Why the West won’t just give Ukraine all the weapons it wants

Summary:

The logic behind the slow-build approach to military aid.

When President Joe Biden was asked recently whether the U.S. would provide F-16 fighter jets to Ukraine, his response couldn’t have been clearer.

“No,” he said.

But does he really mean it?

Given the issue, some skepticism is understandable. After all, for months U.S. officials demurred on sending M1 Abrams battle tanks to Ukraine — citing the difficulties involved in maintaining, fueling and training troops to operate them — before reversing course as part of a deal that will also allow European countries to send their German-made Leopard tanks. Before that, these officials repeatedly made the case that Patriot missile interceptors — another weapons system that was high on the Ukrainians’ wish list — were inappropriate for Ukraine’s needs. Until suddenly they weren’t.

So it’s little surprise that Ukrainian officials, who began lobbying allies for fighter jets almost as soon as the tanks decision was made, are confident that it’s “only a matter of time” before they receive the F-16s. The Washington Post has reported that officials within the Pentagon haven’t taken Biden’s “no” very seriously and suspect that the decision will be “M1-ed” — a new term meaning the White House will eventually overcome its reluctance. The Ukrainians are still waiting for that: There were no announcements about planes at a high-level meeting of Western defense ministers in Brussels on Tuesday.

A decision to send F-16s started to look more likely last week during Ukrainian President Volodymyr Zelenskyy’s visit to the United Kingdom, when the British government announced it would begin training Ukrainian fighter pilots on NATO jets and would “investigate what jets we might be able to give.” The U.K. was similarly out in front on the tanks decision, agreeing to send Ukraine some of its Challenger 2s several days before the U.S. and Germany decided to send their own tanks.

Even if a decision to send F-16s does come soon, Ukraine is unlikely to stop pressing for other high-end weaponry. Other systems on Kyiv’s wish list include ATACMS — a long-range missile that can be fired from the already provided HIMARS launchers — and advanced offensive drones.

For Ukrainians, this dynamic — in which each individual weapons system is subject to months of political debate in Western capitals and ultimately cleared for delivery — is deeply frustrating. As Ukrainian Foreign Minister Dmytro Kuleba put it last month, referring to Germany, “It’s always a similar pattern: First they say no, then they fiercely defend their decision, only to say yes in the end.”

Ukrainians are now asking for an end to this pattern, arguing that the only way to bring the war to a close is to give the Ukrainian military everything it needs to win. They see the arguments against more ambitious military aid as excuses, if not something more nefarious.

“The pattern of stop-start arms transfers is because we are fighting enemy disinformation,” Hanna Hopko, a former member of the Ukrainian Parliament who now runs the International Center for Ukrainian Victory, told Grid in an email. “The need now is to think in terms of great power and great responsibility. We have to focus on the victory of Ukraine (defeating Russia faster), not on inflation, energy security, and poll numbers in western nations.”

Ukraine’s staunchest supporters in the West are starting to lose patience as well. In a recent piece in Foreign Affairs, former U.S. ambassador to Russia Michael McFaul made the argument that “at this stage, incrementally expanding military and economic assistance is likely to only prolong the war indefinitely” and that “rather than providing ATACMs in March, Reapers [drones] in June, and jets in September, NATO should go for a Big Bang.”

The idea of a massive military aid package that would allow Ukraine’s armed forces to quickly go on the offensive and overwhelm Russian resistance certainly sounds more appealing than the slow-moving and bloody trench warfare that now seems to be the most likely scenario for the next few months of this war. But the “Big Bang” approach has drawbacks as well.

Changing battlefield

The Biden administration’s argument when it comes to Ukraine aid is that with each new system, it makes a cost-benefit analysis to determine whether the Ukrainians need the specific weapons, and whether the U.S. and its allies can afford to provide them.

In a recent press briefing, State Department spokesperson Ned Price told Grid, “These are discussions that we have with our Ukrainian partners to determine, in the first instance, what it is that they need. We then have these conversations between and among partners and allies to determine what it is that any given partner has and what would be appropriate for us to do.”

Ukraine’s needs have changed, U.S. officials say, because the war itself has changed. During a recent event sponsored by the Defense Writers Group, Sen. Jack Reed (D-R.I.), chairman of the Senate Armed Services Committee, told Grid, “It was a different fight a year ago, as small, decentralized teams of Ukrainians attacked Russian supply lines that are bogged down on a single road because of poor logistics, poor planning. Now we’re looking at much larger forces dug in and making all-out assault against Ukrainian forces.”

Back then, shoulder-mounted anti-tank weapons like the Javelin and Stinger were critical. Now, heavier armor is needed — not only due to the nature of the fighting but also because Ukraine has lost so much heavy equipment during the war. At the beginning of the conflict, tanks were less of a priority because Ukraine already had around 800 Soviet-model T-64s and T-72s. It may now have lost as many as half of those.

