Firms urged to balance opportunities with risks

Ukrainian crisis among political threats facing global business, says Export Development Canada

OTTAWA — Ever since the recession, Canadian companies have been pushed to open their wallets to open new export channels. But the risks that come with tapping into some of those markets can present other challenges — and dangers, such as geopolitical instability.

“What seems to be clear is that we’ve moved from a period of economic turbulence to an era increasingly imperilled by so- called political risks,” says Stuart Bergman, assistant chief economist at Export Development Canada, which published on Thursday its Country Risk Quarterly, which looks at global trade and investment prospects and their downsides.

“The aftermath of the economic crisis has seemingly given rise to a ‘ new,’ even more enigmatic threat to global business,” Bergman writes, which has “made it difficult for market participants to get a handle on the costs to business posed by these risks.”

In particular, he pointed to the Russian- Ukrainian crisis, as well as civil unrest in Egypt, Niger and Thailand and wars in Ivory Coast, Libya and Syria. There has also been renewed volatility on the Korean Peninsula, recent terrorist attacks from Boston to Nairobi, and the “increasingly bold tactics” of the Islamic State, along with other groups.

“A closer look at the events of the last five years can help inform us on how to plan around the inevitability of events to comes,” he adds. “But whether broadly defined political factors serve to exacerbate underlying economic realities, or vice versa, is secondary to the real issue. What matters to business is finding a way to measure the costs to commercial activity imposed by … country risk.”

The EDC, the federal export financing agency, says its quarterly publication highlights the risks and opportunities of doing business in the North, South and Central America, Europe, Asia, Africa and the Middle East.

Across all those regions, investment in infrastructure is “desperately needed,” Bergman points out. “In many markets, investment in social infrastructure will be absolutely key to narrowing vast societal schisms, an effort that would pay dividends for local business environments. A focus on human capital is essential to enhancing productivity and dealing with a root cause of political disenfranchisement.”

Still, taking advantage of these investment opportunities will mean some of the “dead money” that Canadian corporations have been accused of hoarding will need to be put to work. In other words, investing in machinery and people to increase exports in existing markets and move into new ones.

That’s something Finance Minister Joe Oliver and Bank of Canada governor Stephen Poloz, previously the head of EDC, have been drilling into business leaders — as did their predecessors, Jim Flaherty and Mark Carney.

Coming out of the 2008- 09 downturn, consumer spending accounted for much of the growth, thanks to rock- bottom interest rates.