Risk isn't the same as uncertainty, but you can plan for both of them

Views with Acuity: Insights to Build Resilience (May 21)


Many people, including smart leaders, use uncertainty and risk interchangeably. Uncertainty reflects what has famously been called “unknown unknowns” – in which it is literally impossible to gauge all potential outcomes. Risk, on the other hand, is about making calculations in a known universe of possibilities and this is where most leaders tend to gravitate towards.

But you can plan for uncertainty, too. Wargaming and matrix gaming, for instance, are crucial tools for figuring out how to thrive in highly uncertain times. Done correctly, these simulations can be among the best investments you’ll ever make.

Though the future – whether in a “known” world of risk or an “unknown” world of uncertainty – you can prepare yourself to succeed.

Stay safe, stay positive –

Joy

Country Acuity Advisors - Insights


  • Governments' responsibility are first to their populations and not markets. Emerging and frontier markets in Asia may be hesitant to take on more debt, out of fear of sovereign credit ratings downgrades. But this is not a normal time. Concerns about debt are very real, especially where the capacity to earn foreign currency is curtailed. But so is the risk of human suffering, which is arguably more critical than financial market stability and definitely more important than the bruised egos of frontier markets' debt managers. With current global interest rates, governments should propose hefty fiscal stimulus packages, even if it means risking rating downgrades. One way to avoid downgrades is go for bold reforms to grow the economy and install sound fiscal management frameworks with teeth. If economies grow, the ability to afford and service debt grows too. Turbulent times call for bold actions. It’s time to take them.

  • Thinking of relocating? Prepare well. Geopolitics and the post-COVID imperative to diversify are causing companies to consider moving operations away from China. Several countries in Asia, such as India, Thailand, and Vietnam, are actively trying to court MNCs to relocate their supply chains and all (or part) of their manufacturing activity. Various incentive packages, which include tax breaks, fast-track clearances, and land ownership, for example, have been marketed to attract investment. For MNCs, the billion-dollar question is how to choose? Firms must focus on labor market constraints (skills, costs), land rights and acquisition, digital, physical and financial infrastructure, and of course, governance. Making the decision to move is not easy or cheap, but carefully preparing for its possibility is paramount. A war or matrix simulation can help unearth more of what decision makers and leaders need to be prepared.

  • You need a risk advisor. If COVID-19 has taught us anything, it's that risk is inescapable. While in-house advisors will possess valuable institutional knowledge, consider forming (or maintaining) relationships with independent risk advisors. They can act as a sounding board, review decisions from a risk management perspective and provide objective independent advice. As organizations navigate through this crisis, harnessing outside expertise serves as a legitimating function to a board of directors or investors, and also builds resilience internally. Advisors can guide companies through concrete steps and strategies to plan for and mitigate risk that is unique to their business model and industry. It's time to stop viewing risk advisory services as costs, and start seeing the potential benefits they can bring.

  • Pay attention to who is coping successfully right now. The post-COVID dust won't settle for a long time, but it's not too early to start looking for clues about organizations that seem to be weathering the storm. Financial flexibility is always part of any successful survive-and-thrive story. Organizations that consistently clean up their balance sheets — by shedding debt, saving cash for rainy days, cutting operational costs during good times, and establishing strong relations with their banks will manage better. Those that are in a position to leverage the uptake of digital services – i.e. those with existing investments in data-driven digital productivity improvements – will be better placed to succeed. But there are foundational principles that are always important to cultivate. Being able to adapt quickly is key. Doing this requires planning for it, and training for it at all levels. In short, building operational resilience is imperative.

Three Things To Read this Week to Build Resilience


  • What African Nations Are Teaching the West About Fighting the Coronavirus. In early March, Ingrid Gercama left her home in the Netherlands and flew to war-torn South Sudan. An applied-research anthropologist with a special interest in epidemics, she had spent time on the African continent during a public-health emergency before, remaining in Liberia, in 2014, during that country’s Ebola outbreak. When she landed at the frill-free airport in South Sudan’s capital of Juba, she was taken to a separate screening area, the shape and size of a shipping container, where her temperature was recorded by government health workers, along with her hotel address and her local telephone number. Read more (The New Yorker, May 15, free).

  • BRI: Pandemic Will Encourage China to Shift Focus. China’s Belt and Road Initiative (BRI) – also known as One Belt and One Road – was inaugurated to considerable fanfare in 2013 as the brainchild of president Xi Jinping, but it was not without its detractors. A notable complaint was the fact that many countries lining up to borrow from China to undertake BRI projects were already considered higher default risks, scoring less than 50 out of 100 in Euromoney’s country risk survey, with sub-investment grade (junk status) credit ratings. According to Joy Rankothge, of Country Acuity Advisors. “The rising sovereign and projects risks on its BRI portfolio will raise credit risk concerns for authorities in China. This is especially true for frontier markets, which have limited buffers to manage shocks.” However, China will not abandon the BRI. Read more (Euromoney, May 14, free).

  • COVID-19 is increasing strategic uncertainty in Southeast Asia. A great deal of ink is being spilled trying to divine whether China or the United States will emerge with more influence and prestige in a post-COVID world, not least in Southeast Asia, a key battleground in the increasingly hard-edged strategic competition between the world’s two largest economies. Nothing that’s happened yet—including China’s much commented-on ‘mask diplomacy’—is going to sway opinions or foreign policy alignments in Southeast Asia in fundamental ways. But that could change depending on what steps China and the United States take as their relationship moves—as it now seems likely to do—in a sharper, more antagonistic direction in the months and years to come. Read more (Atlantic Council, May 8, free).

Resources

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