Where’s the Risk? Global Intelligence for Business Decision-Making

Interview with Alexander Sehmer, Falanx Assynt’s Director for Geopolitical Intelligence

With the complexities of today’s international political scene, keeping abreast of developments and understanding their consequences in terms of the risk they represent to business is a formidable challenge. Here, Alexander Sehmer of global intelligence consultancy Falanx Assynt talks us through some of the principal areas of risk facing business around the world.

Hello, Mr Sehmer. Thank you for taking the time to talk to us. Could we start by talking about the business of assessing risk on a global scale? Perhaps you could give us some background on how your organisation approaches such a daunting task. And who would your typical clients be?

Falanx Assynt is a leading global intelligence consultancy, with long-standing expertise in analysing and interpreting geopolitical risk. We produce the Assynt Report, which is a highly regarded, digital subscription-based product, covering developments in key jurisdictions across MENA, Asia, sub-Saharan Africa, the former Soviet Union and Latin America. We also provide strategic intelligence consulting, with projects ranging from market entry, sector analysis and pre-deal due diligence, to mapping out relationship networks, asset tracing, witness identification and much else besides. We also offer the opportunity to have analysts embedded with client organisations. Our clients are typically firms with a global footprint and interests in emerging markets.

The whole world is currently focused on responding to coronavirus. Is there a danger that, as a result of our preoccupation with the issue, we fail to prepare for other types of risk that may arise?

This is certainly a matter of potential concern. Given the sheer scale of the public health and economic challenges that have resulted from the pandemic, the ability to devote time and attention to other significant threats has certainly reduced. This is particularly significant as regards the threat of cyberattacks, with state and non-state actors capitalising on the situation to step up activities by playing on fears over the pandemic. There has also been an important shift in focus away from environmental concerns, with governments trying to focus on reviving their economies at all costs, and sidelining green concerns and issues as a result. In addition, geopolitical fragmentation, and associated risks relating to competition between the West and China and Russia have also accelerated, with the pandemic hampering efforts to develop a joined-up response.

We also provide strategic intelligence consulting, with projects ranging from market entry, sector analysis and pre-deal due diligence, to mapping out relationship networks, asset tracing, witness identification and much else besides.
The world political and economic situation is heavily influenced by adversarial relationship between the United States and China. What are the chief risks ensuing from that, and is there hope that the forthcoming elections in the US might represent an opportunity for improvement?

The major risk is posed to businesses with a truly global footprint, which will likely face increasing pressure from Western governments and China to effectively pick sides, and an associated potential loss of market access. Growing Chinese espionage and cyber-campaigns aimed at gathering intelligence and achieving technology transfer are also a key threat set to rise further over the coming years. Regarding the US elections, should Joe Biden replace President Trump, there will be no major improvement in relations with Beijing as he shares his concerns over the balance of trade and a desire to increase the onshoring of jobs lost to China. Moreover a Democratic administration is likely to take a firmer line on human rights abuses, and will be keener to exert pressure over, for example, the treatment of Uighurs in Xinjiang. Ultimately, US and Chinese competition is going to be a major challenge for any US administration over the coming years, and reflects deeper, underlying changes in geopolitical structures that will persist, regardless of who becomes president.

The Middle East has been a region of volatility for many years. The ongoing conflict in Syria and the poor relationship between Iran and the United States, among other issues, are areas for concern. What are the implications for global security?

Instability is certainly set to persist in the region, with the economic impact of the coronavirus already placing governments across the Middle East under mounting fiscal pressure, in turn raising risks of further rises in popular discontent and unrest in coming years. Major conflicts in the region, including Syria and Yemen, remain likely to persist into 2021. Syria poses a particular challenge outside the region to Europe, as fraught relations with Turkey risk a breakdown of prior agreements regarding the hosting of refugees, something that poses the potential for renewed migrant flows into EU states, which in turn risks stoking populist political tensions. Regarding Iran, a change of US administration would likely be a positive in terms of calming regional tensions somewhat, particularly given that the Democrats appear willing to re-enter the 2014 nuclear deal abandoned by President Trump, but the growing influence of hardliners in Tehran means that tensions with Washington, and associated security risks in the Gulf, particularly to shipping, remain an issue.

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Islamic extremism continues to represent a security risk across the world. How would you characterise the current situation? Do you see any basis for optimism?

The threat from jihadist groups has receded markedly following Islamic State’s loss of territory in Iraq and Syria. Even so, despite the success of the international coalition’s efforts against the group, jihadist violence persists, particularly in the Sahel region in Africa. The successful work to degrade Islamic State’s capabilities shows grounds for optimism, but economic hardships occasioned by the pandemic will likely provide fertile ground for groups to recover and recruit new supporters. The US withdrawal from Afghanistan is also likely to be a boon to al-Qaeda, as despite Taliban assurances, the group will enjoy a major reduction in Western military pressure, giving it an opportunity to rebuild for the longer term.

Many see commercial opportunities in emerging markets, such as South America, Asia and sub-Saharan Africa. Would you say that these regions more, or less, risk-prone than more traditional investment markets? And what are the main risks that potential investors should be taking into consideration?

Emerging markets are inherently more risky than developed markets, although rising political instability in more traditional markets, evidenced for example by the UK’s exit from the EU, has narrowed that gap somewhat in recent years. Having said that, the traditional risks associated with emerging markets remain numerous. They range from governmental instability, to the reputational risks of dealing with countries with poor records on human rights, and significant corruption throughout the public and private sectors. Care should, however, be taken to assess risks relative to individual markets, as the nature and extent of such business risks is hugely variable across geographies.

