Week Concluding on July 23, 2023

Welcome to our highly anticipated fourth edition, where we delve deep into the geopolitical and geoeconomic changes shaping our world. With unwavering commitment, we offer enlightening perspectives on the potential repercussions and opportunities emerging from these transformations.

Join us in exploring the challenges faced by consultancies in mainland China amidst evolving regulations, the interest of 40 nations in aligning with the influential BRICs economic bloc, and the urgent call to bolster cybersecurity after millions of US military emails were mistakenly sent to Mali. We strive to provide comprehensive insights, empowering businesses and professionals to navigate our rapidly evolving landscape with foresight and resilience.

Your feedback is a pivotal element of our editorial design, and we warmly welcome you to join us on this enlightening exploration of geopolitics and geoeconomics.

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Event 1 Summary: Israeli Prime Minister Benjamin Netanyahu has been hospitalized due to a "temporary arrhythmia" detected by a heart monitor. Despite this, he has committed to participating in an imminent vote on a contentious judicial reform, which has been a trigger for extensive protests. The proposed legislation, which is part of Netanyahu's larger judicial overhaul, would restrict the Supreme Court's power to declare government decisions "unreasonable". This reform has sparked concerns domestically and internationally regarding Israel's democratic integrity.

Protests continue in the face of this proposed legislation, with demonstrators expressing fear of its potential impacts. It is reported that the crisis has expanded to the military, with volunteer army reservists threatening not to report for duty if the government proceeds with these plans.

For further information read the following article in Reuters: https://www.reuters.com/world/middle-east/israeli-startups-act-relocate-over-judicial-shakeup-survey-finds-2023-07-23/

Business Implications: The proposed judicial overhaul may have far-reaching implications for the business environment in Israel. Chief executives of Bank Leumi and Bank Hapoalim have cautioned about the potential economic fallout, indicating that investors they've spoken to have concerns about the unilateral moves and the divide within the nation. These concerns have reportedly resulted in halted investments, which could have irreversible and destructive impacts on Israel's economy.

Israel's tech sector, a significant economic driver, has been notably affected. According to a survey by Start-Up Nation Central, nearly 70% of Israeli startups have begun relocating parts of their business outside of Israel. The proposed changes are also reported to have contributed to a 70% decrease in tech fundraising in the first half of the year.

The potential realignment of business activities poses a real threat to Israel's economy, which leans heavily on the technology sector as a pivotal pillar. Given the intricate nature of these operational shifts, their reversal might not be an easy task. Serving as the engine room for Israel's economic development, the tech sector is a vital force, generating 15% of the country's total economic output. Moreover, it is the source of every tenth job, produces over half of the nation's exports, and contributes a quarter of the entire tax income. With the current political turbulence, accentuated by Prime Minister Netanyahu's health challenges and ongoing corruption trials, the landscape of uncertainty could expand further, potentially casting a shadow over business decisions and investment patterns in Israel.

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Event 2 Summary: Ericsson, the Swedish telecom giant, is currently investigating reports that Baghdad has suspended its employees' work permits in Iraq. The investigation comes in the aftermath of Iraq expelling the Swedish ambassador, as a response to a planned burning of the Koran in Stockholm, which triggered protesters to storm the Swedish embassy in Baghdad. The Iraqi state news agency had initially reported the suspension of Ericsson's working permit in Iraq, but an adviser for the Iraqi Prime Minister later denied this claim, stating that all contractual agreements made by the Iraqi government would be respected, including those with Ericsson.

For further information read the following article in Barron's: https://www.barrons.com/news/iraq-suspends-licence-of-swedish-telecom-giant-ericsson-91d38a3f

Business Implications: Although Iraq represents a small market for Swedish multinational Ericsson, and the suspension of its permit is still uncertain, this situation underlines the intricate relationship between geopolitical events and the operations of global companies. This complexity is particularly significant in regions marked by pronounced religious and cultural sensitivities. Even though companies might be unrelated to triggering incidents, their association with countries involved can lead to significant operational disruptions, impacting staff safety, customer relations, and ongoing projects.

Reputation management becomes crucial under such circumstances, as the perception of disrespect towards local beliefs could carry profound implications in similar markets worldwide. Furthermore, corporations must have robust crisis management strategies in place, incorporating geopolitical risk assessments into their broader business strategies. The situation serves as a reminder to all multinationals operating in geopolitically sensitive regions of the need for understanding and respecting local cultures, emphasizing employee safety, and ensuring effective diplomatic relationships.

