Bank CEOs have good reason to be worried about rising civil unrest, as economic conditions deteriorate fast around the world. If 2019 was the year of protest, 2022 could be the year of unbottled rage.
“Businesses should prepare for a rise in civil unrest incidents as the cost-of-living crisis follows hard on the heels of the COVID pandemic.” That is the message of an article published on the corporate website of Allianz, the world’s largest insurance company with over €1.1 trillion in assets. It reflects the growing concerns among executives in the FIRE (finance, insurance and real estate) sector about the risk of societal breakdown. According to Srdjan Todorovic, the Head of Crisis Management at Allianz Global Corporate and Specialty’s London unit, civil unrest is now a bigger threat to global businesses than terrorism:
Civil unrest increasingly represents a more critical exposure for companies than terrorism. The nature of the threat is evolving, as some democracies become unstable, and certain autocracies crack down heavily on dissenters. Unrest can occur simultaneously in multiple locations as social media now facilitates the rapid mobilization of protestors. This means large retail chains, for example, could suffer multiple losses in one event.
Where we currently stand, I don’t expect incidences of social unrest to abate any time soon, given the after-shocks of Covid-19, the looming cost-of-living crisis, and the ideological rifts that continue to divide societies around the world. We’re seeing rising interest from risk managers in specialist cover for political violence, as some traditional property and casualty insurers have stepped back from the exposures associated with SRCC insurance. The standalone market is also having a rethink on war-like perils, as well as the coverage extensions that were offered freely only a few months ago.’
Recent protest movements have already exacted a heavy toll on both economies and companies, the article notes. In 2018, French retailers lost $1.1 billion in revenue in just a few weeks of the Yellow Vest movement’s Saturday protests against rising fuel prices and economic inequality. A year later in Chile, an increase in subway fares in the country’s capital sparked large-scale demonstrations, leading to insured losses of $3 billion. South African riots of July 2021 caused $1.7 billion of damage. One recent protest the article doesn’t mention is the Canadian Freedom Convoy’s blockade of the US-Canada border in February this year, which is estimated to have caused over $1 billion in losses daily.
“A Crisis On Top of A Crisis”
Todorovic is not the only person worried about the looming threat of widespread civil unrest. Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), recently said: “We are facing a crisis on top of a crisis,” referring to the combined impacts of the Covid pandemic and the war in Ukraine. Georgieva described rising inflation as a “clear and present danger” to many countries and cautioned that if action is not taken to shore up food security, “the alternative is dire: more hunger, more poverty, and more social unrest – especially for countries that have struggled to escape fragility and conflict for many years.”
In May this year, Nafeez Ahmed, the special investigations reporter of the British newspaper Byline Times, published an article warning that global banks are privately preparing for “dangerous levels” of imminent civil unrest in Western homelands. Citing the head of a “financial institutions group” that provides expertise and advisory services to other banks, insurance companies, and other financial institutions, Ahmed reported that contingency planners at top financial institutions believe that “dangerous levels” of social breakdown in the West are now all but inevitable, and imminent:
An outbreak of civil unrest is expected to occur anytime this year, but most likely in the coming months as the impact of the cost of living crisis begins to saturate the lives of “everyone”.
The executive [who spoke to Byline News on condition of anonymity as the information he disclosed is considered highly sensitive] works at a leading Wall Street firm which is considered a systemically important financial institution by the US Financial Stability Board. These are institutions whose functioning is considered critical to the US economy, and whose failure could trigger a financial crisis.
According to the executive, major banks all over the world including in the US, UK and Western Europe are instructing their top managers to begin actively planning how they will respond to the impact of financial disruption triggered by a prolonged episode of civil unrest. However, the banking official did not elaborate on what these planning measures involved beyond reference to stress testing to determine the impact on investment portfolios.
While increased civil unrest in developing countries has been openly discussed by major institutions such as the UN, World Bank, IMF and other institutions, this is the first time in recent years that expectations of a coming epidemic of social breakdown in Western societies has been attributed to top banking and investment firms.
