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Insight Report Regional Risks for Doing Business 2018
World Economic Forum 91-93 route de la Capite CH-1223 Cologny/Geneva Switzerland Tel.: +41 (0)22 869 1212 Fax: +41 (0)22 786 2744 Email: contact@weforum.org www.weforum.org © 2018 World Economic Forum. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording, or by any information storage and retrieval system.
Regional Risks
for Doing Business
2018
Strategic Partners
Marsh & McLennan Companies
Zurich Insurance Group
Academic Advisers
National University of Singapore
Oxford Martin School, University of Oxford
Wharton Risk Management and Decision Processes Center, University
of Pennsylvania
Regional Risks for Doing Business 3
4 Regional Risks for Doing Business
Contents
Preface 07
Introduction 08
Regional profiles 11
Europe
Eurasia
Middle East & North Africa
Sub-Saharan Africa
South Asia
East Asia and the Pacific
North America
Latin America and the Caribbean
Results at a glance 28
Methodology 36
Acknowledgements 37
Regional Risks for Doing Business 5
6 Regional Risks for Doing Business
Preface
The World Economic Forum has and that may also reverberate across
been publishing The Global Risks societies and the world at large.
Report since 2006, highlighting each
year the vulnerability of our increas- Nation states acting alone cannot
ingly networked and interconnected manage, let alone resolve, the global
world to volatility and disruption. The challenges facing the world. At present,
relevance of the risk perspective has however, coordinating at the global
only increased with time. Globally, we level appears increasingly fraught with
have been living through a period of potential tensions, such as differences
unprecedented improvements in liv- of political values between some coun-
ing standards, but this period is also tries or the challenges of maintaining
unsettled and unsettling. We can see political legitimacy within others. Some
signs of how vulnerable many of the of these tensions are less pronounced
complex systems that make up our at the regional level, and we expect re-
world are: from the environmental to gions to play an increasingly active and
the financial and the societal to the important role in the world in the years
geopolitical, the signs of strain are ahead. For this reason, understanding
evident. the risks each region faces is essen-
tial if we are to better understand the
Mirek Dušek, In The Global Risks Report 2018 we forces shaping the global landscape.
Deputy Head for Regional and
noted that this is now a multipolar
Geopolitical Affairs,
and multiconceptual world – not only This new report has been a collabora-
Member of the Executive Committee,
has global power shifted, but differ- tive effort, and we would like to thank
World Economic Forum
ences in norms and values among all those across the Forum who have
the world’s powers have become contributed to it—in particular, our
more important. Predictions – particu- colleagues in the Centre for Regional
larly in the West – that global systems and Government Affairs and the Centre
would converge have not stood the for the New Economy and Society.
test of time and we are moving into We would also like to thank Marsh &
uncharted international waters. One McLennan Companies (MMC) and
consequence of the geopolitical shifts Zurich Insurance Group, our long-
that are under way is the increasing standing strategic partners on The
likelihood that regional developments Global Risks Report.
will impact the broader international
system.
It is against this backdrop that the
World Economic Forum this year
publishes Regional Risks for Doing
Business, to offer regional perspec-
tives on the impact of risks. As the
title of this new publication sug-
gests, we are looking at regional risk
through the prism of the private sec-
tor (whereas the annual Global Risks
Report takes a broader perspective).
Our starting point here: the risk-relat-
Aengus Collins, ed findings of the Forum’s Executive
Head of Global Risks and the
Opinion Survey, which each year
Geopolitical Agenda,
polls approximately 12,000 private-
World Economic Forum
sector decision-makers drawn from
around 130 economies. This commu-
nity can offer important insights into
shocks that may disrupt industries,
Regional Risks for Doing Business 7
People waiting to fill out employment applications in São Paulo, Brazil. (REUTERS/Paulo Whitaker)
Introduction
At a time of heightened uncertainty across the international system, understanding the
regional risks landscape is more important than ever.
Each year in The Global Risks or uniform. Even the most global regions and countries. The fact that
Report, we emphasize the of risks crystallize locally and are the survey’s sample is drawn solely
importance of assessing risk from experienced differently. If global risks from the private sector means that
a global perspective. The world of demand our attention, it is ultimately the risk perceptions captured here
risk is shot through with systemic because they entail harm to the lives differ in important respects from those
interconnections requiring responses and livelihoods of particular people in covered in The Global Risks Report
that look beyond the local. This fact particular places. These particularities (see box on page 10), but the findings
has become more intuitively apparent cut across numerous dimensions, allow us to complement our usual
over the past decade as the world from wealth and nationality to gender global perspective with a greater focus
has struggled to keep pace with truly and profession. on local variation.
global crises and transformations
across multiple fields: economic, In this report, we are seeking to
technological, environmental, societal shed some light on one of these Economic and political strains
and geopolitical. dimensions: the regional. Using the
results of the large-scale Executive While the analysis in the sections that
To say that a rich understanding of Opinion Survey that we carry out each follow is regional, important global
how risks are evolving requires a year for our Global Competitiveness patterns emerge from our survey
global and systemic perspective is not Report, we can see how worries findings. As the table on page 9
to suggest that they are homogeneous about global risks differ across indicates, the top-ranked risk across
8 Regional Risks for Doing Business
Top ten risks of highest concern globally
1 Unemployment or underemployment
2 Failure of national governance
3 Energy price shock
4 Fiscal crises
5 Cyber-attacks
6 Profound social instability
7 Failure of financial mechanism or institution
8 Failure of critical infrastructure
9 Failure of regional and global governance
10 Terrorist attacks
the world in 2018 was “unemployment 19 countries that ranked it number were in Eastern Europe and Eurasia,
or underemployment”, with “failure one, 14 were from Europe and North a pattern that reflects the increasing
of national governance” in second America (the others were India, importance of that part of the world
position. The unemployment risk, Indonesia, Japan, Singapore and the as global geopolitical balances are
in particular, needs to be cautiously United Arab Emirates). By contrast, recalibrated. Environmental concerns
interpreted, as it may reflect quite of the 34 countries that ranked did not make it into respondents’
different challenges across countries “unemployment or underemployment” global top ten risks, in sharp contrast
and regions, such as weak growth, first, 22 were from sub-Saharan Africa. to recent editions of The Global Risks
talent shortages or labour-market Report, where environmental risks
disruptions caused by automation. What of the other main risk categories? have been increasingly predominant.
