Risks facing global businesses in late 2016 are at near-record levels, according to Dun & Bradstreet’s recently released Global Risk Matrix (GRM). D&B is a global supplier of business information and research as well as the world’s leading supplier of business-credit information.
The GRM, which assesses the top 10 risks facing companies that operate across borders, shows that the Global Business Impact (GBI) score for Q4 2016 worsened for a third consecutive quarter. The Q4 figure is the second highest on record and is only just below the all-time high of 283 recorded in Q3 2014. The Q4 2016 number is also well above the long-term average of 254.2. (See chart.)
Risks included in the GRM are broken into three broad categories: political risks, risks associated with China, and risks related to security issues. Out of these risk categories, four are political, three relate to China, and another three deal with security; these combine to equal a total of 10 top risks.
One key political risk reflects D&B’s concern that the lack of detail about President-elect Donald Trump’s policies will curtail US business activity in the short term. A second political risk is related to the reaction of politicians in the UK to push for a “hard” Brexit from the EU that could impact supply chains across Europe.
A third risk is the potential collapse of the Transatlantic Trade and Investment Partnership (TTIP) and Trans-Pacific Partnership (TTP) trade deals and the renegotiation of NAFTA — all of which would seriously undermine growth prospects for cross-border trade and investment. Finally, a fourth political risk is the potential collapse of a migrant-management deal between the EU and Turkey, which would lead to a fresh influx of migrants into Western Europe and threaten both social stability in Europe and local supply chains.
In relation to China, D&B is concerned with the threat of possible bad-debt default contagion in China, which could trigger state rescues and emergency capital issues — particularly for mid-tier banks. Second is the risk that a default contagion could slow China’s real GDP growth to below 5%, which would seriously affect the growth prospects for many emerging markets. In addition, capital flight could force China’s yuan to weaken past the psychologically important 7 yuan:$1 point, triggering a wave of currency selling in Asia and other key emerging markets.
Regarding security, D&B’s biggest concern is that the world’s rapidly growing cyber-dependence and connectivity could lead to increasingly frequent and more damaging cyberattacks, with ramifications for businesses. Another key security concern is whether the continued military success against the Islamic State in Iraq, Syria, and Libya will result in more high-profile attacks in the Middle East and Europe to offset ISIS’s setbacks.
In addition, widespread public discontent in Latin America in response to the collapsing regional economy could lead to a sharp rise in violent antigovernment protests that could disrupt the rule of law and further impair the already weak business environment.
Note: The top 10 risks in the GRM combine D&B’s assessment of (1) the magnitude of the event’s probable effect on the global business operating environment, on a scale of 1 to 5 (where 1 is the smallest impact and 5 is the largest), and (2) the likelihood of the event happening (1 to 100). This creates the GBI for each of the top 10 risks; the 10 GBIs are then added together to provide the overall level of risk for a particular quarter. The GBI highlights the level of risk for companies doing cross-border business in a complex and globalized world.
Dr. Warwick Knowles is the Deputy Chief Economist on D&B’s Global Data, Insight & Analytics team. Based in Marlow, UK, he covers global issues and the Middle East and North Africa for D&B Macro Market/Country Insight Products. Previously he taught Middle East politics and political economy for almost a decade at both Newcastle and Durham Universities and has published widely on regional issues and the hydrocarbon sector.