Pandemic prompts Middle East companies to reconfigure supply chains

Companies across the Middle East and Africa have reconfigured their supply chains to adapt to disruption caused by Covid-19, with many accelerating the adoption of new technologies to optimise trade operations, according to a new survey from Dubai-based ports operator DP World.

Some 96 per cent of companies in the Middle East, the highest of any region globally, said they were in the process of reconfiguring their supply chains, higher than the global average of 83 per cent. This often includes a diversification of the countries with which they wish to trade.

"The business community is more optimistic for the future than many expected, and the supply chain challenges exposed by the pandemic have acted as a positive agent for change," Sultan Bin Sulayem, chief executive and chairman of DP World, said.

"We expect the result will be global flows of trade that are more efficient and more robust."

Global trade declined by 9 per cent last year, with major disruption experienced in the first six months when movement restrictions to stem the spread of the pandemic were at their peak, a United Nations Conference on Trade and Development report said last month. A recovery began in the second half, with trade in the fourth quarter increasing by 8 per cent on the third quarter.

Around 48 per cent of the companies surveyed by DP World in the Middle East attributed a decline in international sales to a demand shock. In Africa, the same percentage attributed the decline to a logistics shock, or difficulties in getting goods transported or stored.

Reconfiguring supply chains has proved difficult, particularly during movement restrictions.

Globally, companies allocated an average of 32 per cent of revenue from the first half of 2020 to help them switch suppliers or logistics providers and change production or purchasing locations, DP World said.

Companies in the Middle East said they expected it to take 7.4 months to restructure supply chains, which is quicker than the 8.5 month global average.

Legacy contracts are one barrier to replacing suppliers, respondents from the Middle East and Africa said, as is a lack of affordable supply chain financing.

Some 40 per cent of companies surveyed globally said that trade flows had decreased due to declining demand and 32 per cent had suffered a supply shortfall, which has led to some companies abandoning 'just in time' supply chain strategies to build buffers in inventory.

Only 43 per cent of respondents expect trade flows to recover to pre-pandemic levels within two years.