But regardless of these interpretative Ten years on from the start of the This reflects the specifically business-
details, the fact that unemployment global crisis, financial risks slipped focused framing of the risk-related
and governance failures top the list of in the global rankings. “Fiscal crises” question in the Executive Opinion
global business risks should ring alarm dipped from second place in last Survey and also highlights the need
bells about the strains on our basic year’s Executive Opinion Survey to for a diverse range of perspectives on
political and economic systems. fourth place this year, and “failure of which global risks are most pressing.
financial mechanism or institution”
Another prominent finding of this year’s dropped from sixth to seventh. There
survey is a jump for cyber-attacks, from were regional exceptions to this trend, Regional futures
eighth position according to last year’s such as “asset bubbles” jumping to
data to fifth position this year. This is no second place in Europe, but overall the We are living in geopolitically volatile
surprise. A number of massive cyber- results of this survey do little to counter times, and the international system is
attacks took place in 2017 – notably worries about economic and financial under profound strain from multiple
WannaCry, Petya and NotPetya complacency that we voiced earlier this directions. Institutions, assumptions
– causing extensive operational year in The Global Risks Report 2018. and patterns of action that have
disruption and financial losses for previously been taken for granted
organizations around the world. We Geopolitical concerns were relatively are now being called into question
will look back at 2017 as the year that muted, with “failure of regional and by many around the world. There will
the world began to take seriously the global governance” and “terrorist be a temptation in some quarters to
potential extent of our vulnerability attacks” in ninth and tenth place hope for a return to the international
to cyber-attack disruptions. In our globally, respectively. The starkest of status quo ante, but one lesson
survey, “cyber-attacks” tended to be geopolitical risks, “interstate conflict”, from the science of complexity is
flagged as a concern in the world’s was ranked in the top three risks in that resolving a systemic disruption
more advanced economies. Of the 17 countries. Most of these countries may require the establishment of a
Regional Risks for Doing Business 9
new equilibrium rather than a return
to an old one. The world now faces a
period of collective reimagination and
renewal, in which core norms, values How Regional Risks for Doing Business
and priorities may be more openly and The Global Risks Report compare
contested than before. It is already
clear that regions will be a central part
of this story, and it is also evident that The scope of this report differs from our flagship Global Risks
new distributions of risk are emerging Report. The Global Risks Report presents a holistic assessment
around the world. In the sections that of the dangers facing the world, considering risk across multiple
follow, we begin to sketch out the dimensions, including potential harms to countries, companies and
contours of the evolving regional risks individuals. By contrast, the analysis in this report relies on data
landscape. from our annual Executive Opinion Survey, which informs our annual
Global Competitiveness Report. We have included a risk-related
question in this survey, to gauge businesses’ perceptions of the
global risks they expect to present an operational challenge in the
next ten years.
Specifically, respondents were presented with our core list of 30
global risks and asked to select “the five global risks that you believe
to be of most concern for doing business in your country within
the next ten years”. This narrower focus leads to different issues
rising to prominence. For example, while environmental risks have
become increasingly predominant in The Global Risks Report, they
are absent from the top ten risks globally according to the Executive
Opinion Survey. This is not to suggest that environmental risks have
become less important overall, but that businesses do not expect
environmental issues to be among the main operational risks they
face over a ten-year time frame.
Fifth globally, cyber-attacks are seen as the top risk in three regions. (REUTERS/Alessandro Bianchi)
10 Regional Risks for Doing BusinessRegional Profiles
Regional Risks for Doing Business 11Europe
“Significant residual
Top ten risks in Europe post-crisis nervousness
1 Cyber-attacks remains about the health
2 Asset bubble of the financial sector.”
3 Failure of national governance
4 Failure of financial mechanism or institution
5 Unemployment or underemployment
6 Fiscal crises
7 Failure of urban planning
8 Interstate conflict
9 Large-scale involuntary migration
10 Data fraud or theft
Note: See Methodology section for details of the survey’s coverage in this region.
Cyber-attacks are seen as the biggest threat to doing business across Europe, but
economic and financial risks remain a concern.
Europe is a large and diverse The “cyber-attacks” risk was not as sector, but in total “failure of financial
region, comprising 37 countries in clear a front runner for our European mechanism or institution” ranked as a
our categorization – the 28 current respondents as it was for their top-five risk for businesses in 18 of the
members of the European Union plus counterparts in either North America region’s countries, suggesting significant
nine other countries including Turkey or East Asia and the Pacific. One residual post-crisis nervousness about
and most of the Western Balkan states. manifestation of this is in the variety the health of the financial sector.
