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The rise of dysfunctional, fragile and vulnerable states | RiskMap 2022
TOP RISKS: SECURITY
The rise of dysfunctional, fragile and vulnerable states
Oksana Antonenko | Director & Rose Mumanya | Associate Analyst
The rising number of dysfunctional, vulnerable, and fragile states across the globe is the overarching security risk for business in 2022. The critical driver of this risk has been the COVID-19 pandemic, which has further diminished these states’ capacity to absorb and manage external shocks and internal challenges.
The pandemic both caused and exposed political and institutional fragility – at a much higher rate than would have been expected. We might have anticipated this outcome in the global South, but we saw it in the more prosperous North, too. Against this backdrop, the uneven (and incomplete) exit from the pandemic holds the potential to generate a host of external shocks, including a prolonged pandemic; persistent inflation and its drag on recovery; tightening liquidity and rising interest rates; volatile energy markets; and irregular migration flows and the geopolitical destabilisation they cause. Hanging over this is our top operational risk for 2022: climate change driven extreme weather.
Those are just the external shocks. It would be wise to anticipate internal challenges, including prolonged fiscal pressure; challenges to political legitimacy; and societies under siege from mobilisation, polarisation and radicalisation.
With global governance at a breaking point, geopolitical tensions putting the global economy at risk, and the US eager to extricate itself from “forever wars”, businesses will be left largely on their own to face security risks from conflicts in Syria and Yemen; state failure in Libya and Lebanon; military coups in Sudan, Myanmar and Mali; and economic meltdowns in Afghanistan and Venezuela. As if that were not enough, social unrest, radical activism and rising criminality are flourishing in traditionally stable economies.
Endemic state fragility
The most common definition of state fragility combines a state’s exposure to risks with the capacity of the state and its communities to manage, absorb or mitigate those risks. Key indicators of state fragility include extreme poverty, food insecurity, violence and armed conflict, political instability, population displacement and youth unemployment. Fragile states face multiple threats not only within their borders, but their spillovers – such as terrorism, irregular migration and conflict – often destabilise entire regions.
In 2020 the OECD identified 57 fragile states facing different combinations of economic, environmental, political, security and societal fragility. On our Security RiskMap these states are marked as extreme or high for security risks and the majority of them are located in the sub-Saharan Africa, near Afghanistan in South Asia, in Central America and in selected sub-regions in the South East Asia.
Assessing fragility can also factor in indicators such as political stability and state legitimacy; social cohesion and inequality; quality of public services, including law enforcement and security; and governments’ capacity to take quick decisions, win public buy-in and implement them quickly.
The COVID crisis has challenged existing assumptions about state fragility, exposing institutional and societal weaknesses in higher-income countries such as India, the US, the UK, Italy, Spain, Brazil, Russia and Turkey. At the same time, some more traditionally fragile states in Africa, Asia and Eastern Europe were able to manage the pandemic more effectively than would have been expected. According to the 2021 Fragile States Index (FSI) annual ranking of 178 countries the US, Armenia, Ethiopia and Spain have seen the largest deterioration in state fragility scores, while Timor-Leste, Gambia, Gabon and Pakistan have seen the largest improvements.
Other countries have seen already barely functioning states stressed to their limits and in some cases to breaking point. They included those that relied on tourism (Lebanon), subsistence agriculture (large parts of Sub-Saharan Africa) and in some cases on commodity exports (Iraq). Now their journey out of the crisis is likely to be much longer, not only due to vaccine inequality, but also due to their inherent economic vulnerabilities and security risks. While in more democratic states, governments are under pressure, in more authoritarian states, the entire political regimes are increasingly vulnerable.
Political violence: a global concern
Where state vulnerability is driven by societal and institutional fragility COVID impacts were mostly negative, such as increased political violence. The Armed Conflict Location and Event Data project (ACLED) and its COVID-19 Disorder tracker – which tracked the pandemic’s impact on political violence and protests around the world – has concluded that, while conflict events have decreased on aggregate during the pandemic, political violence has increased in more countries than it decreased in. Protests are mostly driven by the continuation of social movements that began before COVID, with previously held grievances exacerbated because of the pandemic’s economic fallout and government (mis)management and as a result are likely to be a longer lasting trend.
