Thought Leadership Report GCC LOGISTICS 2017
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Thought Leadership Report GCC LOGISTICS 2017 Sponsored By: FOREWORD Mark Geilenkirchen, Chief Executive Officer SOHAR Port and Freezone The office we sit in, the clothes we wear and the food we eat all rely on business planning frameworks that manage material, service, information and capital flows around the globe. This is logistics and by necessity, in today’s increasingly complex business environment, it centres on the communication and control systems required to keep our world moving twenty-four hours a day, each and every day of the year. As one of the world’s fastest growing Port and Freezone developments, logistics is at the core of our business in SOHAR and connects us with markets all over the world. As this is our Year of Logistics, we asked MEED Insight to prepare this special report on the Middle East logistics industry as part of a series of SOHAR sponsored thought leadership reports. We define thought leaders as people or organisations whose efforts are aligned to improve the world by sharing their expertise, knowledge, and lessons learned with others. We believe this knowhow can be the spark behind innovative change, and that’s what we’ve set out to inspire by commissioning this series of reports. 2 GCC LOGISTICS 2016 The GCC Economy GCC Macroeconomic Overview GDP GROWTH GCC VISION PLANS The petrodollar fuelled GCC economies been fairly successful in lowering its oil All the GCC states have formalised strategic, have had a strong run during the first dependency to 42% of GDP in 2014, long- term plans aimed at transforming decade of this millennium, registering a down from 55% in 2008. The UAE, the their economies and social policies. One compound annual growth rate (CAGR) of second-largest GCC economy, has also common thread across these vision plans 5.7% during 2000–2012. Though growth already diversified its economy away from is to develop non-oil sectors, such as momentum has slowed down significantly oil to a significant extent. While oil-price infrastructure and logistics. For instance, since then, to 3.5% CAGR during 2013- pains may continue for sometime, the GCC as part of its Vision 2030 plan, Saudi Arabia 2015, the GCC economies today are will continue to focus on diversification intends to leverage the PPP model to considerably more diversified. According and infrastructure development. enhance its connectivity with the rest of to IMF estimates, oil currently accounts the GCC and other countries through However, GCC governments may face for about 50% of the GCC region’s overall cross-border projects related to air, sea some issues in financing various expansion GDP, down from about 60% in 2000. and road. Through these initiatives, Saudi projects. In February 2016, S&P warned This has somewhat eased the grip of global plans to strengthen its position as a major that GCC economies might fall short of oil price fluctuations on GCC economies. trade hub and improve its global ranking resources to fund their projects during Still, the region’s fate remains closely tied in the Logistics Performance Index from 2016–2019. Though the GCC governments to the future of oil. 49 currently, to 25 by 2030. have allocated US$330 billion to various The significant drop in oil prices is estimated projects, S&P estimates the actual The UAE Vision 2021 focuses on critical to have led to a fiscal deficit in most GCC requirement to be closer to US$604 billion. sectors such as healthcare, education, and economies. The consolidated fiscal balance The GCC economies will need to raise infrastructure. Key government initiatives of the GCC region is estimated to have more funds from other channels, such as such as Abu Dhabi’s Surface Transport declined from a surplus of 4.8% of GDP public-private partnerships (PPP) or debt, Master Plan focus on strengthening the in 2014, to a deficit of 7.5% of GDP in to partially fund their ambitious UAE’s crucial infrastructure. Moreover, 2015. Among all GCC economies, Kuwait infrastructure projects. Dubai Expo 2020 and the Dubai Maritime and Oman have been the most severely Vision 2030 have further boosted affected by the oil-price decline, with 2014 investment in infrastructure projects. GDP growth in the countries falling to 1.3% These initiatives from the UAE government and 2.9% respectively. Saudi Arabia has PPP Reserves Debt offer huge opportunities to logistics players and also generate interest from logistics providers, air carriers, shipping lines and freight forwarders. Oil Price and GCC GDP As part of Oman’s Vision 2020, the 0.1 130 6.4% government plans to increase investment 111.3 111.6 108.6 99.1 110 in tourism and infrastructure to accelerate 0.1 79.5 5.4% 5.4% overall economic growth. Other GCC 90 economies such as Bahrain, Qatar and Kuwait 0.1 70 are also focusing on economic diversification 51.8 52.3 and human capital development. 