The Red Sea Business Opportunities available
Red Sea Investment opportunities
by Fahd al Rasheed
Reading the global headlines today it is easy to think that there is not a lot of good news coming out of our part of the world. We read of conflict and division. We read of economic woes and sectarian strife.
While it is true that there are real challenges in the Red Sea region, it is also true that there are many opportunities, today and into the future to help economic growth.
Indeed this region, sitting astride one of the world’s major shipping routes, has been a land of opportunity for more than four thousand years.
When the explorer Hanno first traded across the Red Sea at the time of the pharaohs he brought into Egypt precious incense and rare woods from the fabled Land of Punt.
For more than two millennia the region lay at the center of the global spice trade, creating fortunes from Alexandria to Zanzibar and beyond. The fantastic tales told by spice traders to market their products inspired the legends of Sinbad the Sailor. And it was the trade in spices that propelled Venice to become the pre-eminent centre for business and culture at a time when nutmeg was worth more than its weight in gold.
Today the Red Sea is one of the most important maritime trade routes in the world. It carries more than 10 percent of global shipping trade, feeding the demand for hydrocarbons in the west and facilitating the flow of goods between Europe and the booming Asia Pacific. And the expansion of the Suez Canal, doubling its capacity, will only increase the significance of this essential shipping corridor.
Nevertheless, I believe that this one of the most overlooked growth opportunities in the world today.
When we look at the future drivers of the global economy it is all too common to look no further than China, Asia and India. And yet the Red Sea region is the fastest growing developing market in the world and will remain so for decades to come.
By current UN estimates we are going to see our population double from 620 million people to one billion within the next two decades and to 1.3 billion by 2050.
According the World Bank we are going to see our GDP triple from $1.8 trillion to $6.1 trillion in the same period.
And we are going to see our volume of trade increase fivefold from $881 billion to $4.7 trillion.
By any measure that is a significant opportunity.
I believe that it could be many times greater.
Our research suggests that, at a conservative estimate, we could increase GDP growth by an additional $500 billion by improving infrastructure and lowering the cost of trade. Or, to put it another way, we could effectively add to the region an economy the size of Norway’s. That is over and above the growth figures projected by the World Bank.
I believe that a coordinated regional effort by business and by government could easily double that opportunity. Working together as a region we could do it bigger. We could do it better. We could do it faster.
This region has enormous potential. In Jordan, for example, there is the potential to become the primary feeder hub for the Levant and the Eastern Mediterranean, moving goods and products more efficiently through the region.
In Egypt there is the opportunity to boost intra-regional trade by creating more special economic zones around the Suez Canal, reducing shipping costs and increasing efficiencies.
In Africa there is there is the opportunity to secure better access to agricultural export markets and play a more central role in the regional food security debate.
And the mineral-rich economies of Africa could expand their domestic refining and manufacturing capabilities, extracting greater down-stream value from their resources and securing profitable markets for the products they manufacture.
Of course there are good, practical reasons for a more conservative appraisal of the region’s prospects.
Many of the countries that lie on the Red Sea have comparatively limited infrastructure. There are few world class deep-water ports in the region. Levels of economic development vary from the wealthy countries of the GCC to the emerging economies of sub-Saharan and East Africa. And the region’s political and cultural differences do not always encourage cross-border cooperation.
Let me give you one example. The World Bank assesses the trade capabilities of countries based on, among other factors, physical infrastructure, customs controls and trade regulations. The Bank captures the results of that assessment in the Logistics Performance Index. The top 20 percent of logistics-friendly countries score above 3.5 on the LPI scale. Most of the countries in the Red Sea region score below 2.6.
This needs to be improved. Physical infrastructure is an essential start. Of the 100 largest ports in the world, 7 are in the Red Sea region. The combined capacity of those seven ports is approximately the same as the capacity of the Port of Shanghai. In other words there is a clear need across the region for more trade infrastructure and for the technology and training to operate it.
Infrastructure alone, though, does not create trade. To do that requires improved border controls, enhanced customs procedures, transparent trade regulations and close cross-border cooperation. We in the private sector can build the roads and the ports. It takes government to build the bridges.
If there is one lesson to be learned from the rise of Asia it is that close coordination can make a region so much more than the sum of its parts. We could expand trade relations on a country by country basis, through bilateral agreements and favoured nation partnerships. Or we could emulate the U.S. government-led Trans-Pacific Partnership and build a Red Sea Trade Pact to streamline cross-border trade and provide mechanisms for dispute resolution to the benefit of the region as a whole.
We could expand infrastructure by appealing to individual investors and competing with other projects around the world. Or we could follow the example of China and create a regional infrastructure bank that exists to facilitate the flow of capital to those projects where it can be of most benefit.
Where the interests of business and government converge you create opportunity. But to realise that opportunity we have to work together. The Red Sea Foundation exists to actualize the enormous potential of this region by enhancing the logistics infrastructure, promoting trade among constituent countries and encouraging foreign investment. It is an initiative in which the public and private sectors and civic society all have important roles to play. The Red Sea Foundation seeks to bring them together to build a new growth engine for the global economy.
That’s a real opportunity. It’s an opportunity for business and it’s an opportunity for growth. More importantly, it’s an opportunity to create prosperity in some of the countries where it is needed the most