Control Risks Group, the international business risk consultancy, today launches RiskMap 2005, its annual study and forecast of political and security risks across the globe.
Although the headlines in 2005 will continue to be dominated by the ongoing ‘War on Terror’, the report argues that successful action against al- Qaida’s leaders, tightening of anti-terror financing laws and the continuing restructuring of intelligence and law enforcement agencies have made the United States safer than at any point since 9/11.
The organized matrix of international terrorism has been shattered and replaced by a new paradigm that sees small, decentralized cells of local militants attacking Western interests abroad.
While acknowledging the role that this type of terrorism plays in risk management for business, RiskMap 2005 highlights other risks to business, which will play as great a part in the success or failure of business as terrorism.
Longstanding political uncertainties such as coup threats, regional economic instability, or civil unrest are all critical risks that will affect business operating globally. Only by analysing the local as well as global threats will business be best prepared for the coming year.
The risks to a number of critical countries are detailed below.
AMERICAS
Brazil:
* Investors will remain watchful for any sign that President Luiz
Inácio da Silva is moving away from business-friendly policies
towards more leftist, labour-orientated policies.
* Violent crime will remain the key security concern for business
personnel, especially in urban areas.
* Any Colombian guerrilla activity will remain restricted to border
areas in Amazonas state.
Venezuela:
* President Hugo Chavez, emboldened by his 2004 referendum victory, is
likely to adopt a more confrontational approach, bringing greater
state intervention in the economy.
* Any fall in the oil prices would cause serious problems for the
government.
* The main security concerns are the risk of renewed political
violence and rising crime.
MIDDLE EAST
Iraq:
* Insecurity in Iraq reached unprecedented levels towards the end of
2004 and looks set to continue.
* The US and Iraqi governments remain determined to hold elections in
January 2005, regardless of the security situation.
* The severe restrictions on the abilities of companies to carry out
reconstruction work in 2004 will continue throughout 2005.
Iran:
* Iran’s nuclear programme will continue to dominate its international
relations in 2005.
* Effective UN sanctions remain unlikely, which may force the US or
Israel to take decisive action, possibly involving air strikes
against nuclear sites in Iran.
* However, full-scale military action against the regime is not in
prospect.
Saudi Arabia:
* After more than a year of fierce battles against Islamic militants,
the government appears to be gaining the upper hand, but further
large-scale terrorist attacks remain possible and small-scale
targeted killings of Westerners are probable.
* The wave of terrorist attacks has brought a broad consensus on the
need for far-reaching changes and Saudi Arabia’s rulers have a rare
chance to define a positive agenda for the country’s future.
* Political and economic reform could limit the recruitment of
extremists among the burgeoning population of under-employed young
men.
AFRICA
Nigeria:
* Crime and corruption will continue to pose the main risks to
companies operating in the country.
* President Olusegun Obasanjo will continue to face challenges, but
opposition groups will not be able to threaten his position.
* Militant groups and community demands will continue to affect
business in the oil-rich Niger delta.
ASIA & PACIFIC
China:
* The government’s main priority is to avoid an economic hard landing
following several years of over-investment.
* The operating environment will continue to improve, with new
measures to deregulate the labour market and roll out legal system
improvements.
* Foreign investors’ enthusiasm for China will be boosted by the
build-up to the 2008 Beijing Olympics and related infrastructure
projects.
India:
* Key crisis points will include three state elections — in Bihar,
Jharkhand and Haryana — and the 2005-06 budget, all due in February
2005.
* Economic policy will be broadly reformist, offering attractive
opportunities to foreign investors in many sectors.
* Growth in the business process outsourcing (BPO) sector will slow in
a tightening labour market.
Indonesia:
* New President Susilo Bambang Yudhoyono will attempt far-reaching
policy reform, but will face difficulties in parliament.
* The convoluted regulatory system and corrupt judiciary will continue
to act as strong deterrents to investment.
* Following a number of counter-terrorism successes, the Islamic
extremist Jemaah Islamiyah (JI) could seek to adopt cruder tactics,
such as individual assassinations.
