In part 3 of this week’s five-part special, Tom Fox discusses corruption intelligence with Chris Mason. Chris returns to talk about how organizations can mitigate corruption within their corporate environments and the steps they can take to ensure they comply with regulations.
Chris Mason is with Infortal Worldwide, a global risk firm that provides due diligence services to support key investment decisions. Infortal Worldwide supports many private equity investments, mergers, acquisitions, and any risk scenario a business may face.
“Understanding who you partner with overseas is key to avoiding unnecessary corruption risks.” – Chris Mason
Welcome to the show notes for Season One of Riskology by Infortal™.
Riskology is a podcast that combines the worlds of geopolitics and intelligence with that of business. Geopolitical risk threatens global trade, supply chain integrity, and corporate reputation unlike anything seen since World War Two. Riskology by Infortal™ is meant to inform, entertain, and cut through the noise of crisis so business professionals can have a clear understanding of their place in the constantly changing global economy.
The following is a collected transcript of our podcast episodes from our launch through September 2023. In this season you will:
Please note: These transcripts are noted as spoken, and are dated to early Fall 2023. As such, this season does not include up-to-date information related to unfolding crises such as the October 7, 2023 attack in Israel, radical electoral outcomes in Europe and Argentina, or the looming war between Venezuela and Guyana.
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-The Riskology Team
Infortal on Global Risk Outlook: Part 1 – Dr. Ian Oxnevad on Middle East and Africa
Ian: I don't think American companies necessarily have to worry about doing business in Saudi Arabia and then violating sanctions related to Iran, although that is something that requires screening. And that requires screening your buyers, your partners in the country, etc. and the other ties that they may have. And that requires not only good due diligence, but also geopolitical risk intelligence. So requires screening of partners and suppliers and things of that nature.
Intro: Companies operating in today's global economy really need to get an understanding of the international geopolitical risk landscape. At Infortal Worldwide, we work with our clients on solving risk before it starts. Welcome to the Riskology Podcast. This is a five-part series on geopolitical risk intelligence, where we're looking at managing business risk globally and really understanding the geopolitical risk landscape.
Tom: Hello everyone, this is Tom Fox with our inaugural episode in this special five-part series sponsored by Infortal Worldwide on global political risk intelligence. In this series, we're going to take a look at the global outlook, and I'm thrilled to be joined by Ian Oxnevad. Ian, first of all, thank you so much for taking the time to visit with me on this series.
Ian: Thank you for having me.
Tom: Ian, could we start this episode by you telling us a little bit about your academic and professional background?
Ian: So, I am the director of geopolitical risk intelligence for Infortal Worldwide. I come from academia originally. I have a PhD in political science. I'm a political scientist and a political economist. Basically, that's just a fancy term for looking at political issues and economic issues side by side and how they intertwine. Before my PhD, I did a master's degree in national security studies where I was trained in intelligence. I hold BA’s in Arabic and English. I often get calls from lawyers looking for expert witnesses on issues related to the Middle East, terrorism, and things of that nature.
Tom: Ian, in this first episode, we're going to take up the Middle East and Africa and we may use the acronym MINA for those who have worked overseas or like yourself have studied extensively. So, what are you seeing sort of risk opportunities in 2023 that would lead companies to perhaps look to that region of the world for a business opportunity or perhaps a business partner?
