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R I SK MAP R E PO R T
2013
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Published by Cotrol Risks, Cottos Cetre, Cottos Lae, Lodo SE 1 2QG. Cotrol Risks Group Limited (the Compay) edeaours to esure the accuracy o all iormatio supplied. Adice
ad opiios gie represet the best judgemet o the Compay, but subject to Sectio 2 (1) Uair Cotract Terms Act 1977, where applicable, the Compay shall i o case be liable or ayclaims, or special, icidetal or cosequetial damages, whether caused by the Compays egligece (or that o ay member o its sta) or i ay other way.
Copyright: Cotrol Risks Group Limited 2012. All rights resered. Reproductio i whole or i part prohibited without the prior coset o the Compay.
Photos o pages: 3 (top/bottom), 5 (top), 32 (top), 40 (top), 44 (bottom), 49 (top), 56 (top), 62 (top), 68 (top), 72 (top) ad 78 (top) Press Associatio. All other images are rom Shutterstockexcept those credited i the publicatio to Cotrol Risks employees.
Cotrol Risks is a idepedet, global risk cosultacy specialisig i
political, itegrity ad security risk. We help some o the most iuetial
orgaisatios i the world to uderstad ad maage the risks ad
opportuities o operatig i complex or hostile eiromets.
We support cliets by proidig strategic cosultacy, expert aalysis
ad i-depth iestigatios, hadlig sesitie political issues ad
proidig practical, o-the-groud protectio ad support.
Our uique combiatio o serices, geographical reach ad the trust
our cliets place i us esure we ca help them to eectiely sole
their problems ad realise ew opportuities across the world. Workig
across fe cotiets ad with 33 ofces worldwide, we proide a
broad rage o serices to help our cliets to maage risk.
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R I SK MAP R E PO R T
2013Cotrol Risks is delighted to lauch RiskMap 2013, ourauthoritatie guide to busiess risk i the year ahead.Drawig upo expertise rom across our busiess worldwide,we orecast what will be the major challeges ad opportuitieso doig busiess i some o the worlds most complexeiromets ext year.
Globalisatio ad political chage hae created uprecedeted
complexity ad olatility, makig coutries ad compaies
harder to ru tha eer beore. Success i 2013 requires a ew
style o imble, crisis-orieted leadership.
Richard Feig, CEO, Cotrol Risks
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Corporate securitywill be asked todo eer more, i
more challegigeiromets, withewer resources.But there are waysto succeed.
P 7
MissioniMpossible?
Achievingsecurity in
A volAtileworld
A complex adolatile worldwill cotiue to
pose a plethorao challeges tobusiess leaders,requirig a imble,crisis-orietedapproach.
P 1
powerhAs neverbeen MoreprobleMAtic
Compaiesthat alig riskmaagemet
with busiessdeelopmet willremai at theorerot o itegrityrisk maagemet.
P 17
integrAtingintegrity riskMAnAgeMent
Despite regulatoryucertaity, a weakglobal ecoomy
ad partisapolitics, Wall Streetwill retai the edgeoer Europeacompetitors.
P 23
01
view FroM:new york
Chias ewleaders must pushthrough major
structural reormsbut will ace iertiaad resistace,complicatig theloger-term outlook.
P 29
02
view FroM:beiJing
Eorts to preserethe eurozoe willace urther tests,
but Germay willremai committedregardless o whowis Septembersederal electios.
P 37
03
view FroM:berlin
The presidet willretai his stroggrip, despite some
dissatisactio.Oly limitedimproemetsto the busiesseirometare likely.
P 41
04
view FroM:Moscow
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pirAcyoverview
P 81
kidnApoverview
P 83
risk rAtingForecAst 2013
P 85
The political sceeshould begi tostabilise i 2013,
but ecoomic gaiswill be ragile adstructural problemswill persist.
P 45
05
view FroM:cAiro
Iestors willbe wary amidlabour actiism,
miig-sectorucertaity adsocio-ecoomicchalleges, butthere are reasosor cautiousoptimism too.
P 51
06
view FroM:JohAnnesburg
The commercialpromise o Lagosbelies a bleaker
atioal picture;expect little progresso oil-sector reormor the orthersecurity crisis.
P 57
07
view FroM:lAgos
The citysdyamism adlarge irastructure
projects will lureiestors, butBrazils busiesseiromet willremai complexad challegig.
P 63
08
view FroM:rio de JAneiro
The leadigcadidates or the2014 presidetial
poll will establishthemseles asiestor cocersoer resourceatioalism grow.
P 69
09
view FroM:JAkArtA
Ater the excitemeto 2012, a morerealistic picture
o the coutryschalleges adthe obstaclesto iestmetwill emerge.
P 75
10
view FroM:yAngon
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Lalibela market, Ethiopia,Richard Holmes,
Cotrol Risks
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RMp Rpor 2013
POWER HAS nEvER BEEn MORE PROBLEMATIC
2
The world in 2013
nt cms t my sk tt s pcty svb. ots, sm
s u v sv t, p US Pst Bck obm t
just 2012. h s ts mmt cu b t
pst cmp t uy st, suc k sts
pc by t but ctts qu by ct. h t
t p tt t b pst yu t cmtb but
mk css t s 30% t 40% cc tt t cc
b t .
O all the millios o words spoke bypoliticias aroud the world, theseremarks are probably the mostistructie i describig the ature omoder leadership. As the worldstwo mai powers the US ad Chia go through the process o reewigtheir leadership, Obamas commetsecapsulate the mai theme o this
years RiskMap: beig powerul haseer bee more problematic.Globalisatio ad political chagehae made what were oce distatdreams much more readily accessible.But they hae also createduprecedeted complexity adolatility, makig coutries adcompaies harder to ru tha eer
beore. Success requires a ew styleo imble, crisis-orieted leadership.
The last two years hae show howsusceptible a highly itercoectedworld is to rapid political chage (theArab sprig), ecoomic crisis (turmoili the eurozoe) ad atural disasters(the earthquake/tsuami/reactormeltdow i Japa). These types o
disturbaces are ot ew the worldhas log suered rom political,ecoomic ad atural upheaal but
the taut coectiity o supply chaisad commuicatio etworks measthat the elocity with which localproblems become global issues hasicreased substatially. It meas thatruig coutries or maagigcompaies has as much to do withyour ability to react to rapidly shitigcircumstaces as with the executio
o strategy or implemetatio o policy.
Sir Howard Striger, the outgoigCEO o Soy, described how the tasko ruig the electroics giat wasmade all the more complicated byhaig to deal, i a ew short mothsi 2011, with the hackig o Soysolie ideo game etwork, the
impact o the Japaese earthquakead tsuami, a Soy distributiocetre beig burt dow i theLodo riots ad loods i Thailadwipig out productio just beoreChristmas. Add i the collapse oLehma Brothers, the global iacialcrisis ad the soarig ye, ad youca see why CEOs like Striger musteel that they lie their lies i a wid
tuel tryig to stay upright i theace o a costat barrage oupredicted eets.
by RichaRd Fenning
chieF executive OFFiceRcOntROl Risks
power hAs never been More probleMAtic
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RMp Rpor 2013
POWER HAS nEvER BEEn MORE PROBLEMATIC
3
The comig year promises to compoud
the sese i which the best laid plasget throw o track by both a serieso major ecoomic ad politicalchalleges, ad by clusters o seemiglyuoreseeable eets. The majorchalleges ca be clearly mapped.
t z crisis goes beyodquestios o macroecoomic
maagemet. EU members will cotiueto struggle to id the commo politicalwill ecessary to stae o thedisitegratio o the euro. Althoughthe outlies o a bakig uio areitully takig shape, the act that theuio was oly eer a partially completedproject currecy uio without iscalor political uio ow preetsudametal reorm. Few Europea
oters will be prepared to edorseplas to deepe a system that mayow see as prooudly lawed.
gma are deeply scepticalabout the prospect o bakrolligwhat they see as the proligacy otheir souther eighbours. But Germaidustry both the multiatioal
giats ad the Mittelstad(small admedium-sized eterprises resposibleor 60% o Germa jobs) uderstadsthe huge boost that the euro hasproided to Germa exports by makigthem more globally competitie. Thesuccess o Chacellor Agela Merkelscampaig or re-electio i 2013 willhige o whether she ca persuadethe Germa people that ecoomic
pragmatism must preail oer atioalsetimet. Ee i she is deeated, theeuro seems set to limp o, just.
Oil ad gas reeues hae eabled
ra to oercome the ecoomicdowtur that cotiues to plague itsEuropea eighbours. But the yearahead will see more warig sigslashig or Presidet vladimir Puti.The protests agaist the regime thatsprag up i Moscow ad StPetersburg i 2012 may relect theiews o oly a miority o Russias.
Yet, as the Kremli well kows, Russiahistory teds to be made i these twocities. Puti has to gie rei to thosewillig to push through deep structuralreorms sooer rather tha later ortake the cosequeces. The reckoigmay ot come this year or ext, butthe regimes techiques to calmgrowig impatiece with corruptioi key sectors are icreasigly
usustaiable. A exteded periodo oersupply i the oil ad gasmarkets that hits prices ad theRussias export reeues could bea tippig poit.
ca aces the diicult colueceo a political trasitio that has beemore complicated ad public tha
the regime would hae liked with aecoomic slowdow that has beemore proouced tha plaed. Ithe last ew years Chia has promptedoer-exuberat optimism amogiestors giddy with Chia eer,which i some cases has bee replacedby irratioal pessimism. I the sameway that it would hae bee ae toimagie that Chia was a oe-way bet
or trouble-ree ecoomic supremacy,it is equally wrog to see the wholehouse o cards as udametally
TOP: Russia Presidet vladimir Puti,October 2012.
BOTTOM: Idia Prime Miister
Mamoha Sigh, August 2012.
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POWER HAS nEvER BEEn MORE PROBLEMATIC
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ustable. What is idisputable is that
Chia is goig through the mostcomplex ecoomic trasormatio osuch a scale i moder times. As theecoomy adjusts to slower rates ogrowth, the iestmet ladscape willsuer itermittet jolts. There will beo serious breakdow i the politicalorder, but it should be o surprisethat, at times, it is a distictly
ucomortable ride.
The USs much-discussed piottowards Asia relects the chagedature o the global balace o power.The regio still ejoys heady leels oecoomic growth compared withEurope, but the slowdow i Chiaad cluky relatios betwee themai regioal powers a umber o
which are experiecig upsurges iatioalism mea that iestors willeed to be wary o the potetial ora escalatio i tesios, ot leastbetwee Chia ad Japa.
