10 Biggest geopolitical risks to business
1: Geopolitical instability
Companies care less and less about borders. Countries care more and more. The result is a level of geopolitical instability hitting hard at how companies and countries interact.
One of the most vivid examples of increasing geopolitical risk is China’s aggression in its maritime sphere of influence: perceived hostility toward Vietnamese energy interests in the South China Sea provoked an outburst of violence against Chinese companies in Vietnam. Japanese companies have been adversely affected in China as a result of the sino-japanese dispute over the Senkaku/ Diaoyu islands.
On the otherside of the globe, US and EU sanctions against Russia are punishment for one country’s violation of another’s borders. A feverish business lobby prevented the deployment of the most trenchant sanctions, but in the end, politics trumped commerce and business will suffer as a result.
Finally remember Venezuela's seizure of foreign investment assets since Chavez arrived on the scene.
The ongoing digitisation of information makes cyber threats one of the most prominent new risks to business. The cyber threat comes in three equally pernicious forms.
- Firstly, attacks designed to access valuable or confidential information. Here, think about the invasion of customer databases for credit card information.
- Secondly, the ideologically or politically motivated attacks against a company’s reputation or its ability to provide services.
- Finally, electronic penetration by foreign or other agents for the purpose of commercial espionage.
3: Changes in the way we use energy
The emergence of alternative sources of oil and gas is redrawing the world’s energy map. Soon, shale will make the United States the world’s largest energy exporter. The US’s resurgent position threatens to upend political and economic relationships that have been stable for decades. US-Saudi relations, for example, are a pillar of the current order in the Middle East. If that pillar cracks, as some fear, what happens to the balance of power around the Gulf?
This is a perfect example not just of the proliferation of risk, but also of its complexity.
The widespread lack of public support for military force has increased the likelihood of prolonged economic combat. And it’s not just Russia. Sanctions are equally prominent as a weapon against Iran, where neither the United States nor Israel is prepared to neutralise an emerging nuclear capability by force. Interestingly, removing the sanctions promises to unleash its own chain reaction: a rush of foreign investors into a massive, untapped market. Look what happened in Myanmar, and multiply. That sort of economic stampede itself has its own implications for regional stability.
The eruption of violence in Syria has created a training and distribution centre for the spread of Islamist extremism. If you are inclined to think that companies are exempt from this particular risk, terrorism threats play havoc with business plans and delay the movement of goods, services and people. Just look at the aftermath of 9/11 and ask the people queuing at security check-points at airports around the world. Or ask the companies operating in and around the oil fields of southern
Iraq, below the area recently seized by ISIS. See how investors in Lagos feel as Boko Haram eyes a move from its traditional base in northern Nigeria. Or ask the key players in the Kenyan tourist sector, who are seeing their economy laid low by Al Shabaab.
6: Corruption laws
Many companies are already worried about international corruption prosecutions. Now they should worry about local corruption laws. Local laws can be much more difficult to understand than international laws, and their prosecution can be much more difficult to predict.
In Russia, domestic corruption investigations are used as tools for political punishment. In China, they are aimed at cracking down on local excess. Both ensnare foreign companies. The areas of focus remain familiar – relations with local, state and national authorities and communities, unrealistic reliance on host country political support and hope that political stability prevails - but there are too many imponderables to foresee at the outset of any new business venture.
7: Social unrest
As authoritarian regimes use hostile methods to quell social unrest, they almost guarantee its eventual return. Turkey’s current President, Recep Tayyip Erdogan, when he was Prime Minister cracked down on his own people on several occasions. His methods ranged from analogue (water cannons in Gezi Park) to digital (the squelching of Twitter during a corruption investigation). In the end, it all looked heavy-handed, much like his reaction to the recent mining disaster.
Venezuela’s Nicolas Maduro and Egypt’s Abdel Fattah el-Sisi are equally potent examples of rulers who have imposed a messy and sometimes lethal brand of order on their compatriots. The result? A public pressure-cooker.
8: The end of growth in emerging markets
Slowing emerging market growth threatens the orgy of consumerism keeping the new middle class happy. And once the shopping stops, how happy are we? The past 10 years has seen the development of a new, global middle class that has been content to keep incumbents in office as long as the good times roll. Now that slowdowns loom – particularly in emerging markets – incumbents are under pressure to justify their existence.
9: A power vacuum
If the US doesn’t want to be the world’s sheriff and no one else fancies the job, who’s in control?
Notwithstanding the effect on Americans that the recent beheadings by ISIL, US public sentiment is strongly against significant foreign interventions elsewhere. So who’s up for the job?
The United Nations Security Council is hobbled by its members’ right to veto. The Franco-Mexican initiative currently being discussed again in New York during this General Assembly to in effect beg the P-5 to forego its veto power when the Security Council is seized with mass atrocities is sure to be met with opposition or even derision by Russia, China and the US.
China appears reluctant, as well as currently unable, to replace the US as the world’s chief cop.and perhaps that’s a good thing. The European Union’s consensus driven model almost disqualifies it as an efficient global crisis manager.
We are accustomed now to talking about a multipolar world. At its core is a power vacuum.
10. The youth boom
Finally, although I'm not getting any younger, a vast majority of the world's population is. The global explosion of the youth population presents risks and opportunities. Countries with growing youth populations have a source of labor, consumption, ideas and investment. But any lapse in a country’s ability to keep its youth educated, employed, healthy and housed will lead to a challenge to the status quo. Africa is an excellent example of an entire continent undergoing a youth boom. It is also home to the majority of the world’s least competitive economies. Growth rates in Africa have been impressive lately. They will have to stay that way to absorb the continent’s bumper crop of youth.
So many uncertainties for business development in our very globalized world. Prospective investors, wherever they decide to go, need to do their due diligence and understand all these risks, but even then there are no guarantees that these 10 risks won't adversely affect investments.