Global Geopolitical Risk Concerns for Businesses in 2017

Last year, the Western world experienced the twin surprises of the UK’s vote to leave the European Union (EU) and Donald Trump’s victory in the US presidential election, events that will affect global politics in 2017 and beyond.

Elsewhere, geopolitics will play out in 2017 through numerous elections, the possibility of succession in several countries, continued economic polarization, and more. Multinational organizations must be aware of, and prepare for, such political and economic risks in both developed and developing markets, as highlighted in Marsh’s Political Risk Map 2017.

Both the UK’s vote to leave the EU and President Trump’s victory defied conventional wisdom. Anti-establishment, nation-first parties globally paid close attention to these events, which were driven by such factors as:

• Surges in immigration.
• Increases in terrorism threats.
• The knock-on effect of global financial crises.

These themes will continue to amplify global political risks in 2017. As many countries shift their focus inward and become more protectionist, it appears we may have hit “peak globalization,” potentially hindering global trade moving forward.

Among the key issues to watch for in 2017 are:

Europe: The UK’s vote to leave the EU created uncertainty surrounding future trade negotiations between the UK and the EU, giving multinationals cause for concern. Challenges include striking a balance between delivering on promises to the electorate and enacting sufficiently pragmatic policies to satisfy the concerns of the establishment and businesses. Meanwhile, support for anti-establishment forces in the Netherlands, France, Germany, and Italy is increasing, potentially dealing further blows to the European project.

North America: In terms of US foreign policy — a key concern — much depends on whether President Trump and his administration aggressively shake up the international system or adopt more pragmatic policies. What seems clear is that the US is likely to adopt a much more assertive foreign policy than was the case under President Obama. How such policy changes will affect relationships between the US and its main trading partners and allies as well as with its geopolitical rivals is unclear.

Asia: In Asia, Hong Kong’s elections are set for March, China’s national congress meets in the fall, and South Korea’s elections are scheduled for December. These events will help set the political scene in these countries, the region, and globally for years to come.

Middle East: Iran’s May presidential elections will decide whether relatively moderate President Hassan Rouhani wins a second term, which will play an important part in determining whether or not Tehran seeks to preserve the landmark 2015 nuclear deal with the world’s major powers.

Latin America: Political crises in Brazil and Venezuela will likely take center stage in 2017, although the two countries may be headed in opposite directions. Brazil still faces the potential for disruptive corruption scandals, but appears headed in a positive direction. Venezuela, on the other hand, is in its fourth year of increasing political and economic crisis.

Pacific: Australia epitomizes the line that must be walked in 2017 by many stable countries: It has a strong economic relationship with China and deep security ties to the US. Elections in New Zealand this year will hold little of the drama likely to be seen in other countries.

Global: As noted in Marsh’s Political Risk Map 2017, the countries with the highest political risks generally follow geographical trends: Emerging markets, particularly those in North Africa and the Middle East, show the greatest instability as conflicts, civil war, and socio-economic instability affect Syria, Sudan, South Sudan, The Central African Republic, Yemen, and other countries. We are also likely to see continued growth in rivalries between world powers in 2017, such as those witnessed in recent tensions between China, Japan, and South Korea in the South and East China Sea, and in Russia’s growing assertiveness in peripheral countries and in Syria.

For multinational companies and local ones that do business with them, it is vital to understand where these risks are occurring and how they will impact your business. Only with such insights can companies truly begin to plan for possible scenarios as they develop risk management strategies to support investment decisions.