1. RISKMAPREPORT 2015

2. Published by Control Risks, Cottons Centre, Cottons Lane, London SE1 2QG. Control Risks Group Limited (the Company) endeavours to ensure the accuracy of all information supplied. Adviceand opinions given represent the best judgement of the Company, but subject to Section 2 (1) Unfair Contract Terms Act 1977, where applicable, the Company shall in no case be liable for anyclaims, or special, incidental or consequential damages, whether caused by the Companys negligence (or that of any member of its staff) or in any other way.Copyright: Control Risks Group Limited 2014. All rights reserved. Reproduction in whole or in part prohibited without the prior consent of the Company.All map data OpenStreetMap contributors. Boundaries and names shown on maps follow globally accepted standards and do not imply any acceptance or endorsement whatsoever on the partof Control Risks.Photos on pages: 8 (bottom), 10 (top/bottom), 20 (top), 24 (top/bottom), 30 (bottom), 39(top/bottom), 49 (top/bottom), 55 (top), 67 (top /bottom), 79 (top /bottom), 85 (top/bottom), 90 (top/bottom),91 (top/bottom), 97 (top/bottom), 103 (top/bottom), 110 (top/bottom), 117 (top/bottom), 121 (top/bottom), 126 (top/bottom) Press Association. All other images are from Shutterstock.RISKMAP REPORT2015Control Risks is delighted to launch RiskMap 2015, ourauthoritative guide to business risk in the year ahead. Drawingupon expertise from across our organisation worldwide, weforecast the major challenges and opportunities of doingbusiness in the worlds most complex environments next year.Control Risks is an independent, global risk consultancy specialising inpolitical, integrity and security risk. We help some of the most influentialorganisations in the world to understand and manage the risks andopportunities of operating in complex or hostile environments.We support clients by providing strategic consultancy, expert analysisand in-depth investigations, handling sensitive political issues andproviding practical, on-the-ground protection and support.Our unique combination of services, geographical reach and the trustour clients place in us ensure we can help them to effectively solvetheir problems and realise new opportunities across the world. Workingacross five continents and with 36 offices worldwide, we provide abroad range of services to help our clients to manage risk.The coming year will continue to astound us with risk that isnew, perplexing and, at times, violent. In the midst of thisturmoil, the business world needs to has to do more thanpersevere. It must seek new ways to engage, to thrive.RiskMap 2015 aims to point the way around uncertainty, tomake sense of what seems chaotic. Join us as we look forclarity in the new world disorder. Charles Hecker, Global Research Director, Control Risks 3. AFRICAMIDDLE EAST &NORTH AFRICAASIA PACIFICQ&AEast Africa: resourceprospectsQ&AIran: Sanctions outlookAnti-corruptionPage 25its not just the economyGulf states: Stepping upon regional securityQ&AAsia: Demanding energyAdding value beyondcomplianceEthnic fault linesPage 01 Page 11 Page 111 Page 119 Page 128Page 34 Page 104EUROPE AND CISAMERICASITALYPolitics withoutpower, businesswithout bordersKIDNAP ANDEXTORTIONOVERVIEWRISK RATINGFORECAST 2015CYBER SECURITYOUTLOOKThe case for riskcultureA caliphate south ofthe Sahara?Iraq and Syria:No end in sightChinas new frontierfor regulatory riskRefocusing on securitychallengesBolivarian sunsetThe challenge ofnationalismPOLITICALVIOLENCEMARITIME RISKOUTLOOKTERRORISMOUTLOOKThe 21st centuryrisk vortexPage 21Page 95Page 53Page 77Page 37Q&ARussia: ChangingrelationsQ&ABrazil and Mexico:changing fortunesCentral Asia:CHALLENGING TIMESPage 05 Page 15 Page 107 Page 115 Page 123Compliance: Gettingahead of the game2015: The noisiest year inBritish history?Drugs in the Americas:changing markets,changing risksAFRICA SNAPSHOTSmiddle east andnorth africa snapshotsWhat East Asiasgeopolitical collisioncourse means forbusinessEUROPE AND CISSNAPSHOTSasia snapshotsamericas snapshotsPage 99Page 59Page 81Page 41Page 27Page 101Page 63Page 83Page 43Page 31Page 65Page 87Page 45Page 69Page 92Page 74Page 50 4. 2RiskMap Report 2015Politics without power, business without bordersPolitics without power,business without bordersWelcome to RiskMap 2015. The coming year will see the news dominated byturmoil, from Iraq to Ukraine to the South China Sea and beyond. RiskMap2015 explores many of these issues, looking past the immediate politicaltheatre to examine the forces that are reshaping international relations andthe global economy.A central theme is how internationalbusiness has to navigate a narrowand sometimes perilous channelbetween an increasingly globalisedmarket and a resurgence of nationalself-interest by individual countries.We highlighted this in RiskMap 2014,and the trend has accelerated rapidly.Multinational companies designbusiness plans not in terms ofnations and countries, but in termsof geo-markets, on the assumptionthat access to capital, talent,technology and customers isincreasingly less constrained bynational boundaries. Those that havereinvented themselves as global, notnational, companies are now run bysenior executive teams (albeit stillmale dominated) that are often averitable United Nations ofnationalities. This alters not just howthey look on the corporate website,but how they think.By contrast, politicians areresponding to an ever narrowerset of local and short-termconcerns, as well as reconcilingthemselves to the fact that they lackthe power they once had. Thebusiness and political worlds areon divergent paths, and therelationship between the two isincreasingly fractious.Bad relationsNot only is the relationship betweenbusiness and politics at an all-timelow, relations between states are attheir worst since the height of theCold War. Far from the spread ofliberal democracy heralding the endof history, the world seems morediscordant and on edge than at anytime in recent memory. Businessthrives on multilateralism andcan cope with moments ofunilateralism, but it really struggleswith the anti-lateralism that nowdefines international relations.Old enemies have become newenemies, and old friends we nowspy on.Nowhere is this more apparent thanin the cyber world. There is littleimmediate prospect that the threatof cyber crime will diminish. Forthat to happen there would need tobe a degree of internationalagreement, co-operation andpolicing that is years away. So longas nation states of all shapes andsizes battle each other online (it isthe cheapest form of warfare sincethe bow and arrow), there will bethe space and technological spin-offfor criminals and others to targetcompanies, with only the lightest ofcurbs on their malevolent ingenuity.Richard Fenning,Chief Executive Officer 5. 