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The Italian Strategic Fund -CDP Equity: Structure and Future

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The “Italian Strategic Fund” (FSI) was established on July 28, 2011, with the then Economy Minister, Giulio Tremonti, and with the collaboration of the Treasury Director General, Vittorio Grilli, under the chairmanship of Cassa Depositi e Prestiti (CDP), led at the time by Franco Bassanini, as well as with the support of CDP’s CEO, Giovanni GornoTempini.

 From the outset, like many but not all the several Strategic Funds existing in the world, the FSI has been a holding company with the primary aim of supporting strategic Italian companies.

 Strategic companies in terms of products, important for processes, decisive for technologies, essential for Italy’s cutting-edge technologies, like the Defence companies.

In this case, what does it really mean to be a “strategic company”?

The various schools of thought diverge on this point, but we could find a good definition by recalling that strategic companies are those essential for the medium-long term planning of the major and most promising sector of Italy’s industrial system.

 The idea of the FSI was also to favour the maximum efficiency of some companies and, in particular, to stimulate the enhancement  of their ability to “compete” at international level.

Initially, the FSI share capital was ridiculously low, i.e. one billion Euros, which rose almost immediately to 4 billion Euros.

However, in the initial projects and still today, the company’s endowment could have reached 7 billion Euros. Probably still too little.

Like all the similar funds currently operating in the world today, the Italian Strategic Fund is targeted to sound companies which, however, need a new capital injection.

Certainly, unlike before the great technological revolution of the Web and of logistic telecommunications, it is currently hard to speak about “national champions” as we had at the time of Renault or Fiat or, possibly, Autostrade.

Nowadays, with the Global Value Chains (GVCs), it is even hard to identify the direct nationality of products that we all consider characteristic and typical of a given nation.

With a view to understanding GVCs, we need to think above all about the geographical distribution of companies. All small and medium-sized enterprises. The other less known side of Schumacher’s “small is beautiful”.

 In the classic model of “delayed development”, which was generally accepted until the 1970s, the shift of the global production centre from the EU and the USA to Asia was interpreted only as the creation of a structural dependence of the non-Western peripheries on the Eurasian production centre.

The Marxist derivation of this model was Arghiri Emmanuel’s brilliant theory of unequal exchange, also developed in the early 1960s.

That was the origin of the theory of the world division between “rich” and “poor” countries. Currently, however, with the evident presence of world overproduction (and of financial securities to cover it) at the origin of the present economic crisis, since 2016there has been a tendency to think, instead, that there is an even more heuristic model, called “compressed development”.

Compressed development would be a criterion that puts at the centre of its interest the heterogeneity of the individual countries participating in the Global Value Chains, thus also taking into account the extraordinary difference in power of the large multinational companies compared to the infinite “peripheral” and often non-Western SMEs.

Hence the SMEs as essential factors of the new international division of labour, but depending on a higher system of GVC managers that is a cartel in individual sectors and a political and industrial agreement between different sectors.

Hence, while it is true that the highest value-added segments tend to still remain in the old Euro-American centre – although China is currently showing us a different strategy – it is equally true that a model explaining Global Value Chains with the old criterion of “comparative advantages” and asymmetry between centre and periphery no longer stands the test of time.

Hence what is the national economic interest? It is currently hard to answer this question.

 We are partially helped by Hecksler-Ohlin’s theory stating that a “nation mainly exports goods requiring factors of production it has in abundance (labour, specialized technology, capital) and that it can most efficiently and plentifully produce”.

Therefore, the share of comparative advantages stems from the composition of its primary production formula, which is selected by the global competition of SMEs compared to those who monopolistically control global chains. It also stems from the  national governments’ ability to create temporary advantages in GVCs, resulting from the definition of specific strategies and the “joint” approach of private companies.

This is currently Italy’s productive point.

 To bring some of Italy’s big national champions into the  geopolitical rather than economic oligopoly of the global companies leading the main Global Value Chains, so as to later organize the “voluntary” mechanisms that permit the hegemony of Italian SMEs in the various sectoral markets.

Recently my friend Paolo Savona has spoken about the “return of the  State as master”, but the future will enable us to have only two real forms of control of global value chains: either with a top-down approach, by producing universal enterprises that lead the chains, or with a bottom-up approach, by organizing the groups of SMEs that prevail – with public and private support – over their competitors in the division created by GVCs.

 However, all the latest statistical analyses show us that in the Euro area countries there have been massive and now excessive share transfers of State entities, as well as liberalisations, often of goods and services which are – even in the free-trade and liberal economic tradition – “natural monopolies”, but with a significant slowdown in share transfers and divestments, which in Italy, France and Germany started as early as the early 2000s.

Furthermore, Ronald Reagan – the politician epitomizing the free-trade and liberal revival – had not at all cut public spending in general, but had cut the traditional spending for civilian Welfare, with a view to favouring his specific military Welfare.

  A deficit military spending, which had no immediate inflationary repercussions, but rather acted as a technological stimulus for innovation, also in civilian enterprises.

