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Rising political risk sees Russia and Pakistan join Somalia, DR Congo and Iraq in Maplecroft's ranking of 10 most volatile business environments
Despite its growing economic power, Russia now features alongside Pakistan in joining the 10 nations most affected by fast-changing, dynamic political risks, according to the third annual Political Risk Atlas, released by risk analysis and mapping firm Maplecroft.
The Political Risk Atlas 2011 includes 41 risk indices evaluating 196 countries. It provides a comprehensive appraisal of traditional or ‘dynamic’ political risk areas including: conflict, terrorism, the rule of law, and the regulatory and business environment. The term ‘dynamic’ is used by Maplecroft to describe risks that can change rapidly as a result of actions by government, regional authorities or politically-motivated groups.
The Political Risk Atlas 2011 also focuses on emerging risk areas and structural political risk affecting longer term regime stability, such as resource security, human rights, climate change, infrastructure readiness, education and poverty.
Dynamic political risks constitute immediate threats to business and Maplecroft rates 11 countries as ‘extreme risk.’ Most significantly, the emerging economy of Russia has moved up five places from 15th to enter the top ten for the first time, whilst Pakistan has also moved two places up the ranking to 9th.
The ‘extreme risk’ countries now include: Somalia (1), DR Congo (2), Sudan (3), Myanmar (4),Afghanistan (5), Iraq (6), Zimbabwe (7), North Korea (8), Pakistan (9), Russia (10) and Central African Republic (11).
Russia’s increased risk profile reflects both the heightened activity of militant Islamist separatists in the Northern Caucasus and their ambition to strike targets elsewhere in the country. Russiahas suffered a number of devastating terrorist attacks during 2010, including the March 2010 Moscow Metro bombing, which killed 40 people. Such attacks have raised Russia’s risk profile in the Terrorism Risk Index and Conflict and Political Violence Index. The country’s poor performance is compounded by its ‘extreme risk’ ratings for its business environment, corporate governance and the endemic nature of corruption, which is prevalent throughout all tiers of government.
Challenges for companies operating in Russia also stem from an ineffective legal and regulatory system, which includes a lack of judicial independence from the government. Russiais rated ‘high risk’ in Maplecroft’s Rule of Law Index, and companies should monitor the increasing risk of poor contract enforcement and expropriation.
Irrespective of these risks, Russia remains an attractive investment destination – particulary for the long term where the country scores well on resource security, infrastructure readiness and education. Russia has approximately 140m consumers and an expanding economy. IMF figures reveal that Russia’s real GDP growth amounted to 4% in 2010 and expects it to expand by 4.3% in 2011. The country also enjoys political stability. So long as risks are assessed, monitored and managed in the short term, Russia remains, as do all of the BRICs, an important growth economy and contributor to global economic recovery.
Maplecroft’s Political Risk Atlas 2011 has been developed to enable organisations to identify and monitor risks to operations, supply chains and investments. The Atlas offers 41 indices and maps, as well as scorecards for each country, sub-national mapping of terrorism and conflict, plus two years of trends.
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