The Trendline - Resource-rich countries step up intervention in extractives sector in Q2
by Jess Middleton,
We started this year by highlighting that global political risk hit a five-year high in early 2023, according to our data covering conflict intensity, civil unrest and government stability.
As we head into the second half of the year, it's clear the world remains in a state of flux. Prolonged economic instability, spiralling geostrategic competition and the impacts of the escalating climate crisis are just a handful of the interconnected risks that companies are having to contend with.
This article pinpoints a few key areas in which this volatility has translated into major shifts in the global risk environment, according to 2023-Q3 data from our suite of 170+ country risk indices.
Resource nationalism risks surge in key markets
Earlier this year, our Africa team warned that resource nationalism could surge in parts of the continent in 2023 as resource-rich nations capitalise on growing global demand to bolster their strained public finances.
This trend played out over the past quarter, with three sub-Saharan African countries registering a significant increase in risk on the latest edition of our Resource Nationalism Index. Indeed, 13 sub-Saharan African countries now fall into the index's high and extreme risk categories, up from nine a year ago.
Figure 1: Resource nationalism risks escalated in multiple regions this quarter
This includes Namibia, which fell four positions in the global rankings to 37th highest risk. This was largely driven by Windhoek's interventions in the extractives industry, including a move to ban the export of unprocessed lithium and other minerals critical to the green transition.
Elsewhere on the continent, Chad plummeted 51 positions in the rankings to 34th highest risk globally. This was triggered by growing intervention in the oil and gas sector on the part of the transitional government in N'Djamena. Chadian President Mahamat Idriss Déby signed a decree in March nationalising USD407 million worth of assets belonging to a leading oil and gas company, two months after the country's courts prevented their transfer to another firm.
But the uptick in resource nationalism isn’t just an African story. Both Chile and Kazakhstan, leading producers of key minerals such as lithium, copper and zinc, saw their RNI score significantly worsen this quarter. Chile now finds itself ranked 57th highest risk on the index, down from 70th last quarter and 89th as recently as 2022-Q2. Kazakhstan, meanwhile, fell nine positions to 31st highest risk, in turn moving into the high risk category of the RNI.
Ukraine conflict and climate crisis compounding food security woes
The security of the world’s food imports has faced enormous pressure in recent years. The Covid-19 pandemic, war in Ukraine and high inflation have all strained global trade, leaving countries scrambling to maintain access to vital crops.
Data from our Food Import Security Index, which updates annually every July, shows that threats to food supplies continue to rise globally. Nineteen countries registered a significant increase in risk in the latest edition of the dataset, compared to just 13 that registered a significant improvement. All told, 114 countries now find themselves within the high or extreme risk categories of the index, up from 102 at the start of 2020.
Figure 2: Food import insecurity has increased globally since 2020
Beyond the short-term supply shocks referenced above, the data - which relies on import and export statistics reported by UNCTAD - shows that these risks are also being compounded by the climate crisis.
Take Morocco and Tunisia, where one of the worst droughts in recent decades has cut into agricultural yields. This has left both countries more dependent on imports and, in turn, more vulnerable to external threats to their food supplies. Indeed, Morocco fell 41 positions to 118th highest risk in the latest edition of the index, while Tunisia fell 50 positions to 63rd highest risk.
Similarly, Pakistan - which now ranks as the highest risk country globally, down from 3rd in the previous edition of the index - saw its dependence on food imports increase as a result of the devastation brought about by last year's floods.
Russia's apparent exit from the Black Sea Grain Initiative will place further strain on global food security in the months ahead. Some 33 million metric tonnes of grain have left the Black Sea since the deal was struck, helping to reverse spiking food prices by more than 20%, according to the UN.
"In countries where drought, likely exacerbated by climate change, has hit domestic crop yields in recent years, the interruption to grain supplies unleashed by Russia's invasion of Ukraine was another blow to food security," says Senior MENA Analyst Hamish Kinnear. "If the Black Sea Grain Initiative isn't back up and running soon, countries like Tunisia and Morocco face another crunch year - and other import-dependent countries in the region could also find themselves under strain."
Public Order Bill sees protest rights plummet in the UK
On the human rights front, the UK registered the sharpest quarterly increase in risk on our Freedom of Assembly Index (FOAI) seen by any country since 2019, falling 40 positions to 150th highest risk globally - or 19th highest risk in Europe.
Westminster passed the Public Order Bill in May, imposing new restrictions on the right to protest by lowering the threshold for disruptive protesting and handing the police new powers to prevent demonstrations.
The UK has since slipped into the high risk category of the 'protection of the right to freedom of assembly' pillar of the FOAI - which measures the quality of laws aimed at the protection of protest rights - down from low risk in 2023-Q2.
Figure 3: Assembly rights in the UK now comparable to Slovakia, Slovenia
The country has also seen a significant increase in the frequency and severity of protest right violations in recent months. This includes an incident in May, during which the Metropolitan Police apologised after six anti-monarchy protestors were unlawfully arrested during the coronation of King Charles.
Conflict, unrest and government instability driving changes in cascading climate risk landscape
Pivoting onto our climate data, we've revisited our Cascading Climate Risk Resilience Model (CCRRM) to see how the trajectory of risk played out over the past year.
The CCRRM includes a broad spectrum of data on issues such as climate exposure, political stability, economics, resource security, human rights and the strength of infrastructure. These factors allow us to assess a country's exposure to the cascading impacts of climate change, such as economic and political instability, unrest and even conflict - with countries split into three groups termed 'insulated', 'precarious' and 'vulnerable'.
When comparing the latest data with our analysis from 2022-Q2, Ukraine and Russia feature among the countries that saw the largest increase in risk, falling from precarious down into the vulnerable group. This was driven by a sharp rise in political risk, including civil unrest, democratic governance, government effectiveness and the rule of law. Ukraine has also seen a significant increase in conflict intensity as a result of the ongoing war with Russia.
Elsewhere, sharp increases in risks around civil unrest, government stability and terrorism have seen Israel slip from the precarious to vulnerable group, while a rise in modern slavery risk has also contributed.
Figure 4: Exposure to cascading climate risks increases in Russia, Ukraine and Israel
On a more positive note, Cyprus and Morocco are among the largest improvers. Despite political risk nudging up in both countries, improvements in healthcare capacity and water stress risk have helped these nations maintain a good position relative to the rest of the world. Cyprus now finds itself within the insulated group of countries, while Morocco has moved from vulnerable to precarious.
"As the movement of Russia and Ukraine in our model shows, a country's resilience to cascading climate risks is dynamic," says our Head of Climate and Resilience Will Nichols. "It's vital that organisations continue to monitor national performance across a range of factors as small changes in social, economic or political issues can seriously dent a country's ability to fend off climate-related triggers for risks like mass migration, food insecurity or declining human rights situations."
Risk data vital in a volatile risk environment
The risks outlined above are just a few examples of the myriad interconnected issues that companies will have to monitor in the months ahead. Cutting-edge risk data is a vital tool for those looking to anticipate where major shifts in the global risk environment could impact the resilience of their operations, supply chains and investments.
