First of two parts
IN BRIEF:
• Major shifts in the global market along with rising geopolitical tensions may propel organizations to adapt and rethink their strategies.
• According to the EY 2024 Geostrategic Outlook, organizations will need to consider two critical concepts as they plan for geopolitical disruptions: multipolarity and de-risking.
• Uncertain relationships between powers like the US, EU, and China, and growing influences of smaller states and actors highlight the theme of multipolarity.
The world faces an era of unprecedented change, and the geopolitical landscape is anticipated to be volatile and unstable in 2024. These major shifts in the global market along with rising geopolitical tensions may propel organizations to adapt and rethink their strategies. According to the EY 2024 Geostrategic Outlook, organizations will need to consider two critical concepts as they plan for geopolitical disruptions: multipolarity and de-risking.
The EY Geostrategic Outlook is an annual report by the EY Geostrategic Business Group (GBG) that analyzes the global political risk environment and selects the top geopolitical developments for the year. The GBG conducts a crowdsourced horizon scanning exercise with subject matter resources to identify potential risks. The scan encompasses the four categories of political risk in the geostrategy framework — geopolitical, country, regulatory and societal — throughout all regions of the world. The GBG then conducts an impact assessment to narrow down the top geopolitical developments that are both highly impactful and highly probable for global companies.
In this first part of the article, we discuss the evolving multipolarity in geopolitics, where a greater number of powerful actors shape an increasingly complex global system. Uncertain relationships between powers like the US, EU, and China, and growing influences of smaller states and actors highlight this theme. It underscores the need for economic diversification and resilient supply chains due to increased geopolitical disruptions.
THE GEOPOLITICAL MULTIVERSE
According to the report, the growing influence of players seeking to change the status quo will create a more complex geopolitical multiverse. On top of tensions from US, EU and China influencing global dynamics, actions by geopolitical swing states (meaning countries that are not specifically aligned with any major power) will play more important roles in driving geopolitics this 2024. In particular, countries with resources across the energy value chain, such as Saudi Arabia, the UAE, and Brazil, are expected to play key roles in their respective regions.
In 2023, even as the Ukraine war persisted, the BRICS (Brazil, Russia, India, China, and South Africa) and G20 (Group of Twenty) welcomed significant new members, hoping to expand their influence in global affairs. In Northeast Asia, Japan and South Korea restored bilateral diplomacy. These developments and others discussed in greater detail in the report show that geopolitics has become a multiverse of increasingly complicated mixes of alliances and rivalries, with overlapping bilateral, regional and various other institutions and groupings.
AI
The 2023 EY CEO Outlook Pulse study shares that nearly all their CEO respondents (99%) plan to invest in artificial intelligence (AI). On the other hand, governments have been grappling with how best to regulate AI as technological advances increase its significance to national security and geopolitical competition. In 2024, the dual race to innovate and regulate AI will see an accelerated shift toward geopolitical blocs.
Domestically, governments want to foster innovation to compete geopolitically, simultaneously seeking to regulate it before the technology outpaces policymakers. While seeking to capture the promise of the technology, such as advancements in national security, improved healthcare outcomes, and enhanced economic productivity, governments will also try to design AI regulations to reduce the likelihood of macro risks. These risks include increases in political instability due to misinformation campaigns, the potential for social and economic dislocations as AI takes on more job functions, heightened national security, and cybersecurity risks. While AI will not necessarily reshape the global balance of power in the year ahead, it will increasingly become a significant arena of geopolitical competition.
DOMESTIC CHALLENGES IN THE US AND CHINA
The US and China, the two biggest economies in the world, are facing major domestic challenges of their own for various reasons. These challenges will continue to raise political risks within each market, will have significant implications for geopolitics, and pose downside risks to the global economy this year. Such downside risks will likely have significant implications for emerging economies such as the Philippines.
The 2024 US election will heighten societal tensions and policy uncertainty. With the partisan divide in American trust in various news sources, there is a potential increase in risk of some population segments questioning the legitimacy of the election, in turn possibly perpetuating policymaking challenges. On the other hand, China faces a challenge stemming from whether their official policy mix will effectively address potential financial and macroeconomic weaknesses that may come about. Cyclical challenges in their real estate market and their high municipal government debt levels will likely persist, and may result in policymakers introducing periodic, targeted actions to reduce the risk of financial crises.
OCEANS
Recent events such as the destruction of the Nord Stream 2 pipeline and more frequent freedom of navigation exercises highlight growing geopolitical tensions. With almost half the global population living within 100 miles of the sea, competition over access to and control of the world’s oceans will intensify in 2024, with implications for data flows, food supplies, supply chains, and energy security. As much as 90% of global goods trade is shipped through maritime routes, and many of the busiest maritime transit paths are at risk of political disruption. At least 95% of global data flows through undersea cables. The Luzon Strait is strategically located between Luzon and Taiwan, connecting the South China Sea and the Western Pacific, and as such, is important for global commerce and cable communications.
Competition for essential commodities
The war in Ukraine, climate change, and the energy transition are shifting global supply and demand dynamics for various essential commodities. This leads to more intense geopolitical competition in 2024 to secure supplies of three key commodities in particular: critical minerals, food, and water.
The most visible area of commodity competition will be for minerals that power EV batteries and the broad energy transition. Food instability and insecurity remain a top concern from the 2023 Geostrategic Outlook, with climate change continuing to affect food production and crop yields. Lastly, water may become a subject of commodity competition due to significant changes in precipitation levels, potentially escalating tensions in water-stressed regions.
In the second part of this article, we will discuss the theme of de-risking, with governments increasingly combining economic policy with national security to stimulate domestic production of critical products in sectors such as semiconductors, telecommunications, renewable energy, electric vehicles, and biotechnologies. This trend, more prevalent in 2024, indicates a shift in policy focus towards national security over pure economic considerations, possibly fueling inflation and hindering global innovation due to increased government intervention in supply chains and investments.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.
Noel P. Rabaja the Strategy and Transactions (SaT) service leader of SGV & Co.
