2022: A year of precarious recovery

Welcome to The Executive Perspective.

In the story ‘To Kill a Mockingbird’, Atticus Finch says to his daughter Scout, “You never really understand a person until you consider things from his point of view…..until you climb into his skin and walk around in it.”?

Until we see things from another person’s perspectives, we can hardly understand why things happen the way they do.?Most of us like to make preconceived judgements, which can lead to altercations between global events unfolding in a speed that we had never experienced before.

That’s because we jump to conclusions too quickly and fail to see from another person’s point of view.?Seeing from another person’s perspective helps us to understand things in a different light and opens up the path for a whole lot more of understanding.

And in that sense, I thought creating a weekly newsletter that puts global events in an executive perspective in a concise way could benefit its readers without taking much of their valuable time.

In the Executive Perspective, I will try to cover global trends shaping our world on politics, energy, defense, infrastructure, mining, international trade, technology and more. If you would like to get a notification on new issues of The Executive Perspective, please feel free to subscribe.

Over the past two years, the economic landscape has changed dramatically because of the Covid-19?pandemic. As the global economy is preparing for a, hopefully, post-pandemic future in 2022, businesses need to adapt to the changing landscape to survive and thrive.

Here are 8 global trends that I believe will shape the way we do business in 2022.

1. Management Strategy

Purpose or Product? Which overrides which?

Companies no longer exist simply to make profits. Leading brands are competing and excelling because they have a clearly defined purpose. Having a purpose has changed from?aspiration to strategic priority.

You can’t go a single day without hearing the phrase "brand purpose," but what does it actually mean? In short, it’s a brand’s reason for existence beyond making money. Today, a growing number of companies are jumping at the chance to signal their social and environmental credentials.

For good reason too, it’s what people want. Consumers are determining the fate of brands with their purchases. And when all things are equal, they will choose to?buy?from a brand that has a positive impact.

2. Geopolitics

Deepening distrust between the U.S. and China: Is there a point zero?

The United States’ recent decision to place a dozen Chinese companies on its trade blacklist keeps meeting with criticism from China. The U.S. cited national security and foreign policy concerns, particularly regarding the companies’ works on developing the Chinese military’s quantum computing efforts.

U.S. Secretary of Commerce Gina Raimondo said the new listings would prevent U.S. technology from helping Chinese and Russian military advancement while China’s embassy in Washington said the U.S. was abusing state power and the concept of national security to restrict Chinese enterprises.

The Commerce Department also added that it wanted to stop China from developing counter-stealth technology and counter-submarine applications. The action would also prevent China from using U.S. materials to develop new encryption technologies.

The common wisdom says the situation could easily spiral in to a new version of Cold War, but a Cold War in 21st century might not remain as cold as it was in 1900s.

3. Manufacturing and supply chains

Who doesn't want to achieve a semiconductor independency?

Becoming completely independent on semiconductor production is just “not doable” because of the high levels of investment needed, the EU’s competition chief admitted just recently.

Carmakers and other businesses in the bloc have struggled in the wake of the coronavirus pandemic, as supply chains were impacted and limited access to the much-needed technology. As a result, European policymakers have been looking at ways to boost production of computer chips.

One of the reasons behind the push for self-sufficiency is to be free from geopolitics. But, there are concerns that frictions between the U.S. and China, or Germany and China, could disrupt supply chains even further.

4. Energy Security

Will Russia choose to weaponize Nord Stream 2 over EU gas demand?

Democrats don't seem to care too much but U.S. Republicans think he will.

That's why they're blocking the 2022 NDAA (National Defense Authorization Act) in the Senate in which they inserted new sanctions on Russia over NS2 which is currently being overlooked by Democrat law makers.

Nord Stream 2 pipeline that will boost the supply capacity of Russian gas to Europe still awaits approval from German regulator and it could go on for a few more months. The project has been controversial since it was first launched, particularly regarding Europe’s energy dependence on Russia. Russian President Vladimir Putin said the pipeline could start operations the day after it is given the green light.

Despite Putin’s enthusiasm and Europe’s energy problems, the paperwork could wait until May 8, 2022 if the regulators decide to use all their time. Record energy prices in Europe coupled with supply problems caused some European officials to accuse Russia of cutting down gas supplies to pressure the German regulator to accelerate the approval.

Germany’s Federal Network Agency will issue a draft decision by January 8, 2022.