Across the region, “cyber-attacks” of risks that topped respondents’ lists
emerged as the leading risk to doing of concerns in Europe’s four largest Another sign of post-crisis unease in
business, largely as a result of its countries. “Cyber-attacks” came first Europe is the fact that “asset bubbles”
prominence in many of the region’s in both Germany and the UK, but in were ranked as the second-biggest risk
most advanced economies. In total, this France and Italy, domestic economic to doing business across the region,
risk ranked number one in 12 countries. and financial conditions were of greater albeit only narrowly ahead of the risks in
Europe was affected by the series of concern. French respondents cited third and fourth place. This risk emerges
major attacks that took place in 2017 – “unemployment and underemployment” as a particular concern in Central
for example, the WannaCry ransomware as the number one risk to doing Europe, ranking first in the Czech
attack badly disrupted the UK’s health business in the country, highlighting Republic, Hungary and the Slovak
system and Germany’s rail system – and long-running structural problems in Republic. It came second in a further 12
and estimates suggest that the number the labour market that successive countries, stretching across the region
of cyber-attacks across the region governments have struggled to deal from Ireland to Cyprus. The underlying
increased by around a third in the first with. In Italy, the number one risk driver of this widespread nervousness
quarter of 2018, compared to the same was “failure of financial mechanism is likely to be found in the role played
period last year. or institution”. There have been in Europe’s post-crisis recovery
particular fragilities in the Italian financial by expansionary monetary policy,
12 Regional Risks for Doing BusinessThe European Central Bank headquarters in Frankfurt, Germany. (REUTERS/Kai Pfaffenbach)
particularly in the Eurozone, where the risk to doing business in the region. been an important factor in this trend,
decision of the European Central Bank It ranks top in four countries (Bosnia and is likely to remain a source of strain
to begin large-scale asset purchases and Herzegovina, Croatia, Greece and within and among the region’s countries
in 2015 marked a pivotal moment for Lithuania), and in second position in in the years ahead. Migration ranked
the bloc. The potential worry is that a further four (Malta, Portugal, Serbia only ninth across the region as a whole,
central bank bond purchases may and the UK). The result in the UK is but respondents in certain countries
have artificially inflated the value of particularly dramatic – a year ago, placed it much higher: it ranked
assets across many classes, raising respondents assessed this risk as only second in Finland, Macedonia and
the prospect of disruptive corrections their seventh most significant concern. Romania, and third in Austria, the Czech
when, in time, monetary policy begins Its jump in the ranking now appears Republic, Latvia, Norway, Sweden and
to tighten. Take the housing market as to align with widespread reports of the Switzerland.
an example. Between the first quarters growing strains that the process of
of 2008 and 2015, house prices exiting the EU is placing on the UK’s
across the EU dropped by 4.5%; in the political and governmental institutions.
subsequent three years, they increased
by 13.7%, with much higher rates Although Brexit represents a particularly
of increase being recorded in some momentous challenge, the UK is far
countries during that time, such as from alone in experiencing political
Hungary (39.5%), Latvia (33.1%), Ireland disruption. Numerous countries across
(32.1%) and Portugal (29.5%). the region now find themselves having
1
to adapt long-standing patterns of
Given the relative level of development government and governance to a new
of most of the countries in Europe, electoral environment characterized
it is striking that “failure of national by increasing political fragmentation,
governance” ranks as the third-highest polarization and populism. Migration has
1
Eurostat, House Price Index, https://ec.europa.eu/eurostat/statistics-explained/index.php/Housing_price_statistics_-_house_price_index (link as of 1/10/18).
Regional Risks for Doing Business 13Eurasia
Top ten risks in Eurasia
1 Energy price shock
2 Interstate conflict
3 Fiscal crises
4 Unemployment or underemployment
5 Profound social instability
6 Large-scale involuntary migration
7 Unmanageable inflation
8 Failure of financial mechanism or institution
9 Natural catastrophes
10 Failure of national governance
Note: See Methodology section for details of the survey’s coverage in this region.
Vulnerability to energy price shock is ranked as the top risk to doing business in Eurasia,
but only narrowly ahead of interstate conflict.
The Eurasia region is increasingly interesting given the country’s recent of increasingly fractious regional and
enmeshed in the complicated experience of acute vulnerability to global geopolitical affairs: although
evolution of the world’s geopolitical energy-price volatility – the sharp Russia-Ukraine tensions are largely
and geo-economic affairs. According decline of energy prices in 2014 was frozen, they remain a source of risk
to business leaders across the region, extremely disruptive – but it is worth and are one of the factors that have
“energy price shock” is, by a small noting that the related risk of “fiscal contributed to a sharp deterioration
margin, the biggest risk to doing crises” was ranked as the most in relations between Russia and
business. This reflects the huge pressing concern by respondents in many Western countries in recent
importance of the energy sector Russia. years. Elsewhere, a flare-up of
across the region – it accounts for up conflict remains possible in Nagorno-
to 35% of GDP in some oil-producing Geopolitical tensions are another worry Karabakh, the contested territory at
countries, and the fiscal budgets of for Eurasia’s businesses, according the heart of a decades-long dispute
both exporters (such as Azerbaijan, to our survey. The fact that “interstate between Azerbaijan and Armenia.
Kazakhstan, the Russian Federation conflict” ranked second across the The election in May 2018 of a new
and Turkmenistan) and importers region is something of an outlier – no government in Armenia may spur
(Armenia, Ukraine, Georgia and the other region placed this risk in the new efforts to unblock the impasse
Kyrgyz Republic) are vulnerable to top five. It was seen as the most and, in August, Angela Merkel said
sharp swings in prices. “Energy price serious risk in two of the region’s Germany would be willing to help
shock” ranks as the most serious countries (Azerbaijan and Georgia) and find a diplomatic resolution. The fact
risk in two countries, Ukraine and was ranked second in another two that Georgia’s businesses placed
Kazakhstan, and is a top-five risk in (Armenia and Russia). The emphasis “interstate conflict” at the top of their
a further six, including Russia. This placed on this risk by businesses in list of risks reflects the continuing
relatively low ranking in Russia is Russia comes against the backdrop potential for instability around the
14 Regional Risks for Doing Business“Fiscal budgets of both
exporters and importers
are vulnerable to sharp
swings in energy prices.”
