Almost seven in 10 businesses suffered political risk losses in 2019, according to a survey by international broking and advisory firm Willis Towers Watson.
The survey of 41 major corporations also found that 61% of respondents believe that political risk levels have risen in 2019, the company said in a statement.
According to the annual Political Risk Survey, disruption of international trade was considered the most significant risk in the majority of regions. Meanwhile, 70% of the respondents cited trade sanctions as a concern for their operations in Asia-Pacific, 58% in Europe, while for Russia and The Commonwealth of Independent States (CIS), the figure was 77%. Sanctions against Russia, Iran and Venezuela, a trade war involving China, and the threat of Brexit in Europe were reported as concerns by respondents.
Concerns about political violence were the highest in Africa (74%) and the Middle East (71%), with respondents reporting that new technologies such as drone strikes could exacerbate such risks.
Among the 68% of firms that suffered political risk losses, 54% of respondents had experienced a loss due to political violence, compared to 48% in 2018. Almost half (46%) reported losses due to trade sanctions or import / export embargoes in 2019, compared to 2018’s figure of 40%. Furthermore, 32% of companies with revenues exceeding US$1 billion reported previous experience of a catastrophic (more than US$250 million) political risk loss.
“It is clear from our survey that political risk continues to increase, and that related financial losses are on the rise,” said Paul Davidson, chairman of financial solutions at Willis Towers Watson. “Corporations now face a strategic choice: to either maintain their global business models while accepting, mitigating or transferring the political risks associated with them, or attempting to realign themselves with the emerging shape of a new and apparently more nationalist global landscape.”
In light of the global situation, a large majority of respondents (71%) stated that the emphasis on political risk management at their company had increased since 2018, and nearly 40% felt that they were facing more pressure from investors regarding political risk management. The survey found that recent developments such as the China-US rivalry and the sanctions that have arisen as a result have made political risk more tangible.
According to Willis Towers Watson, the study included in-depth follow-up interviews with a panel of survey participants. The panel’s top risks of concern included ‘US-China strategic competition,’ ‘Middle East regional stability’ and an ‘ESG (environmental and social governance) shock’. The latter risk had not appeared among the top 10 in 2018, but panellists indicated that rising tensions between business and society were increasingly leading to political risk events.