In recent years vast sums of money have been invested in transport infrastructure by governments right across the Middle East in an attempt to diversify their oil and gas dependent economies.
The most recent example is the King Abdullah Economic City Port in Saudi Arabia, which began operations in January 2014. The port, up the coast from Jeddah in the Red Sea, has a capacity of 1.3 million twenty-foot equivalent units (TEUs) and this is expected to rise to 4 million TEUs by 2016, 7 million by 2018 and ultimately 20 million.
The developers, Emaar Economic City, hope that the port will turn into a global hub, in much the same way as Dubai or Abu Dhabi in the Gulf. As 25% of the world’s trade passes through the Red Sea on the way to the Suez Canal, there may be some justification for this aspiration. Other multimodal hub developments in the region include:
The development of so many logistics projects is in itself not without risk, as the strategy relies on the continued growth of freight volumes to fill the new capacity. However, although volumes are growing, their development could be described as patchy.
Concerns are growing even within the region itself. Many of the forecasts on which development plans were based were made during the mid-2000s when global trade was booming. Now, even the Qatari authorities believe that Phase 1 of the Doha seaport project will open with just half its capacity being used. To utilise all its planned capacity by 2030, direct volumes would have to grow at 15% a year, highly unlikely in the present economic environment.
There is also the concern that the rise of the mega-hubs, such as Dubai and Abu Dhabi, will come at the expense of smaller port/airport locations such as Fujairah and Sharjah. In this respect the growth figures reported above may not wholly be ‘new’ business created by attracting volumes to the region as a whole or organically created, but rather a result of cannibalisation.
Will this momentum be enough to support the huge capacity which is being created for sea and air freight?
It may be that the Middle East can only support two global hubs, which at this moment would seem to be Dubai and Abu Dhabi, although multiple regional sub-hubs could arise. As well as that there would be a number of tertiary locations which serve as hubs for domestic markets.
There is no doubt that in the short term, the Middle East will benefit from improving economic conditions in Europe as well as solid growth in domestic economies. Investment has also helped the growth, especially in the Gulf countries such as Saudi Arabia where GDP grew at 3.6% in 2013, with an expected growth of 4.4% in 2014. However, what will be just as important for the long term is the rise of the Middle East (in particular the GCC economies) as a logistics hub for Africa, Central Asia and the Indian sub-continent.
The importance of global, regional and domestic hubs in the Middle East will be discussed in the next article.
This topic, along with many others of importance to the region, will be part of the discussions at Transport Intelligence’s conference to be held in Dubai later this year. For more information please contact Sarah Smith, Head of Marketing & Events, [email protected].