Oil tanks at a processing plant in Kazakhstan. (REUTERS/Shamil Zhumatov)
disputed territories of South Ossetia economy peers are outside the reach respondents included this risk among
and Abkhazia, which were recognized of the fiscal authorities. their top ten was Latin America, which
as independent entities by Russia ranked it second against a backdrop
in 2008, leading to a breakdown in Respondents ranked unemployment of deep societal fissures in numerous
diplomatic relations between Georgia fourth overall across the region. It countries. In Eurasia, concerns about
and Russia. ranks as the second-highest risk in social instability can be linked to
Kyrgyzstan and Tajikistan and the issues including corruption, income
In addition to “energy price shock”, third-highest in Armenia and Georgia. inequality and economic security.
other economic risks cited prominently Caution is needed in interpreting These tendencies have manifested
by our respondents were “fiscal these unemployment results at the themselves in a number of ways: there
crises” and “unemployment and regional level as conditions differ have been changes of government
underemployment”. As noted above, widely among countries. For example, in Armenia, Georgia and the
fiscal concerns were ranked as according to the latest available data, Kyrgyz Republic, and ongoing anti-
the most pressing risk in Russia. In unemployment across the region government protests in a number of
addition to energy-price vulnerabilities, ranges from 18% in Armenia to other countries.
other potential contributors to fiscal 2.3% in Tajikistan, suggesting that
strain in Russia and across the region businesses in these two countries are
include the comparatively high level of facing quite different labour-market
economic activity that takes place in challenges.
untaxed parts of the economy. This
2
creates potential knock-on financial According to our survey respondents,
risks for well-established businesses, “profound social instability” is the
which can be left to pick up a fifth most important risk to doing
disproportionate amount of any gaps in business in Eurasia. This is unusually
overall tax revenues, as their shadow- high – the only other region in which
2
Tamkin, Emily. “Russia’s Informal Sector Hits Its Highest Level in Over a Decade.” Foreign Policy, 18 April 2017.
Regional Risks for Doing Business 15Middle East and North Africa
Top ten risks in MENA
1 Energy price shock
2 Unemployment or underemployment
3 Terrorist attacks
4 Failure of regional and global governance
5 Fiscal crises
6 Cyber-attacks
7 Unmanageable inflation
8 Water crises
9 Illicit trade
10 Failure of financial mechanism or institution
Note: See Methodology section for details of the survey’s coverage in this region.
Geopolitical and economic risks predominate in much of the region, but cyber-attacks
are a growing concern as the regional economy becomes more sophisticated.
Although the top two risks across faces serious economic challenges governance”, “failure of regional and
the Middle East and North Africa and is in dire need of reforms. global governance”, “failure of financial
3
(MENA) region are economic mechanism or institution”, “failure of
in character (“energy price Other countries attaching high critical infrastructure” and “spread of
shock” and “unemployment or prominence to domestic and infectious diseases”.
underemployment”), the deep regional fractures in the survey
fissures within and among many of were Tunisia, with “profound Although “energy price shock” has
the region’s countries are evident in social instability” ranked first, and risen from second place last year to
the responses to our survey. This Algeria, where respondents ranked become the top-ranked risk across
is perhaps clearest in Lebanon, “failure of regional and global the region, this development needs to
where the most cited risk to doing governance” first. In both Israel and be balanced with the fact that “fiscal
business was “state collapse or Jordan, “terrorist attacks” topped crises” dropped sharply in the survey
crisis”, with “terrorist attacks” businesses’ lists of concerns. rankings, from first position last year
second and “failure of national In Yemen – where a profound to fifth in 2018. Oil prices increased
governance” in third position. humanitarian crisis has resulted substantially between our 2017 and
Lebanon has not been able to from a protracted civil conflict 2018 surveys, from around $50 to
form a government since elections that is deeply entangled in the $75. This represents a significant
in May 2018, in part because of aforementioned regional rivalries fillip for the fiscal position of the
the strains caused by increasingly – the gravity of conditions in the region’s oil producers, with the IMF
complex geopolitical rivalries across country is illustrated by the spread estimating that each $10 increase in
the region. Although the country of concerns that respondents oil prices should feed through to an
has endured long periods without a prioritized from our list of 30 global improvement on the fiscal balance
government before, Lebanon now risks, including: “failure of national of three percentage points of GDP.
16 Regional Risks for Doing Business“Deep fissures within
and between the
region’s countries are
evident in the survey.”
A view of the old quarter of Sanaa, Yemen. (REUTERS/Khaled Abdullah)
However, vulnerabilities to swings in oil the region’s 15 countries), rather regional economy and a global trend
prices have not disappeared, and are than great prominence in many towards increased corporate focus on
particularly pronounced in countries of them. At a national level, this cyber risks in particular is evident in a
where government spending is rising. risk ranks in the top three for five number of other MENA countries. For
This group includes Saudi Arabia, countries: Bahrain, Egypt, Morocco, example, “cyber-attacks” was ranked
which the IMF estimated in May 2018 Oman and Tunisia. Nevertheless, as the second most important risk in
had seen its fiscal breakeven price unemployment is a pressing issue in three countries other than the UAE:
for oil – that is, the price required to the region, particularly for the rapidly Israel, Qatar and Saudi Arabia.
balance the national budget – rise to expanding young population: youth
$88, 26% above the IMF’s October unemployment averages around 25% The ongoing need for regional action to
2017 estimate, and also higher than and is close to 50% in Oman. mitigate environmental concerns was
the country’s medium-term oil-price reflected in the fact that “water crises”
target of $70–$80. It is no surprise, The United Arab Emirates is ranked eighth across the region. In
then, that Saudi Arabia remains one something of a regional outlier in the Egypt and Iran, respondents viewed
of five countries in the region that rank survey – respondents focused on “water crises” as the top risk to doing
“energy price shock” as the top risk technology-related risks in a very business. The potential severity of
to doing business in our survey, along similar way to their counterparts in water-related risks has been highlighted
with Bahrain, Kuwait, Oman and Qatar. Europe and North America, with in recent months by a scandal in Iraq
“cyber-attacks” ranked first, “misuse that has led to a reported 17,000
Although “unemployment and of technology” in third place and “data people being poisoned by polluted
underemployment” is ranked second fraud” in fourth. However, although drinking water.
across the region as a whole, this the UAE’s focus on technological
reflects a consistent level of lower risks is unusually pronounced, it
placings across all of the region’s is not unique. The combination
countries (it is in the top ten in 12 of of increasing sophistication in the
3
“Lebanon’s Economy Has Long Been Sluggish. Now a Crisis Looms.” The Economist, 30 August 2018.
4
International Monetary Fund, Regional Economic Outlook: Middle East and Central Asia Statistical Appendix, May 2018, p.7.