As Warre Bu et remarked durigthe 2008 iacial crisis, whe thetide goes out, we id out who is
ot wearig swimmig truks.Chiese bathers hae beeswimmig i the deep ed or aslog as may ca remember. Thecosequece o the slowdow willbe that a umber o deals thatlooked good whe the ecoomywas growig aboe 10% ad creditwas cheap will seem less pretty ithe year ahead. Expect a umber o
iestmet scadals, some liked tomurky local politics, to hit theheadlies i 2013.
ia has watched Chias
ecoomic growth with ey i recetyears. At the same time, its owgrowth has stagated as its reormprogramme has spluttered, thestalled. Bold attempts to restart theprogramme i 2013, particularly byopeig up the retail sector to moreoreig competitio, are likely to berustrated by the actioalism o
Idia politics ad the absece o aleader to succeed Prime MiisterMamoha Sigh with the ecessarypower base ad isio. For all itswoderul potetial, Idia will otgrasp the opportuity.
I the M ea, it is hard ot tococlude that the heady optimismo the Arab sprig has bee
replaced by the grim reality o ciilwar, iolet extremism adbrikmaship oer Ira. But thenorth Arica protagoists Tuisia,Egypt ad Libya may proe tohae made more progress thacurretly seems the case. Thechages occurrig i the regio willtake years to play out. Shitig
demographics, growig space orIslamism i maistream politics adthe start o the moe away romexteral depedece o theregios hydrocarbos could icombiatio lead to a more stablead prosperous Middle East. Butot yet. The Arab sprig raisedurealistic expectatios locally aswell as iteratioally, ad or the
ext ew years the regio will besubject to bouts o istability util amore stable ew order emerges.
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As the ew admiistratio takes oice
i us, ad assumig that theiscal cli is successully aoided, itwill be tempted to accelerate the paceo disegagemet rom the MiddleEast. The prospect o the US becomigmore sel-suiciet i the productioo hydrocarbos goes beyodecoomics. Less depedece oMiddle East imports ad thereore
less eed to iteree politically admilitarily to presere security o supplyad price stability is a beguiligprospect or a coutry weary oplayig global policema. But it is aalse or at least a premature promise.The US still has too may strategicpolitical ad eergy iterests i theregio. Threateig Ira, aoidigetaglemet i Syria ad deployig
droes ot troops to hut dow localal-Qaida rachises might make orlashy pre-electio politics, but theydo ot costitute a coheret policy.
Iestors i the M ea willcotiue to experiece operatioaldisruptio as disputes withi adbetwee atios cotiue. While
colict oer Iras uclear ambitiosis still o balace ulikely, the ebrileatmosphere meas that a icidet the sikig o a Iraia essel, oristace could trigger some kid omilitary clash. Similarly the spilloerrom a icreasigly complex adprotracted colict i Syria will cotiueto cause disruptio i eighbourigcoutries. Full-scale regioal colict
remais ulikely, but cotigecyplas should allow or a serious securitybreakdow i ulerable coutries.
la Ama epitomises the
cotradictios o olatility adcomplexity, despair ad optimismthat curretly characterise the globalscee. Colombia has the historicpossibility o peace ater early hal acetury o colict, while the Mexicagoermet struggles to cotaiedemic arco-iolece across itsorther marches. The maddeig
curse o crude populism aditerecie politickig cotiues toalict Argetia, veezuela, Ecuadorad Boliia. Take the log iewthough, ad it becomes clear thatoer the last decade the regiosbroad security situatio has improed,ciilia-led politics are icreasiglyetreched ad liig stadards ormost hae improed. Despite itsel ,
Lati America will, i 2013, cotiueto come i rom the global periphery.Brazil exempliies this tred. Itsgrowth udametals are solid ad itspolitical system stable. Yet complexad expesie ew hydrocarboprojects with log lead times do otcoceal the drags o growthstemmig rom ilated bureaucracy,corruptio ad weak irastructure.The regio will take its time gettig tothe ext stage, but it will do it.
s-saaa Afa remais, tosome extet, isulated rom thedeelopig worlds domiatausterity agedas. A prologedsupply oerhag i the commoditiessector, leadig to a declie i Chiese
demad, will cause short-term pai,but the regio represets a geuieglobal reewal opportuity to eed
TOP: US Presidet Barack Obama,noember 2012.
BOTTOM: Damascus, Syria.
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the structural rise i Asia demad. As
the US piots to Asia, so will Chiapiot towards shieldig its commoditysupply lies. new oil ad gas ids iEast Arica mea that the ladmassad sea laes betwee the Gul oAde ad Mozambique Chael arepoised to acquire ew sigiicace,both as a source o opportuity adulerability. The upside or Aricas
will be icreased scrutiy o thecotiets iteral geopolitics. Aricahas bee beset by colict sice thewae o decoloisatio 50 years ago.Other tha ightig asty proxy warsdurig the Cold War, the stakes orexteral iteretio were simply otsuiciet or global powers to bedeeply ioled. The icreasigassumptio o resposibility or colict
resolutio by Aricas, the rise oChiese iestmet ad the potetialthe regio holds both as globalsupplier ad cosumer will esure thatAricas importace will oly icrease i2013 ad beyod. As this happes,the eed or iestors to structure theiroperatios wisely icreases ad,correspodigly, the reputatioal ad
regulatory risks become more acute.
ConronTing The Challenge
I describig some o the ault liesthat are likely to ru through the worldi 2013, it is easy to sik ito a trougho despodecy at the umber omajor political, security ad ecoomicchalleges we ace. Seeig risk is
easier tha idig opportuity, adthat is what cosumes busiessleaders coroted by the sheer
olume o colictig opiio ad
coused data about what is happeigi the world ad i their busiess.
Add i the demads o tighter butsometimes cotradictory regulatioad a rise i aggraated shareholderactiism, ad you ca see why globalCEOs ote talk o beig caught i amaelstrom. This sese o uease is
oly heighteed by the asymmetricthreat rom cyber-attacks ad theulerability o data-depedetorgaisatios uable to patrol theirirtual perimeters eectiely.
May compaies id themselesmaagig their aairs o twi tracks.O the oe had, they hae teams otheir best people aggressiely
seekig ew opportuities i complexad opaque ew markets, whileseparately they are deotig eergreater resources to aoidigreputatioal or goerace crises.The result is ote paralysis by riskmaagemet, whereby the orgaisatio gripped by existetial agst ailsto id the right degree o creatie
tesio betwee the two imperatieso risk reductio ad risk takig.
Cotrary to the pessimistic toe omuch ews reportig, there areumerous examples o marketsabudat with opportuity:Colombia, Myamar, Idoesia, Iraqad much o sub-Sahara Arica, orexample. Ad behid the headlie
talk o austerity, may o the leadidicators cotiue to poit i theright directio: iat mortality, public
health (particularly or wome), the
spread o democracy ad educatio,ad the umber o colict casualtiesare all headig the right way, albeit ia patchy ashio. The umber adiluece o global outliers such asnorth Korea, Cuba, Zimbabwe, Iraad veezuela is also arguablydimiishig. Yet otwithstadig theirailig leaders ad dysuctioal
goerace, such regimes may bedagerous ee i their death throes.
It is hard to imagie that the Chiesead US leaders takig oice i 2013do ot occasioally wake up i themiddle o the ight ad wish theywere doig somethig else. Maybeot: it is probably i the ature opolitical ambitio to eradicate those
agitated momets o sel-doubt. Butee i they sleep soudly i theirbeds at ight, the challeges theyace are sigiicat, ot because theworld is more at risk tha eer beore,but because the pace o eets adthe speed with which the localbecomes global is uprecedeted.
Je Immelt took oer rom JackWelch at the helm o GE Corporatioa ew days beore the 9/11 attacks.He sums up the demads o leadershipery well: I was chairma or twodays whe I had a airplae with myegies hit a buildig I isuredcoered by a etwork I owed ad Istill had to icrease earigs by 11%.
He also said, less helpully: There are24 hours i a day ad you ca use allo them.
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Piacle@Duxto, Sigapore,Debesh Sharma,
Cotrol Risks
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RMp Rpor 2013
MISSIOn IMPOSSIBLE? ACHIEvInG SECURITY In A vOLATILE WORLD
8
ht t s t tst B stmt, Sky, umu s
hy tt Tm Cus s stu bcks tu tttt t vp Mss: impssb 5. Pps t su b c
T CSo Ptc:
Yu mss, su yu cs t ccpt t, s t m, m
c pcs, t sucs, cmt cs
ut scuty. g uck, c scuty c. Ts mss
s-stuct v scs...
nosese, you say? We polled 100seior risk ad security directors iOctober 2012 i our Future Risksurey to see how outladish thismissio statemet really is. Theidigs throw light o the state ocorporate security uctios ad theorces shapig the idustry as wemoe ito 2013, giig isights itothe shape o thigs to come.
higher reward: higher riSK
The IMF projects that emergigmarkets will grow by 5.6% i 2013,with the astest rates oud ideelopig Asia ad sub-SaharaArica. Compare that with the 1.5%growth orecast or adaced
ecoomies i 2013, ad it is ot hardto see why may compaies iewemergig markets as ope orbusiess ad wat i.
Great opportuities, or sure. But theissue or corporate security directorsis that emergig markets addeelopig ecoomies brig withthem greater security risks that eed
time ad resources to adequatelymaage. Resources they dotecessarily hae. This will be acommo problem i 2013: the FutureRisk surey idicates that 38% ocorporate resiliece directors belieetheir orgaisatios will take o morerisk i the comig year, with someseeig themseles as uder-resourced.
by JOnny gRay
diRectOR,
glObal client seRvices,
aMeRicas
cOntROl Risks
Matthew hORROx
diRectOR, secuRity Risk
cOnsulting, euROPe
and aFRica
cOntROl Risks
Source: Cotrol Risks, Future Risk surey, October 2012
Corporate risk appetite 2013
NO CHANGE
MORE RISK TAKING
51%
38%
11%
LESS RISK TAKING
Achieving security in A volAtile world
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MISSIOn IMPOSSIBLE? ACHIEvInG SECURITY In A vOLATILE WORLD
9
CUTS, BUMPS and red TaPe
Security risk uctios are operatig
i a icreasigly regulated adscrutiised eiromet. newregulatios, codes ad stadardsgoerig corporate coduct adduty o care are emergig each year.But it is ot oly goermets adregulators castig their beady eyesoer busiess operatios, particularlyi emergig markets. nGOs ad
ews-hugry global media cotiueto hut or ee the whi o a goodcorporate scadal. History has taughtus that reputatioal risks ca be themost damagig, with the power tobrig dow a compay i short order.
