Western Europe and the US have traditionally been the destinations of choice for investors who want low risk and maximum returns. But those days are over.
The Economist Intelligence Unit now says global political risk is centred in the First World, particularly the US, UK, Germany, Spain and even Eastern Europe.
One can understand why. The situation in the UK is chaotic given Brexit, the US is facing uncertain times given President Donald Trump’s unpredictability and penchant for beating the war drums, Germany is facing a possible election re-run given its inability to forge a coalition government, and Spain is reeling from the secessionist movement in Catalonia.
With rising political uncertainly in Europe and the US, investors are increasingly turning to emerging markets for the best returns. The Economist Intelligence Unit forecasts that next year the major growth centres will be India, China and the Asean region, followed by the Middle East, where projected economic growth is only slighter higher than in Africa.
In Africa, East Africa is looking the best in terms of speed of growth, with Ethiopia, Cote d’Ivoire, Senegal and Ghana projected to be among the top, fastest growing economies on the continent.
The projections for the Southern African Development Community countries are substantially lower.
With the western world waning as an investment destination of choice and the developing world moving forward in leaps and bounds, one is witnessing the demise of American global dominance and perceived exceptionalism. As with all historical cycles, as America’s global reach shrinks, China and India’s economic influence has taken central stage, as a new multi-polar world emerges again.
Due to increasing demand for resources, goods and services from these emerging economies, the global economy has not done badly over the past year, with global economic growth at about 3%.
With China decelerating, its growth has slowed to about 6%, while the economies of Brazil and Russia are growing again thanks to an increased demand for commodities. Even the Eurozone has entered somewhat of a mini-boom. According to the Economist Intelligence Unit, moving forward the picture looks largely benign in terms of the global economy.
However, many investors are concerned about the prospects for oil. The outlook is steady, and according to the unit, the price of oil is likely to remain at about US$50 (R686) to US$60 a barrel. The great disrupter in this sector is shale oil and gas, which has a positive outlook. In terms of other commodities, platinum and copper prices are going up and coal is steady.
Based on the growth projections for emerging economies, improving commodity prices and steady demand, the forecast is certainly not bleak, but we need to consider the potential disruptors that could change the economic forecast and global political realities on a dime.
Perhaps one of the most disconcerting wild cards is Trump, who could quite possibly take the US into another overseas war to divert attention away from his domestic blunders and falling popularity ratings.
There is a clear precedent for such a strategy, such as when then president Bill Clinton ordered airstrikes on Iraq in 1998, and on Sudan and Afghanistan at the height of the Monica Lewinsky scandal. Allegations swirled that the air strikes were to divert attention away from Clinton’s personal crises, in a typical case of “wag the dog”.
George W Bush also started a war in Afghanistan in 2000 amid waning popularity and news media humiliation, when he was regularly ridiculed on Saturday Night Live. But after the 9/11 attacks he had the perfect excuse to take the US into a major war in Afghanistan that would make him look both decisive and presidential. It worked as Bush’s approval ratings skyrocketed to 92%.
The concern is that Trump could come up with such a strategy to improve his image at home. He vacillates between threatening all-out war with North Korea, and then the pendulum swings back to Iran as the supposed threat to the security of the US and its allies. If Trump started a war with Iran, all bets would be off. Oil prices would soar, emerging economies would have less purchasing power and economic stagnation, if not recession, could ensue.
To safeguard the prospects for continued economic growth and political stability in the global arena, the US and their allies need to find a way to tame Trump and his penchant for military adventurism.
* Ebrahim is Group Foreign Editor
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