Here are the key trends that will shape a country's reputation

You think a country’s reputation doesn’t matter? Tell that to Alfonso Prat-Gay, the Minister of the Economy of Argentina. When I spoke to him a few months ago, elevating his nation’s bad rep was job #1. “Restoring our credibility in the global capital markets is a top priority,” Prat-Guy told me at the World Economic Forum in Davos earlier In January. A month later Prat-Guy, and newly elected president, Mauricio Macri, settled with a group of hedge funds which had fighting the country for more than decade over the restructurings after the country defaulted on  $100 billion of debt in 2001. Global markets applauded.

Country reputations—deserved or not—are critical in that they help determine investment flows in and out of a country, interest rates, and currency valuation. A reputation can also mean the difference between whether or not a company will make a direction investment, i.e. build a plant or factory, in a particular nation. So what influences a nation’s reputation? Policy yes, but also how a country and government handles change, which isn’t easy.

Our relationship to change generally takes three rather unfortunate forms. First there’s the change we don’t see coming. Now that’s unusual. You could argue US subprime crisis was just that, but the guys in the Big Short saw it, right? Though to be sure, the folks living in Iceland who got smacked by the fallout months later sure didn't see it coming. (More on Iceland's current problems a bit later.) Usually though they’re all kinds of signs, which leads to the second relationship: We see change coming but we don’t appreciate the magnitude. You see this time and again with the Digital Revolution. Or third, we see change and completely dismiss it. You could argue climate change deniers are in that category. Leaders who succeed are those who don’t succumb to any of those three pitfalls. They recognize, nay, seek out change, before others and plan to benefit from it.

No question, this isn’t easy to do. Take the current U.S. presidential campaign. Gerry Seib of the Wall Street Journal wrote that Americans are “feeling increasingly alienated from traditional institutions that once inspired confidence and unified the country.” Seib points to a Gallup poll that reports only 7% of Americans have confidence in Congress, the first time such a metric has ever fallen to single digits. Only two institutions out of 15, the military and high-tech industry, were viewed with confidence by more than 50% of those surveyed. And Seib says more than 50% of Americans agree with this statement: "The economic and political systems in our country are stacked against people like me." That’s up from 34% in 2002. Our country’s reputation, at least internally, has been taking it on the chin. This alienation had been building for years, yet you could argue that Jeb Bush for one could have done a better job of recognizing and understanding it.

I say internal reputation because from the outside looking in, the U.S. doesn’t look so bad at all. In a report by AT Kearney last year identifying 12 key trends for the next decade, that firm points out that “the United States is increasingly the main engine of global economic growth, thanks to strong energy reserves, an improved labor market, continued rising consumer demand, and world-leading technology innovation.” Curious that we in the U.S. are so down on ourselves.

In their book “No Ordinary Disruption,” McKinsey consultants Richard Dobbs, James Manyika, and Jonathan Woetzel write about four mega trends roiling our world. They write: “Compared with the Industrial Revolution, we estimate that this change is happening ten times faster and at 300 times the scale, or roughly 3,000 times the impact.” Whoa! (Perhaps you need some consultants to help you figure this out?) The McKinseyites say you might recognize the trends generally but not the impact. For instance we all know urbanization is huge but did you know that by 2025, China will be home to more large companies than either the United States or Europe? And McKinsey expect nearly half of the world’s large companies—defined as those with revenue of $1 billion or more—to be headquartered in emerging markets. Nearly half of global GDP growth between 2010 and 2025 will come from 440 cities in emerging markets—95 percent of them small- and medium-size cities that many Western executives may not even have heard of. In 2010, the GDP of Tianjin was around $130 billion, making it around the same size as Stockholm, the capital of Sweden. By 2025, the GDP of Tianjin will be around $625 billion—approximately that of all of Sweden. Been to Tianjin lately? You have to get out of the home office particularly if its in the US or Europe, simply because the other markets are becoming more important.

