The global geopolitical world order is in a state of flux; it is unpredictable and uncertain. Governments, corporates and investors are scrambling to adjust, mitigate and adapt to the developments unfolding at a rapid rate. Geopolitics is also driving geoeconomic uncertainty, which has been identified as a major risk by the World Economic Forum report in 2023. The use of economic tools to drive geopolitical objectives has become a major issue resulting in a shift from free trade to secure trade.
A distinguishing feature in the present century global order, as opposed to the past, is the absence of any individual country possessing total hegemonic power. The exercise of power is therefore diffused between different countries and regions. Major powers have extended their sphere of influence, through strategic alliance building and forming partnerships which provides them with a comparative advantage compared to their so-called adversaries. In such a world order middle or emerging powers are demanding a more equal playing field to expand their interests by adopting the strategy of non or multi-alignment.
Forums for engagement
In response to the nature of the present global order, the diplomatic calendar has intensified as major powers undertake high-level bilateral visits and revive and host numerous summits. Military alliances, such as the North Atlantic Treaty Organisation (NATO) have been strengthened, and regional groupings and trade blocs like the European Union (EU) have grown as their influence increases. Minilateral or small groupings based on common interests have emerged, such as the Quadrilateral Security Dialogue (QUAD) or expanded like BRICS plus. Organisations like the G20 have become important forums for engagement on foreign affairs.
While geopolitical tensions were already prevalent, the war in Ukraine which can be regarded as a ‘Black Swan’ event, turbo-charged the prevailing geopolitical tensions and concomitant geoeconomic risks. The Black Swan theory is a term introduced by the author Nassim Taleb, to describe an event that has severe global implications and unintended consequences.
As a result of the present uncertain state of global affairs, economic tools are used as weapons to advance geopolitical objectives by exploiting economic dependencies. National economic interest has become the main imperative as countries impose measures and countermeasures to either force geopolitical objectives or to protect their economies and industries. Relevant international strategies are developed, and legislation is imposed to anticipate and manage economic threats.
Trade strategies such as nearshoring, friendshoring, derisking, decoupling and supply chain agreements, with the purpose of responding to geoeconomic threats caused by geopolitical tensions are introduced in order to build economic resilience.
“According to the International Monetary Fund blog in 2023, greater international trade restrictions could reduce global economic output by as much as 7 percent over the long term, or about $7.4 trillion in today’s dollars – three times sub- Saharan Africa’s annual output”.
In this present global order, governments, corporates and investors have come to the realisation that in today’s world, a lack of geopolitical understanding in decision- making carries severe risks. For governments, the risk is global instability, war, supply- chain disruptions, restrictions on rare earth minerals, energy and food insecurity, macro-economic instability with inflation and interest rates rising, and protests by citizens as a result of the rise in cost of living. For corporates and investors, it is a loss of billions in revenue, due to sanctions, supply issues, blockades, reputational issues and the need to place security above cost and efficiency. Investors have to consider
national security issues in their investment decisions, and deal with restrictions on dividends.
Strategic planning, therefore, becomes important in such a situation and should not be a one-size-fits-all solution, but consider a myriad of outcomes. The late former US Secretary of State Madeleine Albright’s description of international relations at a NATO seminar in 2010 is apt when she said, “Chess is a game where two people sit there quietly and can actually think out their moves. I think the work that we’re involved in is more like billiards or pool, where somebody comes and there are a bunch of balls in the middle of the table, and they hit a ball hoping that it will get into the pocket on the other side but usually it hits a bunch of other balls in a… some kind of a non-scientific or predictable way.”
In an uncertain world decision making is complex, as criminal, foreign policy, regulatory, reputational and business risks are more prominent. To adapt and implement mitigation strategies in such an environment, governments, corporates and investors would benefit from having a thorough understanding of the prevailing geopolitical environment. Flying blind is no longer an option.
– By Mohamed Cassimjee, Geopolitical Risk Consultant