In this ‘year of the election’, where over half the world’s population will have the opportunity to vote, we focus on global business executives’ concerns and perceived preparedness for geopolitical risk and their apprehension around the outcome of these elections impacting their international operations and ability to invest and trade. From the unrest in the Middle East to the continuing conflict in Ukraine and potential changes of government in Western democracies, the sheer number of variables and how they will interact to shape geopolitics will test business strategies to the limit. We explore what this unpredictability will mean for businesses as they grapple with increasing political risks. We also look at the essential role of insurance in mitigating these risks and the importance of robust contingency plans.
Executive Summary
2024 will shape global politics for the remainder of the decade.
Over sixty countries go to the polls this year, more than two billion people will have an opportunity to cast their votes and countless columnists will look to predict, analyse and dissect the outcomes of these events.1
For many, the results will bring positive change, while others will polarise opinion. In a time of heightened global tension and arguably, one of the most volatile political landscapes in decades, the threat of political risk and violence is high on the risk radars of global business leaders.
Recognising geopolitical risks in this era of accelerating risk and putting in mitigation measures early is crucial for businesses seeking to invest in less politically stable areas of the world, as well as closer to home. Understanding the risks as they stand today, and how they could evolve is crucial.
Each year our Risk & Resilience research and thought leadership reports offer insights into the key concerns of business leaders across the globe. In this year of the election, we focus on business executives’ concerns and perceived preparedness for geopolitical risk. The starting point for this edition – our research revealed that 70% of global business leaders agreed they are concerned by the outcome of this year’s elections and how the results could impact their international operations and ability to trade.
From the situation in the Middle East to the continuing conflict in Ukraine and potential changes of government in Western democracies, the sheer number of variables and how they will interact to shape geopolitics will test business strategies to the limit. This latest Geopolitical Risk Snapshot explores what this unpredictability will mean for businesses as they grapple with increasing political risks. We also look at the essential role of insurance in mitigating these risks before they emerge and the importance of robust contingency plans.
We examine three interlinked issues.
- How a bumper election year could lead to a rise in political violence and property damage as views become increasingly polarised around the world.
- With decarbonisation strategies growing in importance, we consider the risks associated with mining the critical minerals and metals vital to delivering the energy transition needed to meet net zero targets.
- How Africa, despite high levels of political volatility, corruption and civil unrest, has the potential to become an economic powerhouse, driven by renewable energy, untrammelled by legacy reliance on oil and gas. We delve into
the opportunities and barriers for international investment in the continent’s electrification.
As insurers, we should step up to support our clients as they navigate this complex world. By developing risk mitigation solutions, we can help clients build more resilient businesses and help them to operate successfully in an exceptionally challenging geopolitical environment.
Key Takeaways
For brokers
- Lenders are increasingly demanding political risk protection is in place for international firms looking to support the global energy transition, particularly in politically unstable regions. This includes trade credit risk, terrorism and war insurance coverage.
- Strikes, riots and civil commotion standalone insurance should be on businesses’ consideration of risk – particularly in the US and other regions of the world with polarised voters.
- Forewarned is forearmed when it comes to geopolitical risk – as political risk and political violence insurance will be harder to come by in the face of contentious elections where there is heightened risk of social upheaval or violence.
For businesses
In an era of accelerated risk, organisations need to invest in scenario planning and robust contingency strategies to navigate a fast-evolving geopolitical landscape. Building geopolitical resilience should not be an afterthought.
In frontier markets which offer exciting investment opportunities, understanding local cultures and systems at a both a macro and micro level is key to navigating political risks and developing initiatives which will deliver on the ground. Without buy-in from local community groups, projects will likely run into trouble.
With elections taking place across the globe this year, businesses are concerned about the impact they will have on their operations. Understanding how results could impact operating models and developing proactive risk management strategies not only enhances business resilience but also creates a competitive advantage.
Emotions Flair: Unrest and commotion in a bumper election year
Political violence and civil unrest are a growing threat across the world.
