Control Risks, one of the world’s leading business risk consultancies, have launched the RiskMap 2012, its annual review and forecast of business risk for the year ahead, including regional outlooks, and a rating of political and security risk in 173 countries. International business faces intensifying volatility in 2012, driven from above by political instability and economic uncertainty, and from below by social protest and increasing scrutiny of corporate practices.

Many governments appear ill-equipped to manage severe economic challenges in 2012. Global growth prospects remain hostage to debt and political crises in the European Union and the US, and fast-growing emerging markets are not immune to potential recession. High, volatile food and fuel prices, meanwhile, will continue to aggravate social and economic tensions — especially in developing countries.

The global wave of social protest that erupted in 2011 is unlikely to subside, and may intensify. Global economic travails will continue to exacerbate the disparities in wealth, opportunity and political influence that provoked social protest worldwide in 2011.

In particular, rising income inequality – in both developed countries such as the US and emerging markets like China – has emerged as a point of significant social tension. Social media – instrumental in demonstrations from the Arab spring to Occupy Wall Street – will continue to grow and mature as a platform for social and political action, including for targeting companies.

Richard Fenning, CEO of Control Risks, said: “The criticism of both states and markets by people across the world is posing the first major challenge to globalization in the 21^st century. ”Companies will need to distinguish between malicious and hostile acts versus popular expressions of legitimate protest against authentic inequalities.

This requires a greater understanding and interaction with stakeholders beyond shareholders, from local communities to governments; grasping the intense scrutiny they face through social media and its ‘game changing powers’; and the potential for cyber-security and online attacks.

“The one indisputable lesson from 2011 is that planning for low-probability but high-impact events must be part of any strategic forecast. Organizations must develop ever more robust strategies to assess and mitigate exposure to changing security, political, social, operational and reputational risks.”

The combination of economic uncertainty and social protest presents companies with a range of potential security, political and operational risks. These include:

• The growing significance of cyber and information security threats, arising from both criminal and ‘hacktivist’ groups, as well as the security and integrity challenges presented by pervasive online social media, which include data theft, fraud and reputational damage

• Rising prospects of government intervention in business through changes in regulation, tax policy or contracts, driven by mounting public hostility towards companies and investors as well as fiscal pressures

• Increased labor unrest stemming from trade unions battling wage and benefit cuts, as well as low-income workers – especially in emerging markets – pressing for better conditions, labor rights and personal dignity

In response to these issues, companies should focus attention on:

• Greater monitoring of the evolving public sphere, including through social media to provide a real-time barometer of public sentiment, as well as potential early warning of political, reputational or security threats

• Being more accountable to local communities and governments, as well as shareholders, customers and employees, through listening closely to their needs and concerns

• Recognizing that there are no easy solutions to systemic problems. The problems of global capitalism are more complex than merely higher wages or more benefits.  They are also about personal dignity, fairness and legitimacy.  These issues demand steady, long-term engagement, rather than a short-term approach

In this highly challenging environment, Control Risks has identified five key states for investors to watch in 2012:

Colombia: Although security concerns persist, leftist guerrillas are on the back foot and security gains continue to open up new areas for extractive development. In 2011 the country won back its investment grade rating, while a long-delayed free trade agreement with the US will come into force in 2012, and President Santos continues to enjoy an overwhelming legislative majority.

Sri Lanka: Despite international criticism of the civil war against the LTTE, the Sri Lankan government’s tight control of the security situation has made the island much safer. With recent offshore gas finds there will be renewed interest from foreign companies in licenses of oil and gas concessions in the Mannar Basin, expected in early 2012.

Long term opportunities in delivering hydro power exist though the possibilities of other nations’ firms contributing in the thermal power sector is limited by India and China’s presence on the island.

Mozambique: Mozambique’s stable political environment has encouraged a boom in offshore petroleum exploration where investors have been rewarded by significant discoveries of natural gas reserves. The development of a transport corridor to South Africa has also facilitated the development of the country’s nascent mining sector and existing infrastructure shortfalls – a legacy of years of civil conflict – present ample opportunities for investors.

Libya: Over the coming years Libya will be able to finance wide-ranging reconstruction through sovereign wealth and oil revenues, providing substantial commercial opportunities across a range of sectors. While conducting business will undoubtedly remain complex with a legacy of corruption and inefficient bureaucracy complicated by emerging political risks, there is nonetheless significant potential for investors.

