As 2020 nears its rather downbeat and gloomy end, at least for most people, it is important from a strategic risk and resilience perspective to reflect upon the potential top 2021 UK and geostrategic risks.
2021 will continue to be a year of volatility and disruption, especially for The United Kingdom, but equally globally. Whilst the COVID-19 pandemic is the immediate challenge and focus of political, social and economic policy and decision making, the pandemic and public health crisis became an economic and business crisis early in 2020 and will continue to exacerbate and impact a range of geostrategic factors will continue to feature prominently in 2021, with countries, organisations and business-facing potential threats, challenges and issues to varying degrees with risk conditions and levels not seen for decades.
More positively, countries, organisations and businesses have already shown an innovative and resilient response to COVID-19, with many organisations using the pandemic crisis as a valuable opportunity and catalyst for transformation and change, which will have long-term effects.
A GENERAL OVERVIEW
There are seven broad areas around which risk identification for 2021 can be based:
Geostrategic and Global Transformation
The greatest potential global risks must centre around ‘new’ world orders, primarily centred around the bi-polar relationships between The United States and China and the diplomatic, military, economic and political impact that will arise form that relationship and tensions.
The key driver here will probably be their focus on and consolidation of strategic self-resilience and dependency.
Parallel to this, the pandemic has exacerbated and accelerated global structural changes, such as a focus on environmental, climate and green issues; as well as area such as online retail and e-commerce disruption.
Such trends will consolidate political, social and economic impacts and associated risk of instability in areas such as broadening wealth and income disparity and perceived structural inequality and unfairness, for example, Amazon and tax in relation to support for high street shops and business rates in the UK.
Regulatory, Governance and Compliance
The trend for greater regulatory, governance and compliance frameworks at ‘block’, regional and national levels will continue and intensify in certain areas, such as privacy, digital and technology. As such compliance requirements increase, the option to throw physical talent at servicing such requirements will likewise become untenable; and so an enhanced requirement will be placed upon areas such as AI, Robotic process automation (RPA) and governance, risk, and compliance (GRC) tools. This in turn will require digital, machine learning and data, as well as physical talent, investment and resources. This in turn will enhance and change the requirement and nature of auditing, as well as standards and risk management, with accompanying leadership and management regimes.
The global macro-economic outlook for 2021 will be, at least for the first half, tied to the COVID-19 pandemic, vaccination and possible third waves.
‘V’ and vaccine shaped allusions aside, forecasts and predictions for 2021 look positive, although that is not to say that recoveries will be quick or easy. Currently, some predictions see UK growth at 6%, in line with global growth, with the US and EU both at just above 5%.
There are of course assumptions here, centred around how fast and effective vaccination rollouts are and to what degree it drives a ‘new’ normal; along with how governments continue to support their economies through such as stimulus and support packages, and how good the private sector is at creating new jobs.
International Business and Trade
Tied of course to the global economic picture, playing with figures for 2020 / 2021 is perhaps not a useful exercise, particularly as the full impact of the COVID-19 are not seen in 2020 figures to date. International trade has certainly taken a hit, roughly losing anything between 15 and 30% depending upon which figures are taken. The WTO and most other forecasters believe that whilst significant challenges will remain, there is cautious confidence and optimism that recovery will come, especially if business, consumer and household confidence grow, seeing the pandemic as a temporary shock and return to, indeed are allowed to return to, a more ’normal’ life.
Sustainability and Environment
The ‘green agenda’ has the potential to cause the biggest disruption and damage to the global and national economies and business.
A failure to address climate issues carries significant risks, but so does government pursuit of more radical and aggressive targets as demanded by some advocacy groups, which other major and developing nations are simply not interested in following suit, such as China and India.
The biggest risk to national economies and businesses is not the taking of a strategic sustainability position and a commitment to protecting natural capital and assets, but the disruption and resource costs associated with top-down global and government-imposed timeframes and standards; rather than allowing a natural, free market, private sector and busines driven approach over an extended timeframe.
Such enforced disruption in the name of climate change mitigation will be borne hardest by small businesses, which are the backbone of economies like The United Kingdom, as well as by individual households.
Political and Societal Unrest and Disruption
Along with COVID-19, perhaps the biggest disruption in 2020 has been the levels of political and social unrest, linked amongst others to the Black Lives Matter movement. That The United States has once again, for the second time since President Trump assumed office, been named by Verisk Maplecroft as ‘high risk’ country in new Civil Unrest Index is deeply worrying.