Without “inclusive institutions”, however, i.e. without stable public organizations enabling sufficient segments of the population to have access to some wealth, all modern States tend to be relegated to be failed States, thus becoming easy prey for their structural and global geoeconomic opponents – and even at the lowest possible cost.

 This is what – inter alia – Sovereign Funds are for.

 In fact, they ensure the public or semi-public ownership of the enterprises that a State and a society choose – moment by moment – to guide their economic and social future in the medium-long term.

Hence the Sovereign Funds must be protected from the raids of possible and real competitors. Raids are continuous, while growth projects are temporary.

It should be recalled that in Gilpin’s opinion, the “aim of economic activities is to provide benefits to consumers, not to strengthen the State security”.

 But the State security is also a primary asset, which allows to quickly eliminate adverse geoeconomic actions and hence avoid  the immediate colonization of the development potential of a State and of a society.

Edward Luttwakhas also rigthly said that any economic globalization is always strategically dangerous, since it inevitably leads to what he calls “paroxysmal competition”, which is an inevitable feature of turbo-capitalism: a very rapid increase in the size and speed of trade, always combined with post-Cold War globalization, which does not accept any geographical limit to its expansion.

 If turbo-capitalism stops, it immediately melts away under the sun of value realization.

The excessive trade speed mimics its actual productivity and the size of trade sometimes masks its very low value which, however, is maintained thanks to excessive speed, which does not allow the rational and technical assessment of risks.

Hence, against the Hobbesian state of bellum omnium contra omnes typical of turbo-capitalism, which usually does not sufficiently invest in product or process innovation, we need to  think of two solutions, called the State of Economic Intelligence or the Geoeconomic State.

 Paolo Savona and Carlo Jean have spoken of the ever-increasing role of economic intelligence, which should become the axis of every modern State’s economic, financial and productive choices.

 Without Sovereign Funds, however, there is no economic intelligence.

Hence we need to firmly keep a sector, at least one, which is comparatively very advanced,  but above all export-led, and which is also protected with all the non-tariff mechanisms that are now commonly used in everyday economic warfare.

This is the reason why, for at least five years all the major Western countries have been rethinking their old deindustrialization and delocalization policies, which often deprive societies and States of the necessary systems for controlling global, financial and productive flows. Not to mention the fiscal deprivation and over-costs for maintaining structural unemployment.

In the evolution of the most recent international trade theory, we have even gone so far as to develop a Strategic Trade Theory, a model underlining the companies’ and State’s ability to improve the trade balance by working strategically -i.e. in the medium-long term – in imperfect global markets.

The oligopolistic markets are always those where leading products or services are developed, usually with public investment in Research and Development.

 This is the true nature of the Keynesian model: the State funds  what is not yet profitable, but the private sector deals mainly with “mature” or growing companies, which have already found their market.

 Hence we also need the theory of the Innovating State, i.e. the Entrepreneurial State, recently developed by Mariana Mazzuccato.

 The State imagined by Mazzuccato explores the whole scenario of business risk, thus creating above all new markets. In particular, the State creates the markets in which we need to have strong investment in situations of maximum uncertainty, thus acting as a risk taker and hence later as a market shaper.

 The “Administrative State” is a public administration “serving” private individuals, but the Entrepreneurial-Innovating State is the one that does not make the unemployed people dig the classic Keynesian holes, in the inevitable periods of production contraction, which is above all – Marxistically – tendential over-production.

 But, if anything, the Entrepreneurial-Innovating State invests in new high-quality technologies, which create original markets where, in fact, the Entrepreneurial State controls the future oligopoly. Another role of Sovereign Funds.

Technically, however, the Funds are investment funds which manage financial asset portfolios denominated in foreign currencies, according to the global rules of what we currently call the grey economy.

In theory, the Funds are divided between those which invest resources coming from raw materials or oil and gas (SWF Commodity) and all the others which, instead, invest surpluses coming from the currency surpluses of the trade balances.

 This is clearly our case.

 According to the “Santiago Principles”, a code for Sovereign Funds developed based on the International Monetary Fund’s indications, the Sovereign Wealth Funds (SWFs) are “special purpose” investment funds owned by national governments.

 Therefore, SWFs have five primary characteristics: a) they are always held by a Sovereign State; b) they make investment in foreign currency; c) they carry out their activities over a long term, with low indebtedness and without withdrawals or distribution of profit to participants; d) their accounting is strictly separate from that of Central Banks and Finance Ministries; e) they carry out research for investment with returns above the risk-free rate.

 The first real Sovereign Funds were the Kuwait Investment Authority, created in 1953, to obviously invest the capital originating from the extraction and sale of local oil, as well as the old Revenue Equalization Reverse Fund, set up by the British administration of the then colony of the Gilbert Islands, the current Republic of Kiribati, to invest the surplus from the sale of phosphates.

 The secret agreement between Kissinger and King Fahd of Saudi Arabia, after the Yom Kippur war, later channelled the extraordinary surpluses stemming from the very significant increase in the OPEC oil barrel price into US government bonds. Hence petrodollars were created.