Still, it would strain credulity to think such decisions are made solely with battlefield needs in mind. Both Secretary of Defense Lloyd Austin and Chairman of the Joint Chiefs of Staff Gen. Mark Milley reportedly advised Biden against sending M1 Abrams tanks to Ukraine, citing how difficult they are to maintain and how long it takes to train personnel on them. (Given all the shortcomings of the M1 cited by U.S. officials over the past few months, one might reasonably ask why the American military is still using them.) As late as Jan. 20, following a meeting with allied defense chiefs in Ramstein, Germany, Austin batted away questions about the tanks, saying, “What we’re really focused on is making sure that Ukraine has the capability that it needs to be successful right now.” Five days later, Biden announced that the U.S. would provide 31 M1s to Ukraine.

It’s doubtful that Ukraine’s battlefield needs had changed dramatically in less than a week; more likely, the political incentives — namely, giving German Chancellor Olaf Scholz the political cover he needed to provide the Leopard tanks — had become overwhelming.

Escalation fears

On the first day of the war, Russian President Vladimir Putin threatened any countries that might “hinder us, and … create threats for our country” with “such consequences that you have never experienced in your history.” By “consequences,” it was fairly clear he was referring to Russia’s nuclear arsenal — the world’s largest. But it was less clear how he defined “hinder” or “create threats.”

From the beginning, the U.S. and other NATO countries have sought to balance the goals of helping Ukraine fight back with concerns about sparking a wider — and potentially nuclear — conflict.

It’s debatable which of these goals takes precedence. According to the Washington Post, Milley carried a notecard in his briefcase for several months listing U.S. strategic goals in Ukraine. The first was “Don’t have a kinetic conflict between the U.S. military and NATO with Russia,” while “Empower Ukraine and give them the means to fight” was fourth.

In a December joint press conference with Zelenskyy, during the Ukrainian president’s visit to Washington, Biden was asked by a Ukrainian reporter, “Can we make a long story short and give Ukraine all capabilities it needs and liberate all territories rather sooner than later?” The U.S. president stressed the importance of maintaining the support of all NATO allies and said, “They’re not looking to go to war with Russia. They’re not looking for a third World War.”

This “third World War” argument is why the U.S. quickly ruled out sending troops to Ukraine or setting up a no-fly zone that could lead to direct fire between U.S. and Russian aircraft.

But it’s also true that Washington’s comfort level with sending heavy weaponry has increased dramatically since the early days of the war.

So the gradual amping up of support, one weapons system at a time, can be viewed as a form of “salami tactics”; as in, a slice of something (Javelin anti-tank weapons) in one month; another weapon system a couple of months later and so forth. The thinking being, a major deployment of tanks and aircraft shipped to Ukraine all at once might provoke a catastrophic Russian response; each gradual increase in support does not.

Putin or other senior Russian officials have typically threatened some response to each of the Western weapons shipments, but the retaliation has never materialized. As nuclear analyst Joe Cirincione has written, by gradually ratcheting up aid, “Joe Biden has carefully threaded the nuclear needle.”

Mark Cancian, a senior adviser with the Center for Strategic and International Studies, told Grid, “The Russians have laid down two red lines: One is no NATO troops in Ukraine, and the other one is no invasion of Russian territory. And the U.S. and NATO have respected those red lines. Tanks and Patriots and HIMARS and everything else don’t contravene those two red lines.”

Arguably, fighter jets would be in a different category, as they would give Ukraine greater capability to strike within Russian territory. But Ukraine already has some Soviet-era aircraft in its arsenal and has already used drones to strike within Russia. It seems unlikely that F-16s would push Putin to start World War III when previous weapons upgrades did not. But given the stakes, NATO governments are treading very carefully.

Training and logistics

Another limiting factor in the pace of weapons deliveries to Ukraine may be the ability of the Ukrainians to absorb them.

To be fair, Ukraine’s armed forces have shown repeatedly that they are able to speed up the normal training timetables for NATO weapons systems. Lt. Gen. Ben Hodges, former commander of the U.S. Army in Europe, recently told Grid that “the Ukrainians have demonstrated time and time again that they can learn how to use anything in about one-third the time the rest of us can.” With the Polish military’s assistance, they are currently working to reduce the training time on the Leopard tanks from 10 weeks to five, and Ukrainian officials say their pilots could learn to fly the F-16 in about six months, rather than the typical nine.

Still, six months is a long time in a war as fast-changing as this one. U.S. officials clearly worry that Ukrainian troops won’t be ready to use these systems in time for them to make a difference. The counterargument is that if Western countries had agreed to send jets and train Ukrainian pilots six months ago, they’d be ready for action now. This seems to be what motivated Britain’s decision last week to begin training Ukrainian pilots on their Typhoon jets before actually agreeing to send them.

