Political risk and tensions continue to concern multinationals

Political risk will remain a major concern for multinational businesses throughout 2018, driven by events including the North Korea missile crisis, ongoing Brexit negotiations, and trade protectionism, according to a paper published by Marsh.

In Europe, the UK’s negotiations to exit the European Union continue to loom over the political risk landscape, while political instability persists in Spain and Italy’s general election in March raises concerns over the rise of anti-establishment and Eurosceptic parties.

Global practice leader in Marsh’s Credit Specialties division, Evan Freely, said social instability, adverse government actions, and terrorist threats are among the most common political risks that multinational organisations now face when trading or investing in foreign countries.

“While political risks are often not directly controllable in this complex and ever-changing environment, in many instances they can be mitigated through credit and political risk insurance, providing greater confidence in the benefits of these opportunities in potentially unstable areas of the world,” he explained.

Marsh’s Political Risk Map rates countries on the basis of political and economic stability and gives insight into where risks are most likely to emerge. The map can be used to help multinationals make more informed decisions about how to deploy their financial resources in the year ahead.

The risk of increased global trade protectionism is a growing threat. Trade giants, such as the US, are likely to seek further restrictions in 2018, after a brief decline in such measures being implemented in 2017.

Several Latin American countries – including Brazil, Colombia, Mexico, Paraguay, and Venezuela – will hold presidential and legislative elections in 2018, which has led to a deterioration in their short-term political risk scores (STPRI).

The African region saw some of the biggest improvements in political risk scores in 2018, although uncertainty around elections and successions have led to sharp increases in political risk in Kenya, Gabon, and Cote d’Ivoire.

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