One thing that was striking in 2017 was the number of dead babies and toddlers witnessed in conflict zones – countries where economies have failed and avoidable illnesses have gone untreated – it is heartbreaking to see. And from poor African states, murdered Rohyinga Muslims or Syrian children, the story is the same: a faltering global system besieged with problems, divided, lacking leadership, and weak.
Almost a world away and it is hard to ignore the economic successes: stock markets up, bitcoin up…then down, economic confidence increasing, interest rates heading back to normal, cheap and available credit abundant, and private equity firms awash with $1trn to spend but lacking opportunities with which to invest it.
Underneath these economic successes the world is divergent as real-life volatility – war, famine, epidemics, environmental degradation, and political risk – stalk “safe” financial markets. Instead, volatility is non-existent as markets have become apathetic to price-in global issues.
The trouble is that economic globalisation was in full-scale retreat – if journalists and commentators after the Brexit vote and the US elections in 2016 were to be believed. Yet the problems that existed then, exist now, although they increase in magnitude and significance, quietly ticking away behind the scenes. However, in many ways, the failure of far-right parties in French and Dutch elections quashed fears of globalisation’s imminent demise, thus presenting an incorrect perception of revived liberalism, securitisation, openness, and multilateralism that simply hasn’t occurred.
And while goods and services continue to move around the world, there is an ever-developing sense of economic nationalism, political risk, and societal discontent across continents.
Moreover, many facets of globalisation most certainly are in trouble: international trade volumes are believed to have peaked according to the McKinsey Global Institute; citizens want countries to put them first and they want businesses that are answerable for their actions; customers want to buy and be forgotten; and national leaders want protectionism as well as investment to solve policy failures – a perception of too much economic openness, a lack of regional economic development are feeding a wave of anti-globalisation that the IMF is fearful of, as it should be.
Counter to anti-globalisation are the actions of leaders such as President Macron, Xi Jinping, and Prime Minister Trudeau as the new leaders (read: saviours) of European integration (Macron), open international political economy, strategy and trade investment (Jinping), and tolerance and openness (Trudeau).
If that is the case then it is important to consider how President Macron will manage domestic priorities and desired economic reorganisation with European economic convalescence and ongoing political discontent. Meanwhile, Xi’s more long-term geopolitical ambitions are a concern for global geopolitics as the economic axis is tilted eastwards.
European Uncertainty Grows
In Germany, Angela Merkel is yet to form a government – a new grand coalition – to keep the far right Alternative for Germany (AfD) at bay. Merkel may indeed find that she doesn’t survive much longer as Chancellor, presenting a difficult time for domestic and European leadership.
Britain is confronting the implications of Brexit as well as many domestic issues to address, all to be achieved under a hung parliament. In the East, the Russia-Ukrainian war continues with the world’s mind focused elsewhere, and yet any intensification of conflict could cause price volatility in meat, sugar and wheat as well as potentially some chemicals and metals.
In Southern Europe, the Italians are set to have another election, an open contest which few will openly predict the outcome of in light of ex-Prime Minister’s Matteo Renzi inability to find allies for the PD party, as reported by the Financial Times.
Importantly, Italy’s GDP per capita is 25% lower in 2017 than it was in 2008, according to the World Bank. Unemployment in the world’s tenth largest economy stands at a disconcerting 11.2%. Disconcerting, in that the world has seen how, in recent years, economic inactivity – heavily skewed to the young – can lead to wider societal unrest and renewed interest in parties for the far left and right who can promise the Earth.
Across the Mediterranean, Spanish separatism remains unanswered with Carlos Puigdemont looking to return to Spain following December’s successful election results. The Spanish crisis puts enormous stress on a fragile Spanish economy and government, that itself was only put together following Prime Minister Rajoy’s previous ten months and two election struggle to form a government.
Meanwhile, Austria has co-opted the far-right Freedom Party of Austria into key cabinet positions raising questions about changing public policy positions on issues such as immigration, foreign affairs, and military spending. In Hungary and Poland, Viktor Oban and Prime Minister Mateusz Morawiecki exert more power and tighten state control of their courts and media.
