A wake-up call: TXF Data Country Risk Review Q2 2017
In the past three months’ terror attacks in France, Britain and Russia have continued to put the world on high alert. Coupled with last year’s election of US President Donald Trump and the United Kingdom’s Brexit referendum vote, country risk ratings have been faced with significant changes around the world. TXF Data’s Country Risk Review reveals the latest country risk profile updates in 2017 so far.
When beginning to assess the risk on any deal, political risk has often proven to be the most difficult to predict. TXF Data’s Country Risk Report Q2 2017 - which reviews 21 countries - tracks and uses key trade indicators as a determinant of political risk. For example, an increase in the import and manufacturing of weapons would generate a high risk rating if aligned with a range of other trade indicators that point to impending conflict.
You can download the full report here
Ukraine was by far the riskiest state in this study with a risk rating index of 532.5 in 2017 so far, compared to 537.1 in 2016 – a year-on-year risk decrease of -0.8%. The country has been gripped by conflict since the Crimea was annexed by Russia in February 2014 and civil unrest erupted into a civil war in the Donbass region. The slight reduction in its risk rating can be linked to Russia announcing that another ceasefire had been agreed between the Ukraine and the separatists. A slowdown in fighting has already been observed, nevertheless a ceasefire is not a truce and without a clear peace plan in place, fighting will likely resume.
Mexico ranked second on the list with a risk rating of 242.4 in 2017, representing a 6.8% increase in risk compared to 226.9 in 2016. The rating can be linked to the significant threat from the long-running drug war as well as the possibility of serious deterioration with US relations over issues such as the Mexican wall.
China scored the third highest risk in the report but its rating of 230.1 in 2017 represented a 0.1% increase in risk so far this year compared to 229.9 in 2016.
There are significant risks in China, the most severe of which is the rapidly declining relations with the international community over a more assertive foreign policy. This includes the escalation of the South China Sea dispute (greatest threat), uncertainty over US's future role in the region, and domestic tensions over the crackdown on Muslim religious practices in Xinjiang.
Russia saw a 4.8% increase in risk so far this year recording a rating of 229.1 in 2017 compared to 218.5 in 2016. Deteriorating EU and NATO relations in recent years have led to warnings of a new Cold War. Trump’s election will do nothing to alleviate these tensions. Russia’s aim is a return to great power status and Putin’s foreign policy action exemplifies this trend with the country’s role in the Ukraine crisis and, more recently, in its military support for the Assad regime.
Saudi Arabia’s risk rating scored 159.7 in 2017 compared to 148.7 last year – a 7.4% increase in risk change. Serious human rights issues, high levels of repression, tensions with Iran and a "proxy war" in Yemen have driven the index rise.
Oman scored a rating of 84.6 so far this year compared to 82.7 in 2017 – a slight risk increase of 2.3%. Stability in Oman is relatively assured in the short term. However, health of Sultan Qaboos - who has ruled the country since 1970 - should be monitored given the lack of clear succession plans.
Unsurprisingly, the USA’s country risk rating increased by 14% - the USA scored 79.9 in Q2 of 2017 compared to an index of 70.1 in 2016. The significant change is cause for concern and almost entirely a result of the change in administration. Foreign policy and relations are likely to deteriorate.
Ghana also saw a significant risk increase of 9.8% scoring 64.4 in 2017. Despite the fact that Ghana has slipped slightly in the index ratings, it is still one of the most stable west African nations. While corruption has declined in recent years, terror attacks in neighbouring countries has put Ghana on high alert.
The UAE saw a very slight risk decrease of -0.6% with a stable index rating of 46.7 so far this year. While the UAE has taken a more active foreign policy role, it has troops actively fighting in Yemen and Iran is still a source of potential tension.
The UK scored 45.3 on the index rating (very stable) compared to 44.3 in 2016 – representing a risk increase of 2.2%. There has been a marked deterioration in foreign relations over the result of the Brexit referendum and these are likely to fall even further as formal negotiations begin this month. The recent attack in Westminster also highlighted terrorism as the greatest threat to the UK.
Germany is still very stable with an index rating of 41.7 in 2017, a decrease in risk of -11.8% compared to 47.3 in 2016. But the level of risk has been steadily rising. Terrorism has become a more serious threat and tensions are increasing with US and UK.
Norway is one of the most stable states in the world with a rating index score of 15.4 in 2017 compared to 13 in 2016 – representing a decrease in risk of 18.2%. Stability in Norway results from a highly democratic system with very low levels of corruption.
While TXF Data is an ever-growing source of information on deals and trends out of the export finance industry, it does not claim to be comprehensive and is indicative of the detail provided to us.
To download the full report click here or contact dkloiber@tagmydeals.com
