The “New Silk Road” region will see surging connectivity and growth

Thursday, May 16, 2024

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A recent report by global management consulting firm Oliver Wyman highlights the transformative potential of the “New Silk Road” region, which encompasses Asia, the Middle East, and North Africa (MENA). This area, home to 4.9 billion people and representing over 40% of the global economy, is poised for unprecedented growth and connectivity, significantly impacting travel and tourism.

Economic Diversification in GCC Countries

The Gulf Cooperation Council (GCC) countries, including the UAE, are leveraging the interconnected economies of Asia and MENA to diversify their economic bases. This strategic shift aims to reduce dependency on oil revenues by investing in various sectors such as financial services, logistics, tourism, technology, and manufacturing. The report emphasizes the critical role of high energy prices in facilitating this economic transformation.

Key Themes in the Report

Oliver Wyman’s report, titled “The New Silk Road – Growth, Connection, Opportunity,” outlines six major themes driving this growth:

These themes highlight specific action steps for private sector and government organizations to thrive in this evolving landscape. For instance, opportunities in China’s clean tech exports, energy transition financing platforms, and supply chain relocations are explored in depth.

Strategic Plans and Regional Collaboration

The report underscores the strategic plans of Saudi Arabia and the UAE, which are pivotal in driving regional growth. These long-term plans focus on enhancing economic opportunity through energy transition, addressing global supply chain disruptions, and navigating geopolitical tensions. The New Silk Road region is expected to account for 48% of global GDP by 2040, driven by these strategic initiatives.

Significant Export Contributions

The New Silk Road region plays a crucial role in global supply chains, holding significant export shares for semiconductors (86%), clothing (65%), and oil (40%). Major export manufacturers like China and Japan, along with emerging contenders such as India and Indonesia, are key players in this network. Increased connectivity is evident, with nearly 60% of trade activity occurring within the region.

Free-Trade Agreements and Bilateral Relations

On the regulatory front, the New Silk Road benefits from two of the world’s largest regional free-trade agreements: the Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Additionally, there is a rising number of bilateral agreements between Asia and the Middle East, further enhancing economic collaboration.

Future Prospects and Investment Opportunities

The report’s authors express confidence that, despite geopolitical and environmental challenges, the region will experience greater collaboration, connectivity, and capital growth. They envision a future where energy ties grow stronger, clean technology plays a more significant role, and manufacturing supply chains become more resilient. Investments in aviation and transport infrastructure are expected to support the increasing flow of people and goods, driven by a young, tech-savvy population.

Strategies for Companies and Governments

To capitalize on these opportunities, companies, investors, and governments must adopt new strategies, operating models, and mindsets. Private companies are encouraged to establish cross-market strategies, align with national priorities, and find suitable partners. Meanwhile, governments should leverage resources, such as sovereign wealth funds, to facilitate trade, investment, and technology flows, supporting private sector growth.

[Image Source: Red Asia Insurance]

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