Davos Digest 2023 – Issue Five
Welcome to Issue Five of FleishmanHillard’s Davos Digest 2023.
Views from around the world
It’s been a hectic week for our team of avid WEF watchers, exploring the hottest events, announcements and even scandals amongst the super-rich and the über-powerful at the first proper Davos since the pandemic.
An inevitably sombre agenda this year, tackling everything from war and climate catastrophe to energy price chaos and widening inequity. There were major job cuts at tech giants, attacks on profit over people and the planet, and the conspicuous absence of top-tier heads of state. But hope was the surprise guest at Davos, as the elite crowd also expressed optimism about the recent slowdown in inflation, a bounce back from the coronavirus, and adjustment to the impact of the war in Ukraine.
But it’s not over yet. In this issue, hear global perspectives on the Swiss summit of all summits from our experts across the FleishmanHillard network.
The EU takes global stage with its new Green Industrial Plan
On Tuesday, the President of the European Commission, Ursula von der Leyen, used WEF as her platform to introduce the “EU Green Deal Industrial Plan”. In recent weeks, the EU has been under pressure to provide a response to the U.S. Inflation Reduction Act (IRA), which many fear might damage the competitiveness of EU industry. Tuesday’s announcement illustrates Brussels’ focus on channeling investment towards sectors that are critical to the EU’s achievement of its net-zero targets.
As part of the Plan, in classic EU fashion, it will publish a new Net-Zero Industry Act to identify the strategic clean tech sectors in Europe – such as wind, solar and hydrogen – which could benefit from both increased investment and fast-tracked permitting procedures for local production. Secondly, the EU will revamp its state aid rules, loosening the conditions under which governments can support their national industries. As a next step, it will also assess the willingness for a new EU Sovereignty Fund to scale up clean tech. Lastly, it will attempt to increase skills levels, and conclude more free trade agreements.
This move towards a stronger industrial policy is expected to be welcomed by European industries that have been suffering from high inflation rates and the ongoing energy crisis. Nevertheless, it is likely to unleash a new wave of debate over which sectors should be considered as strategic to the green transition. In this respect, it could align with the sectors supported by the U.S. IRA to prevent the risk of EU industries relocating across the Atlantic. Despite this, the EU is adamant it is not closing the door on free trade. Instead, it is forging its own path, combining decarbonisation with a more pragmatic financing approach to maintain its place in the green industrial transition. A journey worth keeping an eye on.
HONG KONG SAR, CHINA
Hong Kong: Open and back in business
China’s recent reopening and its role as a driver of global economic growth has been a key topic, especially of late. With so many changes at home, it’s understandable that few high-profile Hong Kong attendees were at Davos this year. Nevertheless, the media watched as Hong Kong’s leaders took to panel discussions to update the world on the latest happenings in the Hong Kong market.
Laura Cha Shih May-lung, Chairman of the Hong Kong Exchanges and Clearing Limited (HKEX), stated that China’s reopening will be the major event of the year. She outlined several expected benefits to global and domestic growth, focusing on increased consumption, tourism and pickups in the manufacturing sector. Cha reaffirmed Hong Kong’s goals to become a hub for technology, particularly biotech. Lastly, she said that emerging markets, which remained resilient during the pandemic, will also be growth drivers as investor sentiment returns.
Paul Chan Mo-po, Hong Kong’s Financial Secretary, also spoke at Davos. Like Cha, he pointed out expected increases in tourism and consumption as well as “signs of a stabilization” in Hong Kong’s property market. Chan was optimistic about the city’s IPO market and stated that the city hopes to lure Southeast Asian and Middle Eastern companies to list in the city, saying that Hong Kong can help them diversify and manage risk.
In another panel, Nicholas Aguzin, CEO of HKEX, pointed to the consumption and tourism sectors as the greatest beneficiaries from reopening, particularly with increased disposable income from Chinese consumers. Aguzin also expressed optimism about Hong Kong’s IPO market, saying that HK has a strong line-up this year, particularly in tech.
Though the past few years have left Hong Kong facing an uphill battle, Asia’s World City is aware of its strengths and is doing its utmost to leverage them. Only time will tell whether Hong Kong will step back into its pre-pandemic role or write a new story for itself.
United Kingdom: Davos Shows the Difficulty Now, Uncertainty Ahead
As ever, Davos prompted a debate – sometimes genuine, sometimes mocking – amongst UK media, business leaders and other stakeholders about the impact of a summit of global elites. This year brought a particular sense of the disconnect between the UK’s acute challenges and the discussions in Switzerland, even amongst those who embrace the annual meeting.