The upshot: security directors arebeig asked to simultaeously adoptcompliace-orieted risk maagemet
strategies proidig cotrol adassurace across multiple jurisdictios,while actig as ursemaid to delier
busiess i complex ad/or
potetially hostile eiromets. Atricky balacig act at the best otimes, this is made more challegigby the climate o austerity leadig toresource tighteig, ad globalistability throwig out all kids ouexpected challeges.
Followig the ecoomic dowtur,
may orgaisatios wet throughpaiul restructurig ad rouds oredudacies i search o eiciecysaigs. I may cases corporatesecurity, like other supportorgaisatios, was targeted orheadcout reductios ad budgetcuts. At the same time, the umber oreported security icidets i mostorgaisatios wet up either as a
direct result o redudacies adiacial hardship, or due touprecedeted turmoil i north Arica.
PROVIDE ASSURANCE, REPORTING
CHECKS AND BALANCES
ENABLE WELL
THOUGHT-THROUGH
RISK TAKING
WITHOUT HOLDING
BACK THE BUSINESS
TIMELY INTERVENTIONS TO EFFECT
BUSINESS RESILIENCE CRISIS MANAGEMENT,
BUSINESS CONTINUITY, DISASTER RECOVERY
PRESSURE TO
REDUCE HEADCOUNT
AND BUDGETS
ENABLE
RISK TAKING
COMPLIANCE
AND
CONTROL
EFFECTIVELY
MANAGE
VOLATILITY
MAKE
EFFICIENCY
SAVINGS
Iheret poits o tesio or corporate security
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RMp Rpor 2013
MISSIOn IMPOSSIBLE? ACHIEvInG SECURITY In A vOLATILE WORLD
10
ASIA
AMERICAS
40%
16%
EUROPE
44%
UTUre ConVergenCe
Our Future Risk surey shows thatglobal istability (both geopoliticalad iacial) ad the associatedsecurity ramiicatios (such as theati-austerity riots ad protests seei may cities i 2012) weigh heailyo the mids o security directors aswe go ito 2013. Most beliee theworld is becomig more complex
ad dagerous, with emerget riskssuch as cyber terrorism rakig higho the risk perceptios idex.
While the majority o corporatesecurity risk uctios reportthemseles to be adequatelyresourced, a sigiicat proportiohae had to make headcout
reductios sice the ecoomicslowdow ad some are ow uder-uded, makig it diicult to satisyall their stakeholders requiremets.
For a large miority there remais agap betwee the security uctiosmissio ad the orgaisatiosobjecties. This ca result i the
uctio beig see as a oerheadad make it diicult to demostratereal orgaisatioal alue. For others,cuts i budgets ad orcedheadcout reductio haeaccelerated the coergece oeterprise risk maagemet adcorporate security a siler liig toa otherwise gloomy cloud.
Source: Cotrol Risks, FutureRisk surey, October 2012
Surey participats: sector
Surey participats: headquarters
by regio
Source: Cotrol Risks, Future Risk surey, October 2012
TRANSP ORT
5%TEC HNO LOGY
7%REAL ESTATE
4%
OIL AND GAS
2%
LOGISTICS
2%
LIFESTYLE
2%
INTERNATIONAL ORGANISATION
5%
GOVERNMENT
2%
FOOD AND BEVERAGE
7%
AER OSPACE AND DEF ENC E
4%BANKING AND FINANCE
18%CONSUMER GOODS
4%
ENERGY
8%EVENT SERVICES
2%NGO
4%
MINING AND METALS
11%
PROFESSIONAL SERVICES AND CONSULTING
13%
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RMp Rpor 2013
MISSIOn IMPOSSIBLE? ACHIEvInG SECURITY In A vOLATILE WORLD
11
nearly all respodets coirmed
that the umber o security icidetshas bee icreasig, ad that thesecurity uctio is comig udercloser seior maagemet scrutiy.Howeer, with that comes aothersiler liig: most security directorsow perceie that they hae greaterability to iluece the orgaisatioad make a dierece.
The surey also makes clear that theprocess o proessioalisig thesecurity risk uctio cotiues,moig it closer to the eterprise riskmaagemet uctio ad brigig iacets o the orgaisatioal resilieceapparatus such as busiesscotiuity. It is becomig eer more
importat or proessioals i this
space to hold ormal qualiicatios itheir ield, ad to hae a good graspo iteratioal stadards ad bestpractice methods, ad icreasiglyless importat to hae had apreious career i law eorcemetor the military. Corporate resilieceis becomig a proessio i itsow right.
Despite these siler liigs adpositie treds, it is certaily true thatrisk ad security directors are beigasked to do more, i morechallegig places, sometimes withewer resources, i a climate oicreasig regulatio ad scrutiy.But is this a Missio: Impossible?
Most sigifcat risks or surey respodets
Source: Cotrol Risks, Future Risk surey, October 2012
WAR - ISRAEL
1%
REGULATORY CHANGES
1%
DATA BREACH
1%LOCALISATION
1%INTEGRITY BREACH
1%
WAR - SYRIA
4%CRIME
5%TER ROR ISM
6%
PROTESTS AND RIOTS
10%
WAR - IRAN
10%
CYBER TERRORISM
17%
GEOPOLITICAL INSTABILITY
18%
FINANCIAL INSTABILITY
25%
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COMPANIES ARE SUFFERING MORE BUSINESS DISRUPTIONS
THE WOR LD IS BEC OMI NG MORE D ANGERO US
THE RE IS MOR E CRIM E
THE RE ARE MOR E TERR ORI SM INC IDE NTS
THE RE ARE MOR E WARS AND REV OLUTIO NS
THE RE ARE MOR E NATU RAL DIS ASTERS
THE RE IS MOR E POLITIC AL RISK
THE WOR LD IS BEC OMI NG MOR E COMPLEX
4%
4%
6%
10%
2%
33%
36%
52%
55%
38%
61%
27%
13%
59%
43%
44%
33%
40%
33%
54%
61%
4%
17%
4%
6%
12%
4%
19%
26%
NUMBER OF SECURITY INCIDENTS
HEADCOUNT
BUDGET
MANAGEMENT SCRUTINY
SECURITY FUNCTION'S INFLUENCE
THE ORG ANISAT ION IS WIL LING T O AC CEPT R ISK
4%
28%
36%
4%
8%
15%
68%
44%
36%
62%
58%
68%
28%
28%
28%
34%
34%
17%
NUMBER OF SECURITY INCIDENTS
HEADCOUNT
BUDGET
MANAGEMENT SCRUTINY
SECURITY FUNCTION'S INFLUENCE
THE ORG ANISAT ION IS WIL LING T O ACCEPT RIS K
9%
11%
2%
17%
66%
72%
70%
76%
55%
58%
34%
19%
19%
22%
45%
25%
KEY
DISAGREE NO CHANGE AGREE STRONGLY AGREE
KEY
LESS NEUTRAL MORE
KEYLESS NEUTRAL MORE
Risk perceptio 2013
The impact o the facial crisis ad ecoomic dowtur
The impact o recet geopolitical olatility
Source: Cotrol Risks, Future Risk surey, October 2012
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THE ORGANIS ATION'S POLI CE FORCE
REPORTS TO
A STRAT EGIC ENABLER SUPP ORTI NG B USINESS GROWTH
A TA CTICAL FUNCTION TO PROTECT ASSETS
OBJECTIVES ARE ALIGNED WITH BUSINESS OBJECTIVES
INTEGRATED WITH RISK MANAGEMENT
WELL RESOURCED
PROFESSIONAL SECURITY QUALIFICATIONS
KNOWLEDGE AND APPLICATION OF STANDARDS
MILITARY / POLICE BACKGROUND
28%
94%
87%
57%
51%
57%
68%
4 % 2 %
13%
43%
45%
43%
4%
4%
24% 6% 12% 9% 15% 2% 2%7% 4%4% 4% 9% 2%
2%
2%
49%
13%
15%
45 %
85%
83%
6%
54%
YES - CHIEF SECURITY OFF ICER
YES - CHIEF RISK OFFIC ER
25%
NO
21%
KEY
AGREE DISAGREE DON'T KNOW
KEY
BOARD RISK ADMIN/FACILITIES HR
LEGAL FINANCE CEO/COO HSSE
ADMI N EXCO REGIONAL VP OPERATIONS
NA
KEY
LESS IMPORTANT NEUTRAL MORE IMPORTANT
Source: Cotrol Risks, Future Risk surey, October 2012
The corporate security uctio i 2013 is
CSO or similar reportig to the board
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enTerPriSe SeCUriTY riSK
ManageMenT
The comig together o eterpriserisk maagemet ad corporatesecurity is a good thig because itorces a chage i the way bothsecurity ad risk proessioals thikabout their role. Fuctioally, it helpsto alig the actiities o security adprotectio with risk ad opportuity
maagemet. It preets securityrom holdig back the orgaisatio byorcig risk-commesurate securityresposes that directly supportbusiess objecties ad eableopportuities i areas that preiouslymay hae bee istatly discoutedas beig too risky. It helps to brigrisk sometimes a abstract uctio
closer to the day-to-day operatioalchalleges o emergig marketbusiess. Oe-size-its-all securityprescriptios gie way to uacedrisk-based decisios; risk aoidacegies way to risk maagemet. Ad,o course, cost saigs throughshared headcout ad resources caalso be achieed. The result: betteroutcomes ad real alue added to
the orgaisatio.
