Control Risks outlined five states that could present opportunities for the adventurous investor
Political and security risks are evolving against a backdrop of uneven and uncertain economic recovery, with the probability of regime change in some of the world’s most prominent political hotspots, according to a new risk forecast.
The 2010 edition of Control Risks’ RiskMap focused on the following geopolitical and security risks of particular interest to multi-national businesses for the coming year:
The global economy
“A return to growth will be partial and protracted, and over-dependent on governmental stimulus measures,” said the report.
The authors believe that political and social risks are at their most heightened in a period of economic recovery, when reality fails to meet expectations.
Richard Fenning, Control Risks’ CEO, said: “History tells us time and again that political risks to business are greatest not at the bottom of the economic cycle, but in the first stages of recovery.”
Unemployment will also represent a key macro-political and security risk in 2010, noted Control Risks.
Businesses should also be weary of more interesting operating environments in emerging markets where multiple political successions are likely.
This continues to be a threat to business in Europe and North America, not withstanding improvements in intelligence gathering, prevention work and commercial surveillance, according to the report.
The biggest threat comes from homegrown, increasingly self-radicalised and low-tech terrorists, said the analysts. By their nature these cells are more difficult to penetrate and less predictable.
Added Fenning: “During 2010, organisations will also need to consider the potential implications of the changing nature of the domestic terrorist threat, which while becoming more low-tech, is also becoming more unpredictable.”
Corruption could be a key focus for UK companies in 2010, with the expected enactment of the UK anti-bribery bill.
“Formal compliance will be insufficient to mitigate the risks generated by local business partners, commercial agents and consultants working with customs agencies. Businesses will need to strengthen their integrity programmes in order to reinforce a culture of clean business,” said the report.
The report also flagged some high risk, high potential return countries such as Ukraine, Peru, Mozambique, Indonesia and even Iran.
Michael Denison, Research Director, Control Risks, said: “Some of our high-risk, high potential return countries may seem controversial. For some businesses these countries should be ones to watch very closely over the coming years, as positive political developments could lead them to become very interesting investment opportunities.”
“With its new-found political stability, vast domestic market, and natural resource endowment, Indonesia is the Asian country to watch in 2010,” said the report. While also noting: “The Afghanistan-Pakistan border region will remain central not only to Asia’s regional security, but to global counter-terrorism initiatives.”
In Latin America, the authors suggested that “hard” political risks may be less acute but continued to caution against optimism. “Crime and the tradition of labour activism present enduring project-specific risks in many sectors.”
The chances have improved of settlement with Iran, which would represent a significant opportunity for international oil companies and represent a domestic market of huge potential, claimed the authors. Overall, economic stability in much of the Middle East and North Africa will continue to be bound up with movements in global oil prices, said the report.
“In Europe, Russia will look to divest itself of non-strategic assets, creating new opportunities for investors with higher risk appetites, while Western European states will continue to grapple with the fall-out of the recession, at some political cost to incumbent governments.”
Concluded Fenning: “Whilst being mindful of these risks, successful businesses will also have their eyes open to the opportunities presented during this uneven transitional period.”
Control Risks RiskMap 2010 includes a rating of 173 countries by political and security risk.