The ‘polycrisis’ debated at Davos is having a real-world economic and social impact upon British people. The cost-of-living crisis, a winter of strikes by public sector workers, and a National Health Service seemingly on the verge of collapse both reflect and cause pain. We will hear more about extreme wealth versus extreme poverty in the months ahead.
The broader economic picture is equally conflicted. The UK remains the only G7 country with a lower GDP than pre-pandemic and on a negative growth trajectory. While former Bank of England Governor Mark Carney praised the UK’s potential at Davos, some economists back home warned of another decade of stagnancy. Comparisons to Italy and Argentina, rather than the U.S. and Germany, popped up in several places.
With Prime Minister Rishi Sunak skipping Davos and introducing the UK’s ‘Levelling Up’ local investment funds, Labour Party Leader Sir Keir Starmer and Shadow Chancellor Rachel Reeves seized the opportunity to strengthen the party’s relationship with global business leaders. Labour continues to hold a 15-20 point lead over the Conservatives, but reinforcing its credibility on economic issues will be vital. That includes articulating Labour’s ambition to improve post-Brexit economic and trade ties with the EU.
UK leaders carefully avoided becoming entangled in the growing trade and investment tensions between the U.S. and EU. The country cannot jeopardise the relationship with the White House by criticising or retaliating against the Inflation Reduction Act’s green investment incentives, but must ensure it is not cast aside by businesses as the U.S. and EU turbocharge green industries.
And this may be the UK’s takeaway from Davos. With difficulty now and uncertainty in the future, how does one of the world’s leading economies, currently sluggish and vulnerable, simply not get left behind?
Poland: Bridge to Freedom
The main theme of the Polish House at this year’s Davos was chosen to accentuate humanitarian aid provided to refugees from Ukraine, while underlining Poland as a country connecting economies of the East and West, and a potential foreign investment destination in the era of deglobalization.
“Never before has Davos been so close to Kiev” underlined Polish Prime Minister Mateusz Morawiecki during a press conference, clearly indicating that Ukraine remained at the center of attention and discussions led during Davos focusing on military support, as well as the future prospect of rebuilding the country from post-war damage. Major leaders discussed the prospects of NATO 2023 Vilnius Summit and the Allies’ future role in supporting Ukraine.
During the Polish House debates, it was emphasized that recent years have shown the fragility of current supply chains, which have been disrupted or even completely broken during the pandemic and the Ukraine war. The current global situation favors a transition to the approach of international business from globalization to regionalization. This is a very important moment for Central and Eastern Europe and particularly Poland, which is a key market in the region being closer to investors, and with the potential to become a regional manufacturing and operations hub for investments from Asia or new investments. As highlighted, Poland’s strengths include consistent GDP growth and the economy’s resilience to crises, NATO membership and allied security guarantees. EU membership also gives investors in Poland access to the European single market with a favorable business environment, but also to an exceptional talent pool.
Energy sovereignty, accelerated technology development, cybersecurity and the digital economy were other areas that stood out on the agenda. During one of the debates, Polish Deputy Prime Minister and State Assets Minister, Jacek Sasin, underlined that energy independence is a priority in the context of Europe’s future and indicated nuclear power as a way to address contemporary energy challenges. He also made a commitment to launch three new nuclear power plants in Poland in the next 10 to 12 years.
WASHINGTON, D.C., U.S.
U.S. officials catch flak for Inflation Act amid debt concerns
The U.S. highlights for this year’s Davos were global angst about the Inflation Reduction Act enacted last year, whether the U.S. would default on debt due to political dysfunction caused by divided control of Congress, and staunch support for Ukraine expressed by lawmakers from both parties.
The gathering was snubbed by the White House and the most senior Biden administration officials. As Bloomberg wrote “there was a low-level grumble: Where are the Americans?”
John Kerry, former senator and secretary of state who now serves as the U.S.’s climate envoy, was there, generating headlines in the U.S. for defending the UAE’s decision to make their oil minister president of the UN COP28 climate summit being held later this year.
But U.S. media coverage gave far more attention to current members of Congress, especially Senator Joe Manchin, the moderate Democrat influential in key bills lawmakers have debated over the past few years. Politico dubbed Manchin the “newfound Davos Man” for shuttling around the forum, trying to persuade allies about the Inflation Reduction Act without success. European officials believe the new law and its $380 billion in incentives for clean and low-carbon technologies discriminate against their manufacturers.
