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POLITICS

World Economic Forum: Globalisation under the spotlight in Switzerland

The question of whether the coronavirus pandemic and the war in Ukraine have sounded the death knell for globalisation has dominated the World Economic Forum in Swiss resort Davos.

A person carries a Chinese and an American flag at the 2022 World Economic Forum in Davos. Image: Fabrice COFFRINI / AFP
A person carries a Chinese and an American flag at the 2022 World Economic Forum in Davos. Image: Fabrice COFFRINI / AFP

Some believe the crises have unleashed an opportunity for a transformation of international trade and supply chains as the world economy slows down.

Once advocated by anti-globalisation movements, far from the quiet rooms at Davos, talk of “deglobalisation” is back in the face of supply chain disruptions linked to the Ukraine conflict and lockdowns in China.

In the hope of building stronger networks unaffected by crises like war, deglobalisation would mean bringing production back closer to home, thus allowing the movement of goods across shorter distances.

The issue has become acute after Covid-19 and the misery at Shanghai port.

The Chinese city has become a symbol of global supply chain woes after its factories were closed for weeks and containers piled up as China sticks stubbornly to a zero-Covid strategy, causing delivery delays worldwide.

And since Russia’s invasion of Ukraine, global food prices have hit an all-time high as the two countries make up a huge share of the globe’s exports in several major commodities, like wheat.

Such snags are leading many, including the world’s biggest companies, to consider what production should look like in the future.

Globalisation is “temporarily pausing”, Loic Tassel, president for Europe at the consumer goods giant Procter & Gamble said during an event at Davos.

“The price to pay or the time to wait is not compatible anymore with our industry,” Tassel said, giving the example of Shanghai, which is the world’s busiest container port.

“We are now bringing into the equation the cost and resilience of the supply chain, it was not in our mind three years ago,” he said. But rather than talk about “deglobalisation”, Pamela Coke-Hamilton, director of the Geneva-based agency International Trade Centre, preferred to speak about diversification and relocalisation — where supply chains are closer and in areas where conflict is far away.

“The change will come by the shifting to near sourcing value chains,” she told AFP.

Clouds gathering 

Sceptics said companies sought the cheapest options despite being aware of the risk of huge dependence on certain regions.

“We never imported so much from China as when we said we should rely on it less,” noted Gilles Moec, chief economist at French insurance giant Axa, on the sidelines of Davos.

“One of the reasons why people are so nervous right now is that if China was unable to meet global demand because of the pandemic, that would be a catastrophe,” he added.

Globalisation’s identity crisis comes at a time when pessimism reigns over the future of the global economy.

“The horizon has darkened,” said International Monetary Fund head Kristalina Georgieva at Davos on Monday.

And while a global growth forecast of 3.6 percent excludes the risk of recession right now, “it doesn’t mean it is out of question” for certain countries.

The clouds are already gathering in developed countries, according to data from the Organisation for Economic Co-operation and Development (OECD).

There was only 0.1 percent growth in the first quarter of 2022, the OECD said Monday, and GDP even fell by 0.1 percent among G7 countries.

The second quarter is likely to be equally sluggish, as the adverse effects of the Ukraine war and China’s lockdowns take root.

After governments spent copiously during the pandemic, “the response to put in place is not obvious and that worries everyone a little,” Axa’s Moec said.

Meanwhile, inflation is pushing central banks, including the US Federal Reserve, to raise interest rates, which will make it costlier for both companies and consumers to borrow and slow economic activity.

The European Central Bank signalled Monday the end of negative rates despite the European Commission’s growth forecast for 2022 last week for the eurozone, from four percent to 2.7 percent.

And figures from China, the global engine of growth, revealed the pain inflicted by Beijing’s strict zero-Covid policy as retail sales and factory production slumped to their lowest in over two years, while unemployment is near record levels.

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POLITICS

Ukraine and allies lay foundations for reconstruction at Swiss conference

Allies of Ukraine meeting in Switzerland were due Tuesday to adopt a declaration spelling out the principles and priorities of rebuilding the war-shattered country, estimated to cost at least $750 billion.

Ukraine and allies lay foundations for reconstruction at Swiss conference

Leaders from dozens of countries, international organisations and businesses have been meeting in the southern Swiss city of Lugano under tight security since Monday, discussing the best path forward for reconstruction, even as Russia’s war continues to rage in Ukraine.

‘A beautiful country’: How Ukrainian refugees see Switzerland

Speaking on the first day of the Ukraine Recovery Conference, Ukrainian President Volodymyr Zelensky and a long line of government ministers described the massive destruction caused by Russia’s February 24 invasion.

“Reconstruction of Ukraine is not a local task of a single nation,” Zelensky said via video message. “It is a common task of the whole democratic world,” he said.

Prime Minister Denys Shmyhal said the recovery “is already estimated at $750 billion”. “The key source of recovery should be the confiscated assets of Russia and Russian oligarchs,” he said.

“The Russian authorities unleashed this bloody war. They caused this massive destruction, and they should be held accountable for it”.

READ MORE: Switzerland extends sanctions against Russia over Ukraine invasion

The conference, which had been planned before the invasion, had originally been slated to discuss reforms in Ukraine before being repurposed to focus on recovery.

Shmyhal laid out the government’s phased reconstruction plan, focused first on the immediate needs of those affected by the war, followed by the financing of thousands of longer-term reconstruction projects aimed at making Ukraine European, green and digital.

Those priorities are expected to be reflected in a final Lugano Declaration setting out the general principles defining a framework for rebuilding Ukraine, which should be adopted when the conference wraps up around midday Tuesday.

As billions of dollars in aid flow into Ukraine, lingering concerns about widespread corruption in the country mean far-reaching reforms will also be seen as a condition for any recovery plan decided.

The former Soviet state has long been ranked among the world’s most corrupt countries by Transparency International.

In Europe, only Russia and Azerbaijan ranked worse.

The Ukrainians have proposed that allied countries “adopt” specific regions of Ukraine, and lead the recovery there to render it more efficient. Britain has proposed taking on the Kyiv region, while a diplomatic source said France would concentrate on the heavily-hit Chernihiv region.

Total Resistance: The Swiss Cold War manual inspiring Ukraine’s fight against Russia

In all, around 1,000 people are attending the conference, including European Commission President Ursula von der Leyen, who let out an enthusiastic “Slava Ukraini” (glory to Ukraine) after insisting on the importance of rebuilding a Ukraine better than before the war.

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