New reports highlight main drivers of instability
The global instability of 2016 heralded the start of a new era of political risk which will create greater uncertainty the world over, according to new reports by Verisk Maplecroft and Aon.
The Trump presidency, Brexit and a more assertive China are some of the drivers of this instability.
Verisk Maplecroft’s Political Risk Outlook 2017 report, which projects government stability out to 2019, suggests the upheaval of 2016 was not an exception, but a paradigm shift in political risk that will create greater uncertainty across the globe.
According to the data, the Middle East and North Africa region and sub-Saharan Africa are most exposed regions globally.
In Europe, the UK has one of the highest risk profiles for any European country. Brexit has resulted in a 69% chance that the stability of the UK government will deteriorate by 2019. France, Germany and Italy also display highly uncertain outlooks, but the trajectory of risk in these countries could go either way depending on the outcome of their upcoming elections.
Across the Atlantic, the Trump presidency will raise the US political risk profile and inhibit a predictable operational environment. Trump’s brand of economic nationalism will be framed by tax and regulatory relief and heavy protectionism.
Trump’s vow to quit the Trans-Pacific Partnership (TPP), designed by the Obama administration to be a cornerstone of US strategic engagement in the Asia Pacific region, could also promote instability in the region.
“This presents China with a golden opportunity to strengthen its regional leadership role,” the report said.
Karina Rodriguez-Diaz, crisis management placement manager at Aon agreed that 2017 would be a heightened year of political risk.
“These political risks are mainly focused on the implications of shifting political alliances between the United States, China and Russia,” Rodriguez-Diaz said.
Closer to home, Rodriguez-Diaz said political risk in South East Asia also needs to be watched.
“From people power due to economic reform in Indonesia and the rise of military fractures in Thailand, to a change in government in Malaysia.
“The global regulation landscape is also increasingly becoming more complex and companies are going to find it difficult to keep up with the changes taking place.
“[There is also] the threat of terrorism as trans-national terror groups step out of their origins and advance in other parts of the world,” she said.
The evolution of political risk
Discussing how political risk has changed in recent years, Rodriguez-Diaz explained that we live in an interconnected world where the impact of globalisation to people, businesses, governments and countries are continuing to challenge and evolve.
“At the same time, political and economic risks have become more complex and interconnected,” she said.
“Political risk has traditionally been a challenge for developing countries. Emerging economies in general suffer from weak regulatory systems, corruption, terrorism, plus political instability.
“However, recent events in developed countries, such as Brexit and the US elections, are creating an instability that has big wave effects on the rest of the world.”
Rodriguez-Diaz added with these developments, risk managers need to change the way they approach and analyse political risk.
Rodriguez-Diaz’s top five recommendations for risk managers
- From an insurance point of view, review your program to ensure it fits your risk profile.
- Understand law and regulations in specific countries where you have business and / or operations.
- Develop a crisis management and business continuity plan. If you already have one, ensure it is still fit for purpose.
- Protect your people. Train your staff.
- Understand the broader implications of your supply chain. Identify and evaluate how political risks may impact your suppliers and have a consequential effect on your business and operations.