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Risk of miscalculation and unpredictable outcomes increase under emerging new regional order
Source: APO for Control Risks Group Holdings , Author: Posted by BI-ME staff
Posted: Tue December 19, 2017 5:59 pm

UAE. -- /APO Group/ -- Control Risks (www.ControlRisks.com), the specialist global risk consultancy, warns that businesses in 2018 will continue to face profound uncertainty because of the increasingly personalised and assertive style of national leaders who pursue more aggressive and more transactional diplomacy, increasing the risk of miscalculation.

The forecast comes in Control Risks’ annual RiskMap, a political and security risk forecast for business leaders and policymakers across the world, published today.

Andreas Carleton-Smith, CEO of Control Risks Middle East, said: “While the global economy is set to reach its highest growth levels since the crisis of 2008, the global and regional political order is being reshaped by assertive national leaders and more transactional diplomacy.”

“Globally, this will manifest itself most potently in the nuclear brinksmanship between the US and North Korea, as well as in the multiple trade negotiations around NAFTA, Brexit and the role of the WTO.”

“Regionally, this emerging new global order (or lack thereof) will increase the risk of miscalculation and the range of possible outcomes, whether we’re looking at conflicts in Syria, Lybia or Yemen, the fate of the nuclear deal with Iran, or the chances of implementing a two-state solution for Israel and the Palestinian Territories.”

“Under such geopolitical volatility, successful long-term investment in the region will remain dependent on robust scenario planning and continuous risk monitoring.”

Control Risks has identified five key drivers of geopolitical risk to organisations in the Middle East in 2018.

The rise of Russia and China as regional players – The US’s role in the Middle East has gradually changed from being the undisputed arbiter to an actor that is occasionally absent, sometimes partial and, most importantly, unreliable in the eyes of its partners. Russia and, to a lesser extent, China, are positioning themselves as the alternative powerbrokers in the Middle East, and their initiatives and resolve to participate in regional affairs in 2018 is redefining the geopolitical and commercial playing field.

Asia and Europe’s commitment to the JCPOA – The nuclear deal with Iran has come under pressure in the face of US President Trump’s anti-Iran policies. The deal will come under threat again and again in 2018 in the context of multiple regional rivalries, from Lebanon and Iraq to Syria and Yemen, where Iran is supporting groups that are at odds with US interests.

The deal’s fate will depend on the commitment of European and Asian governments and their willingness to lobby the US government to defend the agreement. A breakdown of the deal remains unlikely, but would have serious consequences for the stability of the Middle East.  

Rising tensions in the Levant – Political dynamics in the Levant region will continue to be a driver of instability for the wider region in 2018, while political and reputational risks will affect the largest business opportunities, including Lebanon’s gas development, and Iraq and Syria’s reconstruction. The slowing down of the war in Syria will test Israel’s tolerance of Hizbollah’s activities at its northern border and may trigger a pre-emptive strike against militant groups in southern Lebanon.

The US’s recognition of Jerusalem as Israel’s capital also raises the prospect of political violence, though its significance is more symbolic than substantive. A two-state solution is nowhere in sight. Meanwhile, tensions between the US and Turkey are also likely to persist, as the end of the fight against IS will shine a spotlight on the status of the Kurdish enclaves in northern Syria.

Regulatory competition in the Gulf – As the global economy gains strength in 2018 and the oil price continues to recover slowly, sustainable economic growth in the Gulf states’ economies depends on economic diversification and regulatory reform. In a bid to attract companies and people who can provide the knowledge transfer, capacity-building and technology required for such a transformation, governments in the region will embark on a competition to liberalise their business environments and labour markets, which will create regulatory unpredictability in the short term but improve business fundamentals in the longer term.

And succession, again and again… – The question of succession in Algeria, Iran and Oman will not dissipate until a leadership change occurs. If anything, the regional rivalry between Iran and Saudi Arabia, the changing role of the US, Russia and China, and these countries’ aggressive regulatory agendas increase the range of possible outcomes for succession processes in these countries. Organisations need to prepare for different scenarios and engage strategically with their local stakeholders to ensure that their businesses remain resilient, irrespective of the outcome of succession.