In the specific case of the F-16, there are concerns that the significant infrastructure and support systems these jets require to operate effectively, particularly given Russia’s extensive network of air defenses and surface-to-air missiles, would divert scarce resources from other Ukrainian goals.

There’s also the challenge of getting all the various vehicles, artillery and air defense systems from various countries to work together as one cohesive system, and how to make sure there are trained personnel to maintain each system and keep them all running. The Ukrainians have sometimes referred to their multinational arsenal as a “petting zoo.” A slow but steady flow of new systems — rather than everything, all at once — gives Ukrainian logistics specialists time to integrate all the new hardware.

Sustainability

Before the war, Western countries avoided giving so-called offensive weapons to Ukraine out of fear of provoking a Russian invasion. Besides, many experts argued that Western weaponry would make no difference in the face of Russia’s clearly superior military. Even after Russia’s initial attempt to take Kyiv failed and it became clear that this would be a fairer fight than many anticipated, it seemed plausible that it would end quickly either in Ukrainian defeat, Russian military collapse or a negotiated settlement. Sending some of the world’s most advanced and expensive military systems to Ukraine, where they could be destroyed or captured, was not a no-brainer until the Ukrainians demonstrated they could effectively use them.

Now, it’s clear that both sides are dug in for a long war absent some unexpected development.

Over time, Western nations have gradually provided more and more advanced weapons systems in hopes of breaking the stalemate. And, politically, each successive weapons system debate has become a sort of litmus test for the West’s willingness to support Ukraine.

In the end, however, it is unlikely that any individual system will be a silver bullet that breaks the stalemate. Rather than who is fielding the most advanced military technology, victory in this conflict is more likely to come down to which side can continue to supply simple things like artillery shells to the battlefield for longer. That will be less a matter of risk calculation than of how much Western countries are willing to mobilize their arms industries to keep the flow going. NATO Secretary-General Jens Stoltenberg warned on Tuesday that “the current rate of Ukraine’s ammunition expenditure is many times higher than our current rate of production.”

Meanwhile, the gradual ratcheting-up dynamic may soon come to an end simply because — beyond fighter jets and long-range missiles — there aren’t many more weapons systems the West is holding back. After that, the question will not be what weapons the West is giving to Ukraine, but how many of them and for how long.

Source：Grid.news

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FastBull Featured

Daily News

【Quick Facts】

1. Biden shows up in Kyiv.

2. Saudi Arabia's crude oil exports rebounded from a 5-month low in December.

3. Market expectations lean toward the Fed.

4. Russia's GDP declines 2.1% in 2022.

5. Recent US economic robustness cannot save the economy from recession risk.

【News Details】

1. Biden shows up in Kyiv.

U.S. President Joe Biden made a sudden visit to Ukraine on Monday, appearing in the center of Kyiv and promising to stand by Ukraine all the time. In response, Zelenskiy said that the visit of the US president to Ukraine, the first in 15 years, is the most important visit in the entire history of U.S.-Ukrainian relations."

While Biden was in Kyiv, the U.S. State Department announced it would provide Ukraine with a further $460 million in assistance, including $450 million worth of artillery ammunition, anti-armor systems and anti-aircraft radar, as well as $10 million for energy infrastructure. Specific details will be announced within the day.

2. Saudi Arabia's crude oil exports rebounded from a 5-month low in December.

Saudi Arabia's crude oil exports rebounded in December after falling to a five-month low the previous month, according to data released Monday by the Joint Oil Database JODI. they rose about 2.2 percent to 7.44 million BPD from 7.28 million BPD in November. Earlier this month, Saudi Arabia raised the price of its flagship crude for Asian buyers for the first time in six months, as the market expects oil demand to recover. Although OPEC previously raised its forecast for global oil demand growth in 2023, its monthly report showed that crude production in Saudi Arabia, Iraq and Iran all fell as part of the organization's agreement.

3. Market expectations lean toward the Fed.

After a series of far more expected U.S. economic data cloth, the market expects the upper end of the federal funds rate target range to increase by about 40 bps to 5.25%, and the arrival point is expected to change from June to July. The question at hand, however, is whether the ultimate rate will be higher. Initially the market simply pushed back the timing of the rate cut, but in the recent week, it can be seen that market pricing expectations are not simply postponing the timing of the rate cut, but more systematically retracting the expectation of a rate cut. In addition to the change in money market pricing, we also look at the rise in market implied inflation expectations and US interest rate volatility. The market is having to turn to the greater likelihood that the Fed will maintain "higher rates for longer".

