When you are going through hell, keep going.” Those were the wise words of Winston Churchill, Britain’s Prime Minister during the time when the island-nation faced its greatest moment of peril. For two full years – til the Germans turned their war machine on the Russians, when all of Europe was painted ash – Britain stood out as a lonely island battling the world’s greatest ever war machine, and holding well.
As much is the case for much of the world at present, caught amongst multiple storm fronts simultaneously, in the forms of the Coronavirus, the Langya virus, skyrocketing inflation, looming winter global food crisis and the Russia-Ukraine war not ending. There is just a lot on the plate at the moment. Skyrocketing energy prices have precipitated one of the most dramatic wealth transfers from energy consumers to energy producers in recent memory, which is great news for the oil producers, including in the UAE.
This is just too much turbulence for most businesses to be handling. And as would be natural, many businesses across the world have failed as a result of economic uncertainty. And the dust looks unlikely to settle anytime soon. The awe-inducing money printing unleashed in the wake of the coronavirus pandemic has set the stage for skyrocketing inflation in the United States, and this has forced the US Federal Reserve to raise interest rates dramatically this year on two occasions with two further raises pending in the third and fourth quarters. These rate rises have been mirrored across the world in those economies which are dependent on the US dollar, which is probably everyone.
As a result of that, borrowing costs have increased dramatically. Is this having an impact on inflation? We cannot be so sure so far. Where it does surely leave an impact is on the purchasing power of ordinary consumers; things get more expensive, but their incomes stagnate, and they find borrowing more expensive. This is the case with businesses, as well. As Pilita Clark from the Financial Times writes, this has been an unusually busy August. With the possibility of job cuts looming in the fourth quarter, it is likely that as many people would want to be seen to be working at this time of the year than perhaps any time during the past 15 years.
The pressures on companies in terms of rising costs is poised to put them in a tough spot in terms of staff rolls, and it is indeed rather surprising that employment numbers reported in the United States, the best resource for such information, have, in fact, increased during the preceding quarter. Was I surprised when it turns out that the definitions have been tampered with? Not helpful.
In all this, the countries of the GCC region have benefitted from what many have termed a one-time oil bonanza. The wisdom of the leadership in these countries is on full show as they have not let the surplus swerve them from their overall plan to make their countries more economically diversified and their populations less dependent on oil incomes. A fine balance between welfare spending and prodding private enterprise has been achieved, especially in the UAE, where the drive for supporting up-and-coming enterprises in high-end sectors has reached turbocharge levels. Case-in point is the Ma’am Social Incubator, a tech accelerator based out of Abu Dhabi, which focuses on social, cultural and environmental challenges.
The UAE continues to leverage its position as a magnet for talent from all over the world through improvements in the visa regime for expatriates, with the introduction of the 10-year Golden Visa and the shorter five-year Green Visa. Clearly, the UAE understands the value of being an entrepôt and is heavily vested with maintaining this image. Such pragmatism will serve it well in the turbulent months to come.
In terrible times like these, it helps to be pragmatic. Following the disruptions to supply chains following the onset of the coronavirus pandemic, supply lines have reopened somewhat, now that the pandemic seems to be under control (though just barely), but geopolitical tensions have placed far greater strains on global supply chains, further leading to price increases and further hurting consumers from California to Kalimantan. Some dominoes have already fallen. Sri Lanka has already been declared as the canary in the coal mine of sovereign defaults looming across much of the developing world. With Sri Lanka already down, countries such as Ghana, Pakistan, Bangladesh and Ivory Coast, among 53 other nations, have been marked as being at high risk of being at default, thus increasing the borrowing rates for their governments. The cost in each of these countries will ultimately fall on the taxpayers in these countries.
Faced with so much heat, I would still not descend to the depth of meaningless schadenfreude at the misery being meted out across populations. I would rather spend time to observe how these countries are working their way out of the crisis besetting them, to see the choices and trade-offs they make as they try to climb their way back to normalcy.
The most important person in the world at present may be Ranil Wickremasinghe, the reluctant leader of a country which does not want him on the seat but has no option but to have him there. His country has been victim not only of the poor policy choices of its own leadership but has also been caught up in the winds of events which it has absolutely no control over. His admission on a TV interview following his rise to the Presidency of the republic, where he says with a plain shrug, “We don’t have food; we don’t have fuel”, struck me as devastatingly and arrestingly honest.
Nothing like tough times to bring some much- needed honesty out. It would be worth watching how he carries out the negotiations with international lenders and how he goes about restructuring the debts of the Emerald Isle, while undoing the cobwebs of entrenched interests, welfare dependency and economic slovenliness, which have done the country and its people much disservice. There could be something for so many other countries to learn from the course Sri Lanka takes from here on. When you are going through hell, keep going. We will be watching you with keen interest.
Auditor, Bin Khadim, Radha & Co Chartered Accountants, writes a bi-monthly macro-analysis on geopolitics, incumbent political structures, global business and finance exclusively for Climate Control Middle East. He may be contacted at firstname.lastname@example.org.