/ 21 January 2016

Davos must focus on political risks

Davos Must Focus On Political Risks

More than 2 500 leaders from business, government, international organisations, civil society, academia, media and the arts have gathered in Davos for the World Economic Forum this week.

This year’s forum comes at a time of intensified concern about the state of the world economy, yet what is less appreciated are the growing fears about rising political risk.

A quarter of a century after the dissolution of the Soviet Union, a recent research report from Citi asserts that “geopolitical risks [are] at a 25-year high …[in] the most fluid global political environment in decades”.

This conclusion is echoed by the forum’s 2016 Global Risks Report, produced with partners including Marsh & McLennan and the Zurich Insurance Group. According to John Drzik, president of Marsh Global Risk and Specialities, “events such as Europe’s refugee crisis and terrorist attacks have raised global political instability to its highest level since the Cold War”.

The multiple challenges now confronting the United States-led international order include Russia’s annexation of Crimea and the fact that Washington’s relations with Moscow are perhaps now more strained than at any time since the collapse of Soviet communism.

Other factors are the continuing instability in Iraq, Syria and Afghanistan, which reduces the ability of the Pentagon to deal with new crises elsewhere; that the Israeli-Palestinian peace process has collapsed again; and the nuclear standoff between Washington and Pyongyang on the Korean peninsula.

Another key risk is international terrorism. Although the principal threat in Europe emanates from the Middle East, Africa is another continent where Islamist extremist groups are a major challenge, including Boko Haram and al-Qaeda in the Islamic Maghreb, as was illustrated by the deadly siege in a Burkina Faso hotel last week in which 29 people from 18 different countries were killed.

What all of this underlines is that many hopes and expectations of how the post-Cold War world might look have also been dashed. For instance, the vision of a universal order of liberal, capitalist, democratic states living in peace and contentment – as painted by political scientist Francis Fukuyama and others – has been replaced by a reality in which authoritarian states such as Russia appear to many to be in the ascendancy, so-called Islamic terrorism remains a significant international concern 15 years after 9/11, and several unstable countries, including North Korea, have acquired nuclear weaponry.

Meanwhile, the rise of China, which has now surpassed the US as the world’s largest economy in purchasing parity terms, is one of the biggest game changers in global affairs since the collapse of the Soviet Union. This development has the potential to be either a growing source of tension with Washington or develop into a fruitful partnership. Growing bilateral rivalry, rather than an increasingly co-operative relationship, is especially likely if Beijing’s military power continues to grow rapidly and the country embraces a more assertive foreign policy stance toward its neighbours in Asia.

But, although much has changed in the past quarter of a century, there remain some constants. Just as at the end of the Cold War, the US remains the most powerful country in the world – certainly in a military sense. It can still project and deploy overwhelming force relative to any probable enemy.

But Washington is not, to use a term of art in international relations, an all-powerful hegemonic power. This core fact has been demonstrated repeatedly throughout the past two-and-a-half decades, in Somalia in 1993, in Iraq and Afghanistan since 9/11, and also most recently in Ukraine and Syria.

In the world of 2016, it can be hard to recall that the collapse of Soviet communism left some people fearing the power of Washington. For instance, so great was the shift to what was termed the US’s “unipolar moment” that some, such as then-French foreign minister Hubert Védrine, quickly warned of the dangers of Washington’s “hyperpower”.

Although 2016 may be a year of very high political risk, the post-Cold War world also contains multiple opportunities for potentially greater stability in international affairs. One example is last year’s nuclear deal between Iran and six world powers – the US, China, Russia, United Kingdom, France and Germany. The agreement opens up the possibility of a wider warming in ties between Tehran and the West, while enhancing global nuclear security.

A lasting nuclear settlement with Iran will constitute an important win for long-standing efforts to combat nuclear proliferation. This comes at a crucial time when, according to the International Atomic Energy Agency, more than 40 countries have expressed interest in joining the “club” of 30 states with nuclear energy.

