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Risk in Context

Deteriorating Cooperation is Leading to Increase in Political Risks

Posted by Julian Macey-Dare 16 January 2017

The past 12 months provided something of a wake-up call to business leaders in terms of the political risks facing their organisations.  A growing strain in global cooperation is leading to heightened concerns over political risks worldwide.  Against the backdrop of economic problems, rapid technological change, environmental concerns, and the rise of populist politics, 2017 opens on a disruptive global political landscape.

The Global Risk Report 2017, prepared by the World Economic Forum with the help of Marsh & McLennan Companies and other partners, shows that conflict-based risks rank highly among the concern of the business community, highlighting that organisations are increasingly worried about:

  • Failure of national governance.
  • Failure of regional or global governance.
  • Interstate conflict with regional consequences.
  • Large-scale terrorist attacks.
  • State collapse or crisis.
  • Weapons of mass destruction.

Deteriorating cooperation between countries will be a key risk consideration for companies in the year ahead. For example, Russia’s increasing political assertiveness, as well as tensions between China and other countries in the South China Sea, is fuelling concerns.  In addition, terrorist attacks over the past year in countries such as Turkey, Germany, and Belgium are raising political risk awareness.

Meanwhile, events such as the US election outcome and the vote by the UK for Brexit demonstrate growing political polarisation and a public consensus toward inward-looking policies. The US president-elect’s recent assertions that he is considering withdrawal from the recent Joint Comprehensive Plan of Action (Iran nuclear deal) and the Paris Climate Change agreement, as well as the exiting of major stakeholders from economic agreements such as the Trans-Pacific Partnership and Trans-Atlantic Trade and Investment Partnership carry important geopolitical significance.

Greater consideration for risks ahead needed

Given this global landscape, political risks are becoming more volatile, and much more complex. Companies should, therefore, be placing great importance on the way they approach political risks, which have the potential to cause business interruption, supply chain disruption, barriers to trade, and possible damage to property and risks to employees in the areas they operate.

In what is undoubtedly a tough operating environment, companies should identify and assess the types of political risk events that could affect their business and adapt their strategies to reflect the possible impact they could have.  This includes keeping a close eye on how political risks develop over the course of 2017, and considering on a macro level, rather than viewing them as local issues.

Only by doing this will these companies be able to identify and assess risks and their potential impact to their business, as well as any opportunities they may present.

Julian Macey-Dare