 In the phase following the booming prices of some fundamental raw materials when, in fact, oil prices plunged, namely in the 1980s, the Sovereign Funds became the primary instrument for diversifying investment and hence for the financial stability of the countries producing raw materials (or commercial surpluses) which had already adopted them.

From then until 2005, the Sovereign Funds became the main instrument, for Asian countries in particular, to accumulate and use the foreign currency reserves arriving in the Asian countries which were more export-led and more linked to the US dollar cycle.

 To avoid having to resort to the often dangerous therapies of the International Monetary Fund, especially when the global reference currency fell, the top Asian export-led countries combined their industrial expansion policies with specific exchange rate policies, which tended to accumulate very large foreign currency funds.

 Obviously that happened only to avoid the manipulation of  currency markets in a condition of objective weakness created by an exclusively export-oriented economy – with exports to countries having a very strong currency.

In 1978 the SWF Temasek, the “historic” Singapore investment fund, came up with the idea of using Sovereign Funds for that purpose.

Temasek invested its considerable surpluses in the acquisition of companies and financial holdings in the Asian area directly bordering on Singapore, thus making the city-State – which was also the first model for Deng Xiaping’s Four Modernizations –  overcome its structural limits, thus protecting it from enemy and adverse operations on its exchange rates and on its productive system.

 Finally, from the beginning of the great subprime crisis, the Funds have spread mainly in the so-called BRICs (Brazil, Russia, India, China and South Africa) and also in some “First World” countries, especially to acquire minority shareholdings or to carry out hostile takeover operations towards competitors or potential penetrators of their national markets, possibly even with dumping actions –  and it would not be the first time.

 In 2020 SWFs are supposed to reach, worldwide, an amount of managed assets of approximately 15 trillion US dollars.

 75% of the capital managed by the Funds is currently concentrated on the top 10 operators. Obviously the SWF market is highly oligopolistic and the top 10 operators are now all Middle East or Asian entities.

The history of modern European Sovereign Funds began with  Sarkozy’s Presidency in France.

As early as 2008, the French centre-right leader set up the Fond Strategiqued’ Investissement (Strategic Investment Fund), based on two already existing financial structures, namely the Caisse des Dépôts et Consignations(the State Bank handling official deposits, which is the equivalent of the prominent Italian investment bank known as Cassa Depositi e Prestiti) and the Fond de Réserve pour les Retraites(Pension Reserve Fund), with capitalisations – at the time – of 80 and 33.8 billion Euros respectively.

However, 51% of the new French Sovereign Fund was owned by the Caisse des Dépôts and the remaining 49% by the Agence des Participations d’État (Government Shareholding Agency).

 The aim of the Fund created by Sarkozy was to invest mainly in French and foreign small and medium-sized enterprises, characterized by strong growth but having no longer access to standard market financing (although we do not know why).

The French Fund also set in when the company was overtly  threatened by a hostile takeover, or any acquisition, by foreign companies.

 The French Fund could also intervene directly in the capital of innovative industries.

 As early as 2008, however, the Italian intelligence Services have focused on the very strong need to protect the national know-how, considering that the operational plans of other Sovereign Funds interested in Italy could be useful for acquiring specific technologies.

 It has already happened: in the machine tools, agri-food,  specialized pharmaceutics and fine mechanics sectors, Italy’s top large SMEs have already been acquired by French, German and Chinese companies.

In their report to Parliament in 2010, the Italian intelligence Services already spoke of a “liquidity threat” to Italy’s companies.

The foreign private equity funds, in fact, are mainly targeted to banking, biotechnology, energy, entertainment and even online gaming companies.

Currently, however, the Cassa Depositi e Prestiti has two instruments to support companies, especially the technologically advanced ones: the Italian Strategic Fund – now CDP Private Equity – and the Italian Investment Fund.

The latter was launched in 2010, with the collaboration of some private banks, and – as usual – it is targeted primarily to small and medium-sized enterprises.

It has two operating structures: the Venture Capital Fund for innovative start-ups and the Minibond Fund, which supports the bond issues of small and medium-sized enterprises.

 The Italian Strategic Fund – 90% of which is held by Cassa Depositi e Prestiti(CDP) and the remaining 10% by FINTECNA, which is in any case fully owned by CDP – was launched in 2011 with a capital of 4.4 billion Euros and, as already mentioned, rose to 7 billion Euros.

However, why setting limits?

The Italian Strategic Fund was born with a negative experience to be made good, considering that those were the years of the takeovers for Parmalat, which had just been redressed financially, and for Bulgari, not to mention the future and possible “friendly” sales – well hyped by the Italian media- of Alitalia and Edison.

 The Italian Strategic Fund dealt mainly with medium-large companies having “significant national interest”, while, from the beginning, it created strong ties with Qatar Holding, the Russian Direct Investment Fund, the Kuwait Investment Authority and the Korea Investment Corporation.

 Moreover, in 2012 the Italian Strategic Fund signed an agreement with Qatar Holding LLC for the creation of a joint venture, called IQ Made in Italy Venture, to invest in the typical Made in Italy companies.

