'Little respite from political instability' in 2016

14 January 2016

Low commodity prices are expected to spell disruption in Africa and Latin America’s resource-rich countries, driving one of the major political risks for investors, according to a report.

Verisk Maplecroft's 2016 Political Risk Outlook said depressed oil, gas and metal prices causing job losses, affecting domestic government spending and hiking up the cost of living, could provoke industrial action and social turmoil in both regions.

A strong El Niño event in Africa extending into early 2016 causing lower rainfall may also compound the situation by increasing the cost of food staples, according to the report, which outlines the significant issues facing organisations’ global operations, investments and supply chains over the coming year.

In Latin America, the end of the commodities boom and economic mismanagement by the Argentinian and Venezuelan governments contributed to heavy electoral losses by both ruling parties at the end of 2015, which will lead to political instability and a squeeze in living standards. Brazil could also face protests in the run up to the summer Olympic Games in Rio de Janeiro, in response to the recession and allegations of corruption made against President Dilma Rousseff.

Business operations and supply chains could also be disrupted in the Middle East and North Africa region, as a result of ongoing tensions between Saudi Arabia and Iran. Following the execution by the Saudi authorities of prominent Shi’ite Sheikh Nimr al-Nimr in early January, bilateral diplomatic ties have completely broken down, and both countries have intensified their struggle for influence in the Gulf and Levant regions.

And government policy and legislation across Europe may be less predictable and conducive to business in light of uneven economic growth in the Eurozone and concerns over migration. In addition, a negative vote in a UK referendum on its membership of the EU would cause months of severe uncertainty for business within the region.

This forecast is made against the backdrop of the continued and increasing threat of Islamic State. The risk from global terrorism is not expected to diminish in 2016, with IS thought to be adding momentum to its terrorist campaign beyond Syria and Iraq. Armed groups have pledged allegiance to the Islamic State in Egypt, Libya and Nigeria, and these will exacerbate security concerns in these countries.

“The outlook forecasts little respite from the political instability, civil unrest, economic volatility, security crises and geopolitical rivalries that defined the last 12 months,” the report stated.

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