All five emerging market countries which have been considered good growth opportunities for insurance and business in general–Brazil, Russia, India and China–are at increased risk rating due to growing political violence, government interference and sovereign non-payment risk.

In its 2014 Political Risk Map (click image at right to enlarge), Aon Risk Solutions and Roubini Global Economics (RGE) examined data and analysis to develop an interactive online map that allows companies to assess the degree of political risk and exposure in 163 emerging countries and territories.The report measures exposure to exchange transfer, legal and regulatory risk, political interference, political violence, sovereign non-payment and supply chain disruption. In addition, RGE’s “country insight” scores capture a series of small changes on a quarterly basis, which can provide early warnings of change, such as with the Ukraine several quarters in advance. All scores are updated quarterly.

In the 2014 report, Aon upgraded six country’s scores, compared with 13 in 2013. These were Ghana, Haiti, Laos, Philippines, Suriname, Uganda.

Aon downgraded 16 countries, compared with 12 in 2013: Brazil, China, Eritrea, India, Jordan, Kiribati, Micronesia, Moldova, Russia, Samoa, South Africa, Swaziland, Tonga, Tuvalu, Ukraine and Vanuatu.

The report highlighted the following key points to watch in 2014: 

  • Exchange transfer: Economic recovery in developed markets and the beginning of interest rate normalization has drawn capital back from emerging markets, adding pressure to countries with weak external balances. Increased political risk in some of the larger countries has weakened long-term capital (foreign direct investment, FDI), increasing the risk of measures being introduced to retain capital that will impede transfers of funds/repatriation of assets.
  • Sovereign non-payment: As fiscal balances weaken and default risks rise in countries like Ukraine, along with foreign exchange pressure, corporations will see a change in certain sovereigns’ willingness and ability to pay. 
  • The heavy global election cycle in 2014: This could exacerbate political violence, government intervention and policy implementation risk. 

Click on the following pages for details of risk changes in the BRIC countries.

Brazil’s rating was downgraded. Political risks have been increasing from moderate levels as economic weakness has increased the role of the government in the economy. This is of particular concern given this year’s World Cup and the 2016 Olympics.

Russia’s political strife and focus on geopolitical issues have exacerbated an already weak operating environment for business and exchange transfer risks have increased following the risk of new capital controls. The Russian economy continues to be dominated by the government, so economic policy deadlock has brought growth to a standstill and with it an increase in the risk of political violence.    

Ukraine’s position deteriorated throughout 2013, which culminated in a downgrade to high risk in Q3 from medium high. Russia’s annexation of Crimea and government collapse has warranted a further downgrade: Ukraine is now a very high risk country. 

Exchange transfer risks, which are already very high, will be further increased by restrictions in the financial system. Further, the willingness and ability of the country to settle its debts may be affected. Meanwhile, the weakening of global demand for base metals has hit government revenues and weakened its ability to stimulate the economy. 

In addition to uncertainty regarding the status of Crimea, Russia’s desire for federalization in Ukraine, will provide flashpoints. RGE’s baseline assumes that there will be some de-escalation of tensions short of war, but Russia will be likely to continue to de-stabilize eastern Ukraine. The upcoming presidential election will present a source of economic and political uncertainty.

In early 2013, Aon identified some improvements in the Caucasus, Armenia and Azerbaijan, which have continued. The rest of the region has weakened. Volatility in the Ukraine is also affecting other former Soviet states, including Armenia, Belarus, Georgia and Moldova.

India’s rating was downgraded with legal and regulatory risks elevated by ongoing corruption and moderately high levels of political interference. Territorial disputes, terrorism, and regional and ethnic conflicts also contribute to elevated risks of political violence.

South Africa’s rating was downgraded. Despite having strong political institutions, South Africa is struggling from recurrent strikes, which have become the major means of wage setting, and which weaken the outlook for business and raise financing costs.

In the Middle East and North and West Africa, developments in 2013 have reinforced the relative strength of the richer oil exporting MENA (Middle East and North Africa) countries of the Gulf Cooperation Council (GCC).  Compare this to their North African peers, all of whom have fewer financial resources with which to manage any shocks, they all continue to have higher risk scores across all elements of political risk tracked by Aon.  The three countries upgraded in 2013’s risk map (Bahrain, Oman and UAE), maintained their more resilient and lower risk outlook, while Jordan, where Syrian refugees have exacerbated domestic shocks, was downgraded.

There are some improvements in Sub-Saharan Africa, notably in Ghana and Uganda which offset deterioration in South Africa and Swaziland, which were both downgraded.  Although Ghana has fiscal overspending and rising inflation, which is weakening its macroeconomic stability, increases in revenues and investment reinforced its already strong political institutions.  Uganda continues to suffer from an overly centralized government and significant human rights issues, the stabilization of donor finance improved its ability and willingness to pay debts and reduced political interference.

