shifting supply chains. Inflation and high energy prices caused a slowdown in global trade volumes. Macroeconomic forces such as inflation, geopolitical tension punctuated by Russia’s invasion of Ukraine and spikes in commodity prices heightened supply chain disruptions in 2022, which included capacity constraints, higher freight costs, labour shortages and port slowdowns. According to a survey of logistics and supply chain professionals conducted in December 2022, some 71.8% of companies were dealing with supply chain disruptions, while 57.7% were trying to navigate transport capacity shortages. Of these respondents, 93% expected these challenges to continue into 2023. International trade surged in 2021 as countries reopened from the Covid-19 pandemic’s lockdowns, and this momentum carried over into the first half of 2022. Global trade volume reached a record $32trn for the year, buoyed by high energy prices, according to the UN Conference on Trade and Development (UNCTAD) report “Review of Maritime Transport 2022”. From the third quarter, however, trade flows eased, with East Asia the only region to post positive trade growth. The World Bank now expects global trade growth to slow sharply in 2023 to 1%. While a trade slowdown should help alleviate bottlenecks in supply chains, the advent of new strategies to mitigate them – including diversification of suppliers, reshoring, near-shoring and friend-shoring – means that supply chains are still shifting. This in turn presents opportunities for emerging markets to fill production and manufacturing gaps and develop stronger regional and global trade relationships. Production gaps The pandemic was broadly expected to result in unprecedented disruption to the mechanics of most economies , regardless of their size or stage of development. Despite its waning threat to global health, the pandemic’s effects have directly undermined some aspects of the global economy. Throughout 2022 China’s zero-Covid-19 policy prompted an economic slowdown, limiting manufacturing output and suppressing consumer demand . These policies had ripple effects across emerging markets, especially those whose manufacturing inputs are exported to China. For the first time in decades, China’s growth forecast of 2.8% in 2022 was set to be outpaced by the 23 other countries in the East Asia and Pacific region, which are forecast to see 5.3% growth. Since 2020 many businesses and governments have pursued a so-called China+1 strategy, diversifying their production capacity by setting up operations in other countries while still maintaining a significant presence in China. Perhaps no country has taken stronger steps to attract foreign investment and provide a regional manufacturing and supply chain alternative to China than Vietnam, whose increased exports to the US and other markets have helped stabilise the economy. Vietnam posted 8% growth in 2022, its highest rate since 2011, powered by 11.9% growth in the logistics sector. Two trade agreements signed before the pandemic – the EU-Vietnam Free Trade Agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership – laid the groundwork for this positive performance and augur well for the future. Bangladesh, India, Malaysia and Thailand have also replaced China in global supply chains, underscoring the strength of East Asia’s performance in 2022. Last year many analysts were predicting that the US would look to Latin America to meet its manufacturing and imports needs closer to home , and trade has indeed increased. After ranging between $30bn and $35bn in 2021, Mexican monthly imports to the US surged to all-time highs in 2022 of $37bn-41bn. China has even sought to invest in manufacturing facilities in Mexico to skirt US tariffs and cut delivery costs to the US. Meanwhile, the Community of Latin American and Caribbean States (CELAC), a bloc of 33 countries that includes regional heavyweights such as Argentina, Colombia and Mexico, signed the China-CELAC Joint Action Plan for Cooperation in Key Areas 2022-24, which covers a host of areas including infrastructure investment . The 43-country African Continental Free Trade Area has also prompted developments in African countries, such as Ghana’s ongoing efforts to establish special economic zones to increase manufacturing capacity and transform itself into a key processor and exporter . Ports and logistics As much as global supply chains need a greater variety of manufacturers and suppliers to fill production gaps and increase flexibility, ample infrastructure is required to ship production around the world. The primary cause of the disruptions and surges in freight rates in 2022 was a mismatch between the supply and demand of maritime logistics capacity. With […]
