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Risky Business: New Reports Forecast Global Turbulence Ahead

Posted January 21, 2016

A pair of recently published business intelligence reports both point to a continuation of the global turbulence of the previous year in 2016, with little respite from the political instability, civil unrest, economic volatility, security crises, and potentially explosive geopolitical rivalries that defined the previous twelve months.

The 2016 Political Risk Outlook released by risk management advisory firm Verisk Maplecroft, highlights low commodity prices as one of the primary drivers of political risk for investors in major producing countries across Africa and Latin America, while the increasing international threat posed by the Islamic State and rising tensions between Iran and Saudi Arabia are flagged among the foremost geopolitical risk multipliers.

According to Verisk Maplecroft, job losses in the extractive sector of Africa’s resource-rich countries are expected to provoke industrial action, while the impacts of depressed oil, gas and metals prices on domestic government spending and rising living costs across the region are likely to stoke social turmoil. The risk of civil unrest will be compounded by a strong El Niño event extending into early 2016, which may increase the cost of food staples as a result of reduced rainfall negatively affecting agricultural outputs.

The negative outlook for commodity prices and its impact on the economies and political stability of several African countries in the year ahead is echoed by PGI Intelligence, a corporate risk consultancy based in the United Kingdom. In its 2016 Outlook, PGI notes that cuts in government revenues and expenditure are already casting doubt on state-backed infrastructure projects and the provision of subsidies, weakening both the longer-term foundations for investment and threatening to generate civil unrest.

Turning to Latin America, the end of the commodities boom that fuelled the region’s decade-long growth has, the Verisk Maplecroft outlook says, laid bare the profligacy of South America’s two largest economies, Brazil and Argentina, and the largest oil producer in the region, Venezuela. The effects of lower commodity prices, coupled with chronic economic mismanagement, dealt heavy electoral losses to the ruling parties of Argentina and Venezuela in late 2015. The report predicts that both countries will experience a rise in political instability as they make the painful adjustments necessary to get back on a more sustainable growth track.

“Political corruption, a negative economic outlook for 2016 and unresolved public anger over poor public service provisions will reinforce high levels of disaffection with politicians in Brazil and could see popular unrest resurface,” the PGI Intelligence report warns.

While there isn’t much in the way of positive information in either report, PGI does however sound a note of optimism insofar as the easing of trade restrictions and political changes following landmark elections in several countries should result in the opening up of new markets, a development that will present large opportunities as well as unfamiliar challenges for foreign investors.