Page 14 - Deconstructing risk
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Our political risk models assist
companies in quantifying their political
risk exposures and the potential impact
of these on their global investment
and trading strategies. This enables
the business to evaluate risk mitigation
opportunities, including insurance

                                                    —Paul Davidson, Financial Solutions
                                                       Chairman & CEO, Willis Towers Watson

                             or even cancellation. Tim Bowen,         a mainly positive impact as there is    regulatory change as more of a
                             director of strategy and business        continued fuel put to the construction  threat than their peers in other
                             development at Costain, also points      market by governments.”                 territories, with each scoring six of
                             out the constraints of working on                                                the top ten risks in this megatrend
                             government contracts.                       “One of the most effective ways      – a clear indicator of how serious
                                                                      to stimulate an economy is through      these problems can be.
                                “Making sure that expenditure         investment in infrastructure,” Bowen
                             has been committed, so that major        explains. “However, we need to             “Geopolitical risks in the Middle
                             schemes happen as planned and            remain mindful of the longer-term       East and Africa, where we operate,
                             on time, is one area of concern,”        ability of the public sector to invest  are very well known to everyone,”
                             he says. As reflected in geographic      at the levels needed to support the     says Mehtap Akkaya, insurance
                             rankings, this is a global issue.        modern infrastructure required by       director at STFA. “The whole area is
                                                                      the economy.” He highlights the fine    influenced by political risks, which
                                “In developed markets, the            line between risk and opportunity:      in turn has an influence on the
                             biggest risk is always the level         regardless of potential challenges,     construction market.”
                             of activity,” says Ángel García          government financing can be a key
                             Altozano, corporate general              source of growth for the industry.         Political hotspots can result in
                             manager at ACS Group. “The public                                                huge economic and human costs
                             investment policy is what fluctuates        “One of the major risks that         and create dangerous working
                             the most. When the economy and           people have highlighted is the risk     conditions. As a result, construction
                             budget for the government are at a       of negative changes to government       companies are often hesitant to
                             deficit, you have to be careful about    financing policies and priorities,”     operate in these locations, even
                             the investments you make.”               says García Altozano. “But that can     after a conflict has settled. Because
                                                                      go the other way as well: it can be     construction projects have long
                                It’s almost impossible for the        a positive change.” Public projects     lifespans, the industry must be able
                             construction industry to control         can generate substantial profits        to predict the long-term outlook
                             or mitigate this risk, and if a          and create additional benefits such     for a region. Even a small threat of
                             government pulls out of a project        as brand awareness. However,
                             or places it on hold, there can be       with volatility growing even in
                             little relief for the parties involved.  stable countries, companies will
                             In some circumstances, however,          increasingly have to monitor the
                             political change can create new          global political climate and undertake
                             opportunities in the industry, and       thorough country risk profiling before
                             many executives recognize the            entering into agreements.
                             efforts of governments to put more
                             money in to public spending.                While changes to government
                                                                      commitments affect companies
                                “We are going to see many             everywhere, geopolitical instability
                             countries going to elections, so of      is more acute in some countries
                             course there is a huge European          than others. Executives in Latin
                             challenge to government financing,"      America and CEEMEA ranked
                             Wallin points out. "For the time being   geopolitical instability and
                             though, political factors have had

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