Investors are facing a global rise in political risks, new research by global risk analytics company Maplecroft suggests.
This rise is related to a significant increase in conflict, terrorism and regime instability in the Middle East and North Africa, along with intensifying political violence and resource nationalism in East Africa.
Maplecroft’s sixth annual Political Risk Atlas (PRA) reveals that the potential for societal unrest to exacerbate political instability is heightened in countries such as Bangladesh, Belarus, China, Kazakhstan, Saudi Arabia and Vietnam.
The reasons for this include the erosion of democratic freedoms in these countries and increasingly brutal crackdowns by security forces as well as rising food prices and worsening working conditions.
The PRA includes 52 indices for monitoring the key political issues and trends affecting the business environment of 197 countries. It includes both ‘dynamic political risks’ related to short-term challenges, such as rule of law, political violence, the macroeconomic environment, resource nationalism and regime stability – as well as ‘structural long-term political risks’, such as economic diversification, resource security, infrastructure quality, societal resilience and human rights.
Since 2010, the level of dynamic political risk has increased significantly in 10% of countries worldwide. This leaves foreign investors exposed to political violence, resource nationalism and expropriation.
Following the Arab Awakening, Syria has experienced the most significant decline in Maplecroft’s index of dynamic political risks, dropping from 44th in 2010 to second in the 2014 ranking, behind only Somalia (first).
For the first time, Egypt is categorised as ‘extreme risk’ for political violence. Post-coup violence and terrorist activity in the Sinai Peninsula are largely responsible for the increase in Egypt’s risk.
Mali and Mozambique also experienced significant increases in risk, primarily driven by a dramatic rise in political violence.
Maplecroft predicts that Syria, Libya and Egypt will be mired in exceptionally high levels of dynamic political risk for years to come.
Sally Percy is editor of The Treasurer