Davos and the West need a new vision for economic diplomacy

Preparations take place for the World Economic Forum in Davos, Switzerland on Saturday. Forums such as the WEF can play a crucial role in bridging economic and political divides. Reuters

US president-elect Donald Trump’s imminent return to the White House and his transactional “America first” approach is likely to increase global geoeconomic and geopolitical challenges.

Although Ukraine and the Middle East could witness some tangible relief, economic uncertainties fuelled by tariff wars and supply-chain disruptions are likely to exacerbate tensions between nations. This could lead to a re-evaluation of existing trade and diplomatic partnerships, thus underscoring the value of economic diplomacy that the UAE has been investing in for more than a decade.

In November, the G20 summit in Brazil surmised that although the world’s economies are now more interconnected than ever before, the distribution of both wealth and opportunities remains unbalanced. The West, which has traditionally dominated global financial systems, should reckon with the rising power of emerging economies and make the necessary compromises. It must acknowledge that the “Rest” has the moral right to pursue its own political and economic models without interference.

Donald Trump’s imminent return to the White House and his transactional 'America first' approach is likely to increase global geoeconomic and geopolitical challenges. EPA

As emerging markets and middle powers assert their influence, it is imperative to recognise their role as drivers of global economic growth. The World Economic Forum in Davos this week serves as a platform to highlight these priorities and encourage partnerships among advanced economies, emerging markets and developing nations.

Forums such as the WEF play a crucial role in bridging economic and political divides by helping develop comprehensive multilateral solutions to pressing challenges in economic governance and innovation. By bringing together leaders from diverse sectors and regions, the WEF creates a collaborative environment where ideas can flourish, and partnerships can be formed, thus promoting sustainable economic growth and stability in a fragmented world.

The WEF must address the need for reform in institutions such as the International Monetary Fund and World Bank, which are out of tune with today’s multipolar, multifaceted and interconnected landscape. Current governance frameworks favour western economies; they also hinder effective decision-making and limit the responsiveness of these institutions to the diverse challenges faced by the Global South, such as poverty alleviation, digital transformation, financial stability, job creation and sustainable development.

In this milieu, economic diplomacy is vital to ensure that knowledge-sharing and innovation happens with few, or no strings attached.

The WEF must address the need for reform in institutions such as the International Monetary Fund and World Bank, which are out of tune with today’s multipolar, multifaceted and interconnected landscape

The UAE’s strategy could serve as a useful template. It seeks to enhance the Emirates’ position as a global partner and an attractive and influential economic hub. But it does so, according to Minister of Economy Abdulla bin Touq, by attempting to “de-fragmentise the economy” by increasing “investments into new and traditional sectors”, attracting “more human capital and highly skilled labour”, improving “supply chains and access to new markets”, and supporting the “re-introduction of multilateralism into the diplomacy and foreign affairs space”.

To fulfil its strategy of diversification, recalibration and doubling its gross domestic product in a decade, the UAE has used a mix of tools. Its sovereign wealth funds, for example, serve as vehicles of economic diplomacy to build regional and global partnerships. Comprehensive Economic Partnership Agreements are another instrument that has been used since 2021 to maximise benefits for the UAE and its global trade partners. Twenty-four Cepas were concluded by the end of last year, with countries that are home to about 2.5 billion people across five continents.

“These agreements recognise the vital role of free trade based on clear rules in driving sustainable economic growth and inclusive development,” according to Dr Thani Al Zeyoudi, the Minister of State for Foreign Trade.

While the US has threatened tariffs to revitalise its economy, the UAE has eliminated tariffs on more than 80 per cent of the products that it trades with many of its Cepa partners. The results speak for themselves – in the first half of last year, UAE foreign trade grew 11.2 per cent compared to the same period in 2023; and trade with some of its partners has increased by between 10 and 40 per cent.

Keeping economic diplomacy as the core, the Emirates has also adjusted to a changing world through a pragmatic, multi-aligned policy. While it is part of the I2U2 grouping, it is also part of the Brics bloc. It has invested in the Belt and Road Initiative, the India-Middle East-Europe Economic Corridor and signed up to the Development Road project. It is not only investing in the West but is among the largest investors in Africa in recent years.

Keeping economic diplomacy as the core, the Emirates has also adjusted to a changing world through a pragmatic multi-aligned policy. Hamad Al Kaabi / UAE Presidential Court

This strategy underlines collaboration over confrontation, without compromising on competition. It demonstrates that tactfully pooling resources and expertise in different sectors can result in effective solutions, which might not be achievable by pursuing protectionist or exploitative policies.

Taking cues from this, the WEF and the West ought to develop a new vision for economic diplomacy by shifting the focus from short-term crisis management to long-term, structured co-operation. This involves building enduring partnerships among governments, businesses and civil society to address systemic challenges, yielding benefits to all stakeholders.

The need for collective action is crucial in addressing 21st-century polarisation and creating a more interconnected and resilient global economy and polity, for the benefit of the West and the Rest.