I recently attended a virtual seminar on global risks organised by PwC and delivered by Rohitesh Dahwan, Managing Director of Eurasia Group[i]. Mr. Darwin considers risks based on three factors: that they are likely, that they will have a deep economic effect, and that they are imminent.

Before considering 2021 he reminded us of the global risks he outlined at the beginning of 2020 and, of course, at that time there was almost no visibility of the pandemic.

His list for 2021:

1.46*
2. Long Covid
3. Climate: net zero meets G-Zero
4. US-China tensions broaden
5. Global data reckoning
6. Cyber tipping point
7. (Out in the cold) Turkey
8. Middle East: low oil takes a toll
9. Europe after Merkel
10. Latin America disappoints

1. 46*. In sports statistics an* signifies that there was some question of legitimacy about the record. Joe Biden’s term opened an era when half the country considers the president illegitimate. The election did not settle the deep political division. Implications of this extreme polarisation extend well beyond United States borders. Republicans and Democrats will disagree sharply – with each other and among themselves – over the objectives of United States foreign policy. The size (and broadening) of Trump’s base will leave allies and potential partners wondering whether the next “America First” foreign policy is just four years away. The level of confidence among United States adults in the presidency has dropped from a peak of 72% back in the early 1990s to less than 40% today, though it has been as low as 25% when George W Bush was president.

2. Long Covid. The pandemic will leave a legacy of high debt, displaced workers, and forfeited political trust and countries in every region. Inequality has increased. While those on high income have seen their income rise, those on low income have lost out by 20%. The bumpy vaccine rollout and economic scar tissue of the pandemic will stoke anti-incumbent anger and public unrest in many countries. With inflation and borrowing costs rising, emerging markets will have far less room than the United States and Europe to cushion Covid’s economic blow.

3. Climate: net zero meets G-Zero. The concept of G-Zero is a world with no global leadership.  Climate policy will move from the playground of global cooperation to an arena of global competition. Nine out of the ten largest economies are committed to net zero, but the tech sector has got politicised; e.g. Huawei. The same will happen with the decarbonisation agenda. China’s industrial policy will face a much more aggressive climate push from Washington, but China has control of a number of bottleneck industries e.g. rare earths. Some parts of the clean energy supply chain will face bifurcation pressures like those seen in 5G. The push for net zero emissions targets will create enormous opportunities for private capital, winners and losers will be determined as often by critical factors as by market forces. For people and politics, net zero presents challenging trade-offs.

4. US-China tensions broaden. A shared desire in Washington and Beijing for stability in US-China relations will briefly ease headline tensions. But intensifying vaccine diplomacy, climate tech competition, and increasing US coordination with allies on China issues will further complicate US- China rivalry. Intensifying disagreements over trade, Hong Kong, Taiwan, and the South China Sea will boost the risk of miscalculation and escalation toward crisis. This will spill over into a proxy economic war involving other countries like Australia, Canada and Brazil.

5. Global data reckoning. A slow down or halt to the flow of sensitive data across borders will raise costs for companies and disrupt popular apps and internet business models. This risk begins with the US and China, but does not end there. Other governments concerned about who is accessing their citizens’ data – and how – will erode the foundation of the open global Internet. Business models of AI and other innovative tech sectors will suffer. App bans and other issues will hamper global cooperation and public health climate challenges. The EU Court privacy model is no longer valid.

6. Cyber tipping point. A world in which any computer or smart phone is vulnerable to hackers, and nation states and criminals act with relative impunity, is too unpredictable for any one cyber-risk to dominate all others. No infrastructure is out of bounds. The pandemic has accelerated the pace at which new devices and activities join the internet. Governments and the private sector have made little headway in developing global rules for state behaviour in cyberspace. This matters, because states and non-state actors will be tempted to take advantage of this increased threat surface this year, just as the US is coming to grips with a massive cyber intrusion likely perpetrated by Russia. China’s advances in quantum computing are yet another factor adding to cyber angst, adding to an assortment of low probability but high-impact risks and technology trends will make 2021 a year of unprecedented risk of cyber conflict. There is no end in sight for cyber disruption.

7. (Out in the cold) Turkey. Economic setbacks and 2021 in Turkey’s poor Covid response will leave President Erdogan struggling to win back voters disillusioned with his two-decade rule. These dynamics will stoke social tensions, prompt a political crackdown, and encourage Erdogan to launch more foreign-policy adventures to fuel nationalism and distract his supporters. But this year, Erdogan will not have international friends to shield him from the consequences.

8.  Middle East: low oil takes a toll. Energy producing countries in the Middle East and North Africa faced a collapse in global energy demand in 2020 that left governments with less cash to spend – even as the pandemic sickened citizens and weakened economies. 2021 will be worse, because energy prices will remain low. At $55 per barrel only Qatar can manage.  Many governments will cut spending, damaging vulnerable private sectors and fueling unemployment. Reforms will slow down, and protests will grow.

9. Europe after Merkel. Europe faces an economic hangover from intensified lockdown restrictions in several countries, and Angela Merkel’s departure later this year will leave the EU without the leader best equipped to manage a multilateral response. Without Merkel to serve as a strong and neutral negotiator, diplomatic efforts to resolve energy in territorial disputes in the Eastern Mediterranean will struggle. The EU position will become more hawkish as France pushes more member states to get tough with Turkey, raising the odds of tensions. President Macron has neither the experience nor the judgement of an Angela Merkel but he will seek to position himself as the leader of the EU.

10. Latin America disappoints. Governments in Latin America face intensified versions of the political, social, and economic problems they were confronting before the pandemic. There will be no large-scale vaccinations until late in 2021, and countries are poorly positioned to deal with another Covid wave before then.[ii] Political and economic pressures will intensify as voters head to the polls in Argentina, Mexico, Chile, Ecuador, and Peru
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In questions, Mr Dhawan thought that Russia did not represent a major global risk.  President Putin still has 60% popular support and only 15% of the population think his government was responsible for the poisoning of opposition leader Alexei Navalny. The protests are not that large and will die down. To the question, is China really committed to net zero he said “Yes!”

It's important to remember the context of a presentation like this. It is intended for Company Directors to consider as they make their plans. It is not intended to frighten but to educate. All Company Directors, particularly those involved in international business, need to take a view on the world and understand potential risks and how to mitigate them. I am no longer a Company Director but still get these invitations and a senior partner of PwC encouraged me to continue to attend.

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