Since 2020, there have been nine coups in West Africa, Central Africa and the Sahel region. Political violence in the US is at its highest point since the 1970s2, the Russian conflict against Ukraine continues to threaten peace in Europe, the conflict in Gaza risks igniting further unrest across the wider Middle East region, and the omnipresent concern over a Chinese invasion of Taiwan remains. Into this febrile mix, over 60 countries will go to the polls in 20243. This heightened political focus will come with a greater risk to people and property.
Fuelled by social media and misinformation, 2024 could provide a barometer on the creeping political polarisation apparent, to varying degrees, across the globe. The left and right are moving further apart, and their supporters are increasingly disinclined to see the other side’s point of view. As these groups challenge each other at the polling booths, extreme elements may seek to use violence to influence, intimidate, or lash out if the results do not go their way. Against this, the threat of political violence, already high, becomes more pronounced.
Right now, global business leaders are feeling concerned about their current operating environment, with 36% reporting they now operate in a high-risk environment, up from 31% last year.
This spike reflects the volatile macroeconomic and geopolitical environment, demonstrating the need for businesses of all sizes to increase their preparedness for risk. Their fears are certainly not misplaced, as recent years have seen political violence break out around polarised elections.
One of the most potent examples was the storming of the Capitol in the United States on January 6, 2021 after Donald Trump lost the presidential vote to Joe Biden. The world watched open-mouthed as 2,000 protestors banded together in an attempt to prevent Congress from certifying the election and, in the process, raided the seat of administration causing injury, property damage estimated at US$1.5m, and the deaths of both police trying to protect the building and rioters.
The US is not the only country to have struggled with a highly charged political atmosphere. There is clear evidence that civil unrest has been a growing risk for some years. In 2019, Jakarta, Indonesia saw violent protests following the election.
This year, already, deadly violence and allegations of election misconduct plagued the voting in Pakistan, Iraq, Bolivia, Belarus, and Thailand. As we write the horrific fighting and situation in Haiti, is a stark reminder of what can happen when violent opposing groups seek to depose a political leader.
Poles apart
Looking deeper into political risk, which encompasses strikes, riots, and civil commotion, our data found that 30% of corporate leaders globally viewed political risk as their top threat in 2024 – rising from 27% last year, and concern over this risk is predicted to remain elevated at 29% going into 2025.
The potential for discord does not just hinge on elections, other political issues are also acting as a catalyst for unrest. In France, last year, there were disruptive protests and riots over pension reforms which increased the retirement age from 62 to 644.
In 2020, the US and UK saw large Black Lives Matter demonstrations following the deaths of George Floyd and Breonna Taylor. Around 10,600 demonstrations were recorded in the US and, while 95% were peaceful, 5% spilled over into violence causing property damage and business interruption5.
Looking to the past to predict the future
While it is difficult to predict exactly where tensions may boil over, history serves as an important guide as polarised electorates have been affected by political turbulence in the past.
Taking Venezuela as an example, while Nicolás Maduro was re-elected in 2018, in 2019 the National Assembly declared the results invalid and declared its president, Juan Guaidó, as acting leader. At the time, Guaidó was reportedly encouraging his supporters to protest until Maduro stepped down.
Staying in South America, Argentina is another country contesting a highly polarised election this year. In the late ‘90s, Argentina underwent a swathe of liberal reforms which ultimately tipped the country into economic depression, resulting in widespread rioting and looting6.
Concerningly, despite the volatile risk landscape and increased threat of political violence, our data finds that a quarter (25%) of business leaders currently feel unprepared to deal with these threats. Given the risks, businesses should be investing in protection against property damage and business interruption.
Considering the events that followed the 2020 US presidential election, this year’s Biden/Trump election is set to be just as hotly contested and divisive with campaign rhetoric already beginning to intensify. Indeed, research shows that voters in the US expect this year’s election to trigger further violence7.
If Donald Trump is defeated, allegations of voter fraud could resurface, potentially with even more vehemence. Commentators have already linked the rise of Trump with an increase in civil unrest, with a Republican loss in November potentially sparking further incitements of violence8. A poll of Americans in 2023 by the Brookings Institute and Public Religion Research Institute asked if respondents agreed that “because things have gotten so far off track, true American patriots may have to resort to violence in order to save our country.” Almost a quarter (23%) of people across the political spectrum, supported the notion, rising to a third (33%) of Republicans9.
