Forecast 2016: Higher Risks Likely to Shape Global Responses
05 Apr, 2016 · 5010
Cdr (Dr) Kapil Narula draws from The Global Risks Report 2016 to demonstrate that political risks that amplify societal risks will define the new year
The World Economic Forum released the 11th edition of ‘The Global Risks Report 2016’ recently. The report highlights the key ‘risks’ that the world faces in terms of the ‘likelihood’ and the ‘impact’ of risks on a regional and on a global scale. A global risk has been defined as “an uncertain event or condition that, if it occurs, can cause significant negative impact for several countries or industries within the next 10 years.” 29 different risks have been placed under five different categories, viz. Economic (9), Environmental (5), Geopolitical (5), Societal (6), and Technological (4). A survey of 750 stakeholders, located across the world, was conducted in 2015 and the risks were evaluated based on their risk perception. Each global risk was evaluated on a scale of 1-7 with 1 representing ‘unlikely’ and 7 representing ‘most likely’. Similarly, for the impact criteria, a score of 1 was awarded to a risk with the ‘least impact’, while score of 7 was awarded to a risk with the ‘maximum impact’.
The top five risks that were most likely to occur in 2016, in decreasing order, were, ‘large-scale involuntary migration’, ‘extreme weather events’, ‘failure of climate-change mitigation and adaptation’, ‘interstate conflict’ and ‘natural catastrophes’. The risks ranked in terms of impact were, ‘failure of climate-change mitigation and adaptation’, ‘weapons of mass destruction’, ‘water crises’, ‘large-scale involuntary migration’, and ‘energy price shock’. The average score of impact of all risks was 4.76 and the likelihood from risks was 4.87, almost the same as the 2015 risk assessment report.
‘Large-scale involuntary migration’ entered the risk matrix for the first time directly at the top spot, signifying the high risk perception from the unprecedented influx of refugees from war-torn areas into Europe. The likelihood of inter-state conflict fell from the top spot in 2015 to the fourth position in 2016, possibly due to the international community accepting Russia’s annexation of Crimea and the relative stability on that front. The remaining three risks were environmental in nature, which suggested the possibility of high economic and human loss from natural disasters.
‘Failure of climate-change mitigation and adaptation’ jumped from the fifth position in 2015 to the top spot in 2016 in terms of impact, possibly due to the perceived importance of the Paris climate deal in end-2015 and the hype that accompanied the wide media coverage. ‘Severe energy price shock’ entered the matrix after a gap of four years, this time surprisingly due to the collapse of energy prices and the concerns from growing revenue deficits of energy exporter countries.
While the global risk landscape was charted, there were wide variations in the regional perspectives in terms of the most likely risks. Risk perception on a country-wide or a regional scale is important as it identifies the weakest link in the chain. Higher risk perception on a local scale has the potential to trigger off events that can have a large impact in a globalised world. The top three most likely risks identified for North America are cyber-attacks, extreme weather events and data theft while that for Latin America and the Caribbean are failure of national governments, un/under employment and social instability. Europe perceives large-scale involuntary migration as its most likely risk followed by un/under employment and fiscal crisis. Sub-Saharan Africa is most concerned about failure of national governments and critical infrastructure while water crisis emerges as the most likely risk for the Middle East and North Africa. The most likely risk for Central Asia (including Russia) is inter-state conflict followed by energy price shock and failure of national governments. South Asia faces high risk from water mismanagement and climate risks apart from economic risks from unemployment and lower economic growth and environmental risks are higher in East Asia and the Pacific.
Latin America and the Caribbean states are besieged with geopolitical, economic and societal risks. Political instability, high inflation and unemployment, poor oil revenues, financial mismanagement, risk of defaulting on sovereign loan repayments, and a spiralling black market economy continue to plague Venezuela. Brazil, with a high inflation and increasing fiscal deficit, is likely to see a contraction of its economy. A weakening local currency adds to the woes led by a decline in stock market and poor commodity prices. Corruption scandals have also dented the image of President Dilma leading to a loss of confidence in the government. Columbia on the other hand continues its fight with drug dealers and armed conflict with insurgent groups.
Europe is deeply divided on the intake of asylum-seekers, Greece is struggling to stay in the euro zone and the political entity of European Union (EU) is itself under threat with the UK voting on a referendum on staying in the EU on 23 June 2016 with ‘Brexit’ emerging as a strong possibility. The threat of unemployment, though reduced after the 2008 financial crisis, still continues to trouble the countries of the EU.
Economic and societal threats are more prominent in the Middle East and North Africa (MENA) region and armed conflict is plaguing Syria, Iraq, Libya and Yemen. Fragile states in the region include Jordan, Lebanon, Djibouti and Tunisia, while Egypt and Morocco are undergoing political transitions. Sub-Saharan Africa on the other hand faces high risks from political instability due to a large number of countries having authoritarian regimes, high levels of corruption and weak institutions.
While the ‘Global Risks Report 2016’ raises awareness about the perceived global risks and also gives insights into their potential interconnections, it does not discuss any actions to mitigate, adapt and to strengthen the resilience of countries to these risks. However, it does give a shared understanding to governments and helps various countries in aligning their strategies so that they can undertake multi-stakeholder collaboration to offset these risks. How the year 2016 pans out remains to be seen, but it is most likely that political risks which amplify societal risks will be the flavour of the year.
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