Aon Issues 2006 Political & Economic Risk Map

“United States-based companies with business interests abroad will not be trading in a safer world in 2006,” according to Aon’s newly published annual global business risk analysis represented in its 2006 Political & Economic Risk Map.

Aon said the “map shows that critical sourcing partners and important supply-chain stress points still remain a serious threat to the world’s global trade economy. Each year, Aon Trade Credit evaluates the political and economic risks for multinational corporations in more than 200 countries. This year’s analysis was developed in partnership with Oxford Analytica (http://www.oxan.com/), an international, independent consulting firm drawing on more than 1,000 senior faculty members at Oxford and other major universities and research institutions around the world.”

The map has upgraded 23 countries for 2006, many of which are “important in global trading,” but Aon cautioned that they still may “remain dangerous places for businesses to operate.” As examples the report names Indonesia and Colombia. “The political and economic risk ratings for both countries have ‘improved’ from high to medium-high, even though both nations still present a significant risk to corporations doing business there,” Aon notes.

Aon went on to cite the increased risk in Latin America. It indicated that the “emergence of more left-wing governments in Latin America is causing concern for foreign businesses. Companies doing business in Venezuela and Bolivia are facing higher taxes, revision of contracts and threatened expropriation of assets. In addition to Bolivia, four other Latin American countries, Belize, Costa Rica, Guatemala and Nicaragua, were downgraded on the 2006 map.”

Bryan Squibb, managing director, Aon Trade Credit, commented: “America is on the rise just as the region is becoming a more attractive trade and sourcing partner. The Central American Free Trade Agreement (CAFTA) and other factors have enticed companies to look to Latin America for investment opportunities such as textile manufacturing. However, companies looking to do business in the region must be aware of the potential risks. Failure to implement a risk management strategy can put companies in dire straits should an overseas asset or investment become compromised.”

Analyzing the “Supply Chain Risk Index,” Aon said it “rates countries that pose the greatest threat to U.S. companies’ supply chains. Country scores, ranging from one (best) to five (worst), are based on how risky a country is for sourcing and how prominently the country figures into U.S. supply chains. The 2006 Supply Chain Risk Index compares 2006 findings with those from 2000.”

“Understanding the nature of supply chain risk exposures, and where they occur most frequently, is now a board-level priority,” Squibb pointed out. “According to recent studies, companies’ share prices decline by about 10 percent on average following announcements of supply chain disruptions.”

Sam Wilkin, senior consultant, Oxford Analytica added: “By evaluating Supply Chain Risk Index scores from 2000 and 2006, companies can identify trends and develop a risk strategy to limit exposure. Looking at the five-year comparison, three trends stand out: First and foremost is the increasing risk of doing business in Venezuela, which because of its oil reserves has become an important trading partner; secondly, the 2000/2006 comparison vividly demonstrates the growing importance of India, Brazil and Nigeria in U.S. supply chains; and thirdly, China, which continues to be a crucial sourcing partner, but one that also presents significant risk.”

For more information, or to request a copy of the 2006 Political and Economic Risk Map, contact:
Thaddeus Woosley, Aon Corporation, 312.381.2446,
Thaddeus_Woosley@aon.com
Al Orendorff, Aon Corporation, 312.381.9153,
Al_Orendorff@aon.com