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July/August 2017
For Business, Corporate Travel & Meeting Buyers & Arrangers

New world order: emerging markets

JUST A COUPLE OF WEEKS BEFORE CHRIST­MAS, the removal vans were queuing up outside the Quinta de Olivos, a ‘country house’ in one of Buenos Aires’ more prestigious suburbs, as outgoing tenant Cristina Fernández de Kirchner handed the door keys to Mauricio Macri.

The significance of this apparently humdrum occurrence is that the house is the official residence of the president of Argentina, and Macri assumed that role after sweeping to power in the country’s November 22 elections.

The former mayor of the capital and his ambitious programme of reforms looks set to revitalise his country’s sluggish economy. If Macri is successful, Argen­tina could become corporate travel’s next big thing.

That said, the old adage that business travel is a bellwether of economic recovery is not universally true. The US Central Intelligence Agency’s World Factbook places Chad among the top ten fastest-growing economies, but Ndjamena doesn’t feature heavily on many road warriors’ itineraries.

FACING HEADWINDS

It should be noted that ‘emerging markets’ are not necessarily the same as ‘emerging economies’. To complicate matters still further, some markets have a nasty habit of emerging, blinking into the sunlight, only to dramatically disappear back down the burrow.

Russia is the obvious case in point. In its October semi-annual Outlook report on the BRIC nations (Brazil, Russia, India and China), the Global Business Travel Association (GBTA) warned that Russian business travel growth “faces serious headwinds”. In total, the GBTA expects business travel spending in Russia to fall 17 per cent in 2015 to US$17.5 billion, revised down from the 2015/Q1 forecast of a 2.7 per cent decline. “We expect further declines in domestic performance in 2016, as spending falls another 10.1 per cent to US$13.7 billion,” says the report.

A much smaller dip in Brazil’s business travel spend prompted GBTA executive director Michael McCormick to declare: “The BRICs are no longer a bloc when it comes to business travel. A decade ago, it looked like these four nations would develop in lockstep, with high rates of growth across the board. But their paths have diverged sharply as a result of the unique political and economic situations in each country. China and India con­tinue to be business travel juggernauts, a reflection of the underlying strength of both economies even in a tough global economic environment. Brazil and Russia, on the other hand, face growing economic turbulence, turmoil and uncertainty.”

After the BRICs, and because there simply aren’t enough abbreviations in the corporate travel sector, some bright spark then came up with the MINTs, initially for Mexico, Indonesia, Nigeria and Turkey, al­though the ‘s’ was subsequently capitalised to bring South Africa into the fold.

It now looks as though some of the MINTs have holes. Nigeria is battling both Boko Haram and corruption, in both cases with only very limited success. Turkey’s porous border with Syria is being crossed by tens of thousands of refugees and the occasional Russian warplane, incursions which – in both cases – are hardly con­ducive to political and economic stability.

Paul East, chief operating officer for the UK, Europe and the Americas at Wings Travel Management, takes a world view of emerging market fluctuations – and blames the oil price. “First, I’d say that doing business in emerging markets has never been for the faint-hearted and we will see great rises and falls, not just now but in the future – all of this meaning ‘risk’,” he says.

“Over the past 18 months the BRIC nations have certainly seen a slowdown in GDP, but their economic downturns started much later than in the UK and Europe, and have been mainly around the oil price.”

In the specific cases of Nigeria and Brazil, where Wings is particularly active, East’s theory certainly holds up. “In the period 2012-15, their GDP growth was eye-wateringly high, to a point where people said it was not sustainable,” he says. “The oil price was sitting at more than US$100 per barrel and was only expected to rise. Supply was being swamped by demand and corners were cut with con­tracts allegedly being awarded without due diligence undertaken. With the recession knocking on so many of the world’s doors,  the demand for oil has decreased, meaning that some of those initial contracts that were awarded are now being investigated and cancelled. This, in turn, has slowed the rate of investment and lowered busi­ness confidence.”

COMING BACK STRONGER

It’s not all bad news, however. East believes that both Nigeria and Brazil will “come back stronger, not only financially but also in the areas of understanding and control­ling business”. He says these countries are learning a lot from these difficult times and are looking at how they can reduce their reliance on oil production.

East adds: “Rather than talking about emerging ‘nations’ I believe the [entire] continent of Africa could come to the forefront of emerging markets – espe­cially with the improving infrastructure and inward investment of some of the southern East African countries, such as Tanzania, Mozambique and Kenya, that will benefit their citizens.”