Ad by thikig about the busiess adthe processes uderpiig thesuccess o that busiess, it is possibleor security to make a real etcotributio to proits. For example, oeleadig miig irm has recoigured itssite operatios to miimise the potetial
or workers to steal precious gems, withtremedous results or the compaysbottom lie. Although led by the security
departmet, the chages to eect loss
reductio were ot traditioally securityas such they did ot iole camerasor guards but istead ioled re-egieerig the way i which gems areextracted rom the groud. Byitroducig higher-tech gemstoerecoery methods, the compay hasbee able to miimise loss, improeyield ad reduce headcout.
dYnaMiC reSilienCe
I the globalised era, busiesseseed programmes o resiliece touderpi operatios ad gie otherscoidece that their outsourcedoperatios are i sae hads.Busiesses eed the ability towithstad shocks i a dyamic way
to gie them real lexibility. Thiscaot be achieed simply throughsometimes haphazard applicatio otraditioal or static security measures,plas that sit o sheles collectigdust, or isolated pockets o IT cotiuityplaig. Yes, good crisis maagemetis essetial, but i it is ot uderpiedby great busiess cotiuity plaig,imbleess ad clarity o thought,
ad logistical elasticity, theorgaisatio will be brittle adsusceptible to operatioal disruptio.
Hurricae Sady was a remider ohow atural hazards ca paralyseecoomies ad disrupt supply chaisoer a large area. Howeer, the 2010eruptios o Eyjajallajkull i Icelad
had a global impact, costig theairlie idustry $1.7b ad orcigslowdows i productio rom
Hillary Clito
We should aim to lead
our rieds ad allies i
buildig a world o
security ad opportuity.
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Germay to Japa. I historic
perormace is a guide to utureresults, the more powerul Katla isdue to erupt i the ear uture.Geopolitical upheaals ca alsohae sigiicat impacts. Accordigto the IMF, disruptio to Libya oilexports saw Arica exports tumble8% i 2011.
But the greatest potetial or troublecomes rom global reliace o certaisupply chai chokepoits. nearly 35%o the worlds maritime-traded oil passesthrough the Strait o Hormuz each year,while more tha 60,000 essels passthrough the Strait o Malacca aually.Ay blockage o these routes wouldhae massie cosequeces orglobal trade. For all our techological
ad logistical sophisticatio, weremai surprisigly ulerable.
Busiesses eed to be able to reactquickly to chaged circumstacesad deal with the immediate crisis,but the realig their processes adresources to achiee eicietcotiuity o operatios. Compaiesthat hae doe this well hae oud ita marketable attribute that giesthem a edge oer competitors.
Security caot achiee this aloe,or ca ay other uctio or thatmatter. To get this right, busiesscotiuity, crisis maagemet, riskad security must all come togetherwith core busiess operatios to
proide coheret ad timely resposesto the uexpected. Agai, coergece.A joied-up respose ot oly oers
iacial eiciecy, but also yields
better outcomes i times o crisis,eablig a compay to sail o throughchoppy waters whe others ouder.
The Q aCTor
Just as 007 relies o Q to get him out osticky situatios with the latest gadgetsad gizmos, so too the security directoro the 21st cetury ejoys the optio odeployig a eer more excitig arrayo techologies to maage security ia cost-eectie ad timely maer.Techology ad thikig smarterca be the atidote to slashed budgetsad the key to doig more with less.
Moder security techology, such asremote persoel trackig through
PDAs, CCTv ideo aalytics adetworked IP irastructure, oersmeas to cetrally admiister thesecurity uctio i a way preiousgeeratios could oly dream o.Such techologies ca ot oly brigsaigs through ewer cotrol roomoperators aroud the world, but caalso dramatically improe the qualityo day-to-day security sericeproisio ad delier a cetral 24/7operatios cetre capable orespodig quickly to crises adicidets aroud the world.
To achiee these saigs,iestmet is required uprot iterms o desig ad determiig theright leel o residual risk or your
orgaisatio. But i Cotrol Risksexperiece, the retur o thisiestmet ca be sigiicat.
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MiSSion: aChieVaBle
Those compaies best able tomaage risks ad respod touexpected challeges will be mostcapable o aigatig the realities odoig busiess i emergigmarkets, ad ultimately will comeout ahead o the competitio bycorerig the astest-growigmarkets. Applicatio o busiess
resiliece strategies is achieable,ad makes maagig a crisis acotrolled edeaour with morepredictable ad positie outcomes.
Those that ca embrace techologyad keep ioatig to achieecotiuous improemet will be ableto delier better, more eicietsecurity solutios ad achiee lower
operatig costs year-o-year.
But to really crack it, those thatitegrate security with the eeds othe busiess ca ulock the ullpotetial o their orgaisatios. ForgetJames Bod ad Etha Hut, theew breed o corporate resiliecedirectors who ca work with the
busiess to realise those opportuitieswill be the real heroes.
Ad theyll probably be driig AstoMartis too.
TOP: Serers i atechology data cetre.
BOTTOM: Satellite dish ateas.
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Aghaista,Carolie Brooks,
Cotrol Risks
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T s ct t t scuss bt tt v s t
busss vtus t ts, mts tt t t,t spks utmty s. i yu p st cmpy
stty v tctc ttvs, yu k ut ts mts
tk ts s y i k .
As exhi laratig as those sessiosare, they hae a tippig poit. nooe exactly kows where that poitsits, but you kow how it eels oce
you cross it. Braistormigdeteriorates ito bickerig. Debatead discussio desced itoargumet ad discord. Creatietesio spirals ito, well, tesio.
Some meetigs are more proe tocrossig this tippig poit thaothers. You hae bee to thembeore. So hae we. These are themeetigs that discuss itegrity risk.
A icreasigly itercoected worldpresets a expoetially morechallegig iestmet eiromet.I that itricate matrix o risk adopportuity, side-steppig thehazards to itegrity ad reputatiorequires almost graity-deyig
dexterity. As the regulatory collar oiteratioal acroyms (FCPA, UKBA)grows eer more ucomortable, therequecy ad complexity o thesedecisios will oly itesiy.
Yet at ar too may compaies, eeryiestmet decisio or parteracceptace process pits acoseratie, risk-aerse compliacedepartmet agaist a aggressie,bous-drie busiess uit.
Colleagues ume at each other sometimes or hours, sometimes ormoths oer whether to proceedwith complex deals i diicult but
seductie jurisdictios.
Ater each o these ractious meetigswe ask ourseles: do these teamswork or the same compay? Is therea more productie way to discussitegrity risk? Ad, most importatly,how ote do compaies lose groudto competitors because their approachto risk is ot oly behid best practice,but also paiully, glacially slow?
The topics will be amiliar to aycompay deep i the jaws o theglobalisatio process. Should we dothat joit eture i Uzbekista? Arewe really cotemplatig a greeieldsite i nigeria? How may permits dowe eed to ope a plat i Romaia?
A sample o the dialogue:
Compliace: This deal is eergoig to happe. We kow howpeople get thigs doe i thatcoutry, ad I do ot wat ourCEO hauled o to priso.
Busiess deelopmet: There isothig wrog with this guy. Iebee to his daughters weddig!
by chaRles heckeR
diRectOR, eMea,cORPORate investigatiOns
cOntROl Risks
steve wilFORd
diRectOR,
cORPORate investigatiOns,
sOuth east asia
cOntROl Risks
integrAting integrity risk MAnAgeMent
19
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We hae see the process work
well. We hae see it ailspectacularly. We hae witessedhow cliets equiocate or whatseems like a eterity oercompliace issues attached to largetrasactios, yet still caot reachcosesus o whether o a broad,istitutioal leel they ca toleratea deal.
The di erece betwee a processthat works ad oe that rustratestypically emerges rom a commomisperceptio o how to maageitegrity risk. Compaies that bydesig or, more ote, by deaultmaitai a adersarial relatioshipbetwee risk maagemet adbusiess deelopmet thik they
hae the perect deece agaistmissteps i high-risk markets.Crucially, this may ot always bethe case.
Compaies that alig riskmaagemet ad busiessdeelopmet toward the commopurpose o growig their busiesssaely built o a agreeduderstadig o their compays riskappetite are at the orerot oitegrity risk maagemet. I thesecases, compliace ist a pushoer,or is it labelled with that taitedword, pragmatic. Similar ly, there iso eed to regard the busiess uitsas cowboys who hae eer met adeal they didt like. Istead,
compliace ad the busiess uitsjoitly calibrate a yardstick tomeasure ad maage itegrity risk.
I these compaies, the coersatio
moes rom are we proposig a dealthat compliace cat stomach? toare we proposig a deal that sitswithi the compays appetite orrisk?. This is how orgaisatios moeorward i a world raught withitegrity threats.
So how doeS one CoMPanY
BeCoMe The oTher?Talk it out. Herd your emergigmarkets teams ad your legal/security/compliace teams itostructured coersatios ad resoleyour diereces. The process worksi both directios uderstad therestrictios your compay worksuder, as well as the size o the
opportuity i ew places. Listedcompay? Gie your compliaceteam a break: they aswer to a higherauthority. Priately held globe-hopper?Brie your sales orce o the busiesseiromet that waits beyod thearrials hall.
Start early. Some compaiescommissio itegrity due diligece
days beore closig a trasactio.Others et their pipelie. Guesswhich compaies get more dealsdoe more smoothly? Startig thedue diligece process earlier i theiestmet decisio cycle almostalways leads to a more balacedapproal process there is moretime to cosider ad implemet
remedial actio i required. This willhae cost implicatios: you may otwat to sped moey assayig
Compaies that alig
risk maagemet
ad busiess
deelopmet toward the
commo purpose ogrowig their busiess
saely built o a
agreed uderstadig o
their compays risk
appetite are at
the orerot o itegrity
risk maagemet.
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busiess. To urther complicate
matters, all o Compay Twosbusiess parters are required to illout a parter qualiicatioquestioaire, kowig that thisprocess may ed with theirdisqualiicatio as a edor or adistributor.
Strikig o suppliers is oe thig someoe will always hustle to ill the
gap. Strikig o customers is aetirely dieret matter. The processcleaes Compay Two i hal. Salesis terriied surely the parterqualiicatio programme ca olydestroy Compay Twos leadigmarket share. But the legal team hasthe US Departmet o Justiceloomig omiously. There is
absolutely o way the compay cacotiue doig busiess i Russiaad ot scree its busiess parters.
Timidly at irst, Compay Twolauches its parter qualiicatioprogramme. The market reezes isuspese. What is this programme?How do you wi? What happes iyou lose? For a brie period, Compay
Two seizes up, waitig or its marketto lee to competitors less selectieabout their busiess parters.
With time, somethig strage startsto happe. Certaily, a highpercetage o parter compaies ailthe qualiicatio process. Separatigrom those busiesses is paiul. But
a higher percetage pass. Ocethose compaies lear o theirsuccess, they celebrate approed
compaies wear their status as a seal
o approal ad start to brag abouttheir probity i the market. Suddely,compaies are cleaig themselesup beore queuig up to do busiesswith Compay Two.
