International supply chains facing increasing risk of political violence: report
Research firm Aon says political polarization and the recent trend away from liberal democratic governance is making the world more dangerous, and a riskier place to conduct international business
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Aon’s 2018 Risk Maps covering Political Risk and Terrorism and Political Violence, produced in conjunction with Continuum Economics and The Risk Advisory Group are published today.
“Given this heightened level of risk, and the rapidly evolving landscape against which businesses are operating, it is essential the companies understand their exposures and the potential for political instability to impact their people, property and supply chains. Ensuring that the right solutions are in place to mitigate and transfer risk is essential for firms operating internationally,” said Mark Parker, Head of Property, Casualty and Crisis Management at Aon.
For the third successive year, more country risk ratings have increased (17) than decreased (6).
- 40 per cent of countries are listed as being exposed to terrorism and sabotage risk;
- 60 per cent to civil unrest risk, and;
- 33 per cent to insurrection, war or coup risk.
Forty-six countries or territories are now rated as high or severe risk, representing 22 per cent of the global total.
The likelihood of interstate conflict, even involving major powers, is at the highest point since the end of the Cold War. Growing geopolitical competition and weak leadership in international diplomacy have contributed to sustained or increased risks of armed conflict over the last year. Growing rates of polarisation over political, economic and social issues in mature democracies, and divisions between Western powers in the face of complex threats and risks, has also contributed to worsening global security and greater strategic uncertainty.
The number of terrorist attacks in Western countries in 2017 (204) was roughly double that of 2016 (96) but the total number of casualties in both years was similar (1,092 in 2017), meaning that the lethality of attacks has fallen.
“The long-term trend of non-state actors being the predominant political violence concern in most regions is shifting towards geopolitical risks,” said Henry Wilkinson, Head of Intelligence & Analysis at The Risk Advisory Group. “These are more business-threatening and demand board-level ownership.”
The threat posed by Islamic State has stopped spreading but has not receded. IS mounted terrorist attacks in 29 countries on five continents in 2017, the same number of countries as in 2016 and up from 19 countries in 2015, but the global reach of IS appears to have peaked, and it seems likely that the number of countries where it is able to mount attacks, or inspire others to do so, will fall in 2018.
Last year political risk increased in eleven countries, compared to only two countries that saw reduced risk, showing the persistence of political risk across the globe, highlighted by increases in political violence and supply chain disruption.
“Last year we saw political risk rising in several countries, driven mainly by increases in political violence and supply chain disruption,” said Paulina Argudin, Director of Country Risk Model at Continuum Economics. “The persistence and rise of political risk across the globe demonstrates how relevant it is for businesses to identify and monitor specific political risk elements in their countries of operation.”
Many countries’ risks of supply chain disruption have risen due to both climate shocks and weakening fiscal positions.
Asian countries’ trade linkages have been shifting away from the U.S. and toward China.
Amid China’s rise, Asia’s exports to the US have edged down from around 23 per cent of total exports in 2000 to stabilize at around 12 per cent in recent years. By the same token, Asia’s exports to China have more than doubled over the past decade to around 23 per cent currently.
Elsewhere, political risks in Latin America are increasing ahead of a busy election season, delaying major reforms in Brazil and stoking fears of reform reversal in Mexico. Major countries are at risk of electing populist governments, and smaller countries are experiencing their share of political noise.
More broadly, the region experiencing most downgrades is Africa. Ongoing conflicts within countries, the erosion of democratic governance and increasingly frequent corruption scandals have led to more political violence. Groups such as IS and Boko Haram are taking advantage of fragile institutions and weak borders.