Political risk hits new high as social pressures reach boiling point, warns Verisk

Global political risks are at a five-year high, with 26 countries recording a sharp increase in the intensity of conflicts over the course of 2022 compared with just three in 2021, according to Verisk Maplecroft.

It says that Russia’s war in Ukraine was the primary driver of political risk last year. “As a result, political risk at the start of 2023 is at the highest global level we’ve seen in the last five years,” warns the risk expert, which tracks data on conflict intensity, civil unrest and government stability.

Verisk Maplecroft says the fallout from the conflict in Ukraine – spiralling inflation, changes to global energy and heightened socioeconomic tensions – will continue to drive greater political risk this year.

Ukraine saw the sharpest uptick on Verisk Maplecroft’s conflict intensity index to fifth place from 24th at the start of 2022. Conflict in Myanmar escalated its place on the index to third from 12th. Ethiopia moved to become the 12th-highest risk country for conflict intensity from 20th place at the start of last year.

“The fallout from armed conflict will remain a key risk trend for corporates, investors and insurers in 2023,” says Hugo Brennan, head of EMEA research at Verisk Maplecroft. “The war in Ukraine is likely to escalate as both sides prepare for spring offensives; conflict and insecurity will continue to destabilise pockets of Africa; and interstate tensions risk tipping over into fighting in parts of the Caucasus, Central Asia and the Balkans.”

Verisk Maplecroft finds 52 countries with the worst possible score of zero on its inflation index, driven by the fallout from Russia’s war in Ukraine. These countries include the UK, US and Germany.

State interventions, particularly in Europe, have seen an uptick in risk on Verisk Maplecroft’s resource nationalism index. Germany fell from 142nd place to 40th to record the largest annual drop since the index began in 2012.

“2023 will be a year where respect for free markets take a back seat to state intervention and industrial policy in Brussels, London, Washington and beyond,” Brennan says.

The report adds that while economic and political security has been upended, socioeconomic pressures are building. Verisk Maplecroft’s civil unrest index recorded the biggest-ever rise, with 48 countries registering higher risk throughout 2022, including many in Europe.

Socioeconomic unrest has triggered an increase in political instability. Verisk Maplecroft tracked heightened risk for 25 countries in its government stability index.

The company warns that socioeconomic pressures that simmered throughout 2022 are likely to boil over in the year ahead.

“As the social pressure cooker proves increasingly unable to contain the discontent of populations facing protracted economic hardship, the frequency and magnitude of the backlash against political institutions will remain near boiling point throughout 2023,” says Jimena Blanco, chief analyst at Verisk Maplecroft. “It is likely no region will be spared, but the Americas will be particularly hard hit.”

Verisk Maplecroft says its indices suggest little progress has been made on tackling human rights abuses or climate change. It says supply chain due diligence laws, such as the US Uyghur Forced Labour Prevention Act and the German Supply Chain Due Diligence Act, have added to complex human rights regulations but have not forced change at ground level.

China recorded its highest position in Verisk Maplecroft’s modern slavery index over the past year to 13th place. Other major sourcing countries also saw their positions deteriorate, including India, which fell seven places to 21st, Vietnam, Cambodia, Pakistan and Mexico.

“Worsening economic conditions inflate modern slavery risks and expose businesses to greater reputational and legal challenges,” says Soa Nazalya, senior human rights analyst at Verisk Maplecroft. “Companies that approach human rights due diligence as a box-ticking exercise are unlikely to meet the stringent requirements arising out of emerging EU legislation.”