After the Draghi Report:
A world full of risks calls for a more alert business sector

Two weeks ago, former ECB President and former Prime Minister of Italy Mario Draghi presented an important advisory report on the state of the European economy and Europe's competitiveness. The chances that ‘The Hague’ will heed his advice for increased investments in innovation and sustainability don’t seem very high. However, his plea for more ‘strategic autonomy’ is receiving a warmer reception. Wouter van Aggelen, Director at Wepublic, shares his views on what this means for our business sector and why it’s important for internationally operating companies to sharpen their antennae for geopolitical developments.

A strong plea for investing in technology, sustainability, and economic independence
On September 9, Mario Draghi presented his advisory report titled “The Future of European Competitiveness” to the President of the European Commission, Ursula von der Leyen. It is a comprehensive document in which he sharply analyzes why Europe has lost so much ground to the US, China, and other emerging powers over the past decade. Essentially, the report doesn’t contain much that we didn’t already know: high energy costs, labor market shortages, lack of innovation due to regulatory barriers, and over-reliance on old industries; it’s all covered.

What I find particularly interesting is that Draghi also pays a lot of attention to the geopolitical risks increasingly threatening Europe’s economic stability, such as disruptions in trade and access to raw materials. For example, the report highlights that Europe is highly dependent on a limited number of critical raw material suppliers, mainly from China, while these materials are crucial for the energy transition. This dependency is also emphasized in the technological domain, particularly in the area of semiconductors. His warning is very explicit: further escalating geopolitical tensions could cause new disruptions in international supply chains.

The Hague disregards much of Draghi’s advice
While the Draghi report seems to be revitalizing the debate in Brussels and many other European capitals on the need for targeted investments in knowledge and innovation, things remained relatively quiet in The Hague following the presentation of the Coalition Program, during Budget Day, and throughout the General Political Debates. Naturally, Draghi’s proposal to establish a joint European investment fund for targeted innovation and sustainability was rejected by the Dutch government in typical fashion.

But what has been put in its place is, for now—well, rather limited. Although there is an ambition to see the Netherlands return to the top five most competitive countries, this ambition has not yet been elaborated much beyond the need for “more predictable business policies,” involving “fewer regulations, lower taxes, and additional funding for innovation through Invest-NL.” The latest ‘additional funding,’ by the way, is considerably less than the cuts being made to other research, development, and education funds, but that aside.

Call for ‘strategic autonomy’ resonates
On Draghi’s other key point, the need to reduce the vulnerability of our economy to geopolitical tensions and disruptions in international supply chains, thinking seems to have progressed somewhat. The Coalition Program states, for example, that the government is committed to “protecting high-tech technologies, knowledge, and critical infrastructure.” It also aims to address the “risks of strategic dependencies,” for example, in digital and energy value chains. Companies are encouraged to “take measures to promote their economic security.” The fact that these principles can have very real implications was evident recently when the government further expanded existing export restrictions on ASML’s chip machines, and they have now become official government policy.

Geopolitical antenna increasingly crucial for successful international business
The growing focus on strategic autonomy and the increasingly activist stance of governments, including the Dutch government, in protecting critical knowledge and infrastructure, presents international companies with fundamental challenges. First and foremost, it is becoming even more important for companies to have a clear understanding of which parts of their services or products are considered to have essential societal value, for example, because they are an indispensable link in the production or distribution chains of other companies or institutions.

Because political, social, and economic developments in many markets in which companies operate are likely to increasingly affect existing trade and investment relationships, for example, if they lead to trade restrictions or sanctions, it is crucial to have a clear picture of them. The same applies to starting to think early about potential alternatives to the usual routes for sourcing, distributing, or trading essential services, products, and/or raw materials.

The added value of communication and public affairs in managing geopolitical risks
To respond adequately, flexibly, and effectively to emerging geopolitical risks, good communication with all stakeholders is essential. For example, to ensure that decision-making by politicians and other relevant authorities always takes place based on a clear understanding of the impact that measures may have on the company itself, the local and home market, and the rest of the value chain—and to minimize any unnecessary damage resulting from this. But also to keep employees, customers, suppliers, investors, and other stakeholders as well informed as possible, should such a situation arise.

With our integrated approach to strategic communication and public affairs, Wepublic has the relevant knowledge and experience to help organizations meet these challenges. And as part of the global network of SEC Newgate, we also have direct access to specialists who can provide local perspectives on social and political developments in many relevant markets. Interested in discussing this further? Contact Wouter van Aggelen.