The last few years have seen multilateralism and free trade on the decline in favour of isolationism and protectionism, and a general lack of a unified approach to problems at a global, or even regional, level. Brexit would seem to be one example of fragmentation in Europe. What do you see as the main risks arising from this trend?

Even with a retreat from globalisation, the world still is, and will remain, enormously interconnected, with so many major challenges, including the environment, the rise of political disinformation, trade disputes and the weakening of US hegemony having a global aspect. If you look at the coronavirus pandemic, it has been piecemeal, nationalist approaches to dealing with it that have actively undermined efforts to minimise its global impact. Ultimately, the risk from increased fragmentation in the face of current and future challenges – including issues like climate change – is that nations will focus on their own short-term interests, which in the long run simply stores up trouble for them in the future.

Emerging markets are inherently more risky than developed markets, although rising political instability in more traditional markets, evidenced for example by the UK’s exit from the EU, has narrowed that gap somewhat in recent years.
In Russia, it seems that Mr Putin continues to consolidate his political power by various means. Moreover, there have been repeated allegations of Russian interference in electoral processes in other countries. Perhaps the lack of leadership and unity in the West might encourage Russia to adopt more robust tactics on the world stage. What risks does Russia pose on a global level?

Russian strategy focuses very heavily on so-called “wedge issues” in Western countries, such as controversy within the US over the Black Lives Matter protests following the death of George Floyd at the hands of the police. Moscow aims to use its disinformation networks, including via its more traditional media outlets such as Russia Today, to polarise politics in Western countries and sow division, as well as to boost electoral candidates it prefers, such as President Trump. Ongoing disunity within the West will provide major opportunities for Russia in this regard. Beyond this, however, Russia’s potential geopolitical influence is and will remain well below that of China’s. Moscow will only really be able to maintain an opportunistic disruptive foreign policy approach. That said, both can work together to try to further weaken US hegemony.

Experts on artificial intelligence, including Stephen Hawking and Elon Musk, have expressed the view that the development and implementation of AI carries huge risks, and may even threaten the survival of the human race. What risks do you see resulting from the rise of AI?

The immediate risks associated with AI are likely posed by increased automation and the subsequent political impact as human labour is replaced, although it remains to be seen if AI will be truly disruptive in this sense. Past technological advances have raised similar fears and these have remained unrealised. One particularly interesting development in the field that appears certain to have important ramifications is advances in quantum computing, which will massively increase processing power by orders of magnitude beyond present levels, with particular consequences for cryptography and cybersecurity. In terms of the risk to humanity and the survival of the human race, that’s probably something for future generations. Despite major advances in AI and machine learning, progress towards a properly “conscious” machine probably remains a long way off.

The risk from increased fragmentation in the face of current and future challenges – including issues like climate change – is that nations will focus on their own short-term interests, which in the long run simply stores up trouble for them in the future.
The arguments continue to rage about the causes of climate change – whether it is natural or man-made. Nevertheless, the reality of the phenomenon seems undeniable. What categories of risk do you see ensuing from this, and are there some general approaches that business can adopt in order to mitigate its effects?

As the consequences of climate change become more evident, the political impacts are likely to be particularly important for businesses. Firms are likely to face growing top-down regulatory pressure. Increasing anxieties will also likely fuel greater environmental activism, with the potential for more radical protest action and the targeting of businesses that are seen as noncompliant or unresponsive – so a proactive approach towards ESG matters is prudent. In the longer term, as physical changes begin to have a greater effect, such as increased flooding and droughts, security dynamics will alter and businesses will have to be agile in response to shifting risks over time.

Some observers have identified a risk posed by social unrest across the world, stimulated by increased distrust in governments and institutions, and perhaps exacerbated by these bodies’ faltering response to recent world problems. Do you recognise this phenomenon, and would you say that it constitutes a new kind of risk that needs to be taken into consideration?

I think it would be a mistake to view this as a new phenomenon. What has perhaps changed is the difficulty for citizens to accurately evaluate and judge information and understand the nature of political, economic and social change around them, which can in turn fuel discontent and unrest. That said, this, in itself, is not new, just more pronounced now.

Finally, do you think the world is a riskier place now than it was in the past – say, thirty or forty years ago? Are there any general strategies that companies can employ as a way of dealing with today’s risk environment?

Similarly, I don’t think the world is now riskier than it was in the past. Overall levels of violence, for example, are historically low. Undoubtedly, the world has become more complicated, though; the pace of change, particularly in the tech sphere, makes assessing and evaluating risk a more complicated task. The best strategy, from a business perspective is to adopt a holistic approach to risk intelligence. To bring together professionals with expertise across varying domains, and to try to ensure exposure to a wide range of perspectives and opinions. The coronavirus has made clear the interlinked nature of risk. A full understanding of the pandemic and its progress requires a sound grasp of medical, economic, psychological, technological and business domains. Businesses need to ensure that once the coronavirus threat recedes, they don’t forget this lesson.

Executive Profile

Alexander Sehmer
Director, Geopolitical Intelligence
Alex joined Falanx Assynt as Director for Geopolitical Intelligence in 2018. He worked as a journalist in the Middle East before becoming a political risk consultant. He holds an MA in International Studies and Diplomacy from SOAS.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.