Landlocked, with a history of civil war and famine, enveloped by Somalia to the east, Sudan and South Sudan to the west and long-time adversary Eritrea to the north, Ethiopia is starting from a much lower base than any other country on this list. But over the past couple of years, people in trade have been speaking of it in excited, if still slightly hushed tones.
With the death of prime minister of 17 years Meles Zenawi in 2012 went some customs and factors that were clearly holding Ethiopia back. The bitter border war with Eritrea was perpetuated by personal animosity between Zenawi and his counterpart to the north, Isaias Afewerki. While relations have not been completely normalised, they’ve improved markedly.
His successor Hailemariam Desalegn is marginally more open to foreign direct investment (FDI). Earlier this year, the Swedish companies H&M (textiles) and Ericsson (mobile phones), announced plans to open their first manufacturing bases in Ethiopia – among the first western companies to do so. The country’s proximity to the Middle Eastern markets, as well as the abundant cheap labour, are said to have been persuasive. But Ethiopia is still relatively closed.
Despite the images of starving children ingrained in the minds of many throughout the 1980s famine, Ethiopia is an arable country. It was years of mismanagement that led to the drought and hunger that killed up to 400,000 between 1983 and 1985. Crops of berries, sorghum, fava beans, pea beans, linseeds, cotton, lentils, chick peas and – of course – coffee, make it a country with huge exporting potential (agribusiness already accounts for 60% of exports).
Elizabeth Stephens, head of credit and political risk advisory at JLT Specialty, tells GTR that with demand for foodstuffs increasing in the barren deserts states across the Gulf of Aden, she expects to see mega-farms cropping up in Ethiopia over the coming years. “There’s a lot of Gulf money going into Ethiopia,” she says. “They’ve injected a huge amount of money into the economy, developing the infrastructure as well as irrigation.”
Ethiopia has also been innovative in its approach to commodity trade facilitation. The IFC and the Ethiopia Commodity Exchange (ECX) established Africa’s first warehouse receipts financing initiative, which helps improve productivity and efficiency in the agribusiness sector. The programme has been running for two full seasons and, in that time, the final take for farmers on their commodities has risen from 30% to 64%. Makiko Toyoda, the senior trade finance officer who has managed the IFC’s involvement, tells GTR that they’ve also helped install a coffee washing station which allows the country to export value-added goods, rather than just raw materials.
Other recent boons include the discovery of oil in northeast Kenya, with Tullow Oil, the firm that located Kenya’s crude, beginning exploratory drilling in Ethiopia, and the development of bordering Somaliland. Somaliland hopes to become a regional hub for transport and logistics. Located at the apex of the Horn of Africa, the mooted investment of Somaliland’s air and maritime facilities (paid for by Kuwaiti petrodollars) would offer an alternative to Djibouti as an exit strategy for Ethiopia’s 92 million citizens.
Phoenician traders established salt and ore depots along Morocco’s coast and rivers in the 12th century BC and the Berbers had well-trodden trade routes with Carthage 200 years later. 2,600-odd years on, Morocco has a grand ambition of once more becoming a pivot for regional trade.
“Morocco is positioning itself as a trade and investment hub for West Africa, a market 322 million strong, and expected to record one of the world’s fastest growth rates at 6.6% in 2013,” Dr Florence Eid, chief economist at economic research firm Arabia Monitor tells GTR. “60% of Morocco’s exports to Sub-Saharan Africa (SSA) are bound for West Africa. Close trading relations between Morocco and Côte d’Ivoire, Guinea and Senegal present an opportunity to scale up existing product niches and capture market share in basic manufactures, food products and fertilisers, among others.”
BMCE, one of the country’s leading commercial banks, is now making more money from outside of Morocco than in it, with the bulk of this coming from West Africa. “It makes it an interesting trading partner for any exporter or importer interested in SSA,” Naima Smaini, an economist at the EBRD tells GTR. “They’ve created very good links and are providing funding for exporting. This is their objective: they want to become the compulsory trading partner for companies wanting to do business in SSA.”
Conservative Morocco’s banking sector has always been strong. While it only has Africa’s sixth-largest economy, it is home to three of the 10 largest banks. In the Casablanca Stock Exchange, it has Africa’s third-largest by market capitalisation. The establishment of Casablanca Finance City is further evidence of Morocco’s wish to position itself as the gateway to Africa.
