Risk Predictions 2019
Cybersecurity, BREXIT, geopolitics and financial market fluctuations are among chief concerns for businesses voiced by some of the UK’s leading risk experts as they look ahead to 2019.
At the start of the year, senior members of the Institute of Risk Management (IRM), the world’s leading industry body for risk professionals, were asked to identify key risk areas for businesses for the year ahead. A broad range of financial, political and healthcare risks were highlighted. Many of these align with risks identified in The Global Risks Report 2019 (to be released on the 16th January) by the World Economic Forum.
Further areas of risk concern identified by IRM risk experts were the as yet unknown effects of Brexit in the UK and the impact of technology enabled disruptive business models.
“The impact of current macro trends and risks, such as cybersecurity, AI and Brexit in the UK will continue to put pressure on, and potentially change, entire business sectors,” says IRM Chairman Socrates Coudounaris.
“Leaders who think critically about the future, anticipate disruption to their sectors, while building resilience and agility in their models, will be in a better position to tackle a challenging risk environment in 2019 and thrive.”
“This year the IRM will place significant emphasis on supporting businesses and risk professionals in understanding, managing game-changing risks such as cyber; for example our new Digital Risk Management Certificate (developed with support from Warwick University).
Through the IRM’s qualifications, training and thought leadership -including the launch of the Cambridge Judge Business School and IRM research report: Perspectives of Global Corporations which highlights the top global risk management concerns over the next 12 months - we will encourage leaders to think tactically and strategically about change and to question whether and how a threat can be turned into an opportunity. Risk professionals will be key strategic advisers in this journey.”
*Please note the views expressed are personal and not those of the companies listed.
Sarah Christman CMIRM, speaking on behalf of the IRM Banking and Financial Services SIG
Brexit continues to be the headline story for financial services. Uncertainty about the outcomes of the UK leaving the European Union is forcing firms to plan for a range of outcomes. This kind of analysis is within the skillset for the industry, and the outcomes of EU-wide stress testing suggest that the participating banks can withstand severe shocks that could arise from a disorderly Brexit. However, there remain many questions to be answered, disrupting firms’ ability to plan and execute strategy.
Adoption of machine learning, distributed ledgers, and application programming interfaces (APIs) is widespread across financial services providing new and enhanced services and easier access for consumers. Although these technologies are in fact decades old, they have dominated operating plans and marketing across the industry for the past few years. With the use-cases now more established, we expect these topics to become business as usual components of product and service development.
Open banking is now reality. Previously, the boundaries of the financial services industry were set by the strength of the customer relationship and possession of the data. Compelling firms to share the data extends those boundaries to many established and start-up software companies. Coupling this shift with changing demographics and income distribution, we expect markets to become ever more competitive.
However, the revolution expected to come from open banking now appears to be more about evolution. The slower than expected pace gives traditional financial services firms more time to adapt to new competition. It also allows regulators more time to adapt their regulatory approach and balance objectives of consumer protection with promoting effective competition. We expect both to make moves to adapt, although change may come too slowly in the face of other pressures.
The interconnectedness from technology and data sharing adds to an already complex cybersecurity landscape. Financial services are rich targets for well-funded criminal or state sponsored hacker attacks, but unauthorised access isn’t the only data threat that firms face. News of inappropriate usage, unethical decision making, and other abuses of the insight from data will become more prevalent. We expect these threats to foster increasing cooperation between security and privacy teams to ensure that controls are aligned to address the breadth of data risk exposures.
Overriding all these risks is the imperative to focus on culture, conduct and customer outcomes. This hasn’t changed over the past few years and we expect the standards to continue to rise.
Alyson Pepperill CFIRM, Client Projects Director, UK Retail, Gallagher, Chair IRM Charities Special Interest Group
In 2019 we believe there will be an emphasis on creating positive cultures within organisations. Part of this approach may well lead to approaching ‘business as usual’ risks in an orderly fashion, as opposed to leaping from the ‘risk of the moment’ to the next one.
Managing regulatory risk will remain a key focus area with the numbers of regulators and the level of scrutiny growing. In a recent KPMG survey of 98 larger charities report and accounts the number of charities citing managing regulatory risk as a key risk in the trustee statement doubled from the same review undertaken a year earlier.
