2021 geostrategic outlook: the top geopolitical risk
TRANSCRIPT
Geostrategic OutlookTop risks to watch
EY Geostrategic Business Group 5 May 2021
Famke Krumbmüller
EMEIA Leader
Geostrategic Business Group
Angelika Goliger
Africa Economic Advisory Leader Strategy and Transactions
Our speakers
1. Geostrategy & Enterprise Risk Management
2. The global Geostrategic Outlook & Impact on Africa:
▪ Great power politics & global trade tensions
▪ Tipping point for emerging market debt
▪ Another wave of social unrest
Agenda
Political risk is expected to rise further
Page 3
Global political risk reached a multiyear high in 2020
GDP-weighted global average of political risk
41,75
42,00
42,25
42,50
42,75
43,00
Ja
n-1
3
Ma
r-1
3
Ma
y-1
3
Ju
l-1
3
Se
p-1
3
No
v-1
3
Ja
n-1
4
Ma
r-1
4
Ma
y-1
4
Ju
l-1
4
Se
p-1
4
No
v-1
4
Ja
n-1
5
Ma
r-1
5
Ma
y-1
5
Ju
l-1
5
Se
p-1
5
No
v-1
5
Ja
n-1
6
Ma
r-1
6
Ma
y-1
6
Ju
l-1
6
Se
p-1
6
No
v-1
6
Ja
n-1
7
Ma
r-1
7
Ma
y-1
7
Ju
l-1
7
Se
p-1
7
No
v-1
7
Ja
n-1
8
Ma
r-1
8
Ma
y-1
8
Ju
l-1
8
Se
p-1
8
No
v-1
8
Ja
n-1
9
Ma
r-1
9
Ma
y-1
9
Ju
l-1
9
Se
p-1
9
No
v-1
9
Ja
n-2
0
Ma
r-2
0
Ma
y-2
0
Ju
l-2
0
Source: GeoQuant.
US-China phase 1 deal
COVID-19 outbreak
Peak North Korea crisis
Brexit referendum
2016 US election
Geostrategy &
Enterprise Risk Management
Page 4
Act.
A Geostrategy to manage political riskthe latest data from the EY Geostrategy in Practice Survey
of EMEIA business leaders report their company has a function/business unit tasked with responsibility for political risk management.
52%
Source: EY Geostrategy Survey 2021
Scan.
50%of the EMEIA corporate community reports they expect the effect of political risk on their company to be higher than it was last year.
74%of EMEIA executives say the effect of geopolitical risk on their company is of high concern.
• A global survey of 1,000+ executives on political risk management.
• Quantitative findings which reveal how political risk is being experienced and managed across corporate footprints.
Read our EY 2020 Geostrategy in Practice Report here. The 2021 edition will be published in May.
Executives agree that organizations should review their geostrategy now and on an ongoing basis.
Focus.
18%
21%
23%
45%
47%
67%
70%
71%
63%
63%
41%
40%
26%
27%
10%
16%
14%
14%
13%
7%
3%
Reputation andcompliance
Data and intellectualproperty
Finance and tax
Human capital
Operations and supplychain
Growth and investment
Revenue
High Impact Moderate impact Minimal Impact
Impact of political risk events which occurred over the past 12 months.
Integration of political risk into Enterprise Risk Management
Page 6
Three political risk competencies
Political Financial
Operational
EY Political Risk Maturity Index
► Coherent definition for political risk
► Track qualitative and quantitative sources of political risk
► Identify new/emerging political risks
Focus on the business impact
► Perform assessments of political risk exposure
► Model impact of potential political risk events
► Assessment of political risk impact on strategy
Scan the environment
Act to employ a geostrategy
► A dynamic process
► Clear political risk ownership and coordination
► Integrate political risk analysis into broader enterprise risk management
EY Geostrategic outlook
Page 7
Global political risks we are watching
Page 8
Geopolitics of COVID-19
1
Disentangling US-China interdependence
2
US policy realignment
7
Toward European strategic autonomy
3
Neo-statism on the rise
4
5Reinvigorated climate policy agendas
Geopolitics of technology and data
6
Tipping point for emerging market debt
8
Another wave of social unrest
10
Geopolitical dynamics in the Indo-Pacific
9
0
20
40
60
80
EasternAfrica
NorthernAfrica
WesternAfrica
SouthernAfrica
MiddleAfrica
Sub-SaharanAfrica
Exp
ort
s U
SD
billio
ns China US
Great power politics & global trade tensions
Page 9
A new regionalism: Three emerging economic and political blocs
US: redefining its international leadership
EU: seeking more cohesive power projection via strategic autonomy
China: playing a larger geopolitical role
Sources :UNCTAD stat.
China and the US will continue to try to disentangle their interdependence
Competition is likely in four main areas:
1. Acrimonious trade relationship
2. Technology completion
3. Dueling industrial policies
4. Areas of Chinese sovereignty
The US and China could collaborate on some transnational issues, such as climate change and nuclear nonproliferation.
China is a key export market for African countries
Value of exports to US and China, 2019
The conditions are set for another wave of social unrest
Page 10
Social unrest likely hit its highest level in 2020 since the Arab Spring
ILO World Social Unrest Index
20,8
20,7
26,6
24,5
23,222,7 22,7
23,2
21,822,5
24,0
25,0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Arab Spring
“Year of protest”
COVID-19 and social
justice
Sources: International Labour Organization, EY analysis.Note: 2020 forecast is based on EY analysis of index data trends and social unrest events.
Five primary issues are likely to motivate protestors
Pandemic restrictions
Inequality
Social justice
Climate change
Governance issues
Many protests will be echoes of the unrest that occurred in 2019 and 2020, while others will be new
The pandemic complicates the outlook for debt resolution
The current debt crisis is much broader than previous episodes
Political willingness to service debt could become a risk the longer the COVID-19 crisis drags on
Geopolitics will influence multilateral and bilateral debt restructuring to a greater degree than in the past
Emerging and frontier markets have ~US$11 trillion in external debt and the IIF estimates ~US$4 trillion will mature in 2021
The sustainability of emerging market debt will likely hit a tipping point
Page 11
Debt stress many African countries has been rising
Debt to GDP ratio
Source: Oxford Economics.
90
110
130
150
170
190
210
230
250
2015 2016 2017 2018 2019 2020 2021
Ind
ex (
20
15
=1
00
)
Angola Cameroon Chad Ethiopia Ghana Nigeria South Africa Zambia
Geostrategic priorities in 2021
Page 12
Five overarching actions that companies should take to manage political risks in the year ahead
Monitor your company’s political risk environment
Assess how these political risks could affect your company
Incorporate political risk analysis into strategic decisions
Communicate and coordinate political risk management across the company
Leverage stakeholder relationships to manage political risk
Famke Krumbmüller
EMEIA Leader Geostrategic Business Group
Lisa Jonker
Africa Enterprise Risk Leader, EY Africa
Avendth Tilakdari
Africa Risk Leader, EY Africa
Angelika Goliger
Africa Economic Advisory Leader, SaT
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