Populism and terrorism converge to compound global business risks
- Published: Thursday, 13 April 2017 07:43
A 14 percent worldwide increase in terrorist attacks in 2016 and populist nationalism are creating an increasingly volatile operating environment for international business, according to Aon's 2017 Risk Maps.
Covering political risk and terrorism and political violence, and produced in conjunction with Roubini Global Economics and The Risk Advisory Group, the Risk Maps confirm that while Western countries saw a marked increase in terrorist incidents, attacks on these countries still account for less than three percent of terrorist violence globally. In 2016, the United States sustained the highest number of terrorist incidents in a decade, although, according to the Report, the threat is likely to remain moderate in 2017.
The terrorist threat continues to evolve, affecting an ever-wider set of sectors in more countries with more diversified tactics and intent to kill. Impacts range from loss of life to business interruption and disruption in the supply chain. Other violent risks are also evolving at the geopolitical level, leading to increased defence / defense spending, more authoritarian forms of government and a weakening consensus between countries. There are few indications of an overall improvement in violent risks in 2017. These developments have underlined the importance of considering crisis management perils that go beyond property damage, particularly in sectors that have been most affected such as oil and gas, transport and retail.
Scott Bolton, director, crisis management, Aon Risk Solutions commented: "The shifting dynamics around terrorism and political violence, reflected in the global events seen in 2016, are presenting an increasing challenge for companies. Those with both domestic and international footprints have the potential to experience events that could impact their people, operations and assets. If we can understand what might reasonably impact an organization and its people, then we are better able to apply 'best fit', consistent approaches to manage risk."
Populism and protectionist risks in developed economies could lead to an increase in political risk in emerging and frontier markets as their resilience is challenged. While political risks remain high, particularly in the Middle East and Africa, reform efforts and past economic adjustment have increased resilience. Energy markets will continue to influence economic risks for many emerging and frontier markets. The expected stabilization in oil and gas prices will alleviate, but not erase, some economic pressures for producer nations, while amplifying financial vulnerabilities for importers, particularly in Asia.
Key highlights from the 2017 Risk Maps report:
Oil and gas companies were the target of 41 percent of terrorist attacks on commercial interests in 2016 and the trend has continued in 2017. Nigeria and Colombia topped the list of countries affected by terrorism targeting the energy sector, with attacks by militants in the Niger Delta during the first half of 2016 causing Nigerian oil production to fall by 36 percent. Saudi Arabia, Iran, Russia, Venezuela and the US are vulnerable to production declines. As the global oil market slowly tightens, these supply shocks may have a more meaningful effect on price.
Businesses are facing growing exposure to political violence risks worldwide. For the second successive year, more country risk ratings were increased (19) than decreased (11). The overall terrorism and political violence ratings are the highest they have been since 2013, capturing not only terrorism but also the risk of coups, civil and interstate conflicts and rebellions. There are now 17 countries at highest risk, representing epicentres of instability that emanate international terrorism threats and significantly increase business risk exposures in neighbouring states. Three belts of severe risk run through Africa from the Mediterranean to the Atlantic, through the Levant and through South Asia.
Open trading nations like Chile, Colombia, Hong Kong, Malaysia, Singapore and Taiwan are exposed to increased political risk due to dependence on US and other trading partners. Mexico and the Philippines are more vulnerable to declines in remittances if they occur due to trade restrictions. Brazil, India, Indonesia and Nigeria are more resilient due to large domestic economies, which are less reliant on exports.
The Middle East and North Africa has the densest concentration of high to severe risk countries in the world, with heightened political risk and elevated levels of political violence (for example, in Iraq, Syria, Yemen and Libya) spilling over to neighbours and undermining trade and tourism. Territorial losses for IS in Iraq and Syria will probably lead to a dispersion of the jihadist network, carrying serious threats implications for dozens of countries across the region and beyond, particular in Europe and Asia. The richer countries of the GCC remain much more resilient to political shocks, but economic vulnerabilities including government arrears to the private sector and higher cost of capital remain present.For more information and to access the interactive maps and full report please visit https://www.riskmaps.aon.co.uk