beyondbrics

The inexorable rise of the Brics – in terms of growth, at least – hasn’t made them any safer from destabilising risks. In fact, they are just as exposed to global risks as they were before the 2008 financial crisis. And given the prospects for world growth are largely pinned on these economies, it’s a worry.

That’s the conclusion of the Global Risks Atlas 2012 by Maplecroft, a risk advisory company. The Brics are exposed to global risks which “could undermine their investment potential”. So what are they?

Overall, the key areas where the Brics and other EMs face bigger risks than the developed world are in governance, social resilience (how the population bounces back from disruption), exposure to the effects of climate change and demographics. These are not new but they are easy to overlook when an economy is growing at a fair lick.

Of the Brics, Brazil does the best, ranked 97 (the bigger the number, the lower the risks), mainly due to democratic stability, but it is listed as high-risk in terms of the strain on finances placed by an ageing population. China (58) also has demographic concerns for the same reasons. For India (19) and Russia (30), terrorism and political violence are also identified as important risks to business and government.

As the eurozone crisis rumbles on, and after the Arab Spring, you might expect macroeconomic, security and unrest concerns to be the main topics of any global risk survey. And they do feature, certainly, along with other topical events such as political instability (eg North Korea) or drug wars (Mexico). But it’s the neglected and somtimes-forgotten effect of climate change that stands out for emerging markets. From the report:

For example, the high exposure of the Chinese economy to multiple hazards, such as the exposure of the densely populated Guangzhou to typhoons, or the economic exposure adjacent to the Yangtze River, may disrupt supply chains that extend into the region with a significant impact on the global economy.

In fact, Indonesia, until recently riding high with investors and rating agencies alike, is deemed the riskiest country in terms of climate change, and is the only country to be classified an extreme risk in the category. Again from the report:

Average CO2 emissions from forest biomass reduction in Indonesia, between 1990 and 2005 amounted to 2,271.5 MtCO2 per annum, making Indonesia the highest emitter from land use change globally. This not only increases the vulnerability of the country, and businesses operating in it, to climate change. It also increases the likelihood of future regulatory change aimed at halting the country’s contribution to climate change.

The other high ranking EMs in the climate change list include Nigeria (2nd), Philippines (3rd) and Brazil (4th), where “high exposure to the impacts of climate change could have dramatic impacts on economic sustainability”.

But whatever the components of the threats to business, it is worrying that the main emerging markets have barely shifted in their risk levels in the last four years, despite the cumulative double-digit GDP growth.

As the report signs off, “With present hopes for mitigating the global impact of poor economic growth forecasts in key western economies resting with the growth economies, and in particular China, investors and business operating in these geographies need to be aware of their limited resilience to global risks”.

Related reading:
Managing Climate Change, FT special report
2012: the year of resource nationalism? beyondbrics
Malnutrition: why EMs should care, beyondbrics