Compay Oe is still searchig or itscetre o graity o itegrity risk. Itsdiisios remai rie by disputesoer where ad how to do busiess.
Compay Two is maagig itegrityrisk i a coutry where that is widelycosidered impossible.
Globalisatio has created ar moreCompay Oes tha Compay Twos.Too ew orgaisatios kow their guto risk. Agaist that backdrop, theumber o truly ew busiess
destiatios is shrikig. Emergigmarkets are yesterdays adeture;ow we are chasig so-calledrotier markets. I the comigyears, itegrity risk will challege themost resiliet orgaisatio.
a yu Cmpy o
Cmpy T?
Emergig markets areyesterdays adeture;
ow we are chasig
so-called rotier
markets. I the comig
years, itegrity risk will
challege the most
resiliet orgaisatio.
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01
view FroM:new york
02
view FroM:beiJing
03
view FroM:berlin
04
view FroM:Moscow
05
view FroM:cAiro
06
view FroM:JohAnnesburg
07
view FroM:lAgos
08
view FroM:rio de JAneiro
09
view FroM:JAkArtA
10
view FroM:yAngon
v I E W S F R OM
This views From sectio has bee writte by our aalysts to show theperspectie rom some o the cities where they are based or trael to
regularly, ad that hae a iterestig local or atioal story to tell. They lookat some o the big questios beig asked there, ad examie importatdyamics i the busiess eiromet or 2013. For more detailed aalysis
o oer 220 coutries, please isit our Coutry Risk Forecast olie serice.
To sig up or a ree tr ial o Coutr y Risk Forecast please isit : www.cot rol risks.com
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Brookly Bridge ad LowerMahatta, new York City
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U N I T E D S T A T E S O F A M E R I C AMEDIUM security in deprived urban areas
Phoenix
Minneapolis
ChicagoDetroit
Toronto
MontralOttawa
New York
Philadelphia
Washington (DC)St Louis
Atlanta
Houston
Dallas
Hermosillo
Monterrey Miami
Boston
New Orleans
view FroM: new york
looKing ahead
Obamas re-electiomeas Wall Street reormis ot goig aywhere, butregulatory ucertaityremais the key politicalrisk or the iacial sector.
The eurozoe crisis ad
Chiese growth prospectsare ligerig cocers,but the US ecoomy is idecet shape ad willimproe urther i 2013(assumig it does ot allo the iscal cli).
With so much spare cash,baks ad corporates are
i a good positio toiest whe the busiesscycle turs.
F : Midtowsspirits are a bit brighter sice the USFederal Resere i late 2012 committedto ope-eded moetary support o
the ecoomy ad low iterest ratesito 2015. The US ecoomy cotiuesto grow modestly, ulike Europes,ad the all-importat housig marketis recoerig. A domestic eergyboom a good chuk o it oMahattas doorstep is rewritigthe rules o US eergy security adidustry, puttig the coutry o a
path to becomig the worlds largestoil producer withi ie years. Best oall, PATH serice has bee restored i
the wake o Hurricae Sady adcostructio o JFKs Termial 4 willially wrap up i the sprig.
n a: The IMF ad WTOhae cut global growth ad tradeorecasts or 2013, particularly oremergig market ad deelopigecoomies exposed through tradead iestmet to slow growth iEurope ad north America.Meawhile, ayoe hopig or arepriee rom the commodity price
olatility o 2012 is boud to bedisappoited. Chias growthtrajectory, Middle Easter security
JOnathan wOOd
assOciate diRectOR,
stRategic analysis
cOntROl Risks
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ad political stability, ad a
chagig climate are allcosiderable kow ukows ithis regard. The auted commoditysupercycle is takig a breather,but has probably yet to ru itscourse. Ad ee i the EuropeaCetral Bak (ECB) ca paper oerthe eurozoes structural ecoomiccracks or a while loger, theroadmap or political cohesio is
decidedly uclear. I other words,new Yorks baks ace a ucertaimacro eiromet i 2013.
Tale o The (red) TaPe
More regulatio, by cotrast, is ascertai as death ad taxes. PresidetBarack Obamas re-electio cemets
the poderous rulemakig processo the 2010 Dodd-Frak Wall Street
Reorm ad Cosumer Protectio
Act as the cetral regulatory risk extyear. Ideed, the assured prospect otighter regulatio is likely to be oereaso why iacial equities ellsharply ater the electio. Swatheso regulatio goerig bakig,deriaties, cosumer protectio,mortgage reorm ad systemic riskremai to be determied i 2013 adbeyod, some o which especially
the volcker Rule (aimed at restrictigproprietary tradig by US baks) carry compliace, accoutig adtax costs. Yet the size o thesepotetial costs remais highlyucertai while the law is still beigwritte. There are also cocers thatDodd-Frak could disarticulateglobal iace as oreig baks
reduce regulatory exposure by parigback actiities i the US.
Progress o Dodd-Frak rulemakig i select areas at 1 October 2012 (umber o rules)
CREDIT RATING AGENCIES
DERIVATIVES
CORPORATE GOVERNANCE
MORTGAGE
ASSET-B ACKE D SE CURI TIES
BANKING
CONSUMER PROTECTION
LIQUIDATION AUTHORITY
INVESTMENT ADVISERS
SECURITIES LAW
SYSTEMIC RISK
60
% overdue
61%
18%
0%
29%
0%
57%
50%
5%
0%
89%
86%
60 40 20 0 20 40
KEY
FINALISED PROPOSE D NOT PROPOSE D
Source: Adapted rom Dais Polk, Dodd-Frak Progress Report, October 2012
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TOP: 9/11 Memorial WeehawkeWaterrot, new York,
Mark Tomli, Cotrol Risks.
BOTTOM: Capitol Buildig,Washigto DC.
Regulatory populism is also i the
oig. More iscerally or maycorporate executies, Obama haspledged to pursue urthercompesatio reorms. It seems likelythat the electio result will idicateurther attacks o the 1%, both throughthe bully pulpit ad the tax code. TheOccupy moemet may be largely othe streets, but clearly still resoatesi the White House, which perceies its
airly close wi as a madate to higeUS growth prospects o uppericome tax icreases.
US regulators are likely to persist itheir hard lie o eorcemet oraud, sactios, ati-corruptio adati-moey-lauderig statutes, armedwith moral suasio, sti iacial
pealties ad lots o subpoeas. Theledglig Cosumer Fiace ProtectioBureau (CFPB) ow sae rom thederegulatory ad deudig kiesor a ew more years will becomeicreasigly promiet o iacialcompliace issues as regulatioregardig studet loas, debtcollectio ad credit reportig comesostream oer the ext year. Takig a
lead rom the Securities ad ExchageCommissio (SEC)s aggressie,high-proile eorcemet o theForeig Corrupt Practices Act(FCPA), the agecy made a earlysplash with a $210m settlemet withCapital Oe i mid-2012. Ad iadditio to a major patro i theWhite House, the CFPB has a
particularly stauch deeder i theSeate ollowig its creator ElizabethWarres electio i Massachusetts.
2013 will also see the itroductio o
Basel III bakig stadards, or whichUS ad global baks hae beesteadily preparig oer the last twoyears. Like Dodd-Frak, Basel IIIsubstatially boosts bak capitalrequiremets ad restricts leerage ia eort to make the global bakigsystem more crisis-resiliet. Also likeDodd-Frak, there is some politicalwraglig oer how to implemet the
regulatios, with key members o theSeate Bakig Committee callig orsimpler but tougher capitalrequiremets. Baks, eedless tosay, are pushig back agaist the rato Basel III risk reductio measures,arguig that they will reduce ledig,liquidity ad ecoomic growth. Adwith some cause: OECD ecoomists
estimated i 2011 that Basel III wouldreduce GDP by up to 0.15% i otoset by looser moetary policy. Butuder Obama, agaist whom thebakig sector bet heaily durig theelectio, such complaits are likely toall o dea ears.
ParTiSan ParalYSiS
Gie that all the time, eergy admoey expeded o the electiocycle ($2.6b o the presidetialelectio aloe) simply reproducedthe political status quo, we expectpartisa paralysis to plague marketsi 2013 as it has or the last two years.The iscal cli the combiatio otax icreases ad spedig cuts set
to hit i the ew year aturally loomslarge oer US ecoomic prospects. Ipost-electio posturig is ay guide,
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there is o sig that Democrats ad
Republicas are suddely goig tostart to see eye to eye o taxes adspedig, despite post-electio soulsearchig ad much lip serice to agrad bargai. There are big iscalproblems o the horizo, but dot holdyour breath or a solutio i 2013.
I there are siler liigs to the situatio,oe must be that the 113th (ext)
Cogress will hae a hard time beigless productie tha its do othigpredecessor, most otable oreedlessly sikig the US soereigcredit ratig durig a debt ceiligshowdow i 2011. Settig the stage ora repeat perormace, Cogress willeed to raise the debt ceilig agai iearly 2013, probably i February.
Ee i Cogress maages to putiscal reckoig urther ito the uturethrough stop-gap compromises or abudgetary bridge, as appearsicreasigly likely, it simply esuresmore iscal ucertaity. Moodys adFitch are poised to joi S&P idowgradig the USs soereigcredit ratig i they do ot like the
cotours o ay deal, ee thoughgoig oer the iscal cli wouldactually radically stregthe the USscredit positio by cuttig the deicit ihal i 2013 ad reducig goermetdebt by 15% o GDP oer the extdecade. (Preetig the iscal cli,by cotrast, would take USgoermet debt to 90% o GDP the
same leel as Portugal today oerthe ext te years.) Politics, otecoomics, are driig risk.
SilVer lining
With ucertaity comes opportuity.It helps that 2013 rot-loads some othe global risk eets, such as theiscal cli ad Italia electios: wewill kow sooer rather tha later iecoomic carage is i the oig.The ed o the Chiese ad USleadership trasitios also augurs aretreat rom politicised trade disputes,
ad potetially policy space or,amog other thigs, urther stimulusi both ecoomies. Successulaigatio o these politicalprocesses would improe corporatecoidece, ad could help touleash a wae o pet-up oreigiestmet ad deal-makig.
