Global financial shock biggest threat to companies this year

Dubai: Global financial shocks will be the most challenging risk for companies in the Middle East this year, a researcher from Ernst & Young, a consultancy firm, told Gulf News.

The impact of the financial crisis that became apparent in the second half of 2008 in the Middle East will continue to be a major risk factor, according to Michael Green, partner and risk management leader at Ernst & Young Middle East.

The top three strategic risks include energy shocks and cost inflation.

"Companies do business plans that issue certain inputs for cost energy and during the past 12 months, we've seen significant rise and then fall in energy prices, which makes it difficult to plan and structure around general budgeting and procurement," said Green, who was involved in the development of the report.

Even at this point, when many companies have suffered due to the impact of the financial crisis, there are benefits to adopting the strategy.

"Strategic risk management puts you in the position to better deal with them. There is value that has perhaps never been greater," Green said

In a report exploring the top 10 business risks for 2009, Ernst & Young ranked regulatory compliance risk as the greatest challenge facing economies worldwide.

Based on a study of 12 sectors, the consultancy firm analysed the potential risks for the macro-economy. Though the risks vary for each sector, the overall ranking can apply to all businesses and can help prepare them for the coming year, the report said.

It said that regulatory and compliance being ranked at the top is being driven by the increasing burden of regulations in many markets, as well as by the various compliance challenges as companies expand outside of Europe, North America, and BRIC (Brazil, Russia, India and China).

"Regulation has a tremendous effect on the competitive landscape, not only between incumbents and new entrants, but between countries," the report said.