4. Russia's GDP declines 2.1% in 2022.

Russia's gross domestic product fell by 2.1% in 2022, according to data released by the Russian Federal State Statistics Service (Rosstat) on February 20, local time. The data from the Russian Federal State Statistics Service are better than the expectations of the Russian Ministry of Economic Development and the Central Bank of Russia. Last September, the Russian Ministry of Economic Development forecast a 2.9% decline in the country's economy in 2022, and the Central Bank of Russia predicted a 2.5% decline.

5. Recent US economic robustness cannot save the economy from recession risk.

The U.S. economy has started the year strongly, with better-than-expected data on employment, retail sales, industrial production, and even the housing market. This follows two months of weak data at the end of 2022 that prompted a general reassessment of the economic outlook and financial markets. However, year-end and early-year data tend to be very volatile, and seasonal factors and temporary idiosyncrasies seem to have played a key role in the economic situation in recent months. By the second quarter, U.S. economic activity will have slowed significantly, signaling a mild recession for the rest of the year.

【Focus of the Day】

UTC+8 16:30 Germany Preliminary Markit Manufacturing PMI (Feb)

UTC+8 17:00 Eurozone Preliminary Markit Manufacturing PMI (Feb)

UTC+8 17:30 UK Preliminary Markit Services PMI (Feb)

UTC+8 18:00 Eurozone ZEW Economic Sentiment Index (Feb)

UTC+8 21:30 Canada CPI Annual Rate (Jan)

UTC+8 22:45 U.S. Preliminary Markit Manufacturing PMI (Feb)

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Owen Li

Economic

After taking a battering in 2020, the Southeast Asian economy appears to be finding its feet. In its latest forecast, the International Monetary Fund (IMF) expects Southeast Asia to be the world's fastest growing region, with the five largest economies expanding at 4.3 per cent in 2023 and 4.7 per cent in 2024. The Asian Development Bank (ADB) is more optimistic. It places regional growth in 2023 at 4.7 per cent (Table 1).

The pertinent question here is whether there are risks that could derail the regional recovery. In 2022, the Southeast Asian economy gained momentum as growth reached 5.5 per cent. The growth came despite several external risks: the escalation in the trade and technology war between the United States and China; the Russian invasion of Ukraine and the resultant geopolitical risks and spike in agricultural and energy prices, and monetary tightening. At the height of the pandemic in 2020, Southeast Asia's economy had contracted by 3.2 per cent. In 2021, the region returned to growth of 3.3 per cent as lockdowns eased.

The Profound Influence of China

The prospects for Southeast Asia's recovery hinge crucially on what happens in China, as well as the global economy. China has experienced a massive decline in growth since the pandemic began and prolonged lockdowns due to its zero-Covid policy. After several downgrades, the IMF has recently revised upwards its projection for China's growth to 5.2 per cent in 2023 and 4.5 per cent in 2024. China's decision to finally reopen underlies this upgrade, although there are still a number of domestic uncertainties in the banking and property sectors that could impinge upon growth, including the possibility of a severe Covid-related health outcome.

Another key factor is how the U.S.-China trade war evolves. The trade war is escalating and now includes bans on technologies and controls on exports of advanced semiconductor chips to China by U.S. companies, for instance. The switch from tariffs to non-tariff barriers is concerning as the latter are opaque, and their impacts can be profound. The escalation could have a major impact on Southeast Asia since their regional supply chains remain China-centered. The conflict has already resulted in some labour-intensive industries and activities relocating from China to Vietnam, Thailand and Malaysia. Capital-intensive components of the key supply chain industries — electronics, electrical and other machinery, and automotive parts — have not been much affected as yet. That is not to say they will not be affected should the conflict continue to escalate.

The Fallout from the Russia/Ukraine War and Fed Tightening

Compounding matters, there is a kinetic war following the Russian invasion of Ukraine in February 2022. This has driven up energy costs and caused a spike in geopolitical risk and major agricultural and other commodity prices. The war increased the urgency for ASEAN countries to transition their energy policies while managing other risks and keeping an eye on inflation.

The U.S. Federal Reserve responded to inflationary concerns with aggressive monetary tightening following years of loosening in the form of quantitative easing. The aggressive response affected global interest rates and could induce a recession in the U.S. and Europe. But there are signs that the tightening may end soon. Reflecting this, the IMF's assessment in January 2023 is less pessimistic about a global recession, with global growth revised upwards to 2.9 per cent from 2.7 per cent in October 2022. This is also due to adverse risks moderating with a stronger boost emerging from pent-up demand and a faster fall in inflation expected. Nevertheless, the balance of risks remains tilted to the downside, so a global recession cannot be ruled out entirely.

Global Gloom and Domestic Concerns

The major concern for Southeast Asian countries from a possible recession in the West is the impact on exports and growth, and indirectly on debt levels, which are projected to rise. All Southeast Asian economies saw their fiscal positions worsen after massive government spending related to Covid-19. A rise in service costs of external debt through rising interest rates, as well as the valuation effects of a stronger U.S. dollar, will increase the debt burden and could induce debt distress in some countries, such as Laos.

