Expert Commentary

2021 Promises To Be Almost as Challenging as 2020 for Risk Managers

The year 2020 was a nightmare for many risk managers. The COVID-19 pandemic, political turmoil in the United States, and global economic malaise combined to create a perfect storm.


Political Risk
December 2020

Beyond that, the paradigm shift that COVID-19 created in terms of online purchasing trends, real estate sales, the travel slump, and a host of other changes in the way businesses, nations, and the world function has meant that the risk manager's job became much more complicated and difficult to get right. It would be nice to believe that the pending change in American leadership and imminent arrival of vaccines imply that next year promises to be less challenging, but that is not the case.

COVID-19

Next year will, in all likelihood, see the approval, production, and distribution of multiple highly effective vaccines. However, it will take months—if not years—for the United States and the rest of the world to inoculate 70 percent or more of national populations, which is what is broadly agreed to be required to achieve herd immunity. This will be a herculean logistical task, made more challenging because the vaccines will not be 100 percent effective, many people will choose not to take a vaccine, and we can anticipate setbacks in their ultimate effectiveness.

While there is a genuine reason for optimism in the new year, and 2021 may not prove to be as destructive to national and human lives, healthcare systems, and the global economy as 2020 was, we still have a long way to go before reaching a stage where we can breathe a genuine collective sigh of relief. That may not occur for several more years.

The Biden Presidency

President-elect Joe Biden has an enormous task on his hands, transitioning from the Donald Trump era to a more conventional approach to domestic and foreign policy. Few doubt his personal ability to achieve many of the broader issues at stake, but he will presumably be presiding over a divided Congress and will undoubtedly experience significant pushback to reversing many of Mr. Trump's policies. Furthermore, it appears that America is now permanently divided along partisan lines and the American people may be more divided than at any time since the Civil War.

This implies that Mr. Biden will only be partially successful in turning the ship next year, which will raise questions among America's allies about just how "conventional" American foreign policy will be in the near term. America's reputation around the world risks being permanently damaged if the Biden administration cannot deliver in terms of repairing the country's bilateral relationships and reestablishing its role as the world's leading power.

Congress

With a divided Congress, battle lines firmly drawn, and the possibility of Mr. Trump remaining in the background and continuing to fan the flames of partisanship, Mr. Biden and the Democrats should not expect anything approaching genuine bipartisanship with the Republicans for the next 2–4 years. Given that Nancy Pelosi and Mitch McConnell remain at the helm of their party leadership, there is also little hope for achieving real reform within either party.

What they both badly need is new blood with fresh ideas and an unconventional approach to governing. Neither will be getting that anytime soon, so expect more gridlock, which will make many attempts that the Biden administration will make toward implementing wholesale change elusive.

China

The path that Mr. Trump has sent America down vis-à-vis China is now set. The gloves have been off between them for years now, and there is little reason to believe that just because there's a new sheriff in town that either American lawmakers or the Chinese government are inclined to think substantially differently about each other. Of course, they would both like the bilateral relationship to improve, but any improvement is likelier to occur in incremental steps and over a period of years, rather than months.

Both countries' governments see the other as the most important and consequential bilateral relationship either have, but they are, first and foremost, competitors. That will not change during the Biden era.

Global Politics

Mr. Trump may be officially gone from the global political scene in 2021, which will temper down the impact of his rhetoric, but that does not mean that international relations will suddenly be peaceful or problem-free. New or renewed conflicts arose in the fourth quarter of 2020—such as between Azerbaijan and Armenia, Morocco and Western Sahara, and Ethiopia/Tigray/Eritrea.

While, as noted above, some improvement in the bilateral relationship may be expected between the United States and China, a countervailing deterioration in relations may be expected with Russia and other countries where Mr. Trump had a particularly strong relationship. That could impact business operations around the world in unforeseen ways.

Cyber Security

America continues to make some progress in strengthening its cyber-security protocols in business and on a national level. The success of the US presidential election in preventing cyber intrusions was a stark contrast to the 2016 experience, but the level of attempted and successful intrusions continues to rise. The recently disclosed breach involving the SolarWinds Orion system along with numerous successful ransomware attacks on US hospitals in October 2020 are reminders that the threat is ever-present.

As hackers become even more resourceful, the stakes will continue to rise, and it is, unfortunately, the case that many of them will be successful. No risk manager can afford to let down his or her guard. If your business has not already doubled down on cyber security, the hope of an economic revival in 2021 is a good reason to do so.

Conclusion

In short, 2021 promises to be nearly as challenging in some respects as 2020 was, and new challenges will arise. The difference is that America will have a more stable and predictable force guiding the ship, our alliances should be much improved in 4 years, relations with China should get better, and America will rejoin many of the treaties that were terminated under Mr. Trump. It remains to be seen whether relations with Iran and North Korea will meaningfully improve or whether the American economy grows as it did between 2017 and 2019. Risk managers will need to maintain a defensive stance for the foreseeable future. Better keep those boxing gloves on.

Daniel Wagner is CEO of Country Risk Solutions and a widely published author on risk management and current affairs. His most recent book is The Chinese Vortex.


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