Cyber risks have been cited by our cohort as being the risk ‘stressing’ people most in 2018, and is expected to remain in pole position until at least 2021. This is probably not too surprising, given the real push within charities to become more agile in using digital communications with customers and supporters. Part of the issue is the sheer scale of risks that are bunched into ‘cyber’ as well as the increasing sophistication of those looking to commit cyber-crime, plus the inevitable accidental and malicious data breaches by employees and volunteers.
With all risk the fear is the subsequent impact on reputation and the knock on effect to income and sustainability. Particularly so, when there remains the need to achieve more with less resources in a thoroughly professional way. In a fast-changing world some of the donations will inevitably need to be spent to ensure organisational resilience and retention of the best people – that isn’t always accepted. Public and media expectations for the sector remain high – perhaps unreasonably so - and the need to have a clear and easily deployed crisis management plan is vital.
Alexander Larsen CFIRM, President of Baldwin Global Risk Services Ltd., and IRM Trainer and Chair of the Energy Special Interest Group
The energy sector will be interesting to watch in 2019. Oil companies can expect to have an easier year despite potential oversupply of oil. Restructures are completed, profits are back on track and new projects are being slowly re-introduced. Perhaps the most interesting part of the energy sector to watch out for is renewables.
Renewable energy could have a big year in 2019 with oil companies and countries heavily reliant on oil, looking to diversify into solar, wind and wave power. Additionally with cities across the globe attempting to meet climate change targets we can expect further investment. We can also expect to see a growth in new technology within the renewable energy field too, including areas such as energy storage, microgrids, Artificial Intelligence (AI) and other technology that will either decrease prices significantly or improve efficiency.
Whilst these are all positive developments there are a number of major risks to meeting our future climate change goals which could play out in 2019. Having watched recent developments in France, and Macron’s u-turn on climate taxes, along with grumblings across Europe, there is a growing movement to challenge government, which could lead to climate change taking a back seat to more pressing and short term country issues.
Tech industry – a giant leap or a fall from height?
A giant year ahead for the major tech companies which many have considered as being in a bubble with the major players being overpriced. Apple, Amazon, Microsoft, Intel, IBM, Facebook and Alphabet (Google) may be beginning to show signs that they have hit a ceiling with various scandals, new regulations, stagnant product lines and trade tariffs impacting their share prices significantly over the past quarter.
2019 will be the year where tech companies will either fall short or thrive. Innovation, going hand-in-hand with risk management, will be key to continue the tech dominance in the stock market and continued increases in share prices.
Companies such as Nvidia have relied heavily on graphics card sales on the back of a strong 2018 cryptocurrency mining trend which has since faded away and new sources of profit, such as Artificial intelligence, are now being focused on. Meanwhile many companies such as IBM are focused heavily on rolling out their blockchain technology whilst others such as Microsoft are banking on challenging the likes of Nvidia with their own Artificial intelligence and Virtual Reality offerings. And then of course we have Robotics and Apple’s self-driving cars that Elon Musk has suggested will be Tesla’s major rival over the coming years.
The fact that many of the companies in the tech industry need these new technologies to go mainstream in order to maintain performance indicates that we could be closer to the future than we realise. If it doesn’t happen however, then the tech industry risks stagnation, loss of confidence and further share price losses in 2019.
Cryptocurrency & Blockchain
Last year I predicted that the Crypto bubble would come crashing down. Only a few days later prices started falling. A few months later and prices were down 50-60%. Now, looking back 12 months, the prices have fallen up to 98% in some cases. Whilst the bubble may have burst (it may still have life in it yet. One more pump and dump cycle), 2019 will see significant progress in Blockchain technology as well as cryptocurrency.
The crash of Crypto Currencies can be linked to a number of reasons such:
- 70-80% of all ICO’s during 2017 and 2018 being exposed as scams with all ICO’s being overvalued and many of the non-scam ICO’s never finalising a product or unable to meet expectations.
- Blockchain technology being over hyped with many claiming it would change the world.
- A lack of regulation.
- A number of high profile hacking incidents.
- Exchanges behaving in a dubious and illegal manner.
2019 will almost certainly see an end to ICO scams. Not only is regulation slowly being put in place by authorities, but investors are growing wiser. ICO’s will need to value their business more realistically, meet regulation and safeguards and have a more solid business plan with a product that is both achievable and realistic.