Such political and civil unrest is not limited to The United States or to being associated with movements such as BLM. Increasingly, as seen with XR protests, with Hong Kong, and Germany anti lockdown protests, such social volatility and disruption is increasing in numbers and severity. Whilst instability contributes to geostrategic and security concerns, there impacts are increasing no longer ‘remote’, with the consequences being felt by business and individuals at local levels to varying degrees; from disruption to and shutdown of business due to XR protests in London, to rioting and fatalities.
It is likely that 2021 will continue to see such social unrest and disruption and even escalation globally, and will affect stable, mature ‘Western’ democracies such as The US, The UK, Germany, Australia and New Zealand experiencing such social instability and volatility, although to significantly lesser degrees that other regions and countries.
Digital and Technological Disruption
The COVID-19 pandemic has already seen significant changes to business and workplace environments, with so called ‘Workplace 2.0’ being facilitated by digital and technological empowerment.
2021 will continue to see fast-paced digital and technological change and disruption, carrying with it varying levels and centres of associated risk, from a failure to be competitive for businesses which fail to utilise the power of technologies, to regulatory and compliance issues and failure to abide by such standards.
From the power of 5G to the deployment of ethical Ai and machine learning, to the authoring of Customer Data Platforms (CDP) and the deployment of Driver Monitoring Systems (DMS), organizations and businesses must embrace, constructively, digital and technological disruption and utilise the power it brings, or run the risk of being ineffective, inefficient, uncompetitive, unviable and left behind.
The United Kingdom
If we specifically look quickly at The United Kingdom, there are significant risks and short and medium-term volatility and disruption to be faced and overcome across three main areas.
Firstly, COVID-19 will continue to have a significant national impact across every aspect of society, from the economy and business to healthcare and our individual lives. Whilst the roll-out of vaccination will play a significant role, the recovery will be neither quick nor painless; and it is highly probably that the first half of 2021 at least will see some rather worrying figures in areas such as economic disruption, national debt and unemployment. The cessation of support such as furlough will also have an impact, particularly in sectors such hospitality and retail, which may see continued restrictions and contraction.
The depth of the impact will, of course, depend upon HMG’s response and support levels, and whilst 2021 will see the start of a revival, with GDP growth perhaps at 4-5%, it will be unlikely to have fully recovered until 2022, at the earliest.
Secondly, Brexit. No matter what happens with respect to a deal, The United Kingdom will be impacted by immediate changes and will face continued volatility disruption and uncertainty, at least in the short and medium-term. Of immediate concern will be new trade and customs terms, processes and relationships, as well as the impact upon sectors such as agriculture and farming and the impact on areas such as transportation logistics and supply chains.
Thirdly, HMG’s climate change mitigation policies potentially carry a real risk to The UK economy, small business and individuals. Whilst talk of a ‘green industrial revolution’ might sound laudable and have genuinely advantage component parts, the unilateral, forced and hasty pursuit of net-zero emissions and HMG’s 10 Point Plan, if it is realised as currently positioned, carries with it real economic and business risk and impact, especially for sole traders, micro firms, SME’s, individual and households.
In summary, the UK faces very real economic and business risks over 2021, but we should start to see the green shoots of revival and sustainable recovery.
To Watch Globally
COVID-19 will continue to seriously impact countries to varying degrees, especially those nations that have slower access to potential vaccination regimes which could help stabilise and normalise economies, businesses and workplaces.
The COVID-19 pandemic impact will continue to shape national strategic, tactical and operational responses; and will be accompanying by varying degrees of COVD-19 related geopolitical impact, ranging form vaccine nationalism; through cross border people and goods movement restrictions; to internal domestic factors.
All of these will have real-time, short and medium-term international impact resulting in economic and business volatility, disruption and uncertainty
Associated with COVID-19 must be a focus on the human dimension, not just with regard by businesses to human capital, talent and supply chain concerns, but the impact upon human lives. COVID-19 brings with it, especially for those hardest hit or those who disagree with governments’ responses, the conditions for enhanced political and social instability. When conflated with other agendas, such political and social instability carries potentially serious economic, business and national security risks.
The European Union
While in this island nation Brexit may be a priority, for the EU have other priorities and faces a series of extremely serious, potentially existential, crises. Immigration, digital trade, relationships with tech giants, reauthoring The Common Agricultural Policy, trade relations and tensions, climate, COVID-19 and of course how to pay for all of this are but some of the issues; not to mention EU’s relations with perennial naughty boys like Hungary and Poland; relations with Turkey, and the potential rising Euroscepticism, seen in countries like Norway, Italy, Greece and Spain; especially if The United Kingdom makes a success of Brexit.