Regional Risks for Doing Business 17Sub-Saharan Africa
Top ten risks in sub-Saharan Africa
1 Unemployment or underemployment
2 Failure of national governance
3 Energy price shock
4 Failure of critical infrastructure
5 Fiscal crises
6 Failure of financial mechanism or institution
7 Failure of regional and global governance
8 Water crises
9 Food crises
10 Unmanageable inflation
Note: See Methodology section for details of the survey’s coverage in this region.
Economic risks continue to weigh on businesses across the region, as do concerns
about governance and the condition of critical infrastructure.
Of the 34 countries in sub- masks deep-seated problems. More Eswatini, and Namibia). The
Saharan Africa that we than 70% of the region’s workers region’s debt-to-GDP ratio has
surveyed, “unemployment and are in vulnerable employment – increased significantly over the past
underemployment” was identified compared to a global average of decade (from 23% in 2008 to 46%
as the most pressing concern 46% – and 37% are in extreme in 2017), and the high proportion
for businesses in 22 of them. No working poverty, which is defined by of public borrowing accounted for
other region recorded anything the International Labour Organization by foreign-currency debt (60%)
like this level of consensus among as income of less than $1.90 per is a particular concern against
respondents, highlighting the day.5 People in sub-Saharan Africa a backdrop of rising US interest
profound challenges that the region are still disproportionately likely to rates. As well as creating the
faces on this issue, particularly in enter the labour market at a young conditions for potential future debt
light of the demographic changes age, and the region has the world’s crises, rising levels of indebtedness
that lie ahead. The UN projects that lowest levels of access to higher also limit policy-makers’ short-term
the working-age population of Africa education – this combination is likely flexibility: the IMF and the African
will more than double to 1.6 billion to perpetuate a cycle of low skills Development Bank (AfDB) have
by 2050, a trend that could open and working poverty. already noted that rising debt-
new economic opportunities for the servicing costs are diverting public
continent, but only if jobs can be Economic vulnerabilities are also spending from investment. And
created in huge quantities. reflected in a number of other risks the pressing need for investment
cited by businesses. “Fiscal crises” is highlighted in the fact that
According to World Bank data, ranked number five across the respondents ranked “failure of
Africa’s official unemployment rate region, and was in the top three critical infrastructure” fourth across
is just 7.3%. However, this figure for four countries (Burundi, Chad, the region.
18 Regional Risks for Doing Business“Over 70 percent of
workers are in vulnerable
employment —compared
to a global average of
46 percent.”
Traders at a night market in Nairobi, Kenya. (REUTERS/Thomas Mukoya)
The second-highest risk cited by Vulnerability to energy price shock things – conflict, drought, rising food
businesses across sub-Saharan remains a factor in the region, prices, weak governance and the
Africa is “failure of national although business concerns on this strains of rapid urbanization. During
governance”. Although this risk came front have eased somewhat since 2017, nearly 32 million people were
top in only two countries (Ethiopia and last year according to our survey food-insecure and in need of urgent
Mozambique), it ranked in the top five results. Looking at the region’s most assistance across north-eastern
for a further 18 countries, including significant oil exporters, this risk Nigeria, Somalia, Yemen and South
the region’s largest economies ranked fourth this year in Nigeria Sudan.6 “Water crises” ranked
(Nigeria and South Africa). There were (down from third last year), while number one in Namibia, and number
interesting political developments it did not feature in the top ten in two in Botswana and South Africa.
during the second half of 2017, with Angola. The sharp drop in oil prices In late 2017, urgent measures were
a number of regional leaders stepping in 2014 caused fiscal and balance- taken to prevent Cape Town running
down, allowing more reform-minded of-payments problems for numerous out of water; “day zero” – when taps
successors to take their place. African oil producers, highlighting the in the city run dry – has now been
However, several countries in the need for structural adjustments to pushed back to 2019.
region are ruled by ageing leaders boost resilience. However, in its 2018
or family dynasties that perpetuate economic outlook, the AfDB noted
their rule through constitutional that these adjustments are being
amendments or postponement of implemented at a very slow pace.
elections. In the Democratic Republic
of the Congo (DRC), for example, Water and food crises ranked eighth
elections have been postponed twice and ninth respectively across the
since November 2017, and are now region, highlighting the continuing
scheduled to take place in December challenge of meeting basic needs
2018. against a backdrop of – among other
5
International Labour Organization. World Employment and Social Outlook, 2018.
6
Food Security Information Network. Global Report on Food Crises, 2018.
Regional Risks for Doing Business 19South Asia
“Rising energy prices and
Top ten risks in South Asia expansionary monetary
1 Failure of national governance and fiscal stances point
2 Unmanageable inflation
to inflationary risks.”
3 Unemployment or underemployment
4 Failure of regional and global governance
5 Cyber-attacks
6 Failure of critical infrastructure
7 Energy price shock
8 Failure of financial mechanism or institution
9 Water crises
10 Large-scale involuntary migration
Note: See Methodology section for details of the survey’s coverage in this region.
Political and economic concerns predominate among businesses in South Asia, with
cyber-attacks also viewed as a concern.
“Failure of national governance” was Respondents also pointed to detected, and second for targeted
ranked as the leading risk to doing governance issues above the nation- phishing attacks. Furthermore, there
business by our respondents in South state level, with “failure of regional and has been concern in India about the
Asia. This sentiment corresponds with global governance” ranking fourth protection of citizens’ personal data
a particularly busy political period in across the region, and featuring most in the Aadhaar system (the country’s
the region: there have been national prominently in Nepal and Bangladesh. biometric ID database) following
elections in the past year – in Pakistan Refugee and migration issues may be a breach across four government
in July 2018 and in Nepal in November one driver of this, with approximately agencies in May 2018 that exposed
and December 2017 – and another 700,000 people – mostly Rohingya approximately 130 million accounts.
