Global economy heading to a breakdown

The trajectory of the Russia-Ukraine conflict and the Israel war with Hamas heightens concerns about the global economy. These shocks have created uncertainty in the global political economy and weakened the world’s ability to recover from Covid-19. This has generated new geopolitical tensions, exposed the fragility of the international relations system, and pushed the world economy into breakdown. As war rages on between Russia and Ukraine, Israel, and Palestine there is a burgeoning geopolitical crisis simmering in the background that has major implications for the future of the international world trade. It has become increasingly clear that China is observing the world’s response to Russia’s invasion of Ukraine and setting up a potential blueprint for an invasion of Taiwan. It is also becoming increasingly clear that the international community is nowhere near prepared to adequately deal with an invasion. Therefore, the challenge for all these increasingly nervous lesser powers is not just whether they can retain a degree of policy independence, but whether they can reconcile potentially incompatible geopolitical and economic goals.

The war between Israel and Hamas might disrupt Namibia’s trade relations with Israel and affect global economic sentiment, resulting in reduced foreign direct investment and possible depreciation of the Namibian Dollar. The United Nations COMTRADE database on international trade indicated that Namibia’s exports to Israel was US$59.82 million during 2022, whilst imports from Israel amounted to US$3.8 Million during 2022. Namibia’s exports to Palestine was US$334 during 2022, whilst imports from Palestine was US$17.35 for the period under review. It should be noted that in 2004 we had companies from Israel which have heavily invested in Namibia's diamond industry. The LLD Diamonds was given 36 concessions worth US$ 180 million by the Namibian government in order to invest in Namibia's diamond industry. As of 2005, LLD Diamonds operated the largest diamond cutting centre in Africa. Based in Windhoek, Namibian President Hifikepunye Pohamba called the factory a success story in Namibia's drive to attract Foreign Direct Investment. Therefore, war should be avoided at all costs due to the loss of life, destruction of infrastructure, economic impact, escalation of violence, social and psychological consequences, environmental impact, and threats to global stability and security.

Sanctions

According to various reports are indicating that the violence could bring tightened sanctions against Iran, derail a possible Israel-Saudi thaw, and expand conflict across the Middle East which could threaten to send fuel prices soaring. We should understand that this unrest will derail economic recovery. Global petroleum supplies have already been roiled by Russia’s war on Ukraine and the resulting Western sanctions against Moscow’s oil exports. Many analysts are bracing for a spike in the short to medium. The Middle East is a major hub for oil production and trade, contributing around 33% of global crude oil production. Any prolonged conflict in the region can lead to volatility in global oil prices due to concerns over supply disruptions, even if Israel and the Palestinian territories are not major oil producers themselves. Some of the reports indicate crude oil prices surged by 4% on the 08 October 2023 with likely indicators pointing to an ever-higher price.

Furthermore, the exchange rate is a very important economic price that affects the desirability of our exports and the cost of imports. It is important to understand that a country’s foreign exchange reserves are directly linked to its currency’s strength. A depletion of these reserves can result in the depreciation of the local currency against major currencies such as the US dollar. Geopolitical uncertainties can influence investor sentiment as if global investors perceive heightened risks due potential spill over effects, there could be a decline in capital importation in Namibia. The reduction in capital importation can put pressure on the currency, leading to potential depreciation. Furthermore, companies that rely on imports or exports between Russia-Ukraine and Israel-Hamas may experience delays, added costs, or reduced business. This war is likely to affect businesses that rely on trade partnerships, especially if prolonged or escalated, can affect global economic sentiment, investor confidence, and risk perceptions. Hence, for policy makers, countries with a high dependence on export trade will pay more attention to political peace and stability to encourage the introduction of foreign capital or formulate corresponding policies to provide security for transnational investors.

Stability

Moreover, from the scale of global relations, maintaining world peace and social stability and building good national relations are the most effective ways to defuse the negative impact of geopolitical risks on economic activities. Hence, a stable political and economic environment is essential to attract foreign investment, encourage the development of foreign trade and thus promote their own economic growth. We should strengthen political and economic cooperation, deepen friendly exchanges, jointly build a community of shared future for humankind, and promote the common development of the global economy. We should effectively defuse geopolitical risks through proactive diplomatic strategies, promote the signing of bilateral investment agreements, improve relevant laws and regulations, and provide a sound economic and political environment.

Hence, no single country can be fully equipped to deal with the growing social, economic, and environmental risks facing the world.

In this geopolitical context, major powers need to take a leadership role to enhance global resilience through innovative cooperation. Thus, reducing the possibility of political and economic instability and violent conflicts leads to the wellbeing of the citizens. Therefore, International relations play an important part in this, provided that the international community foster peace, given each country’s support for either the Russia, Ukraine, Israel, or Palestinian side. We need vigorous diplomatic efforts to meet these challenges.

In conclusion, we need to do everything possible to find peace and unity. An intensification of geopolitical tensions could potentially trigger significant deglobalization of trade and the economic system.

Therefore, the international community, particularly the powerful countries should find a way on how to eliminate geopolitical frictions through international cooperation, and the impact of regional economic and trade organizations on geopolitical risks.