Concerns about political risk are affecting investment in emerging markets, a new report from the Economist Intelligence Unit has warned.
Almost 30% of the senior executives surveyed said their companies had cancelled existing investments due to political risk. Ace, the report's sponsor, has highlighted a shortfall in risk assessment as one of the main contributors to this trend.
While 80% of respondents said they consider political and operating risk as part of the due diligence process, only 44% revealed they monitor and manage risk on a continuous basis once the investment has been made.
Julian Edwards, Ace Global Markets head of political risk, said: “Emerging markets remain highly volatile but with these risks comes clear investment rewards. However, without formal processes businesses face potential exposure to unnecessary and additional risks which can impact directly on the performance of their investment and, in some circumstances, lead to cancellation.”
More than 50% of respondents said the risks associated with investing in emerging markets have increased in the past three years and in response many companies are increasing the time and resources dedicated to risk management.
Edwards added: “The results of the global risk briefing clearly shows the growing appetite for extending investment in emerging markets. But, with less than half of those surveyed performing ongoing risk assessment as part of their investment programme the pace of growth and the potential returns could be affected. There is no doubt that maintaining a structured approach to risk management is crucial.”