On our way towards the next, more balanced phase of globalisation?

12 October 2016

Recent report by the WTO reveals that the global trade growth (in physical goods) has now slowed sharply to its slowest pace since 2009.

In the past, trade volumes used to grow twice as fast as the economy. Today it is barely at the same speed. In this blog post I will look at how we got here, and reflect on the possible next stage in the trade and globalisation development i.e. how I think we will get back on track.

There are many intertwined reasons for the negative development in trade that we see today. Most analysts claim that this is a result of both cyclical and structural forces working in parallel. Others say that the dramatic slowing of trade is a result of declining support for globalisation in its current form, where commodities and advanced goods move in opposite directions. The pendulum now seems to swing towards more protectionism. This is a concern for all shipping sectors as our business models are based on supporting the flows of physical goods.

Transiting to a new reality

In my view, the current adjustment process is just a necessary transitional step to the next phase of globalisation. I observe that many resource rich countries, hit hard by the crash in commodity prices, are accelerating their efforts to diversify their economies away from the dependency on natural resources for their national revenues. Countries in the Middle East and Africa, in particular, try to encourage the development of new, domestic industries that will provide new streams of income, and create jobs for their mostly young populations.

Diversifying for growth

The Gulf Cooperation Council (GCC) countries have been developing their non-oil/gas sectors for years, but their commitment is much stronger now, and their speed and scale of the diversification efforts is much bigger. The region tries to utilise its main comparative advantages deriving from its oil and gas endowments – in the form of cheap energy to sustain various industries - and from its strategic location as a hub between Europe, North America and Asia.

In order to be able to realise the potential laying in all the comparative advantages, the governments need to develop the necessary infrastructure. So, infrastructure construction is a key growth sector as the growing population creates demand for more housing, transport, power, water and other utilities. Infrastructure is also essential to attract different industries and businesses. A few examples: the petrochemical industry is thriving in the region; primary aluminium production in GCC is behind only China and the US; the Middle East is about to develop a strong fertilizer industry; Saudi Arabia developed its Vision 2030 that envisages stronger industrial profile trade; tourism business is in focus. Combined, all these regional efforts have created one of the largest and fastest growing markets for project cargo.

Towards the more balanced globalisation

Protectionism is often linked to the early stages of diversification. It is because in the diversification process, it is viewed as necessary for Governments to protect new industries from imports for some time, until they are more competitive, and trade barriers are therefore implemented. All developed countries, have done this in the past, while growing their competitive advantages, and many are still doing it.

In the longer-term perspective, more diversified emerging economies (that currently rely on commodities’ exports) will be critical for the next, more balanced phase of globalisation and trade relations. We will see increasing trade flows of industrial goods from these economies to the world, in addition to commodities. I’m sure that the shipping industry will gradually adjust to these changes, and remain a key enabler in the industrialisation of emerging economies, and in the next phase of globalisation.

Teresa Lehovd is the Head of Market Intelligence at Höegh Autoliners. She holds over 30 years of experience in the RoRo shipping industry, whereof 20 years in various market research positions where she is specialised in the research of global automotive and heavy equipment industries. Teresa is also a guest lecturer at the Norwegian School of Management in the area of Competitive Intelligence and Shipping, and frequent speaker at various industry conferences.

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