Regulation also ensures that hacking incidents will be fewer and have less of an impact in 2019 whilst also adding legitimacy to the exchanges which should see an increase in sensible investors.
Blockchain technology itself should also see more mainstream acceptance in 2019 too. Companies such as IBM are already implementing the technology in the shipping supply-chain industry and such initiatives will help bring it to the mainstream. It is important to note that this will also help to kill the hype that many of the crypto currency companies have been pushing. Many investors of 2018, who have lost a lot of money in the crash had bought into a dream thought up by ICO’s of a technology that would change the world. Seeing real use-cases for blockchain technology in select areas of traditional industries should help people realise that whilst it’s a great technology, it’s also a rather boring, straight forward technology and unlikely to change the world.
Ray Flynn CMIRM, IRM Board Member and Risk Management Consultant
There has been a growing mountain of prosecutions and allegations of misconduct, over the last few years, at an individual and organisational-wide level, ranging from corrupt practices to inadvertent involvement in modern slavery, sanctions busting, sexual harassment, anti-competitive behaviour and the misuse of personal data. Despite nearly all of these being covered by recent legislation in a number of countries, this trend is likely to continue in 2019. Why? The fact is that organisations tend to be a lot better at addressing external than internal risks, and risks involving unethical or illegal behaviour, in particular, are either overlooked or considered more remote than they should be. There is a reluctance to entertain the prospect of fellow workers, or even business partners, suppliers or sub-contractors, as capable of underhand practices. “That sort of thing would never happen here” is often the sum total of any risk assessment carried out on unethical or illegal behaviour, before proceeding to the development of policies and procedures! This complacency, which can border on arrogance, leaves those entities affected unprepared, resulting in a much heavier price in remediation than they would have forked out in mitigation, with the right approach before an ‘incident’ has taken place.
The risk of exposure is also increasing. There is an element of iconoclasm and bloodletting involved, as the gap between the ‘haves’ and ‘have nots’ increases, which supports whistleblowing and puts pressure on regulatory bodies to act.
The good news is that there are plenty of resources out there to reverse this trend. Both the UK Bribery Act and the US FCPA guidelines urge organisations to undertake bribery risk assessments and suggest that “…. organisations might wish to consider seeking some form of external verification or assurance of the effectiveness of anti-bribery procedures.”. There is remarkable similarity between the advice given in legislative guidelines to combat bribery and in those designed to stamp out data breaches, unfair competition and modern slavery, with organisations being required to complete certain actions to address the risks involved. In addition, there are a number of IRM publications that can help, such as “An introduction to understanding and managing regulatory risk” and “Horizon Scanning: A Practitioner's Guide", all available on the institute’s website (/knowledge-and-resources/guides-and-briefings.aspx).
Paul May FIRM, Chairman Concordia Consultancy Ltd
Although there is a lot of discussion about the extent and effects of global warming it is likely that neither insurers nor risk managers will commit to research at the level and depth required to reach a clear consensus as to the problem and the short and medium term solutions to protect assets and businesses.
Nature, as affected by the commercial, industrial and agricultural activities of the human race, will therefore continue to generate adverse weather events of varying and often unpredictable scale which will cause loss of life, property damage and dislocation of communities.
Prince Charles has been quoted as linking global warming with the increase in the devastating effects of recent hurricanes in the Caribbean. However, a significant extent of the property that has been damaged was in any event of lightweight construction not designed or built to withstand hurricane force winds.
It is likely that this reluctance to require property to be built to standards adequate to withstand winds and floods will continue in 2019.
Expansion of housing construction in the UK, often in low-lying areas prone to flooding will continue due to pressures on local authorities, profit expectations of land-owners, and demands to provide housing to target levels set by Government. Construction in low-lying areas could probably take place with less exposure todamage if house design were to be altered by planners and builders. Many countries build houses with raised ground floor levels to protect them from potential flood. Existing properties that are becoming more exposed to flood in the UK could be better protected by physical changes such as raising door step thresholds and closing air vents at low level, ideally supported by grants or similar incentives.
Investment fund managers (often managing funds for insurers), and insurers are beginning to avoid investing and refusing to insure industries and practices that are considered to be contributors to global warming – such as the mining and burning of coal. The trend to desert such industries is likely to continue to increase, but it is not proven whether that retreat would be likely to lead to their closure. While the rationale may be ethical and provide a “feel-good” PR feeling, such investors and insurers will lose any opportunity to influence improvements and change.
