Posted - 02/25/2011 : 16:09:39
SANTA MONICA, Calif. (MarketWatch) — The Global Risks Atlas 2011 released this week shows India and Russia as “high risk” growth economies.
While Somalia, Sudan, Afghanistan and the Democratic Republic of Congo may top the list of riskiest countries in the world, important growth economies are near the top of the list, too.
This spells danger for those doing business in these countries or investing in volatile regions. As we now know from the web of fuses linked to the subprime-mortgage explosion, multinational ties become vulnerable as well.
The Global Risks Atlas 2011 was compiled by the mapping firm Maplecroft and evaluates the impact of 32 global risks that are “outside the control of an individual government or business that have the ability to affect multiple regions and industry sectors.” These risks include macroeconomic risk; security risk; governance risk and illicit economies; resource security; climate change; pandemics; and societal resilience, including human rights. See the Global Risks Atlas at Maplecroft.com.
Nigeria, India, the Philippines, Russia and Indonesia hold the most interest and pose the most challenges for business, according to Maplecroft, noting that these are among the countries driving most of the positive momentum behind the world economy.
India, Indonesia and Russia are three of eight countries newly categorized by Goldman Sachs as “growth economies.” They now account for at least 1% of global GDP each.
No structural resilience
Maplecroft states that although growth economies are ripe for investment and development due to fast and sustained economic growth, they are also more likely to be exposed to global risks and possess a lack of structural resilience to face these risks.
For example, India is rated by Maplecroft as an “extreme risk” for security, as it faces simultaneous threats of terrorist attacks from militant Islamic extremists and Naxalite Maoist insurgents. Its poor ranking also reflects a lack of societal resilience, Maplecroft says: “Despite robust growth, the country has a poor human-rights record and large sections of the population lack access to basic social infrastructure such as education, health care and sanitation. This reduces the country’s resilience to ‘global risks’ by creating a less productive workforce, a population susceptible to the spread of disease and potential instability due to risk of social unrest.”
Russia falls victim to this same category because it continues to face terrorist threats from Islamist and separatist insurgents from the Northern Caucasus. “Continuing terrorist attacks serve to dent investor confidence, and these groups once again proved their lethality in the recent attack on Moscow’s Domodedovo airport, which killed 35 people and injured over 100,” Maplecroft says, adding that “because of its financial dependence on fossil-fuel exports, Russia’s lack of resilience against macroeconomic risks was highly visible during the global financial crisis, when oil prices dropped. Oil prices are now on the rise, but Russia’s economy still remains at risk from volatility in the energy market.”
Siobhan Tuohy, a Maplecroft analyst, says “the key to understanding and managing global risks is to view them as interdependent. For instance, conflict and regime-stability risks are increasingly triggered by issues relating to poverty, unemployment and food security, which is seen throughout the Middle East at the moment.”
Indeed, food security is an important part of the backdrop for much of the uprisings throughout the Arab world.
A report from the United Arab Emirates by the publication the National notes: “Several Arab governments, alerted to the security threats posed by resource scarcity, have recently moved to enhance their buffer of key commodities in a region that imports more than half its food, including staples such as wheat, rice and maize. Last month, Jordan cut taxes on food and fuel. Saudi Arabia announced plans to double the kingdom’s wheat reserves to 1.4 million tonnes, or enough to satisfy demand for a year.”
Of course, where there is risk there is reward. But with such instability fracturing entire government structures, expect capital flights to safety.
The least risky places in the world according to the Global Risks Atlas? Scandinavia, Canada, Australia, South Korea and Japan.
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