Aon publishes 2006 political risk assessment
Of the 23 upgraded countries, many are important in global trading yet are still dangerous places for businesses to operate in as risk becomes more complex. Aon’s significant trends for 2006 are: * The emergence of more leftwing governments in Latin America including Venezuela and downgraded Bolivia is causing concern for foreign business in the form of higher taxes, revision of contracts and threatened expropriation of assets. * The globalisation of oil, gas and other reserves means that volatile and politically unstable countries are now becoming part of the supply chain. Hydrocarbons exploration and production is increasing in central Asia, for example. The vulnerability of pipelines – a key supply chain component – has been well illustrated by Russia’s recent dispute with Ukraine. * Well-publicised politically driven land confiscation by President Mugabe in Zimbabwe continues to contrast with political stability in other areas of Africa such as Namibia and South Africa. * Political risk concerns are rising fastest in Central Asian countries such as Uzbekistan, as they become less dependent on Russia and internal instability increases. These countries are also experiencing the increased influence of Islam in politics, which echoes the climate in the high risk areas of neighbouring countries Pakistan, Afghanistan and Iran. The latter’s downgrade is also affected by its close proximity to the ongoing war in Iraq and political confrontation with the US. * The accession to the European Union of eastern European countries such as the upgraded Latvia and Lithuania, tends to improve business ethics and prompts investors to perceive these areas as less risky. Charles Keville, a director in Aon’s crisis management team, commented: “Uncertainty brings significant risk exposure for investors and traders. As trade and resources become increasingly globalised, businesses must research and understand the political climate of unfamiliar countries to protect themselves and their investments from political unrest. “Assessing political risk is an ever-changing process and one that is continuously being influenced by global events. Although we have seen a number of territories upgraded this year, these improvements in risk status are relatively slight. Political risk is becoming increasingly complex and the insurance market is having to adapt its products to meet the needs of international businesses.” The findings of Aon’s 2006 Political Risk Map indicate that the demand for political risk cover will rise. As businesses become more aware of the dangers of political instability and the need to comply with international corporate governance best practice, more are seeking insurance cover to mitigate overseas risk. Sophisticated product development also means that policies can cover an individual contract or investment, for example, the offshoring of business processes to countries such as India, commodity price hedging and capital markets guarantees. For the first time, Aon’s map highlights supply chain risks as measured by Oxford Analytica. These risks are divided into two groups: recent or ongoing events and future supply chain threats. Recent examples of supply chains being disrupted include Russia/Ukraine gas pipeline dispute, the longshoremen’s strike on the US west coast, the Suez Canal blockage caused by a tanker breakdown and the SARS respiratory disease outbreak in China. Potential risks to the supply chain going forward include labour unrest in Brazil, political violence in Israel and a financial systems crisis in China. www.aon.com
•Date: 13th Jan 2006• Region: Various • Type: Article •Topic: Operational risk |
