Is it too much of a statement to make in the present day that the world, as we know it, is unravelling? As had been evident for the past two years, starting with the coronavirus pandemic and turbocharged by the supply shocks emanating in the wake of the Russia-Ukraine conflict, what was a global economy with minor ailments has been thrown into an increasingly alarming crisis situation.
Perhaps the reader – set comfortable in the economic freedom and plain luck afforded by the safe, sterile environs of the UAE, has been rendered rather immune to the great changes that have been afoot on the international stage. The history of the past 40 years, during which Dubai turned herself from a bustling port town with lots of promise to a world-leading city with still more promise, reflects a unique period in the history of the world – of rapid globalisation, lowered transaction costs, lower finance costs and multifold decreases in the cost of international air travel, which is about to be turned on its head.
We do not yet know just how rapidly this process will take place, but we are increasingly faced with the prospect that this may happen sooner than we think. We seem to have been wading ever so slightly and barely noticeably towards a maelstrom of commercial and financial upheaval, like we have not faced in a very long time. In a manner of a few tepid steps, the ease of doing which is as shocking as it is simple, each one of the gains in globalisation, made over the course of the past 40 years, is being undone.
In announcement after announcement, interest rates have gone up: the cost of financing projects and ventures will go up. Trade tensions and the coronavirus crisis means that shipping rates will become more expensive. Matters are compounded with the cost of relocating established supply chains into more favourable markets. The biggest elephant in the room, though, is the climate crisis, the gravity of which is becoming increasingly clear, and which is exacting ever greater costs on humanity.
There are famine-like conditions brewing in nearly a dozen countries, and natural disasters have forced societies towards greater destitution and disease.
Faced with all these variables at the same time, companies as well as countries are faced with a choice as to the path they will take to address the situation. One is the path of continued openness, free flows of the factors of production and the values created, and the unrestricted flow of capital. This has its positives as well as its negatives, especially for those who are not fully ready to compete in the hyper-competitive global economy. The other is the path of unbundling and fragmentation, where the global economy fragments into regions which do not speak to or interact with one another as frequently, and where value transfers are severely hampered through barriers and regulations.
As the IMF has pointed out in an article on their website recently, the loss to global economic growth from an increase in economic fragmentation would be equal to some 1.5% of the overall global economic growth; and this is in a global economy that is expected to grow at just about 2.7% in 2023 (IMF, November 2022). The Asia-Pacific region, whose growth has been premised to a great extent on international trade flows, would definitely be negatively affected.
But the markets in the Advanced West would not be immune to the negative effects of global fragmentation, either. Already, they are suffering from chronic inflation, brought about by monetary as well as supply-side factors, including restrictions on gas and food-grain supplies in the wake of the conflict raging between Russian and Ukraine.
The great headline in several Arabic-language TV news stations is as much about reports covering the state of grain shipments from Black Sea ports as it is about the conflict itself – a clear indicator of where their priorities are, as, of course, should be the case. Economic confluence over the past 40 or so many years has allowed the largest percentage of the world’s population to dramatically improve their living standards despite the almost constant outbreak of war at some corner of the world or another serving as background music during the whole period.
This poses serious questions to all stakeholders, including businesses, engineers, governments as well as ordinary people, as to how to navigate the incoming troubled seas. This is especially more so the case for companies and people engaged in the HVAC industry, given that its trajectory is directly related to the overall course of global economic growth. How are companies in the UAE and the GCC region going to prepare themselves to steady themselves in the short and the medium term as well as further along?
The solution seems to be for the industry to stick to salient points, or as Deepak Chopra would say, “Find your Purpose”. The great technical difficulty facing the world is the question of how to provide for the energy consumption requirements of billions of humans (and animals, if you consider modern farming and animal husbandry) – with the world population hitting 8 billion officially on the 15th of November 2022 – without proceeding to render the planet uninhabitable for any life a few generations forward in the bargain.
Energy efficiency is no longer a cute marketing slogan or something out there to be planned for – it has very much become front and centre of the human quest for nothing less than survival, and the actions have assumed an urgency that they never had before; and it is heart-warming to see that the world, as a whole, has opted for solidarity and consensus on this crucial issue. The works of several distinguished scientists and thinkers, including Sougata Nandi, the author of the book, Energy Management in Real Estate: The Secrets to Success, is essential reading in this respect.
If the spirit of global cooperation and solidarity, when it comes to the issue of human-induced climate change, could be transposed to the economic arena, as well, the world, as a whole, may yet avoid the perils arising from increasing fragmentation of the global economy. It is, of course, in the nature of responsible governments to prepare for the worst, and it is in this respect that the focus of certain governments, such as but not limited to India, has been to take fragmentation in the medium-term as a certainty, as betrayed by certain statements made recently by Dr S Jaishankar, the External Affairs Minister of India.
But statements such as these bring to the fore a greater truth – that it is the power of millions of innocuous individuals that ultimately decides the course that governments will take. And here, it is, indeed, the actions of millions of talented individuals, such as the professionals who form the readership of this magazine, and who have assembled in the major economic centres of the world very often away from their land of origin, which can force governments to rethink their strategies when it comes to forging the path ahead for their economies. Globalisation succeeded not because the governments conspired it to be so; it is because the latent productive potential of hundreds of millions of ordinary people could no longer be suppressed. It will pretty much be this very principle which will put the brakes on The Great Unbundling.