Top ten business risks of highest concern globally
- Fiscal crises
- Unemployment or underemployment
- Energy price shock
- Failure of national governance
- Profound social instability
- Data fraud or theft
- Interstate conflict
- Failure of critical infrastructure
- Asset bubble
With heightened economic uncertainty and increasingly decentralized threats, regional understanding of risks – as well as the opportunity for cooperation – is critical.
An opportunity for regions
The signals of a global economic recession in the short term are strong, and the impact that such a shock would have on current government policies is worrying the global business community. It is also a major cause for concern that stakeholders worldwide might not be able to come together, if coordination has not begun already, to craft a global response to such a risk. As the global financial crisis of 2008–2009 demonstrated, global cooperation is our most effective tool to address systemic challenges, but it is not the only one. Regional agency can also lead to important actions. To that end, mapping the risks landscape from a regional perspective is fundamental for stakeholders to hedge against the probability of lack of global cohesion. This is the context in which we publish the second edition of our Regional Risks for Doing Business report.
Economic weakness and social distress
The world economy has been treading a flatter growth path since the structural shock of 2008–2009. However, the symptoms of a fragile economy have become more manifest this year. In the second quarter of 2019, all seven of the world’s largest economies, which account for 60% of global production, grew at slower rates compared to the same quarter of 2018. Total debt levels have also increased substantially to a record-high 225% of global GDP, albeit with considerable variations between countries.1
Lower growth and higher debt increase the likelihood of “fiscal crises”, the risk that respondents to our Executive Opinion Survey identified as their top concern when doing business. “Fiscal crises” ranked sixth in the adjusted 2018 results (see Methodology), which illustrates chief executive officers’ increasing worry regarding weaker public finances in their regions. It is also the only risk that placed in the top ten in every region, ranking highest in the Middle East and North Africa (second) and lowest in South Asia (ninth). At the domestic level, “fiscal crises” appeared as a top ten risk in 97 of the 133 economies (see Results at a glance).
When governments are under increasing pressure from scarce revenues and unmanageable indebtedness, spending cuts or higher taxes typically follow to preserve macroeconomic stability. Either of these measures is felt first and primarily by the most vulnerable groups of the population: citizens that depend on the provision of public goods and services; households whose income is especially sensitive to price fluctuations; and workers whose jobs could be threatened by a weak labour market. A global public finance crisis is deeply related to four of the other top 10 risks about which chief executive officers are most worried: “unemployment or underemployment”, “energy price shock”, “failure of national governance” and “profound social instability”.
Global unemployment decreased to just below 5% in 2018, its lowest level in 10 years.2 Nevertheless, a global recession at a time of narrow fiscal margins and rapid technological change would make it much more difficult for both business and governments to continue to create new and well-paid job opportunities. A potential consequence of such a scenario, “unemployment or underemployment”, ranked first by the greatest number of economies (30 out of 133) and third globally this year. It was also the top risk in sub-Saharan Africa, the world’s youngest region.
“Energy price shock” is another risk that deeply concerns the private sector, although one that can materialize in the responses for different reasons. In the Middle East and North Africa, this risk ranked first and “fiscal crises” second. Oil and gas remain primary sources of public revenue in this region, so a sharp fall in energy prices could require governments to make delicate spending adjustments, and more so when energy prices are heavily subsidized. Alternatively, a shock in which energy prices spike rather than plummet would mean increased production costs for businesses and heftier burdens for households: 65% of the world’s electricity is still produced from oil, gas and coal.3 A third cause for concern, demonstrated by recent attacks on critical oil infrastructure in the region, is that “energy price shocks” are not only linked to market forces, but also to geopolitical tensions that endanger the supply of this basic commodity. Businesses are likely experiencing heightened uncertainty around energy markets because of this risk. The timing of the survey, however – January to April – coincided with an increase in international oil prices from $45 to $66 per barrel.4
An economic slowdown would likely exacerbate deeply felt social dissatisfaction. This risk also concerns business executives, who identified “failure of national governance” and “profound social instability” as the fifth and sixth global risks for doing business. If public finance crises force a shrinkage of the welfare state, even more social disruption could be created. “Failure of national governance” was the number one risk in Latin America and the Caribbean, while “profound social instability” topped the list in Eurasia. Yet, as we analyse these two regions, economics is not the only reason why political and social risks rank so high. In Latin America and the Caribbean, for example, the risk of governance failure is also motivated by anxiety around corruption and physical insecurity. In Eurasia, geopolitical tensions and electoral disputes are driving a sense of social instability.
The world’s seven largest economies
|Annual GDP growth †||Government debt to GDP ‡|
|Share of global GDP 2018 *||Q2-2018||Q2-2019||2007||2017|
Sources: * World Bank † OECD ‡ IMF
Cyberattacks evolve and diversify
We track five risk categories throughout our Executive Opinion Survey and Global Risks Perception Survey: economic, environmental, geopolitical, societal and technological. Technological risks is the only category ranked in the five most pressing concerns by both sets of respondents. “Cyberattacks” and “data fraud or theft” are the second and seventh global risks most likely to increase within the next 10 years in the eyes of the world’s private sector, and were perceived as the fourth and fifth biggest risks by the broader multistakeholder network surveyed for the Global Risks Report 2019. The fact that cyberthreats worry the business community as much as they do academia, civil society, governments and other thought leaders shows just how disruptive this risk is to all aspects of life.
As economies and societies continue to digitize, cyberattacks are both more lucrative for attackers and more dangerous for victims. According to this year’s Annual Cost of Cybercrime Study, conducted by the Ponemon Institute in conjunction with Accenture, cybercrimes cost companies on average 12% more between 2017 and 2018.5 At the same time, Symantec warns in its Internet Security Threat Report how new forms of cyberthreats are emerging – such as formjacking, a malicious code that steals purchase forms from e-commerce websites – as companies and people continue to remain exposed to more ubiquitous forms of ransomware and cryptojacking.6,7 Detecting, defending against and deterring new cybercrimes are as important as managing known threats.
“Cyberattacks” are the most pressing risk for chief executive officers in Europe and North America, and in six of the 10 largest economies: the United States, Germany, the United Kingdom, France, Italy and Canada. These regions have been the subject of multiple and notable incidents over the past year. The LockerGoga ransomware was used to attack prominent industrial and manufacturing companies in France, Norway and the United States; digitized public services were breached in multiple cities in the United States, including Atlanta and Baltimore; and the European Central Bank shut down an external website after it detected a possible compromise of personal data.
Environmental challenges for business
As opposed to the Global Risks Report, which gathers survey responses from the Forum’s global multistakeholder network (see Methodology), this report is based on responses to our Executive Opinion Survey, which polls the private-sector community. Thus, it reflects both a country-level and a business perspective on global risks that varies from region to region. In the case of environmental risks, “extreme weather events”, “failure of climate-change adaptation” and “natural catastrophes” were ranked in the top ten risks for business leaders in East Asia and the Pacific and North America, but not in other regions. By contrast, these risks have dominated the rankings of Global Risks Perception for the past several years.
Notwithstanding these different perspectives, the Regional Risks for Doing Business report complements our broader risks work in allowing our many stakeholders to identify common concerns, detect potential blind spots and promote coordinated risk mitigation.