Geopolitical Instability and Economic Growth

The current tense geopolitical situation doesn’t augur much good for lifting up economies like ours caught in a web of slack global economic growth

 Global political leadership collected itself after all the havoc caused by World War II ending in 1944. The United Nations (UN) was established as a global governance body in 1945 in the aftermath of destructive wars. Within the UN, the Security Council was set up to reconcile sharp differences among nations and thus ward off serious threats to international peace.

The divide between Left and Right the world over continued but a forum such as the Security Council, despite its limitations, was seen as a safeguard against widespread global instability and accompanying destruction such as the world had witnessed during the preceding two world wars of the 20th Century. All told, the UN has played its stabilising role by giving a forum for aggrieved nations to voice out their grievances.

Without such an enabling environment for peace, stability and development, a small country such as Mauritius would not have made social and economic progress. Nations which were richer and more powerful than others – less developed and developing – were vested by the UN with a duty to see to it that there is all round development the world over so that tensions don’t rise to a point of serial unnecessary and destructive wars again.

It has worked out. We now have several emerging economies. Countries which were in the deepest throes of misery and deprivation pulled up, giving their citizens basic amenities of the modern world.

Benefits derived from a liberal International Economic Order

The path was not always even for the less well-off countries. Ups and downs came, depending on whether the world economy was operating at the up or down phase of the economic cycle. Certain countries fortified themselves behind trade tariffs and non-tariff barriers, especially when the going was not so good for their economies or when they wanted to beat down other big rivals.

As from the early 1980s however, major countries gained stronger confidence in themselves, to the point of opening up to a more liberal international economic order. America and Britain took the lead. Others followed. International trade was opened up, giving rise to increased international market access. Trade tariffs declined, making it competitive enough for countries like Mauritius to embark on a wider range of exports of goods and services.

This system has been at the basis of our economic uptake. We ventured out into manufacturing of a wide range of products for export markets: textiles and garments, toys, diamond and jewellery,… We went beyond production of real goods into exporting services to the world, notably financial services in particular. We added new skills in our workforce. We also poised ourselves to grow into an intermediation centre for global production, if we succeeded to put sufficient competitive advantages for as wide a range of goods and services on our side as possible. Our chances for success or failure also come from outside.

Risks from a changing global situation

The world economic situation has its ups and downs and we depend on it for making economic and social progress locally. If the going is good and we’ve got ourselves ready for it, we have the possibility to take advantage of it by making additional incursions on external markets for goods and services. If the going is not so good, we can safely wait for the next upturn, hoping that it is not too far away, making do with whatever we managed to garner during the better days.

However, it has now been sometime since really good times are visiting upon the world economic situation. It is now ten years exactly since the start of the global financial crisis of 2007, which has kept global policy makers on the defensive. Despite some sparks of economic growth here and there, the past trend of sustained growth has remained subdued overall. So, no big global opening up.

Negatives have sprung up internationally. Discussions at opening up international trade at the level of the World Trade organisation have come to a halt. The US has issued requirements upon other countries to report to it revenues earned by its nationals in other countries for it to chase up its taxpayers. The OECD has followed suit. Repressive measures are afoot, in a bid to pick up whatever tax amounts might be scraped up from outside countries to replenish domestic budgets.

This morose international economic condition has impacted on countries like Mauritius which depend on the growth of outside markets for sustaining their own growth. Thus, data show that over the past 10 years since after the start of the global financial crisis, except for 2008 when our GDP grew by 5.4%, annual economic growth in Mauritius has been near 4% or less in each one of the years up to 2016.

Moreover, the rates of growth of domestic investment were negative in 2010 (-0.7%), 2012 (-0.8%), 2013 (-3.3%), 2014 (-6.0%) and 2015 (-5.4%). There thus appears to be a close correlation between domestic and international economic growth. Regional economies, with which we are hoping to tie up more closely to overcome our slow economic growth, face the same fate.

Now geopolitical tensions

Given this, our hopes for a brighter economic performance are bound with a better performing world outside. In economics, a downturn in performance – as it has happened since the global financial crisis — usually precedes a coming upturn. We can therefore keep our fingers crossed that it will not be too long before other global economies pick up and start opening up opportunities to less well-off economies, such as ours.

Evidently, we can take advantage of such a global economic upturn, when it comes, if we can make our production sector ready to take advantage of opportunities coming our way. Countries which have already undertaken such preliminary work will stand to gain in such an event.

However, certain other global uncertainties have come on stage of late.

It is not quite certain whether the US has on mind to continue with the stabilising leadership of the “free world”, as it was assumed after the end of World War II and especially after 1989 when the Berlin Wall fell. It is also not certain whether Mr Putin will stoke up again the Cold War and work alongside the new American leadership to split up the EU to weaken its western neighbour, for Russia to gain greater global pre-eminence.

Take the threat being posed by a nuclearizing North Korea. China and Russia, despite being its immediate neighbours and therefore more exposed to any nuclear catastrophe the North Korean regime might end up provoking, did not take the lead to denounce its recurrent missile launches of late. One would have expected them to act more vigorously to stop the escalation way back if they had a mind to it.Maybe it’s better to push America to the edge.

On the other hand, consider the US recently-imposed sanctions on Iran as reprisal for its missile program. At one time, Israel was asking the US to bomb Iranian nuclear sites or it wanted to be allowed to do so itself. The crisis could have escalated and engulfed the entire Middle East had not the P5+1 at the UN Security Council done a binding deal with Iran to stop its nuclear development program. Yet, since the recent agreement between the US and Saudi Arabia for the US to sell $110 billion of new arms to Saudi Arabia, pressure is building up against Iran. Not that they are any good, but why are these missiles less tolerable than those of North Korea?

Conclusion

All these tensions are not anywhere near to being easily resolved. Thus, even if global economies which have now long been besieged by weak economic performance were to improve their performance, the tense geopolitical situation doesn’t augur much good for lifting up economies like ours caught in a web of slack global economic growth.

The hope is that good sense start coming back to a number of global leaders who see suppression of “enemies” or extension of their global power reach as superior to giving wider swathes of populations worldwide more decent living conditions by upping economic growth, by opening up more markets and access to them. As in the case of Mauritius, the world’s living standard has gone up whenever increased exchanges of goods and services have occurred rather than indulging in meaningless self-destructive wars. It’s clear where the choice lies if the voice of reason hasn’t died yet.

 

* Published in print edition on 11 August 2017

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