Ian: Something to keep in mind about MINA or the Middle East in particular, Alesto with North Africa but in the Middle East core, the Middle East that existed before 2020 no longer exists. The Middle East kind of coders up a number of images and clashes between different rival, ethnic or religious groups. That dynamic has changed a lot since 2020 with the first big change being the Abraham Accords which were signed kind of in the middle of the pandemic. Not many people were paying attention. I worked on a book on the Middle East where we actually talked about this possibility. We were looking at data on threat perceptions and what we noticed is that Israel and the Gulf states, particularly the UAE and Bahrain, could potentially have normal relations and sure enough they did. So, the Abraham Accords opened up a number of opportunities particularly in the high-tech sector and in water technology. So, basically, what the Abraham Accords did was they normalized relations between the UAE, the Emirates, Bahrain and Israel and these are the most high-tech economies in the region. So, their economies, the bilateral relations are growing, you have bilateral tourism now and investment and it's not really surprising given that you have a youngish population with a lot of money. They're looking for investments. They're regionally integrated in terms of some cultural background, Israel's fairly conservative. The Gulf is also very conservative but they're also very advanced in terms of how they view technology. So, economically it's not very surprising. So, you do have a number of opportunities there for bilateral ties and bilateral investments. So, if you're a Western company looking at investing in Israel or the Gulf, back 20 years ago you'd have to be very careful about keeping your sort of economic relations separate. That's no longer the case and it opens up for greater market integration in those sectors. Elsewhere, and much more recently, China has entered the Middle East which is not surprising given the Belt and Road Initiative but Saudi Arabia and Iran, they're normalizing ties and I think just today they opened their first consulates so they can actually have normal relations and this is partly the result of domestic US foreign policy and attention but also US attention on the Pacific Rim overlooks China integrating the Middle East into the Belt and Road. And what this does in the energy sector is this could make energy cost much much more unaffordable in certain sectors around the world as you're looking at how Saudi Arabia and Iran may start to coordinate on energy production. So, while you have great news in the high-tech sector between the Gulf states and Israel you have more negative implications for energy costs and that obviously goes up supply chains as well between Iran and Saudi Arabia. So, the war that existed since 1979 for lack of a better term, between Saudi Arabia and Iran, somewhat ended thanks to China and this also threatens the dollar potentially if oil sales start getting denominated in currencies other than the dollar that could cause inflationary pressures as well as just higher energy costs which is an inflationary pressure itself. So, that's a big risk coming from the region you also have good opportunities though with the Abraham Accords and that's kind of the region in a nutshell more hyper focused on specific countries. Iran needed some good news after the death of Mahsa Amini you had protests over the death of a protester against basically modesty laws in Iran that kind of parallels what happened in the US with George Floyd you had an underlying political tension and then you know an incident that caused mass of people and the Iranian regime needed that sort of Chinese support in terms of creating new economic opportunities to sort of stabilize itself. Israel currently is also going through some instability as the result of some court reforms pushed by the Netanyahu government and basically what that would allow is the kinesa to block specific court decisions that started massive protests, and it's exacerbating existing divides domestically within Israel and you kind of see this playing out around the region, right? So you also see protests in Turkey over corruption that's a big issue. So, what you're seeing is greater integration economically that didn't exist prior to the pandemic and you're seeing greater internal instability in specific countries.
Tom: We pick up on the currency issue because I haven't heard that quite some time. I've been interested in the benchmark currency for Bric crude or Saudi Arabian crude for a long, long time since I've used it and I can remember in the early to mid-first decade of the century when the king decided to remain on dollar standard. And I viewed that as a huge boon to America. I think he used a phrase it could cause inflationary pressures can maybe expand on that a little bit because I find that an incredibly important point and a huge advantage to America over the EU, the euro or pound, perhaps the Chinese yuan and why it is I think in our critical interest to keep the benchmark for Saudi Arabian and Middle Eastern crude tied to the dollar?
Ian: The dollar's power like any currency's power is obviously tied to its ability to hold value and people's interest in actually holding it the incentives to hold it and with oil being denominated, oil sales all prices being denominated in dollars, if you're going to buy oil you have to have the dollars to do it and that creates demand for the dollar and what that does for the US. First of all, for consumers and for companies that allows higher levels of purchasing power. So, if you're a company and you want to offshore and manufacture abroad your dollars that you can pay in that local economy are going to go much farther obviously, right? So, it helps those who import into the US it hurts exporters from the US as exports become more expensive. But dollars since World War II, and even you could argue somewhat before that, anyone would take them whether it's a shack in the Amazon selling lemonade or multi-billion-dollar deal in the Middle East it really didn't matter because dollars were the king. And now that may be changing, we have massive amounts of debt, we have inflation around the world, but one of the things that China wants to do is displace the dollar with the yuan and the yuan can't quite do it because it's a totalitarian regime and it's monetary policies very unstable because it's guided by pure political decisions. But what China is doing is very crafty and that they're not trying to necessarily just supplant the dollar outright, what they're doing is they're trying to get others to offer transactions in their own currencies there's a greater incentive to hold more currencies as opposed to just dollars. And if this continues then that's going to create an inflationary pressure because the less demand there is for dollars the more dollars you're going to have a circulation, right? More dollars in circulation without an increase in production that's inflation and with the Middle East and energy, you kind of get a double whammy in that they cut energy production. And they're denominating sales in something other than dollars you're looking at supply side shocks plus a currency crisis uh potentially for the US. Now I mean the dollar reserves around the world are about 60% and that's good but it shouldn't go any lower because otherwise that massive debt that we have which is somewhere like $30 trillion plus now that will eventually come due, and we won't be able to print our way out of it because no one will have the incentive to hold those dollars that we're printing. So, we're entering a period of monetary instability unless things change and there's actually foreign policy focused keeping the dollar in place.
