The 2017 edition of the Aon Risk Map – first group in Italy and in the world in risk and human resources consultancy – which analyzes political risks, terrorism and episodes of violence linked to political events, highlights how 2016 was characterized by an increase of 14% of the Attack terrorists globally. Nationalist and populist movements have contributed to creating a context characterized by growing volatility for companies operating on international markets.
The research carried out by Aon in collaboration with Roubini Global Economics and The Risk Advisory Group also shows that, although Western countries have recorded a marked increase in terrorist attacks, the number of episodes of violence of a terrorist nature for these countries represents less than 3 % of terrorist attacks globally. The report also highlights that in 2016 the United States suffered the highest number of terrorist incidents in the last decade, although the risk of new attacks will likely remain contained in 2017.
Andrea Parisi, Chief Executive Officer and General Manager of Aon SpA commented: “In the current geopolitical context, the growing complexity for companies operating globally is confirmed. Aon will continue to support companies in assessing their exposure to political risks and in using suitable risk management tools. In Italy, within Specialty Trade Credit which has over 50 people, various resources have been dedicated precisely to the study and planning of coverage relating to political risk”.
Terrorism and acts of violence linked to political events
The terrorist threat continues to expand, affecting an ever-widening range of sectors and countries, with ever more diverse tactics and the goal of killing. There are various consequences of terrorist attacks: from the loss of human lives to the interruption of business and the supply chain. Further risks also emerge at the geopolitical level, which lead to increased security costs, more authoritarian forms of government and a weakening of consensus among states. For 2017, there were no signs of a possible overall decrease in the risks associated with acts of violence. These outcomes have underlined the importance of considering in crisis management the dangers that go beyond the damage to private property, particularly in the oil, transport and distribution sectors, which have been the most affected.
Scott Bolton, Director of the Crisis Management team at Aon Risk Solutions commented: “The new dynamics characterizing terrorism and acts of violence that have emerged in the succession of attacks globally in 2016, pose new challenges for companies. Those operating on both the domestic and international markets are potentially exposed to events that could have an impact on human resources, activities and assets. It therefore becomes essential to know these risks and implement the most appropriate risk management systems”.
Henry Wilkinson, Head of Intelligence & Analysis of Risk Advisory adds: "The international scenario in 2017 is moving in a direction increasingly subject to episodes of violence and crises of various kinds, in a trend that also sees state actors as threats to international security, as well as terrorist groups. Terrorism linked to the Islamic State and Al Qaeda remains a threat to which dozens of countries and key sectors are exposed, including oil and gas, aviation, tourism, distribution and the media. But in 2017 companies will have to develop strategies that also face geopolitical risks. Authoritarian nationalisms are on the rise and with them the risk of interstate crises, coups, insurrections and other types of political risks”.
(Source: Aon)
The political risk
Risks stemming from populism and protectionism in developed countries could lead to heightened political risks in emerging and frontier markets as their economic and financial resilience is tested. While levels of political risk remain elevated, particularly in the Middle East and Africa, the efforts made in implementing reforms and economic policy adjustments have supported its recovery. The expected stabilization of oil and gas prices will alleviate, but will not cancel, some of the economic pressures to which the producing countries are subjected, also amplifying the financial vulnerability for the importing countries, particularly in Asia.
Sarah Taylor, Executive Director, Head of Structured Credit and Political Risks at Aon Risk Solutions said: “The ever-changing global landscape, driven by trade protectionism, populist policies and sanctions, could have a significant impact on emerging markets and frontier. Today more than ever it is important for international companies to understand and reduce their exposure to political risks”.
Rachel Ziemba, Managing Director Emerging Markets at Roubini Global Economics concluded: “Those most affected by political uncertainty in developed economies, such as those in the United States and Europe, appear to be major trading partners in Asia, as well as commodity producers in the 'Sub-Saharan Africa, the Middle East and North Africa. Focusing on trade, currency and renegotiation of migration flows, we see increased risks of currency transfer, supply chain disruption and state meddling in economies. Within these areas there are significant differences, with the richest countries of the Gulf Cooperation Council outnumbering the countries of the same region”.
(Source: Aon)
Main results of the 2017 report
– In 2016, oil companies and companies active in the gas sector were the target of 41% of terrorist attacks against commercial interests and the trend is continuing in 2017. Tops the ranking of countries most affected by terrorism targeting the sector energy include Nigeria and Colombia, where attacks by militants in the Niger Delta during the first half of 2016 caused a decrease in Nigerian oil production by 36%. Saudi Arabia, Iran, Russia, Venezuela and the United States were found to be the countries vulnerable to production declines. With the oil market declining, these supply crises could have major impacts on the price in the future.
– Businesses today are facing increasing exposure to the risk of acts of violence from political events around the world. For the second consecutive year, there has been an increase in the number of countries (19) where political risks are increasing, compared to countries where they have decreased (11). Overall, levels of terrorism and political risk are the highest on record since 2013, including not only terrorism-related risk, but also exposure to coups, wars between states, civil conflicts and rebellions. There are 17 countries at the highest risk, which constitute real epicenters of instability, from which the main threats of international terrorism come, which significantly increase exposure to business risks in neighboring countries. Three very high risk belts stretch from Africa through the Mediterranean to the Atlantic, through the Eastern Mediterranean and South Asia.
– Countries highly integrated into the global economy, such as Chile, Colombia, Hong Kong, Malaysia, Singapore and Taiwan, are subject to greater political risk due to their dependence on the United States and other trading partners. Mexico and the Philippines are more vulnerable to reductions in remittances from citizens residing abroad should trade-related restrictions arise. Brazil, India, Indonesia and Nigeria are less vulnerable, relying on larger national economies, much less dependent on exports.
– Middle East and North Africa have the highest concentration of high to very high risk countries, with heightened political risks and very high levels of incidents of violence related to political events (e.g. in Iraq, Syria, Yemen and Libya) which they can also affect neighboring states, undermining trade and tourism. The loss of control over some territories in Iraq and Syria by ISIS could lead to a greater dispersion of the jihadist network, with serious implications for dozens of countries in the area and beyond, with possible effects especially in Europe and Asia. Wealthier GCC (Gulf Cooperation Council) countries are more resilient to political shocks, but economic vulnerabilities remain, including government debts to private companies and higher capital procurement costs.
Attachments: Risk Map Brochure
