Economic pressures and persistent inflation have replaced competition for skilled workers as the top near-term risks for business leaders worldwide, according to a survey by Protiviti and NC State University’s ERM Initiative. The survey examines the most pressing business risks for the next year and decade. In addition to economic development and the supply of skilled workers, executives are increasingly concerned about cyber threats, which respondents believe represent the greatest risk for the next decade in both the short and long term.
The 12th annual survey, “Executive Perspectives on Top Risks for 2024 and a Decade Later,” was conducted by international consulting firm Protiviti and NC State University’s Enterprise Risk Management Initiative (ERM Initiative). Study surveyed more than 1,100 board members and C-suite executives of companies across a variety of industries worldwide to assess 36 macroeconomic, strategic and operational risks on a sliding scale of 1 to 10 over a one-year time horizon (2024). a decade (2034).
The top risks for 2024 A significant trend reversal was observed in the most important risks for the coming year. Six of the top 10 risks from last year’s list – including the highest rated short-term risk – are no longer among the top 10 risks for 2024. The economic conditions and inflationary pressure represent the greatest risk in 2024. A trend that was already apparent in the surveys of the last two years is continuing: finding and retaining skilled workers and at the same time further developing the culture and the workplace continue to count to the biggest problem areas. Of the 36 macroeconomic, strategic and operational risks assessed in the survey, the top five risks for 2024 are:
Economic conditions, including inflationary pressures Recruiting, developing and retaining highly qualified specialists, dealing with changing employee expectations and challenges in succession planning Cyber threats Third Party Risks Tightening regulatory requirements and controls
The top risks for 2034 Respondents also assessed the expected impact of these 36 risks over the next decade, up to 2034, to reflect how the risk landscape could change over the next 10 years.
Kenyans are grappling with the high cost of living. Policy analyst Adan Shibia led a technical team that prepared a recent report on the state of Kenya’s economy. We asked him to unpack what’s driving costs, who’s affected and what can be done about it.
What is the cost of living crisis in Kenya and how bad is it?
There has been a general increase in prices of necessities like food, transport and energy. But incomes haven’t risen as much as prices. As a result consumers have less purchasing power than before. They are being forced to consume less of everything, or reallocate spending.
Real earnings growth declined by an average of 2.7% between 2020 and 2022. The earnings growth rate has been lower than inflation.
Since 2022 Kenya has been experiencing high inflation. Between June 2022 and June 2023 overall inflation averaged 8.7%, peaking at 9.6% in October 2022. This was the highest inflation recorded since 2017.
The government has a policy target of maintaining inflation within 2.5 percentage points above or below 5%. So the ceiling would be 7.5%. In June 2022 overall inflation rose above this ceiling, and remained above it up to June 2023.
Inflation is a measure of the rise in prices of a “basket” of goods selected by the Kenya National Bureau of Statistics. The main drivers of inflation were food and transport (fuel). These on average account for 42.56% of the consumption basket for all households in Kenya. Price increases for food and fuel averaged 13.5% and 12.3% between June 2022 and June 2023.
The triggers for this inflationary pressure were prolonged drought in 2022 and the Russia-Ukraine war, which disrupted global supply chains of food, energy and fertiliser.
Who is being affected the most?
There are three groups of consumers who are affected more than others.
The first group are low-income earners who spend over 60% of their incomes on food. The analysis in the Kenya Economic Report 2023 shows that prices of cereals, legumes, tubers, fruits and vegetables all increased substantially.
Low-income earners are also affected through prices of other commodities in the consumer basket. These include housing (rent and utilities) and transport. This is particularly the case in urban areas.
The second group of people affected most are minimum wage earners. The rise in their incomes didn’t match inflationary trends. The minimum wage has lagged behind the living wage, which is how much a worker must earn to pay for their family’s minimum basic needs. The basic needs are food, housing, clothing, healthcare, education, water, sanitation, transport and communication.
Minimum wage provisions are not well enforced, especially in the informal sector, where 83% of those employed work.
The third group are those living in arid and semi-arid parts of the country, where rainfall is low and erratic and temperatures are high. Households in these counties generally have low incomes and face multidimensional poverty. In counties such as Turkana and Wajir households spend over 70% of their income on food. They are also more likely to be affected by climate related shocks that disrupt food supply and livelihood sources.
What’s driving the rising cost of living?
A confluence of factors in the domestic and global markets is responsible.
In the domestic market, prolonged drought in 2022 was the main trigger. This disrupted food supply, increasing reliance on imports. The depreciation of the Kenya shilling against major trading currencies like the US dollar, the euro and the pound sterling also contributed to the rise in prices of imported commodities like food, fuel and fertiliser. While Kenya is a net exporter of unprocessed food items, it is a net importer of processed food products.