This raises the potential for further attacks on government properties, such as the Capitol building, and polling stations, municipal buildings and government assets including court houses and prisons. Retailers are also in the firing line when rioting descends into looting, which can lead to significant losses10.
Navigating uncertainty
In areas where political issues are likely to occur, it is essential business leaders talk to their insurance brokers sooner rather than later to ensure they have the appropriate insurance coverage in place. The threat from political violence-related damage is set to remain elevated, with 29% of our survey’s respondents ranking this risk high for 2025 and a quarter of business leaders feeling unprepared to deal with this challenge today.
This is exactly the point where specialist insurance can step in. As nations face volatility, the requirement for more specialist, standalone cover increases for damage caused by riots, strikes and civil commotion as clients move away from terrorism cover and seek protection from a wider range of perils. However, coverage will be harder to come by, and much more expensive, the later businesses try and find cover. Firms will also need to demonstrate they have proactive risk management processes in place to become a more attractive risk amid a finite appetite from capacity providers. The mantra ‘act as if you are uninsured’ is necessary.
The message is clear – the risk is increasing so act now and implement risk mitigation plans.
Metals in the Crosshairs: The energy transition tug of war
As global governments seek to implement measures to keep the rise in global temperatures below 1.5°c, there is an increasing focus on the critical minerals and metals that are essential to enabling the global renewable energy transition.
The rare earth minerals and metals at the heart of this transition are located in many politically unstable regions of the world, making navigating political
risk critical.
At COP28 last year, over 130 governments agreed to work together to increase the world’s installed renewable energy capacity to at least 11,000 gigawatts by 203011, three times the current capacity levels. This ambitious goal is only achievable if the supply of critical minerals and metals such as copper, cobalt and lithium are readily available to support the production of transition assets such as electric vehicles.
Mining operations are a vital cog in the global energy transition. However, often, these sites are located in countries and areas that face political uncertainty, civil unrest, and economic instability. Argentina, for example, is home to the world’s third largest reserve of lithium – a core metal in battery production – but has witnessed mass anti-government protests, double-digit inflation, and three different presidents in only five years.
Africa, and in particular southern and eastern African countries including Namibia, South Africa, Kenya, Madagascar, Malawi, Mozambique, Tanzania, Zambia and Burundi are countries with identified high-grade rare earth mineral deposits that offer huge mining potential and opportunities for these economies12. However, it is no secret that mineral-rich locations, including some of these are often affected by political violence and economic hardship. Political stability in these countries is often in short supply. Yet, with the energy transition gaining speed to meet the 2050 net zero target and the development of these sites being pivotal, the potential for the mining of these minerals could be transformational for these regions. Attracting international investment will be essential for this potential to be realised.
International firms seeking to operate or invest in these regions must have robust risk mitigation strategies in place to ensure these projects remain viable and stable. And, political risk insurance, is an increasingly vital element demanded by banks, sovereign wealth funds, private capital and other sources of foreign direct investment funds when undertaking these projects. Although this form of insurance does not cover all eventualities, it does provide protection for a number of risks such as government confiscation of property, funds and other assets, nullification of contracts with 3rd parties, business interruption, and against property damage due to events such as war or terrorism.
Mining on a knife edge
Military coups, regime changes and terrorist attacks all combine to increase the risk profile of mining projects in frontier and developing markets. We see this in the Democratic Republic of Congo (DRC) which possesses the largest reserve of cobalt in the world13 but suffers with equally significant security risks exacerbated by poor infrastructure14 and political unrest15.
Cobalt is widely used in the production of batteries for electric cars16 and is mined heavily in the south-east region of the DRC. Yet, while mining regions have so far operated away from conflict, the DRC has seen several terrorist attacks in recent years with groups tied to ISIS (the Islamic State of Iraq) operating across the country. In 2022, there were 271 documented incidents in the DRC involving ISIS with over a thousand people believed to have been killed during the period.17
These security challenges are a key risk consideration for companies and investors looking to support the energy transition while keeping stable mines and staff safe from human rights abuses. Since our Risk & Resilience research first began in 2021, the perceived threat of war and terrorism risk among global business leaders has increased significantly, rising from 15% in 2021 to 25% now. The rise in violence over recent years is being reflected in how C-suites view the threat posed by the fallout from unrest.
