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Maplecroft ‘Risk Atlas’ identifies next political risk hotspots

After a year of heightened global political unrest, a major new report – the Political Risk Atlas 2012, released by risk analysis firm Maplecroft, has identified some of the most significant political risks for business and investors in 2012 and beyond.

Key risks identified by the Political Risk Atlas 2012 include:

Continuing unrest forecast for Arab Spring countries

Of the ten states with the fastest increasing risk trends in Maplecroft’s Dynamic (short-term) Political Risk Index, nine are located in the Arab world, reflecting the political upheaval and unrest taking place in the region. These countries are: Algeria, Bahrain, Egypt, Kuwait, Libya, Morocco, Oman, Syria and Tunisia. The level of unrest and risk of political change may however differ significantly between individual countries.

High security risks for oil and gas firms in MENA

Maplecroft’s analysis finds that the ongoing instability is also exposing business to heightened security risks, such as physical threats from conflict. These risks were vividly illustrated during the Libyan revolution when operations took place to evacuate oil company staff. The conflict in Syria has led to a loss of revenue for oil companies, while international sanctions have forced investors to withdraw.

“The risk posed to businesses by militants in countries that have been severely affected by the Arab Spring should not be ignored,” states Maplecroft director Anthony Skinner. “There are particular concerns over al-Qaeda in the Islamic Maghreb, which has sought to exploit the turmoil in North Africa, while al-Qaeda in the Arabian Peninsula, has sought to take advantage of extreme instability in Yemen. Staff and assets of energy companies are considered legitimate targets by both groups.”

Rising risks of resource nationalism for extractive companies

Over the past year the price of many commodities, particularly minerals and metals, increased to record levels, heightening the incentive for resource-rich nations to take a greater share of profits from companies developing their natural reserves.

Potential actions by governments can include nationalising an entire industry. For example, in August 2011, Venezuela’s President Hugo Chavez announced his intention to nationalise the country’s gold industry. Likewise in Guinea in 2010, the state sought a renegotiation of contracts, saying it would become a minority shareholder in all mining contracts. Comparable events have occurred in 2011 in other parts of South America and Africa and are likely to be repeated, especially if a global economic slowdown begins to cut into government tax revenues.

The Political Risk Atlas findings reveal the risk of such ‘resource nationalism’ occurring is highest in countries where the extractive sector makes up a large percentage of the country’s economic output.

Maplecroft’s resource nationalism hotspots include: DR Congo, South Sudan, Myanmar, Turkmenistan, Iran, Guinea, Zimbabwe, Venezuela, Iraq, Bolivia, Russia, Kazakhstan, Angola, Nigeria and Libya.

“Oil, gas and mining companies, should be aware of the political and regulatory challenges that they may face when investing in territories with a high risk of resource nationalism,” adds Skinner. “They could lose control or possession of assets, as well as individual property, or face higher taxes. This is likely to result in heavy financial costs affecting the economic viability of reserves.”

http://maplecroft.com/themes/pr/

•Date: 18th January 2012 • World •Type: Article • Topic: Operational risk management

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