Emerging Economies Will Experience a Difficult Stress Test in Year Ahead: Willis Political Risk Index
October 13 2015 - 4:00AM
Syria, Venezuela and Zimbabwe top a list of 40 politically risky
territories and destinations for foreign investment, according to
data released today by Willis Group Holdings (NYSE:WSH), the global
risk advisory, re/insurance broking and human capital and benefits
firm. The findings appear in the latest edition of the Willis
Political Risk Index, which is produced three times a year in
partnership with Oxford Analytica.
Syria, which tops the Index, has been in the
grip of a bloody civil war since 2011. It is ranked in the highest
risk band (extreme) for four out of the five perils recorded in the
Index, including political violence, terrorism, exchange transfer
and sovereign default. Meanwhile, Zimbabwe and Venezuela, both
territories that are beset by long running economic problems, are
ranked very high or extreme for the risk of expropriation and
sovereign default.
In recent months the beneficial conditions that
have driven emerging market growth for the past decade are
threatening to reverse, according to the Index. Given the rising
levels of economic stress in emerging markets, it is perhaps
unsurprising that in this edition of the Index the number of
countries with a rising risk temperature again exceeds those whose
risk temperature is falling. Nineteen countries saw their overall
risk score rise, ten countries saw their score fall, and eleven
were unchanged.
According to the Index: “It appears very likely
that the emerging economies will experience a difficult stress test
in the year ahead, as Chinese demand slows, commodity prices remain
weak, and borrowing costs rise. This stress test will likely see a
sharp escalation of economically driven political risks, such as
exchange transfer and sovereign default risks. In some countries,
these economic stresses could be reflected in threats to political
stability as well.”
Graham Hutchings, Chairman of Oxford Analytica,
said: “At this point, most analysts consider a repeat of the
emerging markets crises of the late 1990s to be unlikely. Emerging
economies maintain far higher foreign exchange reserves now, and
exchange rates tend to be more flexible. It is also possible that
the stresses described above will not emerge at the same time:
commodity prices might recover; China’s growth could rebound; or
interest rate hikes might be delayed. That said, the next year
offers the potential for serious economic stress. And, as has
recently been the case in Brazil, economic difficulties can quickly
lead to escalating political challenges.”
Paul Davidson, CEO of Willis’s political and
trade credit risk practice, added: “Over recent months we have been
monitoring the rising levels of political risks, particularly in
emerging market economies. We have also launched a new political
risk model called VAPOR (Value at Political Risk) which enables
companies to obtain a financial evaluation of their own, very
unique, political risk exposures. This initiative is something I am
confident will become an important tool for many of our clients. It
gives them the ability to assess their global portfolio risk and
compare the financial impact of political risk exposures, in real
dollar-value terms between countries.”
About Willis
Willis Group Holdings the global risk advisory,
re/insurance broking and human capital and benefits firm. With
roots dating to 1828, Willis operates today on every continent with
more than 18,000 employees in over 400 offices. Willis offers its
clients superior expertise, teamwork, innovation and market-leading
products and professional services in risk management and transfer.
Our experts rank among the world’s leading authorities on
analytics, modelling and mitigation strategies at the intersection
of global commerce and extreme events. Find more information at our
website, www.willis.com, our leadership journal, Resilience, or our
up-to-the-minute blog on breaking news, WillisWire. Across
geographies, industries and specialisms, Willis provides its local
and multinational clients with resilience for a risky world.
Notes to Editors
The Willis Political Risk Index has been produced three times a
year every year since 2006 exclusively for Willis clients. For more
information on VAPOR or the Willis Political Risks Index go to
www.willis.com.
Contact:
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