Bulgaria: Against the backdrop of financial uncertainty in more profligate EU member states, Bulgaria, with an expected 2011 budget deficit at 2.5% of GDP and public debt at 17.5%, clearly stands out. Although companies will need to take adequate measures to protect against risks stemming from pervasive corruption and organized crime, the country’s relative fiscal and political stability, coupled with strong links to the EU, Russia, and Turkey, make it an attractive, albeit understated, investment destination in 2012.

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The possibility of the European Economy inviting the double dip recession is almost certain. Experts say Greece will not be able to pay all of its debt. The fate of Europe and European Economy depends on how effectively countries entangled in debt crisis mitigate its impact.

European leaders, and especially leaders of devastated public finance systems, have lost sleep in order to keep the pulse of their economy beating. They are on the brink of collapse that might potentially drag-back the world economic growth rate to lowest in a decade.

The International Monetary Fund (IMF) and European Union (EU) have been attempting to keep the country solvent to avoid another recession hitting already weak global economy. The most outrageous shock will be on the EU banking industry as a whole, since European banks parked heavy doses of money into sovereign debt in the region.

Of all 17 nation bloc of Europe, exposure of France to Greek debt is $56.7bn, German exposure is $33.9bn, and the UK is $14.6bn. The EU and IMF agreed on 110bn Euros of bailout funds for Greece last year and again this year in July a further provision of 109bn Euros was agreed upon.

In July, European leaders agreed to provide an additional 109bn Euros bailout to Greece as it again came on the verge to default. Even so Greek Economy never settled on to that and situation got much worse. The problem with Greece, Italy, Spain, Ireland, and Portugal in a broader sense, is that they all were living beyond their means.

Over the last 5 years, the fiscal gap had been drenching wider and wider. All these nations had been spending far from revenue which led them to put reliance on debt, and because of this, the debt balloon is so big that it will possibly burst. According to Gary Jenkins, the head of fixed income research at Evolution securities, the timing of a Greek default remains in the hands of the troika (EU, ECB, and IMF), and it is difficult to believe that it will pull the plug at this stage.

Louise cooper, Market analyst at BCG Partners, shared his opinion on the situation. “I’m not sure that more austerity will help, which is troika demanding. What is needed is deep structural reform, which neither the Greek electorate or political class seem to have much appetite for.”

A recent report included a plan to eliminate 25,000 public sector employees hired last year, but according to spokesman for the European commission, Amadeus Altafaj-Tardio, new austerity measures aren’t on the table but negotiations are underway for full-fledged compliance with earlier agreed measures.

With drastic drop in public expenditure on various socio-economic fronts there has been wide-spread anger and violent protest in Greece so far this year. Greek default may sky-rocket cost of borrowing in the region and potentially Europe may face credit crunch which will be greatest hindrance to weak economies of the region.

If Greece somehow manages for an orderly default that might push repayments a decade ahead so confidence in the region might not get shaken completely or otherwise trust in the euro zone may be shattered forever. In its semi-annual World Economic Outlook, IMF gave a statement saying, “Global Activity has weakened and became more uneven; confidence has fallen sharply recently; and downside risks are growing.”

The Fund further said, “Greek default already affecting the world economy. Coupled with the economic slowdown in the United States and the impact of the Japanese earthquake, Europe’s debt crisis is putting the global recovery at risk.”
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A study published in the journal Nature finds that civil unrest in tropical countries can be linked to the weather patterns of El Niño and La Niña. The El Niño-Southern Oscillation is a warm and dry weather pattern that heats up more than just the air, apparently.

Mark Cane, a professor of Earth and climate sciences at Columbia University and co-author of the study told The Daily Caller that when people get warm, they get more irritated and more willing to fight.

Conversely, the cooler La Niña, when rainfall tends to be more plentiful leads to a more peaceful time in tropical countries, the study finds. The research in this study has found that rather than just being a link, the outburst of violence is actually partially caused by the weather variations.

“Here we directly associate planetary-scale climate changes with global patterns of civil conflict by examining the dominant interannual mode of the modern climate, the El Niño/Southern Oscillation,” the study says.

It seems that El Niño has a stronger effect on poorer countries, rather than more economically prosperous countries. Irish Weather Online gives the example of Australia: a country affected by ENSO, though they have never experienced a civil war.

The study tracks ENSO throughout history and looks at the corresponding time periods’ and the affected countries’ bouts of unrest. However, Cane says that the unrest is not caused solely by climate and it is not to just be brushed off as what must happen. There are many other factors, such as the economy and politics.

“No one should take this to say that climate is our fate. Rather, this is compelling evidence that it has a measurable influence on how much people fight overall,” Cane said.

At this point, there is skepticism amongst some about a true correlation between the two factors, since more explanation is still required.

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