Geo-political perils: Time to revisit risk management strategies

Geo-political perils: Time to revisit risk management strategies

By Saad Maniar, Senior Partner, Crowe Horwath

Today, the world awoke to the news that the UAE, Saudi Arabia, Bahrain and Egypt have severed diplomatic ties with Qatar and cut off air, sea and land access to the country, over allegations that Doha has been involved in activities that aim to ‘destabilise the region’, as reported by UAE’s state news agency WAM.

While I wouldn’t want to dwell on the political spat that prompted this move, let’s look at how businesses, particularly Multi National entities, are bound to be impacted. A risk report authored by one UK advisory firm forecasted that global political and economic risks for multinational businesses will increase in 2017, “driven by rising nationalism, upcoming elections, the threat of terrorism, uncertainty surrounding succession risks in several countries, continued polarization regarding economic conditions, and more.”

At Crowe Horwath, we prepare our clients to address such political and economic risks. It is vital to understand where these risks are occurring and how they will impact business. Only with such insights can companies truly begin to plan for possible scenarios as they develop risk management strategies to support investment decisions.

Risk management is too often treated as a compliance issue that can be solved by drawing up lots of rules and making sure that employees follow them. I should say that, rules-based risk management mostly do not stop disasters from happening. As such, there are certain risks that require strategic alternative approaches. Geopolitical risk is one of them. Events arising from this category of risk can be fatal to a company’s strategy and even to its survival, since such events are outside the company and are beyond its influence or control.

Other risks in this category include natural and political disasters and major macroeconomic shifts. Because companies cannot prevent such events from occurring, their management must focus on identification and mitigation of their impact.

As we wait and see how events shape up in the GCC region in the coming days and weeks, board and management risk committees should consider new emerging risks scenarios in their agenda for candid discussions and assessment over potential risk exposures. Organisations should identify and prepare for nonpreventable risks that arise externally to their strategy and operations.

To conclude, let me state that every obstacle presents a new opportunity. Let’s move forward with renewed optimism and vigour, knowing that success is a result of wise and courageous choices based on good business ethics and sense.