Minimising Political Risk in Frontier Markets
This article originally published in Insurance Day on 11 December 2012.
The thing about measuring political risk is it is never the same tomorrow as it was today.
It seems every day there is news of major social or political upheaval that has an existential impact on both foreign investors and their insurers. From threats of a coup in Thailand to rebel invasions in the Congo to an anti-corruption trial in Brazil, every business with foreign operations finds itself tasked not only with navigating complex political issues but also coming up with its own policies to limit exposure and rapidly respond to changing conditions.
While political risk has always been a factor for investors and their insurers, in more recent years a confluence of events has led to a heightened sense of exposure. Accounting firm Ernst & Young has titled “resource nationalism” as the biggest risk facing mining companies for the second year in a row, while Eurasia Group warned investors the tenuous balance of domestic economic stability against international security would be a theme for 2012.