 The idea, which has not yet fully materialized, was to create a “luxury district”.

 The Maastricht restrictions on the so-called “State aid” always make it difficult for the Italian Strategic Fund to operate. It would possibly need an arm abroad, capable of operating on our companies without EU constraints. It would also be necessary to deem it legitimate for the Italian Strategic Fund to invest in companies of significant national interest, but regardless of the average return on the capital invested in the medium term.

 Therefore, unlike the old twentieth century economic statism, the Italian Strategic Fund invests in healthy companies and it plays -quietly and without nervousness – the role of minority shareholder. It also follows the private criteria of investment profitability and efficiency and does not follow the natural distortions, often originated by public entities, but also by powerful private entities, to manipulate production formulas and intermediate markets.

 Hence rethinking and expanding the Fund’s operations, or possibly creating specific areas of intervention for the Fund,  would be an excellent evolution of the fundamental policy lines on which the Italian Strategic Fund was conceived.

Advisory Board Co-chair Honoris Causa Professor Giancarlo Elia Valori is an eminent Italian economist and businessman. He holds prestigious academic distinctions and national orders. Mr. Valori has lectured on international affairs and economics at the world’s leading universities such as Peking University, the Hebrew University of Jerusalem and the Yeshiva University in New York. He currently chairs “International World Group”, he is also the honorary president of Huawei Italy, economic adviser to the Chinese giant HNA Group. In 1992 he was appointed Officier de la Légion d’Honneur de la République Francaise, with this motivation: “A man who can see across borders to understand the world” and in 2002 he received the title “Honorable” of the Académie des Sciences de l’Institut de France. “

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Are we going into another economic recession? What history tells us

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An economic recession or depression is a period of economic decline, typically characterized by a decline in the gross domestic product (GDP), high unemployment, a decline in manufacturing and industrial production, a stock market crash, and a decrease in consumer spending.

The Great Depression

The Great Depression was a severe economic downturn that lasted from 1929 to 1939. It was the longest and most severe depression of the 20th century. The Great Depression began in the United States and quickly spread to countries around the world. Many factors contributed to the Great Depression, including economic policies and structural weaknesses in the global economy. During the Great Depression, unemployment rates reached as high as 25% and GDP fell by as much as 30%. Many businesses and banks failed, and people lost their savings and homes. The depression had a profound effect on society, leading to widespread poverty and social unrest. Governments around the world implemented various economic policies in an attempt to combat the depression, including increased government spending, protectionist trade policies, and monetary policies such as the devaluation of currencies. The Great Depression had a lasting impact on the global economy and political landscape, leading to the rise of fascist and communist regimes in some countries and shaping the economic policies of governments for decades to come.

The Suez Crisis of 1956

The Suez Crisis of 1956 was a political and military conflict that arose after the Egyptian government nationalized the Suez Canal, a strategic waterway that connected the Mediterranean Sea to the Red Sea. The nationalization of the Suez Canal led to the withdrawal of foreign investments and a decline in international trade, which hurt the economies of Egypt, France, and the United Kingdom, the three main countries involved in the crisis. The crisis also led to a rise in oil prices, as the closure of the Suez Canal disrupted the flow of oil from the Middle East to Europe. This had an impact on the economies of oil-importing countries and also led to inflation in many developed economies.

The Sue Crisis also led to a decline in stock markets around the world and a fall in the value of the British pound and US dollar, as investors sought safe-haven assets in the wake of the crisis. The Suez Crisis also had a long-term impact on the global economy, as it led to a shift in the balance of power in the Middle East and contributed to a decline in the influence of the Western powers in the region. It also had a lasting impact on international relations, as well as on oil prices and the global economy. The crisis also contributed to the formation of the OPEC and the oil embargo in 1973 which had a significant effect on the world economy.

The International Debt Crisis of 1982

The International Debt Crisis of 1982 was a financial crisis that arose from the inability of several developing countries to repay their debt to international creditors. The crisis began in the early 1980s, when several Latin American countries, as well as some countries in Africa and Asia, found themselves unable to service their debt and were forced to seek assistance from the International Monetary Fund (IMF) and other international organizations. The crisis was caused by several factors, including a rise in interest rates, a fall in commodity prices, and a decline in economic growth in many developing countries. The crisis was also exacerbated by the fact that many developing countries had borrowed heavily in the 1970s, during a period of high commodity prices and strong economic growth, and were now facing a difficult economic environment.

The International Debt Crisis had a significant impact on the global economy. Developing countries affected by the crisis saw a decline in economic growth and an increase in poverty and unemployment. The crisis also led to a decline in foreign investment in many developing countries. The International Monetary Fund (IMF) and the World Bank responded to the crisis by providing financial assistance to affected countries, in exchange for economic reforms such as austerity measures, structural adjustments, and trade liberalization. These measures had a significant social and economic impact on the affected countries and were criticized for their negative effects on the poor and vulnerable populations.

