A nation can have plentiful resources and an established commercial sector, but terrible policies implemented with determination can send its economy into a downward spiral.
They call it the Dutch disease, where over-reliance on a specific sector leads to a spike in a nation’s currency value while devaluing other sectors of the economy at the same time. Oil is often the symptom. As the Middle East and Venezuela are discovering, having reserves of crude oil can, over time, go from being a blessing to a curse.
France is having different oil problems, the rising cost of diesel in part leading to rioting in the streets. The South African economy is battling corruption; North Korea over-militarisation; and the UK continues in tortuous Brexit mode.
Here are five ways to wreck an economy.
Making a major economic turn without a clear plan – UK
It’s a divorce deal that makes many messy Hollywood break-ups look straightforward. The UK’s decision to leave the European Union, established after a referendum in June 2016, can still be scuppered if Article 50 is revoked but that’s just one of many possible Brexit outcomes in this increasingly chaotic affair.
The Withdrawal Agreement – which outlines the terms under which the UK would leave but not what actually happens afterwards – has to be approved by parliament. It has already been rejected three times (and counting).
If Brexit does go ahead but without an agreement, that’s where the fun really starts. EU laws would stop applying to the UK immediately.
Ports, food retailers, medical supplies and numerous other businesses would face significant disruptions in the short term. The long-term impact on the British economy is murky at best but Goldman Sachs has estimated the cost at about £600 million a week since the 2016 referendum.
Refusing to trade/military spending – North Korea
In pure dollar terms, North Korea’s estimated A$10 billion annual spend on its military doesn’t even rank among the world’s top 15 countries. It’s when stacked up against its GDP – thought to be only about A$30-40 billion – that the number paints a clearer picture of an economy with mightily messed-up priorities.
Succeeding his father in 2011, Kim Jong Un was thrust into the Dear Leader’s role only a year after reports claimed thousands of his countrymen were eating grass and bark to fill their stomachs due to crippling food shortages.
While Kim looks to replicate other authoritarian leaders by increasing infrastructure projects and opening doors to foreigners in some capacity, he has a long way to go.
Some 85 per cent of North Korea’s still-limited trade is with China, and as long as North Korea pursues nuclear weapons and missile development, sanctions – economic and otherwise – will follow.
Allowing corruption to undermine key public institutions – South Africa
Possessing the most industrialised economy in Africa, where it leads the market in almost every sector, South Africa should be a beacon for the continent. Lately it seems like someone has turned the lights out, often literally.
Electricity supplier Eskom is an unfortunate exemplar of how graft and corruption in the public sector has in part derailed what was an economic powerhouse at the start of this century.
Dodgy coal-supply deals which ultimately sent huge returns offshore saw Eskom go from an 18.8 billion rand (A$183m) operating profit in 2013 to a 2.23 billion rand (A$22.3 million) loss within five years.
Scheduled blackouts have become the norm. Banks and arms deals have also featured in state-driven fraud, tarnishing a country already battling skills shortages, high costs and ongoing perceptions of violent crime.
Over-reliance on one commodity – Saudi Arabia
In April 2016 then deputy crown prince Mohammad bin Salman said Saudi Arabia would “never be at the mercy of commodity price volatility or external markets” before offering the assembled media another nugget: “I think by 2020, if oil stops we can survive.”
Three years on and bin Salman is the man in charge but his country’s relationship with petroleum, like much of the Middle East, remains fraught.
Historically, oil has accounted for 90 per cent of national revenue in Saudi Arabia but with prices at little more than half the US$113 per barrel highs of 2011 and the push to use renewables and clean energy gathering steam, the love of black gold is abating.
Diversification is the new buzzword for Saudi and other Middle Eastern oil-rich economies but so far the pace of reform doesn’t appear to be matching the rhetoric.
Corruption and underinvestment – Venezuela
If the Middle East needs an example of how rapidly falling oil revenues can play out, it need only turn to Venezuela. In the 1960s the Latin American nation produced more than 10 per cent of the world’s crude oil and had a per capita GDP almost as much the US. Now it’s a basket case.
The rot started under president Hugo Chavez in the 1990s and has been enabled by current leader Nicolas Maduro whose pursuit of “21st century socialism” has driven hyperinflation and chronic food and medical shortages.
Failure to invest in state-owned utilities has also delivered nationwide power outages and an irregular water supply. Maduro has consolidated his power through political repression, censorship and electoral manipulation, overseeing an economic collapse only surpassed in modern history by Zimbabwe.
On standby: ignoring popular opinion and rising costs for citizens – France
The French economy isn’t ruined, but it isn’t being helped by the yellow vest movement either. Dubbed by his predecessor Francois Hollande as the “president for the rich”, current French leader Emmanuel Macron is having a hard time living the sobriquet down.
Macron is fighting a war on multiple fronts. Criticised for tax cuts that many feel have only benefited the wealthy, he’s now also held responsible for diminishing public services, significant cost of living increases and a 23 per cent price rise in the country’s major fuel source, diesel.
Unsurprisingly in a country that loves fighting for a cause, a movement to protest the perceived economic injustices has arisen.
The “gilets jaunes” (yellow vests) have staged 18 demonstrations/riots across the country and even sparked an international movement.
With the next French federal election not until 2022 things could get ugly if more change isn’t instituted.
The upside of commercial fraud