Politically, Morocco is much more stable than many of its neighbours. Protests in 2011 didn’t reach the same scale as those in Tunisia, Libya or Egypt. King Mohammed VI’s rhetoric points towards liberalisation and reform, but he still retains a controlling stake in the third-largest bank, Attijariwafa, for instance. However, the relative stability has led to more FDI than in some of the surrounding nations.
“Authorities have been actively promoting FDI in sectors with high export potential, such as automotive and aerospace, which are key to rebalancing Morocco’s economy,” says Eid. “For example, the Renault factory in Tangiers, with a production capacity of 400,000 cars a year, is positioned to meet most of the anticipated demand for cars across West Africa. Imports of cars in West Africa are growing at the fastest rate in the world.”
The relative fortunes of traditional and contemporary export sectors speak volumes about Morocco’s focus. The aeronautic and automobile sectors have grown by 31% and 138% over the past year, respectively, compared with textiles, the exports of which fell by 1.9% over the same period. Textiles have suffered from the fall away in demand in the eurozone. Morocco’s future success will be dependent on how quickly it can take advantage of burgeoning West African demand, at the expense of anaemic Europe.
In August, just over 1,000 Mitsubishi Mirage hatchbacks were loaded onto a ship docked at Laem Chabang, near Bangkok. They were bound for the US, the first batch of many, the Thai government hopes. The volume is as yet low: Mitsubishi expects just 7,200 sales of this particular locally-revived model stateside, but figures elsewhere are telling. In 2012 there were over a million cars exported from Thailand. In 1995, there were fewer than 10,000.
“We’re beginning to see a pattern around the world in each region where we have ‘new Chinas’ coming through,” says Rebecca Harding, founder and CEO of Delta Economics, a research firm. “They’re not the same scale or size as China, but they’re taking the role that China took in each of their regions. I’m very bullish about Thailand: you’re seeing a massive amount of innovation there. The car trade, medicines and electronics… it’s higher up the value chain than some of the stuff that’s happening in Malaysia, Indonesia or China.”
As GTR goes to print, the Thai economy is in recession, after an unexpected contraction in Q2. But analysts view the dip as an anomalous result of weak global demand. Nonetheless, the country’s prospects continue to divide opinion. Almost everyone agrees on its potential: there are 300 million people living within a one-hour flight of Bangkok. Fly for three hours and you can reach a billion. But the population is ageing and the education system and infrastructure outdated. These are but three of the obstacles Thailand must overcome if it is to blossom.
“Thailand’s location means it has an advantage over other Asian economies,” Johana Taborda, an analyst at Trading Economics tells GTR. “It is more developed than the likes of Vietnam and Malaysia [in trade terms] – its manufacturing is more advanced. But if it is to become a trade hub, structural changes must take place. First and foremost, it needs to upgrade its infrastructure. The economy needs to shift from being road-based to rail-based. The proposed high-speed rail (HSR) project would improve the manufacturing sector and attract investment in research and development. With that, comes innovation in areas such as software.”
The HSR project would eventually link Bangkok with Kunming in China via Laos, as well as link it to Malaysia in the south. But it would come at an estimated cost of US$43bn. China premier Li Keqiang addressed the Thai parliament in October, seeking support for the HSR. He hopes that Thailand will spend much of its infrastructural budget on Chinese equipment and expertise. In return, he said China will seek to boost bilateral trade to US$100bn by 2015, with China buying vast quantities of Thai rice and rubber. It seems that if Thailand is to succeed in becoming ‘a regional China’, its fortunes may be inextricably linked with the original.
They were sharpening the knives the very moment Jim O’Neill dotted the ‘i’s and crossed the ‘t’s of his 2001 paper, The World Needs Better Economic BRICs. His theorising sparked a frenzy of debate and a plethora of neologisms, many of which included an ‘M’ for Mexico. MRIC, unfortunately, has less of a ring to it, but for many economists, Mexico has much better trading prospects than Brazil.
“We’ve been saying for some time that Mexico will outperform Brazil,” David Rees, emerging markets economist at Capital Economics tells GTR. “Brazil is facing structural problems: an over-reliance on consumption, a lot of household debt and uncompetitive local industries. Mexico is less protectionist than Brazil. It ships a lot of oil, but its economy isn’t particularly reliant on commodities. It has competitive industries and close links with the US.”
