Removing trade barriers helps emerging markets boost economic growth, which bodes well for developing countries that rank high on the World Economic Forum’s 2014 Enabling Trade Index. These top performers hold particular promise for growth.
Advanced economies such as Singapore, Hong Kong, the Netherlands, Sweden, Switzerland and New Zealand have dominated the top ten rankings since the index was established in 2008.
But emerging economies have gained in prominence, especially Chile, Qatar, Mauritius, Oman and Jordan, which have moved up quickly in the index’s rankings. The United Arab Emirates and Malaysia have also ranked high among emerging economies in the past six years.
The index evaluates tariffs, efficiency and transparency of border administration, a country’s communication and transportation infrastructure, and the operating environment for importers and exporters – fundamental attributes that govern a nation’s ability to benefit from trade – in more than 100 countries.
Increased ease in trade coincides with annual economic growth estimates of about 5% in developing markets, about twice the annual economic growth estimates in advanced economies over the next five years, according to the International Monetary Fund.
Further, aggressive lowering of trade barriers, especially in sub-Saharan Africa and the Middle East, could add up to $1.2 trillion, or an estimated 1.8%, to the global economy by 2020, according to the World Economic Forum report.
In emerging economies, reducing red tape at the border to speed up customs clearance is a quick, inexpensive and effective way to speed trade. But the biggest trade barrier in developing countries is usually poor infrastructure, including roads, railroads, sea ports and transportation by air. The use of information and communications technologies can result in enormous productivity gains, especially for producers and consumers along supply chains.
Supply-chain barriers are particularly difficult to overcome for small and mid-size businesses interested in expanding into emerging markets, because they represent significant upfront costs.
As developing countries gain ground in global trade, these regional champions are emerging:
Latin America and the Caribbean. Ranked eighth worldwide in the index, Chile was the emerging economy with the fewest trade barriers. Breaking into the top ten trade enablers for the first time (27th in 2008), Chile has a tariff structure that consists of only two distinct tariffs and one of the lowest average tariffs worldwide, little customs bureaucracy and efficient regulation on foreign direct investment.
Chile’s transport infrastructure is still lacking, and protection of intellectual property rights could be improved.
Brazil, the largest economy in the region, came in 86th.
Middle East and North Africa. The United Arab Emirates, which ranked 16th, leads the Middle East and North Africa region. The UAE improved its ranking from 23rd in 2008 by establishing a logistics, trade and tourism hub with the best transport infrastructure in the region. Its border administration is efficient, and exporters and importers have easy access to finance and foreign labour.
Aspects that could be improved include the UAE’s tariff burden on exporters, its judiciary system and the protection of property rights.
Developing Asia. Malaysia, ranked 25th in the index, is the regional champion in developing Asia and the runner-up within the Association of Southeast Asian Nations behind Singapore, an advanced economy and the country with the fewest trade barriers worldwide. Malaysia offers good transport infrastructure, and its border administration is improving. Fees for exporting a container are among the lowest in the world.
Corruption, which is rampant in developing Asia, also remains a problem in Malaysia.
China, Asia’s largest economy, ranked 54th.
Africa. Mauritius, ranked 29th overall, had the fewest trade barriers in Africa, ahead of South Africa (59th) and Nigeria (124th). Although some sectors are protected by high tariffs, average tariffs are low, and the infrastructure on the island off the southeast African coast is good. Rules and regulations are open to direct foreign investment, and the judicial system is fair and impartial.
Advanced logistics services to track consignments or timeliness are not prevalent.
Related CGMA Magazine content:
“How CEOs Seek Growth Differently Across the World”: Businesses worldwide are looking for growth in a challenging global economy. Find out the different ways CEOs pursue growth across the world.
“How to Pick the Next Emerging Growth Hot Spot”: Brazil, Russia, India and China are losing some of their attractiveness, and multinational companies have started to look for the next global growth hot spots, a global Ernst & Young survey suggests. Find out how selecting new markets has changed.
“The Most Business-Friendly Countries off the Beaten Path”: Small and mid-size companies looking for business-friendly markets overseas could check out a World Bank report that tracks regulatory reform efforts in 185 countries. Many of the top improvers are rarely found among up-and-coming economies.
—Sabine Vollmer (email@example.com) is a CGMA Magazine senior editor.