russia’s war against Ukraine will change global business in 5 ways

russia’s war against Ukraine will change global business in 5 ways

According to EIU experts, russia’s war against Ukraine will accelerate changes already provoked by the pandemic, and climate change and set 5 global business trends, as follows:

1. Supply-chain disruptions in automotive sector and increased pressure for localization

The difficulties caused by the war will prolong post-pandemic supply chains disruptions and force automotive companies to become more resilient by increasing components stock, reining in just-in-time production norms or investing in more local suppliers. Shorter supply chains are less prone to trade and geopolitical disruptions, and they also lower freight and insurance costs. Moreover, suppliers in developing countries (e.g.China, russia) are gradually losing their low-cost advantage as labour costs rise that favours developed-country production. Therefore, European automakers will consider localization as an opportunity to develop new supplier networks closer to home, often with government support.

2. New efforts to improve food security amid surging energy and other commodity prices

The war in Ukraine will keep fuel and commodity prices elevated for much of the year. This will raise business costs and pose a danger for energy and food security. The war is already forcing several governments to examine their food and agricultural policies closely, not just in Europe, but also in the Middle East, Singapore and China, among others. For instance, some EU countries, have reduced the share of agricultural products used as feed to scale back meat consumption and popularise alternate protein products. The Middle East, meanwhile, is augmenting investments in agritech to increase agricultural productivity and reduce water consumption.

3. Widening disparities in the energy transition between developed and developing countries

The investment needed to reduce Europe’s reliance on russian energy will affect funding for clean-energy investments in developing countries. European nations will seek to diversify their energy supplies, primarily, by increasing LNG imports, energy efficiency and heating insulation investments, and possibly delaying plans to close or phase out nuclear and coal power plants. It would also entail significant public and private investment in renewables. All this will make it harder for developed countries to provide financial support to the energy transition in emerging economies. As a result, emerging economies will continue to invest in fossil-fuel power generation to cater for economic and population growth.

4. Financial sanctions against russia as a bifurcation point for the global monetary order

In response to russia’s invasion of Ukraine, the US and its allies have resorted to unprecedented economic and financial sanctions, in particular, the expulsion of some russian banks from SWIFT system. In the short term, this will have a limited impact. However, in the long run, this may compel russia and other countries to seek alternatives to US dollar systems. Thus, EIU experts expect that the war will accelerate the transition from US dollar-backed financial systems to interoperable central bank digital currencies (CBDCs).

5. Intensification of geopolitical and regionalized tensions over technology

Technology is becoming increasingly geopolitical and regionalised, in two ways. Access to technology is seen as a competitive advantage, with US semiconductors dominance as a good example. The chip sector is fragmented, the product is complex, so every actor will need to use US equipment at some point; therefore, any US technology sanction makes a country or company unable to purchase semiconductors.

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