2 October 2023 4:15 pm
A MERCANTILE MIDDLE EAST

A MERCANTILE MIDDLE EAST

Sep 1, 2023

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The Gulf states can catalyze trade within the Middle East and North Africa region and the region’s integration into the global trading system

The world has witnessed a tectonic shift in global economic geography and trade toward emerging Asia in the past two decades. However, the Middle East and North Africa (MENA) region has remained one of the least dominant, accounting for just 7.4 percent of total trade in 2022. The region’s trade is characterized by a relatively high concentration of exports in a narrow range of products or trading partners, limited economic complexity, and low participation in global value chains.

Even so, commodity-dependent nations in the MENA region have made substantial gains over time, specifically in trade diversification, as shown by the Global Economic Diversification Index, which tracks the extent of economic diversification from multiple dimensions, including economic activity, international trade, and government revenues.

The MENA region’s total trade in goods as a percent of GDP (an indicator of openness) was 65.5 percent in 2021, indicating a relatively open regional economy. Yet, as shown in Chart 1, intraregional trade is low, representing only 17.8 percent of total trade and 18.5 percent of total exports, despite a common language and culture as well as geographic proximity. The six oil-exporting Gulf Cooperation Council (GCC) nations—Saudi Arabia, Bahrain, Oman, Qatar, Kuwait, and the United Arab Emirates—account for the bulk of intraregional trade.

Trade

Their dominance of intraregional trade suggests that the Gulf nations could become a catalyst for regional trade integration, helping lower barriers to trade, improving trade infrastructure, and diversifying the region’s economies. Greater integration of non-GCC Middle East nations with the GCC will lead to more intraregional trade and greater global integration (via the GCC’s existing global linkages and participation in global value chains). With the growing global economic integration of the GCC nations and their concerted effort in supporting the region’s other nations (via increased trade and investment deals with Egypt and Iraq, for example), they can be a conduit for greater integration of the rest of the region into world trade.

Region’s laggards

Why have non-GCC countries lagged when it comes to intraregional trade? In part it is a failure of the MENA region’s multiple regional trade (and investment) agreements. The share of intragroup exports in the Arab region, excluding the GCC, has remained below 2 percent of their trade flows, partially a reflection of regional fragmentation, violence, and wars since the mid-1990s and following the Arab Spring in 2011. The region comprises a group of nations characterized by significant political differences, and this is reflected in trade patterns as well. For example, the orientation of the Maghreb nations of North Africa has been toward Europe, with the regional Euro-Med program and agreements supporting such linkages.

A contributing factor to the stagnation of intraregional trade is the lack of growth of trade in services. MENA services trade has ranged between 4 and 6 percent of global services trade in the past two decades. This pales in comparison with the Organisation for Economic Co-operation and Development countries, which account for more than two-thirds of global services trade. Within the MENA region, the GCC accounts for the bulk of services trade, with the largest shares in relatively low-value-added sectors like travel (and tourism) and transportation. The services trade is held back by restrictive policies that limit entry in sectors dominated by state-owned enterprises, such as telecommunications, or that impose high fees and license requirements, especially in professional and transportation services.

Such restrictive policies, along with structural deficiencies, encumber MENA nations’ trade both within the region and globally.

MENA nations apply more, and more restrictive, nontariff measures than in any other region. These almost doubled between 2000 and 2020. Lack of uniform standards and harmonization, pervasive red tape, and corruption compound the effects of these barriers. Business and investment barriers include cumbersome licensing processes, complex regulations, and opaque bidding and procurement procedures.

MENA as a region underperforms on trade facilitation measures to ease the movement of goods at the border and reduce overall trade costs, though there are wide disparities across the region. The quality of trade- and transportation-related infrastructure is significantly lower in the non-GCC MENA nations. Furthermore, delays at the port result in excessive “dwell times” (delays of more than 12 days) for imported goods in some MENA countries. Algeria and Tunisia delays average about 20 days versus less than five days in the United Arab Emirates (among the top three globally).

Knocking down barriers

Overcoming these impediments to wider trade for the region requires removing barriers to trade and investment, diversifying the region’s economies, and improving infrastructure.

