While Asia will continue to be seen as a growth market by foreign businesses and investors, key risks remain undiminished.
That’s the conclusion of a new report by global business risk consultancy Control Risks.
Sentiment on China will rebound as new leaders settle in and growth picks up, but anyone who thinks this year was just another cyclical blip is in for disappointment, the report concludes.
Investment-fuelled double-digit growth won’t be coming back any time soon.
The report said next year will indicate whether China’s new leaders will take on the daunting structural overhaul needed to set a safer course, or tinker and postpone like its predecessors.
Meanwhile, Japan and South Korea will both have new leaders in 2013 – probably Shinzo Abe and Park Geun-hye, respectively. Both will struggle to avoid their predecessors’ fate: promising new solutions to old problems, before becoming too bogged down in political wrangling to deliver.
The spending of some honeymoon political capital may temporarily relieve policy inertia, but is unlikely to do much to inspire foreign investors, predicts the consultancy.
Indonesia and India will have key elections in 2014, and related politicking and populism are increasing investment risks in these fragmented and decentralised administrative systems. Despite Indonesia’s strengths, complexities in the extractive sector discourage investment while infrastructure and regulatory progress disappoints in both countries.
Corruption is under heightened scrutiny from both civic groups and enforcement agencies.
Investors have been excited by a year of remarkable reform in Myanmar and droves of foreigners are scouting deals in Yangon and Naypyidaw. This can obscure the extremely low base from which the business environment is developing, and the immense difficulty of implementing simultaneous political and economic reform. Success will depend on developing institutions to navigate this fraught process, not just on leaders to lead it, says Control Risks.
“The emerging and frontier markets in Asia continue to be attractive for businesses seeking alternative areas of growth. However, leadership transitions will add to complexity in several of the region’s key markets,” said Toby Latta, regional director at Control Risks for Asia Pacific.
“Notwithstanding positive growth prospects for the region, business conditions will remain challenging for many, and we see risk retaining a higher position than ever before on every organisation’s agenda,” he added.
Latta said that assets, contracts and loans can be adversely affected by government actions in less mature economies. He concluded that navigating and managing operational issues will be an area of focus for many businesses.
GB
