News Release


Slowing China and Weaker Commodity Prices Increase Political Risk in SSA

  • Chinese growth rates likely to decline further, presenting challenges to key trading partners
  • Economic volatility stemming from low commodity prices
  • Lifting of sanctions reduced political risk in Iran but has implications for wider region
  • Continued low oil prices exacerbate political risk in already fragile states
  • Economic and political issues will challenge Brazil ahead of Rio 2016

Aon Risk Solutions, the global risk management business of Aon plc, launches its 2016 Political Risk Map for emerging markets, which found that anti-corruption reforms in China and the lifting of sanctions in Iran eased political risk in both countries. Resource-dependent countries, especially in Sub-Sahara Africa (SSA) continue to grapple with economic risks driven by weak commodity prices.

China's rebalancing brings some reduction in domestic risks, but may amplify them abroad

According to Darlington Munhuwani, Regional Controller for Aon Sub-Sahara Africa, anti-corruption measures have contributed to a decrease in political risk in China, over the last year. "Nonetheless, inconsistencies in the anti-corruption drive and policy uncertainty have clouded the overall outlook. The rebalancing and slowing of the world's second largest economy are likely to present challenges for China's neighbours and key trading partners, who could experience higher political and economic risks as the pace and composition of growth changes. China remains an important trading partner for most countries in SSA and any further economic slowdown in China could have a negative and long term impact on the economies of these countries," says Munhuwani.

The outlook for many emerging market economies will be based on whether politicians are able to implement pledged reforms to attract more investment at a time when weaker global trade and economic growth is increasing competition for capital. So far, many of the structural reform plans have disappointed, weakening growth and reducing resilience to shocks. Two countries in the spotlight this year are India and Indonesia, who have stronger balance sheets than many peers, but who have been struggling to implement policies. A proactive implementation of policies would help alleviate political risks.

The Aon Political Risk Map is the authoritative analysis of 163 emerging markets tracking 168 different recognised risk attributes. Aon's unrivalled access to 19 years of data, allows users to systematically track political risk in emerging market countries, plot trends, measure exposures and review the potential challenges they may face as they look to invest, grow and diversify.

"For the first time in the last three years, the Aon Political Risk Map reflects more countries with reductions in political risk than increases, an encouraging sign of the impact of political and economic reforms," says Munhuwani. "Despite increases in economic risks stemming from low commodity prices, improvements in political stability have occurred. However, weakness in the global economy could yet cause significant increases in political risks within countries and spill-over effects into others states."

Lifting of sanctions reduces political risk in Iran, but future behaviour needs close monitoring

In Iran, the implementation of the international Joint Comprehensive Plan of Action (JCPOA) loosening international sanctions, prompted a reduction in the country's political risk rating in 2016 from a very high level. With uncertainty about the extent to which the country's Revolutionary Guards and others with vested interests will play a role in the economy, the operating environment remains unclear. A stronger government position could lead to Iranian intervention elsewhere in the region and perpetuate regional political risk.

"Iran's re-entry into global markets will increase the supply of oil, and eventually gas, as it gains access to more foreign markets including Europe," says Rachel Ziemba, Managing Director of Research at Roubini Global Economics. "Iran has a more diversified economy than many Middle Eastern and African peers and has done more to adjust to lower oil prices."

Low oil price exacerbates existing fragility in oil dependent markets

Topping the list of political risks facing emerging market investors in 2016 is the impact of oil prices in already fragile oil-dependent countries such as Iraq, Libya, Russia and Venezuela. The 2016 Aon Political Risk Map indicates that countries with more resilient institutions and greater foreign currency reserves will be better positioned to minimise sovereign non-payment and exchange transfer risks, including members of the Gulf Cooperation Council (GCC) as well as Colombia, Malaysia and Kazakhstan. Still, increased security risks in neighbouring countries such as Iraq, Algeria, Nigeria, Libya and Syria are likely to hinder improving risk outlooks for countries that might stand to benefit from cheaper oil, such as Egypt, Tunisia and Morocco.

"Oil-producing nations must diversify their revenue streams and find substitutes for lost revenues to reduce the debt burden. Most countries are hard pressed to increase corporate and individual taxes to bridge the gap in state funding deficits. Others may be forced to dispose of state-owned enterprises to raise capital to fund recurrent expenses," says Darlington Munhuwani, Regional Controller for Aon Sub-Sahara Africa. "With no sign of oil prices returning to previous levels, turbulence in many oil producing states is likely to continue, and could worsen."

Weaker oil prices are exacerbating exchange transfer risks, putting pressure on corporations and individuals seeking foreign currency and discouraging investors. Meanwhile weaker revenues are increasing sovereign non-payment risk. While only a few countries have sizeable foreign currency debt burdens (Venezuela), government budget gaps are widening, putting pressure on banks, which in turn are perpetuating a credit crunch in the GCC countries, CIS countries and African oil producers. In some of the more vulnerable countries, government arrears are growing, placing further strain on the private sector.

Ongoing conflicts between countries and with non-state actors create heightened levels of political violence and present further risks. The effectiveness of extremist groups in the Middle East and Africa, including ISIS and Boko Haram, taking advantage of porous borders and weak institutions will also be amplified in afflicted countries, many of which are also feeling the effects of low oil prices. Even in countries which look more resilient, increased taxes and higher unemployment are likely to add to political strains making it harder for them to cope with other shocks.

Olympics arrive amid turbulence in Brazil

Finally, as Rio de Janeiro readies to host the 2016 Summer Olympic Games, Brazil's longest recession since the 1930s remains a significant strain on the country's social resilience. Although many of the drivers of the crisis are political, including the gridlock between political parties which has left fiscal and economic policies in unsustainable limbo, the increase in unemployment and falling wages is challenging both households and companies. For 2016, non-performing assets in state banks will continue to increase debt and debt service will become increasingly costly while ongoing political deadlock will erode the country's ability to cope with a range of economic, social and health shocks, including the Zika virus.

"The Brazilian economy is experiencing its most prolonged downturn in recent history as it prepares for Rio 2016," says Paul Domjan, managing director of Roubini Global Economics. "Over the long run, the business environment has been weakened by poor economic performance and this could become an even bigger issue for firms operating in Brazil. Brazil's buffers are being eroded, and even the potential upside from rooting out corruption is bringing significant collateral damage as cases work their way through the legal system."

Aon's political risk map can be accessed at

Aon welcomes relevant dialogue and commentary on our thought leadership materials posted to our website. However, we reserve the right to delete any content that is harmful, obscene, or spam before it is published to the site.

If you elect to comment or engage with our content via third-party social media websites, you authorize Aon to have access to certain social media profile information. Please click here to learn more about information that may be collected when using these tools on

All Comments(570)

Open for comments. Sign in or create your Aon South Africa account to join the discussion.
Tom Hatcher 7 Jun 2014 14:58 Comments Policy
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sed luctus nulla ac sem viverra, quis adipiscing lectus elementum. Fusce semper bibendum pellentesque.
Sandy Smith 25 May 2014 11:44 Comments Policy
Lorem ipsum dolor et al.
John Smith 12 May 2014 17:09 Comments Policy
Lorem ipsum dolor et al. Lorem ipsum dolor et al. Lorem ipsum dolor et al.
Show all comments...
Previous 1 2 3 4 5 Next

Quick Forms

Contact Me
Compliments & Complaints

Twitter Feed