Uncertainty Looms for 2017 – Part I

Posted by Matthew York on December 19th, 2016
Stored in Articles, Chief Procurement Officers, Lists, People

We have said for a few years now that this is an exciting time to work in procurement. Given the state of the world, that might be an understatement. And given that there is a positive correlation between uncertainty and risk (the more uncertainty there is, the more risk there is), Chief Procurement Officers (CPOs) and supply management teams will face 2017 with a higher degree of uncertainty and risk than at any time since perhaps the end of 2008. Let’s briefly recap the highlights (and lowlights) of the past year to illustrate this uncertainty and risk.

In 2016, the Zika virus spread from out of the tropics and into the United States, along with related illnesses and complications. British citizens voted to leave the European Union (“Brexit”), while American voters elected Donald J. Trump as the next President of the United States. Cuban-American relations warmed considerably, but recent events could cool them back down. Also in 2016, “fake news,” the new term for conspiracy theories and misinformation, became a “thing.” Oil prices began the year at historic lows but, despite having more than doubled since then, remain well below peak levels. Financial indices, like the Dow and S&P, continue to reach historic highs, and official US unemployment (4.6%) is at its lowest point in nearly a decade. Despite what seems like good economic news, some analysts believe that the US economy is in a bubble and due for a recession. Meanwhile, the threat of terrorism, maritime insecurity, and wars between nations looms every day as cold wars begin to warm and civil wars kill and displace millions of people.

In short, there is a lot uncertainty and potential risk in the world, and these are just some of the headline news stories of 2016. Let us discuss four of these in greater depth and illustrate how each could impact business leaders and operations, like CPOs and supply management, in the new year.

1. Zika Hasn’t Gone Away.

In 2016, the little-known Zika virus spread from the tropics in South and Central America into the Caribbean and the southern coastal states of the US, bringing with it flu-like symptoms for 20% of those bitten and, for some pregnant women, devastating birth defects. Pregnant women bitten by an infected Aedes Aegypti mosquito, the primary mosquito that carries the virus, could contract the virus, as could men, who could also pass it onto their partners. As a result, the US Centers for Disease Control and Prevention (CDC) issued travel warnings for countries and territories that seemed to grow every week. Millions of people canceled travel plans and avoided afflicted areas as if it were the plague. The World Health Organization (WHO) declared Zika a worldwide global health emergency.

Although the CDC is developing vaccines and implementing mosquito treatment plans, and the WHO recently lifted its worldwide emergency alert, Zika will very likely return to (or remain in) afflicted areas in 2017 and disrupt business operations and commerce. The travel and hospitality industry will likely experience further uncertainty and risk, and the flow of services and talent to afflicted regions will likely also be disrupted. Business leaders and practitioners will have to decide whether or not to send their people or themselves in and out of Zika hot zones. And with climate change (and shipping containers) continuing to push Aedes Aegypti into new states and regions, it is possible that we have not experienced the full impact of the virus.

2. Brexit disruptions have yet to be fully felt.

When British citizens narrowly voted earlier this year to leave the EU, they threw much of the economic and political world order into disarray. The Pound plunged. Their commitment to accepting refugees cast in doubt. The free flow of goods, services, and talent in and out of the UK placed at risk. Prime Minister David Cameron resigned; Theresa May took his place, and vowed a swift withdrawal from the EU. Despite some signs that some British voters may have “buyer’s remorse,” and the possibility that British Parliament could override the popular referendum, Brexit is likely to move forward when it triggers Article 50 of the EU Constitution this coming March, formally declaring its intent to withdraw.

What will this mean for British goods, services, and talent? Or for those that British enterprises and institutions rely on from the EU? Will prices inflate? Will businesses fold? Will top talent leave? What will Brexit mean for joint defense procurement projects, like the Eurofighter Typhoon? Will it place them at risk? Will they remain competitive in the long term? There are a lot of questions that remain as we approach 2017, and it will likely take quite some time to understand the breadth and depth of disruption that Brexit will bring.

3. Despite positive economic conditions, we could be headed for a recession.

According to the US National Bureau of Economic Research, it has been nine years since the 2007-2009 economic recession began in the US and seven and a half years since it officially ended (December 2007-June 2009). Since then, the major financial indices in the US have rebounded and reached historic highs. The unemployment rate (4.6%) is less than half what it was at the height of the recession (10%). The economy has added tens of millions of jobs and wages have recovered to the point where they have begun to grow again. Still, the US economy has not gone more than 10 years without experiencing a recession, and it is now approaching a point where, no matter where you start counting, the economy is nearing the Red Zone. Likewise, President-elect Donald J. Trump believes that the US economy is in a bubble and that it could soon burst. So, as we approach 2017, there is some uncertainty as to whether or not this is the year that the economy slips back into recession. Some analysts believe that a Trump Presidency by itself could push the US economy into recession, while others remain skeptical. This, too, remains to be seen.

4. Warming US-Cuba relations may cool again.

Last year, the US Department of State removed Cuba from its list of state sponsors of terrorism and reopened its embassy in Havana. This year, the US Department of Treasury lifted its ban on the importation of Cuban goods, like cigars and rum, as well as its ban on travel to and from the Caribbean island. As a result, more people and commerce have flowed between the US and Cuba in recent months; but the incoming Trump presidency places US-Cuba relations in an awkward and uncertain place. Although both Democratic and Republican administrations have maintained tough economic and political sanctions on Cuba for decades, Republicans tend to view Cuba more harshly and less forgivingly than Democrats. Thus, it is possible – although not certain – that changes made under the Obama Administration could be rolled back under the Trump Administration.

Final Thoughts

2016 has been fraught with a lot of changes and global calamities, and we haven’t even covered geopolitical events and risks, like regional conflict and unpredictable world powers. Tune into Part II of this series later this week as we cover more economic and political uncertainty and discuss how things like fake news, oil prices and production, the incoming president, and armed conflict have the potential to impact global trade and place enterprises and operations at risk.

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