A new generation of trade agreements, including more knowledge-intensive services, would not only support export diversification policies but would also help bridge gender gaps, improve women’s economic empowerment, and subsequently result in more inclusive economic growth and integration.

The pandemic has underscored the need for trade diversification (both of products and partners) and development of new supply chains. Although the GCC’s oil trade remains dominant, its members have embarked on various policies and structural reforms, such as increasing labor mobility and opening capital markets across borders, to diversify away from overdependence on fossil fuels and associated revenues. This has resulted in diversification of both the output mix (for example, increased focus on manufacturing) and the export product mix (for example, more services exports) alongside an evident shift in trade patterns toward Asia and away from the United States and Europe. More recently, the war in Ukraine further highlighted the plight of food-importing nations in the Middle East in the context of food security. (Ukraine and Russia accounted for a third of global wheat exports; Lebanon and Tunisia were importing close to 50 percent of their wheat from Ukraine.)

The Global Economic Diversification Index trade subindex shows that the commodity-dependent nations with the most improved scores over time have either reduced dependence on fuel exports, reduced export concentration, or witnessed a massive change in the composition of exports. An example of the latter is Saudi Arabia’s increased focus on medium- and high-tech exports, which rose as a share of overall manufacturing exports, to almost 60 percent right before COVID from less than 20 percent in 2000. The MENA region as a whole has already made some headway toward diversification, as shown in Chart 2.

Trade 2

The GCC nations have benefited from the recent rise in commodity prices, but the pandemic reinforced strategies, including the development of free zones and special economic zones, to diversify into new sectors. These policies range from attracting investment (including foreign direct investment) to higher-value-added, higher-tech manufacturing; investing in new sectors (renewable energy, fintech, artificial intelligence); and opening markets to new investors and investments (as is evident in the recent spate of initial public offerings in both the oil and non-oil sectors). These reforms help expand markets (within the MENA region and toward Africa, Europe, and South Asia), while up-and-coming sectors like renewable energy and agritech offer sustainable ways of expanding the extensive and intensive margins of trade and generating new job opportunities.

Engine for regional integration

Full achievement of the benefits of regional trade integration requires a reform of trade policies to break down barriers, including restrictive nontariff measures, complex regulation, corruption, and logistical roadblocks.

Integrating the MENA region’s trade infrastructure (ports, airports, logistics) with that of the GCC would lower costs and facilitate intraregional trade, leading to greater regional integration and generating gains from trade for all parties. The GCC can lead the economic integration and transformation of the region via investments in hard infrastructure and trade-related infrastructure and logistics, in addition to developing an integrated GCC power grid. A GCC renewable-energy-powered, integrated electricity grid could extend all the way to Europe, Pakistan, and India.

The GCC nations have an opportunity to benefit from global decoupling and fragmentation with their unfolding strategy of pursuing globalization as a regional group through new trade and investment agreements, foreign aid, and direct and portfolio investment. The ongoing disengagement from long-standing regional conflicts, in Israel, the West Bank and Gaza, Yemen, the Islamic Republic of Iran, Libya, and elsewhere, and the forging of new links (diplomatic opening such as the Abraham Accords) reduce the geopolitical risks of promoting regional trade and investment. The GCC can use this as an opportunity to shape the MENA region into an interlinked trade and investment hub. The GCC’s accelerated new free trade negotiations with key partners in the MENA region, including Egypt and Jordan, and in Asia, including China and South Korea, could become the cornerstone of this transformation. The United Arab Emirates have already signed comprehensive economic partnership agreements with India, Indonesia, and Türkiye covering services, investment, and regulatory aspects of trade.

There are two complementary ways to move forward. One is to implement the GCC Common Market, invest in digital trade, lower tariff and nontariff barriers, and reduce restrictions on trade in services, along with reforms to facilitate greater mobility of labor and enhance financial and capital market linkages. Second, the GCC should develop new deep trade agreements with the other MENA countries, going beyond international trade to encompass agreement on nontariff measures, direct investment, e-commerce and services, labor standards, taxation, competition, intellectual property rights, climate, the environment, and public procurement (including mega projects). The GCC nations, which have historically used foreign aid and humanitarian aid to support MENA nations, should opt for an “aid for trade” policy to support their partners in implementing trade-boosting reforms that lower business and investment barriers, improve logistics infrastructure, and facilitate the movement of goods.

