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Uncertain world

BY: Bernard Otabil
The world always presents risks and opportunities

There are many reasons for concern, isn’t it? First was the heightened uncertainty that has prevailed regarding the effects of the pandemic on many sectors of the global economy; then the supply chain disruptions that have created imbalances in the global economy following the unintended consequences of some of the mitigating measures introduced to contain the spread of the virus; and the build-up of inflationary pressures in the global economy as the economic rebound was quicker than anticipated.

Even though the rebound in global economic activity has been uneven, the “push-force” is strong enough to drive up business and consumer confidence along a positive path, albeit with some cautious sentiments in the outlook.

But there is a dampener, causing the global growth path to change as quickly as the build-up! In recent weeks, media headlines have shifty from the strong and remarkable recovery of the global economy from the scars of the pandemic to the terrible war in the heart of Europe, which is believed, would leave many wounds for many years to come.

Perhaps, it was never imagined that Europe would relive the terrible days of war in the heart of it, especially about 800 kilometres from Berlin, a city that, in my view, symbolises war and peace and demonstrates how peaceful living is more important than war. Following the 1945 World War, Berlin had the Iron Curtain until 1989, but it is now a vibrant cosmopolitan city of repute.

The current war, as expected, has created its own uncertainty and cast a dark shadow over the economic growth prospects of the global economy. Well, if you have been wondering why there is the global increase in inflation, mostly fuelled by rising energy and food prices, then look up the definition of uncertainty in the dictionary!

Uncertainty has that “charming” effect on everything, causing the rational actors that we are to behave in a way that, all things considered, impacts the economy in various ways. Uncertain energy supply and food production contributing strongly to increase in general price level.
In fact, the scene set in the previous paragraphs was only to lay emphasis on the effect of “uncertainty” on human endeavours (as actors) and its impact on the economy. Since uncertainty is the watchword here for this edition, l checked from various sources for a true and proper definition of the word.

And this is one of the definitions I got: “Doubt, dubiety, skepticism, suspicion, mistrust, lack of sureness about someone or something. Uncertainty may range from a falling short of certainty to an almost complete lack of conviction or knowledge especially about an outcome or result”.

 


We surely live in an uncertain world and always have to make decisions even with little information because there are never the perfect conditions to give the full assurance of a positive outcome.

This is where, perhaps the experience of the business world fits the picture. The businessman or investor will have to commit some resources to a venture in order to exploit an opportunity. In most cases, the decision will be based on some kind of “calculated-risk” model that, in the view of the investor, minimises the downside risks, while exploiting the upside potential.

That does not guarantee certainty though. But it is also never a gamble, especially when the businessman is an astute one. Of course, he must be ready to bear some losses if it all goes south.

It is, indeed, a risky world because of the uncertainties that we have to face day in, day out.
You must navigate through the choppy waters of risk and at the same time be ready to exploit opportunities that may lie hidden in that given risky situation. In school, we were told or exposed to, the dichotomy between risk and reward/return.

In this proven theory, proponents are of the view that since capital always has an alternative use, bargain-hunting investors will always hope for a higher return when the risk is high.

Let me just add here that it is very easy to create a connection between the risk and return dichotomy in real life. If you stake GHc100 on a lottery ticket for example and you win, your prize money will certainly be higher than the one that placed a bet of GH₵10 cedis and also won. The reverse is that the high bet loses big too when it doesn’t go well. That is the way it goes.

The world always presents risks and opportunities. We may take all the necessary precautions to mitigate risks but a one-in-a-hundred-years “unusual” event like the COVID-19 pandemic has always been difficult to fully cater for in risk provisioning, even with all the best models that can analyse and calibrate all risks in the world. Some events may happen, and may catch us unaware. Of course, no one can play God!

But just bear in mind that because of the uncertain nature of our world, every aspect of our life is prone to risk and therefore, what matters most is how we are able to identify the risks and adopt the best ways to treat or better still, mitigate its impact. That is the only way you learn to cope and in effect, deal with risk.

This was evident in the fight against the spread of the coronavirus and the measures adopted to fight off the ills of the pandemic. Lessons drawn from the Global Financial Crisis (GFC), which came to a boil in 2007/08 led the global standard setters and regulators to make changes to banking regulations and provisioning for unforeseen events.

In the end, the strong capital buffers that were suggested and adopted became the supporting cushion during this current crisis. So, whereas in the era of the GFC financial institutions were accused of being the real culprits and source of the thundering problems, in this current situation, in fact, together with monetary and fiscal authorities, as well as governments, they provided the stimulus needed to avoid the scarring effects of such a crisis.

So, here, even though the structures put in place were not necessarily to control the COVID-19 pandemic, they were resilient enough to, in a strong way, address the extreme shocks from the pandemic. The overall lesson here is easy to see: provide adequately for uncertain times.
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