Even before the COVID-19 pandemic upended an already fragile global economy, inequality and social divisions were already rising fast around the world. The Global Financial Crisis of 2008 and the unwillingness of governments or central banks to tackle the underlying causes of the crisis — including huge levels of private debt (much of which was shifted onto public ledgers), unfettered speculation in the financial markets and the creation of ever more destructive financial instruments — have fuelled political instability and polarization. According to the Global Peace Index, demonstrations, strikes, and riots surged by 244% between 2011 and 2019.
“The Year of Protest”
2019 was “the year of protest.” As the New Yorker reported in its final issue of the year, spontaneous “movements unleash[ed] public fury on a global scale — from Paris and La Paz to Prague and Port-au-Prince, Beirut to Bogota and Berlin, Catalonia to Cairo, and Hong Kong, Harare, Santiago, Sydney, Seoul, Quito, Jakarta, Tehran, Algiers, Baghdad, Budapest, London, New Delhi, Manila, and even Moscow.”
The social and economic grievances that fuelled those movements have not gone away; rather, they have been turbocharged by the fallout of the coronavirus crisis as well as the war in Ukraine and the West’s backfiring sanctions against Russia. According to the
Verisk Civil Unrest Index Projections, 75 countries will likely see an increase in protests by late 2022. The following countries are already suffering protests and civil unrest*:
- Sri Lanka, whose government recently defaulted on its debt for the first time since gaining independence from the British Empire in 1948. Protesters took the presidential and prime ministerial residences by storm last weekend and have pledged to stay there until both leaders have gone. The President Gotabaya Rajapaksa has already fled, first to Maldives and then onto Singapore.
- The Netherlands, where farmers have been blocking roads, ports, airports and supermarket distribution centers for weeks in protest at the government’s net zero commitments, which could force as many as 30% of the farms out of business — all in the midst of a global food crisis! Like the Canadian trucker convoy, the protests have caused all manner of mayhem in the Netherlands as well as inspiring similar farmer-led protests in Germany, Poland, Spain, Italy and Portugal.
- Italy, where striking taxi drivers have brought cities to a standstill following the International Consortium of Investigative Journalism’s latest revelations of the aggressive tactics used by Uber to enter international markets. The Mario Draghi government is also in a bit of a pickle after a coalition partner, the 5-Star Movement, boycotted a vote ostensibly intended to mitigate the country’s cost of living crisis. Following the vote Italy’s never-elected Prime Minister Mario Draghi apparently tendered his resignation but was rebuffed by President Sergio Mattarella, who appointed Draghi to head Italy’s technocratic government in the first place.
- North Macedonia, whose parliament is about to vote on a French compromise deal for settling the country’s disputes with Bulgaria, which would allow its European Union membership talks to finally start. Not everybody is happy at the prospect. As Reuters reports, the nationalist opposition VMRO-DPMNE, has led daily protests since the beginning of July over the deal which they say endangers the Macedonian language and identity.
- Albania, where thousands have marched calling on the government to resign over steep price increases. As NC reader Rita, who is based in Albania, pointed out, the protests were also fueled by the US declaring the former Prime Minister and current leader of the opposition, Sali Berisha, persona non grata.
- Ecuador, where 18 days of fuel and anti-austerity protests by indigenous groups across large swathes of the country recently came close to bringing down the Lasso government. The protesters have agreed to a 90-day truce in exchange for four scalps (including Economy Minister) from his cabinet.
- Panama, where protests and strikes against the rising cost of living have brought construction activity to a standstill while blockades have made it difficult for ships to unload their food cargo. Demonstrators are demanding higher wages, lower commodity prices and the removal of supply chain bottlenecks. In a bid to tame the protests, the government just announced price controls on gasoline and diesel for the next three months.
- Ghana, where in recent weeks thousands of young protesters have marched against rising food and fuel prices as well as the recent decision by the government to open bailout talks with the IMF.
- Peru, whose Pedro Castillo government has been rocked by a wave of protests since April over a whole host of issues, including rising energy prices and a giant oil spill caused by Spanish energy giant Respol.