EUROPE & FORMER SOVIET UNION
Russia:
* President Vladimir Putin will continue to strengthen his rule and
his advisers will begin to prepare public opinion for the
possibility of a constitutional amendment to allow him to remain in
power beyond 2008.
* The government will play an increasingly active role in the oil and
gas industries, and deals reached without consulting the authorities
will be subject to political risk.
Control Risks
Control Risks Group is an international business risk consultancy. Since its foundation in 1975, Control Risks has worked in more than 130 countries for more than 5,300 clients – including 86 of the US Fortune Top100 companies.
Control Risks says its mission is to enable its clients to succeed in complex or hostile environments. RiskMap 2005 is based on extensive analysis of 195 countries.
Data Sample
RiskMap 2005 includes Control Risks’ security risk ratings forecasts, which identify the projected level of business risk in various countries around the globe. Areas listed below have been classified as EXTREME or HIGH risk. The forecasts are followed by an explanation of the security risk levels identified.
Ratings categories and countries/regions
EXTREME POLITICAL RISK
Russia (Chechnya region), Somalia.
EXTREME SECURITY RISK
Iraq, Somalia, Tajikistan (Afghan border area, Garm, Tavildera regions).
HIGH POLITICAL RISK
Afghanistan, Belarus, Bolivia, Burundi, Cote d’Ivoire, Georgia, Guinea (Conakry), Haiti, Iraq, Israel (Palestinian Authority (PA) areas), Liberia, North Korea, Philippines, Serbia and Montenegro (Kosovo region), Somalia (Somaliland), Tajikistan, Togo, Turkmenistan, Venezuela, Zimbabwe.
HIGH SECURITY RISK
Afghanistan, Algeria, Armenia (Azerbaijani border areas), Azerbaijan (Armenian border areas, Nagorno-Karabakh), Bangladesh, Burundi, Cameroon (major cities), Central African Republic (north, north-western regions), Colombia, Congo DRC, Cote d’Ivoire, Eritrea (Ethiopian, Sudanese borders), Ethiopia (eastern areas towards Somalia, towards Kenyan border, along Eritrean border), Georgia, Guatemala (Guatemala City), Haiti, Jamaica (Kingston and Spanish Town), India (Kashmir, Assam, Manipur, Tripura and Nagaland), Indonesia (Aceh, Papua, Central Sulawesi and Maluku), Israel (PA areas), Kenya (northern areas towards Somalia and along Ethiopian borders), Kyrgyzstan (Tajik and Uzbek border areas), Laos (Xaysomboune Special Zone and Xieng Khouang Province), Liberia (border with Cote d’Ivoire), Macedonia (north-west region), Moldova (Transdniestr), Nepal, Nigeria (Niger delta), Pakistan, Panama (Darien Province on Colombian border), Papua New Guinea (Port Moresby, Lae and Mount Hagen), Peru (Upper Huallaga, Apurimac, Ene and Perene valleys), Philippines (south-central, west Mindanao), Rwanda (border with Burundi), Russia (Dagestan, Ingushetia and North Ossetia), Saudi Arabia, Serbia and Montenegro (Kosovo, southern Serbia), Somalia (Somaliland), Tajikistan, Uzbekistan (Tajik border areas, Fergana valley), Venezuela (Colombian borders),Yemen, Zimbabwe.
MEDIUM POLITICAL RISK
Albania, Algeria, Angola, Armenia, Azerbaijan, Bangladesh, Benin, Bosnia and Herzegovina, Burkina Faso, Burma, Cambodia, Cameroon, Central African Republic, Chad, China, Comoros, Congo, Congo DRC, Croatia, Cyprus (TRNC), Djibouti, East Timor, Equatorial Guinea, Eritrea, Ethiopia, Fiji, Gabon, Gambia, Guinea-Bissau, Indonesia, Kazakhstan, Kenya, Kyrgyzstan, Laos, Lebanon, Lesotho, Libya, Macedonia, Madagascar, Malawi, Maldives, Mauritania, Moldova, Mongolia, Morocco (Western Sahara region), Mozambique, Nepal, Niger, Nigeria, Pakistan, Papua New Guinea, Russia, Rwanda, Sao Tome and Principe, Saudi Arabia, Serbia and Montenegro, Sierra Leone, Solomon Islands, Sri Lanka, Sudan, Swaziland, Syria, Tanzania (Zanzibar archipelago), Thailand, Turkey, Uganda, Ukraine, Uzbekistan, Vanuatu, Yemen, Zambia.
