Political risks persist as global economy recovers

Nineteen countries on Aon's 18th Annual Political Risk Map have been downgraded, indicating that the severity of risk in those places has heightened over the past year. The map, which measures the political risk of 211 countries based on categories such as currency inconvertibility, strikes, riots and sovereign non-payment, gives upgrades to only 11 states.

The map, accessible via http://www.aon.com/2011politicalriskmap, ranks countries on a six-point scale from Low risk to Very High risk.

The perceived or actual risk of sovereign non-payment continues to be an issue in countries across the globe, commented Beverley Marsden, Associate Director of Aon Risk Solutions' Crisis Management, launching the report. “For example, we have seen thirteen 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 financial crisis impacted the economies of nations with traditionally low levels of risk: Iceland is the first Western European country to be downgraded to Medium.

Silver lining

A scrap of good news for companies doing business abroad is that over the past five years, the Map has registered nearly a 30% increase in the number of countries in the

middle of the risk rankings. Migration into the Medium Low to Medium High categories suggests that these countries have become more stable as their activity in the world economy has increased.

Globalisation has been blamed for recent outbreaks of economic volatility, but it has also had a positive impact on political and economic stability, Marsden concludes: “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.

But Marsden forecasts that while the world’s markets are unstable political risk will remain elevated, returning to traditional levels as the global economy improves.

Sovereign debt worries

Each country on the map is rated according to the different types of risks it faces, and the risks are indicated by icons. While the number of countries attracting the sovereign non-payment risk icon remained stable, rising from 87 nations in 2010 to 88 this year, many of this year's downgrades are due to this risk.

Twelve island nations, including Antigua and Barbuda, Barbados, Bermuda, the Cayman Islands, Comoros, Dominica, Greenland, Antilles, St Lucia and St Kitts and Nevis have all been downgraded due to tighter credit conditions which could lead to an increase in their sovereign non-payment risk.

The 2011 map shows the number of countries with a significant level of the risk of war, civil war, or insurrection breaking out, has increased from 29 in 2010 to 34 this year. These countries include Madagascar, Niger, Venezuela, Kyrgyzstan and Thailand.

Eleven more countries face a sufficient level of Sabotage, Riot, Civil Commotion and Terrorism risk to warrant an icon on the map, bringing the total number up to 111 in 2011. Additions to the list include Angola, Chad, Belize, Austria and Bahrain.

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