What We're Watching Today, July 5, 2024

Overview

What We’re Watching Today is 1,485 words and a 9-minute read.

Global: Investors turn to political scientists to decode geopolitical risks

From conflict in the Middle East to escalating tensions in the South China Sea, investors see global disorder growing, with long term impact on the investment world. They are seeking help from political scientists to understand the sea change in geopolitical risks.

Our Take: Hot wars, cold wars, trade wars and cross border tensions are the new normal. The uncertainty of political volatility is already having broad impact on trade, with a push towards de-dollarization, securitized supply chains and investment flows. Coupled with climate change and energy transition, the contours global economy will look very different by 2050, compared to 2024. Increased situational awareness on geopolitics and geo-economics will be an important risk management tool for corporate boardrooms.

Read More: Financial Times [paywall], Economics Observatory, Capital Economics

Europe: With the National Rally’s popularity surging, what are the economic stakes in France’s second round election?

French voters are headed to final round of legislative elections, following a strong showing by the far-right National Rally in the first round. The stakes are high for the future of France, with markets jittery that a political shift will bring radical policies.

Our Take: French national debt is weighing down the economy and economists warn that significant fiscal tightening is required to prevent a rating downgrade. The Macron government has been trying to instill some discipline by debt reduction policies to restore debt sustainability. These are unpopular. Should the National Rally win a majority, or more likely, Macron’s centrist alliance loses an absolute majority, policies to control the budget and reduce debt will face stronger opposition, which poses risks not just for France but the Euro community.

Middle East: Israel approves record settlements

An Israeli settlement watchdog reports that the government has approved nearly 5,300 new homes in West Bank settlements and nearly 5 square miles in the Jordan Valley, the largest single annexation of land since the 1993 Oslo accords.

Our Take: The increase in Israeli settlement reflects the political realities of Israel’s fractious cabinet, where Prime Minister Netanyahu relies on far-right, pro-settlement parties to maintain power. However, these settlements will occupy land that Palestinians and their supports consider theirs for a future state. The move is likely to further exacerbate tensions as Israel and Hamas attempt to negotiate a ceasefire, as well as complicate a future two-state solution.

Americas: Peru approves controversial statute of limitations for crimes against humanity

The permanent commission of Peru’s Congress approved a law imposing a statute of limitations for persecuting crimes against humanity. The law was strongly opposed by human rights organizations who say the law will complicate or nullify ongoing investigations into serious abuses.

Our Take: Rights groups say Peru’s new statue of limitations on crimes against humanity would cut short dozens of investigations into human rights abuses committed before 2003, when fighting between security forces and rebel groups left 69,000 people dead or missing at the end of last century. The country’s president, Dina Boularte, has already faced criticism for undermining democratic institutions and engaging in abuses against citizens, especially in cracking down on anti-government protests. This move is further evidence of the country’s democratic backslide and concerning environment for human rights.

Asia-Pacific: Man who stabbed South Korean opposition leader sentenced to 15 years in prison

A man who attempted to kill South Korea’s opposition leader Lee Jae-myung by stabbing him in the neck during a January event to prevent his presidential bid was sentenced to 15 years in prison, court officials announced Friday.

Our Take: The sentencing of the man who attempted to murder Lee underscores the intense political divisions plaguing South Korea, which are among the most profound worldwide. Lee’s targeting in the assassination plot could enable the opposition Democratic Party to gain greater public support, particularly as incumbent conservative President Yoon Suk Yeol has faced consistently low approval ratings. Nonetheless, the successful prosecution of the attacker demonstrates the judiciary’s commitment to upholding the rule of law, which serves to reinforce public trust in South Korea’s legal and political institutions and dissuade the use of political violence, while also giving hope that the country’s political divide will narrow.

Read More: Associated Press, New York Times [paywall], Korea Herald

Africa: Nigeria outcompetes competitors to in its bid to host new Africa Energy Bank

Nigeria was selected to host the new Africa Energy Bank (AEB), as the continent’s leading oil producer outperformed three other countries for the multilateral lender’s hosting rights, its oil minister announced on Thursday.