US corporates are hugely cash-rich,sittig o up to $5 trillio i liquidassets globally as o mid-2012. Foreigeterprises, especially state-owedeterprises ad soereig wealth udsi Asia ad the Middle East, also haepiles o moey to sped thaks torecord high oil prices ad sustaiedtrade surpluses. The legthy outlookor low US iterest rates, matched by
those i Europe ad Japa, will keepiacig costs low ad icrease theattractieess o depressed productieassets, especially i commodities,eergy, retail, agriculture ad otherkey sectors particularly i emergigmarkets ad deelopig ecoomies.Ideed, the Un Coerece oTrade ad Deelopmet (UnCTAD)oresees a modest 12% icrease iFDI actiity i 2013, with the obiouseurozoe caeat.
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Ad, like new Yorks subway ares
ad tuel tolls, global M&A actiityca oly go oe directio i 2013rom curret depressed leels: up.
new York has a ew particularadatages goig ito 2013. Thaksto early ad orceul goermetiteretio, bak balace sheets i theUS are much cleaer tha i Europe;US baks are poised to seize
opportuities that Europea baksare ot. Hostile political ad policyclimates i Lodo ad Paris aremakig the agaries o Dodd-Fraklook possibly beig, especially ilight o the cotiued clout o iacialidustry lobbyists. The US ecoomyis proig airly resiliet. Deleeragig
sice the crisis has reduced the
household debt oerhag to 2004leels, ad it is still correctig. The USeergy boom is uellig a idustrialreaissace i the Midwest. Thehousig market has tured, abettedby ultra-cheap mortgages: good orbuilders ad amilies alike. State adlocal goermet balace sheetshae bee brought ito lie.
I the grad scheme o thigs, 2013probably wot be the best year othe books, but eer uderestimatethe ability or procliity o the USpolitical system to muddle through. Iit does, ext year just might chart theway to greater ecoomic certaityad stability.
Global mergers ad acquisitios, % chage i total alue by sector
TELECOMS
REALESTATE
TECHNOLOGY
CONSUMER
LEISURE
MEDIA
CONSTRUCTION
AGRICULTURE
DEFENCE
TRANSPORTATION
BUSINESS
SERVICES
PHARMA
FINANCIALSERVICES
INDUSTRIALS
ENERGY,MINING
KEY
2011 2012 YTD
100
80
60
40
20
0
-20
-40
-60
Source: Fiacial Times, based o Thomso Reuters ad mergermarket, September 2012.
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Beijig
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MYANMAR
BHUTAN
BANGLADESH
LAOS
C H I N A
Taiwan
SOUTH K
NORTH KO
Kolkata Chittagong
Dhaka
Hanoi
Kunming
Guangzhou
Taipei
Fuzhou
ShanghaiWuhan
Chongqing
Chengdu
XianZhengzhou
Tianjin
Beijing
Dalian
Fukuoka
Seoul
Pyongyang
Hangzhou
Shenyang
Hong Kong
Shenzhen
view FroM: beiJing
looKing ahead
The aual legislatiesessio i March 2013 willsee key portolios assigedad may show whether realbureaucratic restructurigstarts to emerge.
Key reorm barometers will
iclude moetary-policyad iacial-sectorliberalisatio, exposigSOEs to greater marketdisciplie, ad tacklig theroots rather tha thesymptoms o corruptio.
Regioal disputes will be alitmus test o whether
Chia, its eighbours adthe US will search orcostructie ways to hadlemaritime ad trade rows.
The Commuist Party o Chia (CPC)sourth geeratio leadership, whichhas ruled or the last te years, i2012 bega hadig power to icomig
presidet Xi Jipigs ith geeratio,which by coetio should presideoer the ext te. By the ed o thatteure their coutry could be the worldslargest ecoomy (i purchasig-powerparity terms). Yet jitters oer politicalad ecoomic stability multiplied i2012, as the successio bega amiddramas that ee icluded spurious
coup rumours. Alogside this ar-reachig political trasitio, Chiasecoomic deelopmet is also eterig
a ew era. It still has plety o potetialto grow rapidly ad has successullyaigated tough trasitios beore,but chaces are that the ext decade
will brig slower, more olatile growththa the last, ad ery possibly morepolitical upheaal too.
noT So aST
A slowig ecoomy i 2012 proeduusually uresposie to cetralgoermet eorts to reiigorate it.
May local goermets, baks adbusiesses are strugglig to udiestmet, weakeed by a 2009-10
andRew gilhOlM
head OF asia analysis
cOntROl Risks
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stimulus extraagaza that history
may judge to hae bee the lasthurrah or Chias erstwhile ecoomicmodel a model i which ery highiestmet rates deliered double-digitgrowth, ad Beijig could oerpowera dowtur with iscal ad moetarybraw. The huge beeits odemographics ad catch-up growth whereby shitig surplus rurallabour to more adaced sectors
uelled urious GDP expasio adballooig trade surpluses willprobably start to dimiish uder theew leadership. Meawhile, a shortageo higher-ed jobs or a swellig poolo graduates relects aother pressure:a geeratio o youg Chiese withsky-high expectatios acig aicreasigly tough ecoomic reality.
Chiese policymakers hae log
kow that the growth at all costsmodel could ot last. The ourthgeeratio made all the right oisesabout balaced, sustaiable growthad made some positie moestowards rebalacig, but oerall haspresided oer a major slowig ostructural reorms. It has doeothig comparable i magitude tothe state-owed eterprise (SOE)
shake-up ad WTO etry pushedthrough oer ocierous iteraloppositio by third geeratioleaders Jiag Zemi ad ZhuRogji. The most politically diicultad udametal structuralproblems that aced the ourthgeeratio hae largely beebequeathed to the ith.
Iestmet ad cosumptio as a % o GDP, 1995-2030
1995-2010 2011-15 2016-20 2021-25 2025-30
KEY
CONSUMPTION
70
60
50
40
30
20
10
0
4749
42
3836
34
60
63
66
56
INVESTMENT
Source: Deelopmet Research Ceter o the State Coucil ad World Bak (2012). 2011-30 data orecasts.
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vIEW FRO M: BEI JIn G
TOP: Xi Jipig (L) ad Li Keqiag,noember 2012.
BOTTOM: Xihua Gate, Zhogahai
(CPC headquarters), Beijig.
The ith geeratio caot get awaywith tryig to muddle through or adecade like their predecessors. Ithey try, they will ery probably allictim to the same orces oecoomic graity that brought othermiracle ecoomies dow to earth.To aoid that, they must uleash ewsources o growth ad egieerbetter istitutios, but theudametal structural reorms
required to do this imply sigiicatpolitical, ecoomic ad socialupheaal. This dilemma is epitomisedby the coudrum acig thegoermet i 2013: a repeat o theepic credit icotiece o 2009-10would exacerbate loger-termiacial risks, but restrait measacceptig a cyclical dowtur, paiuldeleeragig ad the associatedsocial, political ad ecoomic strais.
MiSleading MiSlaBelling
The ourth geeratio tetatielystarted tryig to poit the juggerautecoomy i a saer directio.Whether or ot the ith geeratiowill geerate more substatial reorm
mometum has bee hotly debated.For seeral weeks leadig up to theCPCs noember 2012 atioalcogress, more ad more puditsbega toutig prospects or a ewwae o reorm, oly or pessimism totake oer whe a relatielycoseratie CPC Politburo StadigCommittee (PSC the coutrysmost powerul decisio-makig body)was ueiled. Such extraordiaryswigs betwee positie ad
egatie expectatios durig 2012relect how much less predictableChias course has become.
Gie the rare drama that lieed upBeijigs grey political scee i 2012,ad the power wielded by the PSC, itis hardly surprisig that so muchattetio has ocused o its seemembers. But this ocus has led tosome misleadigly simplistic
coclusios about reorm prospects.Whe reormist CPC leaders WagYag ad Li Yuachao were rumoured wrogly, as it tured out to be ilie to joi the PSC, predictios osweepig chages prolierated; whecoseraties such as Liu Yushaad Zhag Dejiag were promoted,may obserers declared that hope orreorm had bee sued out. But thereality does ot it black-ad-whiteideological labels, ad these persoelchoices were eer goig to produceradically dieret policy outcomes.
Wag Yag ad Li Yuachao aresee as reormers maily because otheir positios o political rather thaecoomic issues, but either
eisios reorms that would cedeCPC political supremacy, ad realpolitical liberalisatio was ot iprospect ayway. Meawhile, politicalcoseraties are ot ecessarilyecoomic coseraties. The lasttime Chia implemeted really major,market-orieted reorms was uderthe 1997-2002 PSC, which like the
oe ueiled i 2012 cotaiedseeral political coseraties withliks to Jiag. Chias political system
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is ot primarily about ideology adclear-cut actios, but about estediterests ad, as Harold Lasswellamously deied politics, about whogets what, whe ad how.
ParTY-STaTe CaPTUre?
Despite the relatiely coseratielook o the ew PSC, the ewleadership is likely to push orward
some positie ecoomic policychages. But the ith geeratiomust eetually take o reorms thatgo to the ery roots o the CPCparty-state system. Further keyleadership chages i 2017 maybrig a more reormist lie-up (mosto the PSC chose i 2012 will retire
i ie years), but ee leadersiclied to cotemplate majorchages will ace a uphill battle toimplemet them.
The capacity or structural reormsthat directly threate the politicalstatus quo is i doubt ot becauseo who sits o the PSC, but becauseo systemic treds. Top-leeldecisio-makig has icreasigly
emphasised cosesus, goermetremais highly compartmetalisedad may key regulators are tooweak to do their job. At the sametime, ested iterests i theecoomy hae prolierated adgrow more powerul sice the erao Jiag ad Zhu. Almost all leaders
The ew Politburo Stadig Committee
Li Keqiang Next premier of State Council (cabinet), will overseeeconomic and development policy.
Zhang Dejiang Chairman of National Peoples Congress (legislature).
Yu Zhengsheng Chairman of Chinese People's Political ConsultativeConference (high-level advisory and united front body).
Liu Yunshan Secretary of CPC Secretariat; will oversee CPCbureaucracy and administration.
Wang Qishan Chairman of the Central Commission for DisciplineInspection (anti-corruption body).
Zhang Gaoli Next executive vice premier; responsible for financeand economics.
Xi Jinping
PSC member Key portfolios and/or expected state positions
General secretary of CPC, chairman of Central MilitaryCommission and next state president. Will oversee foreign,military and party affairs.
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O J G
ad actios, braches ogoermet ad SOEs hae majorstakes i the web o practicaliterests ioled, or example, iallocatio o iscal resources, accessto credit ad capital markets, adthe state-owed sector.