Although the start of a “joined-up” and well-funded global insurance and risk community research project into causes and remedies of global warming would be great to see, I predict that it will not happen.
Steve Treece CFIRM, Head of Corporate Risk, Corporate Portfolio Office, NHS Digital and Chair of the IRM Health Special Interest Group
Brexit looms ever larger on the horizon, with continuing uncertainty about the terms under which the United Kingdom will leave the EU and potentially when this will happen. This makes planning for the consequences of Brexit for any organisation more difficult but emphasises the importance of risk management and contingency planning for a range of outcomes. In the health sector this planning needs to consider the entire supply chain, to ensure the continuing supply of essential medicines and other critical items. Other significant sources of Brexit related risks are likely to include retention of key workforce (and supplier) skills and the likelihood of increased costs of imports, whatever the terms of exit.
There is, however, a risk (if you will pardon the pun) that a focus on Brexit risks will blind us to other risks, which may coincide with or indeed exacerbate Brexit impacts. As a significant example, the continuing threats of cyber-attacks, where we must continue to learn the lessons of the Wannacry ransomware attack of 2017, which caused significant disruption to the health sector, even though not directly aimed at the sector. The risks of data loss and a subsequent erosion of public trust in data sharing (which is an issue across the private and public sector spectrum) is also a major area of concern.
The health sector remains exposed to risks of ever increasing demand, workforce shortfalls and the adequacy of funding (and the deployment of any additional funding). These are coupled with the need to transform and modernise services, including through the better use of data and technology in the improvement of care and whether there is sufficient capacity and capability to manage all of these risks simultaneously. I will be promoting the uptake of the new IRM certificate in Digital Risk Management, in my own organisation and more widely, to contribute to managing these transformational risks.
If I wanted to promote one motto for 2019 it would be “Resilience and Preparedness”.
Compiled by Mark Turner CMIRM
Contributions from: Sheila Milbourne IRMCert, Mark Boult CFIRM, Peadar Duffy, Clive Thompson CFIRM
Emerging risks will be a focus - risk managers will need to address the risks associated with the changing use of technologies, such as:
- Robotic Process Automation
- The roll out of 5G mobile technology
- The increase in the use of ‘Edge computing’ technology accelerating IoT take up
- The application of distributed ledger (Blockchain) beyond FinTech as it becomes more mainstream
Increasing Analytical Skill Shortages – Organisations will need to fight to keep hold of their risk personnel with analytical skills, as well as be prepared to invest further in quantitative techniques as these skills become much more prized.
1. There are a number of technologies which are changing the way many organisations work. With the changes new risks will materialise (for example bias in artificial intelligence) and these will need to be managed. At the end of 2018 we saw the Gatwick Airport Drone incident – a new technology risk materialising. Risk Managers will need to look to the future and identify potential risks previously not seen.
2. Retention and attraction of risk personnel with analytical capabilities - 2019 will see an increase in demand for people with data science skills as more data driven systems become mainstream. For many in the risk management profession who already possess the ability to create quantitative models or manage complex numerical calculations, this means they have a highly valuable transferable skill. Organisations should do all they can to hold onto their valuable resources, as many skilled professionals will be tempted to switch careers for the higher salaries on offer. At the same time, the dominance of quantitative approaches to risk management itself may well see the demise of less scientific qualitative risk methodologies. For many risk managers, obtaining greater knowledge of quantitative risk techniques should be regarded as a ‘must have’ skill as we move towards 2020.
Martha Phillips MIRM, Head of IT Risk & Assurance, AVIVA
The main risks currently facing the insurance industry can be grouped into three main areas – strategic change, financial uncertainty, and data security and management.
The insurance industry, like all sectors, is facing into a potentially turbulent macro-economic environment in 2019. Uncertainty surrounds the post-Brexit economy, including interest rate and currency fluctuation, which may impact revenue and profitability. The macro-environment may also restrict or provide opportunities for M&A activity, deal volumes, and management of capital intensive portfolios. Political and environmental risks (weather, civil unrest, unstable governments) may increase further and have the potential to erode profits and predictability of operations.
