The Power & Potential of the Global South

[music] Good afternoon. Um, good evening everyone. Thank you for staying and for joining us on this panel on the power and potential of the global south. I don't want to do a a long introduction um because we have excellent speakers and we want to listen to them. But I'll just give two statistics illustrating the power and the potential of the global south.

For the power, in the year 2000, the global south accounted about 20% of the global economy. Advanced economies accounted for the remaining 80%. Fast forward a quarter of the century and in 2025 the share of the global south in the global economy has doubled to 40% from 20% 25 years earlier. And it's not unthinkable if you start extrapolating that ratio that by 2050 it could be the case that the global south would account for the largest share uh in the global economy maybe about 60% by 2050 compared to 40% for advanced economies. There is there is a lot of power there is a lot of potential.

We have excellent panelists to discuss the power of potential of the global south with us today in the next 20 minutes or so. Let me start with Zoe. Zoe, I think if you were doing this panel I don't know 10 years ago, we would have been talking about the power and potential of emerging markets rather than the global south. The fact that the term has changed from emerging markets to the global south is that just is global south merely emerging markets plus a bit of geopolitics. Has the rise of geopolitics change that term?

What is the global south relative to emerging markets? Is there more politics in that component now?

Um first of all thank you very much for having me here. It's um as I was telling Shipa earlier every time I come to Abu Dhabi a lot of things are changing. So thank you for for having me here. Now short answer to your question is that yes uh global sales or for that matter uh emerging market has evolved from not just a uh economic or investment thesis as represented by blocks such as bricks um but has evolved into a very important geopolitical power. And now what we are seeing is not a uniolar world but really a multi-olar world.

And what has changed I say perhaps in recent years one single geopolitical event has transformed the importance of a global south as a power block. And that one single particular event would be the war in Ukraine. as a as as the result of um of of this geopolitical surprise, you ended up having Russia as a very important energy power. It used to be the case that one barrel out of oil out of 10 one out of 10 barrel of oil in global market was from Russia. And now things has changed.

And then also as a as a reaction of Russia's war against Ukraine, you ended up having the west collective sanctions uh especially financial sanctions and that has fundamentally transformed how countries and companies and financial institutions view the role of currency. And just just to follow up on this, um, a big part of the rise of the global south has been China and the rise of China and the growth of China. A big part of the increase in the share of the global south in the global economy and the doubling of that share over the last 25 years has been China. China was growing at 10% at the beginning of the century. Now is growing at half of that rate on a good day.

So two questions here. First, where do you see Chinese growth going forward? You've done a lot of work on this. And the second question is, can the global south reach its potential and maintain its power when China's growth is so much slower? Um as we are uh sitting uh in the room today the news headline um statistically talking about the Chinese economy is that the Chinese economy purely in terms of goods export as of November this year uh surpassed $1 trillion for the very first time.

And this is also in the context of the global backlash against or outcry against China's over capacity challenges as well as uh you America President Trump's tariff war against China. So I put that out there why this matters for China's long-term trajectory. The the the long view is my long view is that the Chinese economy has experienced worse times. So from that perspective going forward the biggest challenge to the Chinese economy does not necessarily come from outside but really comes from how the Chinese policy makers manage systematic domestic challenges and there are four of those. One is debt, the second is demographics, the third is demand and the last one would be decoupling or drisking.

So overall I'd say how the Chinese economy perform going forward is going to matter more in terms of how the domestic uh policy uh changes uh manifests themselves.

Nice four factors all of them start with a D.

Yes, four D.

Easy to remember. Thank you Henrik. Let me just turn to you. We've heard from Zoe that basically global south is emerging markets but plus a bit of politics. You've been in the industry for you don't look it but you've been for so long nearly four decades

very long.

Um what is your long-term perspective? Is geopolitics playing a bigger part of your investment process? Are you taking geopolitical events into account when making investment decisions? And if yes, how are you doing this?

Well, I thank you very much. I I come from the global south and I'm not sure it's the accurate term when you talk about an ancient power that's in the north and you call it global south but that's that's what they call it now. Um my sense is that politics has always been a cause for whether it's geopolitics or local politics for domestic volatility and it's something you have to look at. But if you follow the political cycle as an investor, you'll invariably be wrong because the headlines always tell you about what's going to happen somewhere down the line or has already happened. So just look at this.

Anyone in the room who is positive about UK politics, can they please stand up? I don't think anybody will stand up. The UK has been the top performing equity market in the world in the last year by the way.

So whether it's developed or developing uh the political cycle affects businesses. We invest in companies with excellent management teams that navigate those cycles at local level far better than what we can do as investment managers which means we spend some time on the macros i.e. Where's inflation? Where are the what for example what's happening in the US does fixate us.

