Lessons from 15 years of crisis
Summary of the intervention of Nicolas Mackel, keynote speaker at the ILA AGM 2023
What can business decision-makers learn from the succession of crises which hit our economies and societies over the last 15 years? Nicolas Mackel, the CEO of the Luxembourg for Finance trade promotion body, spoke after the ILA AGM on 21 June about approaches to potential future challenges.

The global financial crisis, the eurozone crisis, Brexit, Covid, Russia’s invasion of Ukraine… have each presented unique challenges which, for many, appeared to come out of the blue. Yet, Mr Mackel noted, even reasonably predicable events such as Brexit left companies rushing to form a strategy after the fact. “I don't know of any firm that had a Brexit plan ready in the drawer, with them just needing to adjust a few details,” he said. The summer and autumn of 2016 were spent hurriedly catching up for an event which cool headed analysts had suggested had a 50% probability.

Consider options early
“A lesson for boards is the need to work to be ready as much as possible for events that could have major consequences,” he said. Even in the absence of a clear direction of travel, understanding some of the basic possibilities enables organisations to reduce risk and react more quickly. Often these choices are unpalatable, and this might bias decision-makers to unconsciously prefer to avoid the issue.

Over the long term, Mr Mackel noted how new pandemics are likely to emerge and that businesses should keep their contingency plans topped up. The climate crisis is also predicable, but year-to-year change can be hard to perceive. “Much more than ensuring SFDR compliance, you must ensure that you are working to achieve the Paris goals, that you are ready for the green transition and are adapting to the consequences of climate change,” he said.

China: decoupling or de-risking?
Equally predictably: “the tensions and competition between the United States and China will affect the way we do business going forward on a global scale.” Some have advocated that businesses should disengage completely from working with China. Under this model, supply chains would be based on “friend-shoring” principles, featuring arrangements exclusively with democratic countries which respect human rights.

Although this would go with the grain of comments by an increasing number of politicians and commentators, “the reality check is that were Luxembourg to do that, we would be in a very small group of friends around the world,” Mr Mackel said. He highlighted the case of airlines, and whether they should only choose to serve destinations with highly rated democratic systems. Similarly for financial services, manufacturing businesses and others, this is not a simple moral/business choice.

“The fact is that China is a central player in the global economy, and if you ask any producer of consumer goods they will tell you that it is difficult to conceive of a future where China does not play a role,” Mr Mackel said. He quoted Martin Wolf of the Financial Times who called the concept of friend-shoring “an economic and strategic stupidity”. Developed economies do not have the capacity to replicate the manufacturing output of China, even if they wished to do so.

De-risking is another matter though. “This is nothing more than common sense. If we have learned one lesson from the pandemic it is that we shouldn't depend on one provider, as was the case with China

overwhelmingly dominating the production of facemasks and ventilators,” he noted. Even if China and the US stop short of full-scale military or economic war, tensions are likely to increase, and this will fragment global markets at least to some extent.

Take a broad view
Luxembourg’s financial sector will feel these effects and should prepare. “This relationship will govern the rest of our professional lives, affecting business globally, not just in Asia,” he said. Beyond this, Mr Mackel advised maintaining a broad outlook. “When working internationally, do not just contemplate the business case, but have to look at the wider environment,” he said.

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