Global Trade: The emerging trends in horizon

Africa, the new frontier and a competitor in agricultural and resource space:  

Africa has almost 60% of world’s source of uncultivated and arable land. Africa is rich in natural resources such as copper, coal, cobalt, and diamonds. It also has a large English speaking population with about 360million cell phone users.  Egypt, Morocco, South Africa and Tunisia have significant manufacturing and service industries. Algeria, Angola, Libya and Nigeria earned about US$1 trillion from petroleum exports from 2000-2008.  Along with rich dividends, Africa is a mixed bag and is often fraught with political, financial and economic volatility.  South American countries like Chile and Peru are also seeking increasing investments.   

Investments are displacing aid:

The China model of investing in Africa is gaining ground displacing developed markets aid! The African’s love it as it is helping develop skills, infrastructure and jobs – it’s teaching to fish versus giving a fish!

Outbound FDIs from developing economies:

The surge in outbound foreign direct investments from emerging markets to other emerging markets and developed markets is gaining significant ground. Both State owned and private companies investments in developed market and Emerging market increasing their exposures.  

Emergence of government linked companies and sovereign wealth funds are driving investments and trade:  

GIC and Temasek of Singapore, China Investment Corporation, Dubai Investment Corporation, and Abu Dhabi Investment Corporation have significantly increased their investments on the back of government reserves.  Emerging market insurance companies and multilateral agencies in China, Korea, Japan, middle east are taking long term credit exposures on emerging market companies which buy equipments, goods and services that have significant export content.

Rise of Asian Multinationals and Asian brands: 

Emerging market brands and multinational corporations are gaining immense popularity at times displacing developed market brands e.g. Samsung popularity has impacted both Nokia and Sony.  Infosys, Samsung, Toyota, Tata-Nano, HTC, Lenovo, Huawei are gaining significant market share in the emerging markets.

The world a ‘super mart’: 

With reduced cost of transportation and packing, lower cost of air transportation, transparency of markets, growing English speaking population, and increasing usage of ICT has make the world a super market - you can get whatever you want and where ever !

Emergence of hubs:  

Trade finance, technology in SEZ, high end technical services are increasingly being concentrated in Singapore, Hong Kong, Dubai with new hubs catching up like Shanghai, Mumbai. Tax incentives, lower cost of financing, availability of talent pool, efficient transportation and infrastructure is increasingly attracting companies to hubs.

Contract farming:

Investments in contract farming in emerging market’s arable land are increasing trade. Contract farming is actively pursued by Middle Eastern countries in East Africa, tomatoes and potatoes are contact farmed in India.  Frankly, we can’t transport land from Brazil to Saudi Arabia – so we got to trade!

Information Communication Technology (ICT)’s are breaking barriers to trade: 

The impact is transparency, credit checks and paperless trade execution and cash transfer.  Cheaper phones and computers coupled with wireless information technologies have greatly reduced information asymmetries.

Invisible trade:

Favorable spinoffs of trade includes tourism, travel, migration, educational services are being perceived and recognized. There is reduced information asymmetry and cultural barriers are collapsing.

Bilateral trade displacing multilateralism:

Bilateral trade agreements are strengthening interdependencies among countries leading to peace. China Taiwan relationships have increased significantly driven by trade and investments.

New currencies are being used to trade:

RMB use is supported by the Chinese government, INR is used for settlement of oil exports from Iran.  Bilateral lines of credit for trading in local currencies are being established replacing dollar. 

Collaboration among emerging market central banks:

Regional central banks are cooperating to take concerted actions that intend to stabilize the impact of volatility in financial markets and systems.