Posted on 19 Jan 2011
While the world economy is broadly on the road to recovery, the level of political risk has risen in more countries than it has declined, according to Aon's 18th annual Political Risk Map.
Aon Risk Solutions, the global risk management business of Aon Corporation, measures the political risk of 211 countries and territories based on the level of risks such as currency inconvertibility and exchange transfer; strikes, riots and civil commotion; war; civil war; sovereign non-payment; political interference; supply chain disruption and legal and regulatory risk.
Beverley Marsden, associate director of Aon Risk Solutions' Crisis Management Practice, explained, "The perceived or actual risk of sovereign non-payment continues to be an issue in countries across the globe. For example, we have seen 13 island nations move into a higher risk category this year because of the effect of a decline in tourism on their economy.
"The negative effects of the global financial crisis impacted the economies of nations with traditionally low levels of risk. Iceland this year became the first Western European country to be downgraded to Medium.
"This year's map also highlights the continued emergence of several markets in Africa, such as Ghana, Gabon and Nigeria, where more international trade and investment is occurring, leading to a greater need for political risk insurance cover."
A slow march to the middle
Marsden continued: "There is good news too; over the past five years, the Aon Political Risk Map has seen a nearly 30 percent increase in the number of countries in the middle of the risk rankings - the Medium Low to Medium High categories - as these countries have become more active in the world economy and their prosperity has increased.
"Globalization has been blamed for recent incidents of economic volatility, but it has also had a positive impact on global political and economic stability. Many countries previously designated as Medium High or High have taken advantage of global trade links and have seen political risk levels decrease. This trend is demonstrated in South America, where countries like Brazil, Colombia and Mexico have all seen sustained improvements over the last five years.
"Political risk will continue to be a major influencer for businesses transacting in emerging markets in 2011. While the apocalyptic predictions many made at the beginning of the financial crisis did not come to fruition, a new norm in world trade is being established. We believe that political risk will remain elevated while the markets are unstable, but will return to traditional levels as the world economy improves.
"Businesses have enough difficulty traversing the complicated landscape of foreign trade and need up-to-date information and tools at their fingertips.
Aon's Political Risk Map and its interactive version help our clients assess their various contingencies and determine the impact on their ability to ensure continued survival, growth and profitability."