Although prospects for the region will be heavily influenced by global developments, given its heavy reliance on international trade and investment, domestic factors should not be discounted. On the political front, Malaysia and the Philippines have newly elected administrations that are still finding their feet. Thailand and Cambodia will hold elections in May and July, respectively. Although Indonesia will only go to the polls in February 2024, the fate of the US$34 billion project involving the relocation of the capital could be affected. Until the new President is elected, some policy paralysis can be expected. The political and economic turmoil in Myanmar is a grave concern for its citizens and also ASEAN.

Protectionism in New Garb

These uncertainties and the pandemic have contributed to an increase in anti-globalisation sentiment that could further threaten the recovery. For instance, there is increasing discussion of the need to improve the resilience of supply chains, emanating from the U.S. but spreading quickly to other countries. The calls for reshoring, friend-shoring, and nearshoring of supply chains, which is in one of the four pillars of the US-led Indo-Pacific Economic Framework for Prosperity (IPEF), is not just about limiting capital outflows, but reversing them. This is basically protectionism in new clothing. The shift toward so-called self-reliance comes at a time when the need for liberalisation is increasing but the appetite for it is waning. The disparity between need and appetite further weakens the ability to address the impacts of digital disruption, divergent demographic trends and the rise in all forms of inequality. Unless these protectionist tendencies are curbed, Southeast Asia's recovery as well as its long-term growth and prosperity will be at risk.

Source: Fulcrum

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Thomas

Economic

Malaysia's economy expectedly grew faster than the official 2022 growth forecast of 6.5% to 7% by more than a full percentage point — topping 8% for the first time in 22 years and putting growth among the highest in the world.

Even though at least nine experts had expected Malaysia's 2022 gross domestic product (GDP) growth to top 9% year on year, actual headline growth of 8.7% still came in ahead of consensus estimates: Median expectations among 35 houses polled were 8.5% and had averaged 8.3%, according to Bloomberg data at the time of writing.

Yet, given challenges ahead, last year's exceptional 8.7% headline GDP growth only accentuates the need for the country to step up overdue strategic reforms to finally attain the long-desired digitally driven, high-income developed nation status and remain one for the long haul.

While headline GDP may well be just another number to the man in the street, especially those struggling with the rise in cost of living, it is important that economic growth momentum is sustained. More on this later.

Those familiar with Malaysia would know the country was among the world's fastest-growing economies in modern history, with annual growth rates of 9% between 1967 and 1997 — more than double the current average of 4%.

In the decade between 1988 and 1997, ahead of the 1997/98 Asian financial crisis, Malaysia's GDP had grown an average of 9.3% a year, reaching as high as 10% in 1996 and still saw 7.3% growth in 1997, according to data from the Department of Statistics Malaysia.

Headline 2022 GDP growth would have beaten the 8.9% GDP growth in 2000 and been at a 26-year high if growth in the fourth quarter of 2022 had been above 7.5% instead of at 7%, back-of-the-envelope calculations show. This is still ahead of Bloomberg consensus of only 6.7% for 4Q2022.

Apart from still-robust private consumption, a rise in investments, higher net exports and a recovery in tourism-related activities, chief statistician Datuk Seri Mohd Uzir Mahidin also noted that inbound travel expenditure of RM27.9 billion in 2022 had improved from 2021 but was still only one-third of the pre-pandemic RM82.1 billion. Meanwhile, outbound travel expenditure had increased to RM29.6 billion in 2022, about half of RM51.3 billion recorded pre-pandemic.

Bank Negara Malaysia governor Tan Sri Nor Shamsiah Mohd Yunus, who announced the 2022 full-year GDP numbers, alongside Mohd Uzir last Friday (Feb 10), said an update to Malaysia's 2023 official GDP growth forecasts — which currently stand at 4% to 5% — will be given on Feb 24 when Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim re-tables Budget 2023.

Asked for guidance on the 2023 growth forecast, Nor Shamsiah said those reading the numbers should take into account a "higher base effect". She had earlier stressed at least three times at the media briefing last Friday that Malaysia would not see a recession in 2023. In her presentation, Nor Shamsiah said risks to growth "remain tilted to the downside" on external factors, listing "a faster-than-expected implementation of investment following reforms", larger improvements in tourism, stronger-than-expected domestic income and employment growth as well as a realisation of global pent-up demand as among factors that could help 2023 GDP growth come in faster than expected.

In a statement on Feb 10, Anwar had noted expectations of slowing global growth in 2023 but added that the upcoming Budget 2023 would underline the government's continued support for economic growth and bolster private sector confidence to maintain economic growth momentum for the well-being of the people.

