Global Political Risks: Where Are The Positives?

On the surface, global political risks seem very high. Russia and the West are locked in a major proxy conflict in Ukraine, threatening to bring a mini-Cold War to Europe. There are four civil wars (Syria, Iraq, Libya, and Yemen) with varying degrees of intensity taking place in the Middle East and North Africa, which are being exploited by radical Islamist militant groups, who are also active in northern Nigeria, the Sahel region, and the Horn of Africa. North Korea's nuclear arsenal appears to be expanding faster than previously thought. Tensions between China and Japan are running high, as the 70th anniversary of the end of World War II approaches in August. The UK is heading into its most uncertain general election in more than 40 years. Extremist parties are on the march elsewhere in Europe. Long-serving autocratic leaders in Central Asia and Africa are entering their final years without having groomed successors, leaving the risk of highly destabilising power struggles. New technologies such as social media are accelerating political mass mobilisation, while cyber warfare and drones are lowering the threshold for going to war.

These are all risks highlighted by BMI Research in recent presentations for clients, begging the question, "is there any good news?!"

The answer is yes. Consider the following:

  • It is true that elections bring considerable uncertainty, but for the most part, countries are not faced with fateful choices that could steer them in radically different directions. For example, elections in Brazil, India, Indonesia, and many other countries in 2014 largely offered voters a choice between moderate centrist-leftist leaders and somewhat more reformist ones, rather than a stark choice between hardline socialists and radical free market champions, as may have been the case in various countries' elections in past decades. In the UK, the main political parties are in many ways characterised by their similarities rather than their differences, and this is true of many other countries. In short, we are hard pressed to think of nations where anti-systemic parties or movements have a realistic chance of coming to power. The most prominent exception would appear to be the Islamic State. Meanwhile, regimes that have long rejected the Western-led but increasingly multi-polar international system, such as those in Cuba, Myanmar, and Iran, are seeking to end their isolation. Changes in these countries could improve economic opportunities for 138mn people.
  • Four major economies in Asia - China, Japan, India, and Indonesia - are now headed by the most economic reform-minded leaders in a generation. Although all four face considerable opposition from vested interest groups, they at least have the willingness to attempt to deliver more growth-friendly business environments – and may even succeed. At the same time, although China's Xi Jinping, Japan's Shinzo Abe, and India's Narendra Modi are all strong nationalists, regional disputes have been contained.
  • Asian flashpoints such as the Korean Peninsula and the India-Pakistan border have also been quiet: Pyongyang has refrained from long-range missile and nuclear tests and war scares (such as in 2013), while the lack of headline grabbing news from Pakistan is a good sign.
  • The Iran nuclear dispute appears to be moving towards a diplomatic resolution in mid-2015, and Iran's subsequent, gradual reintegration into the global economy could be transformational for the Islamic Republic and the wider region.
  • The Islamic State appears to have lost momentum in Iraq and Syria after rapid territorial gains in 2014. Although Islamist terrorism remains a concern for security services in dozens of countries around the world, it is encouraging that neither al-Qaeda nor its affiliates have been able to carry out another 9/11-style attack or a smaller scale attack such as the 3/11 Madrid train bombings.
  • Although tensions are high between Russia and the West, the Minsk II ceasefire in Ukraine at least offers a path to peace. For its part, Moscow has refrained from expanding the conflict to Moldova, the Baltic States, or Kazakhstan, as previously feared.
  • In Latin America, with the exception of Venezuela, political risks are manageable. Most countries have moved away from mass political violence; for example, as recently as 2008, Bolivia was on the brink of civil war. Argentina, which has pursued heavily statist economic policies over the past decade, is moving towards greater economic orthodoxy after the October 2015 presidential election.
  • In Nigeria, the outgoing president, Goodluck Jonathan, was swift to concede defeat in March's elections, suggesting a maturation of the political scene. Elsewhere in West Africa, countries such as Sierra Leone, Liberia, and Cote d'Ivoire, which were still experiencing civil wars in the 2000s, are now largely peaceful.
  • Elsewhere in Africa, conflict risks are generally far lower than in past decades.   

Stability Is Fragile

Overall, global risks could be far worse. There is still surprisingly little political violence and terrorism, considering the sheer amount of poverty, inequality, and grievances in the world. The downside of the 'upside' is that in many of the risks discussed above, the present stability is fragile. In other words, 'contained' risks can quickly move towards crises.