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Multinational businesses face increased political risks: Marsh, Fitch

Posted On: Feb. 27, 2019 1:40 PM CST

Political risk

Multinational businesses face unprecedented political risks in 2019, driven by ongoing tensions between the U.S. and China, trade wars, Brexit and uncertainty in Russia’s relations with the West, Marsh LLC said Wednesday in a report.

Marsh’s Political Risk Map 2019, which is based on data from Fitch Solutions Inc., said that rising protectionist sentiments will also continue to threaten business interests.

In the year ahead, elections in emerging markets and some developed states could also increase political volatility, Fitch Solutions said in the report.

For businesses with direct foreign investments, “vigilance and broad, systemic risk analysis coupled with political and trade credit insurance, will be vital to minimizing these threats,” Evan Freely, Marsh’s global practice leader, credit specialties, said in a statement.

In the U.S., a more combative political landscape in 2019 is likely given the Democrats’ capture of the House of Representatives in the 2018 mid-term elections and following the longest government shutdown in American history, the report said.

Trade tariffs and geopolitical disputes with China could also escalate in 2019, bringing the risk of retaliation, Fitch Solutions said in the report. This could affect export-heavy countries such as Germany.

President Trump again imposed sanctions on Iran in November 2018, which could also potentially raise the risk of conflict, the report said.

Meanwhile, the ongoing investigations into President Trump’s alleged ties with Moscow might also prevent him from pursuing initiatives to improve bilateral relations with Russia, Fitch Solutions said.

Elsewhere, businesses face growing risks due to ongoing uncertainty over the United Kingdom’s exit from the European Union, while in Spain political instability continues, according to the report.

As a result, Fitch Solutions lowered Spain’s short-term political risk index from 68.3 in 2018 to 64.6 in 2019, the report said.

In Latin America, continued unrest in Nicaragua also led to a significant reduction in the country’s short-term political risk index, while Venezuela faces increasing uncertainty due to ongoing political volatility.

Despite improvements, election uncertainty and deteriorating economic and humanitarian conditions have led to sharp increases in political risk in certain African countries including Zambia, Mali, Algeria, Tunisia, Cameroon and the Central African Republic.

While multinational businesses historically have purchased political violence and/or terrorism insurance because the rates were typically lower than for political risk insurance, this strategy could leave significant gaps in coverage, the report said.

“Political risk insurance can help bridge gaps by including coverage for both perils but, more importantly, by also addressing loss of an investment or contract due to government action or inactivity where there may be no physical damage,” the report said.

Marsh’s map rates more than 200 countries and territories on the basis of short- and long-term political, economic and operational stability.