With this shit i the distributio opolitical ad bureaucratic power, it isuclear whether determied top
leaders ca still oercome iertia adresistace to big reorms. Sigs owilligess to ratioalise bureaucratic
empires ad challege the priilegeso powerul SOEs are ecouragig.But the stakes are ar higher thadurig the last bout o SOE reorm,ot least because may o the topirms owed by the cetralgoermet oce loss-makig areow highly proitable cash cows,amog the largest compaies i theworld. The iacial sector will be asimilarly tough ut to crack despite
sigs o modest progress. As orpolitical reorms, these will surely belimited to stregtheig itra-party
The chagig eiromet or Chiese compaies
Costs
Winners
Revenue
Last decade Next decade
Fast growth as mostmarkets in early stage ofdevelopment
Limited competition due tostructural undersupply
All firms have pricing power
Growth in sales volumeslows as markets mature
More competition ascapacity catches upto demand
Pricing power falls
Plentiful supply of labour atlow prices
Low and undifferentiatedreal interest rates
Restricted labour supply;high and rising wages
Higher and moredifferentiated costof capital
Fast-growing marketsreward those who canenter first and expandcapacity most quickly
Slower-growing, morecrowded markets rewardthose who can controlcosts and develop durablecompetitive advantages
Source: GK Dragoomics
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TOP: Beijig skylie.BOTTOM: Cetral Busiess
District, Beijig.
irastructure may proe ill-suitedto osterig eiciecy,competitieess, ioatio adpriate cosumptio.
Politically, the system is highlyresiliet as log as elite uity ismaitaied, but potetially brittle iit is ot. Fissures withi the CPCcould wide uder pressure, whilethe price o cosesus may be too
little reorm, too late.
The in-BeTweenerS
The polarisatio o iews betweeChia-boosters ad Chia-bashers,ad preoccupatio with scearios likethe Arab sprig ad collapse o theSoiet Uio, hae created a biarydebate, as i the coutrys oly twopossible scearios are dramaticcollapse or a cotiuatio o thestatus quo at somewhat slowergrowth rates. The latter is ideed alikely sceario or the ext ew years,but i-betwee scearios, whichcould iole a substatialdeterioratio i busiess coditios,will be more likely oer the ext
decade tha they were durig the last.
This is ot a doom-ad-gloomorecast. We hae remaied irmly ithe saguie camp o Chia ormay years, cosistetly pourig coldwater o periodically popularcollapse predictios, holdig i late2008 to the miority iew thatChiese growth would ot plummeti 2009, ad cotiuig throughpolitical turmoil i 2012 to orecast a
basically stable leadership trasitio.But as the era o the ith geeratiobegis, the game has chaged ad isgettig more complicated. Busiessesad iestors ad their log-stadigassumptios about Chia will eedto keep up.
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DENMARK
FRANCE
SWITZERLANDLIECHTENSTEIN
NETHERLANDS
BELGIUM
LUXEMBOURG
GERMANY
CROATIA
SLOVENIA
AUSTRIA
HUNGARY
CZECH REP.SLOVAKIA
P O L A N D
B
LITHUANIALAT
Zrich
Amsterdam
Brussels
Berlin
Aarhus
Copenhagen
VKaliningrad(RUSSIA)
Warsaw
Prague
BratislavaVienna
Berne
Geneva
Paris
Budapest
Ljubljana Zagreb
view FroM: berlin
looKing ahead
The ocus o the eurozoecrisis will ade as theelectio looms, but theeuro will remai a keyelectio issue.
The diide betwee thetwo mai parties o euro
policy is likely to bemiimal, with little deiatiorom existig policies.
Electios i September willdomiate the Europeaews ageda.
The patter o occasioaliolece by let-wigextremists i Berli,
Hamburg ad other citieswill cotiue.
The traeller arriig at Scheeldairport uwittigly receies a excelletlesso i the curret state o Berli.The plae taxis past the citys lagship
ew airport or at least the buildigsite that should be the citys lagshipew airport, were it ot or a series odelays. The jourey to the city begisrom the shabby ad soo-to-be-abadoed rail statio, irst trasitigthrough the outer easter suburbs,where park homes ad preabricatedblocks are i demad or coersiomore tha eer beore as years opopulatio declie are reersed. Outo the let-had widow, tower craes
cotiue to domiate the city cetreskylie, as they hae sicereuiicatio. There is a sese thatBerli may eer be iished.
I the latter stages o the jourey, theast-getriyig ier easter suburbscome ito iew. Cosidered edgy adecade ago, these areas are owhighly sought ater by a yougerdemographic, despite the cotiueddecay that surrouds them thecitys iaces remai parlous, ee ipriate-sector wealth is loodig i. Tothe east, the rig lie spurs to Ostkreuz,where a arso attack i May 2011
david lea
seniOR analyst, euROPe
cOntROl Risks
RMp Rpor 2013
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by a ar-let group opposig thistrasormatio i the city caused traelchaos a remider that getriicatiois ot to eeryoes taste.
Berli is somewhat distaced romthe coutry that it seres as capital.This is true o may key worlddestiatios: it is said o Lodo,Rome, new York, Bueos Aires addozes o others. But ee i Germay,
where large cities are dottedthroughout the coutry, Berli eelsless Germa tha the rest. Obiously,its history o diisio has a major rolei this sese o dierece. But thereis a political ad cultural elemet to ittoo. Berli cosistetly otes seeralshades to the let o the geerallycoseratie atio. The iroy oChacellor Agela Merkel adocatigausterity across Europe rom her oicei Berli, whose city goermet hasbee strugglig or more tha a decadewith a huge debt ad deicit burde,is ot lost o ayoe, iside Berli orout. I aythig, Berli is a exampleo the beeits that ca be deriedrom a traser uio, a cocept
much derided o all sides i Germapolitics whe applied to the eurozoe.
walK The line
Although the eurozoe crisis willremai the key day-to-day issue ormost o Europe, i 2013 it will hae toshare time i Germay with the ederalelectio scheduled or September.Merkel has recoered rom her critically
weak positio a year ago ad owstads a credible chace o wiiga third term as chacellor, but seeralactors cotiue to weigh agaist her.Icumbecy has proe a disadatagei electios throughout the Westerworld sice the oset o the iacialcrisis (the US beig the most otableexceptio to this tred).
While Merkel remais popular, herChristia Democratic Uio (CDU)party is less so. Her coalitio parter,the Free Democratic Party (FDP), isstrugglig to ee reach the thresholdor represetatio this time roud.Moreoer, her campaig will haeto speak to both domestic ad
Key political milestoes or the EU
1 January 2013
Ireland assumesrotating EUCouncil presidency
24 February 2013
Likely date for Italian
general election
April 2013
ECB publishesannual report
May 2013$16.8bn debt repayment
deadline for Greece, itslargest monthly instalmentsince May 2012
1 July 2013
Croatia accedesto EU membership;Lithuania assumesEU Council presidency
September 2013Likely date of Austrian
federal election
27 October 2013
Last day by whichGerman federalelection must be held
1 January 2014
Greece assumes
EU Council presidency
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TOP: Germa ChacellorAgela Merkel, noember 2012.BOTTOM: Potsdamer Platz, Berli.
iteratioal audieces, ee i it isoly Germas who will be otig. She
will hae to tread a ie lie betweeappearig a resposible Europeaad coicig Germa taxpayersthat she will be resposible with theirmoey. This is ot a ew message orher it is the oe that she has beetryig to coey throughout hercurret term ad that carries therisk o a lacklustre campaig.
gaMe on
Eorts to presere the eurozoe imore or less its curret shape haebee quietly boosted i the secodhal o 2012, ad this seems likely tocotiue ito 2013. Europea CetralBak (ECB) goeror Mario DraghisJuly lie that we will do whateer it
takes to presere the euro still ollowshim roud eerywhere he goes, but isbegiig to look more like a garladtha a albatross. His more actieeorts to boost the ECBs role byestablishig the maximum ersio othe bod buy-back scheme thatEuropea ad atioal law wouldallow hae boosted coidece, as
has the more coicig toe beigstruck by other EU igures, such ascommissio presidet Jos MauelBarroso ad coucil presidetHerma va Rompuy. Perhaps mostsigiicatly o all, Merkels isit toAthes i October 2012 eded theimpressio that she ad byextesio the EU had gie up oGreece. The eurozoe is ar rom out
o the woods, but it is at least talkiga better game.
Howeer, there will be tests o thisew attitude i 2013. The proposed
ECB Sigle Superisory Mechaism(SSM) oer euro-area baks will comeito orce i 2013, but is simply astop-gap measure. Bakig uioetails a complete retoolig o thesectors policy ramework to theEuropea leel. To operate it requiressome orm o iscal uio, ad thetraser o regulatory ad eorcemet
powers to existig or ew Europeaistitutios. That i tur requires ashit to political uio, which is aselectorally uacceptable i Berli as it isi Athes or Rome. What Europe eedsto complete the job will ot, at least i2013, be reely gie by Europeas.Icreasigly, eery major treaty chageor power shit requires a suite oreeredums, ad reeredums o EU
issues are becomig diicult to wi.
O balace, we beliee that a SocialDemocratic Party (SPD)-Gree coalitioremais the most likely outcome o theelectio, though ayoe expectig aradical policy shit away rom austerityad towards Keyesia spedig hasprobably bee readig the wrog
sigals. Like Presidet FraoisHollade i Frace, the Germa cetrelet will look to oer leadership ad takemore actie measures to boost growth,without abadoig the austerityramework. As a result, we cautioagaist puttig too much credece ithe ieitable re-elect Merkel to saethe euro articles that will appear i theo-Germa media. I act, the biggest
chage i Berli ext autum may bethat the ew airport will ope, at last.
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D
MOLDOVA
U K R A I N E
US
T U R K E Y
GEORGIA
ARMENIA AZERBAIJAN
Nakhchivan(AZERBAIJAN)
CYPRUS
TURKMENISTAN
UZBEKISTAN
TAJIKISTAN
KYRGYZSTAN
K A Z A K H S T A N
JSOUTH KOREA
NORTH KOREA
M O N G O L I A
R U S S I A N F E D E R A T I O N
Kurdish region
insk
St Petersburg
Istanbul
Ankara
Kiev
Tbilisi
Yerevan Baku
Rostovon Don Atyrau
Ashgabat
Tashkent
Bishkek
Almaty
Dushanbe
Tianjin
Beijing
Dalian
Changchun
Harbin
Vladivostok
Khabarovsk
TokNa o
Seoul
Pyongyang
Shenyang
Ulaanbaatar
Astana
Urumqi
Novosibirsk
TomskYekaterinburg
Samara
Moscow
NizhniyNovgorod
TehranErbil
rest
u
view FroM: Moscow
looKing ahead
WTO etry will hit somelarge employers by curtailigad eetually edigprotectioist measures,exposig them as ieicietad ucompetitie.
