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26 Jan 2024 CEO Standpoint

Time for a turnaround!

Megatrends Corporate Political Responsibility Management

A call for a new perspective on global developments.

Essay by Oliver Hermes, President & CEO of the Wilo Group

The year 2023 was once again characterised by the geoeconomic turnaround we are currently experiencing as a direct consequence of the omnipresent geopolitical turnaround. Old alliances are crumbling and multinational collaborations are having to readjust. “Decoupling” and “diversification” are the order of the day: Protectionist instruments – such as trade barriers, sanctions and technology embargoes – are the result of the politically driven decoupling of supply chains initiated with the extremely challenging goal of restructuring them.

Detaillierte Darstellung der Erde nachts aus der Satellitenperspektive.

Who is the loser of the geoeconomic turnaround?

In a phase of hyper-globalisation, the industrialised countries of the Global North intertwined themselves economically with the countries of the Global South. What followed this intertwining, which lasted around 30 years, was nothing less than a political paradigm shift: Ideas such as nearshoring and friendshoring are intended to bring value creation back to the domestic realms of the Global North.

If the Global North reduces its involvement in the Global South, the consequences would be obvious. The North secures its critical infrastructure, while the South is thrown back into a pre-globalised economic order. The North benefits from the geoeconomic turnaround, the South bears the consequences. In short: The North wins, the South loses.

Really?

Of course, geoeconomic correlations are not that easy to explain. The hyper-globalisation of recent decades cannot be easily reversed. And in the political sphere, it is often forgotten that there can never be an “end-to-end” independence of national economies with complex systems. It is therefore not surprising that the politically motivated readjustment of supply chains is not having the desired effect. On closer inspection, there are huge gaps between aspiration and reality.

One example is the supply bottlenecks in the sourcing of medical and pharmaceutical products in Europe. The aim was to eliminate shortages of critical goods and fill gaps in procurement or our own production. To this day, availability is still not guaranteed for some important products. Instead, there are still considerable dependencies: Around 70 per cent of all medicine produced in Europe contain active ingredients from China – a country which, incidentally, is by definition part of the Global South, although it certainly occupies a special position within it.

The discrepancy between political desire and reality is particularly noticeable in the procurement of raw materials. Here too, China – as the world’s largest producer of rare earth – is in a strong position. It is estimated that around a third of the world’s reserves are found in China. The metals are needed for almost every high-tech product. This makes the whole world dependent on the People’s Republic to an almost insurmountable extent – especially the high-tech Global North, which is facing challenges such as the mobility transition.

Instead of a more secure supply of critical infrastructure and greater independence, the Global North is experiencing a new, long-term crisis: Various sources, such as the World Investment Report 2023 published by the United Nations, show that foreign direct investment in North America and especially in Europe is waning and shifting to countries in the Global South. This deterioration is exemplified in Germany, where the spectre of de-industrialisation has long been rampant.

These examples show clearly: The Global North is already the loser of the geoeconomic turnaround. The security of critical infrastructure is just as elusive as the independence of supply chains. The Global North should devote much more attention to its own attractiveness as a location for investors. Because the goal of securing critical infrastructure and being resilient and independent can only be achieved if we have our own key industries.

Is the Global South therefore the winner of the geoeconomic turnaround? In fact, there are several reasons to believe that the countries of the southern hemisphere will not be thrown back into a pre-globalised economic order, as insinuated earlier, but will experience a genuine revival. This is exemplified by the “BRICS” or “BRICS plus” alliance, in which several countries in the Global South and Russia have come together to represent their interests.

Why is the Global South the long-term winner of the geoeconomic turnaround?

It is clear that the rise of the Global South cannot be slowed by the spread of protectionism. This assumption is based on the global megatrends. Three examples illustrate particularly well that the megatrends have a different impact in the Global South than in the Global North.

Climate change is probably one of the greatest challenges of our time and a global task. However, the industrialised countries of the Global North bear the main responsibility for global warming. A study by the University of Leeds even came to the conclusion that the North would have to pay the South 170 trillion US dollars if it wanted to financially compensate for its excessive emissions. The Global South is bearing the brunt of the fight against climate change. For example Jakarta: The capital of Indonesia is already partially below sea level, and it will continue to sink in the coming years. In view of this development, the government of the island state has decided to build a new capital: Nusantara. A megaproject in which the planners have consistently focussed on sustainability and smart infrastructures from the outset.

Urbanisation continues unabated. When you consider that around 80 per cent of the world’s population lives in the Global South, the extent of urbanisation in the countries of the southern hemisphere quickly becomes clear. To date, the United Nations counts 33 cities worldwide with more than 10 million inhabitants. By 2050, 14 more cities will break this mark – only two of them are in the Global North. To meet the demand for urban space, at least ten large-scale planned cities will be built worldwide in the coming years and decades, including the aforementioned Nusantara in Indonesia, but also Neom in Saudi Arabia, Tashkent New City in Uzbekistan and Alatau in Kazakhstan. All ten “future cities” can be found in the Global South and stand for visionary, courageous concepts that are sorely lacking in the Global North.

The water shortage is also worsening. According to UNICEF, 450 million children already live in areas with high or extremely high water insecurity. This corresponds to one in five children worldwide. In 10 African countries, 190 million children are particularly at risk because they have an inadequate supply of water, sanitation and hygiene (WASH), a high burden of diseases caused by dirty water, and high risks due to climate change. Water shortage also has consequences for food security as a functional agricultural sector depends on water. Egypt proves that the Global South is capable of tackling these problems with innovative large-scale projects: The Toshka project aims to make a total of one million hectares of desert usable for agriculture. In this way, the African country is significantly improving its water and food supply and making itself more independent.

So, is the Global South the winner of the geoeconomic turnaround – despite the huge challenges associated with the megatrends? In fact, it is probably precisely because of the megatrends that it is on course for historic success.

Of course, the megatrends will not only bring prosperity to the inhabitants of the countries in the Global South. As a result of the water shortage in Africa, for example, millions of people are suffering. But for the countries concerned, the megatrends as a whole bring unprecedented dynamics. They are increasingly turning the countries of the southern hemisphere into active players on the economic and political stage of a multipolar world.

Large-scale projects such as Toshka and Nusantara not only revitalise regional economies, but also provide modern living, working and social spaces. In addition, there are locational advantages over the Global North, such as the better availability of skilled labour, a higher abundance of natural resources and fewer regulations.

In the context of the geoeconomic turnaround, old alliances are crumbling and new multinational cooperations are emerging. The Global South has the unique opportunity to help shape the transformation in its favour and to secure its independence and influence in the long term. We can be sure that it will seize this opportunity.

What does this development mean for the Global North?

It is obvious that this process of change will prompt decision-makers in the Global North to rethink their approach. A different view of the Global South is urgently needed.

Instead of a policy that divides the world into “good” and “evil”, the Global North, above all Europe, must now put its own house in order and ensure that its economic–industrial base is not dismantled, which could raise the spectre of a spectacular loss of prosperity.

In the long term, however, we must see the countries of Africa, Asia and South America as independent players in the global economy. They have their own interests, which they will assert confidently. Partnerships on an equal footing are therefore needed between the countries of the North and South where the interests of the other side are taken seriously.

Oliver Hermes is President & CEO of the Wilo Group, Chairman of the Board of Trustees of the Wilo-Foundation, member of the Board of Trustees of the Foundation for Family Businesses, member of the Executive Committee of the Near and Middle East Association (NUMOV), and member of the Management Board of the German-African Business Association (Afrika-Verein). He is an essayist with articles published in independent media. The opinions expressed by the author are his own.