4RiskMap Report 2015Politics without power, business without borders3RiskMap Report 2015Politics without power, business without borderspoliticians either will not or cannotsolve many of the main problemsthey face, moments of conflictbetween global companies andnational governments will increase.There should always be a distincttension between the regulated andthe regulator. That is entirely proper.But governments looking to exercisetheir diminishing power are likely tocome into conflict with companiesthat operate within their jurisdiction.During the year from September2013 to August 2014, US regulatorslevied $80bn of fines against globalfinancial institutions. If these fineswere a country, their GDP wouldmake them the worlds 63rd largesteconomy. This is not to argue thatbanks are unfairly regulated or thatpost-2008 we should all feel sorry forthem, but rather that this cannot be asensible way to supervise a vital partof the global economic ecosystem.We should expect that in futurebanks and multinational companieswill be more vociferous in theirdemands for a different form ofregulation. In the meantime, the scaleand complexity of internationalcompliance, and the jolts tocorporate life when it goes wrong,will intensify.2015 will be a difficult year forbusiness. Not due to a lack ofopportunity there will be anabundance of that despite thecontinued slowdown in someemerging markets but becausethe nature of modern politicalpower makes fixing internationalproblems so difficult. As a result,nationally focused governmentsand globally minded companies willoperate increasingly out of kilter. Ihope RiskMap 2015 helps to shinea light on the key geopoliticalissues and acts as a useful guidein an unpredictable world at adifficult time.The debacle in relations betweenRussia on one side and the EU and USon the other over Ukraine is probablythe most graphic example of howinvestors have been caught short byinternational relations being thrown intoreverse gear. What is notable is howunsympathetic Western corporateleaders are to their own governments at least in private, but increasingly inpublic over how events haveunfolded. And even among theRussian oligarchy, now more at homein the ski resorts of France than theindustrial cities of the Urals, there aremuted whispers of discontent.In China and Japan, senior corporateexecutives act much more in lock-stepwith their governments and arereluctant to criticise their politicalcounterparts. Yet there is a sense ofnear despair that the governments oftwo countries whose inter-woveneconomic fortunes could be so highlycomplementary are engaged in sucha bitterly destructive war of words andalarming military brinkmanship.The limits of powerThe Middle East illustrates just howdifficult the exercise of politicalpower has become. The dramaticspillover of the Syrian conflict intoIraq is a brutal illustration of thelimits of both global and regionalpowers to impose their will. Theextraordinary realignment of swornenemies making common causeagainst Sunni extremist groupIslamic State (IS) US specialforces and Iranian-backed Shiamilitias, for example demonstratesjust how fractured the Westernpolitical consensus has become.The result is a more soberrealisation of the limits of power, andfar less expectation that conflict orEbola-style epidemics or anotherlocked round of trade liberalisationtalks will be resolved by the greatpowers acting together.It is hard to imagine that the mostlypeaceful transition in Eastern Europein 1989 could happen today. In theintervening 25 years we seem to havelost the ability to act with that degreeof farsightedness, not because of adiminution in the ability of politicians,but because power has leached awayfrom politics. That is readily apparentin Europe and North America. But it isalso true for the new Chineseadministration embarking oncorruption campaigns in part towrestle power back to Beijing; it istrue in Turkey and South Africa, asPresidents Recep Tayyip Erdoganand Jacob Zuma realise (or dont) thatlongevity in office brings its own risks;it will become apparent to PrimeMinister Narendra Modi in India;and it is true in Russia despiteappearances to the contrary asmoney and talent leave the country.Conflicting interestsThis disjuncture between the politicaland business worlds spreads beyondgeopolitics. As political powerrecedes and companies realise thatTOP: New York financial district.BOTTOM: Ebola virus.As political powerrecedes...moments ofconflict between globalcompanies andnational governmentswill increase. 6. 6RiskMap Report 2015The challenge of nationalismThe challenge of nationalism Nationalism is becoming more influential in shaping the environment forinternational business. Multinationals are a prime target for nationalist pressure, and attendantsecurity threats and operational disruption. In 2015, Russias periphery, the India-Pakistan border, the East andSouth China Seas, and the Middle East will be key hotspots.As Richard Fenning notes in theprevious article, power has leachedaway from politics, driving a wedgebetween the business and politicalworlds. This has not been a deliberateprocess, but an unwitting outcome ofthe impersonal forces of economicglobalisation unleashed by the end ofthe Cold War. These days, a countryskey players are just as likely to meet inan airports business-class lounge asin a presidential palace. Foreign policysuccess is measured by investmentdeals closed more than treatiessigned. In todays world order, thepeople with power increasingly earnedit by leveraging global integration.Its no surprise, then, thatnationalism is rediscovering its voice.Russias policy of extraterritorialdefence of Russian-languagespeakers, Chinas maritime sovereigntydisputes, right- and left-wingpopulism in Europe and the US, andthe deconstruction of post-colonialstates in the Middle East indicatethat nationalism is an increasinglyinfluential force in the global politicaland security risk landscapes.Proponents of nationalism believethat it can inoculate them againstand reverse the perceived ills ofglobalisation, from financialcontagion to rising inequality toobtrusive Western culture. Liberalswant to tame multinational business,conservatives to restore nationalgreatness, revolutionaries to carveout new homelands. Nationalismjustifies a strong central governmentand is the base from which majoremerging markets such as China,India and Turkey are beginning toexercise global power. It is also therearguard of major Europeanpowers concerned about theirrelative decline. The consequence ofall these drivers is the same: contraryto the promises of globalisation,borders are re-emerging as keycontours of the risk landscape forinternational business.Political pressuresInternational business is a readytarget for nationalist pressure. Firstand foremost, companies are withinreach literally, when speaking ofthe fire and health inspectors whenmore desirable or strategic targetsare not. Second, action can beasymmetric, particularly whenfactoring in the symbolic value ofhigh-profile brands. Third, disruptingbusiness carries low political andJonathan Wood,ASSOCIATE director,GLOBAL RISK analysis 7. 