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NASSER SAIDI is the president of Nasser Saidi and Associates. He was formerly chief economist of the Dubai International Financial Centre Authority, Lebanon’s economy minister, and a vice governor of the Central Bank of Lebanon.

AATHIRA PRASAD is director of macroeconomics at Nasser Saidi and Associates.

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English – here’s why it’s the lingua franca of firms around the world

English – here’s why it’s the lingua franca of firms around the world

Apr 5, 2023

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Amongst all languages, English – here’s why it’s the lingua franca of firms around the world.  Explanations.

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Italian government wants to stop businesses using English – here’s why it’s the lingua franca of firms around the world

The image above is of EF English Live

Rawpixel.com/Shutterstock

Natalie Victoria Wilmot, University of Bradford

The Italian government has proposed new legislation to crack down on the use of foreign languages in government, business and public life. The draft bill is particularly aimed at the use of English, which it says “demeans and mortifies” the Italian language. The proposed legislation would require employment contracts and internal regulations of overseas businesses operating in Italy to be in Italian.

Obeying such a policy would be difficult for many firms. France introduced a similar law in 1994, which has long been seen as unenforceable. Despite being in legislation for nearly 30 years, almost all multinational companies operating in France are thought to be in breach of the law.

English is indisputably the dominant language of international business and trade. Globally, more than half of all multinational companies use English in their international operations. Companies as far apart as Japan’s Rakuten, France’s Sodexo, Finland’s Nordea and Mexico’s Cemex have designated English as a “common corporate language”. This is a language chosen by the organisation to be the main vehicle for internal communications.

It’s estimated that approximately 1.5 billion people globally speak English, so its dominance in international business is not going away.

How did it come to be this way? One clue can be found in Oxfam’s recently published inclusive language guide. The charity has attracted attention for describing English as “the language of a colonising nation”. The guide notes that “the dominance of English is one of the key issues that must be addressed in order to decolonise our ways of working”.

It is impossible to deny that the reason that English has its current status is because of historical expressions of power. The colonial expansion of the British empire between the late 16th and early 20th century led to English being spoken widely across the globe. This was often at the expense of local languages which are now endangered or wiped out as a result of the imposition of English.

The cultural and economic dominance of the US since the second world war has led to the further proliferation of English. This is particularly true among younger generations who learn English in order to consume popular culture. Additionally, global interest in business school education has meant that generations of managers have been taught the latest in business ideas and concepts. Often, these originate from the US – and are in English.

Companies who use English as their corporate language often portray it as a common sense and neutral solution to linguistic diversity in business. In reality, it is anything but.

The concept of Business English as a Lingua Franca (BELF) suggests the English used in organisations can be separated from native speakers and the grammatical rules that they impose on it. It emerged in the early 2000s, as management researchers began to investigate how organisations manage language diversity in their international operations. They discovered that although English was frequently used, it was not the same English that is spoken by native speakers.

Photo of a young woman against a grey background with an illustration of a stream of alphabet letters coming out of her mouth
Companies all over the world use English as their main language.
Pathdoc/Shutterstock

The former CEO of Volvo, a Swedish company, once remarked that the language of his company was “bad English”. BELF encourages us to think that there is no such thing. If communication takes place successfully, and the message that you wish to transmit is understood, then you have used BELF correctly, regardless of any idiosyncrasies in grammar or spelling.

My own research has shown that although BELF can be used effectively in international environments, when native speakers of English are involved in the communication, they claim authority over how the language should be used. This can exclude those whose use of English does not meet expectations.

Why English?

Clearly, organisations need to have some form of shared language to be able to effectively communicate to manage their operations. However, research suggests that there are particular benefits associated with using English, rather than something else, as a common corporate language.

For example, studies have shown that employees find it enriching to use English at work. Due to its grammatical structure, which doesn’t distinguish between formal and informal “you” as in many other languages, employees feel that using English can reduce hierarchies and create more egalitarian workplaces.

