As the world seeks to re-establish itself after the 2008 financial crisis and the 2010 Arab Spring, the past 12 months has shown a slight improvement in the level of political risk worldwide, according to the risk management and insurance broking group Aon.
Aon’s 2013 version of its annual ‘Political Risk Map’, produced in partnership with Roubini Global Economics, shows an increase in the number of countries with upgraded political risk ratings, where the overall country or territory risk is rated lower than the previous year.
Thirteen countries were upgraded in 2013 as opposed to three in 2012, while only 12 countries experiencing downgrades, in comparison to 21 in 2012, as follows:
- Upgrades: Armenia, Azerbaijan, Bahrain, Barbados, Belarus, Guatemala, Macedonia, Montenegro, Oman, Pakistan, Swaziland, Thailand, the United Arab Emirates.
- Downgrades: Algeria, Cameroon, Chad, Ethiopia, Madagascar, Mali, Namibia, Moldova, Turkmenistan, Uzbekistan, Panama and Paraguay.
Aon added that trends revealed by the 2013 map included the following:
Improvements on Europe’s Periphery: Several Central Asian and Caucasus countries, such as Azerbaijan and Armenia, showed improvement, admittedly from a low base. This reflects a concerted effort in emerging Europe and Commonwealth of Independent States (CIS) toward structural reform to attract investment and to increase market share. While there is still room for improvement, the persistent economic strain in Western and Eastern Europe increased economic pressure on several regional governments and brought downgrades in Moldova and Uzbekistan (the improvement in government institutions mitigates the effect of these risks on investments by strengthening country balance sheets).
A new order in the Middle East: After dominating the downgrades in 2012, three Middle Eastern countries (Bahrain, Oman and UAE) were upgraded in 2013, reflecting a stabilisation and differentiation of political risk in the Middle East and North Africa (MENA) region. While this might be temporary, as the region is still fragile, it crystallises a divergence in the region between the countries with stronger economic and financial institutions (FI) and those with greater wealth which increases their resilience to adverse political and economic events. Moreover, it underscores the importance of strong corporate and financial institutions, which cushion the effects on individual countries.
Aftershocks in Western Africa: Cameroon, Chad, and Mali all were downgraded, along with adjoining Algeria, reflecting the spillovers from the difficult regime changes in North Africa which destabilised these countries. Flows of weapons and insurgents across borders have exacerbated high political risk. Developments so far in 2013 indicate the potential for further downgrades.
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