8RiskMap Report 2015The challenge of nationalism7RiskMap Report 2015The challenge of nationalismhuman and cyber intrusion. Anynational security apparatus worth itssalt targets business, with industrialespionage as either an objective orside effect, and many rely on a rangeof patriotic non-state proxies to do so.When not actively motivating attacks,nationalism may inspire governmentsto tolerate or turn a blind eye, at leasttemporarily, to security threatstargeting select foreign businesses.Consider anti-business unrest inChina and Vietnam in recent years:in the context of bilateral disputes,spontaneous protests outsideforeign factories sometimes violentand destructive are portrayed asnational catharsis. The trick, ofcourse, is maximising political barkwhile minimising economic bite. Butin the end, nationalism demandsthat domestic political legitimacyalways takes priority over theinvestment climate. As nationalismbecomes more pervasive ingeopolitics, so too will securitythreats to international business.Finally, its not just inter-state tensionor conflict that companies need toworry about. Nationalism can be apurely political concept, but oftenprioritises particular ethnic orsectarian notions of citizenship,political participation and economicpower. Nationalist leaders fromIndia to France risk aggravatingexisting social and communaltensions through exclusionarypolitics, thereby contributing to civilunrest and political violence.Operational challengesNationalism provokes operationalchallenges for three key reasons. First,international business is often snared inregulatory campaigns geared to shoreup national identity and politicallegitimacy. Foreign companies have ahistory of being officially or popularlyscapegoated for economic dysfunctionand subjected to increased scrutiny,regulation or harassment. Nationalismis likely to compel further suchepisodes, from anti-corruptioncrackdowns to price controls.Second, international supply chainsare vulnerable to national disputes. Inthe same vein as business being asoft target of national competition,customs and border controls areindirect, deniable and low-riskmethods of articulating and enforcingnational policy, with well-known casesinvolving both China and Russia in thelast few years. As borders get moreproblematic for business, thesignificance of global and regionalnegotiations on trade harmonisationand facilitation will increase.Finally, economic nationalism tilts thecompetitive landscape in favour ofdomestic players, particularly when itcomes to government tenders andlicensing. When it doesnt simplyrestrict or deny foreign investment, itgoes hand-in-hand with onerous redtape, from difficulties obtaining visasfor foreign workers to delays inpermitting, to adversarial andpoliticised judicial processes. Westerngeopolitical costs: few will take tothe streets to uphold the right of afaceless multinational to trade or wincontracts and the days of sendingthe navy to protect privateinvestment are long gone.Toying with business rarely provokesan existential crisis. At the officiallevel, the worst governments canexpect is retaliation in kind andperhaps stern words at the nextglobal summit both small prices topay for asserting national prerogativesand reinforcing pillars of nationalidentity. It falls to markets andinternational arbiters to mete out truepunishment, but even that fails at thenationalist extreme, where oil andmineral wealth tends to provide ampleinsulation. And markets tend to haveamnesia where yield is concerned,though memories last longer when asector is nationalised outright andturned over to regime supporters. Alltold, business is much more resilient:companies will get back to work aslong as the commercials makesense, but governments havegenerational memories.In broad terms, nationalists viewinternational business as instrumentalto national strategy. They want toextract benefits processes,technology and expertise thatsupport national developmentwithout sacrificing control of theeconomy. Concessions becomeservice contracts, direct investmentrequires joint ventures. Naturally, thisagenda tends to go hand-in-handwith indigenisation and localcontent policies that promotedomestic industry and rewardpolitical supporters. Multinationalshave generally embraced thisbargain for the chance to tap newresources and markets, seeking tomanage the political and operationalrisks. But many are re-evaluating itsterms as shifts in underlyingfundamentals, such as higher wagesin emerging markets and shalefracking in stable democracies, makesubmitting to national agendas lessprofitable and palatable.Proxy battlesThe centenary of the First World War isa good time to consider how non-stateactors motivated, directed andresourced by nationalism can tip orderinto conflagration. Thankfully, WorldWar Three is not on the cards for 2015,but there are plenty of worryingsituations, from Ukraines separatistsand Pakistan-based militant groups tofishermen in the South China Sea.With each attack or clash, thesenationalist proxies threaten to escalatelatent tensions into full-blown conflictsthat would have debilitatingconsequences for global business.More prosaically, business is a juicyfront in national competition. Theprivate sector runs criticalinfrastructure, generates vitalinnovations and is often closelyassociated with government. Itsinformational safeguards aredemonstrably lax and susceptible toTOP: National competition can lead tocyber threats to business.BOTTOM: A Taiwanese factoryburnt by protesters,Binh Duong province,Vietnam, May 2014. 8. 10RiskMap Report 2015The challenge of nationalism9RiskMap Report 2015The challenge of nationalismalarm bells ringing throughout EasternEurope and at NATO headquarters even more so because Russiashybrid war (read: non-state) tacticsstymied a definitive Western response.That said, territorial aggrandisement isnot Russias aim in the year ahead.Rather, it will look to deter erosion ofits sphere of influence while avoidinga major confrontation. Deniablenon-state tactics will remain centralto its playbook in 2015.Meanwhile, the inauguration in 2014 ofa nationalist government in India hasnot overly upset relations withPakistan; both countries have plentyof domestic challenges to deal with.The real risk lies in how nationalistsentiment on both sides of the bordercould bind political leaders in a crisis.Conspicuous paths to a provocationinclude continued friction along themilitarised Line of Control in Kashmir,renewed in late 2014 and at risk ofaggravation after NATO withdrawsfrom Afghanistan, or a terrorist atrocityconducted by a Pakistan-basedextremist group. Al-Qaidas Indianaffiliate, announced in September2014, looms large in this respect.Sabre-rattling in the East and SouthChina Seas is likely to remain just thatin 2015, but it could, as in the past,unsettle markets and have unintendeddisruptive consequences for businessin the region. Disputed borders,particularly those intertwined withhistoric grievances and possibleresource bonanzas, are ripe fornationalist