Within the global context, the Russia-Ukraine war disrupted supply of cereals (especially wheat), edible oils, energy and fertilisers. Kenya was to a large extent dependent on imports of wheat and fertiliser from Russia and Ukraine.
The surge in oil prices within the global markets also trickled to pump prices locally.
What policy priorities could help?
The long-term solution is policies that stimulate the private sector to produce and distribute goods and services more efficiently. Mechanisms to support markets include platforms for trading and access to information. A policy and legal framework that defines rules of interaction among market participants is also useful. This creates a level playing field for everyone. Markets also need clarity on property rights and incentive systems.
Strengthening the role of markets is vital because government has limited resources to subsidise basics like fuel, electricity and maize flour. With stronger markets, private sector players would also be more efficient in production and distribution of products.
Secondly, Kenya needs cushions against drought-related shocks. The key here is climate-smart agricultural practices such as improved crop varieties, adoption of early maturing crop varieties, irrigation and kitchen gardening technologies. And it’s vital to have better early warning systems, to prepare for climate change related risks.
The third consideration is improved infrastructure to ensure food supply: market information systems, transport and storage facilities.
Fourth, price fluctuations need to be addressed. The Kenyan government is currently rolling out County Aggregation Industrial Parks across the 47 counties. They are intended to support agro-processing industries by providing space, utilities, cold storage and so on. They will help even out prices of products across seasons. Processing fresh produce is essential for longer shelf lives and stable prices.
Fifth, the government must encourage private sector investment in the production of electric mobility vehicles. Fuel is the second key driver of inflation in Kenya. Kenyan households spend 9.65% of their income on transport and the transport sector consumes 75% of imported petroleum products. A shift to electric mobility is an opportunity to reduce exposure to global fuel price fluctuations.
Sixth, cushioning the vulnerable sections of the population is an area for consideration. This includes enforcement of minimum wage provisions and aligning it with the living wage. Access to affordable financial services such as credit and insurance would help households avoid falling into extreme poverty due to shocks and catastrophic expenditures such as health-related expenses.
Well-targeted social protection interventions are essential as policies are implemented towards market-enabled solutions for effective interactions of demand and supply.
Consumer spending is stabilizing but still positive, says Bank of America’s Krisberg
Liz Everett Krisberg, head of Bank of America Institute, joins ‘Squawk Box’ to discuss the recent Bank of America check on the consumer, what higher essential costs means for retailers and clothing makers, and much more.
The UK economy shrank at the fastest pace in seven months in July as strikes and wet weather hit activity harder than expected, reviving fears that a recession may be under way.
Gross domestic product slipped by 0.5% following a 0.5% gain in June, the Office for National Statistics said Wednesday. Economists had expected a contraction of 0.2%. Services, construction and manufacturing all shrank.
Britain’s economy, which the Bank of England expects to stagnate at best for much of the next two years, is now losing steam in the face of a sharp increase in borrowing costs. That may give policy makers pause for thought when they decide next week whether to raise interest rates again in their fight to tame inflation.
“Underlying growth has lost momentum since earlier in the year,” said Paul Dales, at Capital Economics, noting a mild recession may in fact have begun. “These data suggest GDP growth in the third quarter as a whole is likely to fall well short of the Bank of England’s 0.4% quarter-on-quarter forecast.”
That’s bad news for Prime Minister Rishi Sunak, who faces the prospect of a general election next year with his Conservative Party lagging far behind the Labour opposition in opinion polls. Chancellor of the Exchequer Jeremy Hunt said the UK is doing well compared to other countries.
“There are many reasons to be confident about the future. We were among the fastest in the G-7 to recover from the pandemic, and the IMF have said we will grow faster than Germany, France, and Italy in the long term,” Hunt said in a statement.
In an interview on Bloomberg Radio, Gareth Davies, the exchequer secretary to the Treasury, said economists have been too gloomy.
“Not too long ago, a lot of the forecasters were saying that a recession by now, and that hasn’t happened,” he said. “The IMF, Bank of England and the OBR all upgraded their forecasts for growth.”
The pound fell to a three-month low after the release, falling as much as 0.4% to $1.2442. Yet the data did little to change the outlook for rates traders, with money markets pricing a quarter-point hike to 5.5% by November — little changed on the day. Odds still favor another increase to 5.75% by year end. BOE Governor Andrew Bailey has signaled the most aggressive hiking cycle since the 1980s is almost complete.
While most economists had expected the UK to eke out modest growth in the third quarter, the scale of July’s decline makes a contraction more likely. Bloomberg Economics thinks the UK may now be in a recession that will persist through much of 2024.
The country has reached out to nationals living abroad to help solve part of the country’s economic woes.
Nepalese living abroad is asked to deposit funds in local banks to help ensure that the country has enough liquidity so that it could preserve foreign exchange reserves.
