- Patchy vaccine roll-outs, a new US administration, emerging digital threats and climate change are among the top risks for businesses in 2021.
- Business leaders must embrace risks and focus on opportunities to avoid missing the rebound.
India’s fragmented recovery from the COVID-19 pandemic, the re-evaluation of its relationship with China following a short-term stabilisation of the US-China relationship, climate change and its effect on international investment and trade policies, and cyber threats and data nationalism are among the top five risks that businesses face in 2021, according to Control Risks, the specialist global risk consultancy. Control Risks made this assessment at the launch of RiskMap, its annual political and security risk forecast for business leaders and policymakers across the world, published today.
Underpinning these, the danger of missing the rebound in a year of multi-speed recovery is a top business risk in the coming year. “While businesses will continue to face considerable disruption from the COVID-19 pandemic, we believe that there are real and exciting opportunities for many companies in 2021,” says Control Risks’ Global CEO, Nick Allan.
Businesses will face challenges stemming from uneven vaccine roll-outs, tensions between countries and within them, global leaders who lack a global mind-set, and a fragmented exit from the pandemic.
However, companies that can accurately monitor developments, identify trends and show flexibility in adapting their operations will benefit from a projected surge in demand. In India, opportunities abound despite the challenges, with sectors such as renewable energy, manufacturing, logistics, fintech and ecommerce leading the way.
The global Top 5 risks in 2021 – and their implications for businesses in India
- A world with long COVID
India: Companies used to experiencing growth in the past decade will need to proceed with caution, as the Indian economy is expected to experience uneven and fragile recovery in 2021. Constrained demand, restricted travel and heightened regulatory scrutiny will challenge growing digital adoption, accelerated infrastructure investments and sustained welfare spending. Ultimately, the prolonged impact of COVID-19 and potential delays associated with the logistics of rolling out the vaccine to 1.3bn people will increase the risks for investors and make it even more critical for businesses to map their stakeholders and scenarios. Lower-than-expected capital investments and potential supply-chain disruptions will also result in counterparties invoking force majeure to exit or renegotiate contracts. Such attempts are likely to result in a rise in disputes and intensify litigation risks in the coming months.
- US-China: Stabilisation without normalisation
India: Notwithstanding the shadow of the US-China relationship, one can expect India to re-evaluate its relationship with Beijing following the worst border tensions in four decades last year. As China increasingly takes centrestage, such re-assessment and the accompanying policy choices regarding foreign policy and national security issues, as well as those in the business, economic and investment domains will have significant impact on the ability of Chinese capital and technology to participate in India’s economy.
Meanwhile, expect New Delhi to resume bilateral trade negotiations with its strategically-aligned partners, such as the UK, the EU and the US, mindful of China’s intentions to create “trade bubbles”. This will create opportunities for businesses in these countries, especially those hoping to reduce exposure to Chinese supply chains. Modi’s desire to bolster India’s ability to participate in global supply chains will see greater production-linked incentives given to companies that want to set up manufacturing units across various sectors.
- Go green or go bust
India: Foreign companies wishing to invest in India will increasingly have to reconcile stricter environmental regulatory standards, particularly those of the EU (Green New Deal) and the US under a Biden administration, with the dilution of environmental standards and reporting norms in India, as the Modi government eases onerous compliance rules to attract foreign investment. However, companies that fail to conduct proper environmental due diligence or pursue the most stringent standards could be exposed to heightened reputational risks due to negative media and public scrutiny, as well as operational risks stemming from protests from local communities in which they operate.
Biden’s election, Washington’s anticipated re-entry into the Paris Climate Agreement and the UK playing host to COP26 will all bring climate change to the forefront of global negotiations and make sustainable investment in clean energy a global focus. This will benefit India, where investments in the renewable energy sector far outstripped those in thermal coal for the first time in 2018.
- Digital acceleration hits emerging threats
India: The government’s recognition of data as a strategic asset will drive new personal and non-personal data regulations, which will redefine the way businesses in India capture, store, transmit and use data. A new data protection regulator, along with divergence in centre/state jurisdictions on data management and the consolidation of social media as a key social and political influencer, will lead to greater scrutiny and reputational challenges for businesses. At the same time, a digitally empowered and dispersed population will continue to adopt fintech, edtech, mobile gaming and other ecommerce platforms to transact and engage. The growing ubiquity of India’s Unified Payment Interface (UPI) – now averaging 2.2bn transactions every month – will contribute to greater digitisation of India’s brick and mortar firms in 2021 and lay the foundation for the growth of India’s digital economy.
- Missing the rebound
India: Opportunities in core sectors, such as infrastructure (including renewable energy), manufacturing, logistics and agriculture will be further fuelled by the growing interest in technology-enabled segments, such as edtech, fintech, mobile gaming and ecommerce. However, amid these massive opportunities, companies will have to respond to issues, such as India’s evolving regulatory environment around data privacy, medical research, financial markets and many other sectors; heightened policy and security uncertainty driven by activism and unrest; insecurity about the vaccine, public-health measures and infection control affecting sentiment; risk of defaults and bankruptcy caused by the lack of comprehensive banking reform and policy shift towards promotion of domestic national champions. These shifts in business models, policy and regulatory focus, demand landscape and supply chain constraints will demand higher levels of preparedness – and are bound to present opportunities to diligent investors.
Amit Narayan, Partner and Head of South Asia at Control Risks, summarises: “For 30 years, India has almost exclusively been about companies and investors finding the business upside. In 2019 and 2020, that changed. In 2021 business success will be driven by conscious stakeholder engagement, pre-emptive management of risks, co-opting partners and employees into decision-making as well as authentically engaging with customers. Managing these downside risks requires nuance and good judgement – which starts with leaders understanding the issues and concerns that could keep their companies from achieving their desired business outcomes in India.”
More details of the Top 5 Risks, plus analysts’ country forecasts, the world map with countries’ political and security risk rating, as well as a geopolitical calendar of events that will shape 2021, are live on the RiskMap 2021 website.