Abu Dhabi

Source: Alittihad Newspaper

Mufakiru Alemarat

Dr. Ali Mohamed Al Khouri

The war in Ukraine has had serious economic consequences worldwide, causing major disruptions to global supply chains and a sharp rise in energy and raw material prices. As a result, many European companies have found themselves on the brink of bankruptcy, especially in Germany, which has been the hardest hit.

A recent report revealed a slowdown in new business activity in Europe, as the US administration’s continued support for green technology has drawn investment away from the continent. According to Eurostat, the number of companies filing for bankruptcy in the second quarter of this year rose by 8.4 percent compared to the first quarter, reaching its highest level since 2015, while new company registrations fell by 0.6 percent.

More than 1,400 companies in Germany have reportedly declared bankruptcy by July, and the number is expected to reach around 20,000 by the end of this year. In Austria, around 3,300 companies declared bankruptcy in the first half of the year, the highest number in 15 years. Britain is also facing around 47,000 bankruptcies, while Japan expects 10,000 companies to go bankrupt. In Canada, around 400 companies are reported to be going bankrupt every day in the second quarter of 2024. This wave of bankruptcies is largely linked to rising prices and the lack of financing that followed the war in Ukraine, as many countries witnessed record increases in interest rates, which led to a recession in their economies.

Declining investments within Europe: indicators and concerns

There are many indicators that investment in Europe is declining, from rising prices and falling demand to weak investments. Several major companies, such as Volkswagen, BMW and Siemens, have announced their intention to move more of their activities abroad, especially to the United States. More medium-sized and small companies have also announced that they are facing financial problems that could lead to bankruptcy, and some have declared bankruptcy. The number of bankrupt companies in Germany alone, in November 2023, reached more than 1,500 companies.

Reasons for the bankruptcy of European and German companies

Many European industries, especially German ones, rely heavily on Russian natural gas to power factories and generate electricity. With Western countries imposing sanctions on Russia over the Ukraine crisis, Russian gas supplies to Europe have declined, leading to a significant rise in gas prices, an increase in companies’ production costs, and a reduction in their competitiveness. The war has also disrupted global supply chains, especially since Ukraine and Russia play a crucial role as major exporters of many basic materials such as grain, minerals, and energy.

The disruption of agriculture and industry in Ukraine has led to a shortage of essential raw materials and a rise in their prices globally. Sanctions on Russia have also increased shipping costs and delayed the arrival of goods, putting further pressure on companies. Rising energy and raw material prices have also contributed to rising inflation in many European countries, reduced consumer purchasing power, and reduced demand for goods and services. All of this has resulted in a decline in corporate profits and an exacerbation of the financial crises they face.

Most affected sectors

Several sectors have been severely affected by the successive economic crises, most notably the energy sector, which has seen a significant increase in gas and oil prices, and the automotive industry, which relies heavily on metals such as nickel and aluminum, whose prices have also risen significantly. The food industry has also been hit hard by shortages of grains and vegetable oils, which have led to higher food prices. Small and medium-sized enterprises have been the most vulnerable to bankruptcy, as they have lower profit margins and a lower ability to withstand economic shocks.

The implications of European corporate bankruptcy

The bankruptcy of thousands of European companies has serious economic and social consequences, including increased unemployment rates due to job losses, and slower economic growth due to lower production and investment. European governments are also facing increasing financial pressures due to the need to provide support to affected companies, which increases the size of government debt. The crisis is also pushing companies to reconsider their supply chains and look for alternative sources of raw materials and energy.

It is clear that European governments are moving towards finding sustainable alternatives to energy sources and various raw materials, and taking measures to support affected companies to face these challenges and achieve economic stability. Such a move will increase competition for technology and renewable resources, and will deepen the gap between developed and developing countries, as the decline in demand for oil and gas will harm the economies of energy-exporting countries, and increases in the prices of rare metals used in green technology may lead to new global inflation. The slow adaptation of developing countries to these transformations could exacerbate unemployment and poverty, and increase political and social unrest, similar to the domino effect that will force everyone to adapt to a new and complex economic reality.

Impact on Arab economies

The economic crisis in Europe, resulting from the war in Ukraine and the rise in energy and raw material prices, highlights the weakness of Arab economies that are directly affected by fluctuations in global markets. While Europe is suffering from waves of bankruptcy and inflation, Arab economies find themselves facing another dilemma. This raises an important question: Will these Arab economies remain closely linked to the faltering European economies, or will they seek to diversify their sources of income and reduce their dependence on European demand? More importantly, how will Arab energy-exporting countries be able to use this crisis to their advantage, not only as an opportunity to increase revenues, but also to build economies based on innovation and sustainable development?

The situation in Europe may prompt Arab countries to rethink their economic policies, especially with the entry of new players into the international arena, and in light of the increasing global competition for resources and investments, the current crisis reveals the need to enhance Arab regional integration and strengthen partnerships with emerging economic powers outside the European framework. The most important question now is: Will Arab countries be able to exploit this critical moment to overcome their historical dependence on Europe and build diversified and more resilient economies?