Businesses in 2018 will face profound uncertainty because of the increasingly personalized and assertive style of national leaders whose decisions are hard to predict, warns Control Risks, the global specialist risk consultancy. Here are the top five business risks it has identified for this year:
1) 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.
2) 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.
3) US gets protectionist
This is low likelihood, high impact, but still a threat: in a year of mid-term elections, North American Free Trade Agreement (NAFTA) negotiations fail to make enough headway, Donald Trump pulls the US out of NAFTA and the WTO, and goes after China on trade, causing profound disruption to international commerce.
4) 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, Lebanon, Iraq and Yemen and between Israel and the Palestinian Territories.
5) Personalized 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 essential.
Regional commentary (Asia)
Mr. Steve Wilford, Senior Partner at Control Risks, also provides a lowdown on risks in individual markets in Asia.
- China. “More state control and interference in business is expected under a strengthened Xi Jinping, but continued economic reforms for long-term growth remain hard to implement and regional officials still exercise considerable power. More than ever, foreign businesses will need to be fully engaged with Chinese government stakeholders, from those in Beijing to local bureaucrats.”
- India. “The challenge for Prime Minister Modi is how to accelerate the modernization of the Indian economy without being constrained by a swing to the conservative identity politics of Hindu nationalism and the politics of division. This will be critical ahead of 2018 state elections.”
- Indonesia. “A reputable and increasingly confident president makes some headway in marshalling ministers to make key business sectors more navigable and enticing for investors, but opts out of politically sensitive attempts to reform defective or dysfunctional state institutions that pose significant risks for investors. The long run-up to 2019 elections means minimal enactment of legislation in the second half of 2018, and that rival camps will whip up racial or religious tensions to weaken one another.”
- Thailand. “The bulk of the year will be dominated by suspicions that the ruling military junta will scrap elections planned for late 2018, factional infighting among political elites, and economic sectors susceptible to the politicized decision-making of an interventionist and legally unrestricted regime. The latter months will see it dawn on all sides that once those polls go ahead – as they likely will – the result will be a weak government that can be ousted by unelected institutions at any time.”
- Vietnam. “Generally healthy economic data, a smattering of high-profile privatization deals, and unchallenged social stability ensure that Vietnam remains on the lower end of the risk register in Southeast Asia. Behind the scenes, political factionalism abounds, visible in arrests made in the name of anti-corruption and environmental infringements. There are business blow-backs intermittently, with the arrest of the former central bank governor posing particular risks to the banking sector including foreign-invested lenders.”
- Malaysia. “Malaysia will almost certainly see Prime Minister Najib Razak returned to power in general elections in the first half of 2018 and with him the return of UMNO, the party that has led the country since independence. Nevertheless, behind this apparent predictability, maintaining this political machine is becoming ever more difficult for Najib amidst persistent scandals, weakening institutions and increasing divisions within UMNO.”
- Japan. “The key challenge for Prime Minister Shinzo Abe remains in the implementation of structural reforms, opening up protected sectors and revitalizing the ageing workforce, for Japan’s long-term growth. Abe’s political longevity is predicated on his ability to keep scandals at bay. Having firm support within the ruling party is essential to ensure he wins another term as party chairman in September 2018, thereby allowing him to stay in office until 2021.