The UAE ranks first among GCC countries in oil diversification efforts as it gears up for the post COVID-19 era, according to a report by UBS
According to the report, globalisation and its boost to international trade have benefited emerging markets over the past decades, but negative side effects have evolved in parallel. The coronavirus crisis has accelerated the trend for increased localisation.
Recent surveys conducted by the UBS Evidence Lab illustrate that businesses are keen to relocate their foreign operations as a result of coronavirus-related shutdowns. Interestingly, of the US, North Asian and Chinese firms surveyed, 85%, 76% and 60%, respectively, have moved or are planning to move production out of China. The US firms surveyed would move 46% of their China production, while Chinese manufacturers reported they would move 30% of their export capacity outside of the country.
The equivalent number for the North Asian firms included in the survey was 33%. These plans suggest that 20%–30% of capacity could be moved out of China, an estimated total of US$500–750bn in exports.
UBS expects the trend toward more localised economies to advance in the years ahead as it relies on a range of crucial factors such as the complexity of supply chains, access to a competitive workforce, energy or commodities, appropriate infrastructure or business environment, geographical proximity to final sales markets or subsidies, environmental costs, digital adaptation and protectionism.
Michael Bolliger, chief investment officer emerging markets at UBS Global Wealth Management and co-author of the report, said, “The COVID -19 crisis has made the world structurally less global, accelerating further the de-globalisation and nearshoring trends which will be affecting significantly emerging markets in the years to come.”
The report has highlighted UAE’s potential to thrive under the new paradigm and capitalise on more localised supply chains thanks to its business-friendly environment, successful diversification of the economy, access to an international workforce, and the government’s forward-looking, technology-embracing attitude.
Niels Zilkens, head Arabian Gulf at UBS Global Wealth Management, added, “Emerging markets will encounter opportunities and challenges informed and shaped by the new dynamics created after the COVID-19 pandemic. Building human capital, developing a specialized yet flexible economic structure, and creating a business-friendly regulatory environment do not happen overnight —and neither does the relocation of supply chains.”