In addition, Insurers are increasingly facing into new and emerging competition, in the form of new market entrants and start-ups, including ‘FinTech’ and ‘InsureTech’. Insurers have historically been slow to invest in their digital propositions – and the infrastructure to support them.
Today, consumers expect financial products to be increasingly simple, flexible, and accessible, serviced seamlessly across digital and offline channels. Indeed there are also huge opportunities to serve consumers, if established insurers can adapt their strategy and operating model - and attract innovative talent - in the face of new competition. Critical to achieving an agile and innovative digital ‘InsureTech’ or ‘FinTech’ business is striking the right balance in culture – being able to manage within risk tolerance, whilst not stifling innovative thinking and swift delivery.
At the heart of the insurance industry is data. Data security and management will feature on an insurer’s list of top risks long as the threat environment and regulation continues to rapidly evolve. The financial services sector as a whole must continually invest in maintaining secure and resilient operations, complemented by a security-aware culture. Media headlines show that data security and resilience is increasingly becoming an issue of public trust. Interest in how consumer data is being used is also likely to continue post-GDPR.
Victoria Robinson, MA, Head of Marketing and Communications, IRM
Reputations can take years to build and can be lost in a day. With the prevalence of consumers airing complaints and displeasure on social media 24/7 for the world to see, companies have never been under such scrutiny to delight the customer and go the extra mile.
The introduction of GDPR in the UK has meant that marketers need to tighten policies and procedures around the way in which customer data is held, stored and managed. We have seen huge, well known global corporations: airlines, hotel chains, banks and online retailers suffer at the hands of hackers. The 2017 Cost of Data Breach Study from the Ponemon Institute, sponsored by IBM, puts the global average cost at $3.6 million per incident, or $141 per data record. That's a reduction on the average cost in 2016, but the average size of data breaches has increased.
An important part of any risk management plan should incorporate crisis management planning - including the responses that an organisation pushes out to its public and stakeholders should something go wrong. Detailed plans should include robust responses for scenarios ranging from loss-of-life (such as airlines) to loss of data/personal records - the key risks will vary depending on the nature of the business. Sometimes, it’s as much to do with what is said post event as the actual event itself that can help manage reputation.
According to Marketing Week, consumers’ trust in brands is failing, everyone thinks they’re a marketer and are more willing to put pressure on organisations online or via the press. Brands should have a Corporate and Social Responsibility (CSR) agenda embedded through the brand – consumers are much more easily able to switch their brand allegiance and vote with their feet.
Consumers are becoming more discerning and aware of protecting the planet, about the provenance of goods and, in FMCG industries aware of slavery and working conditions - transparency is key. An example of this would be Iceland’s recent cause related campaigning around palm oil and deforestation -– climate change is one of the biggest risks facing the planet.
In summary, brand and reputation should be taken into account on any organisations’ risk register and horizon scanning employed to mitigate risks and seek out opportunities.
Carolyn Williams, Director of Corporate Relations IRM
It’s become almost compulsory when providing comments like this to start with something ominous along the lines of ‘risk has never been so risky’ or similar statements of the obvious. We can probably find something similar to say about 2019. Whether facing trade battles between the US and China, tensions in the Eurozone, Brexit chaos, fuel prices, exchange rates or natural disasters like wildfires or floods, maintaining the smooth flow of goods and services will always present significant challenges.
It is a tribute to those concerned that, in general, in much of the world, shops, warehouses and factories are well stocked and services are delivered without any great drama. Looking to the future, there are growing examples of the use of technology, combined with new business models, to improve supply chains even further. Ten years ago concepts like Amazon Prime, Deliveroo, warehouse robotics and real time tracking were in their infancy but are now becoming widely used. Autonomous trucks, drone deliveries and digital freight matching technologies may still be at the pilot stage but promise further opportunities - and risks.
Organisations are also taking corporate social responsibility more seriously – not so much a compliance issue today but more an opportunity to protect reputation and build customer and employee loyalty. So, in 2019, we predict that some stuff will happen, some organisations will find their supply chains are affected, some will have anticipated it in advance, perhaps built up their skills and understanding, done some risk analysis, some scenario planning and stress testing covering their extended enterprise, putting controls in place, and some will discover that their strategy of just hoping for the best hasn’t quite worked out.
