Michel Dennery, Amrae’s representative to Ferma and deputy chief risk officer, GDF Suez, warns risk managers that in 2012 they will have to come to terms with many economic, social and demographic problems
The main risk is obviously the Eurozone crisis, which has become a very unpredictable problem. The Eurozone is supposed to be in recession, as is the United States (there have been some positive signals but the truth is that growth remains extremely flat). The crisis is affecting countries far beyond the borders of Europe as emerging economies now find that consumer confidence has declined in the markets they export to. Many small businesses are finding it difficult to find credit; one of the main problems for governments is how to relaunch the credit machine in banks, which is synonymous with restarting the world economy. The Eurozone crisis is an operational risk rather than a strategic risk; however, in this context the difference between the two is becoming ever smaller.
We are obviously dealing with many economic, social and demographic problems, with pensions, health care and population changes creating real challenges for governments and business. I believe that we are dealing with the consequences of an outdated economic and social model, one that lasted throughout the second half of the 20th Century. We are now in a period of transition, but as yet there is no new economic and social model in place to deal with these issues.
We are now in a period of transition, but as yet there is no new economic and social model in place to deal with these issues.
Financial and political upheaval
Another major risk is the balance of power between the financial and political spheres. Around Europe governments need money badly, they need to finance the social problems that they face. As these governments often have little influence in the financial sector, they increase taxes and regulations in other sectors which can be a challenge for companies. A lot of these businesses cannot be decentralised so this is a problem that they cannot escape. Companies’ operations and finances will be challenged in 2012 as businesses are forced to cut costs, safety procedures could be forgotten, creating an open door to fraud. Companies need to be very careful regarding questions of internal control.
Since I have been involved in this industry, I think that this year has been the most challenging for risk managers. Political and economic problems have resulted in serious protests and riots in Europe, the Middle East, the US and China. Many governments and businesses are struggling to find a solution in an environment where consumer confidence and confidence in the political system is so low; this confidence is key to increasing global economic output. The main decision is how to come up with a new economic and social model; the decision has to be global, we can’t have national solutions to international problems, and, of course, this makes the problem even more complex. As a result some countries are opting for a kind of political and economic renationalisation; this doesn’t tend to harm the retail or service sectors, but it can be a problem for large companies, especially utilities as the nationalisation of resources and networks can make business less efficient. In general this insular approach will increase political and legislative problems.
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