However, some key country analysts said that the country isn’t facing any issues economically.
The country’s tourist industry has been struggling to recover since COVID.
The country has also sought other means to rein in capital inflows.
Nepal’s foreign exchange reserves fell over 18 percent to 9.6 billion dollars as of last month.
The global economy is facing new challenges in 2022. We made a quick recap on four of these. Subscribe and follow AP Moments for more business reports.
Forecasting how the economy will perform under a new president is generally a fool’s errand. How much or how little credit the person in the White House deserves for the health of the economy is a matter of debate, and no economist can confidently predict how the president’s policies will play out – if they even go into effect – or what challenges might emerge.
Regardless, voters tend to believe it makes a difference. And going into the election, 79% of registered voters – and 88% of Trump supporters – said the economy was their top concern. Given that, historical data suggests that those who are concerned with the economy have reason to be fairly satisfied with the election results: The economy generally fares better under Democratic presidents.
Inheriting a struggling economy
Biden will be inheriting an economy with serious problems. Things have improved markedly since the darkest days – at least, so far – of the pandemic back in the spring, but the economy remains in a dire state.
And that doesn’t include the impact of what some officials – including Biden – have dubbed a “dark winter,” as severe coronavirus outbreaks in many regions of the U.S. prompt new economic restrictions.
In trying to get a sense of what kind of impact the election result will have on the economy, the past is a useful guide.
I study how the economy performs depending on which political party is in charge. Earlier this year, I did an analysis of this question, focusing on 1976 to 2016, and recently updated the data to include 1953 through October of this year.
In general, since President Dwight D. Eisenhower took office in 1953, the economy – as measured by gross domestic product, unemployment, inflation and recessions – has typically performed better with a Democrat in the White House. GDP growth has been significantly higher; inflation – a measure of the change in prices – has been lower; and unemployment has tended to fall.
The stock market tends to perform better with a Democratic president, rising 11% per year on average compared to 6.8% for Republicans. Despite his claims to the contrary, the stock market’s performance under President Donald Trump has been about average.
Perhaps the most striking difference I found is in the number of months the economy was in recession, as determined by the National Bureau of Economic Research. From 1953 to 2016, Republicans controlled the White House for 432 months, about 23% of which were spent in recession. Democratic presidents held the reins for 336 months in that period, just 4% of which were in recession. The 2020 recession began in March has not been officially declared over.
So even though voters tend to think Republicans do a better job steering the economy, historical data shows otherwise. Whether Biden continues that streak, of course, remains to be seen, especially given he’ll likely have a Republican-controlled Senate, which could frustrate his policy initiatives.
A silver lining in divided government
In my analysis, I also examined the impact of Congress and how having all, part or none of the legislative branch controlled by the president’s party affected the economy’s performance.
Interestingly, the U.S. has not seen Democrats in control of the White House and the House of Representatives with Republicans in charge of the Senate since 1889, when Grover Cleveland was president. So my dataset, going back to 1953, doesn’t shed any light on this particular legislative configuration.
However, I did find that the economy did pretty well when a Democratic president faces either one or both houses of Congress controlled by the opposition. During the 144 months when one of those conditions were true, the U.S. was never in recession. And when Republicans controlled Congress under a Democratic president, average monthly unemployment was the lowest of any condition, at 4.85%.
Of course, this doesn’t mean a divided government will lead to good results today. A pessimistic take is that there will be gridlock, and nothing will get done. In order to pass and sustain major initiatives, bipartisanship will be needed.
History also has a lot to say about recovering from an economic collapse, which keeps taking longer.
For example, it took only 11 months for the job market to recover from the 1980 recession, but 77 to recover the jobs lost in the Great Recession that lasted from 2007 to 2009. If this trend continues, it could be 2027 or later before the job market fully recovers from the pandemic-induced recession.
But the past doesn’t predict the future, and I believe the policies a president pursues and is able to implement still matter.
During the campaign, Biden proposed several ambitious spending plans, such as “build back better,” which would invest in American infrastructure and clean energy, as well as “buy American.” In all, Biden has proposed US$2 trillion to $4.2 trillion of additional measures to fight the pandemic’s economic effects, according to an analysis by the nonpartisan Committee for a Responsible Budget.
His economic plan cannot be implemented without the cooperation of Congress. Investment in infrastructure has historically had bipartisan support so Biden and Senate Majority Leader Mitch McConnell may find some common ground there. But although McConnell has indicated fiscal relief will be a top priority, he has opposed another large coronavirus bill.
It’s impossible to predict whether Republicans will choose bipartisanship or obstructionism, but I remain hopeful – given Biden’s history of moderation – that the new president and Congress will do what is needed to move the economy forward.