Zanele Makhubo CFIRM, Director Enterprise Risk Management and Business Continuity in Public Sector – Chair South Africa IRM Regional Group
The unpredictability of weather patterns due to climate change poses a serious risk across the globe.
In South Africa we are currently experiencing an extreme heat wave which is accompanied by heavy thunder storms. There is a risk of potential tropical cyclones. To mitigate the risk of severe damage to human and animal life, disaster risk assessment and scenario planning needs to be conducted to inform the resilience strategies. This will require a multidiscipline approach of disaster management competencies that are smoothly coordinated across the spheres of government and the private sector. Investment in new technology and disaster risk management resources is critical to keep up with the forever changing climate.
The conscience of political leadership is tested in relation to individual integrity and ethical behaviour. Our society needs leaders who are not easily influenced by corrupt activities.
We are going into elections in May 2019 and society at large is demanding highly principled leaders that will uphold the rule of law to the highest standard, and a leadership that understand the collective and consultative decision making process for the benefit of the country in all respect.
Both government and business must understand the value of a good reputable organisation. And they must understand that coming from the recent past of state capture and corporate scandals, their governance structures need to adhere to the rules of the country in conducting business locally and globally. Organisational values must not only be on paper but be included and embedded into the ways in which the whole of the businesses activities are conducted.
Land ownership debate
The land debate will gain momentum as the country goes into election in early 2019 and the crux of the matter is to understand that it is about restoring dignity and equality. It is a very sensitive debate and all concern must treat it with the caution that it deserves.
Gareth Byatt, Principal Consultant, Risk Insight Consulting, IRM Global Ambassador for APAC
It is interesting to look back at our predictions from 12 months ago – to compare and contrast with what we foresee for 2019.
Last year, for the APAC region as a whole we highlighted the threats of cyber risk, economic risk, and geopolitical uncertainty and instability. We also pointed out the opportunities that exist as the APAC region grows and advances. Cyber risk remains prevalent, and we continue to see economic volatility, linked to political instability affecting the region and globally.
A report published by the World Economic Forum in November 2018 underlined the key risks facing companies in the Asia-Pacific region over the next decade. Political and economic concerns predominate among businesses in South Asia, with cyber-attacks a key concern. Asset bubble risks are also feared in East Asia and the Pacific.
In October 2018 the International Monetary Fund (IMF) announced that it is downgrading its outlook for the world economy in 2019, citing rising interest rates and growing tensions over trade as factors. The IMF splits its forecast into advanced economies and emerging market and developing economies. In APAC the outlook is broadly positive. China, the dominant economy in the region, is forecast to have 6.2% growth in 2019. Australia is forecast to have 2.8% growth and the ASEAN-5 (Indonesia, Malaysia, Philippines, Thailand and Vietnam) are expected to grow by 5.2%.
Risk is about spotting and capitalising on upsides as well as managing downsides, and there are many opportunities in APAC in 2019 as growth continues and various industries continue to be disrupted. China’s policies and actions, and particularly its political and economic relationship with the US, will be a major factor to geopolitical and economic risks in APAC in 2019. This will particularly impact trade in the region.
To build upon what I noted last year, risk managers in APAC should help the organisations they are part of and work with to understand the specific uncertainties and risks that matter most to them. They need to evaluate scenarios, “join the dots” between risks, and ensure their organisations anticipate and adapt to seize opportunities and manage threats.
For example, during 2018 many organisations in APAC harnessed digitisation and managed digital risk, whilst there were also examples of organisations suffering significant cyber breaches. The focus on digitisation will continue into 2019, which should lead to innovative techniques in how we take and manage risk. This requires careful organisational change management, which risk teams should help to implement (the IRM’s Digital Risk Management Certificate can help with this).
Darren Mullan CFIRM, AECOM and Chair of the new Regional Group for the Kingdom of Saudi Arabia and the Kingdom of Bahrain
Across the Gulf Cooperation Council (GCC) region, I have selected a number of trends which continue to present both risk and opportunity within the wider context of continued regional socio-economic and political reform.
A recent IMF World Economic Outlook report raised near-term economic growth forecasts across the GCC states, despite a global downward economic forecast.
Whilst this regional economic growth will continue to be driven by increased oil-related revenue, this growth will continue to support ongoing public investment across major infrastructure and non-oil revenue generating projects (e.g. Saudi Arabia’s 2030 Vision plan).
