Cyber attacks and the failure of national governance have emerged the leading risks to doing business for the East Asia/Pacific and South Asia regions respectively, according to the World Economic Forum's Regional Risks for Doing Business survey.
While there were significant differences in risk perceptions across the eight regions segmented for the WEF report, the risk of cyber attacks was also the front runner in Europe and North America. This points to growing concerns about technological risks—cyber attacks were the top risks in two regions according to the 2017 survey (East Asia and the Pacific and North America) and only one region in 2016 (North America).
Figure 1: Top five risks of doing business by region
East Asia and the Pacific
Cyber attacks was not just the top risk for the East Asia and the Pacific region, but also topped the list for respondents in Indonesia, Japan and Singapore. This reflects the rapid pace of digitisation and the increasing sophistication of the region’s economies. Southeast Asia in particular is the fastest-growing region in the world in terms of connections to the internet, with a projected 3.8m new users each month, and estimates that its online economy will reach $200bn by 2025. These trends make the region a target for criminal and terrorist hackers.
Cyber attacks ranked fifth in China, but the related risk of ‘data fraud or theft’ was the third-highest risk there. ‘Data fraud or theft’ was ranked as the leading risk by respondents in Malaysia, a result that may reflect the impact of a case in 2017 involving the attempted sale of more than 46 million mobile phone subscribers’ data. This was among the largest breaches of consumer information ever recorded in Asia. Given that Malaysia’s population is 31 million, it is likely to have affected the entire country. Across the region as a whole, the increasing prevalence of e-commerce and the growing popularity of new payment methods, requiring increased protection measures by the region’s banks, noted the WEF.
Other risks for the region include ‘unemployment and underemployment’ (ranked 2nd), likely reflecting concerns of a population boom and technological disruption to the labour market, and ‘asset bubble risk’ (3rd), ranked highest in Cambodia and Hong Kong SAR. In Cambodia, years of rapid construction of condominiums and gated communities in Phnom Penh have created concerns about an oversupply, while in Hong Kong, rising real-estate prices have been a concern for several years now.
Meanwhile, ‘failure of national governance’ was ranked as the leading risk to doing business by respondents in South Asia, corresponding with a particularly busy political period in the region. National elections have taken place in the past year in Pakistan (July 2018), Nepal (November and December 2017) and another three are expected by the end of the year – in Bangladesh, Bhutan and Maldives. The election process is often viewed with anxiety in South Asia as it can be accompanied by violence, blockades and other forms of political tension. Elections can also be followed by periods of uncertainty.
Respondents also pointed to governance issues above the nation-state level. ‘Failure of regional and global governance’ ranked fourth across the region, and featured most prominently in Nepal and Bangladesh. Refugee and migration issues may be one driver of this, with approximately 700,000 people – mostly Rohingya – having fled from Myanmar to Bangladesh over the past year. In addition, India-Pakistan tensions remained ongoing in 2017, and there have been no bilateral talks between the two countries since 2015, noted the WEF.
‘Cyber attacks’ ranked as the number five risk across the region, but it topped the concerns of respondents in India, which according to Symantec ranks third in the world after the USA and China for the volume of cyber threats detected. Furthermore, there has been concern in India about the protection of citizens’ personal data in the Aadhaar system (the country’s biometric ID database) following a breach across four government agencies in May 2018 that exposed approximately 130m accounts.
Economic risks are also a prominent concern in the region, such as ‘failure of financial mechanism or institution’ ranking third in India and ‘unmanageable inflation’ ranking as second-highest risk across the region followed by ‘unemployment or underemployment’.
Understanding regional risks
“Given the current geopolitical uncertainty globally, cooperation within and among regions is of critical importance. Understanding the evolving risks in different regions is therefore top of mind for business leaders,” said WEF deputy head of geopolitical and regional agendas and member of the executive committee Mirek Dusek.
“By drilling down to regional and country-level data, this new Regional Risks for Doing Business report allows us to gauge how risk sentiment is evolving around the world. Cyber-attacks are increasing in prominence, but it is striking how many business leaders point to unemployment and national governance as the most pressing risks for doing business in their countries,” said WEF head of global risks and the geopolitical agenda Aengus Collins.
The findings of the WEF Regional Risks for Doing Business report are based on 12,548 responses from executives in 140 economies. Respondents were asked to select “the five global risks that you believe to be of most concern for doing business in your country within the next 10 years”.
This question is included in the annual Executive Opinion Survey, which is a part of the World Economic Forum’s Global Competitiveness Report. The latest edition of the survey was carried out from January to June 2018. Business leaders were asked to choose up to five risks from a list of 30, including terrorist attacks, extreme weather events and state collapse or crisis.