Political risk on downward trend, insurer says
THE world is a safer place now than this time last year, according to the insurance giant Aon.
In its annual "political risk map", compiled in association with Roubini Global Economics, the British firm has upgraded the "riskiness" of 13 countries, meaning they are now considered more stable than last year, while it has downgraded 12 states.
Aon rates a country based on eight criteria, including its ability to withstand banking shocks, political interference, political violence, and the risk of a sovereign default, among others measures.
It is used as a general guide for companies doing business in emerging markets.
Even taking into account the turmoil in the eurozone, the study is focused primarily on the developing world. Western Europe and North America are not rated, for example.
This year, Aon believes the political climate in the likes of Bahrain, Oman, Pakistan and the United Arab Emirates has improved enough for them to be upgraded, while another 12 countries such as Algeria, Mali and Paraguay are now considered more of a risk than 12 months ago.
Despite being a highly risky state, Aon describes Pakistan as having experienced "modest improvements in 2012" but says it is still a "very challenged" country.
"All aspects of political risk are present in Pakistan, where governance issues also undermine the business environment, rule of law and property rights. Political violence remains an elevated risk, with several key areas slipping away from central government control," the firm says. Not surprisingly, the Arab Spring played a huge role last year in the Middle East.
Roubini chief executive Richard Green said the decision to upgrade the likes of Oman, Bahrain, and the United Arab Emirates "illustrated their strength in the region to withstand the Arab Spring".
Egypt, however, has seen "political uncertainty and associated risks rise considerably" since the fall of Hosni Mubarak two years ago.
"All risk indicators have deteriorated to a high or moderately high level," claim the group.
Despite the upgrades this year, Matthew Shires, who heads Aon Risk Solutions' political team which compiled the report, warned there was still huge instability around the world.
"Businesses operating in emerging markets still face significant risks," he said.
Of the states that are studied for the report, the tiny South American country of French Guiana is the only one that has the lowest possible risk rating.
"An overseas French dependency, it has one of the lowest risk levels in the Latin American and Caribbean region, benefiting from French regulation and links," says Aon.
"Still, it does exhibit some risk around the manageability of legal and regulatory issues, as well as political interference. There is a low risk of sovereign non-payment," the report adds.