The bottom line is that if European stability was assured in the ways that commentators, prominent politicians, and think tanks proclaim then the four biggest economies in the Eurozone would be much more politically stable – their leaders more confident – than they are in reality as the wider world moves on around them.
Middle East Spill-over
Regionally, the Saudi-Iranian proxy war continues in Lebanon, Syria and Yemen. Indeed, the plight of the people of Yemen is an outright atrocity, with the U.N. estimating that one million Yemeni’s are suffering from cholera, an illness cured by water and sugar. Malnutrition is another issue that is killing thousands as warring sides attempt to starve the other to death and food is lacking, ports remain delicately controlled according to analysis by North P&I Club.
At the same time, the Qataris remain firmly cut off economically and diplomatically from 16 Muslim nations, whilst support from Iran and Turkey continues. Qatar’s deep pockets have mopped up the damage thus far as explained by the Reuters news agency last year. That said, the long-term consequences of economic sanctions and blockades will inevitably cause problems for the Qataris. How this will be managed is another matter.
Saudi Arabia, firmly under new management, is in the midst a raft of changes. Firstly, a more liberal, modern, society with improving women’s rights and cinemas really feed into the country’s wider economic ‘Vision 2030’, as the Saudi’s pivot away from oil revenues. Domestically, Crown Prince Mohammad bin Salman has purged political rivals, reportedly corrupt officials and business leaders as so to stamp control on the kingdom. Separately, a re-balancing between the Crown Prince and religious leaders looks set to take place.
Externally, the hard and soft power of the House of Saud is being felt right across the region as well as further afield ensuring these exciting albeit complex times for the country are on the mind of many politicians and business leaders.
Terrorist attacks have rocked Egypt to the core whilst reminding the world of a secular society that is struggling to enforce control as extremism encroaches. At home, Iran is now gripped in domestic unrest as tens of thousands demonstrate over corruption, prices rises, and unemployment. The Iranian government, for its part, blames the CIA and foreign operators for stirring unrest.
In Amman, Jordan, the realities of conflict are a daily sight as the country remains the home to some 750,000 refugees who, according to U.N. statistics can expect to spend 17 years as refugees. The Syrian war, likewise the future of the Kurds, remain unresolved.
In all, the Middle East is a tinderbox with more conflict likely. After all, neither the Sunni nor Shia Muslims have yet secured a solid advantage or inflicted enough pain to warrant peace talks. Consequentially, the price of oil could well edge higher due to fears of instability and production cuts.
Any intensification of violence could disrupt supply chains in both directions.
Economically the new normal in oil prices – around $50 a barrel – is an experience that kingdoms in the region are still acclimatising to, so any big equity market corrections in major markets would hurt the performance of sovereign wealth funds whose wealth is being used to fund public expenditure.
American Foreign Policy and South American Woes
American foreign policy is a shell of its former self. As Susan Rice of the Harvard-Belfor Centre wrote in the New York Times recently how the new policy is one characterised by ‘a dark, almost dystopian portrait of an “extraordinarily dangerous” world characterised by hostile states and lurking threats.’
In addition, Brian Jones, Vice President and Director of The Brookings Institution, recently published The New Geopolitics, explaining how ‘We [America] have entered a new phase in international affairs, leaving behind us the brief moment characterised by untrammelled American dominance.’
Jones goes on to explain that: ‘Economic integration raises the domestic stakes in great power relations, sometimes in stabilizing ways, but also sometimes in distorting ones, particularly with the ascendance of economic nationalism.’
This new economic nationalism could well provide the renaissance that middle America has come to expect via the ‘America First’ mantra although on the flip side this sort of rhetoric risks harder borders, rolling negotiations, and constant economic war-gaming. The strategy is simple: play tough with the likes of China, get the European’s to pay their way, and provide a platform for corporate and SME firms to thrive – favourable trade terms, better infrastructure, tax cuts – that lead to more jobs, dividends, and executive pay…and a second term?