Senator Chris Coons, a close ally of President Biden, and other members of Congress caught flak for the law, throughout the week. As a CNBC headline blared, the “threat of a transatlantic trade war is dominating Davos.”
Manchin and Senator Kyrsten Sinema’s high five for opposing lowering the long-standing Senate filibuster, which forces bipartisanship by requiring bills to get 60 votes to clear the chamber, received significant attention from U.S. reporters.
The debt ceiling was also a major topic of discussion, with headlines dubbing the “U.S. debt standoff” as a “major risk ahead for markets.” Pressure on Washington to solve the issue escalated when the U.S. hit its $31.4 trillion debt limit.
U.S. news coverage also pointed to optimism in Davos that any economic recession would be shallow, even with the risk that Washington stumbles on the debt ceiling and ongoing concerns about the war and inflation.
Finally, media also noted the strong, bipartisan support for Ukraine, surprising given recent Republican pushback on aid packages sought by the Biden administration.
JOHANNESBURG, SOUTH AFRICA
Confronting the energy crisis
South Africa showed strong representation at WEF this year, with a 51-strong delegation in attendance – the largest from Africa. Unfortunately, President, Cyril Ramaphosa had to withdraw at the last minute due to the ongoing energy crisis.
This crisis set the tone for key conversations from government and business leaders at Davos, focusing on the impact on the economy and ongoing foreign direct investment (FDI).
Over and above SA’s local issues, a critical, and ongoing focus for the South African delegation was in driving the Pan-African messaging. Including how to solve the issues Africa faces as a continent, created either by global events, such as the war in Ukraine, recovery from the pandemic, as well as local issues such as ensuring FDI continues and the possible consideration of a digital currency by the South African Reserve Bank.
From an African perspective, the Forum Friends of the Africa Continental Free Trade Area (AfCFTA) was a keen focus. This initiative is aimed at creating one African market by eliminating borders and promoting trade and production across all sectors in Africa; coupled with trying to rally support from business across the world to bolster the implementation of the initiative.
Given SA’s influence on the continent, the impact of the ongoing energy crisis has been and will continue to negatively impact not only on the country but sub-Saharan Africa. Ramaphosa’s non-attendance to focus on a solution, the publishing of the latest report to achieve energy security, and the delegation’s various interactions with business and key leaders to provide assurance of the appetite to resolve the crisis.
Whilst as a country we are very aware of our challenges and the hurdles we need to overcome, it is imperative to give an impetus to a clear strategy coupled with rapid, laser-focused implementation to address the energy crisis. If we don’t, we run the risk of the energy crisis worsening, further crippling the economy and losing out on FDI, which will have massive ramifications for SA and possibly further afield on the African continent.
The Middle East Uprising
The Middle East has been a topic of discussion over the years for various reasons, but the geopolitical crisis and climate change are the most important part of conversations every single year.
2023 was different for the region’s position at Davos. The UAE government reiterated its commitment to unlocking opportunities for the future through its Future Possibilities Index, Saudi brought back Youth Majlis pavilion, and a few private companies addressed the concerns of today to rebuild the economies for the future.
The Middle East’s urgency to act was yet another thing we saw roar like a lion at the forum, for the benefit of the future and on humanitarian grounds. The regional press covered the UAE’s leadership around the need to act fast and design governments that are forward-thinking as one of the best approaches.
At the same time, the media also highlighted the voices of Iranian women heard by Davos delegates, asking for the West to step up on an international response to Tehran’s human rights abuse.
The unstable geopolitical relations between U.S. and China and their impact on the global economy were also heavily discussed in the Middle Eastern press. The impact not only on the worldwide energy crisis but also on the global trade flow is concerning for industry leaders. “That disrupts the market in a big way … today we need to see supply chain resilience continue, we need to see the ability to supply cargo,” commented Sultan Ahmed Bin Sulayem of DP World on the global supply chain.
A record number of Arab heads of state participated in various discussions at the summit. The Middle East and North Africa (MENA) region’s efforts over the years in global geopolitical events have paved the way for the stabilization of the region. Commenting on Arab presence at Davos this year, Maroun Kairouz, WEF’s head of the MENA region said, “I think, in short, it is their time to shine”.
It is predicted that if the world enters a recession, just like in 2008, the Gulf countries are yet again expected to be at the forefront of efforts to stabilize the global markets.
Join us soon for an in-depth summary of Davos 2023 in Issue Six of the Davos Digest.