Remember the Population Bomb? The earth’s population was growing out of control? Wrong! Or more to the point: Western countries will lose their population dominance. Fertility is falling, and the world’s population is graying dramatically. For the first time in human history, aging could mean that the planet’s population will plateau in most of the world. Thirty years ago, only a small share of the global population lived in the few countries with fertility rates substantially below those needed to replace each generation—2.1 children per woman. But by 2013, about 60 percent of the world’s population lived in countries with fertility rates below the replacement rate. This is a huge. The European Commission expects that by 2060, Germany’s population will shrink by one-fifth. China’s labor force probably peaked in 2012. Still the IMF predicts that China, India, Indonesia, Brazil, and Russia will be among the 10 largest global economies by 2020, ahead of countries such as the United Kingdom and France.

Let’s talk about Africa for a moment. The volume of trade between China and Africa rose from $9 billion in 2000 to $211 billion recently.  The Nigerian economy has overtaken South Africa’s to become the biggest in Sub-Saharan Africa. According Nigeria now has an annual GDP of  $521 billion, up from $15 billion two decades ago. Its reputation, and deservedly so, has been one of bank fraud and Internet scams, but is that changing with companies like the conglomerate Dangote Group and oil giant Oando run by Adewale Tinubu, the oil king of Africa? Yes these companies have been smacked hard by the great oil price crash of 2015. But what’s next for Nigeria and do you want to be left beyond? Remember there is risk of omission as your competitors rush in to fill a business opportunity left unfilled by an excessive caution on your part.

Twenty years ago, less than 3 percent of the world’s population had a mobile phone; now two-thirds of the world’s population has one, and one-third of all humans are able to communicate on the Internet. It took more than 50 years after the telephone was invented until half of American homes had one. Flash forward to the present: Facebook went to 1 billion users in eight years.

The terrorists generally have used new platforms and networks to great effect. Unintended consequences loom large here. Who among us didn’t cheer the Arab Spring when it first appeared where technology, famously Twitter, helped topple regimes in Tunisia, Libya, Egypt and Syria. Now in at least three out of four of those countries—Tunisia perhaps the exception—conditions are worse. Migrants from these countries particularly from Syria are changing the politics of Europe. And of course the terrorists use the web to their ends consistently dancing ahead of Interpol, the CIA and others to plot and disrupt our societies in the West. ISIS supporters have reportedly 46K Twitter accounts. According to Global Terrorism Database of the National Consortium for the Study of Terrorism and Responses to Terrorism (START), the number of global Terror attacks has climbed from 2750 ten years ago to more than 16, 818 today. As for cybercrime, estimates provided by AT Kearney peg global cyber crime losses at somewhere between $375 billion and $575 billion annually. Home Depot experienced six months of a customized cyber attack that cost the company $62 million. We are fast becoming a world of cybercrime battlefields fought in the West, Saudi Arabia and the Emirates, Israel, China, Russia, Iran and the US.

That’s just a taste of some big trends that shaping and reshaping our geopolitical world. Of course there are many more like climate change, the decline of the nation state, the Internet of Things etc. But I think some of the changes I’ve described really have the power to alter the world and by extension change our perceptions of countries and their reputations. Again, recognizing and then capitalizing on these trends will certainly be the difference between winning and losing.

I want to give you one last example of how reputations and perception can change quickly and by forces completely outside of the control of traditional political norms. It comes from the so-called ‘Panama Papers,’ where a group of journalists has been investigating leaked documents from a Panamanian law firm detailing massive money laundering and allegedly illegal off-shore tax shelters by some of the world’s most high-profile political leaders and others. Many of these names are straight from a Who’s Who of Leadership Bad Guys, Rogues and Scoundrels including Vladimir Putin, Bashar Assad and the late Muammar Gaddafi. But also fingered was Prime Minister Sigmundur David Gunnlaugsson of Iceland, accused of hiding money in an offshore account. Gunnlaugsson now finds himself in the same company as the aforementioned bad guys, which is tough. Thousands of Icelanders called for him to resign, which he did on April 5th. And Iceland which of course blew up like a bad hedge fund in the 2008/2009 financial crisis now finds itself right back in the soup. Not good. And who among us saw THAT coming?

The preceding was an adaptation of remarks given by Andy Serwer at the World Forum for Foreign Direct Investment in San Diego April 5th.