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Annual Aon map shows global reduction in political risk

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More countries saw reductions in political risk than increases for 2016, according to Aon P.L.C.'s Political Risk Map 2016.

The map, which was released Tuesday, analyzes 168 emerging markets and shows that, despite increases in economic risks prompted by low commodity prices, political and economic reforms in many emerging economies have helped to reduce political risks, said Karl Hennessy, president of Aon Broking and CEO of Aon's Global Broking Centre in London, in a statement.

“However, weakness in the global economy could yet cause significant increases in political risks within countries and spill-over effects into other states,” he said in the statement.

According to the map, eight countries — China, Ethiopia, Haiti, Iran, Jamaica, Nepal, Pakistan and Serbia — saw their political risk reduce over the course of the past year, while four — Cape Verde, Micronesia, Philippines and Suriname — saw their political risk worsen.

China saw its political risk level improve to “medium” from “medium high.”

Aon said that anti-corruption measures contributed to the reduction of political risk in China.

But there is still uncertainty about the implementation of those measures, and risks remain “particularly around the building up of further leverage in the Chinese banking system,” Aon said in the statement.

“The rebalancing and slowing of the world's second largest economy is likely to present challenges for China's neighbors and key trading partners, who could experience higher political and economic risks as the pace and composition of growth changes,” it said.

The loosening of international sanctions on Iran led to a reduction in its political risk rating to “high” from “very high.”

“Iran's re-entry to global markets will increase the supply of oil, and eventually gas, as it gains access to more foreign markets including Europe,” said Rachel Ziemba, managing director of research at Roubini Global Economics L.L.C., which produced the map with Aon, in the statement.

“Iran has a more diversified economy than many Middle Eastern and African peers and has done more to adjust to lower oil prices,” she added.

The impact of oil prices on oil-dependent countries such as Iraq, Libya, Russia and Venezuela, is the biggest risk facing emerging market investors in 2016, according to the map.

The long-lasting recession in Brazil is a risk as the country gears up to host the 2016 Summer Olympic Games, according to Aon.

Brazil is rated as of medium risk, according to the map.

“Over the long run, the business environment has been weakened by poor economic performance, and this could become an even bigger issue for firms operating in Brazil,” said Paul Domjan, managing director of Roubini Global Economics.

“Brazil's buffers are being eroded, and even the potential upside from rooting our corruption is bringing significant collateral damage as cases work their way through the legal system,” he added.