RiskMarket RiskGrowing Civil Unrest Increases Business Disruption Risk

Growing Civil Unrest Increases Business Disruption Risk

Mass demonstrations, labour protests and ethnic or religious violence have increased the potential risk of business disruption in nearly 20% of countries over the last three months, including in the important markets of Hong Kong, Kenya, Nigeria, China and Mexico, reports Maplecroft.

The global risk analytics company’s latest quarterly civil unrest index (CUI) ranks 197 countries, assessing the likelihood of strikes, protests, ethnic or sectarian clashes or conflict disrupting business operations.

The latest CUI identifies Hong Kong as experiencing the largest increase in risk over the last quarter, due to the mass democracy protests of recent days. The Chinese administered territory fell 62 places in the ranking from 132nd and ‘medium risk’ to 70th and ‘high risk.’ Liberia, meanwhile, which dropped from 113th to 74th in the index, saw the second highest rise in risk, due to mounting unrest caused by the spread of the Ebola virus.

In the overall ranking, 11 countries are considered ‘extreme risk,’ many of which experience internal conflict and violence driven by ethnic or religious tensions. These include: Syria (1st), Central African Republic (2nd), Pakistan (3rd), Sudan (4th), South Sudan (5th), Iraq (6th), Yemen (7th), Libya (9th), Somalia (10th) and DR Congo (11th). Conversely, Bangladesh (8th) has recorded a steady increase in civil unrest risks due to anti-government protests by opposition parties, as well as labour strikes against poor working conditions and other labour rights violations.

Civil unrest in a further 69 countries is considered as potentially posing a ‘high risk’ to the continuity of business operations, including in the Asian manufacturing hubs of Thailand (16th), Indonesia (23rd), Vietnam (24th), China (26th), India (28th), Cambodia (32nd) and the Philippines (35th). As a result of civil unrest some companies operating in and sourcing from these countries have faced severe disruptions, including from strikes, while the economic impacts have also been significant.

Anti-Chinese protests in Vietnam in May 2014 led to violence and serious property damage, not only of Chinese but also other foreign-owned assets. Many factories were forced to suspend production, while those worst affected by the violence saw falls of between 4 and 16% in their share value. Prolonged anti-government protests in Thailand, which culminated in a military coup the same month, shut down much the country’s commercial centre.

The protests not only disrupted business operations in Bangkok, they caused the International Monetary Fund (IMF) to lower the 2014 projected gross domestic product (GDP) growth rate to 2.5%, down from 5.2%, which could cost the country an estimated US$9.8bn.

“Tracking the trajectory of countries with rising levels of unrest should be a top priority for business continuity planners and risk managers” said Charlotte Ingham, principal analyst at Maplecroft. “Civil unrest can create significant risks to operations and supply chains and impact the safety of employees and company property.”

According to Maplecroft, Hong Kong performs comparatively well in the economic, social and rights factors in the CUI, but performs poorly for democratic governance, due chiefly to the underlying democratic deficit in an electoral system where candidates are pre-selected by Beijing. The scale of the protests, which has cost retailers upwards of US$283m, has seen Hong Kong move from the ‘medium risk’ category to ‘high risk.’ Beijing’s response will be key to determining whether the situation deteriorates further.

Like Hong Kong, Liberia (74th) has also moved from ‘medium’ to ‘high risk’ in the index. However, this is predominantly driven by outbreaks of civil unrest related to the Ebola outbreak. The most severe example of this took place on 20 August 2014 when four people were injured in Monrovia during clashes between protesters and security forces, who fired live rounds and tear gas to quell the crowd. Guinea (25th) and Sierra Leone (58th) have also been host to violent protests related to the outbreak of the disease.

Elsewhere in West Africa, Nigeria fell six places in the ranking (24th). Given the Nigerian government’s weak response to the country’s terrorist threat and the upcoming elections in February, Maplecroft expects the risk of civil unrest to rise further in the coming months.

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