Instability in EMs to benefit India: study

India is set to benefit from political and security instability in other key emerging markets during the course of the year, according to the international business risk consultancy, Control Risks.

In Riskmap 2008, its annual study of levels of global, political and security risks, Control Risks rates 57 per cent of emerging markets at Medium political risk or above, indicating significant threats to foreign investment. India is rated at Low political risk.

Control Risks, which is an independent, specialist risk consultancy founded in 1975, provides advice and services that enable companies, governments and international organisations to accelerate opportunities and manage strategic and operational risks.

In many cases, trends towards economic nationalism, a retreat to authoritarianism and reform fatigue are prompting concerns that politics will increasingly impinge on investment decisions. Investments in countries as wide ranging as Russia, Pakistan, Nigeria and Ecuador, could be at increased risk.

By contrast, Control Risks believes that political manoeuvering in India ahead of early elections in 2008 will have only a superficial impact on the business environment and will not check the overall pace and direction of economic reform.

It foresees continued strong economic growth, but voices concerns about the state's inability to suppress Naxalite and tribal violence in the mineral-rich eastern states where many foreign mining companies are eyeing opportunities.

"Commercial exploitation of these areas is problematic, and MNCs need to fully appreciate the political, security and social complexities involved," said Steve Wilford, Control Risks country manager for India.

Given their importance in relation to natural resources and manufacturing, the fact that 60 per cent of emerging markets are rated, in whole or in part, at medium, high or extreme security risk should also be of concern to investors.

REGIONAL SUMMARIES:
Asia: The region is gearing up for another election cycle of great significance, including critical ballots in Thailand and Pakistan, with investor concerns over political and security risks on the rise.

India faces possible early elections, while China's leaders contemplate a nervous year in the Olympic spotlight, but both will continue to attempt to keep reform on track amid huge challenges.

Europe and the FSU: All eyes will be on the 2008 presidential elections in Russia, with investor concerns over political risks on the rise.

However, there will be little uncertainty over the election result and broad policy continuity will prevail. A worsening economic situation in central-east Europe may exacerbate populism and protectionism across the region.

West Asia: The perception of the region as a source of instability and conflict will not change in 2008, but much of the West Asia is a patchwork of resilient regimes that act as guarantors for political stability.

Lingering ethnic and sectarian conflicts in Iraq will continue to have the greatest potential to export instability, while the lingering threat of a US or Israeli attack on Iran will retain the potential to undermine the fragile balance of power.