posturing. But the steadyaccretion of facts on the ground isa drama in which non-state actors private oil companies and patrioticfishermen are the key players. Mindthe threat of escalation from seeminglyminor confrontations and the scopefor accident and miscalculation inroutine engagements.The global power vacuum weidentified in last years RiskMapcontinues to impinge most powerfullyon the Middle East. With the US tryingto keep the region at arms length,national competition to shape theregions future will continue to heat up.Some of this will fall within the rubric ofstrategic competition between SaudiArabia and Iran for regional primacy:literal proxy warfare in Syria andYemen is a worrying harbinger forother countries on the frontline of theSunni/Shia divide. Some, however, willsimply reflect newfound freedom ofaction in pursuit of individual nationalinterests. In a region where politicstraditionally prizes subtlety anddiscretion, expect to see more nakedand diverse efforts to build foreignties, develop local proxies anddemonstrate military capability.countries are among the mostenthusiastic adopters of policies thatpreserve national control over thecrown jewels of domestic industry.Emerging markets, meanwhile, arereconsidering constrictive internationalinvestment agreements to regainnational control over their economies.Problem areas in 2015Several regions stand out as areas towatch in the year ahead: Russiasperiphery, the India-Pakistan border,the East and South China Seas, andthe Middle East.Recalling 19th-century tsarist pledgesto protect Orthodox Christians insidethe Ottoman Empire, RussianPresident Vladimir Putins policy ofdefending Russian-language speakersapplies an extraterritorial logic to hisproject of revitalising Russiannationalism. After the onset of theUkrainian conflict, it justifiably setTOP: Indian army patrol nearthe Line of Control.BOTTOM: Unmarked military vehicles,Donetsk region,Ukraine, November 2014.Global flashpoints and their wider impactsRUSSIAS PERIPHERYMIDDLE EAST SOUTH ASIAEAST ASIASUPPLY CHAINDISRUPTION CYBER ATTACK CONFLICT MILITANCY 9. 12RiskMap Report 2015The case for risk culture11RiskMap Report 2015The case for risk cultureThe case for risk culture A companys culture plays a vital role in its approach to risk management. Deeper, underlying assumptions a companys unspoken rules oftenconflict with its stated values, but are critical to understandingorganisational culture. A full understanding of corporate culture can make the differencebetween the success and failure of risk management change.Modern organisations particularlythose with global operations facea staggering variety of risks.Geopolitical tensions can sparkarmed conflicts or trade sanctionsthat swiftly upend the best-laidbusiness plans. An increasinglycomplex web of anti-corruptionregulations and data privacy laws,combined with new levels ofscrutiny from the Twittersphere,makes regulatory investigationslikelier than ever. And cyber attacksare growing in both number andsophistication, raising the odds thatorganisations will have to confront asubstantial data breach.These risks have such fundamentallydifferent characteristics, it is nowonder that companies struggle torespond across the full spectrum.Unable to address everything, mostbusinesses prioritise specific types ofrisks and favour certain responses.These preferences are a reflection ofan organisations risk culture. Ofcourse, the best risk managementapproaches develop organisationalmuscles that can be flexed indifferent ways, not a one-size-fits-allapproach. Still, ingrained culturalassumptions about risk drive mostcompany responses.Companies that have strong internalcontrol systems and a cautious,compliance-based approach to riskoften struggle to react quickly tomarket developments and to becompetitive and nimble; theirresponse to the externalenvironment is slow and highlycontrolled. Meanwhile, companiesthat focus on strategic andcommercial responsiveness oftenharbour cultures that resist rigidcompliance processes; the ability tobe fluid in responding to changes inthe external environment does noteasily flourish in a strongcompliance framework.Companies that deal with acomplex web of regulations andgovernment interactions are ofteninclined to leave risk managementto the legal department. Companiesthat face particularly challengingexternal risk environments mayassign risk to the security team.Companies with aggressiveinvestment plans highlight theopportunity dimension of risk.Companies that focus on reputationand customer perception are moreinclined to incorporate ethics andgovernance terminology in their riskmanagement approach.Alison Taylor,Senior Managing Director,Americas 10. 14RiskMap Report 2015The case for risk culture13RiskMap Report 2015The case for risk cultureand trustworthiness, and will alsodetermine its approach to risk. Anorganisation focused on aggressiveexpansion into new markets will have adifferent risk culture to a domesticoperation in a highly regulated industry.The second level of culture canconflict with the third level anorganisations underlyingassumptions. This level describestraits that are rarely, if ever, discussed;they are taken for granted. Employeesbecome acclimatised to theseunspoken rules over time and maynot even be conscious that they exist.Yet they are critical to understandingorganisational culture. For example,employees may avow belief in opencommunication around risk andintegrity issues, while communicatinga strong, unstated belief thatconcerns should not be shared withthe boss. A heavy focus on internalprocesses, and checks and balancescan be undermined by implicit signalsthat its OK to game the system. ACEO may speak regularly abouttransparency and inclusiveness, butmake opaque, highly politicalpromotion decisions. The existence ofthis third layer explains why so manyorganisations engage in apparentlycontradictory behaviour.Cultural learningsBy gaining a deeper understanding oforganisational culture, it is possible toenhance risk management efforts. Asa consultant, I have used employeesurveys, confidential interviews andfocus groups to understand acompanys risk culture. It isparticularly useful to highlight gapsbetween employees experience ofrisk and an organisations standardresponses. Any attempt at riskmanagement change that does nottake into account organisationalculture across divisions, locationsand levels of seniority will never beowned by the organisation. It cannottake root or succeed.The business world is awash withdifferent tools and techniques for riskmanagement, many of which arequite sophisticated. Yet any riskframework that fails to account forthe importance of organisationalculture will be of limited use. It is noaccident that state-of-the-artenterprise risk assessments so oftenend up on a shelf, ignored.This is an extract from our whitepaper Risk: an OrganizationalPerspective, written inconsultation with ColumbiaUniversity in New York.risk managementNumerous studies have