The Lloyd’s 360 Risk Insight group recently released a report entitled “Global recession: The magnifying glass for political instability.” In the report, Lloyd’s warns that the ongoing global recession is likely to cause greater social and political instability around the globe. As to Latin America, the report identifies the greatest threats to social and political stability as expropriation and piracy.
Expropriation: The Lloyd’s report acknowledges that most, if not all, of the Latin American countries have the capability to expropriate and operate businesses through already existing government-owned companies. According to Lloyd’s, the differentiator among the Latin American nations in terms of the risk of expropriation is the local governments’ respective attitude toward and demonstrated intent to engage in expropriation as a political tool. The report therefore concludes that companies would be well served to depend less upon “local friends” and more upon a developed understanding of where particular countries fall in the “economic/political and business cycle” as concerns expropriation.
Piracy and Kidnap Risk: Lloyd’s also warns of the potential for (re)emergence of piracy and kidnap risk as a major threat to successful business in Latin America. Although the report discusses this issue in the future tense, a number of Latin American countries have already seen a dramatic rise recently in kidnapping and terrestrial piracy.
Nor surprisingly, Lloyd’s concludes that in-depth understanding of the local political and social landscape, proper risk management and appropriate insurance coverage are all key to managing risks posed by expropriation and piracy and kidnap risk.