On February 13, 2021, no one would imagine the sight that was witnessed on a small island called Cyprus, but it has been a long time coming! A slow-burning civil feud about the handling of the virus, the financial circumstances of the island, and the -always present- corruption, gave rise to a newly acknowledged Political Risk. After decades of domestic complacency around the world, more and more countries are seeing civil unrest -curbed by COVID restrictions- but present and growing. Many analysts attribute this domestic unrest, conflicts, and disputes, a direct result of the pandemic. However, in my view, this growing Political Risk is not the result of the Pandemic, but a deeper political, social, financial culmination of issues, that fermented under quarantine conditions.
After years of seeing political risk in the west downplayed in all risk matrixes, the issues are back with a vengeance, begging for our understanding and resolution, before the divide threatens the feeble cohesion that financial and political stability fostered in the past decades. The biggest crisis of western civilization, the all-encompassing Pandemic, did little to unite and a lot to divide societies, communities, countries, families. Businesses around the world are fighting for survival, industries are crumbling, and the world is shifting in ways that cannot be foreseen or predicted at this time.
A combination of the COVID-19 pandemic, trade tensions, climate change, and a range of other factors means the probability that the performance of companies, markets, or economies will be impacted by political decisions, is higher than it’s ever been since WWII. The bliss of separation between politics and business is subsiding quickly as the world is whirling around in unchartered critical territories.
In 2021 & 2022, the lingering symptoms of COVID-19 will threaten not just lives but political stability and the global economy. Countries around the world will struggle to meet ambitious vaccination timelines, and the pandemic will leave the globe plagued by high debt, unemployment, growing inequality, division, and mistrust. No country can hope to come out of it unscathed and the full impact will not be fully grasped until years down the road. The prosperity we have known -even briefly- will most likely elude us and the next generation as well.
Despite the grim prognosis, we should not forget that knowledge is power, and prevention is always better than the cure, therefore, we at ICESERVE24 and Al Thuraya Consultancy anticipate the following prominent political risks for 2021:
Geopolitics of COVID-19
Disentangling US-China interdependence
European strategic autonomy
Neo-statism on the rise
Shifting climate policy agendas
Geopolitics of technology and data
US policy realignment
The tipping point for emerging market debt
Geopolitical dynamics in the Indo-Pacific
Another wave of social unrest
Geostrategic priorities to manage these risks.
So how should companies manage these political risks? ICESERVE24 in cooperation with Al Thuraya consultancy has been tracking risk for over two decades by anticipating the trajectory and impact of political and policy developments and how they affect social risk and risk to companies and Humans. And so, while the specific geostrategy considerations differ for each, there are five actions leaders should take to manage political risk in the year ahead:
Dynamically monitor your company’s political risk environment.
Include political risks as part of your company’s risk matrix register or other risk identification processes and then dynamically monitor them throughout the year. This will be especially important in 2021-22, given the high levels of political and policy uncertainty generated by COVID-19.
Assess how these political risks could affect your company.
Model the impact of potential political risk events across key business functions, such as revenue, supply chain, data, and intellectual property. And the geopolitics of technology and data also warrants close assessment, as some executives may be unaware of how widespread the impact of this risk could be on their business, what is happening around you on a policy and political level and how is this meant to affect you?
Incorporate political risk analysis into strategic decisions.
Use predictive scenario analysis about political risks to capture the uncertainty associated with their trajectory in the coming years and inform strategic decisions — including market entry and exit, M&A, and other transactions. This is particularly important in the current environment, in which COVID-19 is acting as a great accelerator for geopolitical trends. For instance, how geopolitical dynamics in the Indo-Pacific and the EU’s pursuit of strategic autonomy play out in 2021 is likely to affect the global business environment for years to come.
Communicate and coordinate political risk management across the company.
Something we have noted below is that all too often political risk identification, assessment, and management are compartmentalized within various business functions. Companies should leverage the cross-functional teams and lessons learned from COVID-19 crisis management to enable better communication on the political risks stemming from the pandemic. Such coordination should also help foster greater agility and flexibility in company operations — another capability sharpened by the pandemic.
Leverage stakeholder relationships to manage political risk.
A big topic, which our TIMS analysis has uncovered is that public opinion and political intervention will continue to target companies on a variety of issues, as we can see this in the US with companies like Amazon. But your company’s relationships with policymakers, employees, customers, non-governmental organizations (NGOs), community groups, and other stakeholders can be leveraged to manage political risks — often turning potential challenges into opportunities. This is particularly true for shifting climate policies, neo-statism shaping domestic economies, and the rise in social unrest in a variety of markets. Companies should proactively engage stakeholders on these issues.
And if the above sounds too technical and complicated, just remember a valuable life lesson that can be successfully applied to business too: “Keep your feet on the ground, and your eyes on the stars”. There is no crisis without opportunity, no problem without a solution, no future without hope… when you need us, we are there to help you pave the way!