MENA trade with US, EU, Japan and Rest of Americas set to lag global average

Ernst & Young’s Emerging Markets Forum 2012 projects growing trade with emerging markets

The Middle East and North Africa (MENA) trade flows will grow fastest with Russia, India and China over the period 2012 to 2020, according to Ernst & Young’s forecast ‘Trading places: The emergence of new patterns of international trade,’ in conjunction with Oxford Economics. Beating the global average of trade growth that is set at 9.4% per annum, MENA trade with Russia will grow at 14.4% p.a., with India at 13.5% and with China at 12.5% through to 2020. On the other hand, annual MENA trade growth with US (8.4%), EU (7.7%) and Japan (7.3%) will lag the global trade growth average of 9.4% p.a.

Jay Nibbe, EMEIA Markets Leader, Ernst & Young, comments: “While advanced economies muddle through the financial crisis, the rapid-growth markets are going from strength to strength and are an increasingly significant part of the global economy. They will become an even more dominant force in global trade and as a result, businesses are going to have to adjust their strategies to reflect the increasingly regional pattern of world trade.”

Balance of trade to shift permanently to the east

The report, part of Ernst & Young’s Growing Beyond series, reveals that global trade which has long been dominated by advanced economies is now shifting permanently eastwards. Asia-Pacific will experience the fastest growth in global trade through to 2020 and intra-regional trade there will lead to a renewed concentration of international demand.

Growth of India’s trade flows, at over 15% p.a. with all regions of the world, will be fastest through to 2020. India-China trade growth, at 21.7% p.a., will be the highest in the world.

Global trade across Asia to 2020

Ernst & Young estimates that the continuing shift toward global outsourcing of production, as well as the growth of regional supply chains to serve the rapid expansion of demand from rapid-growth markets, will compress the share of the advanced economies in global trade from a little over 60% in 2010 to around 55% by 2020.

Asia will continue to be the most dynamic region in terms of trade, with the fastest growth of exports in goods occurring within the region itself. India and China will drive the continued rise of the emerging markets and together these economies will account for almost one-fifth of global trade flows by 2020.

India and China also represent the fastest growing source of demand for exports from other countries. The forecast shows that two of the most rapidly growing trade routes will be US exports to China and India, which Ernst & Young see growing at an average annual rate of almost 16%.

Bassam Hage, MENA Markets Leader, Ernst & Young, says: “The degree of change in both the scale and direction of trade will have a profound impact on the competitive environment for all companies wherever they are located around the world. Trade will also be increasingly focused around Asia, the Middle East and Africa, suggesting that the key geographical location for companies will change. Indeed, Europe’s exports to Africa and the Middle East are forecast to be around 50% larger than its exports to the US.”

Europe’s share of global exports will decline from 38% in 2010 to 34% by 2020. However, the forecast shows that Europe is the developed region that will gain the most in terms of export values from the expansion of demand in China, with exports to China rising by US$370b over the next ten years. China’s predicted exports to Europe at over US$1trillion will be almost twice as large as US exports to Europe.

Regional patterns of trade

New markets for exports are also opening up within MENA and Sub-Saharan Africa as these economies grow in size. Total exports to these regions are forecast to grow more rapidly than exports to the US, Europe, Japan and the rest of the Americas. Richer economies in the region, particularly the oil-exporting economies of the Middle East, will also represent increasingly important sources of final demand for manufactured products.

“Total exports to Africa and the Middle East are forecast to grow more rapidly than exports to the US, Europe, Japan and the rest of the Americas. Although these new markets represent potentially exciting new opportunities, companies in developed nations will face increasing competition from firms in Asia, as well as Latin America, when seeking to supply these expanding sources of demand. In the sub-Saharan Africa and MENA regions, our forecasts indicate that the fastest-growing sectors will be metals, chemicals, other manufactures and machinery and transport equipment, with broadly similar average annual rates of expansion of around 11%,” adds Bassam.

Ernst & Young’s Emerging Markets Forum 2012 in Dubai showcases opportunities in Russia, India, China, Turkey and Africa

Delegates at Ernst & Young’s Emerging Markets Forum 2012 in Dubai echoed the global trend and the growing interest to trade with the emerging markets and economies. The forum offered an interface for senior Ernst & Young leaders in emerging economies and corporates who are either operating in or actively looking to expand to these emerging markets.

Bassam concludes: “Business leaders, entrepreneurs and other C-suite executives were updated about the business landscape, prospects and investment opportunities by Ernst & Young’s country and area leaders of Russia, India, China, Turkey and Africa in their respective markets. As a global practice that operates across country borders, we are in a unique position to offer valuable insight on the key issues facing our clients through our thought leadership reports and the extensive experience of our leaders.”