Despite a new pro EU US presidency and EU US realignment, expect to see therefore the EU consolidated its federalist and political vision and its strategic autonomy, as manifest in initiatives such as a European Army; as well as tighten its regulatory, governance and compliance grip upon members’ politics, economies and societies, which in itself carries the risk of popular pushback.
Geostrategic issues which the international community faces remain numerable and challenging, but from an economic and business disruption, volatility and risk perspective, the recent Australian – Chinese tensions are an interesting and good place to start.
The excessively punitive tariffs on Australian wine reflect not just Australian – Chinese relations, but those of both parties with The US and the tensions and risks associated with Chinese political, economic and military aggressiveness and its determined undermining of ‘Western’, liberal and free-trade values in the pursuit of global and regional dominance and protection of its self-interests.
US – Chinese tensions will continue, and probably deepen in 2021 and so by extension will China’s relations with other countries such as The United Kingdom over issues such as Hong Kong and Huawei.
Whilst the multinational support given to Australia over Chinese wine tariffs has sent a welcome, clear and positive signal, the political, military and economic risks associated with Chinese aggressiveness, for example as exemplified in its new silk road agenda cannot be underplayed.
Both the US and Chinese will continue their strategic self-reliance and resilience positioning, which will in turn fuel political, diplomatic and military tensions between the two in areas like technology ‘wars’ (The ‘Made in China 2025’ strategy) and The South China Seas. Further, with China facing the threat of continued restrictions on overseas investments, she may refocus on reducing trade costs and imports and building export markets, whilst simultaneously enhancing its strategic grip on developing nations, which its Belt and Road / Silk Road initiative does.
How countries, collectively and individually, seek to address, or not, climate change and ‘the climate emergency’ will have a significant impact upon economies, businesses and individuals. Decisions on climate change are not simple and are based on national interest, particularly by players such as The USA, China and India; and developing and emerging southern-hemisphere nations and markets will have a different perspective to established Northern economies.
If and as more and more nations seek to adopt ambitious climate change policies there will potentially be significant impact upon economies, organisations and businesses, which in turn will carry associated economic and business costs and risks in varying degrees, and will be perhaps disproportionately born by sole traders, micro firms, SME’s and individual households.
Nor are the associated risks, costs and impact to be seen at a macro, strategic and national level; as climate activism and groups such as XR have clearly demonstrated with disruption to cities and businesses with significant associated costs.
Regulatory Change and Neo Statism
Increasingly there has been greater state intervention in many economies, even those of a so called ‘free market;, capitalist and laissez faire orientation; for example The global financial crash of 2008 and more recently HMG’s COVID-19 support. Whilst such interventions may be justifiable and welcome in cases, there is a risk that COVID-19 will, as more nations increasing move towards strategic self-reliance and resilience, become more neo-statist, and bring in accompanying regulatory changes. The United States, The EU, Japan’s pandemic response reshoring production agenda and India’s call for “Atma Nirbhar Bharat” (a “Self-Reliant India”), are examples.
Such initiatives carry significant risk across the value chain of reducing global markets access, free trade and competition, as nations, whether for national security, trade protection or other reasons seek to restore and / or diversity manufacturing and supply chains, protect goods, services, standards and technologies; and support their own domestic firms and markets.
Whilst some global commercial giants with specialist knowledge, expertise, capacity, capability or intellectual property may be exempt, the rise in neo-statist, industrial policy-driven economies will foster a renationalisation of global economies and the closure of opportunities, at least to some initial; degree, which may well gather momentum and depth in certain quarters.
Technology, Information and Data
2021 will see continued technological innovation and disruption, which will consolidate and advance changes in workplace and personal information, communications, computing, collaboration and technology-based activities.
Whilst such technological innovation and disruption will enhance business and personal performance, productivity, effectiveness and efficiency, there will also be increasing geostrategic technological tensions, probably focused around technological competition, the divergence of standards, the proliferation of regional and national information, data and privacy-related compliance, and the application of taxation regimes to both technical giants as well as companies who heavily rely on technological business platforms.
2021 is going to continue to be challenging, with a range of global and UK national economic and business risks firmly on the radar. Perhaps primus inter pares, COVID-19 and Brexit will present the most immediate challenges. Nations, organisations and businesses will increasingly need to develop deep geostrategic awareness and intelligence, analysis, assessment capabilities; build and develop robust, dynamic and judicious strategic resilience and risk frameworks; and understand the complex ecosystems within which organisations and businesses operate.
And whilst there may be continued challenges in 2021, we are confident that the economy and national prosperity and growth will indeed return.