Sustainability and Environmental Policy Challenges

Indonesia faces mounting criticism over deforestation, land conversion, and large concessions, which increase disaster risks and threaten long-term sustainability. Environmental management and regulatory enforcement are under scrutiny, affecting international partnerships and compliance with global ESG standards.

Financial Sector and FDI Liberalization

India’s financial sector reforms, including 100% FDI in insurance, improved regulatory oversight, and new securities market codes, deepen capital markets and attract global investors. These changes enhance competition, lower costs, and strengthen India’s role as a preferred destination for foreign capital.

Gaza Ceasefire and Governance Transition

Israel’s business environment is shaped by the US-led Gaza ceasefire plan, which introduces a technocratic Palestinian administration and international oversight. Uncertainty over Hamas disarmament, Israeli withdrawal, and reconstruction funding creates significant operational and investment risks for international firms.

Security Risks and Cartel Violence

Escalating cartel violence and US threats of military intervention heighten operational and reputational risks for international businesses. Despite increased arrests and cooperation, criminal organizations still exert significant influence, affecting logistics, investment, and local partnerships.

Trade Policy Uncertainty and EU-Mercosur Tensions

Strong domestic opposition to the EU-Mercosur trade deal, especially from French farmers and parliament, has led to protests and political crises. This uncertainty affects market access, supply chains, and investment strategies for global agribusiness and exporters.

China-Japan Trade Tensions Escalate

China’s sweeping export controls on dual-use items and rare earths to Japan, in retaliation for Tokyo’s Taiwan stance, threaten to disrupt Japanese manufacturing, especially in automotive and electronics sectors, and heighten geopolitical and supply chain risks for international investors.

Political Uncertainty and Border Tensions

Thailand faces heightened political uncertainty ahead of the February 2026 elections, compounded by border tensions with Cambodia. These factors increase operational risks, impact investor confidence, and may disrupt cross-border trade and supply chains.

High-Tech Investment and Cybersecurity Growth

Israel’s high-tech sector, particularly cybersecurity and AI, continues to attract substantial foreign venture capital. Early-stage investment models and government support drive innovation, but ongoing conflict and regulatory changes may affect talent mobility, valuations, and cross-border partnerships.

Organized Crime and Investment Risk

Persistent organized crime and cartel activity, especially in key states like Michoacán, continue to pose operational and security risks. Despite increased arrests and bilateral cooperation, extortion, violence, and supply chain disruptions remain significant concerns for international investors.

Regional Alliance Shifts and Japan’s Role

Japan has signaled that a Taiwan contingency could trigger its own collective self-defense, linking its security directly to Taiwan’s fate. This evolving regional alliance landscape increases the complexity of risk for international businesses, with potential for broader conflict and supply chain disruptions.

Labor Market Reforms and Automation

Sweeping labor reforms will extend protections to up to 8.6 million freelancers and platform workers, shifting the burden of proof to employers. While enhancing worker rights, these changes may increase costs and accelerate automation, impacting employment dynamics and operational strategies.

Regional Economic Retaliation Measures

China’s use of economic tools—such as import bans, tourism restrictions, and trade curbs—against Japan and other neighbors highlights its readiness to retaliate over perceived sovereignty threats. These actions create volatility in regional markets and complicate long-term investment planning for multinationals.

Return of Global Capital Flows

December 2025 saw renewed global fund inflows into Thai equities, driven by attractive valuations and diversification needs. Political risks remain, but normalized foreign investment levels could bring up to US$20 billion in new capital, boosting market liquidity and growth.

Technology Export Controls and Sanctions

Taiwan faces evolving export control regimes, especially for semiconductors and AI chips, amid US-China tech competition. New tariffs and sanctions, including US restrictions on certain AI chips, create compliance challenges and impact Taiwan’s global trade flows.

National Security Strategy and Economic Unilateralism

The 2025 US National Security Strategy prioritizes reindustrialization, energy independence, and technological supremacy. Its mercantilist, interventionist stance increases regulatory barriers, marginalizes allies, and risks global market fragmentation, directly affecting international trade and investment planning.

Administrative Reform and Anti-Corruption Drive

To Lam’s administration has cut bureaucracy, eliminated ministries, and intensified anti-corruption efforts. While these measures improve the business environment, rapid changes and centralization can create uncertainty for foreign investors regarding legal enforcement and policy direction.

Infrastructure Deficits And Service Delivery

Persistent infrastructure challenges—especially in electricity, water, and transport—hamper economic growth and business operations. Municipal debt, unreliable utilities, and deteriorating urban services increase costs and operational complexity for companies reliant on stable infrastructure.

Currency Depreciation and Financial Stability

The Korean won’s sharp depreciation—over 2% in early 2026—raises concerns for outbound investments and financial stability. Authorities are balancing market liberalization with intervention, as large capital outflows could exacerbate volatility, impacting international investors and trade partners.