The International Debt Crisis also had an impact on the global financial system, as many banks and other financial institutions that had lent money to developing countries were at risk of default. The crisis led to a decline in the value of the US dollar and a rise in the value of other currencies, as investors sought safe-haven assets in the wake of the crisis. The International Debt Crisis of 1982 was a major event in the history of the global economy, and its effects were felt for many years afterward. It also led to important changes in the way the international financial system operates and the role of the IMF in providing financial assistance to developing countries.

The East Asian Economic Crisis 1997-2001

The East Asian Economic Crisis, also known as the Asian Financial Crisis, was a period of financial and economic turmoil that affected several countries in East Asia, including Thailand, Indonesia, South Korea, and Malaysia, between 1997 and 2001. The crisis was characterized by a sharp devaluation of currencies, a decline in stock markets, and a rise in interest rates, and had a significant impact on the economies and people of the affected countries. The crisis was triggered by several factors, including a rapid increase in debt, a property market bubble, and a lack of transparency in the financial systems of the affected countries. Many of these countries had experienced rapid economic growth in the preceding years and had attracted large amounts of foreign investment, but their economies were not well-equipped to handle the sudden influx of capital.

The crisis led to a sharp devaluation of currencies in the affected countries, which made it difficult for businesses and individuals to repay their debt. This, in turn, led to a wave of bank failures and a decline in economic activity. The crisis also led to a decline in the value of stock markets and a sharp increase in interest rates, making it more difficult for businesses to access credit.

The International Monetary Fund (IMF) intervened to provide financial assistance to the affected countries, in exchange for economic reforms such as austerity measures, structural adjustments, and trade liberalization. These measures had a significant social and economic impact on the affected countries and were criticized for their negative effects on the poor and vulnerable populations. The East Asian Economic Crisis had a significant impact on the global economy, as the crisis led to a decline in economic growth and a fall in stock markets around the world. It also led to a decline in foreign investment in many developing countries, as investors became more cautious about investing in countries facing economic problems.

The East Asian Economic Crisis of 1997-2001 was a major event in the history of the global economy, and its effects were felt for many years afterward. It also led to important changes in the way the international financial system operates and the role of the IMF in providing financial assistance to developing countries.

The Russian Economic Crisis 1992-97

The Russian Economic Crisis of 1992-1997 was a period of economic turmoil and financial instability that affected the Russian Federation following the collapse of the Soviet Union. The crisis was characterized by hyperinflation, a sharp decline in industrial production, and a sharp fall in the value of the Russian ruble.

The crisis was caused by several factors, including the massive structural and political changes that occurred following the collapse of the Soviet Union, the rapid privatization of state-owned enterprises, and the lack of a clear economic plan or strategy. Additionally, the crisis was exacerbated by the failure of the government to implement necessary economic reforms, and the ongoing conflicts in the region. The Russian economic crisis had a significant impact on the lives of the Russian people, as living standards declined sharply and poverty and unemployment increased dramatically. The crisis also led to a decline in foreign investment and a fall in the value of the Russian ruble.

The government responded to the crisis by implementing several economic reforms, such as the introduction of a new currency, the Russian ruble, and the implementation of a tight monetary policy to combat hyperinflation. The government also implemented several structural reforms, including the privatization of state-owned enterprises, the liberalization of prices, and the opening up of the economy to foreign trade and investment. The Russian Economic Crisis of 1992-1997 had a significant impact on the global economy, as the crisis led to a decline in economic growth and a fall in stock markets around the world. The crisis also led to a decline in foreign investment in Russia and other countries of the former Soviet Union, as investors became more cautious about investing in countries facing economic problems.

The Russian Economic Crisis of 1992-1997 was a major event in the history of the Russian economy and had a lasting impact on the country’s economic and political landscape. It also had important lessons for other countries undergoing the transition from a planned to a market economy.

Latin American Debt Crisis in Mexico, Brazil, and Argentina 1994-2002

The Latin American Debt Crisis of 1994-2002 was a period of economic turmoil that affected several countries in Latin America, including Mexico, Brazil, and Argentina. The crisis was characterized by a sharp devaluation of currencies, a decline in economic growth, and a rise in interest rates. The crisis had a significant impact on the economies and people of the affected countries. The crisis was triggered by several factors, including a rapid increase in debt, a lack of transparency in the financial systems of the affected countries, and the failure of governments to implement necessary economic reforms. Many of these countries had experienced rapid economic growth in the preceding years and had attracted large amounts of foreign investment, but their economies were not well-equipped to handle the sudden influx of capital.

The crisis led to a sharp devaluation of currencies in the affected countries, which made it difficult for businesses and individuals to repay their debt. This, in turn, led to a wave of bank failures and a decline in economic activity. The crisis also led to a decline in the value of stock markets and a sharp increase in interest rates, making it more difficult for businesses to access credit. The International Monetary Fund (IMF) intervened to provide financial assistance to the affected countries, in exchange for economic reforms such as austerity measures, structural adjustments, and trade liberalization. These measures had a significant social and economic impact on the affected countries and were criticized for their negative effects on the poor and vulnerable populations.

