JLT says unprecedented foreign direct investment in today’s volatile geopolitical environment underpins need for tool to survey global risk landscape
Jardine Lloyd Thompson Limited (JLT) has launched a world risk ratings tool (World Risk Review).
JLT said the tool will enable companies to survey the global risk landscape with greater granularity, rigour and sophistication.
World Risk Review takes in nine perils and uses fifty-three data sources gathered from think tanks, governments, academics, and economists. Each peril rating incorporates at least six data sources and all ratings are reviewed and updated online.
JLT said the model had been launched in response to unprecedented foreign direct investment (FDI) and trade volumes in today’s unpredictable geopolitical environment.
Net FDI flowing to emerging economies has in three years doubled from $160bn in 2003 to $320bn in 2006. Consequently, this is where JLT believe the model will add most value as a starting point for country risk analysis and management.
In a statement JLT said: ‘Research just published by the Economist Intelligence Unit reveals that whilst political risk is expected to pose an increasing threat to business over the next five years, few currently have adequate mechanisms to measure and manage it. Chief among these threats are worldwide instances of what JLT refer to as “Resource Nationalism” – the use of natural resources as a political weapon e.g Venezuela, Uzbekistan and DRC. The result of this is an increased risk of expropriatory acts and forced renegotiation of contracts.’
Commenting on the model, Nick Robson partner at JLT said: ‘While macro economic and geopolitical risk is today a growing and inescapable part of global business, the greatest risk of all is ignorance. Clearly, we can never eliminate risk altogether -- indeed without risk there would be no return—however, we can deepen our current understanding in a bid to manage the consequences of risk more effectively. The mistake that companies shouldn’t make is to view themselves purely as a victim of country risk but rather as an active participant.’
Dr Elizabeth Stephens, architect of the model, added: ‘The risk profile of an investment is determined not just by the destination of the investment but also by its country of origin. Western capital is increasingly at risk in emerging markets because of the rise of anti western sentiment or "Occidentalism" and the growth of alternative "easier" sources of 'non-western' finance. Much like speed dating, countries seeking investment can be confident that if the chemistry isn’t there, someone else will be along in a minute. Moreover, in some territories, the reality is that many Western companies enter the relationship with 'colonial baggage'. By contrast Chinese capital, for example, comes with fewer strings attached and in most cases less historical inference.’