2019 Political Risk Survey Report

Last year, we asked our respondents in which regions of the world they thought risk was rising. This query produced some striking and alarming results – the Middle East came first, but Europe and North America were not far behind (with 70% and 63%, respectively, reporting rising political risk in those regions). This year we decided to pose our questions in a way that would address levels of political risk, rather than changes. We asked respondents about the regions where they specifically had exposure; for each region, we then compiled a ratio of respondents who were concerned about political risk to those who were not.

The results are shown in the accompanying figure, which provides a view of political risk levels globally. The Middle East continues to top corporate concerns about political risk, but is followed by other regions such as Africa and South America where operating environments can be challenging. Panellists were divided about which Middle Eastern country was of greatest concern. “Sectarian concerns seem to be rising and an economic downturn is underway in the region,” said a panellist in the hotels sector. “In terms of countries, we are concerned where Iran has strong support, and about states near Yemen and Syria.” A panellist in the manufacturing sector was worried about creeping expropriation, in the form of “subsidies to local competitors, worsening operating conditions, and discriminatory taxes,” noting these issues particularly in Egypt.

Figure 1. Regions where political risk is of concern (%)

Panellists were quick to emphasize, however, that many of the most attractive commercial opportunities were to be found in risky regions. “We are focussed on Sub-Saharan Africa,” noted a panellist from a US-headquartered global food and beverages company. “A free trade agreement would transform business in the region.”

We asked our survey respondents about types of political risks of concern, both globally and at the regional level. Perils relating to disruption of international trade topped the global risk list – perhaps because such risks are apparent in every world region, with panellists reporting concerns about sanctions against Russia, Iran and Venezuela, a trade war involving China, and, as the survey was conducted, the threat of Brexit looming over Europe. Indeed, one panellist worried there were so many incipient trade disputes that some key risks had been forgotten. “Because not everyone was targeted, this [US-EU dispute over metals] has dropped off the radar while the China-US tariffs have not,” said a panellist in the manufacturing sector. “The EU is our largest ex-US market and this is hurting us badly.”

Figure 2. Types of political risk of greatest concern (%)

“It is clear from our survey that political risk continues to increase, and that related financial losses are on the rise,” said Paul Davidson, Chairman of Financial Solutions at Willis Towers Watson. “Corporations now face a strategic choice: to either maintain their global business models while accepting, mitigating or transferring the political risks associated with them, or attempting to realign themselves with the emerging shape of a new and apparently more nationalist global landscape.

Contacts

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Sam Wilkin

Director of Political Risk Analytics, Financial Solutions

email Email phone +1 571 595 5402

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Cynthia Dugan

Director, Financial Solutions

email Email

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