Lifting the average to 6%

Prior to the 4Q2022 GDP data release on Feb 10, Ndiamé Diop, World Bank Group country director for Brunei, Malaysia, the Philippines and Thailand, had spoken about the need for Malaysia to step up strategic reforms and investments to lift average annual growth to 6%, from 4% now.

"Malaysia can and should do more than 4% [long-term annual average growth rate]. It is really important for Malaysia to jack up that growth [rate] from 4% to 6%, as that would mean, in good times, you can get 7% and bad times 5% [and] we do see opportunities for Malaysia to get from 4% [annual average] to 6%. A big one is what is happening to global investments," Diop said at the launch of the World Bank's latest Malaysia Economic Monitor (MEM) on Feb 9.

"FDI [foreign direct investment] is being reallocated globally [on the back of geopolitical concerns]. Malaysia is well-placed to capture some of those flows," he says, also highlighting the benefits of harnessing digitalisation. "Greater digital inclusion can help Malaysia boost productivity growth and maybe reverse the slowdown in productivity growth.

"In absence of fiscal reforms, [higher GDP growth would] allow you to spend more and, hopefully, spend better."

Diop, who is also a trained economist, adds that Malaysia's debt-to-GDP levels would also improve with higher growth even as the country executes fiscal reforms.

Digitalisation key to lifting productivity

"Digitalisation is a key driver of total factor productivity, which is of critical importance to Asian countries like Malaysia, where productivity growth had been lagging its aspirational peers even before the pandemic," World Bank researchers write in the MEM report.

Among other things, researchers had flagged evidence of demand for advanced digital skills in Malaysia "increasing more rapidly than supply", despite the shortage being known for at least six years.

Noting that Malaysia already has a Digital Government Competency and Capability Readiness framework from 2019, the World Bank researchers say in the MEM that "allocation of sufficient budget and monitoring of results indicators focused on digital skill building are needed". To enable more effective coordination and execution of socioeconomic development programmes, the interoperability of government portals as well as existing government administrative databases need to be improved, say the researchers.

Indeed, Malaysia knows what needs to be done. The MEM lists at least four of the country's key policy documents that stress the importance of digitalisation in achieving the country's development objectives.

These documents include Malaysia's Digital Economy Blueprint (MyDigital) — launched in 2021 as a roadmap for digital transformation through 2030 — which Minister of Economy Mohd Rafizi Ramli said was "one of the first things" he went through when appointed to office.

"These blueprints have been there for a while. It is a question of making sure that they are translated into policies [and execution]. With about eight years to [2030], we have to make sure we fully make use of the time to realise the many objectives of the blueprint [aimed at] enhancing digital economy, strengthening human capital and strategic capacity," Rafizi said at the MEM launch last Thursday.

Rafizi, who is overseeing the mid-term review of the 12th Malaysia Plan to be released later this year, also acknowledged the need to accelerate reforms and embrace digitalisation "to not just withstand challenges ahead but also realise a lot of unfulfilled potential in this country".

While it is impossible to plan everything in advance, Bank Negara deputy governor Datuk Shaik Abdul Rasheed Abdul Ghaffour, who also spoke at the launch of the MEM, rightly said Malaysia could "position [itself] as and when opportunities arise" by "getting it right on policies, platforms and people".

Given that digitalisation is fast-evolving, formidable and irreversible and that a truly digital society can only be built when there is buy-in from all levels of society, Abdul Rasheed said "[the people] must strive together as a nation to formulate solutions for a digital Malaysia" — not only to address the many challenges faced by society but also guard against potential threats.

Drawing wisdom from the past, Abdul Rasheed borrowed a quote from Abraham Lincoln: "The best way to predict the future is to create it."

To build the future, Malaysian society as a whole need to become creators and innovators of technology, instead of just users of it. That at least five million Malaysians made their first digital merchant payment after the Covid-19 pandemic began is encouraging, but far from where society and the country need to be.

Source: The Edge Malaysia

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Cohen

Commodity

The profit for making diesel in Asia has dropped to the lowest in almost a year, a sign that the market is adapting so far to the European ban on imports of the transport fuel from Russia.

The profit margin, or crack, on producing a barrel of gasoil, the building block for diesel, at a typical Singapore refinery slipped to $22.05 a barrel on Feb. 17, the lowest since March 16 last year.

The crack is down 43% from its peak so far this year of $38.89 on Jan. 25, and is also 69% below its record high of $71.69 from June last year, reached in the aftermath of Russia's Feb. 24 invasion of Ukraine.

Rather than being driven by concerns over the potential loss of Russian shipments of diesel, the market in Asia appears more reflective of ongoing strength in diesel exports from China and India.

China is expected to export about 2.4 million tonnes of diesel in February, equivalent to about 643,000 barrels per day (bpd), according to data compiled by Refinitiv Oil Research.

