Pandemic set to trigger big rise in political risk by 2022, warns Aon risk map

There is likely to be a “tide” of political risk by next year as the world begins to emerge from Covid-19, warns Aon’s 2021 Risk Maps. The pandemic has seen terrorism and political violence risk fall over the past year, but political unrest is set to grow by 2022 as the fallout from Covid-19 plays out, according to the research. Henry Wilkinson, chief intelligence officer at Dragonfly that helped produce the maps, said: “The pandemic is a long-tail risk that has created an artificial near-term global risk picture, particularly of political violence risks. The extraordinary measures to contain the pandemic have been suppressive but politically aggravating. A tide of increasing risk by 2022 is likely as mass vaccinations and an easing of restrictions converge, with the accumulated economic and political effects of the pandemic.” Aon’s 2021 Risk Maps report finds that the Covid-19 pandemic both suppressed and aggravated terrorism and political violence risks over the last 12 months. Lockdowns and travel restrictions have had a containing effect on most forms of terrorism and protest in 2020, Aon says. The percentage of countries exposed to terrorism and sabotage fell to 45% – with surges in incidents mainly accompanying an easing of restrictions. As a result, overall terrorist attacks fell worldwide, the broker’s map shows. But they warn that the scale of government intervention, economic inequality and public unrest about government responses to the Covid-19 pandemic will play an influential part in growing global unrest going forward. The map says that 60% of countries around the world are therefore exposed to some form of civil unrest in 2021. Aon also says that extremists and activists from across the spectrum are evolving their narratives. “The pandemic has been an opportunity to build support and challenge established orders and forms of governance through protests and violence. For example, the US saw a sharp rise in civil unrest and insurrection risks,” it explains. The risk maps notes that Jihadist violence rose by 20% in 2020. The majority of this activity was in conflict zones, such as Iraq, Syria, Afghanistan and Mali, which are reliant on external military and political commitments to ensure stabilisation. The impact of Covid-19 on these fragile states was also factor, says Aon. Its 2021 Risk Maps – which examine political risk, terrorism and political violence globally – also show that political risks have risen during 2020 and so far in 2021. Seven countries – including the Dominican Republic, Ghana, Kyrgyzstan, North Macedonia and Montenegro – have experienced a deterioration in their political risk score, with none registering an improvement. Aon said this follows a “significant uptick” of inflation in emerging markets (EM) this year and a setback for green recovery initiatives following Covid-19. In addition, the risk of EM divergence from developed markets in terms of per capita income as a result of lagging and insufficient vaccination implementation is causing political risk to rise in these countries. The maps also warn that supply chain disruption risk, exacerbated by climate change and extreme weather, is a growing issue for frontier markets where Covid-19 has caused “much wider” fiscal imbalances, higher inflation and larger debt burdens. “As a result, these countries are at greater risk of falling behind in efforts towards climate change mitigation. However, rising commodity prices and inflation can help in reducing the debt burden of commodity-focused emerging markets,” says Aon. Vlad Bobko, head of crisis management, London Global Broking Centre, Aon, said: “The Covid-19 pandemic has complicated an already fractured landscape of geopolitical risks, which firms operating globally need to navigate. From rising instances of civil unrest, to economic dislocation and the long-term potential for inflation in an increasingly connected and volatile world, informed decision-making has never been more important.” Lead economist at Continuum Economics, which also helped develop the risk maps, said Covid-19 has “shaken the foundations” of the global economy over the course of 2020-2021. While global trade has recovered faster than expected from the initial Covid-19 outbreak, supply chain disruptions have taken new forms and their impact has become more systemic, said Francesca Beausang. “Meanwhile, Covid-19 has triggered an acceleration of commitments to a green recovery yet funding a fair transition to decarbonisation for emerging markets remains the greatest challenge to its implementation. Finally, Covid-19 has forced a rethink of the concept of health as global public good, with a patent waiver for Covid-19 vaccines changing the foundations of innovation in pharmaceutical research,” she continued.

Pandemic set to trigger big rise in political risk by 2022, warns Aon risk map

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