What are the top global risks for doing business?

Global risks don’t know borders - a message the Global Risks Report series has highlighted since its inception in 2005. However, the impact that global risks have on different stakeholders is still far from understood. The Global Risks Report 2016, therefore, dedicates a section of its 11th edition to the analysis of the global risks of highest concern for doing business at the country level. It provides unique insight from the voice of the business community on the topic - a particularly important participant in the global risks landscape.

Businesses are particularly vulnerable as internationalization increases their exposure to global risks. Business has gone global over recent decades and the globalization of trade and commerce has brought, along with opportunities such as production efficiency, many risks – from environmental to economic and political. Yet, making long-term investment decisions in an increasingly more complex and ambiguous environment is not an easy task, as the resilience of any individual business depends heavily on the resilience of its suppliers and purchasers, whose supply chains can span many countries.

Based on the World Economic Forum’s Executive Opinion Survey, the aim of this chapter is to shed light on the global risks that businesses consider to be of highest concern for doing business in their country. The responses of over 13,000 business executives from 140 economies reveal patterns of concern at country and regional levels that can lead to initiatives to engage the private sector in partnering to build resilience to global risks.

With unemployment and underemployment identified as the number one risk of highest concern for doing business in 41 economies - more than a fourth of the economies surveyed - the toll of this risk on the well-functioning of business is highlighted once again. Moreover, combined with energy price shocks, these two economic risks top the ranking in half of the economies. These are followed by the failure of national governance, asset bubbles, fiscal crises and cyberattacks. While some patterns emerge on a global scale, the analysis of the EOS data shows that the global risks of highest concern for doing business differ considerably from country to country.

Economic risks dominate the responses from Europe, including the risk of fiscal crises which is among the top five risks of highest concern in 26 economies out of a total of 39. Unemployment or underemployment tops the list in 12 countries, including five in Southern Europe where the crisis has had a particularly severe impact: Cyprus, Greece, Italy, Portugal and Spain. With high unemployment rates, the risk to business is large. Indeed, this reflects frictions in the labour market with skill mismatchs and skill gaps which impede the well-functioning of businesses as they cannot find the right type of employees.

Moreover, unemployment tops the list in four Balkan countries where recent experience of this is particularly acute: Croatia, Montenegro and Serbia – where more than one worker in five is now unemployed – and Bosnia and Herzegovina. Interestingly, cyberattacks is the risk of highest concern in four countries in Europe: Estonia, Germany, the Netherlands and Switzerland.

Cyberattacks is also the top concern in the United States, while executives in Canada are most concerned about energy price shocks. The risks of an asset bubble is featured in the top five risks in both countries. In Latin America and the Caribbean, the risk of failure of national governance is at the top of the concern in seven economies – followed by energy price shocks, number one risk in six economies, and unemployment and underemployment in five. Worldwide, the risk of failure of critical infrastructure is the top risk in two countries only, both in Latin America - Paraguay and Uruguay.

Respondents from Central Asia, including Russia worry about fiscal crises which is the top-1 risk in Azerbaijan and Russia and is among the top-5 of highest concern in all the countries of the regions. It is followed by unmanageable inflation, mentioned among the top-5 in 6 out of the 7 economies considered (in all countries except Armenia where the risk ranks number 8). Unemployment and underemployment as well as interstate conflicts also feature high on the list, especially in Armenia, Azerbaijan and Georgia. Environmental risks worry business leaders in East Asia and the Pacific, especially in the Philippines (the top-1 risk is extreme weather events), New Zealand (the top-1 risk is natural catastrophes) and Vietnam (the top-1 risk is man-made environmental catastrophes). Asset bubble is the risk of highest in 6 countries (Cambodia, China, Myanmar, Hong Kong, Australia and Thailand), followed by cyberattacks in top-1 risk in 3 economies of the region (Malaysia, Japan and Singapore). Energy price shock is among the top-5 risks in 12 economies. In South Asia, concerns include energy prices and failure of national governance which both feature among the top-5 risks in 4 out of the 6 economies covered in the region (respectively in Pakistan, Sri Lanka, India and Bangladesh and in Bangladesh, Pakistan, Nepal and Sri Lanka). Fiscal crises, together with unemployment or underemployment and failure of climate-change adaptation are high on the list and are among the top-5 risk of highest concern in 3 economies.

Executives in the Middle East and North Africa are also worried about energy prices, together with unemployment and fiscal crises. While each of the three risks are among the top five risks of highest concern for doing business in 10 out of the 14 economies of the region, energy price shock tops the ranking in nine economies.

Terrorist attacks and interstate conflict are also a major concern. In sub-Saharan Africa, the business community’s top concerns include unemployment and underemployment which is the top risk in more than half of the economies of the region, along with energy price shock and failure of national governance. The relatively poor state of infrastructure is also of high concern as illustrated by the risk failure of critical infrastructure which is among the top five risks in 15 economies - despite not being the top concern in any country - and the risk of failure of urban planning considered among the top five risks in 12 countries.

The identification of global risks of highest concern is a first step to taking adequate mitigation measures and to build resilient businesses. With the richness of the dataset on the risks of highest concern for doing business at the country-level, companies now have an additional tool to help them strengthen their resilience. Nevertheless, many risks can only be addressed through collaboration among public and private sector actors and there is a strong case for businesses to join in partnerships with the public sector.

The Global Risks Report 2016 is available here.

Click here for more on the Global Risks of Highest Concern for Doing Business. To benchmark your Global Risks For Doing Business against your peers, use our online tool.

Author: Gaëlle Marti, Project Associate, Global Competitiveness and Benchmarking Network, Global Competitiveness and Risk, World Economic Forum