Global consultancies warn of ‘challenging’ ASPAC business climate

A recent risk ratings report from analysts Oxford Economics and Control Risks shows that emerging Asian markets remain a “challenging operating environment” for many businesses.

China ranks 9th in the Economic and Political Risk Evaluator

The two companies, which partnered to develop an Economic and Political Risk Evaluator tool, analysed the outlook for 164 countries around the world. The team generated a score for each country based on a weighting of key political, economic, business and security risk.

Factors weighed include debt default, exchange rate movement, trade credit risk, political stability, ideology and international relations, the business environment, and the outlook for domestic security.

Across Asia Pacific, Singapore was found to hold the lowest risk rating, followed by New Zealand, Australia, Brunei, Taiwan and Japan. All had a score lower than 3.0 on a 1-10 scale, where 10 represents the highest combined risk.

In total, 14 of the 24 counties in the region recorded a risk rating of 5.0 or above.

According to the Risk Evaluator tool, most Asia Pacific markets see economic risk outweigh political risk as a negative factor. However in countries including Malaysia and Thailand, political uncertainty is described as a “notable” downside risk. Meanwhile concerns over policymaking rank highly in China.

India (5.9) is forecast to see “modest improvements” in its business environment, said the findings, but is hampered by gaps between policy promises and implementation, slow bureaucracy and a persistent medium-level threat of terrorism.

Indonesia (5.0) has shown lukewarm economic growth in 2015, which has been revised downward, and Thailand (5.6) presents a significant risk of political instability.

China is ninth in the region and 55th in the world with a rating of 4.3, due in part to Oxford Economics forecasting slower growth in the 5% to 7% range in the next five years. Control Risks says it sees the next 6 to 18 months as a critical period for political and policy choices in China that may impact Economic and Political Risk Ratings going forward.

North Korea (9.1) presents the highest risk in the region. Other markets deemed to have a high risk factor include Myanmar (7.7), Nepal (7.5), Papua New Guinea (7.4) and Laos (7.0).

“Political uncertainties and current policies are leaving a number of Asian economies increasingly vulnerable to the prospect of sharply lower growth.”Adrian Cooper, CEO and chief economist at Oxford Economics, said: “The prospect of a China hard landing or a turn in investor sentiment are both very real risks to the regional economic outlook, though some economies will weather the storm better than others.

Toby Latta, CEO, Asia Pacific at Control Risks, added: “Political risk is a key differentiator among Asian economies as governments face growing challenges in a slower growth environment. Politics and policymaking will increasingly determine which economies adapt, and which fall further behind their potential amid domestic frictions and populist pressures.

“As well as impacting economic growth, this has implications for practical business risk and the foreign investment climate in these countries – something we are already seeing on the ground here throughout the region.”

Oxford Economics and Control Risk have analysed and ranked the risk to businesses operating in markets across Asia Pacific.

The Economic and Political Risk Evaluator, an online subscription service developed jointly by Control Risks and Oxford Economics, launched in Singapore on September 22.