Simplicity does not, however, guarantee success when the US is effectively opening up a trade war and re-balancing act. Not that it shouldn’t happen – just that it won’t be easy when the desire to win at all costs affects relations with allies and neighbours. Remaining unanswered in the background is how policies towards China, North Korea, Russia, and Syria will play out. Likewise, what will America’s covert role in African states evolve into?
Travelling down the spin of the American continent, leaders must navigate more vulnerability. Mexico’s drug war rumbles on, with deaths increasing. Earthquakes have shaken the country’s infrastructure resilience. The country goes to the polls in 2018 as the USA seeks to renegotiate NAFTA.
Hondurans, meanwhile, test the resolve of the government by calling for fresh elections amid allegations of corruption from ballots counted. Costa Rica is instead counting the toll of organised crime violence, with 2017 being the highest year for murders on record – a position shared with Mexico – and El Salvador remains mired in violence.
Unrest, economic failure, and political discontent trundle on in Venezuela and will not be changed by a different government being elected. Brazil’s economy improves, but a war between political advisories and judges pulls elites apart. On the streets of Rio de Janeiro and Sao Paolo, a war between gangs and police may undermine economic growth and stability.
Why do all these things matter?
If one is a business executive, fund manager, management consultant or political analyst then these issues could massively impact the performance of one’s assets, clients, firm, or national security, so awareness is imperative.
If nothing else, the liberal economic order is under immense pressure as nations are pushed to politically divergent directions in search of strength and solutions just as the international order is shifting.
As a result, the economic conditions and optimism that presently exist globally need to be viewed with more scrutiny – opportunities certainly exist but so do large debt obligations, moving public policy positions, and the so-called ‘Minsky Moment’.
The important thing for business leaders to do is focus on preparation and understanding of our increasingly more turbulent world; understanding what the issues are, the implications that come with them and the early warning signs.
More important is preparation: engaging with public affairs firms and risk consultancies will help, but so too will reviewing the markets one operates in and the client exposure therein, the strategies presently deployed and the operations – capacity, inventory, supply chain routes, and multiple sourcing – a firm would need to overt regional issues.
For fund managers, 2018 should present opportunities to take educated bets on macro movements, especially currency and commodities, as the year develops. Management consultants must look beyond frameworks and the internal environment for clients.
In all, the world can expect lots of change in 2018, especially from public policy, economic change, or an unexpected war.
Understanding and preparation is key to navigating things fully in an ‘every nation for themselves’, growing anti-globalisation environment.
BP and Iraq Sign Development Deal for Kirkuk Oil Fields
Iraqi Government and British energy giant BP have signed an agreement for the future development of the Kirkuk oil fields in Northern Iraq.
A statement on the Iraqi Oil Ministry’s website said the “memorandum of understanding” between the government and the London-based oil company would enable further development of the oil fields as well as “to open a new page of work” for the North Oil Company, a subsidiary of the Oil Ministry, on “solid foundations”.
BP Director, Michael Townsend, said the company would conduct the necessary surveys and prepare the required statistics. He claims the company will increase production by 750,000 barrels of oil a day.
The Kirkuk Oil Field, discovered in 1927, is one of the largest oil fields in the world, producing half of Iraq’s oil exports, a reported million barrels a day. However, it has also been a wellspring for local instability: the fields had been seized in 2014 by the Kurdistan Regional Government, who piped oil across the Turkish border, a few hundred kilometres to the north. The fields were only retaken by government forces in October 2017.
Baghdad is attempting to reassert its authority throughout its provinces and according to Iraq’s Minister for Oil, Jahbar Ali al-Allaibi, Thursday’s announcement will “speed up the rehabilitation process”.
During the Saddam Hussein era, the fields suffered irrecoverable damage due to poor management. Excess production was reinjected back into the ground making Kirkuk’s oil thicker and therefore harder to extract.
On Wednesday al-Allaibi met with Britain’s ambassador, John Wilkes, where according to the ministry’s website, they talked about joint cooperation between the two countries in the oil and gas industry.
