These are the top risks for doing business around the world

Business 2018

Calgary, Canada (Unsplash, 2018)

This article is brought to you thanks to the strategic cooperation of The European Sting with the World Economic Forum.

Author: Aengus Collins, Head of Global Risks and the Geopolitical Agenda, World Economic Forum

Unemployment and underemployment represent the biggest risk for doing business around the world. That is the view of more than 12,000 business people across 140 economies, according to findings that we publish today in the first edition of a new Regional Risks for Doing Business report.

The second biggest risk is “failure of national governance”. These findings should ring alarm bells. At a time when the world is often distracted by the latest twists and turns of accelerating news cycles, they provide cautionary evidence of weaknesses in the foundations of our political and economic systems.

Regional Risks for Doing Business

Image: World Economic Forum

The regional impact of global risks

The World Economic Forum has been analysing risks at the global level since 2006 in its annual Global Risks Report, highlighting the vulnerability of our increasingly networked and interconnected world to volatility and disruption.

But even the most global of risks crystallise locally and are experienced differently. If global risks demand our attention, it is ultimately because they entail harm to the lives and livelihoods of particular people in particular places. These particularities cut across several dimensions, from wealth and nationality to gender and profession. In our new report, we are seeking to shed some light on one of these dimensions: the regional.

Our starting point is the data from our Executive Opinion Survey, which each year gauges sentiment about the business environment in individual economies. As part of the survey, respondents are presented with a list of 30 risks and asked to select up to five that they view as a concern in terms of doing business.

This framing is important—we are capturing perceptions about operational impacts rather than the more holistic risk perspective that we can focus on in the Global Risks Report. This probably explains some of the big differences between the two reports, such as the fact that environmental risks predominate in the Global Risks Report, but rise to prominence only in a small number of countries in Regional Risks for Doing Business.

Cyber-attacks are a growing concern

As the table below indicates, there are marked differences in the profile of the risks highlighted by businesses in different regions. On an aggregate global basis, cyber-attacks jumped in the rankings, from eighth position according to last year’s data to fifth position this year. But it was the number one risk in three of our eight regions.

Unsurprisingly, cyber-attacks tended to be flagged as a concern in the world’s more advanced economies. Of the 19 countries that ranked it number one, 14 were from Europe and North America (the others were India, Indonesia, Japan, Singapore and the United Arab Emirates).

 Regional Risks for Doing Business

Image: World Economic Forum

Unemployment and underemployment was ranked in first place in just one region, Sub-Saharan Africa, where respondents in 22 of the 34 economies we surveyed cited it as the top risk for doing business. However, it was a top-five risk in every region except North America, and this consistency pushed it to the top of the overall global results.

The underlying significance of the unemployment risk needs to be cautiously interpreted, as it may reflect quite different challenges across countries, such as weak growth, talent shortages or labour-market disruptions caused by automation.

In Sub-Saharan Africa, countries face the profound challenge of creating sufficient jobs to meet the needs of the working-age population that is expected to more than double to 1.6 billion by 2050. Quality of employment matters too – at present 70% of workers in Sub-Saharan Africa are in vulnerable employment, compared to a global average of 46%.

In both South Asia and Latin America, failures of national governance topped the list of business risks according to respondents. The scale of the strains being experienced in much of Latin America is highlighted by the fact that the second-placed risk in that region is “profound social instability”. This follows a marked deepening of social tensions across much of the region – in particular, successive corruption scandals have reaffirmed electorates’ mistrust of institutions and reinforced political polarisation.

The critical situation in Venezuela is reflected in the risks prioritised by survey respondents there: “unmanageable inflation”, “state collapse or crisis”, “profound social instability”, “food crisis” and “failure of national governance”.

Energy price shocks were perceived as the biggest risk for doing business in Eurasia and in the Middle East and North Africa (MENA). Oil producers have benefited from rising oil prices over the past year. However, vulnerabilities to swings in prices have not disappeared, particularly in countries where government spending is rising, such as Saudi Arabia, which was one of five MENA countries to rank energy prices as the top risk to doing business.

Regional coordination is crucial
One consequence of the geopolitical shifts that are underway is the increasing likelihood that regional developments will have a greater impact on the wider international system.

Nation states acting alone cannot manage, let alone resolve, the global challenges facing the world, but coordination at the global level appears increasingly fraught with geopolitical tensions. Some of these tensions are less pronounced at the regional level, and we expect regions to play an increasingly active and important role in the world in the years ahead. For this reason, understanding the risks each region faces is essential if we are to better understand the forces shaping the global landscape.

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