Political risk is likely to remain elevated for multinationals throughout 2023 as several major factors combine to compound problems for risk managers, according to Marsh 2023 Political Risk Report.
The report, however, said that brokers believe that the perceived level of risk is higher than the actual threat faced by companies, and there are reasons for optimism and opportunities for growth at nimble firms.
Marsh 2023 Political Risk Report outlines major shifts and trends in the global political and economic landscape that will impact multinationals and investors in the coming year.
The report identified four areas where growing risk threatens global trading security and investment environments. These risks are persistent political instability, economic retrenchment, competition for strategic resources and supply chain diversification.
Meanwhile, competition for strategic resources is intensifying as a result of Russian president Putin’s invasion of Ukraine and the ever-increasing demand for raw materials used in modern technologies, the report added.
The authors of the report said countries that hold these resources are seeing opportunities for growth, and so competition between governments in many places is contributing to geopolitical instability.
The report said that supply chain diversification is bringing new risks as companies seek to mitigate soaring material prices, fluctuating exchange rates, increased shipping costs and government intervention. Supply chain resilience trends, including reshoring and supply chain simplification, may disrupt many economies and businesses for years to come.
In addition, the need to diversify supply chains to achieve greater food and energy security will continue to attract investment opportunities. So too will the substantial rise in government defence spending worldwide to support allies, counter threats and accelerate the sector’s modernisation. M