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The Actuary The magazine of the Institute & Faculty of Actuaries

Companies warned to place greater importance on political risk

Geopolitical threats should take higher priority for businesses when deciding where to deploy financial resources globally this year, according to Marsh’s 2017 Political Risk Map.

Companies must adapt to the changing political environment ©Shutterstock
Companies must adapt to the changing political environment ©Shutterstock

It identifies the top political risks facing companies in individual countries over the year ahead, based on independent political, macroeconomic, financial, and industry risk analysis.

By placing more importance on these threats, it is argued that firms can mitigate supply chain disruption, barriers to trade, and risks to employees in the areas they operate, and potentially take advantage of new opportunities.

Marsh global practice leader of credit specialities, Evan Freely, said: “In what is undoubtedly a tough operating environment, organisations need to identify and assess the types of political risk events that could affect their business and adapt their strategies to reflect the possible impact they could have.

“This includes keeping a close eye on how political risks develop over the course of 2017 on a macro level, rather than viewing them as local issues.

“Only by doing this will these companies be able to adapt quickly to the changing political risk environment, and capitalise on any opportunities that it may present.”

The top political risks facing businesses and investors in 2017 identified by Marsh are:

• Anti-establishment, nation-first parties in Europe
• Falling commodity prices
• Country leadership succession risks
• Growing protectionism
• Terrorism
• Uncertainties in emerging markets.

These threats follow geographical trends according to the risk map, with emerging markets in North Africa and the Middle East showing the greatest instability, while socio-economic instability continues to impact countries like Syria, Sudan and Yemen.

This volatile political environment has led Schroder’s chief economist Keith Wade to warn that expected growth increases for the world economy might not last, as inflation rises and protectionist policies are adopted.

He said: “Growth forecasts are likely to be upgraded, but we still have doubts about the sustainability of the upswing now that oil prices and inflation are rising again.

“President Trump’s rapid shift toward protectionism only threatens to exacerbate inflationary pressure whilst halting the nascent recovery in global trade."

You can view the risk scores for different countries in Marsh’s risk map here