ROELOF BOTHA AND DARYL SWANEPOEL: End warfare and rather save the planet

During 2022 geopolitical risk became more pervasive, and few countries have been left unscathed by the side-effects of the war in Ukraine, a cost-of-living crisis in many countries and renewed tension between the US and Russia.

No sooner had most countries removed harsh Covid-19 lockdown regulations than Russia invaded Ukraine. The invasion started in February 2022 and is the biggest military mobilisation in Europe  since World War 2. The repercussions of this war shifted global concern away from other pressing risks, especially environmental concerns, and towards intensifying risks in the sociopolitical, security, environmental and macroeconomic domains. Russia’s subsequent use of energy as a weapon against Western European countries led to food and commodity price shocks that predictably contributed to the worst global price instability in more than four decades.

The rapid tightening of monetary policy arguably caused more harm than good, as higher interest rates were never going to be effective to counter one of the other key reasons for the spike in inflation, namely the eightfold rise from 2019 to 2021 in freight shipping rates. The latter was caused by the supply chain disruption during the Covid-19 pandemic, especially the random closure of key harbours as part of lockdown regulations.

Since 2022 the extraordinary confluence of geopolitical risks has also fuelled a cost of living crisis and heightened social unrest in many parts of the world. The World Bank has forecast lower economic growth in 2023 for most countries, with median incomes in virtually all emerging markets and developing economies being eroded by inflation, currency depreciation and underinvestment in human capital and private sector expansion.

Global economic damage

The damage wreaked by Russia’s invasion of Ukraine has spread to all parts of the globe, with advanced and emerging economies alike weakened as a result of:

• The macroeconomic and political effects of the war in Ukraine being mirrored in the geopolitical risk;
• Significant disruptions in trade flows and supply chains;
• Commodity price shocks, especially surging energy prices due to lower energy supplies to Europe;
• Sharp increases in food prices, which worsened the spike in global inflation caused by record freight shipping charges. It is estimated that Ukraine and Russia provide at least half of the grains for more than 26 countries; 
• Declines in consumer and business confidence;
• A prolonged risk-off sentiment among global fund managers, which was reinforced by the sharp increase in US interest rates; and
• Equity market weakness, which eroded household wealth/disposable income ratios.

The macroeconomic and political effects of the war in Ukraine have been mirrored in the geopolitical risk index (GPRI), developed by Dario Caldara and Matteo Iacoviello and published by the US Federal Reserve. The war in Ukraine resulted in the third-highest annual average reading of the GPRI over the past four decades and the highest in almost two decades. On every occasion that a spike was observed in geopolitical risk it resulted in a decline in real economic activity, equity market weakness and movements in capital flows away from emerging economies and towards advanced economies.

However, global economic disruption pales in comparison with the damage suffered by Ukraine. The country’s economy contracted about 35% in 2022, and 14-million people are estimated to have been displaced. In addition to the tragic loss of life, the cost of recovery and reconstruction of infrastructure and productive capacity could amount to $350bn, which is more than 1.5 times the size of Ukraine’s pre-war economy in 2021.

Widespread condemnation of Russia’s aggression

It is no surprise that the war in Ukraine features prominently in all of the authoritative studies on geopolitical tension as several other risks in the socioeconomic and political domains are intrinsically tied to the conflict in Eastern Europe.

Towards the end of February the UN General Assembly voted overwhelmingly in favour of a resolution calling for an end to the war and demanding that Russia leave Ukrainian territory. A similar resolution was adopted a year ago, shortly after the invasion began. The extent of global opposition to Russia’s invasion of Ukraine is also illustrated only one country in the Middle East block of 16 countries voting against the resolution (Syria), while only one abstained (Iran).

Unfortunately, Russia’s military invasion of Ukraine has also raised the spectre of nuclear warfare. In February, Russian President Vladimir Putin signed a bill formally suspending the New Strategic Arms Reduction Treaty, which is the last remaining nuclear arms treaty with the US. A month later, tension between the two countries heightened further when Putin announced that Russia would station tactical nuclear arms in Belarus, a move that has predictably evoked fierce criticism from the US and Nato.

Although Nato members were initially cautious about escalating the war, it has become clear that they are determined that Russia should not succeed. Ukraine has secured huge pledges of weapons from the West, with an array of items already having been made available, with more to follow. These include advanced rockets, MiG fighter jets, German-made Leopard tanks and American-made M1 Abrams tanks. Earlier this week Finland was accepted as a member of Nato, more than doubling the length of Russia’s border with Nato countries. Russia countered with threats of unspecified “countermeasures”.

China also features in the escalation of global risks, with the US and EU remaining concerned about China’s support to Russia. The EU has also taken an increasingly confrontational stance towards what they deem China’s human rights abuses in Xinjiang, discrimination against EU firms operating in China and the country’s subsidy-led industrial model, which they believe flouts the protocols of the World Trade Organisation.

In addition to the human tragedy that is inherent in armed conflict, the war in Ukraine has served to postpone the most pressing challenge facing the world, namely the environmental risks of global warming. Human interventions have had a negative effect on a complex and delicately balanced global natural ecosystem, triggering a chain of reactions that will increasingly have far-reaching negative economic and societal consequences for the whole planet.

To avoid the devastating consequences of runaway climate change, wars being waged in Ukraine and elsewhere in the world need to end, with all countries committing themselves to a pact and programmes aimed at saving planet Earth.

• Botha is an independent research economist. Swanepoel is CEO of the Inclusive Society Institute. This article draws on the content of a paper the institute released this week, “End warfare and rather save the planet”