Red Sea debacle affects geoeconomics posture

Attacking more than 70 vessels and sinking more than 30 of them Houthis have successfully interdicted the Suez-Red Sea Route. Highlights of the debacle and the effects it has on geoeconomics are discussed below:

Beginning October 19, 2023 a ramshackle movement officially called as Ansar Allah but popularly known as Houthis has made the shipping lane Suez-Red Sea let us call it direct route, a non-viable alternative in comparison with the Cape Route let us call it indirect route, that traverses roundabout way passing the Cape of Good Hope in the tip of South Africa. Shipping companies were forced to opt for this indirect passage between Europe to Asia as a counter measure.

Here is the brief comparison of the direct and direct shipping routes:

1. The length of direct route is approximately 8,440 nautical miles whereas Cape Route is about 11,720 nautical miles.

2. Travel time of the Suez-Red Sea route is estimated as 18 days at the speed of 20 knots while roundabout route takes 25 days at similar speed of 20 knots

3. Fuel consumption for opting for Cape Route goes up by 30% over the direct route. Transporting cost has gone up by USD 1000/- per Twenty-foot Equivalent Unit (TEU)

4. An attack on the Greek flagged oil tanker MV Delta Sounion on 21 August 2024 and subsequent leaking of the oil caused the marine insurance to almost double making the direct route economically unviable.

5. The direct route traffic has dropped more than 80% from the pre October 2023 level.

Most shipping companies including Hapag Lloyd, Maersk, and CMA CGM have agreed that navigating integrity of the Suez-Red Sea route is irreparably lost. Until such time the Gaza War ends there is no question of opening up this route for normal transportation. The bottom line is Suez-Red Sea route accounts for 12.5 % of the general transport and 30% of the container ship transport.

Houthi blockade has a big toll on geoeconomics power spectrum. Here are samples:

1. There is a slow motion depreciation of the military power of the America led west that results in the erosion of their geoeconomics sway over the Middle – East

2. Houthis transformed themselves from a nondescript poor nation of camel drivers into a geoeconomics power house with a sway over nations West to East.

3. ‘Sea Denial’ as both military and geoeconomics tool can be employed by even a small nation that borders any international shipping route.

4. The West as a whole has to choose between peaceful co-existence and continuing the conflict in the Levant!

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist

How GDP serves as geoeconomics tool?

Gross Domestic Product (GDP) is the sum total of financial value of products and services made within a period, generally one calendar year. Therefore, the basic parameters are realized value, certain period and the domestic horizon. How to make GDP serve a geoeconomics tool?

Here we have to depart from the aspect of realized value which invariably connotes the existence of a market and that products and services are produced and consumed on that basis. Soviet Union changed this particular parameter by valuing non-market oriented products & services that are chiefly listed under security of the country and the welfare of the citizens therein. For example, defence & security related products as well as social overheads such as health, education and environmental issues are treated as non-market products & services. This way GDP in the times of Soviet Union was indeed colossal. In turn it helped her to project geoeconomics power.

In general there are four components of GDP that merit attention. Two of them are consumption by the private citizen and business investments sourced from private sector. In the time of Soviet Union the state also became one of the citizen in the sense it consumed large value of products & services generated within as well as public investments made by the state in the broader sense of protecting and nurturing state as an organization.

In addition we get government expenditure as separate column where such expenditure is targeted at poverty alleviation, fiscal management and balancing monetary policies regarding inflation & economic growth. The last item is the net export value which is arrived at after deducting the import cost from the export revenue.  

In the case of advanced economies consumption expenditure at higher percentage of GDP gives geoeconomics power because in order to supply goods & services for public, state resorts  to such expenditure in order to  encourage domestic production in the first place and if that is not adequate allow imports from abroad to quench the thirst of the consumers.  Take the case of America where private consumption accounted for 67.6 % of her GDP.

In planned economies such as China this works slightly in an altered manner. Manufacturing is the cornerstone of China's economy and this sector's added value accounted for 26.2 percent of China's total GDP. Here the added value is computed by deducting the import as well as processing cost within China from the gross value of production. Interestingly, China scores highest marks at about 26.2% of added value in her GDP profile.

The bottom line is private consumption in USA and added value in manufacturing in China facilitate both of them projecting big time power in geoeconomics!

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist

 

BRICS IMF, goodies galore

The current International Monetary Fund (IMF) is presumed to walks into sun set as BRICS contemplate formation of their own IMF. As a geoeconomics feat, this would bring a lot of positive benefits to the member countries. Furthermore, the New BRICS IMF would have goodies galore for the benefit of global south. Read on:

There are number of positive features envisaged in the new monetary institution, in contrast with the USA led present IMF. Here is a list I have compiled with a cautionary note, it is not exhaustive:

1. Public–private partnership is the chief thrust. Gone are the days of states owning every enterprise under the sun? At the same time allowing private sector to be the lead engine for economic growth has inherent threats in terms of social cohesion, creating two groups: haves and have-nots.

2. Controlling inflation is to be carried out with an appropriate mesh of money supply and demand growth domestically. By this way assisted countries must seek a balance between economic growth and an ideal level of inflationary pressure.

3. Organizational behaviour of the BRICS IMF is fashioned in the concept of ‘give and take’ attitude. Members of the UMF would be termed as partners and not as lender and borrower dichotomy that created a Chinese wall between and amongst the countries.

4. Social transformation is the driving force behind the new IMF to be woven around all its activities concerning domestic economy within the shores of a beneficiary country as the receiver and selected partner countries who are earmarked to assist the country in question as the givers

5. A repertoire of grants, loans and investments is to be made in consultation with the receiver and giver where each genre would be calibrated. For example, in case of loaning interest would be fixed just few basic points above the market rate and would incorporate moratorium over interest where needed and suggested re-scheduling program where the beneficiary is unable to cope up with scheduled repayment.

6. Special emphasis is to be placed on poverty alleviation, health, education and other welfare related items knitted into the broader mission of social and economic progress moving congenitally.

7. Advice regarding fiscal and monetary issues for the beneficiary nation would be made available from the IMF head-office free of charge.

8. More than anything else member countries as  a whole participate together  in making the BRICS IMF as an geoeconomics power house where the benefits fritter into every partner be he is  receiver or giver.

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist