While the world economy is broadly on the road to recovery, the level of political risk has risen in more countries than it has declined. So says Aon, whose Political Risk Map has just been published.

The report, produced annually by the firm’s Risk Solutions team, measures the political risk of 211 countries and territories based on the level of risks such as currency inconvertibility and exchange transfer; strikes, riots and civil commotion; war; civil war; sovereign non-payment; political interference; supply chain disruption and legal and regulatory risk.

Among the key findings of the report is the risk of sovereign non-payment (perceived and actual), and at a global level.

“We have seen thirteen island nations move into a higher risk category this year because of the effect of a decline in tourism on their economy,” explains Beverley Marsden, associate director of Aon Risk Solutions’ crisis management team.

“The negative effects of the global financial crisis impacted the economies of nations with traditionally low levels of risk. Iceland this year became the first Western European country to be downgraded to Medium,” she continued. “This year’s map also highlights the continued emergence of several markets in Africa, such as Ghana, Gabon and Nigeria, where more international trade and investment is occurring, leading to a greater need for political risk insurance cover.”

Marsden points out that it is not all bad news. Over the past five years, the Aon Political Risk Map has noted an almost 30% increase in the number of countries in the middle of the risk rankings - the Medium Low to Medium High categories – due to the prosperity brought about by these countries becoming more active in the world economy.

“Globalisation has been blamed for recent incidents of economic volatility, but it has also had a positive impact on global political and economic stability,” she suggests. “Many countries previously designated as Medium High or High have taken advantage of global trade links and have seen political risk levels decrease. This trend is demonstrated in South America, where countries like Brazil, Colombia and Mexico have all seen sustained improvements over the last five years.

UPGRADES AND DOWNGRADES

Downgrades:
Algeria, Benin, Comoros, Antigua and Barbuda, Bahamas, Barbados, Bermuda, Cayman Islands, Dominica, Grenada, Haiti, Antilles, St Kitts and Nevis, St Lucia, St Vincent, Trinidad, Myanmar, Iceland, Bahrain

Upgrades:
Kenya, Mozambique, Rwanda, Uganda, Zambia, Panama, Georgia, Uzbekistan, Indonesia, Malaysia, India

Political risk will continue to be a major influencer for businesses transacting in emerging markets in 2011.

“While the apocalyptic predictions many made at the beginning of the financial crisis did not come to fruition, a new norm in world trade is being established. We believe that political risk will remain elevated while the markets are unstable, but will return to traditional levels as the world economy improves, concludes Aon’s Marsden. “Businesses have enough difficulty traversing the complicated landscape of foreign trade and need up-to-date information and tools at their fingertips. Aon’s Political Risk Map and its interactive version helps our clients assess their various contingencies and determine the impact on their ability to ensure continued survival, growth and profitability.”

Aon’s Political Risk Map can be downloaded in full at http://www.aon.com/2011politicalriskmap

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