OCTOBER 2024

NACIONAL business & banking Specialized Supplement for Banking, Finance, and Investments Issue 31 / October 2024

Geopolitics Has Critical Impact on Private Sector Decision Making

October 2024

NACIONAL business & banking Specialized Supplement for Banking, Finance, and Investments Issue 31 / October 2024

Geopolitics Has Critical Impact on Private Sector Decision Making

On October 8 and 9, the New Frontier Foundation organized the first annual forum in Dubrovnik, which brought together about a hundred dignitaries from Croatia and the world from business, politics, diplomacy and the think tank community of Central and Eastern Europe. Although they were held separately, the forum was given additional importance by the “overlap” with the summit on Ukraine in Dubrovnik, where the geopolitical situation in Europe and the world was discussed, and precisely the influence of geopolitics on the business operations of companies and large companies was one of the main topics of the forum organized by the NFF.

The head of the foundation is Natko Vlahović, the founder of the Vlahović Group, who revealed to Business&Banking why, after a long business career, he decided to start the first real Croatian think tank, i.e. a non-profit organization whose members engage in research work on a certain policy or various issues related to politics or business. In addition, think tanks organize round tables and through publishing activities, they try to be creators of new ideas and political developments. In addition, in the interview for B&B, Vlahović also referred to the increasing influence of geopolitics on the business world and business decision-making.

The New Frontier Foundation in Dubrovnik organized its first annual forum with which we marked the first year of activity. The Foundation itself is organized as a Croatian think tank that connects subjects from the private and public sectors, and at the Forum in Dubrovnik we dealt with issues related to geopolitics, that is, how the geopolitical situation affects the operations of European companies and what the competitiveness of Europe looks like. We gathered leading companies, leaders, representatives of the diplomatic corps and former high officials from Central and Eastern Europe, the European Commission and the USA. In addition to the above, which is particularly significant, we had representatives of think tank organizations from Central and Eastern European countries in Dubrovnik, which we are particularly proud of. These are six think tank organizations from Ukraine, Romania, the Czech Republic, Poland, the USA and Hungary. For the first time, the meeting of Central European think tanks took place in Croatia, and this was noticed by our guests who wondered why it took Croatia so long to hold such a gathering. At the NFF forum, Capricia Penavic Marshall, a close associate of former US presidents Bill Clinton and Barack Obama, was also present, who was the 30th chief of protocol of the US and from the position of ambassador in one of the most influential American think tanks, the Atlantic Council, highlighted the role such organizations have in strengthening international cooperation, better understanding between politics and economy and understanding of complex geopolitical issues.

Think tanks are mostly financed privately, but in some countries they are financed by publicly, so for example the Atlantic Council, in addition to donations from the world’s largest companies, is also financed by the State Department and even the US Department of Defense. In Europe, the situation is somewhat different because when we talk about the financing of such organizations, there is also money from the EU funds earmarked for research, conferences and similar activities. Nevertheless, the private sector is the main financier of such foundations in Europe. The New Frontier Foundation is currently financed from three sources. We have the board of trustees consisted of eight companies that have stood behind us so far and that want to support our work concept and the topics that we promote and analyze. Croatian companies include Podravka and Atlantic Grupa, then Slovenia’s Triglav, and global technology leaders such as Google, MasterCard, the largest global broker in insurance and risk management, Marsh McLennan, and the private equity fund Enterprise Investors. Finally, there is a Norwegian company, Tomra, whose devices for accepting beverage packaging make a great contribution to environmental protection. The idea is to increase the number of companies that are ready to invest and enter into cooperation and programs with us, and we are certainly interested in the energy sector, the defense sector and financial services. Our goal is quality research in the sectors I mentioned. For example, we are interested in what is happening with the energy sector in Central and Eastern Europe and how it is affected by geopolitical developments. It is very important that the think tank has this research component, and after the research component comes the component of gathering experts. The third pillar is dissemination, which means, for example, after the end of the forum in Dubrovnik, an analytical document “Discussion Report” is prepared, which brings together the key parts of the discussion and recommendations for each discussed topic. We will publish a document in English containing the main conclusions of the NFF forum in Dubrovnik, we will send it to the media, government departments, publish it on the website and share it with diplomatic missions, non-governmental organizations, in the hope that such a report will draw their interest. This is how we strengthen the relevance of our knowledge, expertise and what is used everywhere in the world, which is discussion and conversations within think tanks, within various institutes, within businesses and within non-governmental organizations. The idea is to become a kind of incubator of quality proposals and solutions that will emerge from our incubator of ideas and analyses. Therefore, we must be well-conceived and focused on topics that are burning, such as financing the war in Ukraine, importing US LNG, food production, security and sustainability. We are interested in analyzing the competitiveness of business, political and business initiatives such as the Three Seas Initiative, the Mediterranean and others.

