Leaders without strategies | Top 5 Risks | RiskMap 2020
Top 5 Risks
5 Leaders without strategies
As the prominent Chinese military strategist and philosopher, Sunzi, wrote in The Art of War, “Tactics without strategy is the noise before defeat.” For several years, this noise has been rising worldwide, shaping domestic and international politics alike. Control Risks believes that in 2020 tactical noise could reach a geopolitical crescendo not known for many generations.
From Brexit to external intervention in Syria’s proxy war, proliferating trade wars, fracturing economic sanctions regimes and collapsing arms control frameworks, the tactical world is now a global reality.
Under pressure from rapid technological change, polarised domestic politics and a changing geopolitical order, political leaders are abandoning long-term goals in favour of short-term wins. Such wins may extend a political lifespan or offer a short-lived geopolitical payback, but at the expense of sustainable gains for nations, communities, and global peace and prosperity. The US withdrawal from the Paris Climate Agreement, EU member states’ failure to agree on institutional reforms to the Eurozone, and Russia’s violation of the Intermediate-Range Nuclear Forces (INF) Treaty are just some examples of short-sighted political decisions with long-term regional and global implications.
The tactical world poses significant challenges for businesses, which need strategies to deliver long-term stakeholder value and meet regulatory demands. Companies require a new strategy for dealing with political and geo-political volatility, combining new tools, new thinking and new decision-making processes.
The perils of the tactical world
Tactical thinking drives political uncertainty, unpredictability and insecurity. When politics and geopolitics are situational, facts on the ground matter more than principles, values and rules. Whether it’s atolls in the South China Sea, air defence systems in Syria or antennae in a wireless network, the tactical world is a race for first mover advantage. The only strategy is fighting for the high ground. The only rule is “winning”. For businesses predicated on predictable rules and norms of international conduct, the tactical world is volatile, hostile and disruptive.
Tactical thinking does not discriminate between democratic and authoritarian regimes. Both are equally susceptible. Strongman regimes manoeuvre constantly for survival against internal and external adversaries, often cynically wielding foreign policy for domestic political gain. Democracies, meanwhile, have always been beholden to the next election cycle, but are increasingly fighting it on the populist terrain of easy answers to hard problems.
Tactical politics diminish the capacity of political leaders and institutions to offer strategic solutions to pressing global problems such as climate change, nuclear proliferation, ethno-sectarian conflict, rising inequality and deteriorating human security. They instil little confidence that a timely multilateral solution can be found to prevent a new global economic crisis (our number four risk) or a cooperative response agreed to proliferating cyber threats.
More and more often, businesses are expected to take the lead in delivering global public goods in a more strategic and globalised manner than many national governments. In recent years, businesses have borne the brunt of the rising costs of trade wars and multiple sanctions regimes, government-mandated disruption to their global supply chains and regulatory volatility driven by polarised domestic politics.
Europe’s tactical gamble
Tactical politics propagate unilateralism, weaken alliances and threaten international security. The effects are particularly evident in Europe. US President Donald Trump’s tactical retreat from northern Syria, Turkey’s opportunistic military cooperation with Russia and French President Emmanuel Macron’s insistence that NATO is “brain dead” have trampled the Transatlantic Alliance, just as it struggles to reassure its eastern members following Russia’s military intervention in Ukraine.
The absence of a functioning European security system is becoming an acute problem. Russia’s support for conflict in eastern Ukraine, and its cyber and public disinformation campaigns against European nations have prompted NATO to modernise and forward deploy its forces, exacerbating Russia’s anti-NATO paranoia. This Cold War-style cycle of escalation is occurring in the absence of clear rules of engagement, credible lines of communication or well-tested de-escalation strategies.
In this environment, tactical moves such as major troop movements, aggressive intercepts or provocative snap exercises along this line of contact, particularly in the Baltic and Black Sea regions, pose a real threat of accidental military confrontation between Russia and NATO. Unravelling conventional (CFE Treaty) and nuclear (INF Treaty) arms control regimes, the escalating US-Russia arms race, and dysfunctional confidence-building mechanisms (Vienna document, Open Sky Treaties) leave Europe’s periphery at the mercy of tactical provocations and misinterpretations of the other side’s intentions.
US-China tactical quarrel
Meanwhile, Trump’s China policy is piling up tactical pressure on Beijing – trade restrictions, technological and regulatory bans – but offers no strategic vision about the rules and limitations on this complex relationship between the two superpowers.
In 2020, US-China relations will continue to be dominated by tactical deal-making against a backdrop of a growing likelihood of a more dangerous stand-off over security issues in the South China Sea or allegations of Chinese interference in the US presidential election. Businesses should manage these uncertainties by enhancing the resilience of their supply chains and stress testing their businesses against operations in preparation for greater market volatility.
The forever tactical Middle East
Tactical geopolitics have long ruled in the Middle East. The region’s complex history and strategic location have created a natural playground for highly tactical regional geopolitics, where actors vie for influence through both overt and covert tactics. The global geopolitical fragmentation of recent years has accelerated this trend significantly, while the US’s lack of response to military ventures by Iran and Turkey in 2019 has given official licence to a free-for-all approach by competing actors across the region.