determinedthat rules and processes do not exist ina vacuum, and that organisationalculture is critical to explaining employeebehaviour. This has led to fashionabletalk of a culture of compliance. Thenorms and assumptions that determineresponses to ethical guidelines aremore important than procedures thatcover every eventuality. If employeesdo not believe that risk managementis an essential component oforganisational success, processes willnot solve the problem.Indeed, processes that exist but arewidely ignored cause more damagethan having no processes at allbecause they can generate a falsesense of security among seniorleaders. The danger is that riskassessments focus too exclusively onprocess and structure, ignoring moresubtle drivers of employee behaviour.Comprehending a companys riskmanagement strengths andweaknesses is greatly enhanced bygaining an understanding of its riskculture. This can be viewed as asubset of wider organisationalculture commonly summarised asthe way we do things around here.The importance of culture is oftenunderplayed, as it appears to be afunction of human irrationality, and isdifficult to measure and describe.But ignoring culture is a mistake.When mergers and acquisitions runinto trouble, this is often the productof nebulous cultural factors thedifficulties that members of differentorganisations encounter workingtogether rather than poor planning,pricing or market strategy. Culturalfactors also explain why 70% oforganisational change efforts fail.Culture changeAccording to Edgar Schein, a pioneerin the organisational culture field,culture is the most difficult aspect oforganisational life to alter. It can outlastleadership transitions, and changes inproducts, services, geographicfootprint and other physical,measurable attributes of a company.Schein describes three levels ofculture. The first, an organisationsartefacts and rituals, are easilyobservable. They include facilities,offices, furnishings, the way employeesdress and behave, and the myths andstories the organisation tells aboutitself and its history. A company thatnames conference rooms after majorglobal cities is saying something aboutits culture and aspirations, as is acompany whose line managers sit incubicles, along with their teams.The second level, espoused beliefsand values, reflects an organisationsstatements about what it stands for: itsprimary goals and modus operandi.This includes statements such as weput our customers first and we valuediversity in our employees. The valuesof a company will include perceptionsan employee has about its reliability 11. 16RiskMap Report 2015The 21st century risk vortex The impact of Russias adventures in its near-abroad and resultingsanctions will leave it facing recession and stagnation. Falling commodity prices will benefit importers, but will exposeexporters that have not addressed structural problems. Rising risks in emerging markets are countered by improvingprospects in the developed world though risks persist there too.In the 41st-floor conference room ofa major US multinational, thenormally sedate dcor has given wayto a quiet urgency. Just beside anaugust portrait of the companyfounder, we stood around alaminated map of the Middle East.Green markers denote companyfacilities, red lines chart the latest riskto those investments: the IslamicState (IS) in Iraq and Syria.This is not the only addition to theconference rooms wood-panelledwalls. Since the start of 2014,executives have sketched three othermakeshift maps, each charting adifferent fault line where acutegeopolitical and macroeconomiccrises collided, roiled global markets,scuppered talk of further tradeliberalisation and turned quarterlyrevenue projections to confetti.Just when exposure to emergingmarket economies is at anunprecedented high, a constellationof conflicts, disputes andmacroeconomic policy issues havemade mincemeat of corporatestrategy exercises. To focusseparately on the political oreconomic risks inherent in modernbusiness invites a kind of myopia. Thisis not how modern corporate strategyshould work.Take 2014. Few of the issues aboveloomed large on firms radars as theyear began. In some cases, theywerent there at all.The outbreak of serious conflictbetween Russia and Ukraine, and theWestern sanctions that followed,made no ones top ten list of globalrisks to growth in 2013. Yet the conflictengulfed Crimea, revived Cold Warrhetoric, and caused losses acrosssectors including finance, agriculture,automotives and energy. The Russianeconomy itself previously hoping touse strong hydrocarbon revenues tobolster strategic sectors has beendegraded by uncertainty, traderestrictions, capital outflows and aweaker currency. The swooning priceof a barrel of oil administered the finalblow: Russia will enter a recessionnext year with a period of stagnation,and perhaps pariah status, extendingfor years ahead.Chinas growthSimilarly, the nerve-wracking gameof naval brinkmanship in the East andSouth China Seas between ChinaThe 21st century risk vortexMichael Moran,Managing Director,Global Risk Analysis,Control RisksScott Livermore,Managing Director,MACROECONOMIC ANDINDUSTRY SERVICES,Oxford EconomicsControl Risks is pleased toannounce a new joint venture withOxford Economics, the worldsleading macroeconomicforecasting and research firm. Wejointly believe that the pace andscope of risk in the 21st centuryhave manifested in ways thatmake it more important than everto seamlessly marry politics andeconomics. Please talk to usabout how this new offering canhelp your business. 12. 18RiskMap Report 2015The 21st century risk vortex17RiskMap Report 2015The 21st century risk vortexahead. Chinas credit boom partlyfuelled by an opaque and poorlyregulated shadow banking sector hasgiven way to rising non-performingloans, a fragile-looking property sectorand the prospect of economic growthfalling below the 7% mark. The risk isthat the adjustment is much moreabrupt if not next year, then in the nottoo distant future. The Chineseauthorities ability to successfullynavigate a transition in the countrysgrowth model away from investmentand towards consumer spending wasalways going to have seriousimplications for the global economy,trade and financial markets. But Beijingis also struggling with an extremelyserious debt problem that will sappotential growth and slow the verytransition it is trying to effect. Evenwithout a serious dispute with Japan,China like other BRICs will find thatinternal contradictions and a politicisedfinancial system pull it further andfurther from the double-digit growth ofthe first decade of the century.Commodity pricesTalks on Irans nuclear programme, adiplomatic initiative that mightdominate risk calculations in a moreplacid era, seem uncharacteristicallylow on everyones list today. OverlookIran at your peril: these fraughtnegotiations are likely to continue albeit with delays and in a bestcase scenario will result in a dealbringing substantial renewal of Iransparticipation in global