Rising political tensions create uncertainty for businessesPosted On: Apr. 16, 2019 6:15 AM CST
Concerns over relations between the United States and China are causing uncertainty for numerous companies directly or indirectly involved in trade between the world’s two largest economies, experts say.
Supply chain risks and the international scope of commercial projects increases the scope of companies affected by the tariff disputes between the two countries, they say.
And increased tension in smaller economies is driving demand for more political risk insurance, they say.
“On the political risk side, the headline is the continuing trade tensions between the U.S. and China,” said John Minor, director of crisis management and political risk for Aon PLC in Chicago “That competition between those two countries and its implications for trade relations, both in the U.S. and China and in other countries, causes uncertainty.”
Such uncertainty can extend to a business beyond the U.S. or Chinese due to involvement in a particular project or contract, or a particular aspect of the supply chain, he added.
The Aon 2019 Political Risk Map, released April 10, shows that in 2018, the overall risk political risk environment declined for six countries: Azerbaijan, Croatia, The Gambia, Ghana, Macau and Mongolia.
The political risk map also captures supply chain disruption risk, which is a rising concern “even for the strongest countries in the world,” which tend to rely on imports, according to Aon.
Aon’s political risk map to some extent reflects where the broker’s political risk insurance market is focused, mainly non-OECD, emerging market countries “where we see inquiries for political risk insurance,” Mr. Minor said.
“A lot of the activity we have and the risks that we underwrite are in the emerging market, so there’s always a component of risk,” said Rafael Docavo-Malvezzi, senior vice president and global head of risk, political risk credit and bond insurance for Axa XL, a unit of Axa SA.
The Aon political risk map shows persistent political instability and violence are still undermining certain regional economic outlooks and business environments, particularly the Middle East and Africa. These regions contain some of the highest-risk countries in the world, such as Iraq, Syria, Yemen and Libya, Aon said in its map report.
Some countries not rated on the political risk map, such as Turkey and Mexico, are in the process of being added, Mr. Minor said. “We have seen a significant increase in inquiries for political risk insurance from Turkey,” he said.
“I think there is a perception in the world — maybe to a lesser degree in the U.S. than in Western Europe and Japan and China — but there is definitely a perception of rising global geopolitical risk,” said Marc Wagman, New York-based managing director in the trade credit and political risk practice group for Arthur J. Gallagher & Co.
On the terrorism side, there has been a shift in the activities of the Islamic State group away from its strongholds in Syria and Iraq into southeast Asia in places like the Philippines and Indonesia, Mr. Minor said.
Another development, he said, is the “rise of far-right extremist violent acts,” in the U.S. and Germany especially.
The rise in populism has increased the risk of disruptive policies in many countries, as populist policies can exacerbate political risk by increasing fiscal imbalances and inflation as well as raising the odds of state intervention, Aon said with its map in its map report.
Populist parties garnered increased shares of votes in national election over previous cycles in the Netherlands, France, Germany, Sweden, Spain and Italy, according to data from 4Cast Ltd., which does business as Continuum Economics, with whom Aon collaborated on the political risk map.