5. Legislation

China's regulatory crackdown: It slows down but definitely not over, as long as President Xi keeps pursuing "Common Prosperity".

China’s regulatory crackdown on a large number of industries has slowed down, offering some relief for global investors. Still, there are a number of unsolved issues, which have the potential to disrupt global industries and financial markets. Some concerns include the fine on China’s ride hailing company, Didi for its controversial IPO in the US and expanding property tax trials.

Other than Didi, logistics platform Full Truck Alliance and online recruitment firm Kanzhun have also faced regulatory investigations following their US IPOs. The probes could finalize as soon as November with severe fines a serious possibility. Ant Group’s situation also remains uncertain, after the company’s IPO was terminated by the Chinese government last year.

Chinese regulators are trying to finalize a legislation that will allow them to block any Chinese IPO overseas, even if the shares are incorporated outside China. Regulators have also started an investigation of 25 financial institutions including the Central Bank and banking and insurance regulator. The probe will look if some officials are too close to private firms such as Evergrande, Didi and Ant Group.

6. Sustainability Strategy and Decarbonization

The Hydrogen Hype: Will green hydrogen be the answer to climate crisis?

A coalition of industrial companies recently announced that it has increased its goal of generating hydrogen through renewable resources, which it sees as a crucial target to cut greenhouse gas emissions.

Both governments and companies have been trying to develop green hydrogen technologies as a way to cut emissions. However, it currently costs four times more to make green hydrogen than to make “grey hydrogen”, produced through fossil fuels.

The Green Hydrogen Catapult (GHC) was first established in December last year by the UN, and set an initial production goal of 25 GW by 2026. The coalition this year has boosted its target to 45 GW. The group said the new target could power 45 average sized steel mills.

As of 2020, the global hydrogen market was valued at $150 billion and expected to reach $600 billion by 2050. The number of investments in green hydrogen has risen from almost none in 2020 to 121 gigawatts across 136 projects in planning and development phases totaling over $500 billion in 2021. Companies across countries have formed alliances to increase production of the fuel fifty fold in the next six years.

7. Rare Earth Minerals

The strategic set of seventeen: What future holds for rare earths?

China’s latest energy crunch has affected rare-earth minerals as the prices keep rising. Supply crisis is another reason for the price hike, which reached their highest levels in over a decade. Prices of praseodymium-neodymium oxide (NdPr) has climbed to $115,000 a metric ton, its highest level since 2011. Prices have almost doubled this year.

China, which accounts for 70% of global rare earth production, has been battling with energy shortages and supply problems. Along with energy crunch and supply issues, soaring commodity prices have also disrupted production.

As governments continue to step up efforts to cut carbon emissions, demand for rare earth magnets, which are used in electric vehicle (EV) batteries and wind turbines, has been increasing. Although rare earth materials seem indispensable at the moment, industries have the capability to replace them in the future if they set their minds to it, according to sector leaders.

Forecasts expect the demand for rare earth minerals will grow by an average of 22% until 2030. This means a $6 billion of new investment is needed to increase supply. As the supply deficit is expected to continue until 2024, many downstream producers could seek methods to limit rare earth usage or get rid of it altogether.

8. Defense and Armament

The age of hypersonic missiles: A new arms race to a more lethal arsenal

In October, the top U.S. military officer, General Mark Milley, confirmed a Chinese hypersonic weapons test that military experts say appears to show Beijing's pursuit of an Earth-orbiting system designed to evade American missile defenses.

This year the Pentagon has held several hypersonic weapons tests with mixed success. In October, the Navy successfully tested a booster rocket motor?that would be used to power a launch vehicle carrying a hypersonic weapon aloft.

Hypersonic weapons travel in the upper atmosphere at speeds of more than five times the speed of sound, or about 6,200 kilometers (3,853 miles) per hour.

China, like Russia, intends to develop weapons systems that could cancel the USA’s global missile defense systems out. Current intercontinental ballistic missiles (ICBMs) fly into space and released from the orbit, but their arc is predictable. However, the weapon China tested is said to be maneuverable, and impossible to ward off under current technologies.?

The US and China’s race for weapons development resembles the Cold War era, but the US and the USSR had a series of treaties where they keep communication channels open and keep each other’s weapons technologies in check.

That's all from this edition of The Executive Perspective and hope to see you again next week. Please feel free to comment or share as you wish.

Cheers.