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Speaking before Standard Bank’s latest investment seminar, political economy analyst Daniel Silke told Emily Moore about some of the year’s economic challenges
THE world, it is probably fair to say, is undergoing a somewhat bumpy ride at the moment.
With tensions in the Middle East, Europe and China, and more than half of the world’s countries heading to the polls this year, it is of little surprise that the economic outlook is somewhat turbulent.
And it is this situation which inspired the theme of Standard Bank’s latest investment seminar – The World in 2024: Fasten Your Seatbelts – which took place earlier this month.
Addressing the audience was South-Africa-based political economy analyst Daniel Silke, the director of Political Future Consultancy, who opened the event with a whistlestop tour around a somewhat troubled world.
Speaking just before the seminar, there was more than a note of warning in his synopsis of the macro picture.
“We are seeing an unprecedented number of concurrent global crises or geopolitical risk factors which are open-ended and unresolved,” he said. “These are crises which threaten to undermine security and up-end relationships in a way which hasn’t been seen since the end of the Cold War and the fall of the Berlin Wall.
“The nature of these geopolitical risks makes the picture for the global economy particularly troublesome, with the Russian invasion of Ukraine, the Israel/Gaza conflict – which has the potential to mutate into a wider story – and the continued tensions with China and the potential for Taiwan to become a flashpoint; three huge issues.”
Underpinning all of these issues, Daniel continues, is one key theme – power.
“All of these conflicts ride on the back of changing power relations in the world,” he said, “and, particularly, the rise of new powers such as China, which, from an economic perspective, is now one of the global superpowers. Then we are seeing the rise of the Gulf countries and the BRICS countries, which should be regarded in terms of the broader reawakening of the global south.
“Their growing strength means that there is a move afoot to redraw the political boundaries away from the role and influence of the west. As these emerging powers become more vocal, they steer a more independent line away from the west and provide a new, competitive economic umbrella.”
As such countries try to “extend power to regional powers near their own borders”, Daniel says that the knock-on effect is felt in areas of commerce and trade.
“We are already starting to see this in trade, as China’s rise is seen as a threat by the US, resulting in talks of increased tariffs on Chinese goods and a move to create a ‘friend-shoring’ world, where countries build trading blocs with other ‘allies’.”
Putting such issues temporarily to one side, Daniel warns that problems are further compounded by the “diverging domestic economies of the West”.
“While we’ve seen a better economic performance from the US since Covid – although you cannot ignore its massive government debt and underlying fragility – the UK and Europe have not performed so well.
“With Europe now regarded in the investment world as having a lagging economy, and the UK’s performance remaining sluggish, this creates exciting opportunities in developing markets.
“South-east-Asian economies, such as Indonesia and The Philippines, look extremely attractive and have benefited from trade shifting from China to them. I also like India, which is showing very good growth in the short term at least. In terms of its contribution to global growth, India is likely to overtake China within the next 15 years if the differential of GDP growth remains in India’s favour.”
This, adds Daniel, is largely down to a “historic build-up of a skillset which can embrace an IT-ready world”.
“India is now set to become the intellectual property capital of the world, and as the country leads that race, its emerging strength is helping to upgrade its infrastructure, which is probably at least two decades behind that of China. Meanwhile, India also enjoys a greater cultural affinity with the West and closer relationships with the US than China does.”
But growth opportunities are not, says Daniel, solely to be found in Asia.
“The African continent is also interesting,” he said. “While generalising can be risky, Africa as a whole should grow at about 3.8% this year, going up to around 4% in 2025.
“While it is coming off a relatively low base, that puts Africa’s growth at more than double that of many of the advanced economies in the world.”
But while highlighting the continent’s growth potential, Daniel says risks remain.
“The biggest danger for me is how African countries cope with rising debt levels, which may see spending priorities focused on servicing debt rather than infrastructure projects,” he cautioned. “And, of course, one cannot ignore the multiple military coups taking place in certain countries, which can undermine the quest for greater democracy.
“I am also concerned about the potential for a ‘new scramble’ for Africa, as rare earth materials, critical for the manufacture of EVs, defence tools and IT, become more and more highly sought and create potential for conflict.”
South Africa’s economic prosperity is also, he says, likely to be shaped by the outcome of what is being called “the most consequential election in the country for 100 years”.
“It is probably the first election since 1948 where the result is not certain,” he said. “While the African National Congress will still be the largest party, there is a strong possibility that it will need to form a coalition to achieve a majority and its choice of political bedfellow will be significant.
“If, for example, it coalesces with the populists, confidence in the country will be undermined, whereas a partnership with the centralists, who prefer a more market-orientated economy, would create greater potential to reboot and build confidence.”
While that outcome will be known soon, the world will have to wait a little longer for the result of another “key” election.
“The key election is the US one and, if you strip out your personal feelings about the candidates, you can start to look at how either outcome could impact the policy environment,” he said. “There is a risk that domestic polarisation in the electoral system could lead to further instability in terms of the erosion of trust in the institution of government.
“Another issue is how the next administration will respond to China and also how the country is going to deal with its skyrocketing debt problem, which isn’t going to go away.”
And it may not be just in the US that “growing polarisation” is seen, with Daniel highlighting the potential for right-wing parties to “do relatively well” in next month’s European Parliament elections.
“One of the big issues which polarises people is migration, and this has to be flagged as a destabilising factor for Europe, which may also have a knock-on effect in UK politics,” he said.
As Daniel’s intercontinental tour draws to a close, it is no surprise that, with so many geopolitical risk factors at play, he recommends a diversified approach to investments and portfolio management.
“However individual economies perform, those big issues show no sign of going away and will have an influence on the markets so as we look at the world in 2024, it really is time to fasten your seatbelts and prepare for a turbulent ride.”
Charles Molteno, chief executive at Standard Bank Jersey, added: “Standard Bank takes great pride in curating enriching experiences for our clients and colleagues through seminars like this. We were thrilled to extend a warm welcome to distinguished guests such as Daniel Silke, whose unparalleled insights as a political economy analyst continually enlighten and inspire.
“Experiences like this reaffirm our commitment to cultivating exceptional encounters that elevate our collective understanding and drive progress.”
