Marking a dramatic shift in global geopolitics, the US is in a new study named by international companies as the country where political risk is rising the most.
The study, How are leading companies managing today’s political risks? by Oxford Analytica and law firm Willis Towers Watson, found that the US beats regions like the Middle East, Latin America, Venezuela, Sub-Saharan Africa and Russia when it comes to political risk. Businesses are quoted as saying that the US’ “withdrawal from the world stage” is creating challenges for corporate strategic planning and supply chains.
Traditionally, political change in the West, namely Europe and the US, has tended to be predictable and transparent, with changes in international relations slow and incremental.
The report notes that such certainties have “evaporated”, producing a new and difficult-to-classify geopolitical threat. Businesses interviewed point out that there is major uncertainty among core industrial territories and how they will interact with each other, and that “regulations and initiatives are not being built from the same base”.
“Companies have been caught off guard and, given the financial impact, investors are increasingly concerned about financial loss due to political risk,” says deputy director at Oxford Analytica, Simon Coote.
Companies were particularly concerned around trade policy and protectionism, and the future of trade agreements such the North American Free Trade Agreement (Nafta).
The most frequently-mentioned specific geopolitical threat was US sanctions on Russia. While the risk of sanctions is nothing new for companies doing business in Russia, the possibility of Russian retaliation and the implications for the US-Russia relationship saw the threat elevated from a regional risk into a top global concern.
Cyberattacks join political risk category
When asked about the most important types of political risk facing corporations today, companies most frequently emphasised regulatory risks, while tax reform, cross-border trade and currency inconvertibility risks were also mentioned as obstacles to strategic planning.
Also on the list of political woes was cyberattacks – a risk that does not traditionally fall into the political risk category, but has increasingly had political origins. Some of the most ominous hackings of recent times have been sponsored, or supported, by governments.
Russia, for one, is suspected of leading a hack into the US Democratic National Committee last year, while a North Korean team has been credited with unleashing the WannaCry malware. Russia is also suspected of using hacking to try to influence recent elections in the US, France and Germany. The increase in such attacks led Nato to announce in December last year that cyber defence will be a key talking point at its next summit.
90% of companies surveyed for the report believe political risk has risen over the past five years, and more than 60% say they have experienced a political-risk-related loss. Types of losses varies from currency exchange (for example the collapse in the value of the pound that followed the Brexit vote) to civil commotion, contract abrogation and inconvertibility.