Continuing tension in the countries affected by last year's political uprisings in the Middle East, coupled with upcoming elections in the U.S., France, Russia and China and the ongoing eurozone debt crisis, could make 2012 an especially volatile year for businesses that invest, operate, trade or lend in emerging markets, according to a new study by Aon Risk Solutions.
The study examines political risk in 167 countries and territories to assess the risk level of exchange transfer, sovereign non-payment, political interference, supply chain disruption, legal and regulatory, and political violence. The study ranked each country from low to very high risk; 15 countries came in as "very high." The ratings reflect a combination of analysis by Aon Risk Solutions, Oxford Analytica, and the opinions of 26 Lloyd's syndicates and corporate insurers writing political risk insurance.
The risks are:
- Exchange transfer. The risk of being unable to make hard currency payments as a result of the imposition of local currency controls.
- Legal and regulatory. The risk of financial or reputational loss as a result of difficulties in complying with a host country's laws, regulations or codes.
- Political interference. The risk of host government intervention in the economy or other policy areas that negative affect overseas business interests; e.g., nationalization and expropriation.
- Political violence. The risk of strikes, riots, civil commotions, sabotage, terrorism, malacious damage, war, civil war, rebellion, revolution, insurrection, hostile act by a belligerent power, mutiny or coup d'etat.
- Sovereign non-payment. The risk of failure of a foreign government or government entity to honor its oligations in connection with loans or other financial commitments.
- Supply chain disruption. The risk of disruption to the flow of goods and/or services into or out of a country as a result of political, social, economic or environmental ionstability.
Click "next" to view the slideshow of the top 15 high-risk countries in alphabetical order.
1. Afghanistan
Risks: Exchange transfer, legal and regulatory, political interference, political violence, sovereign non-payment, supply chain disruption.
According to NATO, France plans to withdraw its troops from NATO-led operations in Afghanistan by 2013, earlier than the previously agreed deadline of 2014. This announcement, coupled with signs that allies including the U.S. could leave the country sooner, could threaten trans-Atlantic security.
2. Belarus
Risks: Exchange transfer, legal and regulatory, political interference, political violence, sovereign non-payment, supply chain disruption.
Belarusian President Alyaksandr Lukashenka recently threatened retribution against anyone who protested his attempts to stabilize the economy in the wake of sharp devaluation of the rubel. The Belarusian economy has been unstable since the December 2010 presidential election. His administration has severely cracked down on government opposition, although an April 2011 blast on the Minsk metro shattered the myth that Lukashenka is promoting stability. The currency crisis has hit household incomes hard and anti-Lukashenka sentiment is gaining ground. (Source: Oxford Analytica)
3. Democratic Republic of Congo
Risks: Exchange transfer, legal and regulatory, political interference, political violence, sovereign non-payment, supply chain disruption.
The recent parliamentary election of incumbent President Joseph Kabila against his nearest rival Etienne Tshisekedi is expected to see legal challenges from the opposition. Criticism of the collation process for parliamentary elections, and appeals for technical assistance from the election commission (CEI), threaten to inflame already high tensions in the region.
4. Guinea Bissau
Risks: Exchange transfer, legal and regulatory, political interference, political violence, sovereign non-payment, supply chain disruption.
Presidential elections following the death in office of President Malam Bacai Sanha are due Mar 18. Front-runner Carlos Gomes Junior is unlikely to lose party or national polls, but may struggle to hold them on schedule and with opposition participation. A failed coup attempt last December underlines how the presidential succession comes amid renewed military-civilian and intra-military tensions. (Source: Oxford Analytica)
5. Haiti
Risks: Exchange transfer, legal and regulatory, political interference, political violence, sovereign non-payment, supply chain disruption.
"Two years after the earthquake, Haiti remains in a state of humanitarian emergency. Recovery efforts -- marked by inefficiency and political infighting -- are still in their early stages, leaving Haitians in a high-risk environment for possible future disasters. Meanwhile, media coverage of the situation is limited, and commitment to the Haitian people from the international community has waned." (Source: Oxford Analytica)
6. Iran
Risks: Exchange transfer, legal and regulatory, political interference, political violence, sovereign non-payment, supply chain disruption.
"Lebanon has long been the traditional arena for Iranian-Saudi regional rivalries, but the Arab uprisings of 2011 have widened this arena to include Bahrain -- where Saudi troops were instrumental in putting down a Shia uprising against the Sunni minority monarchy -- and Syria, where Saudi Arabia has led Arab diplomatic efforts to oppose the embattled pro-Iran regime of Bashar al-Assad. Iran’s influence in post-Saddam Iraq also deeply rankles Riyadh. The conflict is currently in a soft phase, playing out through state-owned media, financial and materiel support for rival local actors on the ground, and pitched rhetoric from official and ‘semi-official’ voices in both camps. However, an intensification of this rivalry into full-scale military conflict would unsettle the politics and economic development of the entire region." (Source: Oxford Analytica)
7. Iraq
Risks: Exchange transfer, legal and regulatory, political interference, political violence, sovereign non-payment, supply chain disruption.
