Marsh’s 2018 political risk map suggests choppy waters ahead for multinationals

Turbulence in political risk – particularly Brexit negotiations, trade protectionism and the North Korea missile crisis – will continue into 2018 and feature high on the agenda of multinationals, Marsh said on publishing its Political Risk Map 2018 with BMI Research. In Europe, the political risk landscape continues to be dominated by the UK’s exit from the European Union and the threat of terrorism following attacks in Barcelona, London, Manchester and Sweden in 2017, said Marsh. Its report accompanying the map states that as Brexit negotiations continue between the UK and the EU, “the risk that the UK will leave without a deal becomes greater”, adding that corporates will need to prepare for such a scenario. Political unrest has loomed over Spain since the Catalonian attempt for independence in August 2017. Although the attempt was quelled by the Spanish government, there continues to be unrest from Catalonian pro-independence supporters, notes Marsh. Alongside the threat of terrorism from Islamic terror groups, the report also highlights the rise of far-right politics in Europe last year and the potential for uncertainty in political elections due to take place in 2018. Italy’s short-term political risk score has deteriorated 7.1 points in Marsh’s risk map, ahead of a general election in March. The election results will be closely watched for the popularity of anti-establishment and Eurosceptic parties, including the 5-Star Movement, notes Marsh. Italy was the only European country to record a fall in its political risk score, with greatest improvements in Greece (+ 7.1 to 59.6) following greater political stability, the Netherlands (+ 7.5) and France (+ 4.2). Trade protectionism from the US failed to fully materialise as threatened in 2017 but BMI Research says the issue, and in particular new tariffs, is likely to resurface in 2018 with the Trump administration launching studies into “unfair” trade practices. The Marsh report says China could be a key target for increased protectionist measures. International relations between the US and North Korea over the latter’s use of missiles have created political tension. Marsh’s risk map says military action cannot not be ruled out. Mid-term US congressional elections will be held in November for both the Senate and the House of Representatives, with the report predicting that a shift in power towards the Democrats would create greater political gridlock. In Latin America, future elections are behind lower political risk scores this year. BMI Research says uncertainty has increased political risk in Brazil (-1.7), Mexico (-3.7), Paraguay (-2.7) and Suriname (-6.4 to 46.5). Elections will also be held in Colombia and Venezuela, where political unrest in 2017 was driven by an economic crisis. The political risk map notes several improvements in 2018 scores for African countries, alongside spikes in political risk in Kenya and Gabon – where both countries have held contested elections – and Ivory Coast. BMI Research says the Democratic Republic of Congo registers as one of the most unstable countries. In Zimbabwe, the transition of power from Robert Mugabe to Emmerson Mnangagwa has reduced the risk of political disruption, raising its political risk score from 37.7 to 45.4. Positive political change in Angola saw the country’s political risk rating rise by 8.1 points. Evan Freely, global practice leader for credit specialties at Marsh, commented: “Social instability, adverse government actions, and terrorist threats are among the most common political risks that multinational organisations now face when trading or investing in foreign countries.” Adding: “While political risks are often not directly controllable in this complex and ever-changing environment, in many instances they can be mitigated through credit and political risk insurance, providing greater confidence in the benefits of these opportunities in potentially unstable areas of the world.” Marsh added that multinationals have often chosen to buy political violence and terrorism insurance over political risk cover to benefit from lower premiums, but warned: “This strategy has the potential to leave significant gaps,” depending on how insurers and governments categorise terror or political events.

Marsh’s 2018 political risk map suggests choppy waters ahead for multinationals

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