Now if you're going to move from an independent central bank to a central bank that is essentially taking political instructions the price of your capital will be different and that'll impact businesses. But in the end, we let the management of those businesses navigate those and we back them and we back businesses which have fundamentals where we can look through cycles and and and and bet on the business story at a reasonable entry price. Investment is all about the price at which you enter, not the industry which you enter. and uh therefore politics and geopolitics will always be relevant but in our case we are not a macrodriven organ or organization we actually focus very much on the bottom up.

That's very interesting and reassuring for people who have expertise on economic fundamentals, market fundamentals rather than geopolitical trends. You mentioned an interesting point which is basically the definition of the global south and what is it to begin with just to push on that point. Can we actually treat whatever we call the global south as one entity? Let me give you one example and it's economic. In 2013 when there was the famous taper tantrum when the US central bank said I'm going to taper my purchases of assets there was an earthquake in the global south and emerging markets but some of the biggest victims were the biggest emerging markets Brazil Indonesia India and others in 2022 you fast forward to 2022 the US central bank the Fed did something even more drastic than the tapered tantrum it started Ed raising interest rates quite rapidly, the fastest pace for 40 years.

And yet you look at the big emerging markets, Brazil, Mexico, India, they completely shut that off. The places that suffered were the small emerging markets. Egypt, Pakistan, um Ghana, Sri Lanka. So do you view the global south as one entity? Should we view it as one entity?

Should we split the global south into multiple units? How do you think about that?

So let me start z what is really important to understand is investment markets are interconnected. Whether the world is uniolar or multipolar money flows money finds opportunity and looks at relative pricing. If there is a disruptive activity or disruption in the major economy in the world for that matter any of the major economies it will reverberate but in particular if it's the United States because it is also you know essentially has the global means of payment under its control and so what happened in 2022 to you as an economist may have sounded less dramatic in the in the large emerging markets than in the small ones, but actually the capital flows got largely shut off. And in our business, which we run approximately $200 billion for institutional investors globally, of which 60% of the mandates uh relate to deployment in emerging markets. We had a demand standstill which has only adjusted in the last year when actually the world started seeking diversification.

So I think for many years to come but less and less and less so the dominant economy will drive the price of capital. I think we've reached a point which is really interesting and it was it was this year where the search for diversification is started and the search for new opportunity is starting to outweigh what happens in the center you know or outweigh the demand for uh uh US assets at all costs but we will have vulnerable countries as we are vulnerable developed or developing so I don't take make a difference between developed and developing in this in this sense when Greece was in crisis they struggled as much and that's in you know OECD country a European country and what emerging markets have done and I still use the term is they really looked after their the large ones after their ex x ex x ex x ex x ex x ex x ex x ex x ex x ex x ex maybe turkey looked after their fundamentals they were very conservative had conservative fiscal and monetary policies and that allowed them to withstand and 22. But the other side and I should stop talking because I'm talking too much as I get excited about the topic is regions like the Middle East and particularly the United Arab Emirates have shown what wise policy can do and that is making investors rethink and say well there are opportunities that aren't fully discounted. I'm going to find them and back them both at corporate level and at national level.

Interesting. Let me turn to you. In the past, for a developing country, a country in the global south to climb through the income ladder, the easiest way to do this was to export more. That's what the Asian targets did. That's what China did.

That's what Japan did. That's what Korea did. We live in a different world today. A world where we have more trade wars, higher tariffs, more barriers to trade. Well, there's an alternative industry, the tourism industry, of course.

And congratulations. You've been elected as secretary general of view on tourism. So, my question is this.

I think we should give a hand.

A job that you starting actually in January. So, the question is this. Can economies develop and climb the income ladder generating income, generating employment, generating foreign exchange through the tourism sector? Are there positive examples there? What do you see on that?

First of all, I just wanted to um thank you. It's a pleasure sharing the panel with Henrik and Zoe. Welcome again to Abu Dhabi. And I would like to welcome the audience that are visiting from abroad to Abu Dhabi. And I hope they enjoy their time here.

I would also like to thank the organizers from Abu Dhabi Finance Week for um creating amazing and remarkable and exceptional events every year for Abu Dhabi. Um thank you for your question Zad. I think uh let me just give you a bit of a brief of the UN tourism and what we do. UN tourism is uh one of the specialized UN agencies um and it's particularly focused on tourism. So we overlook um so we help u governments u and different destinations and we have 160 member states from five different regions.

Africa, Latin America, both from the global south, Middle East, Asia and uh Middle East Asia and Latin America. So what we help them with is we want to create the right policies, advocate as an enabler and help them make their destinations more appealing. So going back to your question Zad, it's very important that we create the right synergies and partnerships between the part the private sector and the public sector. Public sector is a network that we have access to. But what will make the global south and the developing destinations more appealing not only to the visitor but to the investor is we need to help them create right policies that will encourage the investor to come and invest but not only to invest but to stay and continue investing.

