INSIGHTS FEBRUARY 2019 Political Risk Map 2019 Rising geopolitical tensions INSIGHTS FEBRUARY 2019
Political Risk Map 2019: Rising geopolitical tensions
CONTENTS
1 Introduction
2 North America
Europe
3 Latin America
Africa
4 Political Risk Map 2019
6 Middle East
Asia/Pacific
7 Risk management and insurance recommendations
9 About this report Businesses have arguably never faced such a breadth of challenges as they do today. From emerging economies to mature ones, business and trade are increasingly susceptible to uncertainty, with political risks posing a threat to their business interests.
Rising geopolitical and geo-economic tensions represent the “most urgent global risks at present”, Uncertainty ahead according to the World Economic Forum’s Global Isolationist and protectionist sentiments Risks Report 2019. Marsh’s Political Risk Map 2019, and practices have risen in some countries, based on data from Fitch Solutions, highlights halting, at least momentarily, the process of changes from last year and looks ahead to ongoing globalization. Actions in one economy create risks, including continuing US-China tensions, trade reactions in others. Against this backdrop, it wars, Brexit and changes within the Eurozone, the could prove more difficult for nations to make future of Iran’s and North Korea’s nuclear programs, collective progress on global challenges. and tensions between Russia and the West. Global trade is increasingly afflicted by uncertainty, Transition to a more multi-polar world order of with perhaps the biggest current cause being the protectionism is likely to continue. While the US, ongoing trade dispute between the US and China. China, Russia, and to a lesser extent the EU and Japan, An export-heavy economy such as Germany is will remain the most powerful actors, emerging inevitably impacted. This uncertainty is compounded powers such as India, Iran, Saudi Arabia, Turkey, by Brexit, the exact nature and effects of which and Brazil will be increasingly important players. are still unclear. At the same time, there is a “fear factor” rippling through the global economy and, The US and China are intensifying their geopolitical in some cases, there has been a retrenchment of competition in the Indo-Pacific region and, with both liberal values and a political shift to the right. stepping up military activities in the South China Sea, an unintended military clash is possible. Economic uncertainty can play out socially and Meanwhile, Russia’s relations with the West will politically, and can easily change form and spill remain tense in 2019 as a result of the Kremlin’s across continents. For example, disruptions to supply alleged interference in US and EU domestic politics, chains and/or economic slowdowns in individual the Skripal poisoning incident in the UK, laboratory countries may well be felt far beyond their own hacking in Switzerland and conflicts in Syria and borders. More than ever, political risks in one part of Ukraine. All of this could lead to more US and/or EU the world or sector are likely to spill over into other sanctions on Russia. US President Donald Trump’s regions or sectors, often causing unexpected harm. withdrawal from the 1987 US-Soviet Intermediate- Range Nuclear Forces Treaty also raises the In the following pages, we use Fitch Solutions’ data possibility of a new missile build-up in Europe. to look at many of the country-specific political risks that companies may face in 2019. What is most As Fitch Solutions note, 2019 will be a busy noticeable today is how many of the macro threats year for elections in emerging markets and are in so-called developed economies as opposed some developed states — which could heighten to emerging markets. Vigilance and broad, systemic the climate of political volatility. We consider risk analysis will be vital to minimizing these risks. these further in our regional analysis.
Marsh • 1 North America The Democrats’ capture of the House of Representatives in the Trade tariffs and geopolitical disputes with China could escalate 2018 mid-term elections is likely to lead to a more combative in 2019, bringing the risk of further Chinese retaliation and US political landscape in 2019. It has already seen the longest US counter-retaliation. In addition, Trump's re-imposition of shutdown of government in American history. A more activist sanctions on Iran in November 2018 risks generating a tougher House could launch investigations into perceived wrongdoings stance by Tehran, potentially raising the risk of conflict, or the by President Trump or others. Candidates are already start of a new rapprochement. announcing for the 2020 Democratic presidential nomination while, with a divided Congress likely to hold up policy formation Another focus will be to ensure that the rapprochement and enactment, President Trump’s focus is likely to center on with North Korea remains on track. In Washington, foreign policy, where the executive has more leeway than on meanwhile, the ongoing investigations into President domestic policy. Trump’s alleged ties with Moscow might prevent him from undertaking initiatives that could improve bilateral relations with Russia, Fitch Solutions noted.
Europe The UK's politics in 2019 and beyond will remain focused on Brexit negotiations and subsequent transition period out of the FIGURE Europe: Changes in Short-Term EU. Brexit aside, the EU will be in a state of transition in 2019 as it prepares for parliamentary elections in May and new presidents 1 Political Risk Score of the European Commission and European Central Bank, and SOURCE: FITCH SOLUTIONS European Council, in November and December respectively.
Elsewhere, the possibility that German Chancellor Angela Merkel may step down early, rather than serve out her full term to Germany's autumn 2021 general elections, means that the EU could face a leadership vacuum. French President Emmanuel Germany UK 1 3 change Macron could possibly seek to fill the void, but his declining 1 change popularity at home may mean that his attention is focused on Moldo a domestic matters. 2 1 change
Meanwhile, the Ukraine conflict could worsen, especially if Spain President Petro Poroshenko or his successor seeks to bolster 4 2 change nationalism in an election year and Russia responds. Elsewhere, Moldova’s general elections in February 2019 could turn the country into another diplomatic focal point, with the pro- Western government pitted against the pro-Russian opposition.
In Spain, the People’s Party government of Prime Minister As a result, Fitch Solutions lowered Spain’s short-term Mariano Rajoy collapsed in June, and was replaced by a political risk index (STPRI) from 68.3 in 2018 to 64.6 in minority socialist administration with very little parliamentary 2019, the largest reduction in the continent. A lower STPRI support. There was also continued unrest in Catalonia. score represents decreased stability and is one piece of Fitch Solutions’ overall political risk index score. Key