When historic events unfold, it is easy to lose track of the details in the broader narrative.
Risk managers do not have this luxury. For them, the unrest currently gripping Egypt is a fast-moving, three dimensional puzzle in which every detail may have unforeseen risk management consequences. It is this fluid nature that makes risk management such a challenge, says Robert Makhoul, region head, Middle East and Africa for risk advisory firm
While the exact mix of risks resulting from the situation in Egypt is largely unknowable, the range of probabilities is. In the short term insured assets are vulnerable to expropriation, damage by political violence and strikes.
Businesses face interruption on a number of fronts, including disrupted supply chains and increased counterparty risk as Egyptian business partners struggle to meet their obligations. Moreover, cash flow woes could emerge if rapid swings in Egypt’s currency make it inconvertible or devaluation saps its value, says Evan Freely, managing director and global practice leader at Marsh’s Political Risk and Trade Credit Group. “With tourism removing hard currency from the country, the Egyptian pound will be under pressure,” he says, noting the turmoil may also impact other sectors of the Egyptian economy, including consulting, financial institutions and energy.
Longer term, a new government could nationalize industries or cancel existing contracts with foreign firms too closely associated with old regime. “Expropriation doesn’t only come when the tanks are rolling in,” Freely says. “It can be a series of actions or inactions which result in cessation of a foreign enterprise.”
Moreover, a new government could also catalyze external pressures, such as foreign investment controls, U.N. sanctions, or even invasion by neighboring countries. “As we get into the events in Egypt, we may see that there are other types of perils triggered,” Freely says. “If there’s a regime change and it goes the wrong way some companies might be forced to abandon their investments in the country.”
While risk managers fret, those with an eye toward market growth may well note that the events in Egypt may increase demand for specialty political risk insurance, since political perils often excluded from general commercial property/casualty policies.