three are expected by the end of the – having fled from Myanmar to Elsewhere in the region, Pakistan,
year – in Bangladesh, Bhutan and Bangladesh over the past year. In Nepal and Bangladesh all rank high
Maldives. The election process is often addition, India-Pakistan tensions among countries with computers
viewed with anxiety in South Asia as remained ongoing in 2017, and there running Microsoft products that report
it can be accompanied by violence, have been no bilateral talks between malware encounters.7 Furthermore,
blockades and other forms of political the two countries since 2015. Bangladesh is still recovering from a
tension. Elections can also be followed cyber-attack carried out on its central
by periods of uncertainty. In Nepal, a “Cyber-attacks” ranked as the number bank in 2016 that stole $81 million.
new constitution was adopted three five risk across the region, but it topped
years ago that divided the country into the concerns of respondents in India, Economic risks are a prominent
seven new federal provinces, but it is by far the region’s largest country. concern across the region. In India, the
still to be seen how the provinces will According to Symantec, India ranks most prominent risk in this category
be governed and how the separation of third in the world, after the USA and was “failure of financial mechanism or
power will work. China, for the volume of cyber threats institution”, which was ranked third by
20 Regional Risks for Doing BusinessA currency exchange in Colombo, Sri Lanka. (REUTERS/Dinuka Liyanawatte)
respondents. This reflects region-wide in the world – with 7.1% economic
problems: many financial institutions growth on average in 2019 – there are
are poorly managed and subject to concerns that the region will struggle
weak regulatory oversight, and there to deliver sufficient job creation to
has been a surge in the volume of non- meet the needs of a rapidly expanding
performing loans over recent years. population.8
“Unmanageable inflation” was ranked
as the second-highest risk across the
region. South Asia benefited from low
global oil prices in the 2014–16 period,
but a combination of rising energy
prices and expansionary monetary
and fiscal stances point to inflationary
risks. There are already indications
of mounting price pressures in some
countries: inflation in India increased
from 1.5% in June 2017 to 5.1% in
January 2018, while, in July this year,
Pakistan’s inflation rate reached a
four-year high. “Unemployment or
underemployment” was ranked as
the third leading risk in the region.
While projections from the World
Bank suggest South Asia is set to
remain the fastest-growing region
7
Microsoft. Microsoft Security Intelligence Report Volume, v23, p.42.
8
World Bank. South Asia Economic Focus: Jobless Growth?, 2018.
Regional Risks for Doing Business 21East Asia and the Pacific
Top ten risks in East Asia and the Pacific
1 Cyber-attacks
2 Unemployment or underemployment
3 Asset bubble
4 Energy price shock
5 Data fraud or theft
6 Failure of national governance
7 Failure of regional and global governance
8 Fiscal crises
9 Failure of critical infrastructure
10 Manmade environmental catastrophes
Note: See Methodology section for details of the survey’s coverage in this region.
Cyber-attacks ranked as the number one risk across East Asia and the Pacific, with
worries about unemployment in second place.
“Cyber-attacks” are the leading President Donald Trump and North have resulted in rising credit-card
risk to doing business across East Korean leader Kim Jong-un, Singapore fraud rates, necessitating increased
Asia and the Pacific, according to was reported to be the number one protection measures by the region’s
our survey. They topped the list for target of cyber-attacks in the world. banks.
respondents in Indonesia, Japan
and Singapore. The prominence of “Cyber-attacks” ranked fifth in China, “Unemployment and
cyber-attacks as a concern among but the related risk of “data fraud or underemployment” was ranked as
the region’s businesses reflects theft” was the third-highest risk there the second most-pressing risk across
the rapid pace of digitization and according to our survey. “Data fraud the region. This is likely to reflect a
the increasing sophistication of the or theft” was ranked as the leading risk combination of factors. Population
region’s economies. South-East Asia in by respondents in Malaysia, a result growth is creating the need for robust
particular is the fastest-growing region that may reflect the impact of a case rates of job creation – 11,000 people
in the world in terms of connections to in 2017 involving the attempted sale are joining the workforce across the
the internet, with a projected 3.8 million of more than 46 million mobile phone Association of Southeast Asian Nations
new users each month, and estimates subscribers’ data. This was among (ASEAN) every day, for example –
that its online economy will reach $200 the largest breaches of consumer while rapid technological advances
billion by 2025. These trends make information ever recorded in Asia. are disrupting established economic
the region a target for criminal and Given that Malaysia’s population is models and labour-market patterns.
terrorist hackers, and in mid-2018, 31 million, it is likely to have affected Low-wage manufacturing sectors in
the prime minister of Singapore, Lee the entire country. Across the region many of the region’s countries are
Hsien Loong, warned of cyber-attacks as a whole, the increasing prevalence at greater risk of being disrupted
by terrorist groups, such as ISIS. In of e-commerce and the growing compared to knowledge-based
June, during the summit between US popularity of new payment methods industries in Europe and the USA.
22 Regional Risks for Doing Business“In Hong Kong residential
property prices have
risen by 185 percent
since the start of the
decade.”
A model of the LP6 residential development in Hong Kong SAR. (REUTERS/Bobby Yip)
However, concerns about the labour- businesses to the possibility of further
market impact of new technologies price shocks.
are not restricted to the region’s
lower-income countries. In Australia, The “asset bubble” risk ranked as the
for example, estimates suggest third-highest regionally, and as the
that almost 40% of current jobs will number one risk in Cambodia and
disappear in the next 15 years, and the Hong Kong SAR. In Cambodia, years
country’s banks were among a number of rapid construction of condominiums
of sectors to announce downsizing and gated communities in the capital,
measures, for technological reasons, Phnom Penh, have created concerns
during 2018.9 about an oversupply, while in Hong
Kong, real-estate prices have been a
The highest-ranked risk in Australia source of unease for a decade. In July
was “energy price shock” (compared 2018, residential property prices were
to a region-wide fourth-place ranking). up by 16.6% year on year, an increase
The country is among the leading of 185% since the start of the decade.
global energy exporters, but policy
failures under successive governments
have seen Australia’s energy
infrastructure fall into disrepair. A badly
managed transition from ageing coal-
fired power generation to renewables
has led to supply shortages and rapid
price increases.10 This in turn is likely
to explain the sensitivity of Australian
9
“EDA’s Major Research Report for 2015, Australia’s Future Workforce?” CEDA, June 2015: https://www.ceda.com.au/Research-and-policy/All-CEDA-research/Research-
catalogue/Australia-s-future-workforce (link as of 1/10/18).