markets, even ifsome sanctions will remain in place.In the event, the return of around 1mbarrels per day of currently shut-inIranian oil could represent a furtherdownward shock to oil prices at a timewhen OPECs capacity and desire tosupport them seems to haveuncharacteristically waned. Indeed,OPECs internal divisions over price andoutput levels could yet sour the alreadycomplex country-level relationshipsbetween its three heavyweights Iran,Iraq and Saudi Arabia that are centralto regional stability.From a risk perspective, lowercommodity prices would be adouble-edged sword. Fallingresource revenues would harm thosegovernments ever more reliant onthem to deliver jobs and socialstability including Russia, Iran,Bahrain, Nigeria and Algeria. Severalhave already warned of fiscal troubleahead as prices hover near the $85 abarrel mark. But in other countries,particularly major importers like theUS, Japan and EU, lower commodityprices would reduce costs, supportdisposable incomes and provide amuch-needed boost to growth. Andwisely managed emergingeconomies could use the buffer oflower energy prices to do away withruinous energy subsidies withoutsparking social unrest.Shifting balanceAt a broader, global level, the risklandscape for internationalbusinesses and investors hasundergone an important, if subtleBRIC growth forecasts (% per year, period average), 2000-4012and its smaller neighbours Vietnam,the Philippines and Japan is pregnantwith macroeconomic and geopoliticalrisk, and poorly priced into corporaterisk equations. In 2010, a fall inChinese rare earths exports to Japanwas widely suspected to have beenlinked to a diplomatic dispute betweenthe two countries (the article on page69 examines the economic fallout ofmore recent spats). What might alarger confrontation between theworlds second and third largesteconomies bring?Together, China and Japan accountfor around 16% of global trade; aserious slowdown in their economieswould have major implications for boththe Asia-Pacific region and the world.The relationship between Japan andChina is unbalanced: Japan reliesmore on exports to China than theother way around, so Japan wouldseem to be more at risk in thisstraightforward sense. But otherfactors are at play. China could suffermore depending on the internationalreaction to any dispute especially if itwere perceived to be the aggressor.Sanctions and a possible drying up offoreign investment might put at riskthe opening up of Chinas economyand dent the longer-term outlook.As it is, slowing Chinese growth alreadyrepresents the greatest risk stemmingfrom emerging markets in the year10864202000-052005-102010-152015-202020-252025-302030-352035-40BRAZIL RUSSIA INDIA CHINASource: Oxford Economics 13. 20RiskMap Report 2015The 21st century risk vortex19RiskMap Report 2015The 21st century risk vortexEven here, however, the nexus ofpolitics and economics has arguablyproved to be the crucial ingredient.European Central Bank PresidentMario Draghi has somehow managedto balance the need to deliver a boostto weak and cash-strappedperipheral economies such asGreece against the need for Germanfiscal and monetary orthodoxy. Bytalking both the euro exchange rateand market interest rates lower, andpromising cheap loans to supportfeeble bank lending, his monetaryeasing strategy managed to effecteconomic stimulus without costingmember states a bean. Crisis may yetreturn to the region, but such defteconomic and political footwork hasbeen in desperately short supply inEurope in recent years.The net result of these opposingtrends in developed and developingmarkets is a narrowing of the growthdifferential between the two groups.As a result, the need to identify bothopportunities and future hotspots hasbecome more difficult and morenecessary.These and other 21st centuryproblems call for 21st centurysolutions. With few exceptions,events in the previous century simplydid not move this quickly, nor werethe tendons of the internationaleconomy as intertwined with themuscles of geopolitics. A fissure hasopened between those worlds in ourcentury through which no corporatestrategy dare fall.Budget breakeven oil prices for 2014 ($ per barrel for Gulf Co-operation Council countries)130Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14shift. Emerging markets haveretained their status as the worldsfastest growing, with expandingeconomic and geopolitical clout.But their growth prospects havedimmed and risks seem skewedfurther to the downside.On top of weaker economicprospects in China and Russia, keyemerging markets such as SouthAfrica and Turkey look vulnerable tocapital outflows perhaps sparkedby tighter monetary policy by theUS Fed because of a combinationof weak external balances and lowreal interest rates. In Brazil,meanwhile, the re-election ofPresident Dilma Rousseff inOctober 2014 has raised concernsthat the economys structuralchallenges, including persistentlyhigh inflation and low productivity,will not be properly addressed.In developed markets, by contrast,although challenges remain,prospects have improved and therisks look more balanced. Importantin this has been the recovery albeitfragile and tentative that seems tobe taking hold in the previouslymoribund Eurozone economy, wheregrowth looks set to pick up in 2015.12011010090807060BAHRAIN OMAN SAUDIARABIAQATAR UAE KUWAIT140ACTUAL BRENT CRUDESource: Oxford EconomicsTOP: Iranian Foreign MinisterMohammad Javad Zarifat nuclear talks in Muscat,Oman, November 2014.BOTTOM: The falling oil price willhave wide impacts. 14. 22RiskMap Report 2015AFRICAA caliphate south of the Sahara?The coming year will see few significant shifts in terrorism patterns south ofthe Sahara. Despite aspiring to mimic the Islamic State (IS) campaign in the MiddleEast, Islamist militant groups south of the Sahara will remain more limitedin their capabilities and localised in their focus. The February 2015 elections in Nigeria will prompt an increase in BokoHaram violence, elevating the risk of high-profile attacks in major cities,notably in the north. A major southerly geographic expansion of Islamist militant activity isnot on the cards. In particular, a feared infiltration of conflict zones suchas the Central African Republic and South Sudan remains unlikely.Terrorism will undoubtedly continueto make headlines in Africa in 2015.But fears that domestic and regionalgroups stretching from Mauritaniain the west, to Kenya and Somalia inthe east will replicate the campaignof their Middle Eastern counterpartsare largely misplaced. In 2015,extremist ideology and militancysouth of the Sahara will retain adistinctly local flavour.Ultra-conservative brands of Islamhave grown rapidly in popularityin parts of sub-Saharan Africa,spurred by an often well-foundedsense of inequality and economicexclusion. Extremist Islam is seen asa refuge from hardship andperceived injustice, particularlyamong the most marginalisedcommunities in the region, suchas Kenyas Somali population, orthe Tuaregs and Arabs in