Two major events left many people agape in May. Firstly, in one of the most remarkable triumphs in British politics, a Muslim became the mayor of London. Secondly, the US President decision to visit Hiroshima not only demonstrates forward-looking mind set but showcases that developed countries do not give in to complacency. They embraced changes in order to sustain their competitive advantage. Yesteryear’s taboos are no longer issues. However, complacency may lead to missed opportunities.
Complacency is a malady that has gripped the economic progress of many countries. A classic example is China. China grew in an old fashioned way. It built mega-infrastructure projects to connect business to business. Unemployed peasants moved in better jobs at urban factories. Thronged with high speed success and double digit economic growth, China positioned itself as a major juggernaut in the world economy. Unfortunately, the yawning chasm of China came to an abrupt stop. In the aftermath of the financial crisis, Chinese economy started to suffocate due to its unbalanced and unsustainable model. China did not recognize the new normal pace of change. Its growth was reduced to single digit. Chinese leaders struggled to cope with this great transition and tremendous turbulences. To sustain its competitive edge, China changed its focus from export markets to domestic consumption. Though many economists had warned China against uncoordinated growth, it realized the brunt lately when its economy started to decelerate. Gravitating to complacency is like moths to the flame. Once you settled into the cycle, the negative effects start kicking in. unfortunately, China learnt it the hard way.
Complacency tends to bite in any potential for change. As a result, when change occurs, it creates a big shock to your system. In the Middle East, many countries are overhauling the structure of their economy, a measure to reduce the historical high dependence on oil. For long, oil sales generated the bulk of government revenue. The decline in oil prices in the last two years accompanied by exponential growth in shale production reduced the revenue income of these countries. As such, the more or less monopolized influence by these countries on oil prices just vanished. The die was cast. For long term economic stability, oil producing nations like Saudi Arabia needs to create new pillars of growth. Vision 2030, Saudi Arabia ambitious economic restructuring plan, is a bold decision, in the right path. The plan is to wean themselves from oil boon/burst, which has often left them to shocks and prone to crisis. The plan, in essence, is a lot more than fundamental economic reforms. For example, Saudi- Aramco would be floated (approximately 5%) via an Initial Public Offer (IPO) in order to raise funds. The proceeds from the IPO will be invested in a wide range of productive assets around the world.
Everything in existence is in dynamic motion. Either move with it or rise above it (Isha Foundation). Leaders around the world, who have grown more complacent, are finding it difficult to maintain their competitive edge. India, under the leadership of Mr Narendra Modi, is propelling the country into an oasis of economic dynamism chartered to tap investment. In the domestic front, India is responding well to external vulnerabilities by trying to create a domestic platform of macroeconomic strength in order to build growth. Inflation which was a major show stopper in previous years has been brought within the target range. Non- Performing Loans (NPL’s) of banks are also being tackled and it is expected that by 2017 these measures will bear fruits. On the international front, India has just brought some clarity in the way foreign investors pay tax. In essence, the tax agreement between India and Mauritius has been overhauled. Though there was some blow back from Mauritius, at the end of the day, it is the bigger picture that counts. Whether this deal is a win-win for both countries is yet to be determined.
‘Insects living in ripe mango will never lack of juice but it will never know any other taste’. Change is almost a given today. The economy is unpredictable. Leaders are warned. Snap out the complacency syndrome.