The 5 greatest risks for 2016

By J.F. Mezo

The 5 greatest risks for 2016 are global in every possible sense. They are not only distributed in different continents and regions of the world but their effects will be far reaching, impacting not only other countries and continents but also the global economy. Although said risks are diverse in nature, nationalism and the lack of international consensus will define the undertone of the upcoming year.

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Political instability in Europe:

Since the financial crisis in 2008, Europe and especially the European Union have encountered difficulties not only of the financial but also of the political variety. Weak incumbents, competing interests, and the rise of nationalistic sentiments pushed the EU to the point where its structural weaknesses almost resulted in serious conflicts. The Greek crisis, the effects of Russian sanctions on certain EU members, and now the refugee crisis have all contributed to the growing internal tensions, and although in 2016 we can expect an improvement in the economic performance and investment climate of the region, the political dimension can make it difficult for businesses to operate within the EU.

What to be on the lookout for:

-       Weak popular support of the ruling party and its policies

-       Nationalistic policies, heightened sense of national identity

-       Conflicts of interest amongst EU members

The Refugee Crisis in Europe:

In 2015, Europe has seen a staggering number of refugees flowing into the continent, most of them coming from the war-torn regions of Africa and the Middle East. As the second half of 2015 clearly demonstrated, Europe was not and is still not ready to cope with the situation, and as long as a comprehensive framework is not negotiated, no meaningful progress can be expected. The refugee crisis can also become a risk to businesses operating in the region as it leads to internal political and social tensions, tensions between the locals and the immigrants, and interstate conflict (e.g. the Croatian-Hungarian hostility).

What to be on the lookout for:

-       Social and political unrest

-       Interstate tensions

-       Lack of cooperation

-       Terrorism?

ISIS:

Although the expansion of the Islamic State has slowed down considerably recently, ISIS has gained strong foothold in the Middle East. In spite of the joint efforts of local groups, European countries and the US, the rule of ISIS is far from over in the region. Also troubling is the fact that in order to prevent disillusioned followers from leaving the organization, ISIS is willing to adopt an increasingly hostile and aggressive ideology. As the rape of all non-Muslim women is now deemed legal and even encouraged by ISIS, female employees might be in increased danger in the Middle East. In 2016, the business world will need to monitor the situation closely and stand ready to withdraw from the region in order to protect their interests and employees.

What to be on the lookout for:

-       Violence and armed conflicts

-       Potential difficulties maintaining supply chains

-       Female employees in danger

Civil war in Syria:

The ongoing civil war in Syria will be amongst the top risks of 2016 as the disastrous political situation and the devastating armed clashes in the region will not only do further damage to the Syrian economy but will also set other, global risks into motion. One of them is the refugee crisis in Europe, as most of the refugees flowing into the continent have been arriving from Syria and its neighbouring territories. On the other hand, it can also deepen the Russia-West divide, as Russian arms export and military assistance to Syria have been amongst the most fiercely debated topics in the United Nations recently. The United States has been particularly unhappy with the Russian decision to intervene, and now that the Russian campaign in Syria started, we can expect a further cooling of US-Russian relations.

What to be on the lookout for:

-       Unfavourable business climate in Syria and between Russia and the West

-       Violence and armed clashes

-       Radical groups and ideas

South and East China Sea Armed Confrontation:

China’s increasingly aggressive policies have now pushed the Pacific region to the brink of a possibly multilateral conflict. In the South China Sea, China has warned other claimants that if they were to drill for oil in the disputed areas, they can expect Chinese retaliation. In the East China Sea, territorial debate over the Senkaku islands persists, as neither Japan, nor China is ready to compromise. The threat of escalation is present in both cases and it can lead to a disruption of trade and supply chains in the region in 2016.

What to be on the lookout for:

-       Escalation of interstate conflicts in the region

-       Possible US involvement through defence treaties (Japan, Manila)

-       Trade and supply chains disruptions