Our Take: Nigeria hosting the AEB represents a strategic opportunity to revitalize its oil and gas sector, attract significant investment, and enhance its leadership role in Africa’s energy transition. However, risks remain over issues with Nigeria’s political stability and governance, which could impact the new bank’s effectiveness and the country’s ability to fully leverage the opportunity. The West African country has faced a recent economic crisis, with public opposition soaring over high costs of living, limited job opportunities, and government corruption. The ability of Nigeria’s government to settle domestic challenges will be key to ensuring if its leadership in the AEB will contribute to its growth as a viable intergovernmental organization or stand as merely a symbolic gesture.

Read More: Reuters, Reuters, Africa Energy Chamber

Trade and Compliance: China advances EU brandy probe as EV tariffs take force

China escalated trade tensions with the EU on Friday by advancing its anti-dumping investigation into European brandy imports, coinciding with the start of the European Commission’s provisional tariffs on Chinese-made electric vehicles (EVs).

Our Take: China’s retaliatory measures against the European Commission’s EV tariffs underscore the potential for a prolonged trade conflict that could economically harm both parties. There is disagreement among EU member states over the tariffs as well, as Beijing’s willingness to play tit-for-tat could prompt these countries prioritize diplomatic negotiations to mitigate tensions and find mutually beneficial trade agreements. Yet, this would undermine Brussels’s aims of a collective and comprehensive economic strategy toward Beijing, and fuel anger among EU residents who advocate for the protection of domestic industries against a flood of competition from cheap Chinese exports.

Read More: Reuters, Nikkei Asia [paywall], Foreign Policy [paywall], Euronews

Disruptive Technology: US schools expand phone bans

Cities, states, and school districts across the United States are implementing cellphone bans in schools to encourage students to focus during class and interact with their peers in person.

Our Take: The sweeping bans on cellphones in schools present an opportunity to enhance student focus and in-person social interactions, potentially improving academic performance and social skills. Yet, downsides over the risks of students losing valuable learning tools and the ability to stay in contact with their parents while at school make the bans controversial, with parents themselves a substantial source of opposition. Allowing for exceptions to mitigate the downsides could enable both sides on the debate to find satisfaction with the policy, while a forceful implication may trigger greater opposition to cellphone bans at large, diminishing the original intent of the regulations to improve student outcomes.

Read More: Axios, Washington Post [paywall], Education Week

Energy Transition: Permit bottlenecks risk blocking development of European wind farms

WindEurope, a wind power industry association, is warning that the transition to green energy in Europe is constrained by bottlenecks in grid upgrades and permitting, with some projects facing delays of up to nine years to receive a permit.

Our Take: Europe has the biggest synchronous power grid in the world, and power flow exchanges between countries have provide flexibility, relieved congestion and, as the Ukraine war has shown, strengthened energy security. While European governments and private industry are investing in new clean technologies, the entire ecosystem needs to match the pace. Underinvestment in grids creates a bottleneck, as does inefficient permitting processes, increasing risks to energy transition.

ESG: AI boom puts climate commitments at risk

Major tech companies’ climate commitments are at risk, in large part due to the AI boom. Large language models like ChatGPT are powered by energy-intensive data centers, and AI is projected to increase electricity demands from data centers by 50% by 2027.

Our Take: Already, the shift to AI has cost some tech companies progress in 2023 sustainability reporting. Tech companies have insisted that while AI may be driving ramped-up electricity demand at present, it will also be responsible for massive energy savings elsewhere. One AI-powered tool is working on helping airplanes avoid generating contrails, which account for 57% of aviation’s global-warming impact, for example. However, it is difficult to tell whether efficiency gains will ultimately cancel out energy use.

Read More: Wall Street Journal [paywall], The World Economic Forum