Leadership changes pose geopolitical risk, says Marsh

Potential leadership changes in more than 20 countries this year put a question mark over the stability political and economic stability of many regions, warns Marsh.

The insurance broking and risk management group has published a paper, ‘Leadership Changes Threaten Political and Economic Stability in 2017’. The report notes that in many countries there is great uncertainty about who will succeed ageing rulers who have held power for decades and where there is no clear framework to transfer the reins of government.

“When power has been concentrated in a few hands for a long period of time, there can be a high risk of instability following a leader’s replacement. The incoming head of state may lack the authority, experience, and political support that are critical to a smooth transition,” the paper states.

“In several regions, succession risks pose significant concerns, particularly when combined with the major elections slated for 2017, populism and nationalism gaining traction on a global scale, and protectionist measures impacting trade and economic growth.”

In the Middle East, Marsh believes the Saudi Arabia and Iran pose the greatest succession risk. Geopolitically, the two countries are the most assertive in their region, driving polarisation between Sunni and Shi’a Muslims.

The next generation of Saudi and Iranian leaders will determine whether their countries continue down current paths, with Saudi Arabia’s policies shaped by a Wahhabi version of Islam, and Iran following a radical version of an Shi’a Islamic republic. Oman is also important to this regional dynamic, having traditionally acted as an interlocutor between the two rival countries and helping to maintain a balance of power.

Turning to Russia, the reports suggests that the eventual successor to president Vladimir Putin is likely to determine the fate of Eurasia. The events in Crimea of March 2014 have raised fears of Putin’s authoritarian ambitions for the region.

The eventual succession of Putin promises to be one of the most important in the region, but is also likely to be much farther off than many of the succession risks in other regions. Putin has been in power since 1999 and remains popular throughout the country, despite economic challenges from Western sanctions and low oil prices.

Meanwhile, leaders in both Kazakhstan and Uzbekistan have thus far resisted naming successors, which could create a power vacuum in the future. Over the coming decade, investors will be watching closely for signs of unstable transitions in these countries, which not only have vast hydrocarbon resources but also face the threat of Islamist militancy from Afghanistan, while in the midst of a wider geopolitical struggle between Russia, China, and the West.

“Succession risks have considerable potential for long-term economic transformation that could impact international businesses and investors,” said Evan Freely, global practice leader of credit specialities, Marsh.

“Organisations that are active in the countries identified in Marsh’s report should understand potential succession dilemmas, in order to be prepared to respond to a variety of political risk scenarios that could affect their interests.”

The report identifies four countries in Africa with significant succession risks: Angola, Cameroon, Equatorial Guinea and Zimbabwe, while in Latin America and the Caribbean the scheduled retirement of president Raul Castro in early 2018 poses rising uncertainty for Cuba.

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