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Event 3 Summary: Russia's withdrawal from the Black Sea Grain Initiative, which was established to ensure safe passage for Ukrainian grain exports through the Black Sea, poses a significant risk of exacerbating food insecurity for over 50 million Africans impacted by drought. The decision, announced amid the ongoing conflict with Ukraine, entails treating ships bound for Ukrainian ports in the Black Sea as military targets, thereby non-renewing the agreement brokered by the United Nations and Turkey. This move has raised concerns about potential repercussions on grain import prices and the availability of food aid for myriad of African countries, including The Gambia, Somalia, Kenya, Ethiopia, Eritrea, Mauritania, Tunisia, and Libya. The region's vulnerability to food shortages further underscores the urgency of addressing the implications of this decision on food security in Africa.

For further information read the following article in The Africa Report: https://www.theafricareport.com/316510/russias-pullout-from-black-sea-grain-initiative-leaves-africas-poorest-exposed/

Business Implications: The termination of the Black Sea Grain Initiative by Russia has significant business implications on a global scale. The disruption in grain supplies could lead to fluctuations in commodity prices worldwide, affecting both buyers and sellers. African nations, already grappling with food shortages and drought, may face exacerbated food insecurity and higher grain import prices, impacting the region's poorest countries. For countries heavily reliant on wheat imports, like Egypt, increased international prices could add pressure on inflation levels, affecting business stability. The situation harbors the potential to intensify ongoing bloodshed in violence-stricken regions like Sudan, which marked its 100th day of conflict this past Sunday. Although some African nations have proactively reorganized supply chains and accumulated food stocks, minor adjustments in global commodity prices may still have negative implications, emphasizing the need for careful monitoring and coordinated responses to mitigate food security risks in the region.

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Event 4 Summary: Kenya is experiencing violent clashes between protesters and the police in the capital city, Nairobi, and other town, due to rises in cost of living, particularly taxes levied by the government combined with the removal of subsidies. The protests were sparked by opposition leader Raila Odinga's call for three days of demonstrations against the government's tax hikes. The defiant protesters from opposition strongholds engaged in running battles with riot police, resulting in fatalities and injuries. The situation has prompted the government to close schools in major towns for security reasons, leaving many parents concerned about their children's safety and education.

For further information read the following article in The Africa Report: https://www.theafricareport.com/316292/kenya-ruto-raila-urged-to-talk-as-deadly-protests-continue/

Business Implications: The persistent demonstrations and violent confrontations in Kenya are seriously threatening the nation's stability and economic prosperity, despite its standing as one of the more resilient economies within Africa. The continued unrest is causing disruption to businesses, with the Kenya Private Sector Alliance estimating daily losses of up to KSh3bn ($21m). The protracted protests and potential escalation of violence may deter foreign investment and harm investor confidence in the country. The government's decision to impose tax hikes, which sparked the protests, could further strain the economy and affect businesses, leading to potential job losses and decreased consumer spending. Kenya's strategic location, well-developed infrastructure, and ports, such as the Port of Mombasa, make it an important transit point for goods and services moving to and from landlocked countries in East Africa, including Uganda, Rwanda, South Sudan, and others.

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Event 5 Summary: India has implemented an immediate ban on non-basmati white rice exports in an effort to control high food prices and ensure adequate availability within the domestic market. As the world's leading rice exporter, accounting for over 40% of the global rice trade and the second-largest producer after China, the ban may have significant implications for global rice supplies and prices. Analysts warn that this ban, coupled with previous restrictions on broken rice shipments in September, could lead to further increases in already elevated rice prices. Countries heavily reliant on Indian rice imports, such as Bangladesh and Nepal, may be most affected by the ban, and importers might turn to alternative suppliers in the region, like Thailand and Vietnam.

For further information read the following article in CNBC: https://www.cnbc.com/2023/07/21/indias-rice-export-ban-could-send-decade-high-prices-higher.html

Business Implications: The ban on non-basmati white rice exports from India has critical business implications for various sectors. As rice prices continue to soar, businesses worldwide should be prepared for potential cost escalations in their supply chains, especially those reliant on Indian rice imports. Industries that heavily utilize rice products or depend on a stable rice market, such as food and beverage, hospitality, and restaurant sectors, may face challenges in managing costs and pricing. Importers and companies engaged in international trade should assess their risk exposure to fluctuations in rice prices and be prepared for potential disruptions in their supply chain or revenue streams.

