Political Violence and Underlying Societal Risks on the Rise for Direct Foreign Investors

The instability and uncertainty created by the Arab Awakening has significantly increased the level of dynamic political risk for direct foreign investors operating in the Middle East and North Africa (MENA), according to the 2014 Marsh-Maplecroft Political Risk Map.

 

More than 60% of countries in the MENA region have experienced a significant increase in the level of political violence since 2010, illustrating the long-term political risk implications of societal forced regime change.

 

Produced jointly by Marsh’s Global Credit & Political Risk Practice and risk analysis and mapping company Maplecroft, the annually released map draws from Maplecroft’s Political Risk Atlas 2014 and highlights dynamic political risks across 197 countries, including conflict, terrorism, macroeconomic stability, rule of law, and regulatory and business environments.

 

According to the map, 17 countries since 2010 have experienced a significant increase in their level of dynamic political risk, more than half of which are located in the MENA region. Syria was host to the most significant increase in risk and is now ranked as the second-highest risk country behind Somalia.

 

For the first time, Egypt is now categorised as “extreme” risk for political violence, a deterioration driven by post-coup violence and increased terrorist activity in the Sinai Peninsula.

 

Over the past year, East Africa was host to the most countries with an increase in political violence, according to the map.

 

“The increase in political violence in East Africa presents significant challenges to foreign investors looking to the region following the discovery of substantial oil and gas reserves,” says Alyson Warhurst, CEO of Maplecroft. “Underlying societal risk revealed in Maplecroft’s structural political risk index is the key driver of raised short term dynamic political risk in MENA and beyond.”

 

Despite these risks, investors can find opportunities in the growth markets, the map shows. Overall dynamic political risk has significantly improved since 2010 in six growth markets: the Philippines, India, Uganda, Ghana, Israel, and Malaysia. This steady improvement in part reflects a fall in political violence in the Philippines, India, and Uganda, and significant improvements in governance levels in Malaysia and Israel.

 

A positive business and macroeconomic environment has also helped to lower the overall level of risk in these key economies, Marsh and Maplecroft note.

 

“Companies with direct foreign investments and cross-border contracts continue to operate in a fast-changing, highly volatile global political landscape that can quickly escalate with negative consequences,” says Evan Freely, Marsh’s Global Credit & Political Risk Leader. “It is imperative that companies stay abreast of the key issues impacting the regions in which they operate and have plans in place to protect their strategic interests from the threats of unforeseen political changes and violence.”

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