Failed States, Global Risks

Recently we’ve seen socioeconomic headwinds lead to civil unrest in Sri Lanka and Ecuador, bringing those countries close to ‘failed state’ status. These unfortunate events have not had large-scale repercussions on the global economy, supply chains, or natural resources. With that said, which fragile states facing similar situations risk having global ramifications, in terms of economic shocks, political contagion, or spillover of violence?

Every country in the world is facing disruptive impacts from the ongoing COVID pandemic, disinformation-fueled political divisions, and dramatic price increases in food and oil. In countries with well-functioning governments and civil society structures these impacts may be absorbed without pushing the country into failure or sparking regional violence. However, in at least four countries of strategic importance, I foresee a growing risk of state failure and political/economic contagion that US policymakers must take steps to mitigate: Pakistan, Venezuela, Iraq, and Jordan. These four face far more risk that food and oil price spikes and state corruption will spark the demographic bulge of unemployed 18-25 year old men into violence that could topple each government and spread regionally.

Turkey is still relatively solid but shows signs of crisis. The Lira has lost much of its value, inflation is high, and Erdogan refuses to raise interest rates. This has created dissent that the government tries to divert via aggressive rhetoric toward Greece, Cyprus, Syria, etc. If Turkey’s situation got worse, the impact could include economic repercussions (also due to the exposure of European banks), migration pressure on Europe, instability in the Middle East, and even conflict (domestic or with neighbors). Another case is Ethiopia, since it sees mounting inter-ethnic tensions beyond Tigray and is vulnerable to the grain shortage caused by the war in Ukraine. If it failed, a migration crisis would likely ensue, and instability could affect navigation through Bab-el-Mandeb.

African states loom large on the risk of failed states in 2022 from a combination of financial crises exacerbated by COVID and the worsening food/fuel price inflation. Ghana, Kenya, Ethiopia, Angola and Zambia face significant risk of default. All have been hit hard by imported inflation and/or the rising cost of debt service as developed countries increase interest rates. Instability in Ethiopia would impact the region’s security given simmering internal tensions (including Tigray), while Zambia is a key mineral exporter. Egypt has been hit hard by disruptions of food imports from Ukraine. Indonesia and Malaysia face significant debt servicing issues as well. Colombia has significant internal security challenges. While collapse is not likely, default would create more instability.