This week we are diving into several headline-making stories, including the fallout of the Adani Group in India, Abu Dhabi’s meteoric and somewhat suspicious stock market rise thanks to the IHC group, and the AI race that is heating up following news about OpenAI’s ChatGPT. Also this week, we explore the reasons to have cautious optimism when assessing the current global order, the fragility of which will have a major impact on the Day After.

IHC and Abu Dhabi’s stock market rise

The UAE business that went from obscurity to a $240bn valuation in 3 years

Andrew England & Simeon Kerr, Financial Times

The sheikh’s empire driving Abu Dhabi’s meteoric stock market rise

Andrew England, Simeon Kerr, Adam Samson, & Max Harlow, Financial Times

Abu Dhabi’s stock exchange was seen as a minor player in the region just four years ago. Today, its market cap has grown to over $650B, largely driven by the rise of one entity: the International Holding Company (IHC). Three years ago, the firm ran fish farms and food and real estate businesses, employing a mere 40 people. Today it employs 150,000. Its assets have grown from $215M in 2018 to $54B in the third quarter of last year. According to IHC, their meteoric rise was due to the growth of the businesses it controls. Analysts suspect something else. In 2020, Sheikh Tahnoon bin Zayed al-Nahyan – the UAE’s national security adviser, brother of the federation’s president, and chair of a state investment vehicle – took over as IHC chair. This, according to analysts, points to an uncomfortable enmeshment of business and family power in Abu Dhabi. While IHC reiterates that its growth is organic, it also reported in 2021 that 18 shareholders owned 96.7% of its stock. Shares are difficult to acquire for investors outside of the ruling family’s sphere, as well. This perception of the entanglement between the private sector and the state is likely to hurt Abu Dhabi’s aspirations to become a financial hub for the region. 

The Adani Affair

Adani Crisis Disrupts India’s Parliament

Rajesh Roy, The Wall Street Journal

The Adani affair: the fallout for Modi’s India

John Reed & Benjamin Parker, Financial Times

How Gautam Adani Made (and Could Lose) a $147 Billion Fortune

Stacy Meichtry, Shan Li, Krishna Pokharel, & Weilun Soon, The Wall Street Journal

Gautam Adani’s Rise Was Intertwined With India’s. Now It’s Unraveling.

Alex Travelli, The New York Times

The fallout from US-based short seller Hindenburg Research’s report accusing the Adani Group of widespread fraud continues as opposition lawmakers in India’s parliament ratchet up calls for a deep investigation into the affair. The report has caused the Adani Group, India’s most powerful business conglomerate, to see massive losses across its companies, losing as much as $110 billion in market value (or roughly half of its value) in just over a week. While the Adani Group has continued to deny any wrongdoing, the conglomerate, which is reported by the debt-research firm CreditSights as deeply overleveraged due to new business acquisitions financed through debt, recently canceled a planned $2.5 billion stock sale. The stock sale was meant to repay debt and fund capital expenditures on green energy initiatives and was canceled, in the words of the group’s founder Gautam Adani, as “morally correct.” Finance Minister Nirmala Sitharaman said that the controversy does not affect India’s macroeconomic fundamentals nor its image and denied allegations of favors done by the government for the Adani Group, while the State Bank of India and Life Insurance Corps of India (India’s largest public insurer), and investors in the Adani Group have both claimed limited exposure to the stock rout.

The Adani Group’s history is deeply intertwined with that of current Prime Minister Narendra Modi. Both Adani and Modi come from Gujarat, where Modi was chief minister in 2001. Adani successfully worked with Modi’s government to privatize the port of Mundra, which led to a long and prosperous relationship. As Modi’s star has risen, Adani’s has followed, as seen for instance in a privatization effort of six airports under Modi’s leadership after he took the office of prime minister in 2014. All six airports went to Adani. Accusations of government favoritism have abounded, leading to concerns that Adani’s cozy relationship with Modi and Modi’s government may have allowed for lax regulatory oversight of the firm, leading to the current debacle. The affair is casting a pall on India at a time when the country continues to grow dramatically; both economically, as India is set to become the third largest economy by 2027, and geopolitically, as various players from the US to Russia seek to emphasize bilateral relations. Ultimately, the Modi government’s response to the Adani affair will be pivotal in India’s future development institutionally, economically, and politically.

Cautious Optimism

Too Soon for Global Optimism

Kenneth Rogoff, Project Syndicate

Utopia or Bust

J. Bradford Delong, Project Syndicate

As the war in Ukraine continues to threaten further upset in the global order, nations of the world look to the past for a guiding philosophy. Despite the careful economic optimism permeating global markets due to recently revised-up growth forecasts, an unexpected escalation of the war in Ukraine could upend any hope of a soft landing. The possibilities of escalation are easy to think of – a potential reversal of fortunes for the Ukrainian forces, greater cooperation between Russia and China, or even the use of a tactical nuclear weapon would cause panic in the markets. The world faces other serious challenges as well; deglobalization threatens to shrink global GDP, and the ever-looming specter of climate change will no doubt trouble the world in the years ahead.

Among this uncertainty, nations have searched for a tether to guide them through these turbulent times. Leaders in the United States have espoused a revival of a social-democratic “New Deal” order, whereby the nation is managed and enriched through economic levers of power. Others, such as the UK, have looked to continue the neoliberal order that defined the era preceding the current one. Some countries look to ethnonationalism, a tribalistic us-vs-them program to guide policy. Unfortunately, these guiding principles will not be well-suited to the new order that the world finds itself in today. Rather, creativity, innovation, and cooperation will be vital in navigating the treacherous waters where humanity now sails. 

The race of the AI labs heats up

The Economist

Read the full article here

The race for AI innovation continues to heat up. While OpenAI’s ChatGPT, which has received $10 billion in investment from Microsoft, has taken the public by storm, many established firms such as Alphabet, Meta, Amazon, and various Chinese companies, including Baidu, continue making strides in the space. The rate of innovation in AI is notable in that AI serves as the rare R&D context where basic research, often done at government expense due to profitability issues in the private sector, can be done by the private sector with tangible results. As a result, competition continues to breed innovation, as AI advances and new products are brought to market, such as DeepMind’s Sparrow chatbot to be unveiled later this year, or Google’s LaMDA, which performs similarly to ChatGPT. Further, knowledge diffusion in the industry is widespread as private-sector researchers are allowed to continue to publish their findings and speak at conferences, while also having sufficient mobility to move from company to company. As a result, no company has a distinct advantage and no one firm is more than 6 months behind another. With AI innovation proceeding apace, the dawn of the AI age for computer users everywhere may come sooner rather than later.