Even though international relations are tensing up, the world is more connected and complex than ever before. This has two implications: first, that businesses everywhere are becoming increasingly exposed to global risks; and second, that the traditional top-down approach to mitigating such risks is not enough. Let’s start with the first implication.
In the eyes of the nearly 13,000 business leaders surveyed by the World Economic Forum this year, “fiscal crises” are the most concerning risk for doing business globally. In fact, they were the only risk that businesspeople from every single region were worried about.
Top 10 business risks at global scale
A global economic recession is on the horizon, government debt is high and the margin for more stimuli is narrow. The business community seems to be worried that, if things go bad, governments would face a tough dilemma: postpone investments, cut spending or increase taxes. That is, of course, for those governments that chose not to fiddle with macroeconomic stability. Whatever governments decide, it will most likely exacerbate already strong social tensions. The global business community also ranked “failure of national governance” and “profound social instability” as two of the most important risks for doing business.
“Cyberattacks” and “data fraud or theft”, the newest risks on the block, are two very dangerous threats to be worried about over the next decade. As day-to-day business continues to digitize, cyberattacks yield higher payoffs and become more difficult to fend off. New types of cybercrimes are emerging, such as formjacking – stealing credit card details from purchase forms on e-commerce websites. Meanwhile we continue to build our defences against cryptojacking (when when a malicious code is implanted into a device or system to mine for cryptocurrencies) and ransomware (a type of malicious software that encrypts data or systems until ransom is paid). This year has seen many successful attacks against critical institutions and people at large: the LockerGoga ransomware was used to hold big industrial companies in Europe to ransom, while crucial digitalized public services were hacked in major cities in the US, and massive databases containing sensitive financial and health records were compromised in Ecuador and Singapore.
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What is the top risk for doing business in your region?
In today’s fragile world, regions will play a pivotal role in mitigating global risks. Pinpointing the different risks that affect certain regions is as critical for doing business as identifying them at a global scale.
We analysed eight different regions in the world, but only European and North American business leaders warned of the same top risk: “cyberattacks”. This is probably a result of these regions being the target of most cyberattacks. After all, the higher the degree of digitization and the larger the economy, the more lucrative cyberattacks can be.
Regional risks 2019 by region
East Asia and the Pacific
According to the Centre for Research on Epidemiology of Disasters, half of the world’s natural disasters in 2018 happened in the broader Asia Pacific region, affecting 50 million people and costing the region’s economy almost $57 billion dollars. Understandably, the business community in East Asia and the Pacific is most worried about “natural catastrophes”.
Affected by complex political issues and a stark economic outlook, “profound social instability” is the main businesses risk in Eurasia. Even though the region has been dealing with these territorial conflicts for many years, armed incidents in Ukraine and the disputed Nagorno-Karabagh region resulted in fatalities in 2019. On top of that, growth in six of the region’s eight countries is expected to slow down this year.
In addition to “cyberattacks”, European businesses are worried about the risk of an “asset bubble”; a concern that could originate from the combination of persistently low interest rates and a weakening economy. On the borrower’s side, low rates mean cheap debt, but a weak economy increases the risk of insolvency. For investors, this same combination makes it very attractive to seek better yields elsewhere. Either way, European markets would suffer.
Latin America and the Caribbean
The risk of “failure of national governance” ranked No 1 in this region. One reason for this is that Latin Americans don’t trust their public institutions will be able to deliver on fighting poverty and inequality, guaranteeing citizen security and ending corruption. Indeed, 43 of the 50 most dangerous cities in the world are in Latin America, while eight countries in the region scored in the bottom 50 in Transparency International’s ranking.
Middle East and North Africa
All five of the top risks in this region were economic in nature, but “energy price shock” is still the main one. Crude oil prices fell by 40% in Q4-2018 only to jump almost 50% by April 2019. Moreover, as recent attacks on oil plants have shown, the energy market is also at risk from geopolitical tensions. In a region where businesses and governments alike rely so heavily on oil, this kind of uncertainty and volatility makes planning very difficult.
“Data fraud or theft” is the second risk for doing business in North America, a by-product of the top risk: “cyberattacks”. Hackers targeting financial institutions in the US have successfully penetrated their databases 3,494 times, and that’s just in the first seven months of 2019. Meanwhile, four out of every five Canadian businesses suffered a breach over the past year.
This region holds less than 5% of the world’s renewable water resources, yet it is home to 25% of the world’s population. A severe scarcity of water not only poses serious threats to businesses and people, but it can transform a vital good into a geopolitical weapon. This largely explains why “water crises” is rated the No 1 risk by South Asian business leaders.
“Unemployment or underemployment” is the most pressing risk in the world’s youngest region. Youth unemployment in sub-Saharan Africa has continuously increased since the 2008-2009 financial crisis, reaching 13.3% in 2018 – globally, that number is 11.7%. A side note: this is the only region where the top-four risks did not change from last year: “unemployment or underemployment”, “failure of national governance”, “failure of critical infrastructure” and “energy price shock”.
Regional Risks for Doing Business 2019: read the full report here