Top risks forecast

KPMG publishes Top risks forecasts; lists geopolitics, trade policies, and AI as the barriers to get past for ‘long-term’ sustainable growth

June 2024, Kuwait: Fighting an uphill battle to achieve long-term sustainability, international organizations are witnessing a slow-down in growth. KPMG’s latest report, Top risks forecast: Bottom lines for business in 2024 and beyond, aims to issue a caution on the multifaceted, complex challenges that organizations operating across boundaries and looking to grow globally must overcome in a time of increasing divergence on regulation, conflict, technological advancement, and political uncertainty.

Although a series of global risks and events such as the COVID-19 pandemic have hardened leaders, more unaddressed challenges remain in different directions — be they as geopolitical uncertainties, complex regulations, climate change, and uneven adoption of artificial intelligence (AI) globally.

Dr. Rasheed Al-Qenae

Chairman of the KPMG Middle East, South Asia, Caucasus and Central Asia (MESAC) region and

Managing Partner, KPMG in Kuwait

The report highlights the three biggest risks for businesses right now, known as ‘bottom lines’, which are anticipated to impact operations in 2024 and the near future:

Trade policy restrictions

Global trade restrictions have been on the rise, with approximately 3,000 restrictions imposed, nearly tripling since 2019.[1] This trend of protectionist trade policies poses challenges for organizations operating in international markets. Such restrictions can create barriers and hinder economic growth, affecting supply chains and market access. Organizations should be prepared to navigate these trade policy restrictions and explore alternative strategies to mitigate potential disruptions.
Vulnerability calling for operational resilience

The geopolitical landscape is characterized by increasing vulnerability, driven by various factors such as rapid technological advancements, climate change, and geopolitical tensions. In 2023, a staggering 91 countries were involved in some form of conflict, a significant increase from 58 in 2008.[2] This escalation of conflict has a profound impact on the global economy, with conflict estimated to have a 12.9 percent impact on global GDP.[3] To mitigate the risks associated with vulnerability, organizations must prioritize operational resilience. This involves implementing proactive risk management practices, conducting scenario planning, diversifying supply chains, and strengthening cybersecurity measures.
AI Governance Gaps

AI has become a transformative force across industries, with investment in AI increasing more than fivefold between 2013 and 2023.[4] While AI presents immense opportunities, it also brings about governance gaps that organizations must address. Ethical and responsible AI deployment is crucial to maintain trust among stakeholders. Organizations should prioritize transparency, accountability, and fairness in their AI systems to mitigate potential risks and ensure its responsible integration into their operations.

A standout finding, the Energy and Natural Resources sector emerged as the ‘most exposed’ to risks, helmed by volatility in the Middle East and the increasing politicization of access to minerals and crucial resources. The Infrastructure and Financial Services industries were second and third, respectively, considering both sectors are at risk of gaps in AI and growing economic headwinds. These findings were imminent in the heat map developed by KPMG professionals after looking at the biggest risks on individual key industries.

KPMG's analysts also found that, compared to the other sectors, the Energy and Natural Resources sector had the least Financial Performance Index (FPI) score. A measure of financial health, this score was calculated based on the data from over 40,000 companies globally. The sector's low score is indicative of its underperformance and potential financial unsteadiness. It calls for companies operating in the space to reconsider their strategies, effectively manage risks, and make necessary adjustments to cope with the evolving market conditions.

According to the International Monetary Fund (IMF), the restrictions on global trade have increased three-fold compared to 2019 and point at the new reality that companies are faced against. The report underlines that to overcome these roadblocks, CEOs must adopt a five-step approach: (i) conduct a comprehensive risk assessment; (ii) stay informed and monitor geopolitical developments; (iii) diversify supply chains; (iv) enhance operational resilience; and foster strong stakeholder relationships.

“Despite the hurdles, business leaders can still put in place measures that will help ensure C-suite executives as well as others in similar positions maintain a sharp focus on supply chains while navigating complex national industrial policies and trade measures. In terms of AI policy, organizations should stop waiting for a global framework and consider taking matters into their own hands. As for the regulation front, leaders should adopt and/or develop newer, more innovative tools that will help them analyze threat levels and changes in rules in real time to outshine their competition. It is imperative that, given the geopolitical risk scenario, the call of the hour for leaders is to act proactively and do their bit to lessen future challenges,” concluded Dr. Rasheed.

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Reference:

[1] IMF Blog, “The High Cost of Global Economic Fragmentation” (28 August 2023).

[2] Institute for Economics & Peace. Global Peace Index 2023: Measuring Peace in a Complex World, Sydney, June 2023. Available from: http://visionofhumanity.org/resources.

[3] Institute for Economics & Peace. Global Peace Index 2023: Measuring Peace in a Complex World, Sydney, June 2023. Available from: http://visionofhumanity.org/resources.

[4] Stanford University. “Artificial Intelligence Index Report 2024” (April 2024).