State fragility is about to be supercharged by a number of new drivers, which are likely to put states, institutions and societies under an unprecedent pressure.
This means that levels of violence – be it political violence or any forms of conflict – and instability will continue to increase.
At the same time and as recent cases of state collapse in Haiti, Lebanon and Afghanistan demonstrate, the international community will not be rushing in to help even in a situation of an acute humanitarian crisis. Businesses operating in high-risk jurisdictions should plan for significantly longer response times to humanitarian, economic and security crises. Security vacuums will multiply and fast.
Spotlight on Africa
State fragility has in recent years become less of a deterrent factor to foreign investment in many African countries. Even some of the region’s most politically unstable countries – notably Somalia and Congo (DRC) – can boast of slowly rising foreign direct investment inflows in the last two-to-three years, despite having weak state institutions. Facing higher risks, companies have developed business models that are suitable to volatile situations prior to entry into these markets. The effectiveness of this strategy will be tested in 2022, as a wide range of factors – both new and historical – expose the fragility of some countries that have traditionally been perceived as relatively stable.
This is perfectly illustrated by the conflict in Ethiopia’s Tigray region, which has exposed the deficiencies of Ethiopia’s ethnic federalism mode of governance. While these deficiencies have long driven ethnic violence and unrest, the government’s control over most of its territory created a sense of comfort for many foreign investors – whose processes and systems did not sufficiently account for the possibility of a year-long civil war and the resulting rise in security and sanctions risks.
Such sudden changes in overall risk contexts will be increasingly likely in the region in 2022. Economic recovery in the aftermath of the pandemic will be particularly slow in Africa, worsening existing socio-economic pressures. Moreover, many African countries are particularly vulnerable to the impacts of climate change. A combination of these factors will increase the threat of militancy and to a lesser degree contentious political transition. This is especially true given that many African political systems remain centred on ethnic and religious identity, especially in East and West Africa. Indeed, countries in these regions – such as Sudan, Mali and Guinea – have accounted for most of the unconstitutional government changes recently recorded in Africa.
These dynamics also threaten to undo the progress made by some of the region's most fragile nations such as Somalia to install a government, particularly in light of the growing disengagement of the wider international community from local conflicts. Even in markets with stronger democratic institutions, such as Kenya and Tanzania, 2022 will see a rise in new risk factors, both due to changes in transnational crime patterns and in response to growing instability in neighbouring countries. In these two countries, criminal gangs have increasingly engaged in the trafficking of pharmaceutical products due to the rise in demand for masks and other COVID-19-related health and hygiene supplies. The two countries are also increasingly affected by rising armed violence along their shared borders with fragile nations: South Sudan and Mozambique respectively.
While it is important to understand and take into account long-term state fragility and its impact on business, in this highly volatile and increasingly complex environment, security risks will be driven more by short-term shocks, such as the pandemic. Lebanon has been a fragile state for decades, but the 2020 port explosion in Beirut made the country exponentially more fragile. The outbreak of violence in Ethiopia’s Tigray region started amid a relatively stable political and security situation in the rest of the country. The US experienced a major increase in political unrest and violence in 2020 on the back of political polarisation and increased institutional fragility during the Trump administration. The real time monitoring of these diverse shocks is an increasingly important tool of security risk management.
There’s more. Business in 2022 will have to monitor emerging risks and use scenario methods to examine potential triggers – domestic or global – that might result in rapid and significant change in the security environment, even in countries with relatively stable governments. Businesses need to understand how state fragility can spill over borders and affect entire regions by driving up irregular migration, criminality and even insurgency. In some cases, businesses have to spend time understanding risks in countries where they do not operate, but that pose a material risk to their operations across one or, in some cases, several borders.
Finally, businesses need to plan for increased disruption and security risks in developed economies, which are experiencing higher rates of societal fragility and two of its key by-products, political violence and radicalised activism. Elections, major economic corrections (such as energy price shocks or rising costs of debt), as well as high profile criminal, corruption and police brutality incidents can trigger a rapid escalation of political violence. In more authoritarian states, repression of political dissent is likely to take more violent forms while politics are increasingly being contested in the streets rather than at the ballot box.
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