Global businesses often fail to adopt formal structures to assess ongoing risks posed by political instability in emerging markets, according to the international speciality insurer ACE Global Markets. They say that many businesses need to improve their political risk assessment in order to protect their investments in emerging markets.
Nearly 30 percent of the senior executives and risk professionals surveyed for the report, conducted by the Econimist Intelligence Unit (EIU) and sponsored by ACE, said that their companies had been forced to cancel existing investments in emerging markets due to political risk concerns.
Most companies concentrate their risk management analysis on the period when an investment opportunity is being considered. 80 percent of survey respondents considered political and operating risk as part of the due diligence process. Only 44 percent said that they monitor and manage risk on a continuous basis once the investment has been made.
“Emerging Markets remain highly volatile but with these risks comes clear investment rewards,” says Julian Edwards, the Head of Political Risk at ACE Global Markets. “However, without formal processes businesses face potential exposure to unnecessary and additional risks which can impact directly on the performance of their investment and, in some circumstances, lead to cancellation.”
Over half of those surveyed said that the risks associated with investing in emerging markets have increased in the past three years and in response many companies are increasing the time and resources dedicated to risk management. The survey also showed that stability of political regimes was one of the most significant threats to operations in emerging markets. In the past three years, the majority of companies that already invest in emerging markets (79%) deepened their investment over the period. 64 percent reported that rewards have increased.