Geopolitics also come into play. The West heavily relies on critical minerals and metals in Africa but China has solidified ties with several countries on the continent, and other areas of the world with critical mineral supplies, increasing its ownership and investment in key mining sites. As the energy transition speeds up and the output of these minerals and metals becomes more important, these locations could become a focal point for tension between global superpowers.
Furthermore, local populations can find themselves exposed to violence, disorder and abuse when unrest and tensions escalate. In the past, local people have been displaced by force leading to human rights abuses taking place.18 Mining is already one of the most hazardous professions and there are regulations in place to protect staff. For mine owners, maintaining the safety of staff is vitally important, and working proactively with local people is key to de-risking operations and ensuring security.
Navigating an increasingly dangerous environment
As the demands of the energy transition rise but the danger level remains elevated around these mining operations, boardrooms must prepare for a number of geopolitical related risks and consider how they can protect their businesses and people from a complex environment. For example, our data shows that global businesses feel unprepared to anticipate and respond to war and terrorism risks with 25% of corporate leaders saying they are unprepared for this risk. This rises to 27% when executives in the global energy and mining sectors were asked.
To navigate this volatile environment, firms and investors operating in the mining industry should have robust risk mitigation strategies in place. Insurance plays an important role in supporting and protecting the development of clean energy globally by providing coverage against a range of risks such as the cancellation of licenses, seizure of assets, and political violence.
However, insurance alone is not enough. Corporates need robust contingency plans in place, particularly in countries where there is volatility and unrest, and where permissions to operate can be withdrawn quickly and with little warning19. Furthermore, successful investors need good agents and partner firms on the ground who can support communities, and ensure good relations are maintained with local officials and political parties, as they can leverage their local knowledge and networks to help ensure that projects run smoothly.
Powering Africa: Navigating the opportunities
Africa’s large deposits of minerals are vital to powering the boom in renewable energy projects, but the continent is struggling with developing its own energy systems.
Only 43% of the African population have access to energy.20 Political instability, military coups, civil unrest, and geopolitical tensions present barriers and heightened risk for investors in Africa’s energy infrastructure, critical to the local population and the ability to mine these increasingly important and valuable minerals.
If Africa’s role in the global energy transition is to be realised, providing vital rare earth minerals that are the building blocks of the world’s ambitious push to net-zero by 2050, it needs investment in building renewable energy sources of its own. Currently, its energy systems remain underdeveloped and are increasingly unable to supply its businesses and growing population let alone support a burgeoning mining industry.
In recent years, this has been further compounded by the impact of the COVID-19 pandemic which has led to a reversal in access to energy, with 4% more people living without electricity in Africa in 2021 than in 2019.21
Pivotal to Africa’s electrification development is securing the finance and investment to enable projects and infrastructure to be developed. The African Development Bank has predicted that it will cost US$100bn annually between 2020 and 2040 to deliver on UN Sustainable Development Goal 7 for affordable, modern and sustainable energy22. The International Energy Agency forecasts that energy spending on the continent will need to more than double by the end of the decade, with over two-thirds of investment going to clean energy.23
There is a big opportunity to facilitate growth in this area with Africa holding vast deposits of minerals and metals which enable the development of renewable energy. However, without investment, the continent’s development will be held back, and the energy required to power key industries such as mining won’t be readily available.
Instability and unrest
Challenges across Africa have deterred many investors from committing to large-scale energy infrastructure projects. Sudden political and regime change, corruption scandals in government, and local civil unrest have worked together to heighten the perceived risks associated with African energy investments.
In 2022, our research showed that 25% of global business executives believed political risk which includes strikes, protests, and civil commotion was their top political and economic concern. Since then, this has increased to 30% in 2024, revealing a marked deterioration in the political landscape and a heightened concern over political risk among boardrooms worldwide.
