PwC: Global commerce set to bypass the West as SAAAME emerging market intra-trade increases

Rapidly accelerating growth and increased intra-trading across South America, Africa, Asia and the Middle East (SAAAME) is leading to a radical shake-up in the competitive environment for financial services businesses, both within the SAAAME region and beyond, according to “Project Blue: Capitalising on the rise and interconnectivity of the emerging markets” published today by PwC.

SAAAME regions are emerging as an increasingly interconnected trading zone, which effectively, in physical terms at least, bypasses the West.

Nigel Vooght, partner and global leader of financial services at PwC said:

“The real story is not so much the speed of growth within SAAAME, but how interconnected the trade flows between these markets have become. As intra-SAAAME trade proliferates, an even greater proportion of global commerce is set to bypass the West altogether, leaving Western financial institutions at risk of being cut out of the loop. Financial institutions need to find ways to tap into this emerging-to-emerging market commerce if they are to sustain competitive relevance.”

The report highlights that the interconnectivity of intra-SAAAME trade and investment flows is as significant as the growth and projected size of the emerging markets. These flows are growing much faster than the traditional routes from developed-to-emerging and developed-to-developed countries (see figure 1 below). Within SAAAME, there are pockets of particularly high trade growth, notably between Asia and Latin America and between Africa and the Middle East.

Andrew Dawson, author and global leader of PwC’s Project Blue said:

“At present many of the intra-SAAAME flows are driven by a prolific trade in commodities and raw materials, but as growing local populations continue to become more affluent it is likely that consumer markets will play a significant part in the SAAAME trade story in the future.”

“The development of financial infrastructure across the region, alongside increasing access to long-term funding and the ability to tap into fast growing sources of liquidity and investment, will also play a key role in sustaining this expansion in trade and provide opportunity for financial services firms internationally.”

“As SAAAME markets continue to develop and grow, so too will the need for new infrastructure and the associated finance. This will create significant opportunities for financial institutions which both fully understand the risks involved and develop service offerings which are both tailored and relevant to the local market”

“For both SAAAME and non-SAAAME organisations, determining how they can participate sustainably within the region will be one of the more enduring challenges of the coming years”

Nigel Vooght, partner and global leader of financial services at PwC, concluded:

“In an increasingly globalised financial services sector, the impact of the rise and interconnectivity of the emerging markets will be felt in the West as much as SAAAME itself. Western business cannot simply assume they will be able to transfer investment and growth into new markets. They are going to face growing competition from SAAAME-based international groups and could become targets for acquisition themselves.

“Success is likely to depend on being able to anticipate and respond quickly to changes in customer expectations, behaviour and use of technology that are shaping SAAAME and wider global markets.”

ENDS

Notes to Editors:

  • ‘SAAAME’ refers to South America, Africa, Asia and the Middle East. SAAAME doesn’t include Japan as this is a developed G7 economy. Mexico is excluded as it trades mainly within the North American Free Trade Agreement zone and less with SAAAME. For now, Russia and the Commonwealth of Independent States (CIS) are also excluded from SAAAME, as its trade is largely internal or with Europe.
  • “Project Blue: Capitalising on the rise and interconnectivity of the emerging markets” is part of PwC’s ongoing research on the future of financial services, known as Project Blue. To find out more about this work, please visit www.pwc.com/projectblue

PwC has set out a framework for considering these current and future trends:

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