Ukrainian town prepares for war

This is an audio transcription of the FT press briefing podcast episode: Ukrainian town prepares for war

Marc Filipino
Hello from the Financial Times. Today is Monday, January 31, and it’s your FT News Briefing.

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The head of the world’s largest sovereign wealth fund is betting that inflation will persist. And the earnings season revealed real winners and losers from the supply chain crisis. Plus, as tension rises between Russia and the West, we’ll take you to a city on the front lines of the conflict.

Ben Room
It is an uncomfortable part of Ukraine which is very nervous.

Marc Filipino
I’m Marc Filippino and here’s the news you need to start your day.

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Economists are divided on whether inflation is temporary or permanent. But the head of the world’s largest sovereign wealth fund thinks inflation could become sustainable. Nicolai Tangen heads Norway’s $1.3 billion oil fund. He told the Financial Times that ongoing inflation means investors face years of low returns. Inflation in the biggest economies is now at its highest level in decades. Tangen said he thinks inflation could be stronger than generally expected. He points to high demand, the number of people leaving the labor market and the continuing disruptions to supply chains.

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Now speaking of supply chain issues, they are playing a starring role in the current earnings season in the United States. Many companies have complained of shortages, delays and rising costs. Some companies have made it through the disruption, others not so much. Our US economics editor Andrew Edgecliffe-Johnson starts with the winners.

Andrew Edgecliffe-Johnson
Well, it seems a little strange to say that Apple is one of the winners when it says supply chain constraints cost it about $6 billion in the last quarter. But in reality, Wall Street had come to fear that it would cost around 10 billion euros, so Apple became one of the winners of this earnings season. We’ve had some pretty optimistic statements from General Dynamics, 3M, the Freeport-McMoRan mining company. But on the other side were companies like GE, which was hit by shortages of semiconductors, resin, parts, labor at some of its suppliers. Caterpillar, Mondelez and even Tesla have admitted that supply chain challenges, particularly related to semiconductors, are going to be present for most of this year, if not next year.

Marc Filipino
Now, as you mentioned, Tesla and one of the things it’s trying to do is move some of its production in-house to avoid the supply chain issues we’re talking about here. Who else does this?

Andrew Edgecliffe-Johnson
So I’ve talked to a bunch of companies, a bunch of consultants, a bunch of supply chain specialists who said that pretty universally they said, you know, Covid and all the shutdowns of factories, you know, higher shipping costs, the shortage of key workers like truckers has really forced a rethink of the very long-standing belief in corporate America that what you need are chains of just-in-time supply. There is a shift to a new mantra of “just in case”, some call it resilience, but these are the new slogans that are gaining traction in corporate America right now in the wake of these very long-lasting disruptions.

Marc Filipino
Andrew Edgecliffe-Johnson is the FT’s US economics editor.

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US and UK lawmakers are ready to hit Russia with sanctions if it invades Ukraine. Meanwhile, Vladimir Putin continues to reinforce Russian forces on the border with Ukraine, according to US defense officials. Now some see this as a high risk strategy. But if Russia invades, there are several avenues it could take. And one runs through the city of Mariupol in southeastern Ukraine. It is home to around half a million people and FT Europe editor Ben Hall recently visited to speak to some of them. He joins me now to talk about what he found. Hi Ben.

Ben Room
Hello.

Marc Filipino
So Ben, it must have been quite a trip. Can you paint me a picture of what the city looks like, you know, what did you see?

Ben Room
Well, the image you would get is an unmissable image, of these two towering steelworks, which are in fact among the largest steelworks in all of Europe. They employ tens of thousands of people. You can smell coal in the air, coal burning in the air. It’s not a rich city, but people were doing ordinary business. I felt like life was going on as normally as in most of Ukraine.

Marc Filipino
And the people of Mariupol, I understand they know war and conflict well, don’t they?

Ben Room
The people of Mariupol, like many Ukrainians, have lived with war since 2014. They saw Russia carve out the Crimean peninsula and then unleash this separatist uprising in the Donbass region, of which Mariupol is a part, although it does not not really part of the occupied region. It’s about 20-30 km away. So they lived with this reality of the fighting and there were some pretty brutal experiences for this city in the fighting in 2014-2015, including a very famous episode where the city was bombarded by a bomb in a barrage of rockets and 30 civilians were killed.