3.6% 43.0 50 0.0 3.5% 3.3% 30 0.0 GCC Real GDP Growth (%) 2.8% 2.3% 10 Although GCC economies still rely on oil as the main source of revenue, Brent Yearly Averages (USD/BBL) 0.0 -10 their concerted efforts over the last decade have resulted in a much more 2010 2011 2012 2013 2014 2015 2016E2017E diversified economy than was the case at beginning of this century. Source: IMF, EIA Note: Annual Oil Brent Prices 4 5 GCC LOGISTICS 2016 GCC Macroeconomic Overview GROWING POPULATION RISING INVESTMENTS TRANSPORT SECTOR IN THE GCC Population in the GCC region is growing at a The GCC governments have planned a Heavy spending on construction, as well very rapid pace, with expatriates dominating spending outlay of USD$330 billion for as on oil and gas projects drives the GCC the population in most countries. By 2020, the 2016–2019 period for various projects. transportation sector. The sector’s the overall GCC population is forecast to Of this, US$50 billion has been allocated contribution to GDP in the GCC countries increase to 53 million, with the vast majority for infrastructure development, but S&P averages over 5.8%. This share is high under-25 years of age. The rapidly rising estimates the actual requirement for GCC when compared to developed economies: population will lead to greater infrastructure infrastructure investments could be double 3% in the US and 5% in the UK; and development, with focus on public services, this amount, at around US$100 billion. developing economies: 2% in India and transportation and housing in urban centres. 4.5% in China. This is mainly because of the Although the investment plan looks concerted efforts of the GCC governments encouraging, investment efforts differ to diversify their economies and further among countries. For instance, while develop infrastructure. Logistics have been Dubai increased its 2016 budget by 12% identified as one of the key sectors to year-on-year to boost its infrastructure support the GCC diversification strategies, spending, Saudi Arabia was forced to with huge infrastructure spending laid reduce its 2016 transport and infrastructure out over the near future. budget by 63% to keep next year’s fiscal deficit in check. In Qatar, road transport The contribution of transport sector differs has been the key focal area, accounting from country to country. The UAE, which Cumulative Population Growth for more than 95% of infrastructure has the most diversified economy in the % (2000–2014) investments, with maximum investment GCC, has invested huge amounts in the being diverted for the development transport sector and as a result has the 300% of roads, bridges and tunnels to highest transport sector contribution to 250% improve connectivity. GDP among all GCC nations. The outlook 200% for the sector in the country is positive, 150% with many major projects underway. 100% 50% 0% r y a E n it A US dia rica KS UA wa In Brazil Qata Chin Af Oman Ku Bahrai S. German Source: IMF GCC Capital and Infrastructure Transport Sector Contribution to GDP Spending Plan (2016–2019) (2014) Overall Capital Government 9.0% 5.6% 3.2% Spending Spending UAE KSA Qatar US$480 Bn US$330 Bn 2012 2014 2012 6.6% 5.5% Fund allocated Additional Funds 4.7% for required Bahrain Oman infrastructure Kuwait US$270 Bn 2014 2014 2014 US$50 Bn Source: Standards & Poor; ConstructionWeekOnline.com Source: Respective Government Websites 6 7 GCC LOGISTICS 2016 GCC governments have identified logistics as one of the key sectors to support their diversification strategy, with huge infrastructure spending laid out over the near future. 8 9 GCC LOGISTICS 2016 Global Logistics Overview Global Logistics Infrastructure MARKET SIZE REGIONAL ANALYSIS Logistics is the cornerstone for the smooth roadways had the biggest share of The 3PL model is the most successful one, Countries across the globe are spending Vitoria-Rio de Janeiro railway being built border with the UAE at Khatmat Malaha. functioning of all the sectors of an US$2 trillion. The global logistics industry accounting for 20% of the overall logistics significantly on infrastructure projects, at a cost of US$7.8 billion. This will increase Other major projects include the Sharq economy, as it brings together the entire is expected to expand at a robust CAGR market. It has been rising at a CAGR of including ports, roadways and railways, the logistics potential for bulk cargoes crossing in Doha and the Masirah Island value chain of industries. In 2015, the of 8.44% from 2015 to 2019. 5.1% from 2011 to 2015 to reach US$800 and warehousing. The total value of the top such as iron-ore, minerals and various causeway project in Oman.