South African executives believe that state collapse, debt crises, the collapse of services and public infrastructure, cost of living crises, and employment and livelihood crises are the top five risks facing the country.
This is according to the Executive Opinion Survey attached to the Word Economic Forum’s 2023 Global Risks Report.
The survey did not say how many South African executives participated in the survey, only that 12% of the more than 12 000 respondents were from sub-Saharan Africa. The respondents, from 121 economies, were presented with the following question: “Which five risks are the most likely to pose the biggest threat to your country in the next two years?” and were asked to select these from a list of 35 risks.
The WEF did not provide commentary on the survey results by country.
Overall, however, the WEF’s latest Global Risks Report is one of doom and gloom.
It says the world has seen a return of “older” risks – inflation, cost-of-living crises, trade wars, capital outflows from emerging markets, widespread social unrest, geopolitical confrontation, and the spectre of nuclear warfare – “which few of this generation’s business leaders and public policy-makers have experienced”.
These risks are being amplified by comparatively new developments, including unsustainable levels of debt, a new era of low growth, low global investment and de-globalisation, a decline in human development after decades of progress, rapid and unconstrained development of dual-use (civilian and military) technologies, and climate change.
“Together, these risks are converging to shape a unique, uncertain and turbulent decade to come,” it says.
Risk of stagflation
The WEF says governments and central banks could face stubborn inflationary pressures over the next two years, not least given the potential for a prolonged war in Ukraine, post-pandemic supply chain bottlenecks, and economic warfare spurring supply chain decoupling.
“Downside risks to the economic outlook also loom large. A miscalibration between monetary and fiscal policies will raise the likelihood of liquidity shocks, signalling a more prolonged economic downturn and debt distress on a global scale.
“Continued supply-driven inflation could lead to stagflation, the socio-economic consequences of which could be severe, given an unprecedented interaction with historically high levels of public debt. Global economic fragmentation, geopolitical tensions and rockier restructuring could contribute to widespread debt distress in the next 10 years.”
The report says the end of the era of low interest rates will have significant ramifications for governments, businesses and individuals. The knock-on effects will be felt most acutely by the most vulnerable parts of society and already-fragile states, contributing to rising poverty, hunger, violent protests, political instability and even state collapse.
Economic pressures will also erode gains made by middle-income households, spurring discontent, political polarisation and calls for enhanced social protection.
“Governments will continue to face a dangerous balancing act between protecting a broad swathe of their citizens from an elongated cost-of-living crisis without embedding inflation – and meeting debt-servicing costs as revenues come under pressure from an economic downturn, an increasingly urgent transition to new energy systems, and a less stable geopolitical environment.
“The resulting new economic era may be one of growing divergence between rich and poor countries and the first rollback in human development in decades,” the report says.
Geopolitical fragmentation
The report says that economic warfare is “becoming the norm”, with increasing clashes between global powers and state intervention in markets over the next two years. Economic policies will be used defensively, to build self-sufficiency and sovereignty from rival powers, but also will increasingly be deployed offensively to constrain the rise of others.
As geopolitics trumps economics, a longer-term rise in inefficient production and rising prices becomes more likely, the WEF says.
Technology: friend and foe
Advancements in artificial intelligence, quantum computing and biotechnology, among other technologies, over the next decade will enable countries that can afford them to provide partial solutions to a range of crises, such as new health threats, scaling food security and climate mitigation, the report says.
But for countries that cannot, inequality and divergence will grow.
At the same time, there are risks associated with the rapid development and deployment of new technologies. “The ever-increasing intertwining of technologies with the critical functioning of societies is exposing populations to direct domestic threats, including those that seek to shatter societal functioning,” the WEF says.
It says attempts to disrupt critical technology-enabled resources and services will become more common, with attacks anticipated against agriculture and water, financial systems, public security, transport, energy, space-based and undersea communication infrastructure.
Ecosystems at risk
Growing demands on public-and private-sector resources from other crises will reduce the speed and scale of efforts to mitigate the impact of climate change over the next two years.
As current crises divert resources from climate-related risks arising over the medium to longer term, the burdens on natural ecosystems will grow.
“Nature loss and climate change are intrinsically interlinked – a failure in one sphere will cascade into the other. Without significant policy change or investment, the interplay between climate change impacts, biodiversity loss, food security and natural resource consumption will accelerate ecosystem collapse, threaten food supplies and livelihoods in climate-vulnerable economies, amplify the impacts of natural disasters, and limit further progress on climate mitigation.”
‘Existential challenge’ to political systems
The WEF says many lower-income countries are facing multiple crises: debt, climate change and food security. Continued supply-side pressures risk turning the current cost-of-living crisis into a wider humanitarian crisis within the next two years in many import-dependent markets.
“The associated social unrest and political instability will not be limited to emerging markets, as economic pressures continue to hollow out the middle-income bracket.
“Mounting citizen frustration at losses in human development and declining social mobility, together with a widening gap in values and equality, are posing an existential challenge to political systems around the world,” the report says.
The election of less centrist leaders and polarisation between economic superpowers over the next two years may also reduce the space for collective problem-solving, fracturing alliances and leading to a more volatile dynamic.
With a crunch in public-sector funding and competing security concerns, the capacity to absorb the next global shock is shrinking. Over the next 10 years, fewer countries will have the fiscal headroom to invest in future growth, green technologies, education, and health systems. The slow decay of public infrastructure and services in both developing and advanced markets may be relatively subtle, but the accumulating effects will be highly corrosive to the strength of human capital and development, the WEF says.