English undoubtedly has great practical utility – but rather than understanding it as something neutral, it is important to understand the mechanisms of power and subjugation through which English arrived at its current status. Without reflection, it can easily be used as a tool to exclude, and continues to reproduce colonial mindsets about status and hierarchies. Its ongoing use, however practical, continues that domination.

Natalie Victoria Wilmot, Associate Professor in International Business, University of Bradford

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Is Your Business Ready for the Programmable World?

Is Your Business Ready for the Programmable World?

Dec 14, 2022

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Information Week Data Innovation queries if your business is ready for the programmable world. 

The programmable world from writing software codes to running machines to computing efficiently would be on the verge of programming the world. It would be a long-drawn effort, the contours and time unknown, but its direction is apparent.
The typical elements of software will become a part of our day-to-day life, bringing control, customization and automation to the increasingly entangled world around us. The experiences would be under your control. How different would it be from the world we live in today?
The image above is Credit: Carloscastilla via Alamy Stock

Is Your Business Ready for the Programmable World?

The programmable world will be a turning point for businesses and society. Businesses that prepare first will be best positioned to succeed.
Marc Carrel-Billiard
Global Lead, Accenture
December 13, 2022

Imagine a world where the environment around you is as programmable as software: a world where control, customization, and automation are enmeshed in our surroundings. In this world, people can command their physical environment to meet their own needs, choosing what they see, interact with and experience. Meanwhile, businesses leverage this enhanced programmability to reinvent their operations, subsequently building and delivering new experiences for their customers.

Already, nearly 80% of executives surveyed believe that programming the physical environment will emerge as a competitive differentiation in their industry. An early example of what’s to come in this space is Amazon’s Sidewalk service. For years, Amazon deployed hundreds of millions of Echo, Ring and Tile products in neighborhoods worldwide. Sidewalk creates a Bluetooth network that can extend connectivity up to half a mile beyond Wi-Fi range and lets anyone with compatible devices connect. If your dog escapes, a Tile tracker on its collar could stay connected thanks to Sidewalk bridges from your neighbors’ homes. This approach of connecting existing IoT devices to create instant smart neighborhoods hints at the power that connecting other, even more sophisticated technologies will soon unleash.

Leading enterprises will be at the forefront of the programmable world, tackling everything from innovating the next generation of customizable products and services, to architecting the hyper-personalized and hyper-automated experiences that shape our future world. Organizations that ignore this trend, fatigued from the promise of IoT, will struggle as the world automates around them. This will delay building the infrastructure and technology necessary to tap into this rich opportunity, and many organizations may find themselves playing catchup in a world that has already taken the next step.

Preparing for the Programmable World

To begin building a new generation of products, services, and experiences in the physical world that meet our new expectations for digital conveniences, enterprises will need a deep understanding of three layers that comprise the programmable world:

1. The connected. The connected devices that enable seamless interaction with our surroundings: IoT and wearables today, ambient computing and low latency 5G-based devices tomorrow.

2. The experiential. Digital twins of the physical world that provide real-time insights into environments and operations and which transform peoples’ experiences within them.

3. The material. A new generation of smart, automated manufacturing alongside innovations like programmable matter and smart materials; programmable matter can — as the phrase suggests — be “programmed” to change its physical properties upon direct command or by sensing a predetermined trigger.

Becoming a leader in the programmable world requires wide-ranging experimentation and continuous development across these three layers. Companies that achieve “full stack” programmability will blaze a trail, so it’s important for this journey to start as soon as possible. We recommend that organizations begin addressing the following as a priority:

