Ending the US's "forever war", exploring Arctic sea routes and making sense of SPACs
12 - 18 April 2021
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AMERICA’S LONGEST WAR
President Joe Biden has revised the US’s exit strategy for Afghanistan. The new plan is for all American troops to leave the country by 11 September 2021, the 20th anniversary of the 9/11 attacks.
There had been much speculation about whether Biden’s White House would stick to the Trump administration’s 1 May deadline as agreed with the Taliban. But, according to US officials, it was decided that a hasty departure wasn’t responsible - even though the president admitted there would never be “ideal conditions for the withdrawal”.
Washington’s allies immediately said they’ll follow suit, with the UK, Australia and NATO set to pull out their forces in the coming months.
The human, emotional, psychological and financial costs of the conflict in Afghanistan are astronomical. Yet pessimism casts a dark cloud over the end of “the forever war”. Analysts fear an upsurge in violence due to the Afghan government’s inherent weakness and its inability to contain the Taliban.
Talks between both sides on a ceasefire and power-sharing arrangement have stalled. Now the view is that the US’s exit will embolden the Taliban to adopt a tougher negotiating stance - and possibly encourage the militants to fight for total control of the country, as the below BBC report from a Taliban-run province suggests.
Given the precarious situation in Afghanistan, reaction from the world’s press has been mixed. Britain’s The Guardian described it as “an unwinnable war”. The Washington Post called Biden’s move “wrong” and warned about preventing “Afghanistan from again becoming a terrorist safe haven”. Meanwhile, the Sydney Morning Herald said: “There is no victory to be declared here, just as there was no clear imperative in the beginning for Australia to become involved”.
Turkey will hold a 10-day Afghan peace summit from 24 April, with representatives from Kabul, the US, United Nations and Qatar. The Taliban has refused to participate.
ARCTIC SHIPPING CHANNELS
Egyptian authorities have seized the Ever Given cargo ship and slapped its owners with a US$900 million bill. March’s Suez Canal blockage was a costly affair as well as a global logistical nightmare. For those in the maritime sector, the incident was a stark reminder that alternative routes are necessary. The question is: should they be looking to the Arctic Circle for the next shortcut?
As climate change causes the ice around the North Pole to recede, the region is expected to become more accessible to vessels. Normally, the subzero landscape is only navigable for a small window. Consider the Northeast Passage above Russia and the Nordic countries - it’s only open between July and November, and then impassable for the rest of the year.
However, with scientists predicting further melting of ice floes in the Arctic Ocean, shipping companies face the prospect of longer and consistent seasons with fewer obstacles. As it is, ship traffic in the summer and autumn months is already picking up.
Of course, the environmental implications are worrying on multiple levels. Emissions from tankers and disruption to the ecosystem are major concerns. And besides trade, energy firms are eyeing untapped oil and gas reserves while miners are keen to explore deposits of rare earth minerals.
For the moment, the Arctic lanes are being discussed as hypothetical options rather than fixed crossings - but the rewards are hard to ignore. For example: Typically shipping to Japan from Rotterdam would involve the Suez Canal and take about 30 days. If the Northeast Passage was available instead, the trip would be 18 days and the distance would shrink from ~11,500 nautical miles to ~6,900 nautical miles.
This is precisely why a host of countries are beginning to assert territorial claims in the Arctic. In fact, Beijing mentioned the “Polar Silk Road” in its 2021-2025 five-year plan for China.
FINANCIAL LEXICON
SPAC is one of those acronyms (in addition to NFT) that seems to define our bizarre Covid-19 economy.
On Tuesday, Southeast Asia’s ‘super app’ Grab announced it would go public through a SPAC merger that values the company at US$39.6 billion. The record-setting deal will see Grab, whose services range from ride-hailing to hotel bookings, list on the Nasdaq in NYC. It also highlights how this hot investment trend is gaining traction outside of Wall Street.
So what exactly is a special-purpose acquisition company? To sum up: A SPAC is a shell corporation created for the sole purpose of buying a private firm and taking it public without the scrutiny of a traditional IPO.
SPACs technically have no commercial operations or assets, hence the term blank cheque companies. Instead, a group of savvy investors - or ‘sponsors’ - form a SPAC and raise money through its own IPO. The capital is then placed in a trust while the sponsors seek a start-up business to acquire. If nothing happens within 18-24 months, the SPAC is dissolved. However, if a target is found and approved, the SPAC and the start-up combine and the subsequent entity is listed on an exchange.
Although SPACs have been around for decades, their use surged in 2020 amid the pandemic-fuelled market volatility. The advantages of these particular transactions are shorter lead times, less red tape, greater price certainty and control, guidance from industry experts, and the ability to provide revenue projections.
The likes of Richard Branson’s Virgin Galactic, sports betting company DraftKings and electric vehicle designer Nikola chose to go with SPACs. Plus, there’s the element of celebrity glamour with Serena Williams, Shaquille O’Neal and Alex Rodriguez among those backing different SPACs.
Nonetheless, critics and regulators are warning retail (non-professional) investors to keep their wits about them. Naturally a famous person’s endorsement doesn’t guarantee success - and when you buy shares in a SPAC, you’re clueless about which firms the sponsors will pick for their acquisitions.
The US’s financial watchdog, the Securities and Exchange Commission, is paying close attention. In recent weeks, the SEC has flagged various risks, such as lax due diligence and accounting procedures. Insiders believe it could introduce checks and balances to slow down future SPAC deals.
Please feel free to get in touch with your feedback and comments. Stay curious, Sara x