Over the last decade, there have been several violent incidents impacting energy companies operating in Africa. In 2021, energy giant Total withdrew its staff from its US$20bn Afungi natural gas plant in Mozambique following clashes between Islamic insurgents and the local military.24 A further seven violent military coups have taken place since 2022 with Burkina Faso, Sudan, Guinea, Mali, and Niger and Gabon all affected.25 Corruption in some jurisdictions from government officials, adds to the risk profile of planning, developing, and executing a new power project in Africa.26
For investors, this instability and unrest can prevent them from committing to projects, particularly in areas where it is unclear how new governments or military regimes will operate and whether energy plants might be targeted. When conflict and unrest occur, we have seen investors pull back as concern increases about the impact of this activity on deals, networks and systems. To attract the investment required to increase electrification, robust strategies are needed to overcome these risks
Going beyond Power Purchase Agreements
Power Purchasing Agreements (PPAs) have been a key tool for increasing energy generation in Africa, enabling long-term contracts for corporates to secure a steady supply of clean electricity at a competitive pre-negotiated price. Yet, a challenge for companies has been determining how long these agreements will last.
In recent years, these contracts have become a ‘political football’ for leaders and new governments across the continent. Many were poorly negotiated by African Governments and some companies have been left managing unprofitable investments. The implications of this situation has left some countries looking to renegotiate or cancel existing agreements.
In 2021, Ghana defaulted on its US$1.4bn energy debt following the country taking a financial nosedive.27 However, this case is not an outlier and reflects a growing focus from countries on their energy debt as International Monetary Fund (IMF) interventions have left governments unable to afford guarantees. As with the example in Ghana, these decisions not only directly impact the resilience and growth of companies but also put pressure on investors to avoid projects when PPAs aren’t fulfilled.
Working with local companies and communities directly to get their buy-in to energy projects helps to reduce the possibility of local friction and for government intervention or the cancellation of deals. Furthermore, these deals enable international companies to work locally with partners to create good relations and assist in local environmental and social projects. As investors look for greater certainty, these merchant PPAs have the potential to reduce risks and provide a gateway for investors to support electrification projects in Africa.
Moving forward
While efforts are being made to power Africa’s electrification, significant risks remain before the continent’s potential is realised. Even, at a local level, a lack of real-time data presents enhanced risks for potential mismanagement or poor reporting of information. While these risks pose a considerable challenge for investment in new projects, there is an opportunity for investors to meet rising demand in the years ahead with the right protections in place.
Our data shows that 25% of global executives are not prepared to face political risks in 2024 with 23% of global leaders planning to review the security of their overseas operations. For investors, understanding the risks created by political instability locally is the first step in building a strategy that can manage a fast-changing risk landscape across frontier markets.
Key to a successful strategy, and embedding resilience across operations, is taking a proactive approach to establishing reliable local partners on the ground especially for investors seeking to back electrification projects. These local partners can ensure investors have effective relationships with officials and regulators, positioning them as businesses that want to support the local region in reaching its potential.
Specialty political risk insurance has a role to play in supporting investment into these countries. Often, this cover is critical to enabling big projects and reducing the investment risk for third-party capital and investment committees.
The Role of Insurance
The world is an increasingly complex and risky place, whether that’s new threats to cyber security, extreme weather conditions or growing political volatility.
We live in a period of accelerated risk. To prosper in this environment, businesses increasingly require specialist insurance and risk management services.
With the list of flashpoints around the world, from Ukraine and Gaza to the Red Sea, growing with alarming speed and the prospect of political upheaval in over 60 countries28, the world has rarely felt so volatile. This uncertainty can breed inaction. Specialty insurance can help break this inertia, providing business with the financial security required to manage the downside risk, embark on the investments, and pursue the innovations which will be critical to the world’s future economy.
Historically, specialist risk cover has been an afterthought, acquired at points of clear, precise risk and acute exposure. However, this is changing. Political Risk insurance now brings insights that can mitigate risk alongside the risk transfer that allows businesses to pursue investments amid the maelstrom of global or local political upheavals. It is recognised by sovereign wealth funds, private equity and other lenders as a vital element of a finance deal for projects in less stable regions of the world.
Africa's rich endowment of natural resources is making it an increasingly attractive destination for investments in the metals and mining sector. However, the continent's history of political instability, changes in regulatory frameworks, and nationalisation efforts pose significant risks and concerns to foreign investors.
