A year since Covid-19 was declared a pandemic by the World Health Organization, governments across the globe continue to battle its profound impact on societies, economies and politics.
An analysis published yesterday by risk consultancy Verisk Maplecroft expects this fallout to continue, forecasting that 88 countries in both the developed and developing world are likely to experience more political instability by 2023.
These bleak projections of the consultancy’s two-year political stability index, which are generated from simulation models that assess 10,000 potential outcomes per country, are primarily driven by fading legitimacy of governments and intensifying civil unrest.
“Even as we move into the vaccine and recovery phase, it’s worth underscoring that the coronavirus pandemic in many ways has been one of the most extreme shocks to political systems in decades,” says James Lockhart Smith, head of financial sector risk at Verisk Maplecroft, and a co-author of the report.
“There’s no doubt that the depth of the shock has had a systemic impact on trust in government across much of the developed world. Unless you’re one of a handful of countries which managed the pandemic well, citizens are coming out of this with a different perception of government than they had in 2019,” he adds.
While a few countries are expected to improve, many will simply see comparatively less instability after a tumultuous 2019–2020, such as Belarus, which saw demonstrations following its 2020 elections. China is a standout exception, having responded quickly enough to the virus to reopen its economy.
Meanwhile, 23 countries are expected to experience a significant decline in political stability, including Brazil, Saudi Arabia, the Philippines, Ukraine and several other eastern European markets. Another key factor driving this rise in political risk is public debt accumulated by countries such as Argentina, South Africa, Romania and Russia, built up in large part by leaders supporting economies battered by the pandemic.
For companies investing abroad, future instability may mean potential disruption to their operations on the ground, and an even more hostile and unpredictable investment policy environment to navigate.
Nearly half (43%) of all new national investment policies introduced in 2020 were restrictive — marking the highest ratio seen since 2003, according to Unctad’s Investment Policy Monitor. Much of these new FDI screening mechanisms were implemented during the crisis to protect sensitive domestic assets from hostile foreign takeovers, as seen in Australia, the EU and UK.
While political instability and crisis can mean less focus is put by governments on environmental, social and governance issues — such as human rights abuses, deforestation and corruption — this provides a key opportunity to investing companies.
“The silver lining is that the urgency of having a positive impact in the world is now greater than ever for any company with a global footprint. The degree of crisis means that multinationals now have more of an opportunity to positively impact the places they are operating in,” concludes Mr Lockhart Smith.