Global Economy

The risks & challenges for businesses and economies

COVID 19 onslaught has continued since early 2020, albeit it has slowed in part this year due to wide-scale vaccine production and administration throughout the world, the threat of variants of the virus continues to loom large globally. The case in point is Omicron fear gripping the world. The year 2021 has proven to be a tough year across continents, with major concerns such as slowing down of the economy, rising unemployment, widening digital disparities, constricted logistic supply chains, over-strained medical infrastructure, dissatisfaction amongst youth, and increasing societal disintegration hurting one and all.

Focusing on Asia, numerous micro and small businesses have been forced to shut down their ventures in most of the nations, while large corporations are still reeling from the consequences of the pandemic. Interrelated singularities such as rising economic disparity, increasing population pressure, ongoing security concern, complicated global economic transition, environmental hazard, and increased technological advancement are having substantial influence on the economies in the Asiatic region, making the business landscapes more complex, riskier and difficult to comprehend and manage.

Add to this geo-eco-political scenario, the perilous risks and challenges such as climate action failures, human-led environment damages, erosion of societal cohesion, terrorist attacks, digital inequality and divide, cyber-security failures and the US-China trade war, all tormenting the business growth in Asia. No doubt, the cumulative and cascading effect of all these factors on the economies has been aggravated and compounded by the pandemic, but all this needs to be arrested as well.

Since the beginning of the 21st century, the Asia-Pacific region has experienced rapid economic expansion, resulting in massive corporate transactions and gargantuan trade-related shipping in the Indian Ocean waters. The region’s progress was interrupted by the economic crisis of 2008-11, but it was able to recover and has since then emerged as a global economic growth powerhouse.

2021 has been characterized by unequal recovery as vaccine rollouts create a world of haves and have nots, with pockets of pandemic still remaining at large places despite efforts to eradicate the virus. Many people, unfortunately, have slipped into the have-not category, as enterprises were subjected to prolonged periods of operating uncertainty because of localized restrictions imposed in response to virus outbreaks. 2021 thus has witnessed delays in manufacturing and distribution of vaccines, frequent lockdowns that have impaired supply chains. Consumer behaviour has shifted dramatically resulting in expenditure on essentials only, a minimalistic attitude on non-essentials, premium and luxury items, and overall concerns to have more savings.

If in the coming year 2022 in Asian countries, the global supply chains continue to be disrupted, it will be difficult for the businesses to remain resilient. Investors might have to brace themselves for further localized lockdowns and targeted travel restrictions, which may generate panic and lead financial markets to tumble. Several underlying characteristics of Asian economies account for both the variations in development patterns and the fluctuation in growth rates. Risk-off events have made it more difficult for them to get the external financing they seek, restricting fiscal support for the nations with the greatest current account deficits.

An inflationary shock could appear due to supply constraints on the back of pent-up demand from a smooth vaccine rollout and widespread optimism. Supply constraints would obviously hit economies with current account deficits more severely (Asian Outlook, 2021).

As tensions between the USA and China continue to rise in the Indo-Pacific region, the focus is shifting from economic problems to security concerns. Clearly, the two flashpoints influencing the dynamics of the IOR are those involving Taiwan and the South China Sea. QUAD was already in existence, and its anti-China posture was becoming more and more pronounced. The new security alliance between the USA, UK and Australia, known as AUKUS, has added another layer of complexity to the already complicated geopolitical dynamics in the area. This fragile position in the Indo-Pacific area will undoubtedly have an impact on the business and supply chains in the region.

A key negative effect of the coronavirus and the incapacity of policymakers to respond to it is the rapid accumulation of debt, which has affected people not only in Asia but all across the world. As a result of the global drop in birth rates, the demographic difficulties are becoming more severe. Compared to countries that still benefit from a favourable demographic dividend, Asia’s ageing economies suffer a substantially higher economic hit as a result.

Covid 19 effects has but two bright spots, one, the signing of the Regional Comprehensive Economic Partnership Agreement, which has the potential to deepen regional trade integration and regional economic integration and two, Environmental, Social, and Governance (ESG) issues have become the rule of the day in the corporate sector, and we anticipate that corporations and businesses will work together to create resilience in order to meet the challenges faced by Covid 19. Hong Kong, Singapore, Japan, Indonesia and Taiwan are a few of the Asian countries which are adopting ESG in a more profound manner.

In conclusion, businesses are facing rapidly changing environments due to the emergence of innovative technologies at a swift pace, the majority of which are disruptive in nature. Coupled with the wide range of obstacles, environmental, digital and geopolitical in nature such as supply chain disruptions, climate action failures, social divisions, digital inequities, and a complicated security concerns in Indian Ocean waters, all of these will have ramifications for businesses, potentially impeding their recovery and development in the long run. Environmental and geopolitical risks, according to risk analysts, are the most serious worries in the Asia-Pacific region.

Lastly, to successfully outmanoeuvre the risks and prepare for the challenges, as well as to escape the clutches of simple survival, firms and enterprises must focus their whole attention on establishing resilience and agility. Sustaining these qualities will be possible through collaboration between the private and public sectors, with support from NGOs, communities, and the government; and utilizing digital technologies while also adapting to the changes brought about by disruptions.

Amit Kapoor is chair, Institute for Competitiveness, India and visiting scholar, Stanford University. Raagini Sharma is researcher, Institute for Competitiveness.


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