As ever, where Mexico is concerned, its fortunes are largely-tied to those of the US. People like to talk of ‘the new Cold War’ – one that’s based on manufacturing and exports, rather than warheads and missiles. During the 1990s, the US outsourced a lot of its manufacturing capacity to China. In recent years, though, it has made an effort to localise its manufacturing, due in part to its perceived vulnerability in the face of Chinese growth. “The US and China don’t want to give their secrets away,” says Rees.
It’s a view shared by Rebecca Harding of Delta Economics, who sees Mexico being the main beneficiary of this freeze-out. “Mexico will benefit from this,” she tells GTR. “It’s becoming a regional powerhouse in areas such as telecoms, cars and oil. Compared with Brazil, Mexico is a much bigger trade economy. Brazil could learn a lot from Mexico in terms of how it has structured its resources and output.”
Part of the challenge for Mexico will be moving up the value-add chain. Currently, it can expect to cling to the coattails of US growth as an assembly hub. But there has been promising growth in industries such as aerospace and heavy engineering. Areas such as these could reasonably expect to see further growth as the US continues its policy of onshoring.
The perceived risk of investing in Mexico has also improved. Having spent much of the last couple of decades under the cloud of the War on Drugs, investor confidence is growing in the efforts made by Pena Nieto, the president, to instil reform. The US$3.2bn Etileno XXI project financing took place in Veracruz last December and was the first time the private sector was allowed to invest in Mexico’s petrochemicals sector.
Since then, Nieto has tried to crack open Pemex, the national oil monopoly and the world’s eighth-largest oil company, to allow the likes of Shell and Exxon Mobil to move in on a risk and profit-sharing basis. Many locals see it as the selling-off of Mexico’s most valuable resource – and it’s hard to argue with the sentiment. Investors, however, will be monitoring the situation very closely.
CIS & EUROPE: TURKEY
Along with Mongolia (which was excluded from this list because of the monochromic nature of its trade prospects), Turkey was the country mentioned more than any other by interviewees in researching this piece. “I think that’s a measure of its trade performance over more than a decade,” says Cagatay Bircan, a research economist specialising in Turkey at the EBRD.
The country was a snapshot of volatility throughout the 1990s, a trend arrested by the arrival of Recep Tayyup Erdoğan as prime minister in 2003. Turkey is now a top 20 country by GDP, but with its exports economy ranked back in 28th position, it has clearly-stated ambitions of improving. By 2022, it hopes to have a trade economy of US$1tn, with 50% of this coming from exports.
“At this point it’s not very realistic,” Bircan tells GTR. “Right now exports are at US$150bn, but it shows ambition.” It’s this ambition and drive that excites people about Turkey’s trade exports. Naima Smaini, also an EBRD economist, speaks of the visibility Turkish traders have overseas. “When you go to Morocco or Tunisia, you constantly see Turkish business people. They are everywhere! It’s obvious that they have ambitions of being a global power.”
In 2000, the Mena region accounted for fewer than 5% of Turkey’s total exports. In 2010, that share had risen to 20%, mostly at the expense of Western Europe. Turkey’s government made a conscious decision following continual spurning by the EU and the subsequent crisis in the eurozone to diversify the destination of its exports. It’s this geographical spread which is one of its strengths.
“You’ve got a big iron ore trade corridor beginning to emerge between Turkey and Brazil,” adds Rebecca Harding of Delta Economics. “And China is becoming more expensive, so Turkey – along with Poland – is benefitting from this on a regional basis.”
The chief challenge Turkey faces in the coming years is replicating the diversity of its trade routes in the composition of its basket of goods. Over the past 20 years, there has been some movement. The country has gone from being a major textiles exporter to a major exporter of automotive parts. But the next decade must see Turkey move an additional rung or two up the technological and innovation ladders. The real target should be to emulate South Korea, which had a similarly mercurial growth trajectory, but for which high-tech goods now account for almost 30% of exports.
Politically, Turkey is becoming a strategic player in its region. While the internal strife earlier this year, along with its proximity to Syria, may have cost it the chance to host the Olympic Games, it had generally minimal impact on the economy.
Turkey is remarkably adept at divorcing political tension from economic activity. It has also been one of the big winners of the rebuilding job in Iraq, where much of the work is being done by Turkish construction firms. It’s well-positioned to profit from Libya’s turmoil too. Despite being one of the main beneficiaries from projects, though, regional harmony would do far more for Turkey’s trade prospects than the spoils of war.