northernMali. The leap from religion tomilitancy is, of course, a big one.But militant networks have bothfuelled and exploited the spread ofultra-conservative Islam to expandtheir reach south of the Sahara,while their leaders have becomeparticularly adept at using volatilityand dysfunction to deepen theirlocal footprint.Takeover and outSub-Saharan Africa in 2012witnessed its own IS-style Islamistextremist takeover in Mali. However,this failed to take root, cut short bylimited local support for theradicalism of the Islamist alliance thatseized control of the north, and arelatively robust response fromFrance and its African partners.Similarly, the Boko Haraminsurgency in northern Nigeria hasrecently sought to emulate IS, withthe group declaring a caliphate inAugust 2014. However, BokoHarams ability to hold territorybeyond a collection of small,remote towns and villages remainslimited. Although the FebruaryRoddy Barclay,Senior Analyst,AfricaANDORRAPORTUGALSPAINCorsica(FRANCE)MONTENEGROALBANIAMALTAITALYKOSOVOSofiaMACEDONIAGREECEBOSNIA ANDHERZEGOVINABULGARIAT U R K E YGEORGIAARMENIA AZERBAIJANNakhchivan(AZERBAIJAN)CYPRUSLEBANON SYRIAJORDANISRAELPALESTINIAN TERRITORIESThessalonikiAlexandriaL I B Y A EGYPTTUNISIAA L G E R I AMOROCCOWesternSaharaMAURITANIACanary Islands(SPAIN)Madeira(PORTUGAL)CAPE VERDESENEGALGAMBIAGUINEA-BISSAU GUINEASIERRA LEONELIBERIAM A L IBURKINA FASOCTED'IVOIREGHANANiameyBENINTOGON I G E RNIGERIAC H A D SUDANSOUTHSUDANCENTRAL AFRICANREPUBLICCAMEROONCotonouLomEQUATORIAL GUINEASO TOM AND PRINCIPEGABONCONGO CONGO(DEMOCRATIC REPUBLIC OF)RWANDABURUNDIUGANDAKENYATANZANIAKinshasaBrazzavilleA N G O L AZ A M B I AMALAWIZIMBABWE MOZAMBIQUEBOTSWANANAMIBIALESOTHOSOUTH AFRICAHIGH security in deprived urban areasSWAZILANDERITREASAUDIARABIADJIBOUTIETHIOPIAKUWAITSomalilandSOMALIAY E M E NTURKMENISTANDubaiOMANBAHRAINUAEQATARCOMOROSMADAGASCARSEYCHELLESMAURITIUSRunion(FRANCE)I R A QI R A NUZBEKISTANZanzibarCabinda(ANGOLA)ATLANTICOCEANBarcelonaMadridLisbonRomeSarajevoPodgoricaTiranaAthensIstanbulAnkaraTbilisiYerevan BakuAshgabatTehranBaghdadBasraErbilAmmanCairoTripoliAlgiers Annaba TunisOranCasablanca RabatMuscatAbu DhabiAl KhobarRiyadhJeddahPort SudanAsmara SanaaHargeisaKhartoumAddis AbabaKano NdjamenaLagosPort HarcourtBamako OuagadougouNouakchottDakarBissauConakryFreetownMonroviaYamoussoukroAbidjan AccraMalabo DoualaYaoundLibrevilleBanguiKampalaNairobiMogadishuKismayoMombasaDar es SalaamDodomaLilongweBlantyreMbuji-MayiLubumbashiLusakaLuandaWindhoekHarareBulawayo BeiraGaboronePretoriaJohannesburg MaputoDurbanCape TownAntananarivoPort LouisSkopjeBeirut DamascusAbujaKurdistan RegionAFRICA 15. 24RiskMap Report 2015AFRICA23RiskMap Report 2015AFRICATOP: Aftermath of a Boko Haram attackin Kano, Nigeria.BOTTOM: African Union soldiers restingafter clashes with al-Shabab, Somalia.capital Lagos may witness isolatedsmaller-scale incidents.Looking eastOver in East Africa, Somalia-basedal-Shabab is likely to lose furtherterritory to African Union forces(AMISOM) following the elimination inSeptember 2014 of its hardline leader,Ahmed Godane. In 2015, Somalia willsee a campaign of hit-and-run-styleterrorism. Al-Shabab will retaincapabilities to conduct large-scaleattacks in the heart of the capitalMogadishu, but could also strikestrategic locations such as Kismayoand Barawe. Its new leadership willalso continue to target countries thatcontribute troops to AMISOM: Kenya,Uganda, Ethiopia, Burundi and Djibouti.Attacks on major targets in Nairobi,Mombasa, Kampala or Addis Ababaare possible in 2015 via affiliates andnetworks in the wider East Africa region.Another Mali unlikelyIslamist militant networks will continueto find fertile ground in which tooperate in the Sahel-Sahara, retaininga far-reaching network across territorystretching from Mauritania to Chad.Further high-profile terrorist attacks inthe region are likely. Northern Maliremains restive, while south-westernLibya provides a safe haven devoid ofstate authority for militants. However,French-led regional counter-terrorismoperations should keep furtherIslamist militant expansion in check,with increasing surveillance andtargeting creating setbacks for militantnetworks. As a result, the risk ofanother Mali will subside.Nonetheless, given the experience ofthe last few years, the mobility anddynamism of these groups show thatthey can adapt to changingcircumstances, and will retain theirexpansionist ambitions.Advance into other trouble spots, suchas South Sudan or the Central AfricanRepublic, is unlikely. The ethnic groupsthat make up the bulk of terrorist unitsacross that region most notablyethnic Arabs have little in commonwith ethnic groups south of theSahara, and would struggle to makeinroads in these local conflicts.Looking global, thinkinglocalMore broadly, sub-Saharan Africalacks the historic legacy and strategicsignificance that attracts thetransnational terrorist groups drawingfunding and fighters into the MiddleEast. Without question, the crisis inSyria and Iraq will influence terroristnetworks in Africa. On the surface,they will share common trappings,tactics and strategies. But beyondthat, African Islamist militantcampaigns will remain largely local inthe year ahead.Core area of Islamistnetworks/attacks2015 general elections are likely tofuel a rise in Boko Haram violence,the group is unlikely to seizemeaningful stretches of territory,and will revert to more conventionalguerrilla tactics.Unlike IS, Boko Haram will remainfirmly embroiled in domestic politicaland security dynamics, and will notdevelop a transnational focus.Nevertheless, as southernPresident Goodluck Jonathanseeks re-election, the group will exploitnorthern dissatisfaction with thegovernment and turbulence aroundthe polls to stage nationally significantattacks. The risk of a high-profileattack in the capital Abuja will riseearly in 2015, while commercialIslamist militant threat in AfricaMombasaDar es SalaamAddis AbabaKampalaNairobiPeripheral area of Islamistnetworks/attacks 16. 