By Chandra Jayaratne –
The nations, cities and global centers which are usually the catalysts and drivers of investments, trade, services, financial flows, technological advancements, commodity and energy supplies, global logistics etc. are mostly in the midst of significant crisis and battling internal, external and environmental risks of one type or another.
Australia has been battered by bush fires, heat waves and floods and associated with it are negative impacts on commodity trading incomes. The Chinese growth curve and two way global supply and service chains have been turned upside down by Corona Virus epidemic. Carnagie Endowment for International Peace notes that ‘When SARS hit in 2002 and 2003, China was the source of 8 percent of all the manufacturing goods exported worldwide. By 2018, this figure had ballooned to 19 percent. In a lopsided fashion, the world has become more dependent on China economically, even as China has become less dependent on the rest of the world. Many countries now import more Chinese-made intermediate goods, which they then use as components to make finished goods to be shipped overseas. This means that any disruptions to Chinese manufacturing supply chains often create enormous global domino effects’. ’China has held its own economic vulnerability vis-à-vis other countries in check. Across many manufacturing sectors, the country has managed to remain increasingly self-sufficient. It now imports fewer intermediate goods from the rest of the world by vertically integrating supply chains, except in the cases of some raw materials like oil and certain high-tech goods, such as semiconductors’.
Bloomberg article titled ‘Coronavirus Stress-Tests China’s Fragile Financial System’ notes “Pessimists say the crisis could be a catalyst for a long-awaited collapse of the country’s over-indebted financial markets—an extreme scenario that Chinese regulators have managed to stave off time and time again, even during the debt crises that embroiled the U.S. and Europe in 2008 and 2012”.
Reuters report that “world prepared for a pandemic, and investors dumped equities in expectation of a global recession. Corona virus panic sent world share markets crashing again; expectations that the epidemic would over In months are now shattered as the number of international cases have spiraled; leading to USD 6 trillion being wiped off global stock markets in a week, the worst since 2008. With creeping fears of a potential pandemic, the World Health Organization has raised the impact risk alert to ‘very high’ from ‘high’”.
Carnagie Endowment further notes “What’s more, even though the projected decline in expected GDP growth is lowest for Japan, the impact will be larger in some respects because it is the largest economy in Asia outside of China. That means the nominal GDP value of even a smaller percentage-point economic disruption would still be relatively high. The expected relative drop in the total value of GDP growth for Japan is expected to be the second highest among China’s neighbors, behind only that of South Korea. From that vantage point, South Korean and Japanese firms will feel the biggest impact. The report also predicts ‘Vietnam will be affected the most due to its high dependence on Chinese supply chains, but its sharp overall growth rate—more than 7 percent in 2019—provides a partial buffer. Meanwhile the impact on the economies of Hong Kong and Singapore will be more severe, given that they were already experiencing a slow pace of growth due to structural weaknesses even before the crisis unfolded. Indirectly, Japan and South Korea are also exposed by virtue of their stock investments in Southeast Asia and, of course, mainland China’.
One intelligent Sri Lankan businessman quoting a Wall Mart Supply Chain professional predicted that Wall Mart and K Mart customers representing the biggest market share of the majority citizens of USA will feel the pinch. The press has often quoted “In America, estimates say that Chinese suppliers make up 70-80 percent of Walmart’s merchandise, leaving less than 20 percent for American-made products”. With American elections due later in the year, there are risks that the unpredictable President Trump may at any time, drag the USA in to a confrontational situations in trade, security or conflict associated wars, anywhere in the world.
Jill Disis in CNN Business writes “Japan’s economy is shrinking and a recession looks ‘all but inevitable’. Hong Kong is handing most of its residents a pile of cash to spend as it tries to save its slumping economy from the aftermath of protests and the coronavirus outbreak. Strait Times reports that “Singapore is forecast to be the worst affected from the fallout, with growth dropping by more than 1 percentage point for 2020. A port city and a major trade partner with China, Singapore is expected to contract 0.6 per cent in the January to March quarter of this year, a first since the 2009 recession after the global financial crisis”.
Pakistan is in the midst of a severe external debt crisis, with references to near bankruptcy, and prospects of even a debt default; the Financial Action Task Force is threatening to impose a black listing on account of the State failing to control terrorist financing. This instability, heightened by the role of the military in governance, locust attack on crops and inequities amongst provinces may lead even to the fragmentation of the country.
India on the other hand, as reported by the Guardian, notes that the violence which began over a disputed new citizenship law has led to clashes between Muslims and Hindus in which hundreds were injured is deemed to be the worst race riots in decades, where the death toll keeps mounting. In this backdrop India Today Notes and predicts “the latest data on Gross Domestic Product showed that India is in an acute slump. Consumers and businessmen are not spending or investing due to bleak prospects and economy slumped to 4.5 per cent. India, once considered as the fastest growing economy in the world, is now finding it difficult to compete with emerging economies like Vietnam or Egypt”. To compound matters the locust attacks on crops are also reported and the ‘Hinduthva’- to establish the hegemony of Hindus and the Hindu way of life promoted by Modi Government could lead to further fragmentation and economic back slide. .
