Control Risks, the specialist global risk consultancy, has warned that businesses will face “profound uncertainty” next year because of the increasingly personalised and assertive style of national leaders whose decisions are hard to predict. This outlook is detailed in the company’s annual RiskMap, a political and security risk forecast pieced together for the benefit of business leaders and policy-makers across the world.
2018 looks set to deliver the highest economic growth in ten years, which is a positive sign that the global financial crisis might finally be behind us. That’s good news for international business, then, but the surge in business confidence is tempered by a sense that, despite bullish economic data, the year ahead seems beset by uncertainty and confusion. There’s a gulf between realities that define 2018: real economic optimism stands alongside genuine concern that things could go badly wrong on a number of fronts.
Richard Fenning, CEO of Control Risks, observed: “Despite the most positive global economic outlook since the end of the financial crisis, we’re now entering a year of geo-political fragility that has the potential to trigger shockwaves impacting global stability and business confidence. The biggest risk is that the next world order will be imposed, rather than agreed, set-off by further nuclear ‘brinkmanship’ between the US and North Korea or widescale destabilisation in the Middle East because of escalating Iran-Saudi Arabia rivalry.”
Fenning continued: “While these events are unlikely, what’s certain is that global dynamics and perceptions of risk are being shaped by a more robust, personalised and unpredictable style of political leadership in many parts of the world, in turn making business planning very difficult.”
Key risks facing the business community
Control Risks has identified the following as the key risks facing businesses in 2018:
North Korea escalation War on the Korean peninsula is unlikely, but while the paths of escalation are clear, de-escalation is harder to plot. The search is on for the least bad option. The risks of miscalculation and accidental escalation are the highest they’ve been since North Korean leader Kim Jong-un assumed power.
Large-scale cyber attacks against infrastructure 2017 was the year of major, but random disruptive attacks. 2018 could see the likes of WannaCry, NotPetya and BadRabbit recur, but in a more powerful, targeted and disruptive manner. National infrastructure systems are particularly at risk.
US becomes ‘protectionist’ Low likelihood, high impact, but the threat is there. In a year of mid-term elections, NAFTA negotiations fail to make enough headway, Donald Trump pulls the US out of NAFTA and the World Trade Organisation and goes after China on trade, causing profound disruption to international commerce.
Regional rivalries in the Middle East Ambitious Saudi Arabia and assertive Iran will not go to war, but across the region their rivalry will inform and inflame conflicts and enmities in Syria, the Lebanon, Iraq and the Yemen and also between Israel and the Palestinian territories.
Personalised leadership Astride the business risk landscape is a collection of assertive world leaders who rely heavily on nationalism and, to varying degrees, populism. Prone to capricious decision-making, they find foreign companies convenient targets. More than ever, knowing the mind of the person at the top is going to be essential.
“While 2018 will be a turbulent political year, heavily influenced in many areas by heightened nationalist pressure,” stated Fenning, “global businesses must go into January with a cool head. Trying to understand the motivations of global leaders and the potential impact of their actions will be critical when it comes to making the right strategic business decisions.”
In terms of the European Union and Brexit, UK businesses exposed to Europe will have to step-up their scenario-based contingency planning, while continental Europeans trading with the UK will need to add urgency to their trading options review.
The common denominator for all countries is the twin threat of cyber attack and terrorism. No state is immune. Each threat has entered a new and potentially more dangerous phase in terms of how it materialises, necessitating new corporate strategies to respond effectively.
“Across ideologies and imperatives,” suggested Fenning, “Governments will move to control the use of data and cyber space by organisations and individuals. They’re intruding more directly on international business. In Europe, new data protection regulations, and more aggressive anti-trust, tax and labour enforcement have called time on what many regulators regard as a period of excessive laissez-faire for the digital economy.”
More broadly, the European Union may have returned to growth, but how will its vision and economy be impacted by ongoing nationalism?
In conclusion, Fenning explained: “Describing the challenges and complexities facing the world in 2018, it’s easy to forget that the economic outlook remains bright. How and when markets lose their resilience to risk will be played out in a drama of localised triggers and ripple effects. Will 2018 be a year when optimism needs to be tempered with an appropriate amount of clear-headed prudence?”
*For more detailed commentary on the 2018 RiskMap visit the Control Risks website