Marsh, Maplecroft Analyze Risks of Escalating Violence, Regime Instability

February 1, 2013

According to Marsh’s Global Political Risk and Trade Credit Practice and risk analysis and mapping company Maplecroft, “the number of countries experiencing escalating political violence rose by 36 percent from a year ago, a trend that is likely to continue given the heightened risk of regime instability in a growing number of countries.” The findings are detailed in a new Political Risk Map, released jointly by the two companies.

The map shows that “38 countries, nearly one in five of those analyzed, are experiencing escalating political violence, up from 28 in 2012.” It also “highlights dynamic political risks across 197 countries, including conflict, terrorism, macroeconomic stability, rule of law, regulatory and business environments, including expropriation risk, resource security and infrastructure readiness. Much of this is due to the ‘spillover effects’ from political violence and terrorism spreading from Libya and Syria into Mali, Lebanon, Algeria, and elsewhere in Western and Northern Africa and the Middle East.”

Investors in foreign countries also face a different kind of risk due to the “intensifying risk of expropriation in countries across the Middle East and North Africa where societies are attempting to drive regime changes,” Marsh and Maplecroft said.

“Ruling powers often use expropriation and resource nationalism to pacify societal discontent that may threaten their rule. Among the countries most at risk for societally forced regime change are Guinea Bissau, Zimbabwe, Syria, Madagascar, South Sudan, Pakistan, Yemen, Mali, Bangladesh, Kenya and Turkmenistan, according to the Political Risk Map 2013.”

Maplecroft’s CEO Alyson Warhurst pointed out that “companies with direct foreign investments are operating in a fast changing, volatile environment that has capacity to deliver pivotal game-changing instability with negative financial consequences.

“The recent Algerian terrorist siege, ongoing European debt crisis, Argentine and Bolivian expropriations of energy assets, the raging civil war in Syria, attacks on the US embassy in Egypt and its consulate in Libya, and reverberations stemming from momentous leadership changes in China, illustrate the dynamic nature of today’s global political risk landscape.”

Evan Freely, Global Leader of Marsh’s Political Risk and Trade Credit Practice, noted: “Given this highly volatile environment, it is imperative that direct foreign investors stay abreast of the key issues impacting these regions and have plans in place to protect their strategic interests from the threats of unforeseen political changes and violence. More companies are turning to political risk insurance to help safeguard their vital ownership interests, assets, supply chains, and income streams in these high potential growth, but higher risk markets.”

Sources: Marsh and Maplecroft

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