The Latin American Debt Crisis of 1994-2002 had a significant impact on the global economy, as the crisis led to a decline in economic growth and a fall in stock markets around the world. It also led to a decline in foreign investment in many developing countries, as investors became more cautious about investing in countries facing economic problems. The Latin American Debt Crisis of 1994-2002 was a major event in the history of the global economy and its effects were felt for many years afterward. It also led to important changes in the way the international financial system operates and the role of the IMF in providing financial assistance to developing countries.

The Great Recession

The Great Recession was a period of economic decline that lasted from December 2007 to June 2009. It was considered the most severe recession since the Great Depression of the 1930s. The Great Recession began in the United States and quickly spread to other countries around the world. The primary cause of the Great Recession was the collapse of the housing market in the United States, triggered by the widespread use of risky subprime mortgages and lax lending standards. The housing market crash led to a decline in housing prices and a wave of foreclosures, which in turn led to a decline in consumer spending and a decrease in economic activity.

As the recession deepened, several large financial institutions, such as Lehman Brothers, failed, leading to a financial crisis and a credit crunch. This made it difficult for businesses and consumers to access credit, further exacerbating the economic decline.

Governments around the world implemented various policies to try to combat the recession, including monetary policy measures such as interest rate cuts, fiscal policy measures such as stimulus spending, and bank bailouts. Despite these efforts, the recession caused high levels of unemployment, a decline in GDP, and a fall in stock markets around the world. The Great Recession had a profound impact on the global economy, leading to widespread job losses, a decline in economic activity, and a loss of wealth for many people. It also led to significant changes in economic policy and regulations, particularly in the financial sector, to try to prevent a similar crisis from happening again in the future.

Current Scenario

The current economic crisis is a downturn in the global economy that is caused by the COVID-19 pandemic, the Ukrainian war, devaluing currency, Economic sanctions on Russia and Iran, New Strategic alignment, and US-China competition. It has resulted in widespread economic disruptions around the world, leading to a decline in consumer spending, an increase in unemployment, and a fall in economic activity.

Similarities between the current economic crisis and previous economic recessions include a decline in the gross domestic product (GDP) and an increase in unemployment which stands at 6.4% from 5.4% in 2021. Businesses, particularly small and medium-sized enterprises (SMEs) are facing severe economic challenges, with many closing down or filing for bankruptcy. Consumer spending also took a hit as people become more cautious about spending money and saving for uncertain futures. The current crisis also has some similarities to the 2008 financial crisis, as it has led to a decline in stock markets and a fall in the value of many currencies. The crisis has also led to a decline in foreign investment and a rise in uncertainty in the global economy, populist leadership.

Governments around the world are taking measures to mitigate the economic impact of the crisis, including fiscal policies such as stimulus spending and monetary policies such as interest rate cuts. Central banks are also taking action to provide liquidity to the financial system and to support the economy. The current economic crisis is a reminder of the interconnectedness of the global economy and the importance of swift and coordinated action to mitigate the economic impact of such crises. The crisis has also highlighted the importance of economic diversification, and the need for countries to build resilient economies that can withstand future shocks.

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China and the Middle East: More Than Oil

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Image source: China MFA

Within the next 20 years, the need for oil will account for just 20% of global consumption, but by the year 2040, that percentage will have increased to 75%. More than half of the oil that is necessary for the functioning of the industries and the upkeep of development is imported by China.

Oil is only one of many things that China has an interest in when it comes to the Middle East; their interests go much beyond that. China was responsible for some of the building work in Saudi Arabia and Iran. China has big plans to expand its reach into the Middle East. To demonstrate its presence and proclaim itself a global force within the context of the regional pattern. It is a fact that China’s rapidly expanding economy has a significant need for more oil.

China is likewise seeking an alternate supply, but as time has passed, its reliance on the middle east has grown from 19% in 1990 to 70% in 2020. Nearly twenty percent of China’s oil comes from Saudi Arabia, while ten percent comes from Iran. The fact that China has inked many petroleum agreements with Saudi Arabia and Kuwait demonstrates the country’s interest in the areas that are rich in oil and other commodities.

The oil industry is just one component of China’s interest in the Middle East. This interest provides a hyperlink to China’s growing influence on the world stage. The value of China’s trade with the Middle East surpassed that of the United States to become the region’s most important trading partner, having climbed from 100 to 222 dollars. Middle eastern nations that rely heavily on low-wage workers can afford the low-priced consumer products and commodities of everyday use that China ships there from its factories. In addition to this, China made investments in the transportation sector, technology sector, agricultural sector, real estate sector, and energy sector.

China is also making investments in the process of reconstructing Iran’s infrastructure. Even though China is the biggest exporter of oil from Iran, accounting for fifty percent of total exports, China makes every effort to smooth the road during discussions and diplomatic efforts. China is making significant efforts to protect the access it has to the energy resources that are situated in the nations of the middle east.