So whether creating uh um policies that will allow a grace period for investors to come in and invest be you know grace period in terms of paying back taxes paying paying back uh um uh fees to the government. This can be only collected after they start making uh generating revenues and income for themselves. And I think Hendrick can agree with me. I think South Africa has done a great job with that. They have created the right landscape to make it more appealing not only for visitors but also for um for investors.

Rwanda is another great example of what they have done. They have created the right policies. They made it uh more appealing and safe for visitors to come to Rwanda, enjoy their experiences and speak about it. So tourism is is a powerful source of um and it contributes to to the economy. So you have to use it right as a government and as destinations.

It's very important that you use this tool as a tool that will you know uh create peace that will build cultural bridges that will build the right um perception about different destinations and different regions. So I think there's a lot that can be done when the public and private sector sit together and uh listen. You need to actively listen. What I did uh Zad for example is since the beginning of my campaign, so I started the campaign 10 months ago, I had more than 100 meetings with ministers whether in person or uh uh virtually with ministers from five different regions. Every region has its own need.

Every region has its own requirements. Let's speak about Latin America for example. Latin America is beautiful. It has very welcoming people, uh, very friendly. It has amazing energy.

But what lacks in Latin America and in Africa, and I think Hendrik would agree with me here, is connectivity.

Yeah.

For every country that I had to go to, whether in Africa or Latin America, I had to come back to Dubai or Abu Dhabi and go back to the other country. So I visited Zambia, I visited uh Angola, I visited Congo, I visited NelsRoot. But I wasn't able to go from one country to another from there. I had to come back to Dubai and take a flight. So this will be resolved with constant listening.

It will be resolved with um you know clear h goals, clear strategies between private and public sectors.

And just a question looking ahead for the not just the year ahead but new job ahead where do you see the biggest risk to this vision uh that you had and where you also see the biggest opportunity for example in the next few years? Look, I believe I those destinations or in travel and travel has to remain exciting. It has to remain exciting. It has to remain authentic and every country has its own unique identity. It has its own unique culture.

It has its own unique experience. And this is what destinations should capitalize and leverage on.

Interesting. Z, I would just like to add one thing. I think that regional connectivity is a major growth scene. Yeah.

And the formation in a world where the developed countries are putting tariffs on a world of free trade blocks. And I think the UAE is really led and and the region in creating transport hubs that are closer, not yet close enough, but help people to connect. But in that whole reconnection of the world is an enormous investment opportunity that that will play out over the next decade or three.

Interesting. So

but one more thing actually for that that is interesting to know about the travel and tourism industry is that it has contributed around 11.7 trillion dollars to the world economy. It created 357 million jobs and we have a way to go when it comes to you know making sure that we bridge or we take the right best practices from countries that we have access to and share the best know best practices knowledge that where countries have adopted and have seen positive results and share that knowledge with countries that are developing and countries that have the right potential to grow in that sector.

Makes sense. Two minutes, but I want to ask a quick question. So, I want a quick answer. It's a an important topic, but I want a quick um answer. So, one of the things that connect the world, Hendrik, one of the things that connect the world is not just Emirates and but also the US dollar.

Um it makes it so much easier to transact and save and spend in different countries. Do you see a world, a plausible world in which the role of the dollar diminishes in the next decade or two?

There's a a very good paper on the dollar cycle on our website which I can't repeat now. If you go to the 91 website, you'll see it, but the dollar cycles are roughly, you know, 10 to 15 years. We've been at the end of one. It doesn't mean we're dd dollararizing in any way, but we're probably in a cycle where the the dollar's dominance is is not going to be challenged, but it's going to be questioned and there will be diversification in the long run. Uh I think your current your currency system will evolve but I don't see ddollarization anywhere near but I see financial highways built between regional economic blocks which may or may not bypass the dollar which will have implications for investors.

Perfect answer. And Zoe you've quoted a book actually on that subject. Can you give us a one minute summary answer to that to that question whether the world will move away from the dollar? Um, long story short, I'd say uh the trend of dilization does not necessarily uh end with the US dollar being dethroned. But what might changed is that the international currency system is going to continue evolving and the dominance of the US dollar is going to be diluted not just because of the use or the overuse of financial sanctions by the US government but also because there are economic reasons to reduce transaction risk to reduce currency or exchange risk so that countries can have options.

It's like having an alternative currency system uh either uh digital or or or non-dollar-based currency system. It's not really about dethroning the US dollar. It's like a buying insurance. You buy insurance hoping that you won't necessarily use it.

Finish right on time. Thank you so much, ladies and gentlemen. Thank you. Please join me in thanking our great panelists for their insights and their thoughts. Um, and thank you very much Sheh Henrik and Zoe for your insights.

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