Another recent positive is the global climate change deal agreed to in Paris last month. Though the agreement is by no means perfect, it represents a welcome shot in the arm for attempts to tackle global warming and, crucially, a new post-Kyoto framework has been put in place.

Moreover, the once-every-five-years review framework means that countries can toughen their response to climate change in the future, especially if the political and public will to tackle the problem increases with time. So, Paris is a potentially very important stepping stone and what is now needed are well-informed lawmakers to ensure effective implementation and hold governments to account.

Taken overall, although political risks may be rising, there are also significant opportunities on the international horizon.

The success of the US in managing the complexity of global affairs will increasingly depend on the co-operation of others, both competitors and allies. A key uncertainty here is the direction of the bilateral relationship in coming years with China, which could either be a force for significantly greater global instability and tension, or much deeper, collaborative strategic partnership.

Andrew Hammond is an associate at LSE Ideas (the centre for international affairs, diplomacy and strategy) at the London School of Economics, and a former UK government special adviser

Africa’s ‘battle of the scarves’ invites new players

Since the 2008 global financial crisis, enthusiasm about Africa has been unbridled. Supposedly endless opportunities, coupled with high growth rates, grabbed the attention of global investors.

The rush to Africa became a perennial talking point at the World Economic Forum (WEF) in Davos, Switzerland, prompting an increase in Africa’s participation at the prestigious gathering of world leaders.

This year the conversation has shifted. Investors are now reflecting on the economic headwinds facing most emerging economies. Davos 2016 is likely to be tough for African delegates trying to maintain interest in the continent.

In Davos, marketing can be just as important as high growth rates. In 2010, South Africa was the epicentre of excitement with the country preparing to host the Fifa World Cup. The South African delegation pulled off a cheap but highly effective marketing coup that saw most attendees sporting a scarf in the colours of the South African flag. A year later, Nigeria followed suit.

A scarf-based rivalry between it and South Africa began, with delegates pledging an unofficial allegiance by wrapping themselves in their favoured neckwear.

The battle of the scarves at the WEF seemed to mark a clear shift in perceptions of the continent. Before the crisis, Africa was largely seen as the global economy’s problem child. In 2008, as many of the developed world’s economies seemed to be crumbling, a paradigm shift occurred. Africa became the last economic frontier.

By 2014, when Nigeria rebased its gross domestic product and took the top spot as Africa’s largest economy, the conversation had evolved and investors were enthusiastically exploring the opportunities in Africa’s two powerhouses.

This year, another shift may be on the cards. Africa’s richest man, Nigerian billionaire Aliko Dangote, will attend Davos 17% “poorer”, according to analysts, who say his net worth has fallen to $17-billion. Not such a problem for him, perhaps, but the weak naira and the collapse in oil prices have wiped billions of dollars from Africa’s largest economy and every­one in the country will be feeling the effects.

This isn’t just a Nigeria-specific problem, though. Low commodity prices and currency volatility will be among the key themes plaguing Africa and its investors in 2016.

The rand has hit new all-time lows of R17 to the US dollar, with the currency depreciating 35% over the past year. Africa’s most industrialised nation is expected to slow dramatically this year.

Apart from the obvious domestic issues faced by commodity-producing nations, most African countries have also been affected by slowing growth in China and the tightening of interest rates by the United States Federal Reserve.

Then there is the rise of terrorist groups. Nigeria, Kenya, Mali and others face serious problems.

This year, African delegates will have to convince investors to stay committed to the continent by focusing on the very same sectors that received so much attention just two years ago: retail, telecoms, power and infrastructure.

It is not all gloomy, though. Sub-Saharan Africa is still expected to clock up growth of 3.75% in 2016 and is still home to some of the fastest-growing economies in the world.

In fact, this year’s most interesting stories may come from outside Africa’s “big three”. Countries such as Ethiopia, Rwanda, Tanzania and Mauritius are showing promise with strong growth rates, albeit from a low base. Although they don’t have a big presence in Davos, they are the most resilient economies in Africa.

Perhaps they should consider investing in a few scarves. – Eleni Giokos

Eleni Giokos is a business correspondent for CNN