China is steadily climbing the ranks of world powers, and its growing influence in the Middle East is a clear indication that it has been successful in consolidating its authority over the nations of that region. Middle Eastern nations want to avoid getting into any kind of dispute with China since China is their most important trading partner; they want to make sure that their commercial operations aren’t interrupted. The United States’ stranglehold on the market is being challenged by China’s rapid expansion there. In 2010, China’s trade volume with middle eastern nations surpassed that of the United States’ trade volume with those countries.

China’s interest in the nations of the Middle East stems from the proposal known as the “New silk route,” in which the countries of the Middle East serve as a connection between the continents of Europe and Africa. These regions provide half of China’s crude oil imports which makes Arabs countries natural partners of the belt and road initiative.

China is participating in commercial operations while maintaining a neutral stance about the disputes that are taking place in the region at the same time. China is playing the role of the middle. Regarding the Iran nuclear agreement, the crisis in Syria, and the conflict between Israel and Palestine, China takes the position that these issues should be addressed diplomatically and politically. China took positive action to improve its position in the eyes of all parties involved in the dispute and to maximize the amount of profit it could make from the situation while minimizing the impact on trade.

Not only is China achieving its goals for its interests, but on the other side, Saudi Arabia is also making progress toward its goals for 2030. The construction of new infrastructure received significant funding in Iran. Oil from Kuwait, the United Arab Emirates, and Saudi Arabia is sold to China, bringing in billions of dollars. On the other hand, China provided advantages to these nations while simultaneously expanding its soft power to advance the “New Silk Route.” This was done for the greater good of the initiative. Chinese studies were first included in the university curricula of Iran, Saudi Arabia, and the United Arab Emirates. Millions of Chinese visitors travel to these nations, and some of them decided to make a permanent move there.

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Economy

The importance of Sisi’s visit to India to build economic blocs for Egypt with the BRICS group

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Egyptian President Abdel Fattah El-Sisi during ceremonial reception at Rashtrapati Bhavan (Pic. Courtesy Twitter/@rashtrapatibhvn)

Asian countries represented successful experiences at the level of economic blocs, hence Cairo’s quest to be part of global blocs of an economic nature, as this represents confidence in the ability of the Egyptian state to advance its economic sector. Recently, the Egyptian desire to be part of  From the BRICS group, which is an economic alliance that includes Brazil, Russia, India and China, and was established in 2006, and South Africa joined it later in 2010.

  The BRICS Forum is an independent international organization that works to encourage trade, political and cultural cooperation among its member countries, taking into account that Brazil, Russia, India, China and South Africa represent nearly a quarter of the global economy, and contributed to more than half of the global growth in the past years.  About 30% of what the world needs in terms of goods and products, while its citizens represent 40% of the world’s population.  The BRICS countries have adopted many initiatives to support cooperation among themselves in various fields, including the establishment of a development bank with a capital of $100 billion to finance development projects in the member states.

   President Abdel Fattah El-Sisi’s visit to India is a national strategic visit in the first place to facilitate Egypt’s entry and accession to the BRICS international economic grouping with the help of China and India. The countries of China and India, and Egypt is trying through these relations to enter the giant BRICS gathering, which contributes to strengthening Egyptian cooperation with the countries of the ASEAN group and its geographical and regional scope, through many axes and ways to develop cooperation with Egypt and those countries in various fields, especially economic, investment and development in light of  The distinguished development experiences of India, China and those countries in achieving comprehensive development, as well as their progress in small, medium and micro industries, in addition to the convergence of all of them compared to the vision of Washington and the West towards a number of issues of common concern, primarily the Middle East issue, the Palestinian issue and efforts to combat terrorism.

 On the occasion of President El-Sisi’s visit to India, this was not his first visit to India, as he had already visited India in 2016 as part of an Asian tour, during which he met his counterpart, Indian President Bernab Mukherjee, Prime Minister Narendra Modi and senior officials in New Delhi.

 We find that President El-Sisi’s current visit to India confirms that President El-Sisi possesses great political and economic experience, through which he can open more investment and economic fields for Egypt, looking forward during his visit to benefit from the economic renaissance of the state of India, and the rapid growth rates achieved by India.  And growing, and Egypt here can benefit from this accelerating Indian experience, which will have positive effects on Egypt in several areas, such as: increasing exports, raising production rates, opening investment fields, and advancing the Egyptian trade and economy forward, given that India is one of the best countries in the world in terms of application.  Democracy has achieved economic development in recent years, effectively penetrated the field of technology, and the Indian product occupies a strong global position with high quality, despite its population exceeding one billion and 200 million people, but it has been able to achieve self-sufficiency after its massive agricultural revolution.

 Egypt and India have distinguished political relations, in addition to the trade and economic relations that have witnessed remarkable growth over the past years, despite the slow growth of the global economy.

 It is expected that President El-Sisi’s visit to India will witness a list of new joint projects that India can implement in the new administrative capital, including a project to establish a medical city on an area of ​​350 acres, which includes the establishment of a number of hospitals and nursing schools, as well as the establishment of an Indian university specializing in medicine, according to what has been done as an agreement with the Indian side.

