It’s been almost 4 months since Moscow’s invasion of Ukraine in late February, and since then the US and its allies have imposed a series of financial, trade, and travel sanctions on Russia. We now have 4 months’ worth of data, and scrutiny, to help aid decision makers in assessing the economic impact of these sanctions, and to look at whether increasing pressure on Russia with new sanctions may help to put an end to the war or further promulgate dire consequences.
The impact of this war has had wide reaching consequences, both Russia and Ukraine are key global suppliers. How can business leaders better prepare themselves for mitigating the risks amidst uncertainty?
Business leaders are in a unique position, to be able to leverage their vital data driven insights and analysis and bring it to the fore. With renewing their focus on key priorities such as robust scenario planning, cost reduction and planning for divestment, if need be, and delving deeply into looking at new and expected risks, it will be possible for them to stay on track for growth with limited impact on their business. Let’s take a brief look at some of the areas discussed above.
First and foremost, the most fundamental area of business that needs to be looked at is operational risk. This global crisis affects an organization’s risk profile across the board, such as business continuity, financial crime, ESG risk, third party risk and cyber security risk. It’s important for CRO’s and CCO’s to work together with their teams to review exposure across these areas.
Maintaining your value chain
Secondly, if your organization has major operations in Russia and Ukraine, cutting costs is of paramount importance. It is essential to look at your value chain. One of the effects on business may be due to pressures from inflation. If this is the case, it’s essential to monitor your cost structures, bearing in mind both direct exposures to higher energy and raw material costs, and indirect exposure to inflation. You need to make informed decisions, perhaps you may need to look into renting rather than owning assets, or even reduce capacity, staff or look into outsource as much as possible. This should help set you up for the reality of the “new normal” because countries are quick to dish out sanctions, while the removal of sanctions is often a lengthy process. It is full of political and economic negotiations that are long and drawn out. We have seen the rise in the cost of cross border trade due to this crisis, and this may continue to be the case for some time. Although cost cutting is important, it’s important for these measures to allow for strategic assets, there was already a lack of competent resources and talent before the war and there is more of a shortage now.
Hope for the best, but plan for the worst
Thirdly, a lot of businesses talk about disaster planning, however scenario planning is critical at uncertain times like this. The more insights and data you have, the better equipped you are to navigate these treacherous waters against a backdrop of uncertainty.
It is critical to work with key stakeholders across the organization and work on scenario modeling. You can ensure that your models are relevant and focused both on internal and external factors, by creating cross organizational teams.
Leveraging AI and machine learning technology as a productivity superpower to speed up the decision making, and planning process can be extremely beneficial to the business.
Your models need to focus enterprise wide and take into consideration all areas of the business, including finance, risk, supply chain, procurements etc. Areas to look at in your modeling scenarios may vary depending on your business type and industry sector, but key areas should include: operational impact, changes in energy prices, raw materials, supply chain implications, fluctuations in customer demand and consumer confidence, looking at resources (staffing) shortages, and hybrid working scenarios.
Last but never least
Finally, a lot of organizations who had ties to Russia, have either suspended their operations there, or have permanently left the country. The decision to leave or suspend operations is a complex one and it is all dependent on your business model. However, these decisions will not only impact your employees and how you support them through this transition; they will also have a deep impact on your organization from a legal perspective. This may leave gaps in your possible withdrawal or business capabilities.
We still don’t know how this war will pan out, will there be more pressure and more sanctions? How will Russia respond to existing or potential sanctions? The answers to these questions will all reveal the extent of the economic impact of this war. We know that during times of uncertainty not only do commodity prices rise, the cost of doing business also increases, and many organizations in their attempt at being risk averse, tend to delay making important or critical business or investment decisions. Besides the economic impact, the global geopolitical framework is rapidly shifting. We may see a lot of government spending on defense, and questions around taxation and spending priorities will be at the fore. In addition to all of this, the fact that the impact on energy will be tremendous cannot be denied, so we should expect to be in for lengthy discussions around energy policies.
There are many challenges and uncertainties still to come and their impact will be discussed and debated for months or even years to come. But one thing is certain, and that is that we are in a new era, now, what will the outcome of this new age be? At this point in time, it’s unpredictable.
About Nirvana Farhadi
Nirvana Farhadi is a Compliance.ai expert advisor, thought leader, pioneer and a recognized global influencer in the RegTech sector, with more than 20 years of experience in financial services. She has developed, built, and advised on multiple RegTech solutions. She was most recently with Hitachi as their Global Head of Financial Services, RegTech Risk and Regulatory Compliance Affairs; and she worked with KPMG as their Head of Regulatory Reporting. She has covered areas such as GDPR, CCPA, and multiple global data privacy regulations, regulatory reporting, record keeping, AML, and data governance. In addition to her RegTech expertise, Nirvana is an author, keynote speaker, and industry collaborator.
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