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Event 6 Summary: Beijing's warm welcome of Henry Kissinger, former U.S. Secretary of State, during his recent visit to China sends a signal to Washington to stop trying to contain China. Chinese leader Xi Jinping praised Kissinger for his role in normalizing diplomatic relations between the U.S. and China half a century ago. Kissinger's visit and reception in Beijing stand in stark contrast to the treatment of the U.S. climate envoy John Kerry, who was seeking to revive cooperation on climate change. This two-pronged approach by Beijing highlights its desire to re-engage with the U.S. but on its own terms and with Americans it regards as trustworthy.

For further information read the following article in The Wall Street Journal : https://www.wsj.com/articles/xi-jinping-praises-henry-kissinger-in-beijing-in-veiled-message-to-biden-administration-f305e878

Business Implications: The cordial welcome Kissinger received, and his congenial meeting with Chinese Defense Minister Li Shangfu, suggest Beijing's openness to discussing specific issues diplomatically with the U.S. This friendliness sharply juxtaposes Li's previous direct refusal to meet with US Secretary of Defense Lloyd Austin at the Shangri-La Dialogue conference in Singapore last June. It also highlights China's tendency to engage more favorably with individuals they perceive to be more aligned with their interests. This approach could add complexity to Washington's efforts to address thorny issues and diffuse bilateral tensions. The disparate treatment of Kissinger and Austin further illuminates China's measured and strategic re-engagement with the U.S., especially within significant policy domains such as climate change and military communication.

Businesses operating in or with interests in both China and the U.S. should closely monitor the evolving dynamics of U.S.-China relations, as it may impact trade policies, investment climates, and overall geopolitical stability in the region. Understanding China's nuanced approach to diplomacy and engagement will be crucial for businesses to navigate potential challenges and opportunities arising from the bilateral relationship.

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Event 7 Summary: The geopolitical climate is causing major US consulting firms, such as Bain, McKinsey, and Boston Consulting Group, to face hurdles in securing business in China. This is largely due to Beijing's national security investigations, which have sparked apprehension among local clients and dampened foreign investor activity in the country. In response to these probes by China's state security services into the management consultancy industry, Bain's Shanghai office and Capvision faced raids in May. As a result, these firms are grappling with recruitment delays and challenges in procuring new contracts, adversely affecting their Chinese operations. This predicament arises against the backdrop of escalating US-China geopolitical tensions and Beijing's increased scrutiny of potential espionage activities. Consequently, there is a discernible hesitancy among Chinese clients to work with US consulting firms, and private equity groups are also being more cautious when considering investments in China alongside American companies.

For further information read the following article in the Financial Times : https://www.ft.com/content/0b869421-10fd-41e7-8280-5d09a224062f

Business Implications: The challenges faced by US consultancies in China bear significant business implications. The delays in talent recruitment and project acquisition may result in talent retention issues, necessitating a reevaluation of strategies to navigate the intricate regulatory landscape and security concerns in China. The waning foreign interest in China, coupled with geopolitical tensions between the US and China, could affect cross-border activities and investment decisions, consequently impacting the overall growth and revenue prospects of consulting firms in the region. Furthermore, the reluctance of certain Chinese clients to engage with American consulting firms may lead to missed business opportunities and intensified competition from local consulting enterprises. For businesses presently operating in China or contemplating investments in the country, vigilant monitoring of the evolving regulatory and geopolitical landscape is vital, alongside an assessment of potential risks and opportunities entailed in collaborating with US consulting firms in the current environment.

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Event 8 Summary: In an effort to stabilize its struggling economy, Turkey's central bank recently boosted its primary interest rate, known as the one-week repo rate, from 15% to 17.5%. This is the second time in two months that the rate has been increased, marking a change from the previous trend seen since 2021. This strategy represents a shift away from the policies favored by President Recep Tayyip Erdogan, who had advocated for reducing interest rates despite the country grappling with high inflation. The rate hike was led by the new economic team, which includes Finance Minister Mehmet Simsek and Central Bank Governor Hafize Gaye Erkan. However, the rate increase was lower than what many anticipated, leading to doubts about whether this new team can effectively tackle the country's rampant inflation and resist Erdogan's stance on interest rates.

