The risks of highest concern for doing business differ considerably from country to country, according to EOS data. However, some patterns emerge. In developed economies, economic risks such as asset bubbles and fiscal crises are high on the business agenda; concern is also present about technological risks such as cyberattacks and data theft. In these economies, it is increasingly evident that connectivity plays a central role in production processes, service provision and everyday life. In emerging and developing economies, the top concern is unemployment and underemployment as well as potential energy price shocks.
A striking finding is the relative absence of environmental risks and, more generally, of long-term issues among the top concerns of business leaders in their respective countries. For instance, no executive considers failure of climate mitigation and adaptation as the number one risk for doing business in his/her country. This stands in contrast to the priorities considered by members of the multistakeholder community of the World Economic Forum who took part in the Global Risks Perception Survey and perceived it as the most impactful and the third most likely risk on a global scale (see Figure 1). This finding highlights the divergence between national and global interests when it comes to some global risks such as climate change. It also calls for continued alignment across stakeholders whose actions are based on different time horizons.
Figure 4.1: Global Risk of Highest Concern for Doing Business, by Country
Source: Executive Opinion Survey 2015, World Economic Forum.
In addition to the risk indicated on the map, the following countries have another risk as the risk of highest concern:
Haiti: Unemployment or underemployment; Oman: Energy price shock; Peru: Profound social instability; Paraguay: Failure of financial mechanism or institution; Senegal: Energy price shock; Tunisia: Profound social instability; Venezuela: Unmanageable inflation; Vietnam: Man-made environmental catastrophes.
The top global risks for doing business for each country are shown in Figure 4.1. Full economy-level data are available at www.weforum.org/risks. Throughout Part 4, the ranking of risks refers exclusively to the EOS question on risks of highest concern for doing business.7
Across Europe,8 the risks that stand out as being of great concern for doing business are all in an economic category. Unemployment or underemployment is mentioned as the risk of highest concern for doing business in 12 countries in Europe and is among the top five risks in 25 countries (Table 4.1).
Unemployment threatens to de-skill an entire generation in parts of Europe, further aggravating businesses’ search for employees with the right type of skills to compete in today’s fast-paced global economy. These concerns are not limited to the crisis-hit Southern European economies – such as Cyprus, Greece, Italy, Portugal and Spain – where unemployment remains well into the double digits eight years after the crisis, well beyond a typical business cycle. They are also strong in countries such as Austria, Finland and France, where unemployment rates are considerably lower although historically high;9 in Poland and Macedonia, where more than half of youth are unemployed;10 and in the Balkans, with unemployment sky-rocketing in Serbia and Bosnia and Herzegovina.11 Along with challenges related to involuntary migration, high unemployment rates may help to explain why the risk of profound social instability also features prominently in Southern and Eastern Europe.
The risk of an asset bubble is the top concern in Iceland, Luxembourg, Norway, Sweden, the United Kingdom. A related economic risk causing concern across Europe is fiscal crises (this is the risk of highest concern in four countries and is among the top five in 26 countries); although fiscal consolidations are starting to pay off, government debt in advanced economies is projected to aggregate at 104.2% of GDP in 2016, much higher than the pre-crisis level of 71.6% in 2007.12
Although the extent of concern about cyberattacks is somewhat lower than the above-mentioned risks (this risk is among the top five of highest concern in 12 countries), it is of high concern in Estonia, Germany, the Netherlands and Switzerland. Given the cross-border nature of cyberspace, there is obvious potential for cyberattacks to have ramifications well beyond the countries in which they occur.