Some importat regulatory
ad import-export regimeswill be cleaed up uderthe WTO. Compaiesexportig to Russia caexpect some simpliicatioo customs procedures.
There are sigs o growigIslamist actiity i Tatarsta,whose costitutioal
arragemets will be reisedi the regios leadershipails to assert cotrol oerIslamist elemets.
Moutig tesios ad systemiccotradictios will shape the politicalclimate i Moscow i 2013, but willbrig little immediate chage. Presidet
vladimir Putis cotiued eorts topresere the political ad ecoomicstatus quo are sure to uel urtherdissatisactio amog the growigurba middle class. Howeer, theprerequisites or ay sigiicatupheaal are lackig, ad Puti willremai ery much i cotrol. Thepresidet retais his popularity amogthe large rural populatio adcosolidated his power oer the regiosat the October 2012 guberatorial
electios. He will cotiue to careullybalace the iterests o the politicalad busiess elite, carig up lucratieassets ad dispesig rewards amog
them to esure their support ad loyalty.
We aticipate little chage i thebusiess eiromet i 2013. Mosto the cocers o oreig iestorswill remai uresoled, whether theybe the eer-pedig priatisatio ostate-owed assets, widespreadcorruptio, potetial tax icreases asa result o lower oil prices, or thepotetial spill-oer o istability romthe north Caucasus.
steven eke
seniOR analyst, euROPe
cOntROl Risks
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diSSaTiSaCTion SiMMering
(on low heaT)
Middle-class Muscoites welltraelled ad social media-say may gie Puti due credit or Russiasreial i the 2000s, but he caotulil their aspiratios or a moremoder political system that wouldallow them wider political ad socialreedoms. With the presidet ulikelyto acquiesce to such expectatios,dissatisactio will grow i the extyear, though opportuities to expressit will be miimal. The oppositio willbe able to galaise periodic streetdemostratios, brigig together awide rage o ote disparate protestgroups, but will ail to deelop acoheret message beyoddemadig that Puti step dow.
With o major electios to proide arallyig poit, ad goermetmeasures i place to discouragepolitical protests, such demostratiosare ulikely to be o the scale o thosesurroudig the 2012 presidetialelectio. They will pose little threat toeither Puti ad his goermet, orthe oerall security eiromet i
Moscow ad other major cities.
no PriVaTiSaTion, no
ModerniSaTion
The headlie deelopmet iluecigiestor setimet i 2013 will be thegoermets progress i carryigout its priatisatio pla. There aredeep ideological disagreemets atthe top o the Russia leadershipoer which path it should take. Puti
ad his etourage domiated bymembers o the siloviki(curret ad
ormer members o the securityserices) do ot share the iew oPrime Miister Dmitry Medede adhis pro-Wester deputy, ArkadyDorkoich, that Russia eeds to opeup its strategic idustries to greateroreig owership ad iestmet. Itis uthikable that Puti will ail to gethis way, despite the eed to moderise
the ecoomy ad reduce stateowership. Shitig goalposts adcotiuig lack o clarity will disappoitiestors. Tagible progress ipriatisig state-owed corporatioswill remai otable by its absece.
Although some moderisatiomeasures such as e-goermet,improed iteret access ad ew
4G telephoy etworks are likely totake eect throughout 2013, theprocess will stop short o brigigabout ay substatie chage. Drieby its desire to presere the statusquo, the goermet will be uwilligto implemet measures that wouldacilitate a eetual shit i itsecoomic model.
The ecoomy will thereore cotiueto mirror the political system, withiluece ad owership diidedamog itersectig, ote iormaletworks o persoal patroage. Itwill remai udametally depedeto the export o hydrocarbos adother atural resources, metal, timberad agricultural produce. noetheless,
may potetial iestors are likely towelcome ew supply-side opportuities
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TOP: Moscow,Stee Eke, Cotrol Risks.
BOTTOM: March o the Millios,Moscow, September 2012.
whe a large-scale campaig ogoermet iestmet ad
upgradig o the deece idustrygets uder way i 2013.
SoMe STePS orward
Busiesses will cotiue to ace amiliarproblems i 2013 red tape, corruptioad the threat o direct iteretio ithe key eergy sector. But some haeexpressed optimism about a ewgoermet drie to orce greatertrasparecy i oicials dealigs withbusiess. From the begiig oJauary 2013, oicials at local adregioal leel will hae to submit datato the cetral goermet o a widerage o criteria assessig theiropeess to busiess. Thisuprecedeted leel o scrutiy is
likely to help to reduce corruptio ithe loger term, especially at theregioal leel. For its part, thegoermet will be lookig or aexplaatio o why some regios areprosperig more tha others, admakig a eort to brig them moreito lie with Moscows expectatios.For oreig iestors dealig withatiquated practices ad attitudes ithe regios ar remoed rom themuch improed leels o corporategoerace see i Moscow adother big cities, this is likely to be awelcome deelopmet.
MUSCle lexing aT The
PeriPherY
Meawhile, the north Caucasus, ad
particularly Dagesta, will remai acolict zoe i 2013, propellig the
regio back to the top o thegoermets ad Putis priority
list. The year ahead is likely to seereewed ederal military operatiosad a more cocerted ati-terroristcrackdow i Dagesta i resposeto a icrease i iter-cla strie adIslamist extremist iolece that hasbrought the regio to the erge o ciilwar. The cetral goermet is alsolikely to ocus its security ageda o
measures to preet a potetialescalatio o the terrorist threatstemmig rom gradual radicalisatioamog the Muslim populatio iTatarsta, oe o Russias mostprosperous ad iestor-riedlyregios. These security campaigswill proide Puti with a meas orecoirmig his image as astrogma leader, ad allow the
authorities to demostrate that theyare makig all possible eorts toesure the smooth ruig o the2014 Witer Olympics i the BlackSea resort o Sochi.
all QUieT on The eaSTern
ronT
2013 will be a quiet year i Russia.noetheless, the outcome o ariousdeelopmets rom the trajectory opolitical protests to progress withpriatisatio ad the resurgece ocolict i the north Caucasus willdeie the medium-to-loger termstability o Putis goermet adwhether Russia progresses towardspolitical ad ecoomic liberalisatio.
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Cairo
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MALTA
T U R K E Y
CYPRUS
SYRIALEBANON
JORDAN
ISRAEL
PALESTINIAN TERRITORIES
EGYPTL I B Y A
S A U D IA R A B I A
QA
B
KUWAIT
I R A Q
Kurdistan Region
Athens
Baghdad
Erbil
Amman
Cairo
Alexandria
Al Khobar
Riyadh
Jeddah
Port Sudan
DamascusBeirut
view FroM: cAiro
looKing ahead
Egypt will be moreassertie i regioal aditeratioal bodies, adwill seize o emergigregioal issues with a ewethusiasm ad legitimacy.
A IMF loa will sigalcoidece that politics isstabilisig ad acilitateurther exteral iacig,though o-paymet risksi the eergy sector willremai a act o lie oroperators ad traders.
The ed o the diisiecostitutioal process willgie structure to politicalegagemet. Participatorypolitics will show sigs ogrowig sophisticatio.
Despite the turmoil o the past coupleo years, little has isibly chaged iCairo, the Arab worlds most populouscity. It certaily smells the same.
There are udoubtedly exceptios choice graiti ad charred buildigsaroud Tahrir Square sprig to mid but the nile still wids orth carryigCairos dubious detritus, while residetsad isitors cotiue to lamet thedaily slog o traic.
Yet Cairees still hae hope o betterthigs to come, though cosesus
about what these are ad who willbrig them is sorely lackig. Most
are weary o the street protests o2011 ad 2012, ad particularly theassociated ecoomic damage,though may will ot hesitate to take
to the streets to air their rustratios.Strikes ad sit-is are almost a dailyeature o lie or iestors, ad showew sigs o abatig.
Despite this, Egypts political scee,with Cairo at its core, shouldtetatiely stabilise i 2013. The edo the diisie costitutioal processwill gie structure to political
egagemet. Participatory politics willshow sigs o growig sophisticatio
henRy sMith
analyst, Middle east
and nORth aFRica
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TOP: Theres a martyr i me grafti,Mohamed Mahmoud St,
Cairo, James Fallo, Cotrol Risks.BOTTOM: Mural with Koraic erses,
Mohamed Mahmoud St,Cairo, James Fallo, Cotrol Risks.
as parties ecoomic ad politicalmaiestos mature aroud urther
legislatie (ad potetially presidetial)electios. Executie power will becosolidated aroud the presidetsoice, but sigiicat ested iterestsi the state bureaucracy, judiciaryad security orces will block aypresidetial domiace, particularlywith the presidecy likely to remaioccupied by a Muslim Brother.
reaSonS (noT) To Be earUl
Foreig iestors should ot ear theMuslim Brotherhoods iluetial rolei political ad commercial lie. With aumber o seasoed busiesspeoplei its raks ad a pragmatic approachto politics, the Muslim Brotherhoodis at least as aourable to oreig
iestmet as its chie oppoetsrom across the political spectrum.Represetaties stress to CotrolRisks ad other oreig isitors thatthey are ope or busiess, statigthat iestors will be judged o ameritocratic basis rather tha ealuatedby their political associatios a claimthat should at least partly hold true.
Established domestic iestors haemore reaso to be earul. The MuslimBrotherhood is more likely tha otherpolitical orces to tackle the rampatcorruptio ad croyism thatcharacterised ormer presidet HosiMubaraks time i oice (1981-2011).Other orces that draw support rombeeiciaries o the Mubarak era ad
ati-Brotherhood elemets o thebureaucracy, judiciary ad security
orces are ulikely to jeopardise theircostituets iterests by shiig light
o misdeeds ad malpractice. Althoughscrutiy o priatisatios ad ladsales made i Mubaraks ial decade islikely to cotiue, the militaryscommercial iterests are likely to marka red lie, ee or the Brotherhood. Theuspoke rapprochemet be