Since 2013, Continuum Economics and Aon have collaborated to create the Political Risk Map. The map and its supporting materials provide insights into changing political risks for businesses operating across non-EU and -OECD countries. In today’s complex geographical and economic environment, the map enables clients to identify and track the different sources and degrees of risk, allowing businesses to plan ahead and protect assets, contracts and loans that can be adversely affected in such economies by government action or inaction.
The Political Risk Map highlights areas where political risk is prevalent and decomposes the sources of risk, such as political violence, institutional and regulatory risk and economic conditions. Persistent political instability and violence are undermining regional economic outlooks and their business environments, especially in the Middle East. However, the change of presidents in the US could result in a reconfiguration of strategic interests, especially in relation to a potential loosening of sanctions against Iran. The other region which has experienced major instability is Central and Eastern Europe. Nearly a year after the first protests against President Alexander Lukashenko broke out, demonstrations have fizzled out but international sanctions have been applied against the regime and the economy. Meanwhile, in January-February, Russia became the stage of the most violent protests against President Vladimir Putin since 2019. Corruption, discontent with arbitrary repression and declining real incomes have been the main drivers of these protest movements.
The map also captures supply chain disruption risk, which is exacerbated by climate change and extreme weather. Frontier markets with high exposure to natural disasters and low capacity to cope will be more exposed, but they are often also the countries that have suffered most from COVID-19 from a health and economic perspective. Frontier markets where COVID-19 has resulted in much wider fiscal balances, higher inflation and larger debt burdens are at greater risk of falling behind in efforts towards climate change mitigation. Rising supply chain disruption risks will combine with increased macroeconomic risks in a gloomy outlook.
Last year, we emphasised the rise of blockades and capital controls as key instances of regulatory market constraints which disrupted corporate activity, together with rising risks of political interference in the form of contract expropriation. This year, while we expect expropriation risk to rise, especially in sectors that provide the raw materials of batteries and clean technologies, we are more concerned about other forms of political and macroeconomic risk. These include political unrest resulting from a significant uptick in 2021 inflation in emerging markets (EM), a setback for the green recovery drive following COVID-19, and the risk of EM divergence from developed markets per capita incomes, as a result of a lagged and insufficient implementation of vaccination in EM.
Continuum Economics is proud of its long-standing partnership with Aon in helping businesses assess and manage risks through innovative data and country benchmarking. Our political risk scores, updated quarterly, deliver an independent, systematic and data-driven approach that allows for regular monitoring of risks and opportunities.
Francesca Beausang Lead Economist Emerging Europe Research Continuum Economics