For further information read the following article in The Wall Street Journal : https://www.wsj.com/articles/turkish-central-bank-raises-rates-in-effort-to-save-economy-625eaf8d

Business Implications: Amid Turkey's economic struggles, characterized by high inflation and scarce foreign currency reserves, the lower-than-expected interest rate hike may trigger skepticism regarding the central bank's autonomy and its capacity to execute bolder steps to curb inflation. Economic stability and credibility with global investors hinge on the government's dedication to rectifying imbalances and adopting prudent monetary strategies. This decision is crucial as Turkey seeks investments from Gulf nations, potentially swayed by its perceived economic stability and policy direction. To regain confidence and attract foreign investments, the new economic team must show firm commitment to addressing economic issues, adopting standard policies to stabilize the currency, and control inflation. Assessing the Turkish government's response to these economic challenges and its policy decisions will be vital for businesses investing or operating in Turkey.

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Event 9 Summary: Millions of US military emails have been misdirected to Mali due to a "typo leak," where people mistakenly type .ML, the country identifier for Mali, instead of .MIL, the suffix for all US military email addresses. The issue was first identified almost a decade ago, but the misdirected email traffic continues, exposing highly sensitive information, including diplomatic documents, tax returns, passwords, and travel details of top officers. Despite repeated warnings, the problem has not been fully addressed, and the misdirected emails have been collected by Johannes Zuurbier, a Dutch internet entrepreneur managing Mali's country domain. Control of the .ML domain will soon be transferred to Mali's government, raising concerns about how they will handle the sensitive data. Some of the misdirected emails contain sensitive data on US military personnel, contractors, and their families, posing potential security risks.

For further information read the following article in the Financial Times : https://www.ft.com/content/ab62af67-ed2a-42d0-87eb-c762ac163cf0

Business Implications: Businesses across all sectors should take note of the recent misdirected email issue within the US military, as it highlights the critical importance of bolstering their cybersecurity and employee cyber precaution efforts. The exposure of sensitive information, such as travel details, medical data, and financial records, poses severe security and privacy risks that malicious actors could exploit, potentially leading to detrimental consequences for organizations' operations and reputation. To safeguard their data and communications, businesses should prioritize robust cybersecurity measures, provide comprehensive training to employees on data protection and email security best practices, and implement technical controls to prevent misdirected email incidents. Regular audits and assessments of email security practices are essential to identify and address potential vulnerabilities. By proactively enhancing their cybersecurity efforts, businesses can safeguard sensitive information and maintain the trust of their customers and partners.

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Event 10 Summary: More than 40 nations, including Algeria, Argentina, Bangladesh, and Saudi Arabia, have expressed interest in joining the BRICS bloc, a group of major developing economies that includes Brazil, Russia, India, China, and South Africa. BRICS, formed in 2009, aims to be a counterweight to Western economic dominance and has previously indicated its openness to expansion. South Africa, which joined the bloc in 2011, proposed further expansion in 2018, and discussions on admitting new members have been ongoing. However, some existing BRICS members, such as Brazil and India, are concerned that expansion may dilute their influence, and they may prefer to keep interested states as observers rather than full members.

For further information read the following article in Mint : https://www.livemint.com/news/world/more-than-40-nations-lining-up-to-join-brics-bloc-south-africa-11689869467590.html

Business Implications: The interest shown by more than 40 nations to join the BRICS bloc highlights the geopolitical and economic significance of this group as a potential alternative power center to Western-dominated institutions. Businesses operating in or with countries in the BRICS bloc should closely monitor developments as the expansion may lead to changes in economic policies, trade agreements, and investment opportunities. As new members are considered or accepted into the bloc, there could be shifts in economic dynamics, trade partnerships, and investment flows among the member countries. Companies doing business in or with BRICS nations should assess the potential impact of expanded membership on their operations, supply chains, and business strategies. Moreover, businesses should stay informed about the bloc's future direction and its implications for regional and global markets. The BRICS summit in Johannesburg next month could serve as an important event to monitor, as discussions about potential expansion and other policy decisions may take place during the summit.