The world is tiring of trade wars and right-wing, anti-immigrant governments, and will emerge more integrated and stronger than before

Rising nationalism gave the world Trump and Brexit and seated several right-wing anti-immigrant governments. A threat to global trade in the form of a trade war between China and the US is increasingly morphing into a conflict between the US and the rest of the world. Global economic sentiment is falling. But the former president of a global accounting body believes it’s a passing phase.

“I have no doubt about it,” says Brian McEnery, a council member at ACCA Global, a UK-based accounting body with 200,000 members and 486,000 students worldwide including Sri Lanka. He was President of ACCA Global for 2017.

“I believe the world will come out of this anti-globalisation, nationalistic phase and emerge even more integrated and stronger than before,” McEnery said, and he has reasons to believe that this is the case.

Excerpts of the interview are as follows:

How does ACCA Global see global economic sentiment shaping up?
McEnery: Global economic sentiment is still positive, but it’s significantly lower than what it was in the first quarter of 2018. There are a few reasons for this downturn in sentiment; for instance, the global economic recovery we witnessed in 2016 has slowed down. However, the main reason for falling positive sentiment is the rising tide of nationalism worldwide.

First, there is the trade war between China and the US; not that it’s a full-blown trade war. It’s increasingly looking like the US against the rest of the world. For instance, we heard Trump talking about Europe being a fool, and this really is unwelcome language. To have one of the major world leaders talking about trade wars is undesirable. Quite frankly, while the US may be concerned about its trade deficit with the rest of the world, it has a massive surplus in terms of export of services which is not captured in the trade data or the debate around tariff measures.

“Despite the growing trend towards nationalism, the world is connected more than ever before and this connectivity is what continues to feed global economic growth”

The UK is almost paralysed by Brexit. The UK’s economy is at a lower point than any European country has been in recent years. From being one of the fast-growing economies in Europe to becoming the slowest with a GDP growth rate of 0.2% in the first quarter of 2018 is very disappointing. The instability in the UK is spreading to the rest of the world. Now you have instability in Italy and that’s bad for business. We’re seeing nationalism on a global scale threatening to reverse those conditions which lifted millions out of poverty and led to the growth of the middle class around the world.

Is there anything that’s contributing to improve positive sentiment?
McEnery: Of course! There are many but let me just tell you about one. Despite the growing trend towards nationalism, the world is connected more than ever before and this connectivity is what continues to feed global economic growth. This is a huge encouraging factor that’s driving countries towards each other. Just look at Sri Lanka; it has several free trade agreements in the pipeline, there’s also at a grander scale ASEAN looking to expand trade beyond the region, and then there’s the Trans-Pacific Partnership and also China’s Belt and Road Initiative.

I believe the world will come out of this anti-globalisation, nationalistic phase, emerging even more integrated
and stronger.

You think the sentiments that gave the world Trump, Brexit and nationalist governments everywhere is just a passing phase?
McEnery: I have no doubt about it. There’s a reason behind the uprising against globalization. Some people feel they have not been treated fairly, so this is why it’s important to address those concerns without undoing the greater good a more connected world has achieved. There’s plenty of hard evidence to prove the case for free trade.

Take a look at Brexit. People who voted for the UK to leave the European Union are now desperate to secure a free trade deal with the union. The UK is saying they want the capital and trade without the movement of people, and that is a worrying trend. The UK is becoming a less popular destination for talent and this will impact decisions to invest there. The anti-immigrant sentiment is creating other real problems for the UK economy. There is a shortage of nurses because no one wants to migrate to the UK from Europe. So now we see people starting to have second thoughts about Brexit. Let me give you another perspective. The UK exports more to Ireland than it does to China; the prospect of losing that trade with Brexit is beginning to sink in and people are probably realizing they shouldn’t have voted ‘leave.’

Take China’s example; its middle class grew because of the outward-looking trade policies. Look at the US; although it claims to be worried about a trade deficit in manufacturing goods, its services exports reach all parts of world in the form of banks, consultancies, tech companies and many others. The US has a huge services export surplus that no one is talking about. So clearly, freer trade has, and continues to have, far more benefits than disadvantages.

How does Sri Lanka fit into this global picture?
McEnery: It’s so refreshing to see Sri Lanka’s outward-looking trade policy. Sri Lanka’s new FTA with Singapore is a sensible agreement to have. It’s now up to Sri Lanka to exploit the agreement and attract capital investments from Singapore into the country.

Sri Lanka also has two giants at its doorstep – China and India – and it has benign relations with both countries which have investments here. India could one day overtake China’s economy with standards of living and GDP growth improving in the subcontinent. There are enormous opportunities for Sri Lanka but what is needed is focused policy and planning to make sustainable gains from trade and FDI inflows with China and India.

Sri Lanka should also focus on developing growth sectors of the economy. For instance, if tech is an industry you’ve identified as a growth sector, then have a clear actionable policy, develop infrastructure and the talent pool. Children should be exposed to the world of coding at primary level and not at secondary school. This will ensure Sri Lanka has a talent pool to help local tech companies to scale and expand, and also attract foreign firms searching for the best talent.

Sri Lanka needs to have a strategic plan to deal with some of the fallout from being more open. Let me give you an example from my home country, Ireland. We used to produce sugar for export from the sugar beet, but yields were lower compared to sugarcane. The government was subsidizing three sugar mills so that our exports remained competitive. After a while, the government took a bold decision to shutter the three mills. This angered a lot of people, but they were clearly unsustainable having to be supported by bailout from public money.

“Free trade agreements can be beneficial because it forces countries to take a long hard look at where its strengths lie so that it can create real value as against spending public money to keep certain enterprises afloat”

The government cleared the land for use in an area we were more competitive in – the dairy industry. Earlier, by subsidizing the sugar industry we were artificially creating a market that really wasn’t there, but by identifying and playing to our strengths in the dairy industry, Ireland is better off now. Free trade agreements can be beneficial because it forces countries to take a long hard look at where its strengths lie so that it can create real value as against spending public money to keep certain enterprises afloat.

Given the position the accounting profession sits in the world of business, I believe accounting professionals are best placed to lobby government and publicly defend free trade. I was encouraged to see Sri Lanka’s three accounting bodies (Chartered Institute of Accountants, Institute of Certified Management Accountants, and Association of Accounting Technicians) forming an alliance to work towards common goals. I believe raising awareness about and defending free trade agreements should be on the agenda.

People use baseless arguments to talk against free trade agreements whether in the US, UK or here in Sri Lanka. This is a challenge for political leaders, businesses and professionals such as accountants who have to stand up against criticism of free trade.

We need to make a stand for free trade. At ACCA, we stand for free movement of capital and people across borders, and I believe it’s the duty of professionals here to do the same.

Tagged as: