Navigating the New Geostrategic Terrain: Insights from the 2024 Outlook by EY

The 2024 Geostrategic Outlook Report by EY offers a deep dive into the complexities of current global dynamics, focusing on the emergence of a multipolar world and the strategic imperative for nations to de-risk their economic and geopolitical engagements. This environment is characterized by a pronounced shift from global interconnectedness towards regional and national prioritization, with significant emphasis on securing supply chains and reducing dependency on geopolitical rivals.

The report identifies key drivers reshaping the geopolitical landscape, including technological advancements, climate change, and evolving economic models, which collectively demand a reevaluation of traditional alliances and strategies. It also sheds light on the increasing role of digital sovereignty and cyber capabilities as pivotal elements of national security, emphasizing the need for robust cyber defense mechanisms in the face of escalating cyber threats.

The document forecasts a world increasingly divided into geopolitical blocs, with great powers like the US, EU, and China navigating uncertain relationships. Smaller nations and non-state actors are expected to assert their influence more forcefully, challenging the established norms and creating a multipolar world. This shift encourages countries to pursue economic diversification and bolster supply chain resiliency against potential disruptions.

The emergence of new players such as geopolitical swing states and smaller countries seeking to change the status quo is likely to have a significant impact on existing power dynamics on the global stage. These new players, which are not aligned with any major power or bloc, will increasingly influence geopolitics in 2024. Countries like Saudi Arabia, the UAE, Turkey, India, and Brazil are expected to play key roles in shaping regional dynamics and global issues.

Saudi Arabia and the UAE, for example, will have a significant influence on Middle Eastern geopolitics, including their relations with Israel. Turkey will continue its efforts to mediate between Ukraine and Russia while expanding its role in the Caucasus and the Middle East. India is projected to strengthen its partnerships with the West on security matters while maintaining economic ties with Russia. Brazil aims to elevate Latin America's role on the global stage, particularly on environmental issues.

Additionally, the actions and decisions of these new actors can introduce volatility into diplomatic and economic relations, potentially leading to shifts in alliances and cooperation patterns. For example, the collaboration between India and China within the BRICS framework, despite their ongoing border disputes, showcases how new geopolitical actors can influence traditional alliances.

Furthermore, the document discusses the potential ramifications of these shifts for international trade, highlighting a possible retreat from globalization to more protectionist policies. This could lead to increased competition for resources and technological dominance, underscoring the importance of innovation and sustainable development in maintaining geopolitical influence.

The global elections supercycle in 2024 will have a significant impact on economic policies and nationalist attitudes. Heightened voter concerns about inflation and economic growth are likely to result in many new governments prioritizing economic policy changes. Shifts in tax policy and other economic regulations may occur, potentially creating both sales and growth opportunities for businesses. However, these policies are expected to be framed within economic security objectives, limiting some opportunities to companies from a government's domestic market and its allies.

The report concludes by advising businesses and governments to adopt agile, forward-thinking strategies that can navigate the uncertainties of this new geostrategic environment. It underscores the necessity of fostering resilience, enhancing diplomatic engagement, and prioritizing sustainable growth to mitigate risks and seize emerging opportunities in this evolving geopolitical context.

Businesses can prepare for potential shifts in tax policy and economic regulations resulting from the global elections supercycle in 2024 by conducting scenario planning for election and policy outcomes. This involves identifying multiple plausible scenarios and assessing their business implications, from revenue to operations. By understanding these potential scenarios and exposures, executives can adjust their strategy and risk management activities to capture opportunities and limit downside risks. Additionally, they should assess sales and growth implications of economic policies, considering how new governments' policies may affect opportunities and challenges in their sector. Executives should also monitor the geopolitical relationship between countries they operate in and anticipate potential regulatory delays or rejections of transactions that touch national security concerns. Identifying investment opportunities in strategic sectors and assessing opportunities associated with enabling policies while considering geopolitical dynamics and alliances can also help businesses prepare for potential shifts in tax policy and economic regulations.

According to EY, Executives can effectively adjust their strategy and risk management activities based on the potential scenarios and exposures identified through scenario planning by taking the following actions:

1. Invest in innovative adaptation strategies: Executives should consider investing in innovative adaptation strategies related to climate change. By paying attention to the climate adaptation imperative, companies can position themselves to take advantage of the growing market for adaptation solutions, potentially worth $2 trillion annually within the decade.

2. Incorporate climate change into location assessments and investment diligence: Executives should factor in climate change considerations when making decisions about new investments in physical assets. This includes assessing the impact of extreme weather events and chronic climate risks on the value of assets and business operations.

3. Prepare for potential currency effects and tax increases: Executives should anticipate the potential effects of climate change on government finances, including reduced tax income and increased fiscal expenditure. This could lead to tax increases, particularly in industries like oil and gas. Companies should monitor these situations and prepare for potential currency devaluation.

4. Anticipate geopolitical impacts on mergers and acquisitions (M&A): Economic security policies and geopolitical relationships between countries can impact cross-border transactions. Executives should assess these factors to anticipate potential regulatory delays or rejections of transactions.

5. Identify investment opportunities in strategic sectors: Governments are likely to implement industrial policies to promote local research, development, and production in strategic sectors. Executives should assess these opportunities and consider related tax breaks, subsidies, and investments while taking into account geopolitical dynamics and alliances.

By incorporating these strategies and risk management activities based on the identified scenarios and exposures through scenario planning, executives can better navigate the challenges and opportunities presented by climate change and geopolitical factors in their business operations.