Mideast firms act against aftershocks of crunch

Dubai: Ernst & Young's 2009 Global Business Risk Survey has confirmed that businesses around the world including those in the Middle East are increasing their focus on a wide variety of risks as global economic conditions continue to be affected by the aftermath of the credit crunch.

The annual top-ten ranking survey, published in conjunction with Oxford Analytica, reveals that the top strategic business risks facing companies globally during 2009 are credit crunch aftershocks, regulation and compliance, and deepening recession.

Michael Green, Partner and Risk Management leader at Ernst & Young Middle East, said: "While most of the risk categories are relevant to the Middle East, the top three risks that may have the greatest implications on regional business in 2009 are the deepening global recession, the effects of the credit crunch and reputation risks."

Deepening global recession and credit crunch affect the region through a reduced demand for oil and a reduced ability to invest in real estate both of which have been significant drivers of growth.

"These tough times have clearly shown us that world economies are closely integrated." Green said that most Middle East executives had for many years considered reputation to be a top ten risk.

Businesses must clearly understand their risk profile and develop strategies to control and mitigate risk to an acceptable level. Corporate business leaders should also make sure they get enough feedback that approved risk mitigation strategies and controls are being applied within an organisation to avoid nasty surprises.

However because of increased volatility, organisations need to be nimble and ready to update and change strategies and plans in response to new macro developments. "Accurate cash flow forecasting has become very important," added Green.

Omar Bitar, Managing Partner, Advisory Services at Ernst & Young Middle East said: "It is notable that in almost every major sector, at least one of the top 10 risks falls in each of the four risks quadrants of financial, compliance, strategic and operations risks. This emphasises the importance of taking a broad approach to risk management, as these risks could emerge from any part of the enterprise and its activities."

In real estate, the survey unsurprisingly shows that credit crunch aftershocks is perceived globally as the top risk. As developers may slow down and reprioritise their projects, the construction sector may also suffer from over capacity. "Businesses are urged to improve and streamline their internal risk management frameworks, focusing on the medium term instead of short term planning. Many decisions that are made in haste may mean missing the boat when global economies recover," said Bitar.

Oil and gas and insurance analysts indicated an exposure to at least half the top 10 strategic business risks which are macroeconomic in nature. In biotech and consumer products however, analysts did not perceive a single macroeconomic threat as being in the top 10 strategic business risks. They were focused entirely on operational or sector-specific challenges.

The media and entertainment sectors are undergoing dramatic transformation with technological advances driving change in basic business models. Sector-specific challenges tend to dominate their risk lists.

In five other sectors - asset management, biotech, consumer products, pharma and telecoms - analysts indicated that half of the most significant strategic business risks are also specific to their sector.