  • Level up the connected layer. 5G will be a game-changer in terms of speed and low latency, but rollouts are still in early days. This presents an opportunity for organizations to pilot new use cases that leverage 5G capabilities, so that they can hit the ground running when it’s more broadly available.
  • Get involved with industry-wide alliances. Industry alliances will shape the development of new technology standards for the programmable world. Businesses that take part in these alliances will help ensure that the world evolves in a way that benefits their customers. From an interoperability perspective, this could mean participating in ecosystem-wide efforts to set standards for how devices connect and communicate.
  • Bridge the digital and physical worlds. All businesses should now consider building digital twins. Even without the full maturity of the programmable world, these platforms provide significant operational and competitive advantages to companies today. Over time, digital twins will become the engine for every enterprise’s programmable world strategy, letting them invent products, design experiences, and run their businesses in ways that would once have been unimaginable.
  • Innovate in the right areas. Start by looking at where purely digital or purely physical experiences have yet to excel. For instance, apparel shopping comes with major pain points both in person and online (e.g., limited selections and wait times in store vs. difficulty finding the right size/style online). Virtual dressing rooms using AR filters and 3D avatars are a perfect solution, enabling online customers can try on items before they buy. Similarly, physical dressing rooms can be enhanced with improved lighting and interactive screens, so shoppers can get more out of trips to the store.
  • Explore future materials technologies. Partnerships with start-ups and universities are a good way to stay right at the forefront of real-world technology innovation. For instance, a team of researchers at MIT’s Center for Bits and Atoms published their work around four new material subunits called voxels. Researchers believe voxels could be programmed into certain combinations to create objects that change and respond to the environment around them – like airplane wings that shapeshift in response to different air conditions — and they believe tiny robots could be used to assemble, disassemble, and reassemble the voxels into a nearly limitless variety of objects.

The programmable world promises to be the most disruptive turning point for business and society in decades. Soon, we will live in environments that can physically transform on command and which can be customized and controlled to an unprecedented degree. With these environments, a new arena for innovation and business competition will be born. Businesses that prepare first, will be best positioned to succeed.

IT Leadership & the Strategic CIOAI/Machine Learning
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MENA Economies Grow by 5.5% But Benefits are Uneven

MENA Economies Grow by 5.5% But Benefits are Uneven

Oct 6, 2022

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Middle East and North Africa (MENA) Economies Grow by 5.5% But Benefits are Uneven

 

The World Bank Group

The economies of the Middle East and North Africa (MENA) region are expected to grow by 5.5% this year —the fastest rate since 2016—followed by a slowing of growth to 3.5% in 2023. Yet this growth is uneven across the region, as countries still struggling to overcome the lasting effects of the COVID-19 pandemic, face jolting new shocks from higher oil and food prices brought on by the war in Ukraine, rising global interest rates, and slowdowns in the United States, China, and the Euro area.The World Bank’s latest economic update, titled “A New State of Mind: Greater Transparency and Accountability in the Middle East and North Africa,” finds that the region’s oil exporting countries are benefitting from high hydrocarbon prices, but oil importing nations confront different circumstances. Oil importers face heightened stress and risk from higher import bills, especially for food and energy, and tightening fiscal space as they spend more on price subsidies to cushion the pain of price rises on their populations.

“All countries in the MENA region will have to make adjustments to deal with significantly higher prices for food and other imports, especially if they lead to an increase in government borrowing or currency devaluations,” said Ferid Belhaj, World Bank Vice President for the MENA region. “What countries need now is smart governance to weather the storm and begin to rebuild after multiple shocks on top of the pandemic.”

“Moving towards greater data transparency and accountability is a game changer for the region; it can help countries identify what is working and needs improvement and to act on it,” said Roberta Gatti, World Bank Chief Economist for the MENA region. “It will help them manage risk and shape progress towards a more sustainable and inclusive future. Not only are the potential benefits large, but the reforms needed to put institutions on a learning path are within reach.“

The Bank’s analysis forecasts diverging paths of growth in the region. The Gulf Cooperation Council (GCC) countries are on track to grow by 6.9% in 2022, buoyed by high hydrocarbon earnings, slowing to 3.7% in 2023 as hydrocarbon prices subside. Developing oil exporters are forecast to experience trends like those of the GCC but at lower levels—with 2022 growth expected to increase to 4.1%, led by Iraq, before falling back to 2.7% in 2023. Developing oil importing countries are expected to grow by 4.5% in 2022 and 4.3% in 2023. However, the slowdown of growth in Europe poses a particular risk, as this group of countries relies more on trade with the Euro area—especially the North African oil importers closest to Europe: Tunisia, Morocco, and Egypt.

