Expert Commentary

Looming Risks for 2020 and Beyond

As we start the third decade of the 21st century, it is worth reflecting on where the world was 20 years ago. It is hard, now, to believe that the primordial risk of 1999 was Y2K, which had engrossed risk managers across the world but turned out to be little more than a nuisance. We did not know it at the time, but the Vladimir Putin era was about to begin, the human genome sequence would soon be revealed, and just a year later, China became a member of the World Trade Organization. These were much more consequential events, which were unanticipated.


Political Risk
December 2019

So, what foreseen and unforeseen events might be coming down the pike over the next year and decade?

The Environment

The impact of climate change on nations throughout the world has been present for all to see for some time, but it is now beginning to have sustained and serious consequences. The Organisation for Economic Co-operation and Development has predicted that if climate change continues unabated, by 2070, many of the world's largest coastal cities may be underwater. That includes many of its financial centers.

Category 5 hurricanes have become more frequent, affecting landmasses with greater regularity. Commonplace weather patterns have been disrupted so that drought and flooding have become regularized in places unaccustomed to it. The coming decade will be critical in terms of our ability to turn it around, but the pace at which governments are taking (or not taking) action is worrisome. Regrettably, it will probably take decades for governments to take truly meaningful action. This risk should be at the top of the list for 2020 and beyond.

Artificial Intelligence (AI)

The race for AI supremacy between China and the United States will continue unabated, but China is in the process of sprinting ahead, spending up to $150 billion by 2030 on research, development, and talent acquisition. By contrast, the US government is spending a paltry sum. China also has the advantage of melding its private and public sectors together to combine resources, while the two sectors remain separate and distinct in the United States.

October's impressive display of AI-driven military hardware during the 70th anniversary celebration of the Chinese Communist Party put the world on notice that Beijing is already a power to be reckoned with in this sphere. If the United States (and other Western nations) fail to devote substantially more resources to the AI race soon, China appears destined to take and maintain the lead.

Politics

As of today, despite all the hoopla, sensationalism, and controversy caused by President Donald Trump, the presidential race remains his race to lose, mostly because the Democrats seem determined to place a candidate from the far left to run against him. If that happens, he will win, and he may well win even if the Democrats put a moderate up against him, should the economy remain on firm ground. Should Mr. Trump win again, the world can expect more Twitter-induced turmoil, and America can expect to lose what little moral authority it has left in the world.

Elsewhere, do not expect Narendra Modi, Mr. Putin, or Xi Jinping to be knocked off of their pedestals, but do expect turmoil to continue throughout Latin America, Iran, Iraq, and the various regional wars that continue to rage (such as in Afghanistan, Iraq, Syria, and Yemen). None of these are likely to end any time soon. The prospect that one or more new wars may erupt looms large, particularly between Iran and Saudi Arabia, should the right trigger emerge.

But, despite increased tension between a number of countries—including China and the United States, and Japan and South Korea—the risk of a major war erupting in the next year seems distant. The various costs associated with war have risen dramatically, and their impacts linger for so many years beyond the actual conflict that many countries are opting to find a way to avoid war. Saudi Arabia's hesitancy to strike back at Iran following the major drone and missile attacks on its Abqaiq oil facility in 2019 is a prime example.

The Trade War

Trump's trade war with China will linger through 2020 and quite possibly well into the new decade. That is because neither side is particularly invested in ending the conflict, and both sides have dug their feet in deep with incessant nationalistic flag-waving, which has further politicized the issue and raised the stakes even further. In addition, producers and consumers on both sides have already found alternative sources to sell and purchase their goods. That is likely to become a semi-permanent aspect of this trade war, which makes incentivizing either side to do more to reach a swift conclusion difficult to achieve.

Terrorism

The death of Al Baghdadi of the Islamic State of Iraq and Syria (ISIS) prompted a slew of warnings about pending attacks on the West that have yet to materialize. That threat will linger well into the new year, but with greater potential urgency. The reason is that virtual jihad—being waged by followers of ISIS, al Qaeda, and other extremist groups online—continues unabated by millions of individuals throughout the world.

It is also true that new havens for extremists have emerged, particularly in parts of Africa and Asia, in failed or failing states with porous borders and few resources to combat them. Prime examples here include Burkina Faso and Mali, where extremists launch weekly attacks (which rarely make the news in the West) and have begun to spread their attacks in neighboring countries. It is only a question of time until they are successful in launching reprisal attacks.

Recession

The United States is well past its due date for another recession, but the cycle has been thrown off-kilter because of the depth of the 2009 recession and the market's refusal to act in a historically normal manner. The market's propensity to essentially ignore bad news and double down on good news is a worrisome trend that shows no sign of changing anytime soon. Global and US growth are good enough that most economists are not particularly alarmed, and it helps that the world has been able to avoid economic, political, military, or other calamities with global impact over the past decade.

History tells us that this cannot last, and it will not. Eventually, the US economy will slip into recession, likely in 2021 or soon thereafter, after the election has passed. And an event with global repercussions is likely to occur in the coming decade.

Conclusion

All told, there are a plethora of looming risks on the horizon, any one of which has potentially significant ramifications for risk managers and the organizations they protect. It is easy to fall into the trap of believing that all is well and there is little source of immediate concern. But all of the risks addressed herein (and more, of course) have short- and long-term implications. It is incumbent on risk managers to prepare for them now because the coming decade is sure to present us with new and unforeseen challenges.

Acknowledgment

Daniel Wagner is CEO of Country Risk Solutions and coauthor of Global Risk Agility and Decision Making. His latest book—The America-China Divide—will be published in January 2020.


Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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