I have to admit that I asked myself that question because I see that there are think tanks in the region and that there is a considerable number of think tanks in the Balkans. We have think tanks in Kosovo, Serbia, Budapest, Ljubljana, Skopje. It is difficult to say why this community practically does not exist in our country. Maybe it is not stimulated enough by private companies or the state. We talked about finally trying to create such a model that Croatia needs and that will deal with issues that are important and thus expand and enrich the public space. A model that will also shad a light on geopolitical situations that are less analyzed within expert panels and discussions. We started as an entrepreneurial project and entered the CEE market. We need to become a relevant participant in the think tank ecosystem of the region and we want to gather as many different stakeholders as possible, but at the same time we want to emphasize that we have not taken over anyone’s franchise, and we are not a representative office of a foreign organization. Croatian creativity shines through in this project, but it is not enough for us because there are others who are much more advanced than us. However, we really started as a Croatian intellectual project where we will gather not only Croatian, but also international knowledge and expertise. In Croatia, we have a certain number of institutes, mostly state institutes, which mostly deal with macroeconomic topics and ex post analyses, the government does not use them for strategic analyzes and the formation of public policies. Our goal is research on how certain geopolitical current events affect business trends and how we can provide guidelines for adaptation to the private sector in these trends. It is a proactive approach in which we look at how current topics affect business, but then spill over into public policies and the regulatory framework.

This was the topic of the first panel where we had representatives from the private sector, politics and diplomacy. I think that at this moment there is no more important topic than the influence of geopolitics on the business. We in Croatia have companies that did business in Russia and that invested millions in Russia. Representations were opened, all possible legal and trade relations were established, and revenue was generated on the Russian market. However, due to the war that broke out, these companies completely withdrew from that market and lost tens of millions of euros, if not hundreds of millions. These are only Croatian companies, not to mention German, Austrian or companies from other European countries. That’s one example. Then we have companies in Croatia that did strong business with Russia and that had to shift from their energy sources in a short period of time to other non-sanctioned markets, or to the USA. They worked with Russian gas, and then they start working with other traders and gas suppliers. All this points to a very strong influence of geopolitical frictions and geopolitical events on the company’s operations. We also have the example of Agrokor, which was greatly influenced by geopolitics. Agrokor took loans from Russian banks because they could get cheaper money there, and in my opinion that was a very important political message. In this way, the Russians ensured their influence on a large Croatian company. These are examples that we have felt on our own skin and it is very measurable how much geopolitics has an impact on business. That’s why in foreign companies you often have the position of CPO, Chief Political Officer or chief political advisor. Why do they need it? Because they have to make a large number of assessments about their business and where and how they will invest money. For example, if a Croatian company plans to enter a new, non-EU market, the question arises whether now is the right political moment or will it be a complete failure? These are examples of why geopolitics is a hot topic and why we dealt with it in Dubrovnik. Wars, political instability, all of this strongly affects the business of companies. Of course, there is also the price of raw materials, so a huge jump in the price of cocoa beans and coffee affects the price of a large number of products. These are all topics that are related to political decisions, and have a strong impact on business, that is, on the price of the product that we as customers will pay. On the other hand, the question arises as to how these companies will survive, that is, how they can be competitive. In Croatia, we have a situation where the tax policy is changing. The question arises, what will this mean, say, for the construction sector? We want to talk about it. We lack a lot of such analyzes where the impact of political factors on investment outcomes is measured and calculated, and we recognized this as an area in which we want to network strongly because we believe that what is happening in Hungary, the Czech Republic, Poland, and Ukraine is very important. It is, however, a different approach than the classic one where we look at how much our GDP has gone up or we just look at the foreign trade balance with some country.

This is a very timely and significant topic that I would like to connect with the examples I mentioned at the beginning. Of course, some things cannot be predicted five years in advance, but considering the current context of wars being fought in the world, and there will probably be even more of them, this position is extremely important. We have not seen such functions in Croatian companies yet, but we have people who sit on the boards and who think about these issues, because without it, business decisions cannot be made. Perhaps I could use this opportunity to point out that it is really necessary to think in this direction and to determine such positions for companies from the energy sector, defense, pharmaceutical sector, food, and certainly the technology sector. One such expert should be, what we like to say, a strategic acquisition for the company. I haven’t noticed Croatian or regional companies having specific political risk assessment positions, but their management likely considers these issues. Even when planning an acquisition, a political risk assessment is an essential requirement. Croatian companies used to operate in many African, Arab, and other markets that are now inaccessible due to sanctions or other difficulties.

Do we know how the chip industry is financed and subsidized in Germany? How is the German automotive industry positioning itself towards the lack of chips and what measures are being taken? This is very important for a company like Rimac, because they also make software that improves the operation of batteries and develop a solution for autonomous vehicles that they have promised to produce. To me, it would be completely logical and strategically important for such a company to have a person who thinks things through geopolitically. What happens to my business in terms of European regulations and European policies? What is happening in China or how will the future US administration position itself on the issue of tariffs on electric cars? It is a fantastically interesting collage of information that the private sector must have today. The starting point of knowledge and information that needs to be put on the table and discussed because otherwise one cannot be competitive.