Top 5 Risks 2019
- Middle East and North Africa
- Creating a Resilient Organisation
- Delivering Growth and Opportunity
Top 5 Risks 2019 – ones to watch
Each year, Control Risks’ decides the top 5 Risks for businesses in the coming year. While these are global in scope, here we discuss how they will drive developments in the business environment in the Middle East and North Africa in 2019.
Blue muddies Gulf waters
As the blue wave of Democrats elected to Congress settles into position, it will further complicate US policy toward the Middle East. US President Donald Trump and his administration will aim to ramp up pressure on Iran, push for Arab states to play a greater role in regional security, and pursue peace deals in the region – all while keeping an eye out for opportunities for American business. However, emboldened Democratic congressional members will be increasingly vocal in questioning US policy and activities in the region. This will not fundamentally change the region’s strategic importance to the US in terms of security, counterterrorism, and trade. However, the newfound debate will attempt to force a closer consideration of US relationships and activities in the region. Infighting and increasingly mixed messages will reduce the ability of the US to use its economic and diplomatic heft to have a decisive say in key conflicts and issues in the region. While the US will remain an important player in regional conversations, particularly around security, these debates will give other players increased confidence to hold out for their terms.
Looking the other way
While US foreign policy will remain mercurial, we expect the US–China trade war to be the defining political dynamic of 2019. Some MENA states have felt the effects of these tariffs more than others, but all will generally avoid taking sides, continuing efforts to attract inward investment from both China and the US. As Gulf Arab states push to diversify their economies away from oil, they will actively cultivate new economic and diplomatic relationships, regardless of whether these are aligned with Washington’s objectives.
Stuck in the middle – with who?
Tender awards by major state-owned entities throughout the region are increasingly going to a more diverse range or players, mirroring an effort by many states in the region to grow relationships with a more diverse range of diplomatic and economic partners...
The trend toward more active foreign and domestic policy changes in many of these states mean businesses will need to remain agile and assess how political developments, whether they manifest in formal or informal ways, may present new complications to their operations. Meanwhile, the choices that businesses make will be more closely scrutinised by third parties.
Data regulation is one area businesses will need to watch over the next year. Countries in the Middle East are actively attempting to grow their tech sectors, with companies seeking to capitalise on a young, tech savvy demographic. However, governments in MENA are also increasingly seeking to regulate the storage and usage of data. Many countries view this fundamentally as a security issue: hacking of infrastructure and attacks on state-owned enterprises have created the perception that sensitive data should be hosted on home territory rather than in the cloud. However, if data is something to be controlled in China, protected for the EU and commercialised in the US, for the states in the region it is increasingly something to be monitored. Government will have little sympathy for companies that push back on these new regulations.
Security issues have been persistent concerns for businesses operating in MENA, particularly in conflict zones, but in 2019 extreme weather will continue its rise as one of the most significant factors in security and operational risks in the region. The latest UN Panel on Climate Change projects that temperatures will rise and precipitation will fall, increasing incidents of droughts. A forecast by the Max Planck Institute expects summer temperatures in MENA to rise more than twice as fast as the global average. The World Resources Institute estimates that all MENA countries except Egypt and Mauritania will suffer from extremely high water stress by 2040.
This is a very real problem for governments in the region. The poorest citizens will be those most affected by climate change, which, without significant policy changes, will cause reduced sanitation, increase food prices and competition for resources. Three months of demonstrations in Basra (Iraq) protesting the life-threatening quality of drinking water was a harbinger of the combined effect of climate change and insufficient public infrastructure. Governments are increasingly coming to terms with the reality of climate change and the political and security implications it will have over the next decade. Pressure will increase for insufficient public utilities to be replaced with newer, more efficient infrastructure, and international agencies and other investors may be more willing to offer support for these projects in an effort to address the global issue of climate change.