10
Williams, Perry. “Why Energy-Rich Australia Suffers the World’s Priciest Power.” Bloomberg, 5 October 2017.
Regional Risks for Doing Business 23North America
Top ten risks in North America
1 Cyber-attacks
2 Data fraud or theft
3 Extreme weather events
4 Fiscal crises
5 Energy price shock
6 Asset bubble
7 Failure of critical infrastructure
8 Failure of urban planning
9 Terrorist attacks
10 Failure of climate-change adaptation
Note: See Methodology section for details of the survey’s coverage in this region.
After a year of costly and high-profile breaches, cyber and data risks top the concerns
of businesses in North America.
For business executives in Canada Canada, 87% of businesses reported In the USA, a majority of the population
and the United States, cyber-attacks being the victim of a successful (65%) has already experienced a
are now the number one risk to doing breach in 2017.11 In early 2018, the personal data breach according
business. This mirrors the pattern in US Director of National Intelligence to the Pew Research Center. The
other economically advanced regions, cited cyber vulnerability as a top risk costliest data breach to date occurred
highlighting the growing reliance of for government and businesses alike during 2017 at Equifax, with sensitive
global commerce on digital networks in a hearing before the Senate Select personal information of 143 million US
that are the target of increasingly Committee on Intelligence. consumers being breached at a cost
sophisticated and prolific attacks. In of up to $600 million. Concerns about
this regard, 2017 is likely to mark a Unsurprisingly, the closely related data-related risks in the USA may also
watershed, with a series of massive risk of “data fraud or theft” is also a have been heightened by widespread
cyber-attacks highlighting the mounting concern in the region, ranking third reporting about the exploitation of social
dangers from hackers and the need to in the United States and seventh in media networks for political purposes.
bolster public and corporate defences. Canada. Of the Canadian companies For example, our survey was in the
The WannaCry ransomware attack that experienced a cyber-attack in field when the Cambridge Analytica
affected 300,000 machines across 2017, almost half lost sensitive data. scandal broke, in which the personally
150 countries, while the NotPetya In 20% of cases, sensitive customer or identifiable information of 87 million
malware attack caused huge corporate employee data was exposed. Recently Facebook users was collected then
losses. For example, Merck, FedEx and passed Canadian legislation will require reportedly used in political campaigning.
Maersk each reported losses of around companies covered under federal law
$300 million in the third quarter of 2017 to report data breaches to customers, Physical security also remains a major
alone. Moreover, the pace and scale of affected third parties and the federal concern among US businesses.
cyber-attacks are increasing rapidly. In privacy commissioner. Although cyber-attacks replaced them
24 Regional Risks for Doing Business“Extreme weather has
plagued the region and
inflicted significant costs
in the last 18 months.”
Sunset over hills burned in the Carr fire in California. (REUTERS/Bob Strong)
at the top of the country’s list of risks region and inflicted significant costs on “Fiscal crises” and “energy price
this year, “terrorist attacks” still ranks businesses in the past 18 months. In shocks” round out the top five risks
second. In October 2017, eight people Canada, wildfires raged through British identified by business executives in
were killed in a vehicular attack in Columbia in the summer of 2017, while North America. Concerns about high
New York City, the largest loss of life temperatures plummeted to all-time fiscal deficits and public debt-to-GDP
from a terrorist attack in the city since lows in Alberta and Saskatchewan ratios are nothing new in the USA, but
9/11. This risk category could also in early 2018. Most recently, record- business concerns appear to have
be capturing wider concerns about breaking heatwaves in the central and increased in the wake of a tax-cutting
the prevalence of mass shootings in eastern parts of the country led to the budget announced in February 2018:
the USA. Geopolitical security risks deaths of more than 50 people. In the last year, “fiscal crises” did not rank
are also a concern for US businesses USA, last year’s most costly disaster in the top ten among US businesses,
this year, with “weapons of mass was Hurricane Harvey, which inflicted whereas this year it ranked fourth.
destruction” (WMDs) ranking fifth over $125 billion in damage in August
against a backdrop of heightened 2017, primarily due to catastrophic
insecurity regarding North Korea’s rainfall-triggered flooding in the
nuclear capabilities and intentions. Houston metropolitan area. Harvey
Neither terrorism nor WMDs ranked in was followed by Hurricanes Irma and
the top ten in Canada. Maria in September and October of
2017 respectively, which ravaged
“Extreme weather events” ranked third Puerto Rico and the US Virgin Islands.
across the region, largely driven by In California, wildfires have affected
concerns among Canadian businesses, much of the population in the past
which also included “failure of climate- two years, causing both human and
change adaptation” in their top ten. environmental devastation.
Extreme weather has plagued the
11
World Economic Forum, Global Risks Report 2018, p15.
12
Greenwood, Max. “Almost 9 out of 10 Canadian Companies Were Breached by Cyber-Attacks Last Year.” Tech Vibes, 9 February 2018.
Regional Risks for Doing Business 25Latin America and the Caribbean
Top ten risks in Latin America and the Caribbean
1 Failure of national governance
2 Profound social instability
3 Unemployment or underemployment
4 Fiscal crises
5 State collapse or crisis
6 Energy price shock
7 Illicit trade
“An intense electoral
8 Failure of critical infrastructure
9 Natural catastrophes
cycle has reinforced
10 Failure of urban planning political polarization
Note: See Methodology section for details of the survey’s coverage in this region. across Latin America.”
Weak governance and sociopolitical instability weigh on businesses across the region,
as do concerns about unemployment.
