Maplecroft Global Risks Atlas 2011 rates security as primary concern for investors in ‘high risk’ growth economies of India, Indonesia, Nigeria, Philippines and Russia
Somalia, Sudan, Afghanistan and DRC top global risks ranking while South Korea demonstrates resilience
The important growth economies of India, Indonesia, Nigeria, the Philippines and Russia are all rated ‘high risk’ in a ranking of 175 countries that evaluates the key strategic, operational and reputational risks for business.
The Global Risks Atlas 2011, released by risk analysis and mapping firm Maplecroft, evaluates the impact of 32 ‘global risks,’ which are risks outside the control of an individual government or business that have the ability to affect multiple regions and industry sectors. The Atlas focuses on seven key ‘global risk’ areas: macroeconomic risk; security risk; governance risk and illicit economies; resource security; climate change; pandemics; and societal resilience, including human rights.
Four countries have been rated ‘extreme risk’ and top the ranking – Somalia (1), Sudan (2), Afghanistan (3) and DR Congo (4), all of which are characterised by weak governance, internal conflicts and regional instability.
However, it is the strategically important growth economies of Nigeria (12), India (15), the Philippines (17), Russia (21) and Indonesia (32), which hold the most interest and pose the most challenges for business. These are among the countries driving most of the positive momentum behind the world economy, but all are rated ‘high risk.’
Each of these countries face unique challenges, but, with the Philippines (8), Russia (10) and India (11) rated ‘extreme risk’ and Nigeria (12) and Indonesia (28) considered ‘high risk’ in the ‘security risk’ category, politically motivated violence and terrorism must now be a primary concern for investors in these territories.
India, Indonesia and Russia are three of eight countries newly categorised by Goldman Sachs as ‘Growth Economies,’ meaning that they now account for at least 1% of global GDP each and are not part of the so-called ‘developed world’. “At this size, currently around US$600 billion, an economy should be large enough to allow investors and businesses to operate as they do in advanced countries, yet also be likely to grow faster,” said Goldman Sach’s Chair of Asset Management, Jim O’Neil.” Nigeria and the Philippines are forecast to join this group within 20 years.
© Maplecroft, 2011
Maplecroft states that although growth economies are ripe for investment and development due to fast and sustained economic growth they are also more likely to be exposed to ‘global risks’ and possess a lack of structural resilience to face these risks. It is therefore imperative for companies operating in these countries to identify and monitor the inherent risks that go hand-in-hand with the opportunities that these countries offer.
India is rated ‘extreme risk’ for security, as it faces simultaneous threats of terrorist attacks from militant Islamic extremists and Naxalite Maoist insurgents. However, its poor ranking also reflects a lack of societal resilience. Despite robust growth, the country has a poor human rights record and large sections of the population lack access to basic social infrastructure such as education, healthcare and sanitation. This reduces the country’s resilience to ‘global risks’ by creating a less productive workforce, a population susceptible to the spread of disease, and potential instability due to risk of social unrest.
Russia, like India is categorised as ‘extreme risk’ in the security cluster. It continues to face terrorist threats from Islamist and separatist insurgents from the Northern Caucasus. Continuing terrorist attacks serve to dent investor confidence and these groups once again proved their lethality in the recent attack on Moscow’s Domodedovo airport, which killed 35 people and injured over 100.
Because of its financial dependence on fossil fuel exports, Russia’s lack of resilience against macroeconomic risks was highly visible during the global financial crisis, when oil prices dropped. Oil prices are now on the rise, but Russia's economy still remains at risk from volatility in the energy market. Russia is also categorised as ‘high risk’ in the Illicit Economy Index, with a high exposure to trafficking, corruption, counterfeiting and piracy. The country’s position in the overall ranking is compounded by a lack of the rule of law, which is a primary investment risk.
“The key to understanding and managing global risks is to view them as interdependent,” said Maplecroft analyst, Siobhan Tuohy. “For instance, conflict and regime stability risks are increasingly triggered by issues relating to poverty, unemployment and food security, which is seen throughout the Middle East at the moment. The Global Risks Atlas 2011 enables organisations to understand relationships between different global risks and to identify potential flashpoints.”
“Maplecroft findings indicate that low external debt, energy security, good governance and regime stability are all factors that improve countries’ resilience to the conflation impacts of global risks” said Professor Alyson Warhurst, Maplecroft’s CEO.
This is illustrated by South Korea (144), which is also categorised as a growth economy. The country faces high risk exposure due to extreme climate-related events; ranking in the top 10 most vulnerable countries to flooding and amongst the most at risk nations from cyclones. However, the country has a stable government and macroeconomic situation, and a population with excellent access to health and knowledge. As a result it is rated ‘high risk’ for climate change vulnerability (not extreme risk as its resilience moderates its ranking) and ‘low risk’ in the overall ranking, strengthened by its overall resilience.
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