"Iraqi MPs recently ended a parliamentary boycott in protest at terrorism charges issued against Sunni Vice President Tareq al-Hashemi. After the U.S. withdrawal, Washington is relying on Ankara to help keep Iraq stable and united. However, the crisis within Iraq's Shia-dominated coalition government has damaged relations with Turkey. Prime Minister Nuri al-Maliki accused Turkey earlier this month of interfering in its internal affairs after it warned him against sparking a sectarian conflict in Iraq. Meanwhile, Turkey's ties with the Kurdish Regional Government (KRG) in northern Iraq are strengthening, with long-term repercussions for Iraq's unity and Turkey's own Kurdish question." (Source: Oxford Analytica)
8. North Korea
Risks: Exchange transfer, legal and regulatory, political interference, political violence, sovereign non-payment, supply chain disruption.
Last December's death of Kim Jong-il "increases risk on a volatile peninsula that has long been a major potential flashpoint in East Asia," according to Oxford Analytica. Kim’s son, Kim Jong-un, is a figurehead for older elites, whose unity may not hold in the face of mounting pressures, and may cause North Korean to "unravel, fracture or even implode."
9. Pakistan
Risks: Exchange transfer, legal and regulatory, political interference, political violence, sovereign non-payment, supply chain disruption
A failed state in Pakistan would destabilize the region, enable militant organizations to orchestrate terrorist activities within and beyond the country, and put the safety of its nuclear installations at risk, according to Oxford Analytica. State collapse could include the disintegration of the military, eruption of widespread political violence, and/or an overt rejection of the law and the constitution.
10. Somalia
Risks: Exchange transfer, legal and regulatory, political interference, political violence, sovereign non-payment, supply chain disruption.
"Somalia has had no functioning government since the United Somali Congress (USC) ousted the regime of Maj. Gen. Mohamed Siad Barre on January 27, 1991. The present political situation is one of anarchy, marked by inter-clan fighting and random banditry, with some areas of peace and stability. For administrative purposes, Somalia is divided into 15 regions, each governed by a Regional Revolutionary Council whose members are appointed by the president...A Transitional National Government (TNG) was created in October 2000 in Arta, Djibouti which was attended by a broad representation of Somali clans. The TNG has a 3-year mandate to create a permanent national Somali government. The TNG does not recognize Somaliland or Puntland as independent republics but so far has been unable to reunite them with the unstable regions in the south; numerous warlords and factions are still fighting for control of Mogadishu and the other southern regions." (Source: GlobalSecurity.org)
11. South Sudan
Risks: Exchange transfer, legal and regulatory, political interference, political violence, sovereign non-payment, supply chain disruption.
"South Sudan is keen to attract foreign investment, boost economic growth and reduce dependence on oil export revenues. The country has substantial untapped natural resources but is currently very under-developed. However, the relatively easy income from oil exports (even allowing for disputes with Sudan) means that the government feels little pressure to raise revenues by other means. Moreover, South Sudan must compete with more developed neighbours (such as Kenya and Uganda) where the business and investment environment is more favorable." (Source: Oxford Analytica)
12. Sudan
Risks: Exchange transfer, political interference, political violence, sovereign non-payment, supply chain disruption.
See South Sudan.
13. Venezuela
Risks: Exchange transfer, legal and regulatory, political interference, political violence, sovereign non-payment, supply chain disruption.
"Venezuela on Jan. 25 began formal procedures to withdraw from the World Bank's International Centre for the Settlement of Investment Disputes (ICSID). In 2007, ExxonMobil (Exxon) took Venezuelan state oil company PDVSA to international arbitration over the decision to force foreign operators to surrender control of heavy oil ventures to PDVSA. The International Chamber of Commerce (ICC) has now found in favour of Exxon, but not at a level that Exxon might have wished. The dispute and its outcome is more than a corporate disagreement, representing a clash between Caracas's nationalization policies and sanctity of contract for international investors." (Source: Oxford Analytica)
14. Yemen
Risks: Exchange transfer, legal and regulatory, political interference, political violence, sovereign non-payment, supply chain disruption.
Yemeni Prime Minister Mohammed Basindwa recently visited Saudi Arabia to secure financial support for Yemen's transition. President Ali Abdallah Saleh agreed to step down last year following months of pressure from the international community. The deal has brought Yemen back from the brink of a protracted civil conflict and given its political leaders an opportunity to set up a more representative government after 32 years of his rule.
15. Zimbabwe
Risks: Exchange transfer, legal and regulatory, political interference, political violence, sovereign non-payment, supply chain disruption.
Eighty-seven-year old President Robert Mugabe's fading health and unwillingness to nominate a successor has spurred speculation that his candidature in a possible 2012 presidential election might be challenged; the question of who controls the ruling ZANU-PF party continues to be more significant for the country's trajectory than focusing on inter-party relations with the Movement for Democratic Change (MDC) under the power-sharing arrangement. (Source: Oxford Analytica)
