Latin America ‘highest risk region for businesses’

Latin America has been named as the world’s highest risk region for violent crime, due to the widespread prevalence of drug trafficking organisations (DTOs), kidnapping, extortion and robbery.

The assessment is made in the latest criminality index released by business management consultant Verisk Maplecroft. The index ranks 198 countries on the risk of violent crime by evaluating the prevalence of organised crime, kidnapping, extortion and robbery, alongside the effectiveness of law enforcement and the cost to business.

Latin America – assessed across 11 countries, including in its four largest economies, Brazil, Mexico, Argentina and Colombia – ranks as the region posing the highest risk to populations, business and economies from violent crime.

Weak political institutions, widespread drug trafficking and ineffective police and security forces see conflict-stricken Afghanistan topping the index. However, as home to six of the 13 countries rated ‘extreme risk,’ Latin America ranks as the world’s highest risk region – ahead of South Asia and West Africa – with 55% of its countries categorised as posing ‘extreme’ or ‘high risk’

Guatemala (ranked 2^nd highest risk), Mexico (3^rd), Honduras (6^th), Venezuela (7^th), El Salvador (8^th) and Colombia (12^th) all feature in the ‘extreme risk’ category of the index. A further five, including Brazil (31^st) and Argentina (43^rd), are categorised as ‘high risk.’

In Mexico and Central America, the company identifies the prevalence of DTOs as the major driver of crime, which is estimated to cost these countries up to US$200bn a year. The widespread presence of DTOs has spurred high levels of violent crime, as groups vie for territory and control of drug transport routes to consumers in developed economies.

The recent rise in the production of methamphetamines in Central America also indicates that groups are extending their production networks beyond traditional locations like Mexico and the US. In addition, these groups are involved with kidnappings, extortion and robbery – the burden of which is passed on to businesses through increased security and insurance costs and lost productivity.

This is most evident in Latin America’s second largest economy, Mexico, where the cost of violence was estimated at US$134bn in 2015. The country’s homicide rate of 17 per 100,000 inhabitants in 2015 places it in the world’s top 25, while there have been over 26,000 enforced disappearances since 2007. The overwhelming proportion of crime in Mexico is focused within the highly lucrative drugs trade, which has also had serious consequences for the rule of law, due to the coercion of the government, the judiciary and local police forces by the powerful DTOs.

“President Peña Nieto’s early security gains have unwound and homicide rates have once again begun rising,” says Verisk Maplecroft’s Mexico analyst Grant Sunderland. “With the security forces facing budget cuts, a deterioration in the overall security environment is likely, leaving investors exposed to risks such as extortion, theft and potentially the kidnapping of personnel.”

Economic woes undermine Venezuela and Brazil

The company says that certain South American countries face many of the same challenges as Central America and Mexico. As the gateway to drug trafficking routes into the US, Venezuela and Colombia are identified as ‘extreme risk’ locations. However, Colombia is seen as posing less risk than its neighbour, due to the lower direct costs experienced by businesses and its stronger commitment to engage in bilateral interdiction efforts.

The gap is also likely to widen in the coming years as Venezuela’s political and economic crises intensify. Earlier this year, Caracas was named the world’s most violent city, and with no clear endgame to the crisis in sight, both Venezuela and its capital will be dominated by insecurity.

The region’s largest economy, Brazil, has made significant progress to curb high crime rates in some of its largest cities over the past decade. However, its role as the Americas second largest consumer market for cocaine and as a key trafficking route for narcotics produced in Peru, Bolivia and Paraguay mean that crime levels remain high.

As the country struggles to emerge from the deepest recession in living memory, cuts in security spending threatening to unwind the progress made in recent years. This could enable the country’s large organised criminal groups, which are also involved in extortion and kidnapping, to regain some of the ground they have lost, including in the favelas of Rio and Sao Paulo.

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