This would be up from January shipments of around 1.78 million tonnes and 2.32 million in December.

China's vast refining sector has been ramping up throughput in order to produce more gasoline as domestic demand rebounds in the wake of Beijing abandoning its strict zero-COVID policy, which had led to a slowing economy.

However, diesel demand is lagging the growth in gasoline consumption as it takes more time for construction projects to get going.

This means China's refiners are likely producing more diesel than domestic requirements, meaning they are likely to export the surplus.

While the profit margin on diesel is shrinking, it's still strong by historic standards, having rarely traded above $20 a barrel between 2014 and the end of 2021.

However, it's worth noting that gasoline in Asia is currently treading a different path to diesel, largely because China is exporting less.

China exports of gasoline have been declining in recent months as domestic demand recovers, and Refinitiv has tracked only about 300,000 tonnes so far in February, well below the 625,000 tonnes in January and December's 1.9 million tonnes.

The profit margin on producing a barrel of gasoline from Brent crude in Singapore ended at $11.94 a barrel on Feb. 17.

While this is below the peak so far in 2023 of $18.32 a barrel, the crack has been on an uptrend since its 2022 low of a loss of $4.66 a barrel on Oct. 26.

India Exports

The profit for making diesel is also been hit by ongoing strength in exports from India, which is expected to ship about 2.0 million tonnes of diesel in February, similar to January's 2.01 million, although the daily rate is likely to be higher given February only has 28 days.

The impact of the European Union ban on imports of Russian oil products, which came into effect on Feb. 5, can be seen in India's exports, which are increasingly shifting to the West of Suez markets in Europe and Africa.

Almost 88% of India's February diesel exports are heading West of Suez as refiners on the country's west coast take advantage of the gap left by Russian diesel exiting Europe.

It also appears that Russia is still able to find buyers for its diesel, despite losing its biggest market as Europe used to buy about 500,000 bpd of Russian diesel prior to the war in Ukraine.

One new avenue of trade is Middle Eastern countries such as the United Arab Emirates and Saudi Arabia buying Russian diesel, most likely to use in their domestic markets, thus allowing them to export locally-produced fuel that is compliant with European and other Western sanctions.

Middle East imports of Russian diesel are expected to hit a record high of 338,000 tonnes in February, or almost eight times the pre-invasion average of around 43,500 tonnes a month, according to Refinitiv data.

Overall, the message from physical oil products markets is that they are able to adapt and cope with the disruptions caused by the re-alignment of Russian exports.

This is similar to what has already been seen in the crude oil market, where China and India effectively replaced Europe and other Western buyers, and were happy to take the discounts offered by Russia as Moscow sought to keep earning revenue from its energy exports.

The question is whether all the shuffling of the trade in oil products like diesel cut the flow of cash to Russia by enough to be deemed a success by Western governments, or whether the real beneficiaries are the traders and refiners who adapt best.

Source: ETEnergyworld

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Samantha Luan

Commodity

Energy - Natural gas continues to weaken

European natural gas prices continue to come under pressure, with TTF falling below EUR50/MWh on Friday and trading at its lowest levels since August 2021. Forecasts for milder than usual weather for large parts of Europe over the next week have put pressure on prices, whilst the imminent restart of Freeport LNG certainly wouldn't have helped sentiment. However, we are likely getting to levels where the market should find some form of support. Coal-to-gas switching levels are not too far away and so if we see much more weakness this is likely to stimulate some demand from the power generation sector. The latest data from GIE shows that European gas storage is a little more than 63% full, above the 5-year average of 44% and well above the 31% seen at this stage last year.

U.S. natural gas prices also weakened further, trading down to their lowest levels since September 2020. This weakness comes despite the progress made with the restart of the Freeport LNG export plant. Milder than usual weather over large parts of the U.S. is weighing on heating demand. This has meant that the gap between current U.S. storage and the 5-year average is widening.

As for oil, prices came under renewed pressure last week, with ICE Brent falling by almost 4% over the week. A raft of strong data in recent weeks has raised expectations for a more hawkish Fed, which has weighed on the bulk of risk assets. There is very little on the calendar for the oil market this week, apart from the usual weekly EIA inventory data, which will be delayed by a day due to a public holiday in the U.S. on Monday.

Metals - Lead exchange stocks in China surge

The latest data from Shanghai Futures Exchange (ShFE) shows that weekly inventories for metals posted another week of gains as of Friday. Lead weekly stocks jumped by 52% WoW to 77,216 tonnes (highest since September 2022) over the last week. Among other metals, zinc stocks rose 15% WoW to 121,413 tonnes (highest since June), while aluminium inventories climbed 8% WoW to 291,416 tonnes at the end of last week.

