Consequences…

Most of us are looking at the appalling invasion of Ukraine by Russia and watching in disbelief that such an abhorrent event can occur in our lifetimes. In Australia, we are also seeing the devastation of floods across south east Queensland and through much of eastern New South Wales. Both of these tragic circumstances have terrible human tolls.

The economic consequences are also going to be severe. The economic sanctions on Russia are designed to push the Russian economy and break their will – in the hope that sanction will persuade Putin to withdraw from Ukraine. Personally, I am not sure he is so worried about the suffering of his people given he arrests 3000-4000 each day for protesting against the war on Ukraine.

Economically Russia is a powerhouse in many commodities. The table below shows some of the worlds most important commodities which are sourced from Russia.

Agriculturally, both Ukraine and Russia are important to the world economy, the charts below show the strategic importance of wheat, barley, corn, soybean as examples.:

For Australia, add to this the devastating floods and we will need to understand the impact on fresh produce: likely shortages and price escalations.

?We are already facing significant inflationary pressure due to both supply and demand side pressures. The consequence of the war on Ukraine and the sanctions on Russia will continue to pressure the world economy and we are likely to see more shortages and continued supply side pressures across the commodities with resultant impacts on manufacturing and flow on effects across the board in consumer goods and services. There will be few, if any, areas of our lives that will remain unaffected. Wheat and corn costs will affect the bread you buy, the milk you drink, the chicken and meat you eat, oil and gas will affect power costs, transport costs and manufacturing costs. The cycle of impact will be extensive. In Australia, recovery from the floods will impact fresh food availability and will also result in additional price pressure.

Interestingly, well recognised history professor, Yuval Noah Harari, recently commented in a TED interview that the other consequence of the war is a major diversion of resources. Increased spending on military wares, rebuilding costs, refugee crises, higher costs to manage the world will absorb the resources we want to direct to climate management, health care, education, infrastructure - further consequences to deal with ahead.

More than anything stopping the war and saving Ukraine is an essential priority for the world. The sanctions will not ease immediately. I suspect a very good result would be that just the next 12 months are impacted by the current situation even if the war ended soon, this seems unlikely, but we can, and must pray for such an end.

The consequences are ahead of us all. I am an optimist by nature, but such optimism is not enough. How we plan, prepare, and manage through this next crisis is critical. I would anticipate that banks will need to think about the debts they hold and the impact these pressures will have on their clients. As an example, costs and cash flow pressures will potentially impact businesses before they may be able to recover these from customers. Customer affordability on rising prices will then flow on to new market pressures. Governments will need to understand these additional and new inflationary price pressures and shortages of goods, tensions across the economy will further affect the various markets, we will no doubt see additional impacts in two key markets – labour, equities.

I have not addressed the social impacts and mental health consequences of what may be ahead. These are equally as impactful as any economic fallout. ?We have seen these issues become apparent through our covid journey over the last two years.

This is not a time to panic, panic creates chaos and further distress. This is a time for leadership to build agility, responsiveness, thoughtfulness about how every organisation and government prepares for these pressures. We have travelled through two years of covid pressures, and now we are to be beset with new daunting consequences. People are already fatigued; people have been looking for a brighter future. The role of leadership will need to evolve further, leaders will need to deal with these new economic, social, and mental health consequences ahead.

As leaders, we need to return to the Stockdale paradox:

“You must never confuse faith that you will prevail in the end—which you can never afford to lose—with the discipline to confront the most brutal facts of your current reality, whatever they might be.” — Admiral James Stockdale.

Honesty, authenticity about the challenge ahead framed by optimism of the future we can achieve.?The honesty and authenticity will allow us to plan, prepare and build resilience and agility to address the times ahead and the optimism of realising the future will provide strength and hope.

We are facing new challenging consequences. Do not wait for these consequences to take hold and paralyze us. Act now.

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?Bruce Rosengarten March 2022.