If 2014 showed us anything, it was that geopolitics and conflict are recession-proof products. So as 2015 approaches – and economic recovery lurches forward with a stumbling start – what can we expect from international politics? Here is a list of the key concerns that should be at the fore of any international investor’s mind in 2015.
1. Check out borders
Don’t just focus on the country you like the most. Have a careful look around the entire neighbourhood. What do the borders look like? Are they porous and flimsy? If the answer is yes that’s not a good sign – it means they’re open to anything from contraband to little green men.
Are they militarised and fortified? Also not a great sign – someone’s afraid of the folks next door. Look for well-regulated, mutually-agreed lines, border guards with easy-to-recognise uniforms and passport stamps with plenty of fresh ink.
The most acute expression of this problem is Russia’s conduct toward Ukraine, where it was unwilling to allow its neighbour to the south to pivot toward the West. As a result, relations between Russia and Europe and the US are spoiled beyond easy repair. Russia sees the West as irreversibly hostile to its regional authority and its political, social and economic course. And the West has finally learned that Russia isn’t going to morph into a Western European liberal democracy, no matter how long we wait. In fact, Russia appears to be retreating into its borders even more rapidly even as it continues to flex its military muscle in eastern Ukraine, as its currency becomes powerless in international markets.
2. Want to make friends in high places?
Think long and hard about the leader of the country you’re about to invest in. How comfortable does Mr President or Madame Prime Minister look in the role? Too comfortable, and you may be tangling with a despot before you know it. Too nervous and they may not be around for long - and no one likes instability. Look for a leader who balances a decent popular mandate with a challenging agenda. It helps if they’re supported by tried-and-tested political institutions.
3. Click here for…
When you visit your company’s international offices, factories or distribution centres, are you afraid to use the internet? If you are, consider the following:
1. Your company might want to conduct a cyber risk assessment (and then do what it says).
2. Stop worrying – the commercially sensitive information on your laptop may be more at risk at home than on the road.
3. Do you really need to do your internet banking on your work laptop?
The list of cyber threats is long, and goes far beyond the current conflict between Sony and, as alleged, North Korea. Iran is believed to be one of the world’s biggest cyber threats, so get used to reading about it for at least another six months: negotiations over Iran’s nuclear programme have been extended yet again.
We remain optimistic that talks will not break down and a deal will be reached. That said, time is running short. A more conservative US Congress is about to take residence in Washington, so sentiment there may take a sharp right turn and see the US’s stance against Iran go hard-line. And that in turn may mean more cyber risks from across the Persian Gulf.
4. ISIS, ISIL, IS or… isn’t?
Concerns about the spread of terrorism aren’t unfounded, but you may not need to be worried. In sub-Saharan Africa, for example, local terrorism will remain just that – serious and deadly, but local. There is very little indication that Islamic State will make inroads or establish a caliphate in that part of the world, for example.
Boko Haram will be increasingly active in Nigeria until the elections there in February 2015, but there appears to be no connection between that group and the jihadist movement of the Middle East – other than the former’s declaration of support for IS. Moreover, Boko Haram’s efforts are focused on political, not commercial, targets.
Further east, Central Asia’s rulers like to exaggerate the risk posed to their region by jihadists returning from Iraq and Syria. The problem there does exist, but it’s small. The threat certainly can’t be ignored in 2015, but bear in mind that lone-wolf activity is perhaps the more potent threat - and much more difficult to detect.
The issue of blowback should, therefore, remain front-of-mind for the foreseeable future; there is little doubt that the conflict in Iraq and Syria will get worse. The struggle and power centres in the two countries will continue to disintegrate along ethnic and sectarian lines. Both countries will export instability around the region and the world, and air strikes have thus far proven only to retard, but not destroy, IS’s progress.
Along those lines, the Gulf states will play an increasing role in regional security, seeking to fill a perceived gap in US engagement in the area. The Gulf's more proactive stance toward regional security has the potential to increase the number and potency of threats in the region, but we still believe the overall level remains low.
5. Avoid acronyms
Why does it sometimes seem like the entire world is in a bad mood? Blame it on nationalism. Countries are becoming sensitive when it comes to sovereignty. And their leaders are becoming increasingly controlling about what happens on their turf.
Blame this (to some extent anyway) on friction with companies, which prefer the world to be borderless. EMEA, APAC, and LatAm are all popular, if sometimes grating, abbreviations in business, for example. Presidents and prime ministers, however, don’t take well to being reduced to abbreviations. And remember that they have leverage over everything from snap visits from the tax inspector, to fines and penalties from the local health department.
6. Watch out for people power
Pay attention to how quickly technology and social media drain power from the powerful. It wasn’t so long ago that the biggest chance the public had to express its opinion was in the ballot box, and then only every few years. Now, the slightest provocation brings masses into the streets.
Just ask Viktor Orban, the prime minister of Hungary. His efforts to institute a user tax on internet traffic were binned after the proposed law brought half of Budapest out in protest.
Or Brazilian President Dilma Rousseff, whose reelection earlier this year was put at risk by protests over social issues and perceived Government profligacy. But Brazil’s problems actually lie beyond its boisterous politics. Mexico’s economy is now outperforming Brazil’s, for example, with its president’s structural economic reforms having a transformative effect on growth there. In Brazil, on the other hand, restrictive labour laws, infrastructure deficiencies and the tax system remain significant obstacles to doing business
The point still stands, though – power can flip to people with the speed of a social media storm, so investors need to watch out next year.
Charles Hecker is the global research director at Control Risks.
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