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Political risks - hotspots and risk intelligence

Five years on from the events of the Arab Spring the geopolitical environment around the globe continues to be volatile. More countries are experiencing situations which can pose huge challenges for companies’ staff and assets. Global Risk Dialogue looks at the hotspots for 2016 and the importance of good risk intelligence.

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The resignation of Hosni Mubarak marked the beginning of a new era of political instability in Egypt. Photo: MidoSemsem/Shutterstock.

On January 14, 2011, after 24 years in power, the autocratic Tunisian president Ben Ali fled to Saudi Arabia. Less than a month earlier, a Tunisian greengrocer had set himself alight in protest against the authorities and arbitrary police interventions. This was the straw that broke the camel’s back.

The discontent of the Tunisian people, which had built up over decades of repression and corruption – coupled with skyrocketing food prices – helped ensure the regime was swept aside shortly afterwards, at a speed that would never previously have been thought possible.

However, revolution did not stop at Tunisia’s borders. Instead, it spread with unstoppable force across much of the Arabic world – a regime change movement better known five years later as the “Arab Spring”.

Besides Ben Ali of Tunisia, the Arab Spring also cost the long-standing heads of state of Egypt (Hosni Mubarak), Yemen (Ali Abdullah Saleh) and Libya (Muammar al- Gaddafi) their offices and, in the case of, Gaddafi, his life.

Events in the region affected many Arab countries – ranging from relatively peaceful demonstrations in Morocco to civil war in Libya and Syria. No event since September 11, 2001 (9/11) – and the terrorist attacks on the World Trade Center – had changed the global security situation more dramatically.

Many western and global businesses operating in the region were surprised and then confronted by the direct effects of the Arab Spring. Production facilities were destroyed or put out of operation. Sales networks and supplier relationships were broken off or cut back. Sales markets were lost entirely. Worst of all, the personal safety of employees was at stake.

Five years on from the events of the Arab Spring and the geopolitical environment around the globe continues to be volatile. Today, country risk levels change more often and more frequently than in the past, making risk assessment more difficult and businesses more vulnerable.

More countries around the world are experiencing political situations which pose massive challenges for companies’ people and assets.

2016 outlook: Geopolitical change in SE Asia

Looking ahead, macroeconomic factors and the growing threat posed by Islamic terrorism are likely to drive increased risks of political violence and terrorism in a number of countries.

“There are a few countries that we are watching closely for political violence and terrorism risk, including Thailand, Indonesia, Malaysia, as well as parts of Africa. South East Asia and Africa are a real concern for 2016,” says Christof Bentele, Head of Global Crisis Management at AGCS.

Terrorist groups in Indonesia and Malaysia have shifted their focus from a nationalist agenda to a religious motivated campaign, modelled to some degree on Islamic State. “Significant geopolitical change could unfold in the whole of South East Asia,” says Bentele. 

Nervousness over the succession of Thailand’s 87-year-old King Bhumibol Adulyadej, who holds the country together through his extraordinary prestige and authority over the people, is also of concern, coming at a time of great political uncertainty in the country.

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Thailand: Democratic elections have repeatedly been pushed back. Photo: charnsitr/Shutterstock.


Nervousness over the succession of Thailand’s 87-yearold King Bhumibol Adulyadej, who holds the country together through his extraordinary prestige and authority over the people, is also of concern, coming at a time of great political uncertainty in the country.

In 2014 the army took control following months of violent conflicts between the country’s two main rival political movements. While some stability has since returned, democratic elections have repeatedly been pushed back and are not expected before the end of 2016.

Unrest in Africa

Meanwhile, in Africa, incumbent heads of state in a number of countries are looking to retain power, even when barred to do so by the constitution. For example, in 2015, Burundi President Pierre Nkurunziza was re-elected for a controversial third term, sparking unrest and a failed coup. A year earlier, popular protests and a coup forced former president of Burkina Faso, Blaise Compaoré, to step down after 27 years in power.


“As presidents cling to power in some Africa states we can, at best, expect civil unrest, and worst civil war. And where instability exists, the risk posed by extremist groups like Boka Haram grows as they infiltrate weakened countries,” says Bentele.

Turkish situation “fragile”

Countries neighboring Europe are also seeing higher risk of political violence. In particular Turkey and Ukraine – where the conflict with Russian-backed separatists continues – are of concern.

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Turkey: The situation is increasingly fragile after the Ankara train station bombings. Photo: muratart/Shutterstock

Turkey’s President Recep Tayyip Erdoğan continues to hold power, but opposition has been growing, in particular following a multiple bomb attack in the Turkish capital of Ankara in October 2015, which killed more than 100 people. As tensions rise within Turkey, the country also faces threats from Islamic State, which continues to wage war in neighboring Syria and Iraq, as well as the breakdown in peace with Kurdish nationalists.

“The situation in Turkey is increasingly fragile and the potential for a real crisis is emerging,” Bentele notes. Financial disruption is a key factor Big falls in commodity prices and a slowdown in China and other emerging economies may also have implications for political violence. “Financial disruption often goes hand in hand with political instability. And with increased poverty, as can be seen in parts of Africa, comes extremism,” says Bentele.

A case in point has been the rise of Islamic State. Six years ago the organization was unheard of, but today it has built a caliphate, notes Bentele. “Living under a weak and financially rotten government can push people towards extremism,” he notes.

Speed of action is the decisive factor

In view of the acute and potential trouble spots all over the world, companies have to actively address the mounting risks associated with terrorism and political violence. As far as risk management is concerned, an ongoing evaluation of the global security situation, including a corresponding assessment of individual risks, is imperative for companies that operate at an international level.

Furthermore, contingency plans have to be developed for various scenarios involving political violence. Many, but far from all, companies already have contingency plans in place so they can respond in the event of a crisis caused by political violence. However, it is important to remember that the political situation is always in a state of flux – 24 hours a day, seven days a week, 365 days a year.

      “Country risk levels change more frequently than in the
       past, making risk assessment more difficult and businesses
       more vulnerable”

This is why more companies are starting to working with specialized crisis and risk consultancy firms, which can support them by providing background information, local security experts and analysts. This ensures that information is made accessible before a crisis hits, so that processes can be checked and employees trained accordingly – all factors which could decide between success and failure in the worst case scenario.

If an acute crisis does materialize, for example in the form of a terrorist attack, the kidnapping of employees or a revolution, speed of action is the decisive factor: immediate access to all of the services provided by the crisis consultant is an absolute must. Companies can secure this direct access across the globe and around the clock by taking out corresponding insurance policies which not only provide subsequent monetary compensation for the loss sustained, but also include preventative crisis consultancy services as part of the scope of cover. By offering these services, specialized insurance solutions help to minimize the impact of political violence on employees, investments and revenues before, during and after the loss event. This is “crisis management” in action, Bentele concludes.

 

Businesses more worried about the geopolitical situation
According to the Allianz Risk Barometer 2015, which surveys over 500 risk managers and corporate insurance experts from 40+ countries about the top business risks, political and social upheaval and war risk is a much bigger concern for businesses than it was 12 months previously, rising nine positions to 9th overall.

A year earlier this risk had dropped one position to 18th in the barometer, so the intervening period altered risk perception significantly. Events in the Ukraine, Russia, the Middle East, Hong Kong and Thailand in particular influenced businesses’ thinking.

Furthermore, the barometer ranks this risk as the second top cause of supply chain disruption after natural catastrophes. Combating political risk and terrorism are also identified as top business risk management challenges over the next five years.