He is not alone in this belief in Africa’s potential. In his foreword to a Barclays Bank report, Africa: The UK’s Emerging Trade Partner, Kah Chye Tan, the bank’s then-global head of trade and working capital, said: “Today, no other continent offers such a unique mix of opportunity and challenge as Africa. Many view Africa like a half-empty glass, citing its relatively small GDP, which is less than the UK’s. I can’t help but look at the continent as a glass half-full. It represents a huge op­portunity for UK business in terms of its future growth prospects alone. And with its population, huge land area and un­tapped natural resources, Africa’s potential is significant.”

However, the report highlighted plenty of downsides. “The most significant hin­drance to Africa’s trade potential is its lack of regional, and therefore international, integration. It has a similar population to India but is comprised of 54 countries with just as many national frameworks, complex borders, tariff and non-tariff barriers.

“The bureaucracy associated with these issues means transportation costs are three to four times those of developed coun­tries. This, combined with the continent’s fractured integration of infrastructure, power, transport and communications, has made Africa a traditionally hard place to effectively conduct business and trade.”

Barclays surveyed 250 prominent UK business leaders who trade with Africa for the report, and one-fifth of these cited “cor­ruption” as the continent’s biggest chal­lenge. Among companies with a turnover of £100 million or more, 26 per cent said payment systems and poor infrastructure were the biggest hurdles to be overcome.

John Gachora, then managing direc­tor of Barclays Africa, summed up: “The majority of trade issues in Africa stem from a stringent regulatory environment and excessive red tape between borders.”

It’s not only difficult, it is also downright dangerous. A December 2015 report from the Collinson Group, whose 360 Assis­tance portal alerts corporate travellers to security risks, said that Nigeria experienced 18 “level 3” alerts – which related to “at­tempted coups and terrorist threats” – in the first half of last year. Only the Yemen and Iraq had a worse record.

Even so, ATPI director Peter Bost is another firm believer in African nations’ potential as trading partners and, conse­quently, for corporate travel growth – but he is not blind to the challenges travel managers face. Nigeria and Angola – the continent’s two largest oil-exporters, and therefore high on the list of business travel destinations – are, he says, “not necessarily good places to be”. Mozambique, he reckons, is another rising star and, again because of its rapidly-expanding oil industry, Namibia is one to watch over the next four to five years.

In many countries, Bost says, inadequate supply means hotel accommodation is overly expensive and, in many cases, bills can only be settled in cash. Road and rail infrastructure is poor, and many airlines – particularly smaller domestic operators – are blacklisted on safety grounds.

“Duty-of-care is now high on the agenda. When it comes to what customers want, number one is still price, but from the RFPs we are seeing, duty-of-care is now definitely number two, and that wasn’t the case even a couple of years ago.”

In places, infrastructure is improving. James Stevenson, HRG global sales direc­tor, says: “In terms of emerging markets, Kenya does seem to be one to watch. The country is investing quite heavily, particularly in airport capacity. Across the Africa region as a whole, they are looking at improving infrastructure.”

FAR-EASTERN POWERHOUSE

Farther east, the HRG boss has his eye on one of the MINTs. “I think Indonesia is still pretty much one of the powerhouses in southeast Asia,” he says. In terms of travel and bid activity, Indonesia is frequently included, not just in regional bids, but in global bids as well.”

The trouble in that region is China. “China is seeing its lowest growth in a decade, and driver markets like that have an effect on emerging markets,” Steven­son says. “China’s slowdown will have a real impact.”

Currently, his particular sphere of inter­est lies across the South Atlantic. Brazil may have faltered – although Wellington Costa, the GBTA’s regional director for the country, says lower inflation and improved economic growth should lead to stronger business travel spending this year – but Stevenson reckons there are a number of “new” emerging markets across Latin America. “Countries like Colombia, Chile and Peru, where there has been some sort of political stability, are increasingly featuring in bid activity,” he says.

So what about president Mauricio Macri’s Argentina? “Well, the elections have only just taken place, and he’s not been in power long enough to judge how his country’s economy might shape up,” says Stevenson. “Even if it all goes well, in business travel terms I think Argentina could be four or five years down the line.”

So, will these Latin American companies become the new powerhouses in the next half-decade, to challenge the BRICs and the MINTs? At the very least, that should give the pundits enough time to come up with a suitable acronym, the trouble being that Colombia, Chile and Peru are rather light on initial vowels at the moment.

Read 5 tips on keeping your travellers safe when heading to emerging markets

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