Persistent political instability slowing global economic rebound – report

The COVID-19 pandemic served both to suppress and aggravate terrorism and political violence risks in 2020-2021, according to a report from Aon. It says the scale of government intervention, resultant economic inequality and public unrest over government responses to the pandemic will continue to exacerbate a quickly worsening situation.

Vlad Bobko, head of crisis management, London Global Broking Centre, Aon said: “The COVID-19 pandemic has complicated an already fractured landscape of geopolitical risks, which firms operating globally need to navigate. From rising instances of civil unrest, to economic dislocation and the long-term potential for inflation in an increasingly connected and volatile world, informed decision-making has never been more important."

Aon’s annual Risk Maps report, which examines political risk, terrorism and political violence globally, aim to help clients to identify and track the different sources and degrees of risk, assisting them in planning and protecting assets.

Henry Wilkinson, chief intelligence officer at Dragonfly, which co-authored the report, said, “The pandemic is a long-tail risk that has created an artificial near-term global risk picture, particularly of political violence risks. The extraordinary measures to contain the pandemic have been suppressive but politically aggravating. A tide of increasing risk by 2022 is likely as mass vaccinations and an easing of restrictions converge, with the accumulated economic and political effects of the pandemic. The need for reliable and actionable data, intelligence and analysis to manage fluid and high-impact global risk exposures while planning for recovery is critical.”

Key report findings: Terrorism and political violence (Source: Aon Risk Map)

COVID-19 restrictions dampen terrorism and political violence, but uptick expected
Lockdowns and travel restrictions have had a containing effect on most forms of terrorism and protest in 2020 – the percentage of countries exposed to terrorism and sabotage fell to 45% – with surges in incidents mainly accompanying an easing of restrictions. As a result, terrorist attacks fell overall worldwide. However, extremists and activists from across the spectrum are evolving their narratives; the pandemic has been an opportunity to build support and challenge established orders and forms of governance through protests and violence. For example, the US saw a sharp rise in civil unrest and insurrection risks.

Jihadist violence rose overall by 20% in 2020
The majority of this activity was in conflict zones, such as Iraq, Syria, Afghanistan and Mali, all of which are reliant on external military and political commitments to ensure stabilisation. The impact of COVID-19 on these fragile states was also factor.

Political risk
Political risks have risen during 2020-2021. Seven countries experienced a deterioration in the political risk situation, and none experienced an improvement. This follows a significant uptick inflation in emerging markets in 2021, a setback for green recovery initiatives following COVID-19 and the risk of emerging markets divergence from developed markets in terms of per capita incomes, as a result of lagging and insufficient vaccination implementation in emerging markets.

The green recovery at risk
Rebuilding better in the wake of COVID-19, and especially rebuilding greener, has been presented as an opportunity by most international institutions, especially the European Union. The economic case for a green recovery is based on job creation and ultimately less expensive energy costs. Yet the fiscal burden of addressing the COVID-19 crisis has meant that by the end of 2020, fewer than half of the Paris Agreement signatories had delivered on its core provisions – to raise the ambition of their contributions towards achieving the goal of limiting the global average temperature increase to 1.5 degrees above pre-industrial levels.

Frontier market supply chains increasingly vulnerable
Supply chain disruption risk, exacerbated by climate change and extreme weather, is a growing issue for frontier markets where COVID-19 has resulted in much wider fiscal balances, higher inflation and larger debt burdens. As a result, these countries are at greater risk of falling behind in efforts towards climate change mitigation. However, rising commodity prices and inflation can help in reducing the debt burden of commodity-focused emerging markets.

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