Supply chain disruptions will shift exporters’ focus to risk mitigation + diversification in 2023: The World Trade Organization expects (pdf) global trade growth to slow in 2023 to just 1% — down from 3.5% in 2022 as a result of supply chain disruptions brought on by covid-19 and the Russia-Ukraine war. Geopolitical changes and heightened inflation are driving companies towards trends like nearshoring, reshoring, and diversification of trade to alter supply chains and make them more resilient, according to Economist Impact’s Trade in Transition 2023 Report (pdf). The report provides insights into how 3k trade and supply chain managers across the globe — including from the UAE and Saudi Arabia — are responding to these disruptions and making their supply chains more resilient.

MENA exporters are in for a tough year: MENA countriesmay be hit the hardest among other regions this year, with exports expected to fall 3.5% y-o-y, due to high inflation and monetary tightening, according to the report.

Imports will also fall due to rising prices: Inflated increased consumer prices will slow down Middle East imports, according to the report. The executives cite inflationary pressures for imports, rising transport, energy and food costs, and potential economic recessions in key markets as major concerns. The report also cites potential slowdowns in China and India’s economies as threats for the UAE and Saudi Arabia in particular, since the two countries are the MENA countries’ biggest export markets.

Part of this is due to falling demand: 21% of MENA trade executives surveyed expect demand to continue to fall in key markets on the back of higher inflation and increasing transport costs, the report said.

What are companies doing to make supply chains more resilient? Some 96% of the executives said they are altering their supply chains in response to geopolitical events, including ongoing US-China tensions. These tensions could lead to a 0.31% GDP decline in the UAE or Saudi Arabia, in relation to losses ranging from 0.01%-0.07% GDP for the other respondents.

Companies also want to diversify trade: Some 22% ofcompanies will work to expand operations into new and existing markets, according to the report. Some 49% of the Middle Eastern respondents want to adopt a diversification strategy to increase their resilience and reduce costs, it added.

Part of this diversification strategy entails a shift towards regionalisation and reshoring: Some24% of respondents in the Middle East have turned to regionalizing in 2022, up from 13% in 2021, the report said. Regionalization allows companies to reduce the length of supply chains by switching to regional suppliers. 21% are reshoring, meaning they are moving their production and manufacturing processes from abroad back to their original countries, the report said. Only 7% of companies reverted to reshorting in 2021, it added.

The UAE and KSA are also turning to technology to combat higher inflation and higher input costs, with 27% of respondents citing technological upgrades, and 24% citing the digitization of supply chains, the report said. 29% are more willing to deploy and adopt technologies in their supply chain in comparison with 23% in 2022, it added.

Tags: