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Too Many Ports, Not Enough Trade in the Middle East

An aerial view of Khalifa Port in Abu Dhabi

Capacity at seaports and airports in the Middle East is growing faster than regional trade, potentially jeopardizing the viability of billions of dollars worth of new investment in transportation infrastructure.

Government-led investment in regional logistics and transport has taken off in the past decade, driven by energy-rich Gulf Arab countries trying to carve out a niche as trading posts between Africa and Asia.

Dubai, a city on the southern edge of the Gulf, has been a regional hub for a long time – its Jebel Ali port accounts for about half the region’s seaport capacity – but many of its neighbors are now trying to use their wealth to copy its success.

That wave of investment in places like Abu Dhabi in the United Arab Emirates, Doha in Qatar and Jeddah in Saudi Arabia means regional seaport capacity is likely to increase from 40 million 20-foot container units per year to 100 million in the next 10 to 15 years, according to John Manners-Bell, the chief executive of research and consulting firm Transport Intelligence. Airport cargo capacity should grow from 8 million tons a year to 14 million by 2020.

The problem is that trade would have to grow by about 10% annually to fill that capacity, Mr. Manners-Bell said. While growth rates have been high at some regional ports in recent years – volume at Oman’s Salalah port, for example, grew by 6.5% last year – the expansion appears to be inadequate to fill the coming capacity.

“Capacity planning in the Middle East is dysfunctional,” Mr. Manners-Bell said. “It’s uncoordinated and it’s also unmanaged, and this will lead to capacity growing in entirely the wrong locations and a lot of white elephants. They just won’t have enough volumes to fill these ports or these airports.”

The capacity challenge underlines a fundamental challenge for the Gulf, where countries have long been reluctant to draw closer economically or coordinate their development despite similar economic structures and geographical proximity.

A planned GCC common currency was effectively scrapped when the U.A.E. pulled out in 2009 because of differences with Saudi Arabia over where to locate the regional central bank. A customs union that would standardize tariffs in the GCC has been stalled for more than a decade because of differences over revenue-sharing.

More recently, a political rift has opened between Qatar and the U.A.E., Saudi Arabia and Kuwait over Qatar’s support for Islamist movements that the other states see as an existential threat.

If capacity continued to grow faster than trade volumes, Mr. Manners-Bell said the region was likely to stratify into two tiers. There will be a first tier of mega-hubs like Dubai, he said, with a large number of second-tier hubs beneath them that serve sub-regions or single countries.

Other risks arise if new hubs in Africa and India emerge and out-compete some of the hubs under development in the Middle East.

“In my mind there are a lot of risks in this approach,” Mr. Manners-Bell said. “By just copying Dubai, I don’t believe these other states have a genuine business case for the capacities which they are planning. The real danger is that this capacity ends up in the wrong place.”

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(via WSJ Blogs)