Global commentary

United States – In 2018, the relationship between superpower and republic will pivot around trade and investment, underpinned by mid-term elections and Trump’s personalistic decision-making. Next year, companies can continue to count on a broadly tendency towards deregulation, but the threat – albeit still unlikely – of a trade war remains. If NAFTA negotiations fail to make enough headway, Trump could decide to pull the US out of NAFTA and the WTO, and go after China on trade, causing profound disruption to international commerce.

EU/Brexit – 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. More broadly, the EU may have returned to growth, but how will its vision and economy be affected by ongoing nationalism?

China – More state control and interference in business is expected under a strengthened Xi Jinping, but continued economic reforms for long-term growth will remain hard to implement and regional officials will continue to 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 Narendra Modi is how to accelerate the modernisation 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.

Russia – To understand Russia’s future as a place to do business, companies must look beyond President Vladimir Putin’s inevitable victory in the March presidential election and focus on what he will have to do next to maintain his control over the country.

Latin America – An up-tick in economic growth and a more benign external environment are bolstering expectations, but a series of critical elections – in Brazil, Colombia, Mexico and Venezuela – leave the region with an unusual level of political uncertainty.

Africa – Many countries in Africa face the prospect of a sovereign debt crisis, a decade after they followed Ghana’s lead in entering the international bond market. The problem is driven by high levels of external debt and persistent uncertainty over the recovery of commodity prices to fund repayments.

The top risers and fallers in RiskMap 2018

Spain – deterioration in political risk (raised from low to medium): The repercussions of Catalonia’s unofficial September 2017 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.

Libya – deterioration in political risk (raised from high to extreme): The obstacles to the implementation of the UN-backed roadmap will persist in 2018, driving an extremely unstable and divided political environment. Security around the Sirte basin's oilfields and in north-eastern districts, except Derna, will improve under the control of the Libyan National Army. However, the security environment in the south-western Fezzan region will further deteriorate amid ethnic tensions and the presence of militant and criminal networks.

Cameroon – deterioration in political risk (raised from medium to high): The October 2018 presidential election, in which President Paul Biya is expected to seek another term, and the continued escalation of an Anglophone protest movement will lead to an increasingly volatile political environment.

Egypt – improvement in political risk (lowered from high to medium): President Abdul Fatah al-Sisi will continue to consolidate support from the military, which is vital for maintaining political stability. Doing so will mean that he will win the 2018 presidential election, providing policy continuity and maintaining efforts to improve economic performance and fight off insurgency in Sinai.

Angola – improvement in political risk (lowered from high to medium): The speed and efficiency with which new President João Lourenço has asserted his authority in the battle for influence with his predecessor José Eduardo dos Santos will reduce the destabilising influence of political infighting on the business environment.

Mozambique – improvement in political risk (lowered from high to medium) and security risk in Sofala, Manica, Zambezia provinces (reduced from high to medium): President Filipe Nyusi will continue to consolidate support around his broadly pro-business agenda, and security in central areas will improve amid progress in peace negotiations to end the Renamo insurgency.

The world map with countries’ political and security risk forecasts is available here.

Photo Captions: 
1. (above)  Control Risks logo
2. (inset)   For illustrative purposes only (File photo)

Distributed by APO Group on behalf of Control Risks Group Holdings Ltd.

About Control Risks 
Control Risks  is a specialist global risk consultancy that helps to create secure, compliant and resilient organisations in an age of ever-changing risk. Working across disciplines, technologies and geographies, everything we do is based on our belief that taking risks is essential to our clients’ success. We provide our clients with the insight to focus resources and ensure they are prepared to resolve the issues and crises that occur in any ambitious global organisation. We go beyond problem-solving and provides the insight and intelligence needed to realise opportunities and grow.

For more information, please visit  www.ControlRisks.com

 

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