However, within this overall regional economic growth some GCC countries are still recovering from recent contraction, so pockets of risk still exist within specific countries (e.g. Bahrain, UAE and Oman) and sectors (e.g. residential construction).
As part of the wider economic reforms across the GCC region, the introduction of new or additional taxation (e.g. VAT) has either happened, or is planned, across several countries. As outlined in a recent ICAEW Market Insight report, this trend towards increased taxation, as a means of GCC governments raising non-oil revenue, may inadvertently constrain some of the upside of the wider economic growth (e.g. consumer retail).
Across the GCC region, the bulk of the population is predominantly below 30 years old. In turn, this is continuing to present both opportunity (e.g. meeting the needs and aspirations of these emerging consumers) and risk (e.g. meeting the increased demand for degree-level education and associated employment opportunities). According to a recent DOC Research Institute publication, within a region that has traditionally relied on imported skills and labour, 2019 will continue to see increased labour reform legislation across GCC countries to promote the employment of local citizens.
In conclusion, the GCC has historically been a region of both risk and opportunity and 2019 will be no different. In turn, as a profession we must continue to help our respective employers and clients to navigate the risks and opportunities associated with both wider global trends, as well as the specific headwinds within our particular GCC countries and sectors.
Sonjai Kumar CMIRM, IRM Global Ambassador for India
The year 2019 is an important year in the course of India and its future economic politico-socio-economic development will depend on the results of the general election. Many of the factors of the economic risks such as demands for goods and services, government policies (fiscal and monetary), real estate sector, exchange rate, inflation etc. will depend on who takes the reins of the country.
In the next couple of months, there could be pro-people measures which may consume excess of cash sitting with the central bank. If this is the case, the central bank may have to take tough measures post-election. The funding of election expenditure may be recovered post-election through price rise leading to increase in inflation in later half of 2019. This would mean that interest rate may remain at a current level or even at a higher level during second half of 2019.
Environmental risks continue to be high due to global warming and limited steps taken by different governments. Excess of rain/flood continue to be the consequence of adverse environment.
Cyber risk continues to make headlines during 2019; more investment towards digitalization will further increase digital risk due to lack of full understanding of digital world. The infancy of risk culture in India may prove to be expensive to some business.
The protectionist approach by the developed market may throw challenges to the Indian workforce; the country therefore, should focus on manufacturing side rather than service side.
Abhishek Paul CMIRM, IRM Global Ambassador for India
The fact that there are comparatively high paying jobs in the metro cities in India, attract a lot of people to these cities and the cycle is fulfilled since multi-national corporates feel the best of talents are available in the metros owing to good education and good infrastructure and hence setting up their base in the city with an objective to operate at lower costs with the best of academically trained workforce.
In recent times, India has witnessed a spike in incidents of groups of individuals led by impactful leaders in their own right leading the city to a standstill; be it via release of films, riot like situations due to demand for reservations, spiritual leaders turning rogue, political speeches and actions aiming towards religious divide, even hearse van processions of famous political and film personalities bringing the cities to a standstill added to the inability of the governments and authorities to curtail rogue elements of the society; to name just a few along with more prevalent issues like growing traffic, population, pollution and intolerance.
The incidents and the severity thereof are increasing and for the majority of the corporates, the solution during these times is to implement BCP or work remotely which leads to the thought - what would stop the jobs from going away from the metro cities and into the 2nd tier cities like Pune, Ahmedabad, Chandigarh and many others which probably have a better future of creating infrastructure to boast of and also part of the vision for smart cities of the future in India?
Multi-national corporations would be compelled to move to other cities if they feel that forced BCP situations are on the rise and not expected to decline considering the neutral approach of the governments to extinguish the self-caused fire leading to metro-political risk.
If in the next 5 years, the metro cities reach their saturation point and 2nd tier cities come to the rescue, it could probably lead to a crisis in the metro cities for the middle and upper class who are probably banking on the real estate and other similar fixed assets they have been able to create in these cities. When the jobs go away and along with it the disposable income to buy luxury items, metro cities in India as we know them will never be the same. In fact there could be a potential subprime situation considering the amount of money invested in residential and commercial properties, a concept which was fundamentally standing on the pillars of employment in high paying jobs leading to high per capita income.