Marc Filipino
So how do they feel now Ben, you know, who did you talk to when you were there?

Ben Room
Well, we met military officers, we met local residents, we met the mayor. Almost everyone we spoke to had a hard time imagining a very large-scale invasion happening. They’ve been at war for a while, so they’re not alarmed by, you know, the idea of ​​necessarily by some sort of escalation. The second thing is that many Ukrainians think they are in a much better position this time to withstand a Russian onslaught. Their army is stronger and many Ukrainians are ready to take up arms and fight. So there’s that kind of element of defiance, certainly among Ukrainians who are very supportive of Kyiv among Russian-speaking residents, who are suspicious of Kyiv’s motives. They are more apt to believe Russian propaganda, Russian public television, that they can get there and believe those kinds of stories. So there are certainly different points of view within this city.

Marc Filipino
And is there tension between these two groups of people?

Ben Room
There doesn’t seem to be much of what you might call a kind of communal tension between these different groups. We were really struck by the fact that I referred to a bombing that killed 30 people in 2015, and there was a young couple who said they thought the Ukrainian authorities were responsible for that attack on rocket. And literally, we turned around and there was another guy standing a few feet away, and he had the completely opposite view. They both lived in the same area and yet they had very different interpretations of who was responsible for this and what was behind this atrocity. And that, in a way, was really quite shocking to see. I think the city has become more Ukrainian in recent years and less pro-Russian, so maybe the kind of pro-Ukrainian sentiment is more dominant there now than it used to be.

Marc Filipino
So is there an economic or strategic value for the city, whether for Ukraine or Russia? Is there a reason why Russia would want to take Mariupol?

Ben Room
Well, both steel mills are a very important part of Ukrainian industry. And steel is one of Ukraine’s great exports, a great source of foreign currency. So it is clear that if the Russians were to take the city and take over the city, then they could take over these steel mills and deprive Ukraine of their revenue. They could take over the ports, they could stop the steel from coming out. The port is also used for the export of goods, especially grain. It is an outlet to the rest of the world. And one of the possible scenarios, one of the possible intentions of Vladimir Putin is to annex the south of the country and basically to hinder Ukraine commercially by depriving it of access to the sea.

Marc Filipino
So Ben, after visiting Mariupol, is there any kind of takeaway you have? Do you feel like you have a better sense of the larger geopolitical moment we find ourselves in right now?

Ben Room
Well, only that I think Ukrainians are still very uncertain about what will happen. They absolutely accept the argument that Vladimir Putin is perfectly capable and in fact determined to want to destabilize their country and will try to do so in all sorts of different ways, provocations, false flag operations, cyberattacks. But the idea of ​​a real invasion really baffles Ukrainians. They don’t really understand why he would need to do this, why he would take such a risk when so many Ukrainians would resist. The Ukrainian army is stronger, etc, etc. So there is kind of a fake war atmosphere in Ukraine right now. And the government itself in Ukraine is downplaying the threat of a very big offensive because it thinks that’s precisely that prospect or, you know, if people start to take that into account, then it’s going to cause trouble. panic in the population, this will disrupt the economy. And these are really the things that Putin wants.

Marc Filipino
Ben Hall is the FT’s Europe Editor. Thanks Ben.

Ben Room
You’re Ost welcome.

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Marc Filipino
Before leaving, Europe’s largest holiday company makes a bold move. Tui raises a fund of 500 million euros from institutional investors. They want to finance new hotels. This will be the first in a series of funds that Tui will raise. The company has a record level of debt after the pandemic. He had to ground his planes, moor his ships and close hundreds of hotels. But travel restrictions are easing and the company expects a rush of bookings in the coming days. Thus, it is said that the funds will help the company to return to growth.

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You can read more about all these stories on FT.com. This has been your daily press briefing on FT. Be sure to check back tomorrow for the latest trade news.

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