Postulating about the elements that link the most recent wave of social unrest in such varied places as São Paulo, Istanbul, Stockholm, Cairo and Santiago is the latest pastime of the world’s armchair Metternichs. Citing the prevalence of the urban middle classes in many of the movements rattling governments from Anatolia to the Amazon, as well as the role of social media platforms as an accelerant, these sages have cast current protest movements as the logical, even predictable successors to the Arab Spring, or the Occupy Movement, or 1989, 1968 and, inevitably, the Parisian barricades of 1832 and 1848, so recently popularized in Hollywood’s blockbuster version of Les Miserables.
We don’t entirely disagree – the centrality of teeming emerging market megacities to each of these episodes is no coincidence –but one must be careful not to lump protests over rising bus fares in Brazil to anger in Egypt about efforts to impose a strict interpretation of Islam on a country with decidedly mixed opinions on the matter. Indeed, roll back a year to 2012, and a similar list might be comprised of Moscow, Lagos, London, Bangkok and Madrid, all sharing some characteristics, but also vastly different with regard to the catalysts and goals of the mass movements. Sometimes, we risk missing the trees for the forest.
The fact is, the practical realities that confront those who do business in these places trump grand theories. Especially at a time when yields are low in the developed world, the national and regional political, cultural and economic passions of the emerging economies do not exist only in the realm of parlor conversations or think-tank panel talks. Rather, they are ever present, tangible currents into which international business must wade. Some companies have managed such risk well for decades, where for others the see-saw cycles of upheaval seem to argue for retrenchment.
We think this would be a terrible mistake. The recent Turkish unrest was largely confined to a square kilometer in Istanbul and half a kilometer in Ankara, and unless you’re operating a Bosporus shipyard, your business is probably not greatly impacted by the unrest. Egypt’s Muslim Brotherhood has lost the latest round against the secular opposition and the country has entered a perilous phase; however, the military will ensure that global trade continues to flow through the Suez Canal, just as it did during the 2011 uprising. In Brazil, meanwhile, the focus on social media-fuelled flash mobilizations outside football venues nearly obscured the fact that it was trade unions – those dinosaurs of demonstration – who had the greatest economic impact, choking off trade at the country’s largest port Santos . Grand theories have their usefulness, but risk remains in the particulars.
But head for the exits? That would be foolish. Risk is part of doing business in emerging markets. The progress in places like sub-Saharan Africa, Latin America and Southeast Asia on governance, rule of law and a host of metrics that measure the human condition is undeniable. But this progress remains relative: stability is still a long way off for most of the developing world. Besides, the latest spasms of the eurozone crisis in Portugal remind us that so-called safe havens are really only as safe as the next monetary policy meeting. As the unwinding of central bank quantitative easing (QE) spooks markets, risk is still ‘on’ for those able to look through the wave of unrest to the currents underneath.
All this requires properly positioning EM operations and investments for precisely the kinds of “unanticipated’ risk we have seen in the past several weeks in Turkey, Brazil and Egypt. This should not be a reactive exercise, though sadly, too often it tends to wind up that way. A wiser course maps preventative resilience strategies, putting in place political and regulatory risk monitoring before a crisis, preferably based in the region itself. This augments structural planning about business continuity and crisis management, and for the worst cases, quickly deployable security and evacuation plans for staff.
The false certainty projected by financial risk models before they began to erode to nothing in 2007 stands as a constant lesson to us and all those who would seek to model the even more abstract political sphere. We assume the worst, we plan for the birth of so-called “black swans.” It has been apparent for several years now that old models of analyzing country risk, like the quantitative financial models that failed in 2009, have been overtaken by the rapidly changing global political landscape. Just as asymmetric threats have largely displaced country-to-country war risk, government-to-government ties no longer define the likely trajectory of bilateral relations – just look at the lingering antagonism between China and Japan, fuelled by domestic civil society. Similarly, strong connections with the governing elite in a given country are no longer a guarantee of stability or, in the corporate sphere, a permanent license to do business there; nor are market conditions enough to explain the forthcoming business climate.
The shift in power dynamics from the national down to city level requires a similar shift in the way we view the trajectory, stability and safety of the emerging world. The increasing ability of civil society groups, whatever their orientation, to transmit information and opinions via internet and social media platforms has weakened the state’s monopoly on credibility and influence. Even in tightly-controlled autocracies, governments can no longer control the narrative at home, let alone abroad.
At the same time, the very real growth of both economic prosperity and democracy in many EM nations has led to an understandable demand that hard work be rewarded with the opportunity to live a decent, secure life. Those lines will continue to diverge, sadly, for years to come, and anger at lagging progress will occasionally boil over. The question for those doing business, traveling or living in such places is: what plans have you made for that day?
Michael Moran and Jonathan Wood