The Guardian in an article titled ‘UK Economy close to turning point on leaving EU’ states “Growth in the UK economy has gone from the fastest in the G7 to among the weakest, with business investment flatlining as companies put their investment plans on hold to await greater clarity over Brexit. Repeated cliff-edge Brexit deadlines triggered booms in stockpiling as firms feared disruption at the borders and higher costs of trade with the EU, distorting quarterly growth and leading to boom and bust in the economy. In the past month, figures show consumers reined in their spending over the key Christmas shopping period, in a blow for struggling retailers, while the world economy faces fresh risks from the Chinese coronavirus outbreak. Financial markets have been rocked in the past week as fears spread over the impact on trade. Analysts fear there could be knock-on effects for UK firms, at a delicate moment after years of disruption to the UK and world economy from the US-China trade war.”
Merkel succession crisis in Germany; slowdown in household spending in France as the country-wide strikes against President Macron’s pension reform battered consumption; continuing growth stagnation, high debt and high employment in Italy; and the low preparedness of EU states to face a pandemic from corona virus leaves EU as a whole in a state of heightened socio-political and economic risk.
Economic value preservation based restricted oil supplies; lower demand from China; heightened tensions in relations with the western world and internal conflicts will leave the middle-east too in a state flux .
In the context of the external environmental challenges spreading out nearly in all of the key economic driver nations, the important question to raise is – Have our stubbornly Insular leaders in politics, governance, business, academia, professions, religions and media taken cognizance of the above, recognizing that Sri Lanka is an itself facing a significantly heightened challenge in managing its external debt?
The Prime Minister has appealed for a three year moratorium in debt repayments from India, stating that such a grant will lead to similar concessions from China, whilst signaling Sri Lanka’s willingness to enter in to a new programme of support from the IMF, based on terms consistent with the macro-economic policies of the new regime.
It is deeply regrettable that in the face of significantly heightened external and internal risks, our leaders continue to articulate insular outlook driven pronouncements and are taking governance actions connected with, the control of internal security risks as the top priority; retaining independence, sovereignty and not tolerance of external influences and foreign dictates; unwillingness to honour international obligations under subscribed to conventions; international relations being driven by popular mandate of voters: seeing international conspiracies to grab land and rich resources of the nation; abhorring trade agreements; suspending foreign shareholder entity registrations; taxation reforms which are unaffordable and debt management negative; depending on the fiscal stimuli to generate in isolation growth in the economy and new job creations; national reconciliation based on ‘prosperity through security and development’; frowning on judicial reviews and actions of Independent Commissions being inconsistent with people’s aspirations, quarrelling over Sandanaya’s and Symbols ; seeking regular blessings and advise on governance and policy from religious leaders; seeking a two third majority in parliament and deployment of armed services personnel in key civilian jobs as a way to improve governance effectiveness; Appointing Commissions of Inquiry on political victimization and national reconciliation, describing the Coronavirus scare as western media hype, initiatives in winning votes and religious dignitary support, etc.
In examining challenging issues afresh in forging ahead with its agenda for ‘prosperity through security and development’, and finding home-grown solutions to overcome contemporary challenges in the best interest of all Sri Lankans, have our leaders excluded from their visionary focus the emerging external risks described before; and also failed to bear in mind that Sri Lanka is an import dependent country, without independent food and medicines security and energy supply assurance; a significant savings gap crying out for foreign direct investments in spurring growth and generating new job opportunities; the essential need for adopting a clear non-aligned policy linked to fostering closest relations with India; need to control the trade deficit and rapidly enhance export earnings; need to preserve foreign worker remittances and grow services income; need to effectively manage the external debt and associated management of the trade deficit, external reserves, exchange rate risks, Inflation and the sovereign credit rating currently just above “Junk Bond“ status; exploit locational advantage and value bearing sea routes and maritime hub options; exploitation of bay of Bengal and Law of the Sea extended resources? These leaders appear to be blind to challenges of the aging population, malnutrition, need for change management in moving out of sectors with low productivity, quality and competitiveness; low level of preparedness to have skilled workforce to serve the needs of the fourth industrial revolution and link up with the next generation ITC and artificial intelligence; research/innovation and creativity being out of priority focus.
When will realism and urgency force our leaders to wake up and collectively address the external and internal risks with professionalism and commitment?
Who will impress on leaders the importance of what Jack Welch said “Face reality as it is, not as it was, or as you wish it to be: Control your own destiny or someone else will: When the rate of change inside an institution becomes slower than the rate of change outside, the end is in sight. The only question is when.”