Trump’s Presidency and Russian Relationship: The Future
Much has been contested about Donald J. Trump’s love affair with Russia. Questions deserve a thorough and honest investigation. As distasteful and risky it may be, the best outcome of the enquiry is accusations continue to swirl, Trump limps through three more years, and in 2020, he is crushed at the ballot box. The world moves on. If removed from office, odds are Trump whips his base into a frenzy. Only the height and duration of civil unrest is in question. A worse case is that Trump emerges emboldened, eager to settle Putin’s longstanding challenge.
Putin Mocks Trump
The competition is real. Putin’s economic and political dominance gnaws Trump. Putin knows this. So, he taunts the President and dares Trump to employ the same ruthless tactics he exploited to consolidate power and possibly become the world’s richest man. Since Trump only sees green, he took the bait. The race is on to be the world’s first trillionaire.
Russia’s population is 142 million. Its $3.86trn translates into a measly $26,900 per capita GDP. In contrast, the 326 million people of the United States generate $18.62trn in GDP, nearly five times Russia’s total. The US per capita GDP of $57,600 more than doubles Russia’s. Despite Russia’s meek economy and reports that Putin has embezzled up to $200bn in assets, Putin remains incredibly popular in Russia.
The apathy regarding this unparalleled heist makes Trump and Putin salivate over what they could jointly pilfer from the world economy. To advance their contest, the pair will identify a common threat. US-Russia relations will warm. Under the guise of “Peace through strength,” Russian sanctions will be lifted, and the Magnitsky Act repealed.
The administrative state in retreat, animal spirits will run wild. Trump’s name will be emblazoned across the globe. Countries desperate for jobs will be compelled to forge deals sponsored by Putin and Trump. Ethics be damned, the race to the bottom of the $120trn global economy will prompt a wave of corruption never seen before. Every facet of human decency will be compromised: environmental regulations, free and fair-trade by-laws, intellectual property, and human rights protections. The collusion is real.
In time, complicity will turn to double-crossing. It’s the Trump-Putin way. Makeshift “me-first” trade deals will collapse. Boycotts, divestitures and sanctions will be commonplace. Cooperation will evaporate. New political boundaries will be drawn with little world condemnation.
It doesn’t have to happen this way. Patience is a virtue. The checks and balances of the three branches of government are powerful mechanisms to thwart overt corruption.
Yet, for the impatient who seek Trump’s impeachment or removal via the 25th Amendment, be careful what you wish for. Only Trump can tame his army. To assume Trump will plead mercy at the feet of the administrative state contradicts Trump’s lifelong persona. He will relentlessly counterpunch and encourage his followers to do likewise. The short and long-term political and social risks are astronomical.
If Trump stems the tide, consolidates power and aggressively partakes in Putin’s race for two terms, the risks outstrip his forced removal. The consequences will be multi-generational.
Rope-a-Dope is the Key to Containing Trump
The only path that possibly prevents extensive collateral damage is to check Trump into policy oblivion. Legislators must play rope-a-dope for as long as it takes, even three years if necessary. If Democrats take back both houses in 2018, the tactic will not set up Trump and his base for a final knock-out punch in 2020. For that to occur, numerous members of the GOP must join the effort. They too must throw periodic jabs at Trump then absorb a barrage Trump’s counterpunches.
With foes in every corner, even Trump – the self-proclaimed greatest counterpuncher in history—and his base will wear themselves out well before 2020. Then the decisive knockout punch can be delivered at the ballot box—without collateral damage.
Trump is severely wounded. If he gracefully and peacefully surrenders the Presidency, great. But don’t expect it. Rope-a-dope deployed by both parties is the countries best hope for a peaceful end to the Trump Presidency. Any other scenario risks the once unthinkable; an ‘American Spring’.
May Meets Macron
The UK prime minister agreed to pay £44.5m towards tighter border security at Calais.
Editor’s Remarks: The French president arrived in the UK for the Anglo-French summit amid widespread complaints from the Tory party about just why Britain is paying another £44.5m for tighter security in France. One Tory MP pointed out that this addition brings the total figure the UK has paid to France in recent years up to £170m. France, meanwhile, says that the amount is necessary because the migrants in Calais are trying to get to the UK, who must, therefore, contribute towards their costs. The talks were also consumed by the imminent task of reaching consensus over the UK’s trade deal with the UK after Brexit goes through.
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