Marsh highlights challenges foreign investors in 2015

07 January 2015 Consultancy.uk

The Central African Republic, Sudan and Syria are identified by consulting firm Marsh and Business Monitor International as the countries with the highest political risk. In their Risk Map they identify the countries that would represent good and bad investments based on the political risks that investors and multinational businesses might face.

Insurance broking and risk management consulting firm Marsh recently released its 2015 Political Risk Map. This map is based on the risk scores of 185 countries derived from data from Business Monitor International (BMI)*. The countries are scored in three categories: political risk, macroeconomic risk, and operational risk, and risks include: falling oil prices, divergence of emerging economies, political violence, autonomous and separatist movements, global conflict, social media, and state-sponsored cyber-attacks.

Based on the risk scores, Marsh identifies countries with healthy emerging markets and those that represent poor investments for foreign investors in its 2015 Political Risk Map and composes its top 20 of countries with the highest risk. African countries are dominating the list, with more than half of the list of African origin, with the Central African Republic leading the pack with a score of 22.6, followed by Sudan with a score of 24. War-torn Syria is found on the third place.

Country Risk Index - Top 20 Highest Risk

One of the key risks highlighted in the report is the risk of falling oil prices for oil-dependent countries. Marsh states that even though lower oil prices might benefit oil-importing countries and the global economy, the exporting countries could be negatively impacted as they are dependent on their oil export revenues to balance budgets. The Map shows that Angola, Chad, Equatorial Guinea, Iran, and Venezuela are categorised as ‘at severe risk’ as their political risk profiles are expected to further deteriorate if oil prices continue to fall. Especially Venezuela is vulnerable as 95% of exports and more than half of government revenues come from its oil.

Another highlighted risk is political instability in ‘hotspots’. In the past year, political violence was a concern in the Middle East and North Africa (MENA), Ukraine, Thailand, and Hong Kong, and the researchers emphasise that other countries, particularly where populations are increasingly concerned about the economy or where a single leader has held power for decades, are also susceptible to unrest and violence in 2015.

Global Political Risk Map

According to Marsh, these risks could test even the most trusted investor and trading relationships in 2015 and beyond. This is something foreign investors and organisations should respond to: “2015 is likely to bring a continuation of heightened political risk in many parts of the world. As such, multinational organisations need to stay ahead of the key issues impacting the countries and regions in which they operate,” explains Evan Freely, Marsh’s Global Credit & Political Risk Practice Leader. “For risk managers, the message is simple: Be prepared for anything, including in countries previously considered above reproach. A broad, multi-country and multi-hazard approach to managing political risks remains the most practical and effective political and credit risk strategy for multinationals.”

* BMI is a Fitch Group company that is specialised in political and credit risk analysis.

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