Government and business leaders need to see the world as interconnected and that they have a stake in a stable global system.
There are five major global challenges world leaders meeting for the World Economic Forum’s annual event at Davos this week need to address.
These include strains occasioned by global power shifts, turbulence in major emerging economies, growing geopolitical and trade tensions between the great powers, Africa’s weak integration with new forms of global production, and a host of systemic risks that are related to environment, cyber security, and the potential for another global recession.
The global leadership redistribution under way is marked by a tussle for pre-eminence between China and the US, with the interests of the two countries seemingly overriding the imperative to strengthen global cooperation and the multilateral order. It is a battle that goes beyond just differences over accounting for two-way trade flows, and signals an attempt by the US to contain China’s rise and global significance. Given the political and economic weight of these two countries, any unresolved tensions between them could undermine the goodwill needed for global cooperation. Menacingly, this could damage confidence in multilateral institutions.
The second risk facing the global system relates to the outlook of emerging economies. Weak growth, institutional decay, lack of competitiveness and corruption undermine long-term growth prospects and a sustained recovery of some of the major emerging economies. Apart from Argentina and Turkey, which in recent times have faced rising debt, mounting inflation and currency crises, the Brics group of countries are not looking so dandy either.
China faces its own difficulties at home as it rebalances its growth model from export-orientation to domestic consumption, while slugging it out with the US over trade, intellectual property and a race to dominate artificial intelligence-based microchips. China’s growth slowed from 6.8% in 2017 to 6.6% in 2018, and is forecast by the IMF to decelerate further to 6.2% in 2019 and 5.8% by 2022. Fiscal and stimulus measures in the second half of 2018 have not registered much impact.
Other Brics countries such as Brazil, now presided over by the right-wing extremist Jair Bolsonaro, are in the grip of populism, and their place on the global stage is uncertain.
SA continues to face deep-seated economic challenges and is battling to shake off institutional erosion, inefficient state-owned enterprises and the corruption of the past decade. It has long lost its significance on the global stage, and will need to work hard to reclaim this while stemming the economic pressures that confront it.
It is possible that the country’s future is populist in character, especially if corruption is not nipped in the bud and the socioeconomic conditions of its black majority remain unchanged.
Despite the fact that Russia has weathered western sanctions and the slump in the oil price since 2014, and emerged with an economy that is stable, its growth remains anaemic and is forecast to expand 1.7% in 2018 and 1.8% in 2019. This is a far cry from the 7% average growth rate achieved in the early 2000s. The country still faces structural challenges in its ageing and shrinking workforce, and is characterised by lack of competitiveness and corruption.
Of the Brics group of countries, only India has shown impressive economic growth at about 7.5%, reflecting buoyant economic activity domestically and a steady political hand that guides the ship.
A third source of anxiety for the global economy is the future of trade wars between China and the US. These tensions ratcheted up towards the close of 2018, when the US threatened another round of import tariffs on Chinese products in retaliation for what the US considered unfair trade practices and intellectual property theft on the part of China. The discussion between the US’s Donald Trump and China’s Xi Jinping on the sidelines of the G-20 in December, and shuttle diplomacy between their officials, have temporarily cooled things down.
However, there is a broader narrative to these tensions, which is about the structural stress that is induced on the global system by a rising power, in ways that upsets the current superpower whose political and normative heft is waning.
Since the end of the Cold War, the US has not had any serious challenges to its global supremacy, at least economically, and this is changing with the rise of China. The latter is investing its energies in developing domestic technological capabilities, including bolstering the artificial intelligence start-up ecosystem, and rolling out a large-scale infrastructure programme that links Asia, Europe and Africa through land and maritime networks. China’s rise has rattled the US, which in the past expected others to just follow its orders. This rivalry could potentially weaken trust and bridges of co-operation in the global system.
Fourth, sub-Saharan Africa faces its own unique challenges, aggravated by a shaky institutional base and generally weak socioeconomic resilience. As noted by the IMF World Economic Outlook at the end of 2018, commodity-dependent economies may face difficult adjustment to structurally lower revenues than in the past, with many countries in Africa countenancing a gloomy unemployment outlook. Comparative advantage in low-wage labour may no longer be a saving grace in future.
Until recently there has been a widespread view that countries such as China will migrate their labour-intensive processes en masse to the African continent as their own cost advantages diminish with rising productivity, to take advantage of cheap labour in Africa.
But the changing character of globalisation — especially the emergence of services-oriented, robotics and knowledge-intensive global value chains — may not be kind to the African continent. According to a report by the Global Mckinsey Institute, which maps the new trends of globalisation, low-skilled labour is becoming less important as a factor of production, and the shift to services-orientation in economic output is partly responsible.
Finally, these challenges will be compounded by the buildup of major systemic risks. Ahead of the Davos meeting, the World Economic Forum released its Global Risks Report 2019, which expressed anxieties about systemic risks that are on the horizon. These include environmental risks, and associated pressures of climate change, water crises, and involuntary migration; cyber-security and data fraud; and asset bubbles in a major economy.
If global leaders are not imaginative enough and allow themselves to be paralysed by inaction, deep-seated inequalities will persist, tensions between major powers will overshadow the need for concerted efforts to tackle serious challenges facing humanity, and populist nationalism will take centre stage within countries.
Both government and business leaders have a stake in a stable global system that is marked by shared prosperity across different regions of the world. At Davos, they should look beyond their parochial interests, see the world as interconnected, deepen global cooperation, and reach for solutions that aim at improving global stability and bolstering the resilience of weaker economies.