- Argentina, where annual inflation reached 60% in May, its highest level since 1992. The country just witnessed a 24-hour nationwide strike by farmers over taxes, fuel shortages and the rising cost of fertilizers — a direct result of the West’s sanctions on Russia. Demonstrators in Buenos Aries have called on the Fernández government to resign while rejecting IMF loans that come with the usual strings attached, which is perfectly understandable. The country’s Economy Minister, Martin Guzman, who recently sealed a $44 billion bailout deal with the International Monetary Fund (IMF), already resigned two weeks ago.
- Pakistan
- Zimbabwe, which has seen a surge in protests against US sanctions and their crippling effects on the economy.
- Venezuela
- Lebanon, which has been struggling with hyperinflation since mid-2020 and which, like Afghanistan, Djibouti, Lebanon, Pakistan, Somalia, Sudan, the Syrian Arab Republic and Yemen, is facing high levels of undernutrition and food insecurity.
- Kenya, where cost of living protests are multiplying.
- Libya
- Iran
- Iraq
- United Kingdom, where thousands of people have protested in the past month over the rising cost of fuel and food. Household energy bills increased by 54% in April 2022, a record surge, and are likely to rise sharply again in October. As money saving expert Martin Lewis said on the BBC, unless the government takes actions to cushion the blow, it’s “going to be a very bleak winter”:
We are getting close, I have said this before, to a position of civil disobedience in this country, civil unrest… I just give a warning now: you cannot spend too much time on this. We have a genuine catastrophic crisis hitting with ten million people potentially moving into severe levels of poverty.
- China, where protests over frozen accounts at four rural banks in Henan province last Sunday (July 10) culminated in a violent crackdown by private security goons. In his comments on the threat of civil unrest in the UK, Martin Lewis hinted that people could begin to stop paying their bills or debts en masse. Interestingly, this is something that already appears to be happening in China. Two days ago, Bloomberg reported that desperate homeowners across over 20 cities have responded to stalled property developments and/or falling property prices by refusing to pay mortgages on their unfinished homes. That is what banks ultimately fear — that people, companies or even governments stop paying their debts.
Recent developments in China also serve as a reminder that many of the protest movements taking place around the world are a result of problems that have been brewing for some time. The Chinese government’s decision a number of years ago to reduce the economy’s reliance on real estate, while certainly salient, was always fraught with risks. Since Evergrande, the world’s most debt-saddled property developer, entered default last December, a number of smaller Chinese property developers have followed it over the edge. In a worst-case scenario, we could be witnessing the beginnings of a disorderly collapse of the world’s largest property market, to which some Western investment funds and banks are heavily exposed.
As I warn in my book, Scanned, if 2019 was the year of protest, 2022 could be the year of unbottled rage. Now, banks and insurance companies are beginning to issue a similar warning. As we have just seen in Sri Lanka, when large segments of a population lose access to food and energy, protests can very quickly spiral out of control. It doesn’t take much to tip a deeply unpopular government over the edge. Now, concerns are growing that Sri Lanka could be a canary in a coal mine, as surging inflation, rising interest rates, plunging currencies and gathering capital flight threaten to unleash a perfect storm across emerging markets, whose governments now face record high financing needs.
As protests grow in size and intensity, it is perhaps no surprise that governments, central banks and corporations around the world, from West to East, are trying to rush into existence and law digital technologies such as vaccine passports, digital IDs and central bank digital currencies that offer the promise of much greater control of their increasingly restive populations. Gathering civil unrest could even serve as a public justification for their introduction.
Recent years have already seen a worrying shift toward authoritarianism across the globe. According to the International Institute for Democracy and Electoral Assistance, a Sweden-based global non-profit, the number of countries that are becoming “more authoritarian” by the group´s calculus is three times the number of countries that are moving toward democracy. The year 2021 was the fifth year in a row that the trend has moved in that direction, the longest uninterrupted run of pro-authoritarian developments since the IIDEA started tracking these developments.
* This is by no means an exhaustive list. It is merely a selection of some of the protest movements I have recent come across or been able to identify. Would much appreciate readers’ input if you know of any other protests taking place or can provide further details on the countries mentioned.
