Nationalist trends among top political risks in 2017Reprints
The rise of anti-establishment, nation-first political parties, falling commodity prices and country leadership succession perils are among the top political risks facing investors in 2017, according to Marsh L.L.C.
Marsh’s Political Risk Map 2017, which draws upon data and insight from London-based BMI Research, also cited growing protectionism, terrorism, and uncertainties in emerging economies as serious political risks. Greater assertiveness from China and Russia may also have an impact on this year’s risk landscape, Marsh said in the report, released Wednesday.
The U.S. presidential election and the U.K.’s recent Brexit vote have the potential to amplify geopolitical risks in 2017, Marsh said, as large populations have become dissatisfied with conventional politics.
Marsh said that political risks appear to follow geographical trends, with emerging markets, particularly those in North Africa and the Middle East, showing the greatest instability as conflicts, civil war and socio-economic instability continue to afflict such countries as Syria, Sudan, South Sudan, Central African Republic and Yemen.
Companies should place greater importance on the way they approach political risk, Marsh said, which can cause business interruption, supply chain disruption, barriers to trade, and possible damage to property and risks to employees in the areas they operate.
Evan Freely, global practice leader of credit specialties at Marsh, said in a statement that “in what is undoubtedly a tough operating environment, organizations need to identify and assess the types of political risk events that could affect their business and adapt their strategies to reflect the possible impact they could have.”
“This includes keeping a close eye on how political risks develop over the course of 2017 on a macro level,” Mr. Freely said, “rather than viewing them as local issues.”
The map features the Country Risk Index, which quantifies the risk of a shock, such as an economic crisis or a sudden change in the political environment, that would affect business conditions within a country.
Marsh said that the CRI is the average of several risk index components such as short-term and long-term political and economic risk indices, as well as operational risk, which is given a double weighting because it is not broken down into different timeframes.
Operational risk assesses four main areas: the labor market, trade and investment, logistics, and crime and security. Marsh said that unlike economic and political risk, operational risk assesses the status quo, rather than BMI's projections for the coming year.