It is this instability that underlines the importance of specialist insurance. Amid growing political tensions across the globe, standalone cover for political violence, strikes, riots and civil commotion is increasingly becoming a necessity. As businesses become exposed to a growing range of perils, the need to move away from pure terrorism cover is apparent, with businesses in major Western democracies being particularly affected.
With 70% of the global business leaders we surveyed concerned that the outcome of this year’s numerous elections will impact their international operations and ability to trade, specialist insurance is a vital tool to help allay some of their fears.
By providing coverage for losses, political, trade credit and political violence risk cover enables companies to secure assets against expropriation and political violence. It also reassures lenders and investors, facilitating access to the necessary capital for large-scale mining projects that are at the heart of the renewable energy transition.
References
1 https://time.com/6550920/world-elections-2024/
2 https://www.reuters.com/investigates/special-report/usa-politics-violence/
3 https://time.com/6550920/world-elections-2024/
4 https://apnews.com/article/france-retirement-age-limit-protests-866eb86aea5cf0d39894b96d2888c26f
5 https://acleddata.com/2020/09/03/demonstrations-political-violence-in-america-new-data-for-summer-2020/
6 https://www.nytimes.com/1989/06/04/weekinreview/the-world-for-argentina-inflation-and-rage-rise-in-tandem.html
7 https://www.bloomberg.com/news/articles/2024-02-20/most-texas-voters-think-violence-will-erupt-after-2024-election?leadSource=uverify%20wall
8 https://www.theguardian.com/commentisfree/2024/jan/19/donald-trump-threats-vigilante-justice-2024-election
9 https://time.com/6328179/political-violence-jan-6-extremism/
10 https://nypost.com/2021/01/07/pro-trump-mob-caught-looting-items-during-capitol-siege/
11 https://unfccc.int/sites/default/files/resource/Summary_GCA_COP28.pdf
12 https://www.civilaffairsassoc.org/post/the-future-of-rare-earth-elements-in-africa-in-the-midst-of-a-debtcrisis#:~:text=There%20is%20a%20growing%20consensus%20that%20outside%20North,which%20could%20eventually%20correct%20the%20ongoing%20market%20imbalance
13 https://www.statista.com/statistics/264930/global-cobalt-reserves/#:~:text=The%20Democratic%20Republic%20of%20the,worldwide%20reserves%20of%20the%20metal.
14 https://www.trade.gov/country-commercial-guides/democratic-republic-congo-mining-and-minerals
15 https://www.worldbank.org/en/country/drc/overview
16 https://www.samaterials.com/cobalt-in-ev-batteries-advantages-challenges-alternatives. html#:~:text=Advantages%20of%20Cobalt%20in%20EV%20Batteries%3A&text=And%20cobalt%20serves%20multiple%20vital,improved%20performance%20for%20electric%20vehicles.
17 https://www.state.gov/reports/country-reports-on-terrorism-2022/democratic-republic-ofthe-congo
18 https://www.amnesty.org/en/latest/news/2023/09/drc-cobalt-and-copper-mining-forbatteries-leading-to-human-rights-abuses/
19 https://www.nytimes.com/2022/02/28/world/congo-cobalt-mining-china.html
20 https://www.iea.org/reports/africa-energy-outlook-2022/key-findings
21 Ibid.
22 https://www.afdb.org/en/news-and-events/press-releases/adesina-calls-100-billionannually-achieve-affordable-and-sustainable-energy-africa-2030-60074
23 https://www.iea.org/regions/africa
24 https://www.theguardian.com/world/2021/apr/03/mozambique-french-energy-giant-totalwithdraws-after-militant-attacks
25 https://www.africanews.com/2023/08/30/africa-the-7-military-coups-over-the-last-threeyears
26 https://www.ft.com/video/8f1da4b6-fa36-4000-a2c6-22f92f52e3a9
27 https://www.reuters.com/business/energy/ghanas-power-producers-urge-government-pay14-bln-debt-2023-03-23/#:~:text=Ghana%20defaulted%20on%20its%20external,the%20debt%20owed%20to%20them.
28 https://time.com/6550920/world-elections-2024/