In a clear reflection of continuing to doing business in five countries reflected in the risks prioritized by
political strains across much of the across the region (Bolivia, Brazil, survey respondents: “unmanageable
region, our survey respondents in Ecuador, Guatemala and Panama) and inflation”, “state collapse or crisis”,
Latin America and the Caribbean it was ranked second in a further four “profound social instability”, “food
cited “failure of national governance” (Mexico, Nicaragua, Peru and Trinidad crisis” and “failure of national
as the most serious risk to doing and Tobago). Meanwhile, profound governance”. Among other things,
business for the second year in a social instability ranked as the number Venezuela’s crisis has led to mass
row. Moreover, the risk of “profound one risk in Honduras and Mexico, migration to nearby countries, including
social instability” edged up from third and was the second-highest risk in a Colombia, Peru, Ecuador, Brazil and
position in last year’s survey to second further three countries (Bolivia, Panama Chile. In our survey, Colombia and
position in 2018, reflecting deepening and El Salvador). A combination of Chile ranked the risk of “large-scale
social tensions in parts of the region. societal fissures including poverty, involuntary migration” in first and
The past two years have involved an inequality, security challenges, health second place, respectively. These
intense electoral cycle across Latin risks, unemployment (and high levels of developments may also help explain
America, which, combined with the informal employment), and insufficient why Colombia and Venezuela are the
emergence of successive corruption social safety nets and retirement only countries in the region in which
scandals at the centre of public provisions constitute a tinderbox in interstate conflict was cited among the
debate, has reaffirmed electorates’ numerous countries. top ten risks. The survey also captures
long-standing mistrust of institutions the early stages of Nicaragua’s political
and reinforced political polarization. Venezuela is already in an crisis, which started in April 2018
unprecedentedly critical situation, and has since evolved into violent
Respondents ranked “failure of national and the extent of the collapse of its clashes between, on the one hand, the
governance” as the number one risk economy and political institutions is government and its supporters, and,
26 Regional Risks for Doing BusinessAn opposition rally in Caracas, Venezuela. (REUTERS/Carlos Barria)
on the other, opponents largely drawn The Latin American region’s economy earthquakes in central Mexico left
from the private sector, students and continues to be highly dependent over 400 people dead and caused
the church. Respondents in Nicaragua on commodities production, thus enormous economic losses for the
ranked “failure of national governance” energy and oil price volatility has had country in 2017, and natural disasters
as the second most-pressing risk. a profound impact over the years. have also caused significant suffering
The “energy price shock” risk was and damage in Chile, Colombia, Peru,
Economic concerns are also prominent ranked sixth overall across the region, Brazil and the Caribbean.
across the region, with “unemployment but it was cited as one of the top
and underemployment” and “fiscal three concerns for doing business in
crises” ranking third and fourth. four countries (Dominican Republic,
Unemployment has risen in Latin Honduras, Nicaragua and Trinidad and
America in the past three years, Tobago). However, there are signs that
reaching 8.4%, affecting over 26 million an uptick in international commodity
people, according to the International prices is helping the region to return to
Labour Organization. The risk of fiscal positive economic growth, despite the
crises topped respondents’ list of many headwinds it faces.
concerns in four countries, including
Argentina, where it tied as the number One or both of “extreme weather
one risk with “unmanageable inflation”. events” and “natural catastrophes”
The timing of the survey means it rank in the top five risks for eight
will not have captured some of the countries in this region. Extreme
subsequent deterioration of Argentina’s weather was cited as the top risk by
economic and financial situation: for respondents in Jamaica, where “natural
example, as of September 2018, the catastrophes” was the top concern
country’s currency had lost 50% of in Chile. Across the region, countries
its value against the US dollar since repeatedly suffer extensive human,
the start of the year. “Unmanageable physical and economic damage as
inflation” also ranks among the top a result of hurricanes, flooding, fires,
three risks in Venezuela and Haiti. drought and earthquakes. For example,
Regional Risks for Doing Business 27Results at a glance
The table below presents the key risk-related findings from the Executive Opinion Survey for 140 economies. In each
instance the table lists the top five risks for each economy—as cited by respondents in that economy—with “Risk 1”
indicating the most frequently cited risk.
Where there is a tie, the tied risks are presented in the same cell, separated by a dotted line, and the next cell in the row
contains an ellipsis (“…”). For example, in Angola two risks are tied for first place (“unemployment and underemployment”
and “failure of a financial mechanism or institution”) and there is therefore no risk in second place.
An asterisk beside the name of an economy indicates that the most recent available survey data are from 2017. A double
asterisk indicates that the most recent data are from 2016.
RISK 1 RISK 2 RISK 3 RISK 4 RISK 5
Natural catastrophes
Failure of financial
Albania Fiscal crises Illicit trade
mechanism or institution
Interstate conflict
Cyberattacks
Failure of regional and global Failure of financial
Algeria governance
Energy price shock
mechanism or institution
Terrorist attacks Food crises
Unemployment or
underemployment
Failure of national
Angola ...
governance
Terrorist attacks Failure of urban planning
Failure of financial
mechanism or institution
Failure of national
Fiscal crises
governance
Argentina ... ... State collapse or crisis
Unmanageable inflation Profound social instability
Large-scale involuntary Unemployment or
Armenia migration
Interstate conflict
underemployment
Profound social instability Natural catastrophes
Fiscal crises
Failure of regional and global
Australia Energy price shock Cyber-attacks Asset bubble
governance Failure of critical
infrastructure
Large-scale involuntary Unemployment or
Austria Cyber-attacks Asset bubble
migration
Profound social instability
underemployment
Large-scale involuntary
Fiscal crises migration
Azerbaijan* ... Natural catastrophes
Energy price shock
...
Interstate conflict
Illicit trade
Unemployment or
Bahrain** Energy price shock Fiscal crises
underemployment
Interstate conflict Profound social instability
Failure of national Failure of regional and global Unemployment or
Bangladesh Energy price shock
governance
Cyber-attacks
governance underemployment
Failure of urban planning
Failure of regional and global Unemployment or
Belgium Cyber-attacks
governance
... ...
underemployment
Fiscal crises
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