MEDIUM SECURITY RISK
Albania (north-east regions), Algeria (Sahara region), Angola, Armenia, Azerbaijan, Bahrain, Benin (Nigerian border), Burkina Faso, Cambodia, Cameroon, Central African Republic, Chad, Comoros, East Timor, Ethiopia, Fiji, France (Corsica, Les Landes, Alpes Maritimes region), Greece (Athens, Thessaloniki), Guinea (Conakry), Guinea-Bissau, Indonesia, Israel, Italy (Calabria, Sicily, Milan, Rome), Jordan, Kenya, Kuwait, Kyrgyzstan, Lebanon, Laos, Lesotho, Liberia, Macedonia, Madagascar, Malawi, Mauritania, Moldova, Mongolia, Mozambique, Niger (borders with Algeria, Libya), Nigeria, Oman, Papua New Guinea, Philippines, Qatar, Russia, Sierra Leone, Solomon Islands, Sri Lanka (north, north-eastern regions), Swaziland, Tanzania (Zanzibar archipelago, Rwanda border areas), Thailand, Togo, Turkey, Turkmenistan, Uganda (northern areas affected by LRA insurgency), Ukraine, United Arab Emirates, United Kingdom (Northern Ireland and London), Uzbekistan, Zimbabwe (central urban areas).
Definition of Security Risk Levels
EXTREME
The severity of security risks to assets or personnel is likely to make business operations untenable. There is no law and order; conditions may verge on war or civil war. Companies must strongly consider withdrawal.
HIGH
There is a probability that foreign companies will face security problems; special measures are required. Assets and personnel are at constant risk from violence or theft by state or non-state actors OR there is a high risk of collateral damage from terrorism or other violence. State protection is very limited.
MEDIUM
There is a reasonable possibility of security problems affecting companies, but there is no sustained threat directed specifically against foreign companies. Targeted crime or violence poses some risk to foreign assets and personnel OR they are at risk from violence by terrorists or unrest.
LOW
Assets are generally secure and the authorities provide adequate security. Companies and personnel face only infrequent exposure to violence from terrorists or criminals; companies are unlikely to be systematically targeted for asset theft.
INSIGNIFICANT
Assets and personnel are not at risk except from isolated incidents or petty crime. Levels of violent crime are low, the authorities provide effective security and there is virtually no political violence.
Definition of Political Risk Levels
EXTREME
Conditions are hostile to/untenable for business. There is no investment security. The following conditions may apply: the economy has collapsed; law and order has broken down and state bodies ceased to function; there is a state of war or civil war; non-state actors cause suspension of operations; or the state is actively hostile to foreign business and expropriation of assets is likely.
HIGH
Business is possible but conditions are difficult or likely to become so in the near future. Political institutions effectively do not function, the regulatory framework is poor and judicial decisions are arbitrary. There is little security for investments.
Business may be exposed to the following risks: economic and political conditions may become rapidly unstable; international sanctions are possible; non-state actors actively target business; or there is a risk of contract repudiation or re-negotiation by state actors.
MEDIUM
Foreign business is likely to face some disruption from state or non-state actors OR long-term investment security cannot be guaranteed. There is a risk for business of exposure to some or all of the following: corruption; strong and hostile lobby groups; absence of adequate legal guarantees; restrictions on imports or exports; weak political institutions; and capricious policy- making. In some Medium risk countries there is a latent threat of military or other illegal intervention.
LOW
Business can operate with few problems. Political institutions are stable but there is some possibility of negative policy change. Legal guarantees are strong but business may face some regulatory or judicial insecurity. Non- state actors may occasionally hamper operations.
INSIGNIFICANT
The environment for business is favourable and likely to remain so. Government policy is stable and the economy is secure. Business faces no legal or regulatory disadvantages. There are no significant non-state threats to operations.
Control Risks Group
www.crg.com
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