Unpredictable political leaders will cause ‘profound uncertainty’ in 2018, warns Control Risks

Risk managers and business will face “profound uncertainty” in 2018, as increasingly unpredictable behaviour from a rising number of national political leaders ushers in a period of geopolitical fragility, according to Control Risks’ 2018 RiskMap. The annual political and security risk map, published this week, warns that such behaviour is making it extremely difficult for companies to plan ahead. It identifies escalation of troubles in North Korea, regional Middle East rivalries, US protectionist measures, large-scale cyberattacks against infrastructure and Brexit among key risks to watch next year. The RiskMap warns that global political and security fragility is heightened in 2018 by a personalised and assertive style of political leadership across many parts of the world, which makes it hard to predict how those in power will behave. Richard Fenning, CEO of Control Risks, commented: “Despite the most positive global economic outlook since the end of the financial crisis, we are entering a year of geopolitical fragility that has the potential to trigger shockwaves to global stability and business confidence. “The biggest risk is that the next world order will be imposed, not agreed, set off by further nuclear brinksmanship between the US and North Korea, or wide-scale destabilisation in the Middle East because of escalating Iran-Saudi Arabia rivalry,” he added. But while such events remain unlikely, it is “certain 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, making business planning very difficult”, warned Mr Fenning. He went on to warn that 2018 will be a turbulent political year, heavily influenced in many areas by heightened nationalist pressure. As a result, global businesses must go into January with a “cool head”, he added. “Trying to understand the motivations of global leaders and the potential impact of their actions will be critical to making the right strategic business decisions,” advised Control Risks’ CEO. His company’s RiskMap says that a collection of assertive world leaders, who rely heavily on nationalism and, to varying degrees, populism, will make life tough for business in 2018. “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,” it states. According to the RiskMap, war on the Korean peninsula is unlikely in 2018, but while paths towards an escalation of trouble are clear, de-escalation is harder to foresee. It says that the search for the “least bad option” in North Korea is now on. “The risks of miscalculation and accidental escalation are the highest they’ve been since North Korean leader Kim Jong-un assumed power,” states Control Risks. Another key political and security key risk in 2018 is escalation of rivalries in the Middle East, according to the consultancy. Its risk map says that ambitious Saudi Arabia and assertive Iran will not go to war, but across the region their rivalry will inform and inflame conflicts and animosity in Syria, Lebanon, Iraq and Yemen, as well as between Israel and Palestinian territories. Companies also face the prospect of rising US protectionism. This low likelihood but high impact threat is in play during the year ahead, says Control Risks. It foresees a potential scenario where, in a year of mid-term US elections, North American Free Trade Agreement (NAFTA) negotiations fail to make enough headway, causing President Donald Trump to pull the US out of NAFTA and the World Trade Organisation and “go after” China on trade. This would cause “profound” disruption to international commerce, notes Control Risks. The threat of large-scale cyberattacks against infrastructure also hangs over the business world in 2018, according to its RiskMap. It warns that next year could see a reoccurrence of cyberattacks such as WannaCry, NotPetya and BadRabbit, but in a “more powerful, targeted and disruptive manner”. National infrastructure systems are particularly at risk. “Such attacks will target primarily countries in regions of heightened security and military tension,” states Control Risks. In Europe, the RiskMap flags Brexit as a big risk in 2018. It says that UK businesses exposed to Europe will have to step up their scenario-based contingency planning, and continental Europeans trading with the UK will need to add urgency to their trading options review. Control Risks also flags heightened political risk in Spain – from low to medium – in its 2018 map. “The repercussions of Catalonia’s September 2017 unofficial independence referendum will continue to cause political instability in 2018, with regional elections unlikely to resolve the secession issue and Prime Minister Mariano Rajoy striving to keep his minority government in power,” it notes. In China, the RiskMap predicts more state control and interference in business under a strengthened President Xi Jinping. It says that continued economic reforms in China 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, advises the RiskMap. Control Risks says business must also look beyond Vladimir Putin’s inevitable victory in Russia’s March presidential elections and focus on what he will have to do next to maintain his control over the country’s population. Meanwhile, expanding economic growth and a more benign external environment are bolstering expectations in Latin America. However, a series of critical elections – in Brazil, Colombia, Mexico and Venezuela – leave the region with an “unusual level” of political uncertainty, notes the RiskMap. It also states that many African countries face the prospect of a sovereign debt crisis next year, a decade after they followed Ghana’s lead in entering the international bond market. This problem is driven by high levels of external debt and persistent uncertainty over the recovery of commodity prices to fund repayments, explains Control Risks.

Unpredictable political leaders will cause ‘profound uncertainty’ in 2018, warns Control Risks

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