Interview on Shipping, Economics and Geopolitics
1. In recent years, two important but also unforeseen events have occurred. One is the Covid-19 pandemic and the other is Russia’s sudden attack on Ukraine. How much did these affect the operation of your business?
COVID-19 pandemic and the war in Ukraine led to widespread global disruptions with devastating consequences on supply chains. The shipping industry has been affected on multiple fronts with port congestions, crew crisis, trade disruptions and the growing burden of sanctions posing significant compliance challenge for shipping companies and insurers. The industry also faces challenges to day-to-day operations, with knock-on effects for crew, the cost and availability of bunker fuel, and the growing threat posed by cyber risk.
These unprecedented crises coincided with my tenure as Shipping Deputy Minister of Cyprus where the need to cope with the problems and the multiple requests of the entire shipping industry was immense. During these difficult times, I am proud to state that Cyprus responded effectively and turned the challenges to an opportunity, leading by example.
Cyprus was one of the first countries worldwide that recognized seafarers as key workers. We have implemented a formal crew change process, assisting with the repatriation of thousands of seafarers. The Shipping Deputy Ministry also formulated and proposed a practical, global approach to delivering COVID-19 vaccinations to seafarers, which was then adopted by the International Labour Organization (ILO). Further recognizing the urgency of seafarer vaccination, and the role this would play in easing the crew change crisis, Cyprus then committed to vaccinating all crew onboard Cyprus-flagged and managed vessels with the adoption of a national vaccination plan providing protection to over 40,000 seafarers.
In response to the war in Ukraine, Cyprus was at the forefront of finding practical global measures to support seafarers. We facilitated the opening of bank accounts for both Ukrainian and Russian seafarers to enable them, and their families, to easily access their wages. Cyprus was actively involved in the EU deliberations on the imposition of sanctions against Russia and their repercussions on Cyprus and EU shipping, calling for transparency and clarity on the scope of responsibility of each player in the supply and shipping chain whilst providing guidance, recommendations and clarifications to the shipping industry on the implementation framework of the EU sanctions.
Through a number of initiatives and proposals, Cyprus signaled to the EU partners and G7 countries the specificities and the importance of shipping to the energy independence of Europe and the need for major ship registries outside Europe to implement and enforce similar sanctions and practices ensuring a level playing field and an effective implementation framework with no loopholes thus minimizing the impact on EU shipping. Cyprus proposed supportive and compensatory measures to EU shipping to counterbalance negative consequences and proposed a set of measures which was reflected in the relevant regulatory framework.
- Lately we have been hearing more and more that the primacy of the dollar is in danger from a new currency of the BRICS countries (Brazil, Russia, India, China & South Africa). What is thought to be possible?
The possible attempt by BRICS countries to create a common currency is not an easy one. In fact, it is considered by many as mission impossible if you consider the wide disparities in the structure of BRICS members’ economies, in their level of development, in the openness of their financial markets and in the management of their currencies.
Setting up a true common currency requires a high degree of similarities across countries. It is a very difficult task for these countries to renounce their monetary sovereignty to a common authority, a common central bank, or a common issuer of the currency given the obvious differences especially in the politico-economic domain and the great risk of asymmetric shocks.
What could be practically feasible for BRICS countries is a common unit of denomination for trade though the management of external finances is a real challenge. A possible cooperation through the reduction of trade barriers or a partial financial integration by easing financial transaction could contribute to increase the efficient use of BRICS countries’ resources.
But again, initiatives towards this direction will not pose any threat to the dollar. We should not forget that the role of these countries to financial markets is limited. The dollar is and will remain the answer to the questions on how you manage external finances, on what currency you put your foreign exchange reserves and in ensuring financing on international markets.
The dominance of US dollar is mainly related to the health of the US economy, the health of financial markets and the good macroeconomic management (especially in reducing the budget deficit) rather than on the development of a single BRICS currency.
- There is an assessment that we are facing global geopolitical events. Do you think this is the case? And if so, what might be the impact on global shipping?
There is turbulent global landscape marked by geopolitical tensions in different parts of the world that have a considerable impact on global shipping. These conflicts cause disruptions in ocean trade routes and port activity.
The COVID-19 pandemic and the war in Ukraine resulted to the modification of supply chains of goods causing an increase of commodity prices. This situation has also amplified the crew shortage. Energy and climate change continue to be politically polarizing issues, with global progress notably lacking on the climate transition. Cyberattacks are becoming more frequent and severe. The sudden escalation in the Israel – Hamas conflict over recent weeks adds to the instability throughout the region. The situation is evolving, and further developments could have a significant impact on the shipping industry which has to stay on top of developments when managing risks.
To sustain resilience against future challenges, especially climate change, the sector must not only accelerate decarbonization but also enhance port efficiency and adopt new technologies, focusing on the needs of developing economies.
Promoting a better image of the sector to the regulators is of crucial importance. Shipping should be approached as an integral part of the external trade policy, at national and European level, and not just as a simple mode of transport. Shipping should have a prominent position in all the bilateral and multilateral approaches and it should be recognized as a driver to energy independence. The sector must be therefore protected and adequately reflected in all the decisions that are formulated in response to global challenges and geopolitical tensions.
- What are the reasons, in your opinion, for increased inflation even in developed countries?
The current high inflation rate can be attributed to many different factors. The increase demand coupled with supply chain shortages resulted from the post COVID-19 pandemic, the high energy prices due to the war in Ukraine and the relevant imposition of sanctions against Russia by the western countries are among the main reasons.
The post COVID-19 consumer behavior is shifting away from spending on goods towards services. The increase demand for labor intensive service industries brought a high demand for labor. The tight labor market has inevitably led to increased labor costs, which have in turn increased the cost of services.