In North America, which includes the United States and Canada, two risks have been selected as being among the five of highest concern for doing business in both countries: cyberattacks and asset bubbles
In the United States, the top risk is cyberattack, followed by data fraud or theft (the latter is in 7th position in Canada, which is why it scores 50% in Table 4.2). Interestingly, the risks related to the internet and cyber dependency are considered to be of highest concern for doing business, following recent important attacks on businesses. The United States is extremely well connected, and ICT usage is high – 87% of the population use the internet,13 and the country ranks second globally for online business-to-consumer transactions.14 The risk of terrorist attacks is third on the list (and 13th in Canada): according to the House Committee on Homeland Security, the home-grown Islamist extremist threat in the United States has escalated dramatically in 2015, with more terror cases than in any full year since September 11, 2011.15
Energy price shock to the global economy tops the list of concerns in Canada, with the commodity price drop hurting the Canadian economy and GDP growth projected to be around 1% in 2015, compared with 2.4% in 2014.16 The risks of asset bubble and cyberattacks come second and third in Canada (fifth and first in the United States, respectively).
Asia and the Pacific
Central Asia and Russia
The end of the commodity boom, the economic slowdown in Russia, the weaker-than-expected growth in China and the slow recovery in the Eurozone are among the factors putting pressures on Central Asia’s economies.17 Although the region’s countries feature a diverse range of risks of highest concern for doing business, the most prominent are fiscal crises, unmanageable inflation, interstate conflicts and unemployment and underemployment (Table 4.3).
Oil-exporting countries are suffering from lower prices and volumes of trade, which negatively affects government revenues; and while the lower price is helping the region’s oil importers, it is unlikely to make up for the effects on fiscal balances of weak domestic demand and Russia’s economic contraction. Rising public debt helps to explain why fiscal crises are one of the top three concerns in all the region’s countries. With only moderate economic prospects, unemployment is likely to surge in the region and is among the top five risks of highest concern in five countries.
A combination of factors could explain the fear of unmanageable inflation in several of the region’s countries. These factors include the recent volatility in foreign exchange markets, with regional currencies depreciating against the US dollar and reserve losses;18 a second factor is the relatively recent experience of hyperinflation during the 1990s transition period;19 and a third is the concern that weak institutions will be unable to implement the deep structural and fiscal reforms necessary to foster sustainable growth.
The dispute between Russia and Ukraine, the annexation of Crimea, and Russian military intervention in Syria are among many geopolitical developments in the region that may be affecting the views of business executives who mentioned the risk of an interstate conflict with regional consequences.
East Asia and the Pacific
The global risks of highest concern for doing business in East Asia and the Pacific are mainly economic: energy price shock and asset bubble (Table 4.4).20 While energy price shock tops the list only in Lao PDR and Indonesia, it is among the top five in 12 countries. Many countries in the region are energy importers and soaring prices could be damaging. The risk of an asset bubble ranks top in seven economies (Australia, Cambodia, China, Hong Kong SAR, Myanmar, New Zealand and Thailand), reflecting the recent equity market turmoil in China and potential spillovers into the other countries from the region as well as over-evaluation of property in some of the economies such as Hong Kong or Sydney.
Fiscal crises is among the five most concerning risks for 41% of executives in the region. The slowdown of the Chinese economy is likely to moderate growth and could negatively impact public finances in neighbouring countries.21 Along with these two risks, cyberattacks – the risk of highest concern for doing business in three economies – is further explored in the deep-dives below.
One of the features of the region is how frequently environmental risks are mentioned. For example, executives in both the Philippines and Myanmar identified extreme weather events as among their leading concerns, in the wake of the recent experiences of Typhoon Haiyan and Cyclone Nargis, respectively.22 Executives are concerned about the region’s vulnerability to natural catastrophes – earthquakes, tsunamis, volcanic eruptions and geomagnetic storms – as well as man-made environmental catastrophes, emphasizing the importance for business of sustainable development that respects the environment. In New Zealand, the most worrisome risk for executives is natural catastrophes, reflecting that the country’s position on the Alpine Fault makes it vulnerable to earthquakes and tsunamis. The region’s need to build resilience against climate and weather risks could also help to explain why risks such as failure of critical infrastructure and national governance rank high in some of the economies.