Structural Financial System Constraints

Pakistan’s financial system is dominated by government borrowing, crowding out private sector credit. With Rs 37 trillion in public debt exceeding banking deposits, exporters and manufacturers face high borrowing costs, stifling industrial growth and undermining export competitiveness.

Energy Transition and LNG Import Surge

Egypt’s domestic gas production decline has led to record LNG imports—over 9 million metric tons in 2025—mainly from the US and Qatar. New energy deals and infrastructure are reshaping Egypt’s energy mix, with a strategic pivot toward renewables and regional energy hub ambitions.

India-EU Free Trade Agreement Nears

India and the EU are set to finalize a comprehensive free trade agreement, covering goods, services, and investment. This deal will boost bilateral trade, attract FDI, and enhance supply-chain resilience, positioning India as a key global manufacturing and export hub.

UK Trade Growth Lagging Global Average

UK trade growth is forecast at 2.3% annually, below the global average of 2.5%, due to slow expansion with the US and China. Deepening ties with the EU and other rule-based economies is seen as crucial for exporters and supply chain resilience.

Labor Reforms and Wage Increases

Mexico implemented a 13% minimum wage hike in 2026, expanded social security for platform workers, and is debating a reduction in the workweek. These reforms aim to improve labor conditions but may increase operational costs and require business adaptation, especially for SMEs.

Demographic Shifts and Talent Gaps

With the world’s lowest birth rate and a rapidly aging population, South Korea faces acute talent shortages. Consulting firms are increasingly advising on workforce planning, migration, and automation to address labor gaps affecting trade and operational continuity.

Regional Security Alliances and Strategic Positioning

Japan’s explicit linkage of its security to Taiwan and US strategic documents underscore Taiwan’s role in Indo-Pacific stability. Heightened military posturing and alliance-building increase both deterrence and the risk of escalation, affecting long-term business planning and risk assessment.

Labor Market Saudization Intensifies

New regulations require 60% Saudization in marketing and sales roles, impacting expatriate employment and raising labor costs for multinationals. While aiming to boost local employment and job quality, these policies may disrupt established supply chains and increase compliance burdens for international firms.

Infrastructure and Logistics Bottlenecks

Despite reforms, South Africa’s infrastructure—particularly in electricity, rail, and ports—remains a constraint. Delays in logistics and persistent service failures disrupt supply chains, increase costs, and erode competitiveness, challenging companies reliant on efficient movement of goods.

Regional Security and Geopolitical Tensions

Iran’s weakened regional influence and ongoing US-Israel confrontation heighten geopolitical risks. The threat of military escalation, regime change scenarios, and proxy conflicts in neighboring countries increase uncertainty for international trade and investment strategies.

AI Boom Spurs Startup Investment

Swedish startups like Lovable, Anysphere, and Legora have seen valuations multiply in 2025, fueled by record global AI investments. This trend enhances Sweden’s innovation ecosystem but also signals increased competition and volatility for investors.

Foreign Direct Investment Reboot

Thailand is prioritizing high-value FDI in sectors like high-tech, green infrastructure, and wellness tourism. Streamlined investment processes and improved incentives aim to reverse declining FDI, but success depends on legal reforms, transparency, and stable governance.

Dual-Use Export Controls Expansion

China’s expanded controls on dual-use items—goods with civilian and military applications—target Japan and other countries over security concerns. These measures disrupt technology, aerospace, and defense supply chains, and signal China’s willingness to weaponize trade in geopolitical disputes.

Geopolitical Risks in East Asia

Rising military tensions over Taiwan and the Senkaku Islands, with Chinese naval activity and Japanese security commitments, increase the risk of regional conflict. This instability directly affects trade, investment flows, and the strategic calculus of multinational firms operating in Asia.

AI and Advanced Technology Investments

South Korea is tripling AI spending, aiming to become a top-three global AI power. This government-led push is accelerating innovation, attracting foreign direct investment, and reshaping the tech sector, with significant implications for supply chains and talent acquisition.

Supply Chain and Logistics Vulnerabilities

Frequent attacks on transport, energy, and port infrastructure have exposed Ukraine’s supply chain vulnerabilities. Businesses face heightened risks of delays, increased costs, and the need for contingency planning and diversification of routes and suppliers.

Climate Policy and Emissions Targets

Germany met its 2025 climate target but with only a 1.5% emissions reduction. The country risks missing future goals, facing potential €34 billion in emission rights costs, affecting energy-intensive industries and investment in sustainable operations.

Shifting International Investment Strategies

Due to domestic uncertainty, 56% of French business leaders now prioritize international expansion, especially in Europe and Southeast Asia. This trend reflects efforts to mitigate local risks, diversify revenue, and secure talent, but may slow France’s domestic reindustrialization agenda.