Low geopolitical risk puts Spain amongst world’s top 20 countries for doing business
Spain ranks amongst the world’s best 20 countries for doing business, with a score of 7.12/10, according to “Riders on the storm: measuring and managing nonmarket risks”, a report by EsadeGeo and FTI Consulting Spain which evaluates the main non-market and geopolitical risks of 125 countries around the globe and compiles the opinions of directors in Spain’s foremost multinationals.
The findings are the result of a non-market country index based on quantitative and qualitative criteria including risks related to infrastructures, economic sustainability and socio-political circumstances. Between 2011 and 2018, the period analysed in this report, Spain’s socio-political score followed a U-shaped curve: a decline as regards the political scenario until 2014 followed by an upturn in the following four years. The infrastructure score, on the other hand, increased throughout the period covered by the index. Overall, Spain has managed to increase its score in non-market and geopolitical risks in the last five consecutive years.
According to the EsadeGeo and FTI index, the best countries for doing business are the Netherlands, Germany and Hong Kong, with scores of 8.47, 8.33 and 8.11 out of 10 respectively. The USA ranks fourth, having slipped down since Donald Trump landed in the White House and during his mandate, to a score of 7.94.
How to pinpoint and handle non-market risk
“The feasibility of corporate strategy depends increasingly on a company’s capability and precision when weighing up and dealing with non-financial or non-market risks ranging from climate change and cyber security to trade wars and political instability”, said Juan Rivera, senior managing director at FTI Consulting. As for globalised Spanish firms, Ángel Saz-Carranza, director of EsadeGeo and professor in the Esade Department of Strategy and General Management, pointed out that “non-market risk is strategically handled in many different ways ranging from risk units, public affairs, communication, social responsibility, investments or regulations”, and in his opinion, “this suggests that much learning, comparing and maturing still remains to be done in this sphere”. In this respect, “the EsadeGeo and FTI index shows how a country’s non-market risks can rise or fall, and reveals obvious trends and watersheds.”
Which geopolitical risks give the IBEX 35 most cause for concern?
Whilst drawing up the EsadeGeo and FTI index, a series of qualitative interviews were conducted with Spanish directors of IBEX-35 listed multinationals, mainly in the telecommunications, energy, construction, infrastructure and insurance sectors. The four main sources of geopolitical risk that they identified were trade governance, regulatory factors, politicians and cybersecurity.
The concerns mentioned most in the first block were sanctions applied by the United States, a unilateral increase in tariffs and reprisals by world economies. More specifically, they referred to unexpected tariffs and reprisals that could cause collateral damage to businesses in clashes between two sovereign entities.
As for the likelihood of a new regulatory tsunami, the issues the directors mentioned most were regulations about climate change, digital governance and information and data management due to their great impact on all markets and sectors of the economy. One of the issues of most concern is the possibility of regulations at different speeds in different markets. The survey highlights the specific case of the EU which is adapting draft laws regarding areas such as energy transition, data protection and cyber management to legislation.
The directors interviewed expressed their concern about the increasingly fragile political landscape, not only in Spain. Mention was made of the political uncertainty in developed economies, the polarisation and social unease in Latin America and the upsurge in authoritarianism and regional competence in the Middle East and North Africa. The general impression they all gave was that nothing can be taken for granted and that the regulations governing imports and exports may change overnight.
Finally, cybersecurity is a cause for concern to all the directors interviewed, specifically breaches in data protection. With the onset of the pandemic, much corporate presence has gone on line, making it essential for companies to shield themselves from cyber attacks.