Tom: Having identified this risk how would you uh counsel a company or international business looking to do business in that part of the world to manage that risk or perhaps even just plan for that risk?
Ian: On certain levels it's relatively easy to insulate against it. All you have to do is start to hold other currencies and do transactions in those other currencies depending on what sector you're in. However, if you're an exporter to different parts of the world from the US this will actually help you if you are entirely reliant on importing things manufacturing abroad importing into the US you will want to look at potentially reshoring to the US itself looking at basically what your markets could be right? So, if you have heavier currencies in Europe and higher inflated dollar maybe you're looking at trying to enter new markets there where your exports from the US could go farther. So, it's a matter of market analysis and geopolitical risk monitoring which are the things that we do at Infortal. We kind of do those macro things we also have boots on the ground as well for other things but that's kind of it in a nutshell you have to just kind of position yourself for those changes.
Tom: You talked about Iran and is there I want to maybe tie it to this uh Chinese opening with uh potential business now between the Kingdom of Saudi Arabia and Iran. Does this present greater export sanction or trade sanction risks to American companies who have done business in Saudi Arabia to make sure that their products don't somehow get to Iran or somehow violate current sanctions?
Ian: Potentially! in terms of Iran specifically, I'm not sure how much ties with Saudi Arabia are going to allow Iran to get potentially threatening technologies or advanced technologies because Iranian drones are being used in Ukraine most of those components in those quote unquote Iranian drones are actually from American companies. So, as it stands Iran is probably getting some of that from China would be my guess because Saudi Arabia is still going to be wary of Iran ongoing, decades of war, unspoken war, and undeclared war don't go away overnight. And you still have sectarian tensions over the holy sites, and there's still competitors regionally whether or not China can keep them as growing sort of partners remains to be seen. But I don't think American companies necessarily have to worry about doing business in Saudi Arabia and then violating sanctions related to Iran although that is something that requires screening, and that requires screening your buyers, your partners in the country, etc. And the other ties that they may have and that requires not only good due diligence but also geopolitical risk intelligence. So, requires screening of partners and suppliers and things of that nature.
Tom: And then the Emirates with this treaty or rather Abraham Accords that were signed during the Trump administration do you see greater opportunities for US businesses in the Emirates? Or some greater opportunity for trade both with Israel in the Emirates? Or has that trade always been available or at least not always but in the last several years been available, and it's an ongoing relationship?
Ian: From the US standpoint it's been an ongoing relationship with both. But what the Abraham Accords allow is for integrated investment in other parts of the world so for example, the Emirates heavily invest in Africa and East Africa in particular where water technology is a premium, where you may have had geopolitical issues getting in the way of potentially working with Emirati investors putting in water systems in Africa for example. That originally come from Israel. That hurdle no longer exists. So, you're looking at a greater regional technological integration as the result of these ties that will expand beyond Israel and the Gulf states themselves into East Africa and elsewhere in the MINA region, plus Africa. So, from that standpoint, in those key sectors and also in finance, where a lot of financing in Africa comes from the Emirates, that's a lot of opportunities to be had there.
Tom: Ian, unfortunately we are near the end of our time for this episode but our listeners to join us for our next episode where we take a look at global risk in Latin America. I look forward to continuing this conversation.
Ian: Thank you for having me.