KEEP UP TO DATE WITH ALL THE IMPORTANT COVID-19 INFORMATIONCOVID-19 RESOURCE PORTAL

FANews
FANews
RELATED CATEGORIES
Category Risk Management
SUB CATEGORIES General | 

Aon’s 2021 Risk Maps: persistent political instability and unrest slowing global economic rebound

27 July 2021 Aon
Tony Webster

Tony Webster

• 60% of countries globally are exposed to some form of civil unrest in 2021
• Political unrest increased due to rising emerging market inflation and the widening wealth gap
• Increased global unrest is likely by 2022 as mass vaccinations and an easing of restrictions converge with the COVID-19 pandemic's accumulated economic and political impact
• “Green rebuild” at risk due to economic impact of COVID-19

Aon, a leading global professional services firm providing a broad range of risk, retirement and health solutions, has published its 2021 Risk Maps report, which finds that the COVID-19 pandemic both suppressed and aggravated terrorism and political violence risks in 2020-2021. The scale of government intervention, economic inequality and public unrest about government responses to the COVID-19 pandemic will continue to play an influential part in growing global unrest.

Aon developed the 2021 Risk Maps, which examine political risk, terrorism and political violence globally, in partnership with Continuum Economics and Dragonfly. Aon’s Risk Maps are designed to help firms better understand and navigate evolving political risk and political violence exposures created by these uniquely challenging risks. In today’s complex geopolitical and economic environment, the maps help clients to identify and track the different sources and degrees of risk, assisting businesses in planning and protecting assets, contracts and loans that could be adversely affected.

Terrorism and political violence

COVID-19 restrictions dampen terrorism and political violence, but uptick expected:
Lockdowns and travel restrictions have had a containing effect on most forms of terrorism and protest in 2020 – the percentage of countries exposed to terrorism and sabotage fell to 45% – with surges in incidents mainly accompanying an easing of restrictions. As a result, terrorist attacks fell overall worldwide. However, extremists and activists from across the spectrum are evolving their narratives; the pandemic has been an opportunity to build support and challenge established orders and forms of governance through protests and violence. The recent spate of violent protest, mass looting and destruction of businesses that played out in South Africa during July are prime examples of this sharp rise in civil unrest and insurrection risks.

Political risk
Political risks have risen during 2020-2021. Seven countries experienced a deterioration in the political risk situation, and none experienced an improvement. This follows a significant uptick of inflation in emerging markets in 2021, a setback for green recovery initiatives following COVID-19 and the risk of emerging markets divergence from developed markets in terms of per capita incomes, as a result of lagging and insufficient vaccination implementation in emerging markets. South Africa’s COVID-19 vaccine programme has been characterised by a number of missteps and has left the country far behind many others on the continent, leaving millions unvaccinated as a savage third wave takes hold in the country.

Market supply chains increasingly vulnerable:
With trade already heavily challenged by the COVID-19 pandemic, the recent wave of riots, looting and destruction of businesses in Gauteng and Kwa-Zulu Natal, South Africa has exponentially exacerbated matters further, presenting a tipping point for many businesses as to whether they survive or not. The violent and destructive protest action threw supply chain risk into stark focus, with businesses scrambling to secure the weak links, safeguard lives and property and reduce the risks to business continuity as far as possible.

“With so much of the supply chain happening behind the scenes and out of sight, consumers generally do not understand the complex and interlinked processes involved in getting a parcel or service delivered to their doorstep,” explains Tony Webster, of insurance brokerage and risk advisors, Aon South Africa. “It’s only when something goes horribly wrong, as it has in the past few weeks, that there is a realisation of just how critical, yet fragile supply chains are, and how the domino effects of an incident reverberate throughout the entire value chain,” Webster adds.

Climate change and extreme weather also plays a role in supply chain disruption risk. It’s a growing issue in countries where COVID-19 has resulted in much wider fiscal imbalances, higher inflation and larger debt burdens. As a result, these countries are at greater risk of falling behind in efforts towards climate change mitigation. However, rising commodity prices and inflation can help in reducing the debt burden of commodity-focused emerging markets.

Green recovery at risk:
Rebuilding better in the wake of COVID-19, and especially rebuilding greener, has been presented as an opportunity by most international institutions, especially the European Union. The economic case for a green recovery is based on job creation and ultimately less expensive energy costs.
Yet the fiscal burden of addressing the COVID-19 crisis has meant that by the end of 2020, fewer than half of the Paris Agreement’s signatories had delivered on its core provisions – to raise the ambition of their contributions towards achieving the goal of limiting the global average temperature increase to 1.5 degrees above pre-industrial levels.

Jihadist violence rose overall by 20% in 2020:
The majority of this activity was in conflict zones, such as Iraq, Syria, Afghanistan and Mali, all of which are reliant on external military and political commitments to ensure stabilisation. The impact of COVID-19 on these fragile states was also factor.

Vlad Bobko, Head of Crisis Management, London Global Broking Centre, Aon said: “The COVID-19 pandemic has complicated an already fractured landscape of geopolitical risks, which firms operating globally need to navigate. From rising instances of civil unrest to economic dislocation and the long-term potential for inflation in an increasingly connected and volatile world, informed decision-making has never been more important.

“Aon’s Crisis Management practice is supporting clients as they navigate these complex risks. Whether protecting against government intervention in emerging markets, sovereign and private counterparty defaults or people and operations from the threats posed by civil unrest, political violence and terrorism, our team is working to protect against – and mitigate – often significant and complex client exposures.”

Henry Wilkinson, Chief Intelligence Officer at Dragonfly, said, “The pandemic is a long-tail risk that has created an artificial near-term global risk picture, particularly of political violence risks. The extraordinary measures to contain the pandemic have been suppressive but politically aggravating. A tide of increasing risk by 2022 is likely as mass vaccinations and an easing of restrictions converge, with the accumulated economic and political effects of the pandemic. The need for reliable and actionable data, intelligence and analysis to manage fluid and high-impact global risk exposures while planning for recovery is critical.”

Continuum Economics Lead Economist Francesca Beausang said, “COVID-19 has shaken the foundations of the global economy over the course of 2020-2021. While global trade has recovered faster than expected from the initial COVID-19 outbreak, disruptions to the supply chain have taken new forms and their impact has become more systemic. Meanwhile, COVID-19 has triggered an acceleration of commitments to a green recovery yet funding a fair transition to decarbonisation for emerging markets remains the greatest challenge to its implementation. Finally, COVID-19 has forced a rethink of the concept of health as global public good, with a patent waiver for COVID-19 vaccines changing the foundations of innovation in pharmaceutical research.”

More information about Aon’s 2021 Risk Maps is available at https://insights.aon.com/risk-maps-2021

Quick Polls

QUESTION

Do you believe this is the toughest period for financial advice in many years?

ANSWER

Yes, it’s hard to navigate the challenges and difficult to adapt. I’m struggling.
No, I have managed to navigate the challenges and have adapted. I’m good.
50/50. I just feel like whether we like it or not, we have to ready ourselves for change… be resilient and scale for the future. It’s not about survival of the fittest anymore but survival of the quickest. We just have to move on with life.
fanews magazine
FAnews October 2021 Get the latest issue of FAnews

This month's headlines

IFA nuggets: Prospecting for clients
FSCA weighs in as universal life policy premiums rocket
No short cuts for the short term broker
Investment lessons worth sharing
Tightening of policy wordings… likely in the future?
Subscribe now