Risk managers need to be aware of strong regional differences in risk perception: Wef survey

The World Economic Forum’s (WEF) latest report – Regional Risks for Doing Business 2019 – is based on a survey of business leaders across the world and provides a fascinating series of regional results that show significant differences in risk perception and appetite. The global and European results of this new survey are covered in some depth in the news pages of this issue. The following summarises the key findings in the other main regions of the world covered by the report. The report heavily stresses that while we are constantly reminded that we now live in a single global economy, actually regional variations remain huge. One surely has to conclude that the inequalities of wealth distribution remain very much at the heart of almost all man-made risks. Until this problem is tackled, these risks will not abate, just as until the problem of climate change is tackled head on the natural risks identified can only worsen. North America The WEF notes that executives in both Canada and the US once again ranked cyberattacks as the number one business risk by quite a margin. This is also a top risk in Europe, and east Asia and the Pacific, where it ranks first and second respectively. “The persistence of this risk at the top of mind for business leaders in these regions highlights the growing sophistication and proliferation of cyberattacks, and the corresponding exposure businesses are facing,” comment the report authors. Terrorist attacks are again a top risk for business executives in the US. The WEF suggests the ranking could reflect the increasing incidences of state-sponsored cyberattacks, as well as large-scale gun violence. South Asia Executives in south Asia are far more worried about natural risks than man-made threats such as cyber and terror. The region ranked water crises as the number one risk for business, rising from fifth place the year before. At a country level, water crises ranked as the top risk in India, second in Pakistan and fourth in Sri Lanka. The report points out that the south Asia region is home to about a quarter of the global population but has less than 5% of the world’s renewable water resources. “Low per-capita water availability and a high relative level of water use make south Asia one of the most water-scarce regions of the world,” notes WEF. To compound this serious problem, water storage is low by global standards, making it difficult to manage floods and droughts that afflict the region and are expected to increase with climate change, points out the report. “Water also presents geopolitical challenges in the region: while there are bilateral arrangements on the Indus (India and Pakistan) and Ganges (India and Bangladesh) rivers, water is a potential weapon in cross-border disputes, as countries have at times threatened cutting off flows because of outbreaks of violence in disputed territories,” it adds. Rising transnational tensions in the region, for example in Kashmir between India and Pakistan, and in Sri Lanka, partly explain why terrorism is the number two risk in south Asia. Sub-Saharan Africa The report’s authors point out that, unlike other regions, 2019’s leading risks in sub-Saharan Africa did not change from the prior year. “Socioeconomic risks persist in the region, as growth moderates in many countries and political changes bring opportunity, but also potential risks,” says the WEF. The only matter that emerged as a major concern for business in the region was fiscal crises, which ranks fifth this year. “These findings reflect the fact that economic and governance concerns are felt deeply among executives and come at a time when sub-Saharan Africa faces opportunities, but also vulnerabilities, because of its growing population,” states the report. One key indicator of this concern is the relatively high level of youth unemployment across the region. Since the 2008/2009 financial crisis, youth unemployment in sub-Saharan Africa has steadily increased from 11.7% to 13.3% in 2018, higher than the current global rate of 12.8%. Middle East and north Africa The report says it is clear that fiscal concerns dominate in the region, but notes that divergencies in inflationary and deflationary pressures within countries point to a complex economic picture in the Middle East. It is interesting to note that no other region identified economic risks so high up the agenda. But of course, the beginning of 2019 was a challenging period for national economies in this region. The medium-term risk outlook continues to show that the region is exposed to both internal systemic challenges and geopolitical headwinds. Not surprisingly, for the second year in a row, concern over energy prices ranked as the leading risk. The report points out that, despite plans in many Gulf countries to diversify their economies, hydrocarbon and government activities heavily funded by oil revenues remain the major components of gross domestic product. Moreover, the end of 2018 and beginning of 2019 saw immense volatility in this sector, with the price of crude oil dropping by approximately 40% in Q4 2018 and then rising sharply in early 2019. Latin America & the Caribbean The response of business leaders in Latin America and the Caribbean showed a stark contrast with their peers in other regions of the world. This again underlines that, while there are many common risks faced on a global basis, regional differences can be big. The fact that the failure of politics, corruption, unemployment and profound social instability top the list of concerns in Latin America and the Caribbean, but cyber risk does not even make the top ten, shows how uneven the world remains despite the apparently relentless march of economic globalisation during the past few decades. WEF points out that one of the reasons why failure of national governance sits at the top in this region is because the two biggest economies in the region – Brazil and Mexico – obviously dominate the final result. Both countries’ business leaders voted it their number one risk. “A common denominator for the region is a sense of societal mistrust and discontent as public institutions struggle to convey transparency and integrity, improve the delivery of critical social services, combat poverty and inequality, and guarantee citizen security. Strikingly, 43 of the 50 most dangerous cities in the world are found in Latin America; Brazil, Mexico and Venezuela alone are home to 35 of them. In the most recent Transparency International rankings, eight countries in the region scored in the bottom 50 of countries ranked (180 total). And while relative progress has been made in reducing inequality and expanding the middle class, Latin America still remains one of the most unequal regions in the world,” points out the report. Eurasia The Eurasia region is characterised by economic slowdown, strong reliance on gas and oil exports, and complex political situations. Given the conflict in the Ukraine and uncertainty over Russia’s next move, it is not surprising that profound social instability and interstate conflict are the top two business risks identified by the region’s business leaders. “The public have responded with protests and by voting into office politicians across a wide political spectrum who promise to tackle deeply felt popular concerns, including corruption, public insecurity and poverty,” notes the WEF.

Risk managers need to be aware of strong regional differences in risk perception: Wef survey

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