The latest data from Zambia's Finance Ministry shows that copper production reached 763.3kt (its lowest since 2015) in 2022, a decline of 4.7% YoY. The decline came despite the government's aim to boost mining output for copper to 2mt by 2026.

The latest statements from Ukraine's Justice Ministry suggest that the nation's top anti-corruption court has ordered the seizure of a key alumina plant linked to United Co. Rusal International and more than 300 assets linked to Deripaska. The Mykolayiv alumina refinery has been offline since early March 2022, following Russia's invasion. The refinery could produce about 1.76mt of alumina annually.

Agriculture – Sugar spread strength

There are reports that the Indian government has decided not to allow further sugar exports this season beyond the already approved 6mt. There have been growing concerns for several weeks now that the government would not allow further exports, given worries over the domestic crop. The government will once again evaluate the domestic balance in March, at a time when cane crushing nears its end before deciding on exports. The move does raise concerns over tightness in the global market, which is reflected not only in the strength in the flat price, but also the March/May spread, which is trading in deep backwardation of more than USc1.60/lb. Worries over tightness should ease once the CS Brazil harvest gets underway in the second quarter.

The Rosario Grains Exchange expects corn shipments in Argentina to fall by 40% YoY between March and June as severe drought impacted crop plantings this season. The exchange projects corn shipments to total just 8.7mt in these four months, as only 19% of the estimated area (7.3m hectares) was planted in the initial weeks. Previously the exchange trimmed its corn production estimates to 42.4mt for the second time following severe drought conditions, much lower than initial expectations of 55mt.

Recent numbers from Ukraine's Agriculture Ministry show that farmers harvested 53.9mt of grain from 98% of the expected area as grain harvests near completion. The wheat harvest stood at 20.2mt, whilst farmers harvested 26.5mt of corn from 94% of the expected area in 2022.

Source: ING

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Devin

Egypt's annual headline urban inflation jumped to 25.8% in January 2023, from 21.3% in December 2022, according to the Central Bank of Egypt (CBE).

The CBE said that inflation continued to be influenced by supply chain disruptions, the exchange rate fluctuations since March 2022, and the increase in demand-side pressures on consumer prices.

Annual headline inflation in January 2023 reflected mainly higher prices of food items and supported by higher prices of non-food items. Annual food and non-food inflation continued their upward trend to record 47.9% and 16.0%, respectively.

Monthly headline urban inflation recorded 4.7% in January 2023, up from 0.9% in January 2022. This was mainly driven by a broad-based increase of 3.5% in core food items' contribution to inflation.

Non-food items also contributed to monthly headline urban inflation, which was basically driven by the higher contributions of both services and retail items.

Driven by higher broad-based annual contributions, annual core inflation continued its upward trend that started more than a year ago, to record 31.2% in January 2023, from 24.4% in December 2022.

Monthly core inflation recorded 6.3% in January 2023, up from 0.8% in January 2022, the highest monthly core inflation rate on record.

Nationwide annual inflation increased to 26.5% in January 2023 from 21.9% in December 2022. In addition, rural annual inflation increased to 27.2% in January 2023 from 22.5% in December 2022.

Prices of fresh vegetables declined by 2%, while prices of fresh fruits increased by 2.2%. Together, they contributed by negative 0.03% to the monthly headline inflation.

Prices of poultry, pasta, dairy products and red meat increased by 29.6%, 17.8%, 10.4%, and 9%, respectively; registering their highest monthly increases on record.

Accordingly, the contribution of poultry, pasta, dairy products and red meat to the monthly headline inflation was 1.32%, 0.17%, 0.43%, and 0.38%, respectively.

Prices of oils and fats increased by 11.1%, to contribute by 0.36% to the monthly headline inflation.

Prices of fish and seafood increased by 9%, to contribute by 0.21% to the monthly headline inflation.

Prices of eggs increased by 9.8% to contribute by 0.15% to the monthly headline inflation.

Prices of market tea increased by 8.9% to contribute by 0.07% to the monthly headline inflation.

Prices of other core food items including market sugar, confectionery and sweets, pulses, bread, and rice among others, increased to contribute by 0.41% to the monthly headline inflation.

Prices of services increased by 2.3%, to contribute by 0.75% to the monthly headline inflation. This mainly reflected higher expenditure on restaurants and cafes.

Prices of retail items increased by 2.6%, to contribute by 0.37% to the monthly headline inflation. This was mainly due to an increase in the prices of personal care products, clothing and footwear, household appliances and cleaning products, and medical products and appliances.

Prices of regulated items increased by 0.3%, to contribute by 0.07% to the monthly headline inflation.

Monthly core inflation was affected by price changes of the aforementioned core CPI items.

Core food items, services and retail items contributed by 4.78%, 1.03%, and 0.50% to monthly core inflation, respectively.