Across the region, policymakers have introduced measures—especially price controls and subsidies—to make the domestic price of certain goods, such as food and energy, lower than the global price. The report finds that this has had the effect of keeping inflation in MENA lower than in other regions. In Egypt, for example, average year-on-year inflation during the period of March to July 2022 was 14.3%, but it would have been 4.1 percentage points higher at 18.4%, had authorities not intervened.

Some governments have made cash payments to poorer households—a more efficient way of helping the poor deal with rising prices than general market subsidies that lower prices for everyone, including the rich. For Egypt, to lower average inflation by the equivalent of 4.1 percentage points using a subsidy on food and energy prices that benefits the entire population costs 13.2 times more than allowing prices to increase and supporting just the poorest 10 percent of households with a cash transfer.

Governments will incur additional expenses as they increase subsidies and cash transfers to mitigate the damage to the living standards of their populations from higher food and energy prices. For the GCC and developing oil-exporting countries, this is not of much concern now. Windfall increases in state revenues from the rise in hydrocarbon prices have greatly increased their fiscal space and will result in fiscal surpluses for most oil exporters in 2022—even after the additional spending on inflation mitigation programs.

Developing oil importers, however, do not have such a windfall and will have to cut other expenditures, find new revenues, or increase deficits and debt to fund the inflation mitigation programs and any other additional spending. Moreover, as global interest rates rise, the debt service burden for oil importers will increase, as they must pay a higher rate of interest both on any new debt they incur and existing debt they refinance, weighing on countries’ debt sustainability over time—especially for countries with already high debt levels, such as Jordan, Tunisia, and Egypt.

Distributed by APO Group on behalf of The World Bank Group.

 

The world retracting from globalisation

Jul 27, 2022

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Connectivity will drive the world’s exchange of goods and services as it were from home, in the future, notably in those emerging countries of the Middle East.  In the meantime, let us know why the world retracting from globalisation.

The above-featured image is of the Fourth wave of globalisation saw China’s increasing role as a global powerhouse.  Getty Images

Is the world retracting from globalisation, setting it up for a fifth wave?

By Elsabe Loots, University of Pretoria
Over the past 25 years there has been lots of research and debate about the concept, the history and state of globalisation, its various dimensions and benefits.

The World Economic Forum has set out the case that the world has experienced four waves of globalisation. In a 2019 publication it summarised them as follows.

The first wave is seen as the period since the late 19th century, boosted by the industrial revolution associated with the improvements in transportation and communication, and ended in 1914. The second wave commenced after WW2 in 1945 and ended in 1989. The third commenced with the fall of the Berlin Wall in 1989 and the disbanding of the former Soviet Union in 1991, and ended with the global financial crises in 2008.

The fourth wave kicked off in 2010 with the recovery of the impact of the global financial crises, the rising of the digital economy, artificial intelligence and, among others, the increasing role of China as a global powerhouse.

More recent debates on the topic focus on whether the world is now experiencing a retraction from the fourth wave and whether it is ready for the take-off of the fifth wave.

The similarities between the retraction period of the first wave and the current global dynamics a century later are startling. But do these similarities mean that a retraction from globalisation is evident? Is there sufficient evidence of de-globalisation or rather “slowbalisation”?

Parallels

The drawn-out retreat from globalisation during the 30-year period – 1914 to 1945 – was characterised by the geopolitical and economic impact of WWI and WWII. Other factors were the 1918-1920 Spanish Flu pandemic ; the Stock Market Crash of 1929 followed by the Great Depression of the 1930s; and the rise of the Communist Bloc under Stalin in the 1940s.

This period was further typified by protectionist sentiments, increases in tariffs and other trade barriers and a general retraction in international trade.

Looking at the current global context, the parallels are remarkable. The world is still fighting the COVID pandemic that had devastating effects on the world economy, global supply chains and people’s lives and well-being.

For its part, the Russia-Ukraine war has caused major global uncertainties and food shortages. It has also led to increases in gas and fuel prices, further disruptions in global value chains and political polarisation.

The increase in the price of various consumer goods and in energy have put pressure on the general price level. World inflation is aggressively on the rise for the first time in 40 years. Monetary authorities worldwide are trying to fight inflation.

