A series of crises in recent years have led to a heightened perception of trade and investment risk, particularly credit, performance, and country risk. At the same time, pandemic-delayed infrastructure development, the transition to a lower-carbon economy, food and energy security, and increased defense spending are driving demand and generating significant opportunities for trade and investment in almost every industry sector and region.
For many companies, the ability to respond to this surge in demand and realize growth opportunities has been hampered by perceived uncertainty in developed and emerging markets and limited access to liquidity. However, uncertainty surrounding trade and investment risks can be better understood with data and in the context of defined perils, which enable the implementation of robust risk mitigation strategies, thereby improving businesses’ clarity and confidence. These strategies, combined with the recognition of key positive macro-economic indicators, can enable companies to realize growth and secure capital in a complex environment.
The impact of food and energy insecurity
Key drivers of the heightened levels of risk and political instability — from the Russia-Ukraine conflict to climate-driven events — have resulted in a wave of price shocks, unsettled food and energy prices, and created a volatile outlook for many markets. This has contributed to pressure on credit risk exposures and added uncertainty for businesses in what was already a challenging post-COVID-19 risk environment.
To some extent, the current situation echoes the price conditions that were a central cause of the Arab Spring protests of 2011 — something unforeseen by many at the time, but the risk of which could reasonably have been forecast given the data available.
These echoes are particularly evident in Marsh’s World Risk Review ratings, which show a notable — though less significant — increase in recent intra-state conflict, supporting a continued link between price fluctuations and political stability. Further highlighting this connection, the Global Risks Report 2023, published by the World Economic Forum in collaboration with Marsh McLennan, identified the cost-of-living crisis — of which food and energy prices are key components — as the most severe short-term risk (on a two-year horizon) for businesses and governments.
Despite similarities between this price environment and perceptions with previous eras of instability, there are also unique signs of resilience: foreign currency reserves, for example, are up in many countries, and the extractive and resources sector is seeing record growth. With reference to historical knowledge and current data, companies can better understand the secondary impact of price risks, protect existing investments, and take advantage of available growth opportunities.
Considering food and fuel dependencies
The extent to which price shifts in certain essential goods may impact specific countries can be correlated with several factors: the level of dependency on imports to meet domestic demand, the nature of the government, and relative economic capacity.
Once the links between rising food and fuel prices, import dependency, and government type is established, two questions arise:
- Which countries have significant dependence on food and/or fuel imports?
- Which of those countries are particularly susceptible to political instability?
Based on data from the Food and Agriculture Organization and the Energy Information Administration, the chart below shows which countries depend most on food and energy imports. Marsh client inquiry data indicates that of these countries, several continue to receive significant investor interest. Two of these countries, Egypt and Peru, face persistent instability risks complicated by the current price environment, but also continue to offer significant investment and trade opportunities.