 In my opinion, President El-Sisi’s visit to India is an important political and economic achievement that affirms Egypt’s presence as a pillar of stability and development in the region.  For Egypt to present its economic program to facilitate its entry into the giant BRICS economic group with the help of China and India in the first place, in a way that facilitates the process of attracting foreign investments to Egypt and promotes economic advancement and improves the living conditions of the Egyptian people.

 Here, it is worth noting the importance of President El-Sisi’s visit to India, in advancing Indian tourism to Egypt and increasing the number of Indian tourists coming to Egypt.  and experiencing rapid economic growth. The Indian market also has many opportunities for the growth of our exports, especially in the sectors of chemicals, plastics, fertilizers, fruits and agricultural crops such as cotton, handicrafts such as textiles, leather, marble, granite, dairy products, metal industries, iron and steel, crude oil, and others.

 Egypt will seek to activate the agreement between the Egyptian and Indian governments to increase the volume of trade exchange to $8 billion, knowing that Indian investments in Egypt are estimated at about $10 billion.

  In this context, we find that Egypt and India have six trade cooperation agreements with India, namely: an agreement to develop intra-trade, an agreement to establish a joint committee, an agreement to encourage and protect mutual investments between India and Egypt, an agreement to avoid double taxation, and two memorandums of understanding in the field of trade and technical cooperation.  And in the areas of small, medium and micro projects, and an agreement for a joint work plan to develop trade and joint investments between the two parties.

 There is momentum in our relations with the Indian side, and a common desire through President El-Sisi’s visit to India to develop them to a higher level, given the existence of intense political cooperation between the two countries, and continuous interaction at the level of leadership and ministerial level, where Indian Prime Minister Narendra Modi met with President El-Sisi on the sidelines of meetings  The United Nations General Assembly in New York in September 2015. The Indian and Egyptian sides are interested in strengthening their relations with regard to issues of combating terrorism, strengthening economic partnership and common regional issues between them.  India’s relationship with Africa through the Egyptian side.

 There are 50 Indian companies operating in Egypt, with a total investment of about $3 billion.  About half of these companies are joint ventures or wholly owned subsidiary companies of Indian investors, while the rest of the companies operate through their representative offices and implement projects for government agencies.

 Among the largest Indian companies investing in Egypt is TCI Sanmar (whose investments amount to about one and a half billion dollars), and the company announced the opening of a new production line with investments amounting to $200 million, in addition to other giant Indian companies with branches in Egypt, such as companies  Alexandria Carbon Black, Dabur India, Egyptian-Indian Polyester Company and Skip Paints.

 Indian companies are also implementing several projects in the fields of railway signals, pollution reduction, water treatment, irrigation, shock prevention devices, and others.  And the Indian company Hetero, a major company working in the field of medicine, launched a joint venture in May 2015 to produce a drug to treat hepatitis C, which was highly appreciated by the Egyptian government.

 Among the projects that were carried out through the Indian grants to Egypt were distance education and distance medicine projects in the African continent, based in Alexandria University, a solar lighting project in the village of Agwain, and a vocational training center for textile technology in Shubra, Cairo, which are projects that have already been completed, in addition to  To another project under implementation to establish an information technology center at Al-Azhar University.

 Here we find that cooperation in the technical field remains an important part of our bilateral relations with the Indian side.  Since 2000, more than 600 Egyptians have benefited from Indian technical and economic cooperation programmes. Many Egyptians have been trained under various programs such as India Technical and Economic Cooperation Programme, India-Africa Forum Summit and CV Raman Foundation Fellowship.  Many Egyptian diplomats joined the foreign diplomats course at the Indian Foreign Service Institute, and many Egyptian scholars and scholars benefited from the grants of the Indian C.V. Raman International Foundation for African researchers.

 At the level of cultural cooperation relations between India and Egypt, the Maulana Azad Indian Cultural Center was established in Cairo in 1992, with the aim of enhancing cultural cooperation between the two countries through the implementation of the cultural exchange program, in addition to its interest in spreading Indian culture through Indian and Urdu language courses, yoga and dance courses.  And seminars, film shows and exhibitions organized by the Indian Cultural Center, the Center also organizes many cultural festivals.

 One of the results of the Egyptian-Indian joint cooperation in the field of education is the allocation of 110 grants by the Indian Ministry of Foreign Affairs to Egypt within the framework of the Indian technical and economic cooperation programme.

 In the field of scientific cooperation between India and Egypt, we find that both the Indian Council for Agricultural Research and the Egyptian Agricultural Research Council work together in the field of joint agricultural research according to joint cooperation agreements between them. There are also programs for cooperation in the field of science and technology that take place every two years between the two parties.

 What can be concluded here, from the Egyptian moves on the level of foreign policy, is that Cairo avoids defining its relations and partnerships at the political, economic and military levels, which reflects prudence in decision-making and prompts Cairo to enter into partnerships and international economic blocs such as BRICS and others, which transforms Egypt economically and rapid development to broader horizons, with the aim of making Egypt an important figure in all regional and international equations on the basis of standing at the same distance from everyone, and moving in accordance with the requirements of the national interest and international law.

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