As a result, the Middle East will remain at the receiving end of increased geopolitical risk throughout 2020. The US election campaign will provide fertile ground for another escalation in tensions with Iran, with repercussions for the security of national infrastructure in the Gulf, both in the physical and cyber space. In this growing security vacuum any tactical provocation could result in a strategic catastrophe.
Against this backdrop, a potential global economic slowdown, coupled with a lack of attention from the region’s international security guarantors, will further fuel anti-government protests from Algeria to Iraq. Governments focused on short-term tactical compromises to keep themselves in power will make little if any progress in addressing long-term structural issues such as youth unemployment, government fiscal deficits and bloated public sectors.
Operators will need robust business continuity plans and flexible strategies based on realistic scenarios and monitoring to ensure that they can ride out another wave of instability across the Middle East.
Africa’s tactical rivalries
China, the US, Turkey, Russia, old European colonial powers, India, Gulf states and other emerging powers have all upgraded their Africa policies in recent years. Yet many of these policies have prioritised short term tactical wins over long-term strategy.
China has accumulated an impressive portfolio of projects in many African countries and gained significant presence and influence, which is now being translated into political and technological gains. Yet its tactical approach has put limits on China’s staying power by contributing to high levels of debt for many regional economies and raising concerns over the profitability and effectiveness of Chinese investments.
US engagement in Africa under the Trump administration has been even more tactical. It is driven more by US intentions to counter China’s rising influence in Africa than by a strategic commitment to addressing the continent’s needs, including the climate change emergency. Russia is seeking to revive its post-Soviet legacy in Africa but has subcontracted its policies to controversial private security companies driven by profit over any long-term Russian national interest. Turkey has so far failed to translate its position as an important transportation hub for Africa into a long-term strategic relationship.
Tactical populism is also ever present at the domestic level in many African nations. Short-term pressures to raise revenue prompt erratic regulatory actions and arbitrary tax moves that overwhelmingly affect large taxpayers, at the expense of business confidence. Election cycles see governments hand out generous but unsustainable giveaways and alter their constitutions and electoral laws for political expediency. Anti-corruption initiatives are often too selective and focused on settling scores with rivals to make a dent in a culture of impunity.
Latin America’s tactical reality
When in doubt, Latin American nations continue to turn to tactical populist leaders or perceived reformers who delay the difficult, long-term strategies necessary for political, economic and social progress. The tendency to elect tactical politicians becomes acute at times of low commodity prices, when populations begin to demand solutions to pressing problems made worse by low growth. A spate of protests across the region is a symptom of popular frustration after years of being ruled by politicians with no clear long-term development strategies.
High levels of corruption have prompted citizens to elect right- and left-wing populists in Mexico and Brazil. Yet these have done little to build strategies to deal with graft. Even worse, rising indebtedness and a disregard for institutions among tactical politicians seeking quick popularity gains have deepened structural problems such as high inflation, inequality and poverty.
In Argentina, the return to government of the populist Cristina Kirchner and her Peronist supporters signals that tactical populism refuses to die in the Americas. Argentines have sought the comfort of more state intervention even at the expense of future economic stability and growth. In oil-rich Ecuador, supporters of former president and tactical populist Rafael Correa have sought to destabilise Lenín Moreno’s presidency after he sought to scrap an unsustainable fuel subsidy. A tactical political reality is also alive in wealthier, more stable countries like Chile, where a lack of a clear economic growth strategy has resulted in a middle class frustrated with the high cost of living and limited social mobility.
Security risks across the region are also rising amid short-term thinking by regional leaders. Cocaine production has reached its highest level in years. In Colombia, it is rising amid the lack of a coherent government strategy to increase the state presence in forgotten areas. In Mexico, a lack of strategy has led to a drug war the government is losing. The primacy of the tactical over the strategic will continue to heighten political, social and security risks across Latin America.
Corporate strategy for the tactical world
With politics set to remain dominated by short-term tactical moves, businesses should refrain from relying on a tactical approach to political risk management. They need to continue to develop and implement commercial strategies, while effectively mitigating political and geopolitical risks. For many businesses, political risk mitigation involves a delicate balancing act between “knee-jerkism” and a deliberately apolitical approach. A propensity to react to every political development can undermine market confidence and drain the organisation’s resources and energy. Yet ignoring political volatility can diminish resilience and damage corporate reputations.
In recent years, regulators have increasingly begun to demand that companies demonstrate how they systematically address political risk as part of their strategic planning and risk assessment. We expect such demands to gradually become more formalised over the next few years.
To succeed in this tactical world, organisations need to devise and implement a new type of political risk management, which combines three essential elements:
1. Build a framework to assess political risk consistently through intelligence and analysis, which feeds into the organisation’s readiness and policy development.
2. Establish protocols for responding to incidents, consistent with the organisation’s mission and cutting across different functions – strategy, government relations, legal, operational, communications and security.
3. Develop a political engagement plan with both external and internal stakeholders to enable them to react and recover quickly and minimise disruption or losses. Internally, Companies are increasingly choosing to appoint a corporate political risk tsar who is responsible for integrating different strands of political risk analysis and mitigation work and providing regular updates for senior management and the board. To be effective this role needs to have enough internal visibility and institutional clout to ensure that risk issues escalate internally before they get publicised externally.
Companies that start to get all this right now will be ahead of the game as the new decade gets underway.