With four of the region’s countries identifying energy price shock and three economies identifying fiscal crises among their top five, concern for doing business is centred on economic risks (Table 4.5).23 Unemployment and underemployment is also among the most-cited risks in South Asia, with the whole region facing the challenge of jobless growth and vulnerable and informal employment: vulnerable employment accounted for over three-quarters of all employment in 2014 in South Asia.24 Youth unemployment is also a concern, especially in South Asia, where the rate is already four times higher than among adults and an additional 2.1 million youth will enter the labour force over the next five years.25
Failure of national governance is another leading concern, highlighting the difficulties posed for business in the region by the current unstable political situation: for instance, according to the Corruption Perception Index, Nepal ranks 126th and Bangladesh 145th out of 175 economies.26
Latin America and the Caribbean
Failure of national governance is a prominent concern across Latin America and the Caribbean,27 especially in South America, where corruption and mistrust in the functioning of institutions are increasingly compounding the difficulties of running a business (Table 4.6). The region’s weak economic growth prospects and low levels of investment lie behind concerns about failure of critical infrastructure;28 increasing investment in infrastructure would stimulate the economy as well as strengthen resilience to global risks.
The region relies heavily on exports of commodities that have declined in price – such as oil, gas, copper and iron – explaining the prominence of the risk of an energy price shock among the region’s leading concerns. Low commodity prices reinforce existing challenges such as high public debt and low economic growth, and increasing the associated risk of fiscal crises.
Finally, concerns about unemployment reflect how skills mismatch and rigid labour markets are affecting business development in the region.
Middle East and North Africa
Executives in oil-exporting countries in the Middle East and North Africa are most concerned about the risk of an energy price shock (the top concern in nine countries) (Table 4.7),29 with low prices already leading to a decline of exports and revenue, hurting public finances, undermining financial planning and ultimately threatening to expose often-insufficient diversification of the economy.
Unemployment or underemployment, especially among youth, is also of high concern in the region, with youth unemployment as high as 33% in Jordan (2013 data) and above 20% in Oman, Saudi Arabia, and Algeria.30 Informal employment is a growing trend,31 adding to the potential for the job market situation to fuel profound social instability – a risk that makes the top five in five countries amid a regional humanitarian crisis that sees neighbouring countries coping with refugees from Syria. One in four of the world’s refugees is now Syrian, with 95% located in surrounding countries;32 in Lebanon, over a fifth of the population is refugees. Another potential cause of social disruption is water crises (among the top five risks in four countries), a particular concern for business because water is a key input in many industries,33 agricultural products and energy production.
Unsurprisingly, the risks of terrorist attacks and interstate conflict also weigh on the minds of executives, as a proliferation of conflicts is putting the region’s geopolitical stability at stake.
By 2035, Sub-Saharan Africa is projected to have more young people reaching working age than the rest of the world put together.34 This demographic pressure helps to explain why unemployment and underemployment is the most concerning risk for executives in the region. Creating high-productivity, non-agricultural jobs is among the region’s biggest challenges, requiring businesses to adapt and diversify. Failure to reform Sub-Saharan Africa’s labour market could fuel social instability, another widespread concern according to survey respondents (Table 4.8).
With fiscal pressures increasing for oil and gas exporters, the risk of energy price shock is prominent in executives’ thinking. The aggregated benefits of lower prices for the region’s oil importers are likely to be offset by falls in the prices of other commodities that they export.35 The macroeconomic climate is a related concern, especially fiscal crises and inflationary pressures.
Africa’s urban population is expected to triple by 2025,36 as reflected in the prominence of the risk of failure of urban planning and pointing to the need for more investment in urban infrastructure. This helps to explain why failure of critical infrastructure is another high-ranking risk: lack of infrastructure – both physical and virtual – is estimated to reduce company productivity up to 40%.37 The cost of filling the gap in Africa’s infrastructure has been estimated at around US$93 billion a year.38