A further increase in terrorist activity in Asia is expected this year, according to Aon which yesterday launched its 2017 Risk Maps for Political Risk and Terrorism and Political Violence, produced in conjunction with Roubini Global Economics and The Risk Advisory Group.
“This is associated with the rise of the Islamic State throughout Asia, and the number of Asian citizens who have returned from fighting in the Middle East, radicalised, to their home countries,“ said Mr Julian Taylor, Broking Strategist & Head of Crisis Management, Asia, Aon Risk Solutions.
“Terrorist attacks are becoming increasingly diverse in terms of their modus operandi. We have seen a shift away from a physical property risk towards an increased people risk, as attackers move away from large-scale bomb attacks towards highly motivated individuals or groups using hand-held weapons or vehicles,” he added.
Singapore’s terrorism and political violence risk level has been raised from ‘negligible’ to 'low’ in light of recent arrests of purported extremists in the country, and the Indonesian authorities reported disruption of a terrorist plot to attack the island in 2016.
The terrorism and political violence risk level is likely to remain ‘high’ in the Philippines during 2017, with the Islamic State promoting the country as a regional hub for militants not able to travel to Syria or Iraq. Malaysia’s overall score has been raised to ‘medium’ following the first Islamic State-linked attack in the country, an increase in the number of terrorist arrests in 2016, and multiple kidnappings by Philippines-based militants in the eastern province of Sabah.
Worldwide, a 14% increase in terrorist attacks in 2016 and populist nationalism are creating an increasingly volatile operating environment for international business.
The terrorist threat continues to evolve, affecting an ever wider set of sectors in more countries with more diversified tactics and intent to kill. Impacts range from loss of life to business interruption, and disruption in the supply chain. Other violent risks are also evolving at the geopolitical level, leading to increased defence spending, more authoritarian forms of government and a weakening consensus between states. There are few indications of an overall improvement in violent risks in 2017.
Businesses are facing growing exposure to political violence risks worldwide. For the second successive year, more country risk ratings were increased (19) than decreased (11). The overall terrorism and political violence ratings are the highest they have been since 2013, capturing not only terrorism but also the risk of coups, civil and interstate conflicts, and rebellions.
There are now 17 countries at highest risk, representing epicentres of instability that emanate international terrorism threats and significantly increase business risk exposures in neighbouring states. Three belts of severe risk run through Africa from the Mediterranean to the Atlantic, through the Levant and through South Asia.
While it saw a 174% rise in terrorist incidents, the West still accounts for less than 3% of terrorist violence in the world. However, in 2016 the US sustained the highest number of terrorism incidents in a decade
Populism and protectionist risks in developed economies could lead to an increase in political risk in emerging and frontier markets as their resilience is challenged. While political risks remain high, particularly in the Middle East and Africa, reform efforts and past economic adjustment have increased resilience. Energy markets will continue to influence economic risks for many emerging and frontier markets. The expected stabilisation in oil and gas prices will alleviate but not erase some economic pressures for producer nations, while amplifying financial vulnerabilities for importers, particularly in Asia.
Risks in Asia
Most Asian countries rely heavily on cross-border trade, making them vulnerable to global economic and investment disputes. Uncertainty surrounding protectionist trade policies raises concerns about the future of exports from Asia as well as intra-Asian trade. This sentiment affects regional growth and weighs on Asian currencies leading to a heightened risk of payment defaults in 2017. As their currencies come under pressure, this increases the risk of some Asian governments implementing currency controls.
Mr Miles Johnstone, Head of Structured Credit & Political Risk, Asia, Aon Risk Solutions, said: “The changing global landscape is likely to have a significant impact on emerging market countries. As far as regional security is concerned, should the Trump administration back away from the nuclear threat posed by North Korea to South Korea and Japan, the medium-term risks of naval miscalculation in the East China Sea may increase. Global businesses and their financiers must now understand and mitigate their exposures to economic and political risk.”
Open trading nations like Singapore, Malaysia, Hong Kong, Taiwan, Chile and Colombia are exposed to increased political risk due to dependence on US and other trading partners. Mexico and the Philippines are more vulnerable to declines in remittances if they occur due to trade restrictions. Brazil, India, Indonesia and Nigeria are more resilient due to large domestic economies, which are less reliant on exports.