By contrast, political conditions deteriorated, particularly in Swaziland, which is being supported by its neighbours financially, and suffered a broad-based increase in political risk and economic strain which added to expropriation risk.  South Africa, despite having strong political institutions is struggling from recurrent strikes, which have become the major means of wage setting, and which weaken the outlook for business.

China’s rating was downgraded to moderately high. This deterioration in political risk, including an increase in political violence, has occurred at a time of slowing economic growth, which suggests that the economic policy deadlock and economic sluggishness are mutually reinforcing.

Risk Icons

Each country on the map is rated according to the different types of risks it faces.  These risks are indicated by the individual icons, with the first six icons driving the overall country rating, and the three new icons included for additional information.

Brief Descriptions of Each Risk Icon

Country ratings on the map derive from six core Risk Icons, which represent insurable risk and these are;

Exchange Transfer: The risk of being unable to make hard currency payments as a result of the imposition of local currency controls.  This risk looks at various economic factors, including measures of capital account restrictions, the country’s de-facto exchange rate regime and foreign exchange reserves. This Risk Icon has been added to 25 countries and territories, including Namibia, Nepal, and South Africa. This Risk Icon has been removed from five countries including Bangladesh, Mongolia, and Uganda. One hundred and seven countries have this Icon.

Sovereign Non-Payment: The risk of failure of a foreign government or government entity to honour its obligations in connection with loans or other financial commitments. This risk looks at measures of both ability and willingness to pay, including fiscal policy, political risk and rule of law. This Risk Icon has been added to 22 countries and territories including Gabon, Moldova and South Africa.  This Risk Icon has been removed from four countries, including Belarus, Malawi and Montenegro. One hundred and eight countries have this Icon.

Political Interference: The risk of host government intervention in the economy or other policy areas that adversely affect overseas business interests; e.g., nationalization and expropriation. This risk is composed of various measures of social, institutional and regulatory risks. This Risk Icon has been added to 6 countries and territories including India, Mozambique, and Cape Verde. This Risk Icon has been removed from two countries: Bangladesh and Benin. Eighty-five countries have this Icon.

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 instability. From 2013, this includes an assessment of domestic supply chain risk. This Risk Icon has been added to 20 countries and territories, including Bahrain, Macedonia, and Rwanda. This Risk Icon has been removed from four countries including Jamaica, Montenegro, and Saudi Arabia. One hundred sixteen countries have this Icon.

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. This risk comprises measures of government effectiveness, rule of law, wider property rights and regulatory quality. This Risk Icon has been added to 17 countries and territories including Colombia, Morocco, and Peru. This Risk Icon has been removed from two countries: Thailand and Zambia. One hundred ten countries have this Icon.

Political Violence: The risk of strikes, riots, civil commotions, sabotage, terrorism, malicious damage, war, civil war, rebellion, revolution, insurrection, a hostile act by a belligerent power, mutiny or a coup d’etat. Political violence is quantified using measures of political stability, peacefulness and specific acts of violence. This Risk Icon has been added to 19 countries and territories, including Belize, Indonesia, and Ukraine. This Risk Icon has been removed from five countries, including Armenia, Serbia, and Timor Leste. One hundred and four countries have this Icon.

Risks to Doing Business: The regulatory obstacles to setting up and operating business in the country, such as excessive procedures, the time and cost of registering a new business, dealing with building permits, trading across borders and getting bank credit with sound business plans. This Risk Icon has been added to eight countries and territories, including Botswana, Pakistan, and Senegal. This Risk Icon has been removed from eight countries, including El Salvador, Seychelles, and Zambia. Ninety-seven countries have this Icon.

Banking Sector Vulnerability: The risk of a country’s domestic banking sector going into crisis or it not being able to support economic growth with adequate credit. This risk comprises measures of the capitalization and strength of the banking sector, and macro-financial linkages such as total indebtedness, trade performance and labor market rigidity. This Risk Icon has been added to 13 countries and territories, including Botswana, Pakistan, and Senegal. This Risk Icon has been removed from 13 countries, including Barbados, Dominican Republic, and Ghana. One hundred and eight countries have this Icon.

Risks to Fiscal Stimulus: The risk of the government not being able to stimulate the economy due to lack of fiscal credibility, declining reserves, high debt burden or government inefficiency. This Risk Icon has been added to 12 countries and territories, including Afghanistan, Iran, and Panama. This Risk Icon has been removed from 11 countries, including Burkina Faso, Iraq, and Vietnam. Ninety-seven countries have this Icon.

The map can be accessed at