Political risk will remain a major concern for multinational businesses in 2018, driven by events including the North Korea missile crisis, ongoing Brexit negotiations, and trade protectionism, according to Marsh's Political Risk Map 2018.
The political risk landscape will be as turbulent this year as it was last year. A risk which is global and emanates from Asia Pacific is the tension between North Korea, the US, and other countries, which has risen as North Korea continues to conduct missile tests, said the Political Risk Map, based on findings by BMI Research. The research firm predicts the North Korean missile crisis will reach a decisive moment this year.
Other global risks include continued increased global trade protectionism, with BMI Research predicting that trade giants — such as the US — will seek further restrictions in 2018, after a brief decline in such measures being implemented in 2017. The Trump administration has asked the US Department of Commerce to conduct studies into “unfair” trade practices, which could be used to justify tariffs. The threat of terrorism remains a concern across many countries, evidenced by attacks in Europe, Africa, Asia, and elsewhere in 2017. Succession risks dominate the political risk landscape in many African countries.
In addition to the North Korea tensions, there are those in the South China Sea. Tensions between China, South Korea, Japan, and Vietnam over disputed islands remain, but did not develop further in the latter half of 2017. China’s economy has experienced exponential growth over the past few years; however, this slowed in 2017, and it is uncertain whether it will pick up this year.
In the Middle East, the threat of Islamic State (IS) has somewhat subsided in the region in recent months, but conflicts remain. In Syria, President Assad’s government regained territory from rebels and IS is considered less of a threat, but BMI research noted that the threat of violence in Syria, as well as in Iraq, Bahrain, and Yemen, persists.
At the same time, Qatar continues to face a diplomatic crisis, while tensions between Saudi Arabia and Iran remained heightened. Other risks in the region stem from conflict between Israel and Hezbollah in Lebanon, between Israel and Hamas in Gaza, and more broadly, the risk of a new Palestinian uprising against Israel.
Political risk insurance vs political violence/terrorism insurance
Organisations, specifically MNCs, face a complex and ever-changing political risk environment, noted the report. Social instability and adverse government actions are among the most common examples of political risks that multinational organisations face when trading or investing in foreign countries. Businesses need not necessarily forego opportunities if they happen to be in potentially unstable areas, but they should mitigate the risks through credit and political risk insurance.
Historically, multinational organisations have purchased political violence and/or terrorism insurance because the rates were typically lower than for political risk insurance. However, the report highlighted that this strategy may leave significant gaps in coverage--whether it is a political violence or a terrorism insurance policy that responds to a claim often depends on how insurers and governments view specific events. Some terrorism and political violence insurers have denied coverage, claiming that a particular event should be covered under the other type of policy. Political risk insurance can help bridge gaps by including coverage for both perils, potentially avoiding such disputes, said the report.
For more highlights of risks from other regions in Marsh Political Risk Map 2018 and Marsh’s interactive index rating countries on the basis of political and economic stability, visit the website.