Global governance institutions like the World Trade Organisation and the UN, which functioned well in the post-WWII period, now have less influence while the Russian-Ukraine war has split the world politically into three groups. They are the Russian invasion supporters, the neutral countries and those opposing, a group dominated by the US, EU and the UK. This split is contributing to complex geopolitical challenges, which are slowly leading to changes in trade partnerships and regionalism.

Europe is already looking for new suppliers for oil and gas and early indications of the potential expansion of the Chinese influence in Asia are evident.

A less connected world

De-globalisation is seen as

a movement towards a less connected world, characterised by powerful nation states, local solutions and border controls rather than global institutions, treaties, and free movement.

There’s now talk of slowbalisation. The term was first used by trendwatcher and futurologist Adjiedji Bakas in 2015 to describe the phenomenon as the

continued integration of the global economy via trade, financial and other flows, albeit at a significant slower pace.

The data on economic globalisation paint an interesting picture. They show that, even before the COVID pandemic hit the world in 2020, a deceleration in the intensity of globalisation is evident. The data which represent broad measures of globalisation, includes:

  • World exports of goods and services. As a percentage of world GDP, these reached an all-time high of 31% in 2008 at the end of the third globalisation wave. Exports fell as a percentage of global GDP and only recovered to that level during the early stages of the fourth wave in 2011. Exports then slowly started to regress to 28% of global GDP in 2019 and further to a low of 26% during the first Covid-19 year in 2020.
  • The volume of foreign direct investment inflows. These reached a peak of US$2 trillion in 2016 before trending lower, reaching US$1.48 trillion in 2019. Although the 2020 foreign direct investment inflows of US$963 billion are a staggering 20% below the 2009 financial crises level, they recovered to US$1.58 billion in 2021.
  • Foreign direct investment as percentage of GDP started to increase from a mere 1% in 1989 to a peak of 5,3% in 2007. After a retraction following the global financial crises, it peaked again in 2015 and 2016 at around 3,5%. It then declined to 1,7% in 2019 and 1,4% in 2020.
  • Multinational enterprises have been the major vehicle for economic globalisation over time. The number of them indicates the willingness of companies to invest outside their home countries. In 2008 the UN Conference on Trade and Development reported approximately 82 000. The number declined to 60 000 in 2017.
  • Data on world private capital flows (including foreign direct investment, portfolio equity flows, remittances and private sector borrowing) are not readily available. However, Organisation for Economic Co-operation and Development data show that private capital flows for reporting countries reached an all-time high of US$414 billion in 2014, followed by a declining trend to US$229 billion in 2019 and a negative outflow of US$8 billion in 2020.

These declining trends are further substantiated by the evidence of deeper fragmentation in economic relations caused by Brexit and the problematic US/China relations, in particular during the Trump era.

What next?

The question now is whether the latest data is:

  • indicative of either a retraction from globalisation similar to that experienced after the first wave a century ago;
  • or it is merely a process of de-globalisation;
  • or slowbalisation in anticipation of the world economy’s recovery from the impact of Covid-19 pandemic and the war in Ukraine?

The similarities between the first wave of globalisation and the existing global events are certainly significant, although embedded in a total different world order.

The current dynamics shaping the world such as the advancement of technology, the digital era and the speed with which technology and information is spread, will certainly influence the intensity of the retraction of the already embedded dependence on globalisation.

Nation states realise that blindly entering into contracts and agreements with companies in other countries, may be problematic and that trade and investment partners need to be chosen carefully. The events over the past three years have certainly shown that economies around the world are deeply integrated and, despite examples of protectionism and threats of more inward-looking policies, it will not be possible to retract in totality.

What may occur is fragmentation where supply chains becoming more regionalised. Nobel prize winning economist Joseph Stiglitz refers to the move to “friend shoring” of production, a phrase coined by US Treasury Secretary Janet Yellen.

It is becoming obvious that the process of globalisation certainly shows characteristics of both de-globalisation and slowbalisation. It’s also clear that the global external shocks require a total rethink, repurpose and reform of the process of globalisation. This will most probably lead the world into the fifth wave of globalisation.

Elsabe Loots, Professor of Economics and former Dean of the Faculty of Economic and Management Sciences, University of Pretoria

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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