26RiskMap Report 2015AFRICAEast Africa: resource prospectsabundant oil wealth created anincentive for militant andcriminal groups to fight forcontrol of resources. In the EastAfrican context, we only reallysee such dynamics in SouthSudan and even there, controlof resources is an instrument toincrease access to power,rather than something therebels are focused on gainingprofit from.We dont have the samedynamics elsewhere in theregion. This is partly due to theindustrys stage of development oil is not yet flowing, andgas is much harder to divert.So it depends on the natureof the commodity. It also hangson local drivers of conflictaround resource finds, and howthose are understood andmanaged by governmentsand industry.Kenya is perhaps the mostinteresting case. The largestfinds to date are in very remoteregions, where there areexisting conflict dynamicsaround competition for land,water, and grazing andcultivation rights. Combinedwith that you have a flow ofsmall arms from surroundingconflicts, and traditionallythese areas were very muchbeyond the states reach sothere are few establishedgovernment structures andlittle security force presence.However were still far awayfrom a honeypot effect.Weve seen more unrest inTanzania in recent years, andwe raised our security rating inOctober last year from low tomedium following increasedprotests, social unrest andreligious violence. Is thisanother potential hotspot?Tanzania is a different case interms of what drives conflict:ethnicity plays a far lessprominent role in politics than inKenya, and its not really apolitical issue. This is largely thelegacy of Julius Nyerere,Tanzanias charismatic leaderafter independence, and hisconcept of African socialism(ujamaa). Having said that,there are problems with howthe benefits of economicgrowth overall are distributed,with the north of the mainlandbeing traditionally better off.The south, where the offshoregas discoveries in the Rovumabasin are located, has longbeen economically andpolitically marginalised.The issue in Tanzania is thatpolitical opposition is prettyweak, so there hasnt been awell-organised challenge togovernment plans, even thoughtheres been more noise recently.The governing party, the ChamaCha Mapinduzi (CCM), has beenin power for decades and stillhas a strong handle on the reinsof power. Its been confidentenough to push ahead withplans for a constitutionalreferendum despite widespreadcriticism of the consultationprocess. At a national level, thebiggest issue is how Zanzibariaspirations for increasedsovereignty are addressed. At amore local level, again I think itsunlikely well see an organisedmilitant movement emerge, butwe can expect continued unrestin the form of protests.With new resource discoveries in East Africa making progress towardscommercial production, Charles Hecker, Global Research Director, talks toAssociate Director for Africa Jean Devlin about the relationship betweenresource finds, political dynamics and regulation of the extractive industries.Jean, since we first startedlooking at this issue, weve seenchanges in the regulatoryframeworks for extractives inEast Africa and anticipate morein the year ahead. As oil and gasfinds move closer to production,do you see a danger of aresource curse emerging thatwould undermine governance inthe region?The volumes of investment inexploration remain an excitingprospect economically for theregion. That said, its still earlydays to judge how revenuesfrom production, when theystart flowing in three or fouryears time, will affectgovernance. The key factors arethe political system and thedegree of influence theleadership or political elite hasto capture the spoils; legislativeand regulatory changes beingproposed; and existing capacitywithin bureaucracy and industrymore broadly.Take Mozambique, for example:elections have just been heldreturning the incumbent Frelimogovernment, which has beennegotiating a political settlementwith the opposition Renamoafter an 18-month guerrillacampaign. The big question ishow transparently will the newgovernment manage theoffshore gas sector and theexpected windfalls it will bring?Frelimo took advantage of itstwo-thirds majority in parliamentahead of the elections (whichhas since fallen to 57%) to pushthrough new legislation. Butdecision-making over the sectoris likely to remain concentratedat the executive level under newPresident Filipe Nyusi, whichwill limit checks and balanceson revenue management.This raises concerns over theimpact on governance, but alsobrings reputational risks forinvestors, especially in light ofincreasing civil society scrutinyof the sector.What about the so-calledhoneypot effect will theseresource finds exacerbateconflict, or is that a leap too far?Some have raised alarm bellsover the potential forresource-based conflict in theregion. I think its unlikely, butits not a simple yes or no.When we think of the classichoneypot effect, we think ofthe Niger delta, wherewith Jean Devlin,Associate Director,Africa 17. 28RiskMap Report 2015AFRICAits not just the economySub-Saharan Africa may maintain competitive levels of growth in 2015, butinvestors ignore political developments at their peril. Politics will remain a key factor driving risk for investors in Africa, withimprovements in governance remaining elusive. Although levels of debt are increasing, a debt crisis is not imminent. Continued commodity dependence and failure to diversify leave someeconomies vulnerable to global price fluctuations.High commodity prices and expandingmarkets for goods and services havepropelled Africas economies tospectacular growth in the last decade.But breakneck economic changeacross Africa has not sparked atransformation in how it is governed.Politics from the Sahara to the southremains as messy as ever, with growthcoming despite government, ratherthan because of it.Africas growth is genuinely dizzying even statisticians cant keep up. InApril 2014, Nigeria released updatedGDP figures of $510bn for 2013 toovertake South Africa as the largesteconomy in sub-Saharan Africa. Notto be outdone, Kenya followed suitwith a 25% increase in itsrecalculated GDP.Africas average economic growth of5% in 2013 outstripped the 3%global average and dwarfed sluggishgrowth in the developed world. Butpolitical change has not kept pace. Ina key indicator of the quality ofgovernance across Africa, theIbrahim Index of African Governance,the continents overall governancescore has not budged since 2008.Short-term pain, nolong-term gainIts not for lack of trying. Policymakersacross Africa have tinkered with theireconomic policies. Governments fromCameroon to Kenya have sought tobolster their tax take. But in mostplaces, the fundamental character ofpolitics has not changed. Even inmost of the continents democraticstates, politics remains fractious andriven by ethnic, regional and religiousdivisions. Meanwhile, superannuatedrulers remain in charge in Angola,Uganda and Zimbabwe.The pace of political change may seemof little concern to investors focused onmarket fundamentals. But in reality,politics remains a central risk factor forinvestors with exposure to Africa. Evenin politically stable states, soundmacroeconomic management dependson ruling elites adopting a benignattitude and taking a long-term view.Modern African history contains fewsuch role models. In the continentsdemocratic states, the main concernof power-holders as elsewhere isre-election. The election cycle and theThomas Hansen,Senior Analyst,AfricaNairobi 18. 30RiskMap Report 2015AFRICA29RiskMap Report 2015AFRICATOP: Independence Archin Accra, Ghana.BOTTOM: Angolan President JosEduardo dos Santos.and restructuring. Only with the 1996Heavily Indebted Poor Countriesinitiative and the 2005 Multilateral DebtRelief Initiative did debt levels fall, to alow of 22.3% by 2008.Prudent policymaking cannottake the credit for Africas lowerindebtedness. Debt is increasing,rapidly in some countries. Still, thecontinent is not headed for animminent debt crisis. OxfordEconomics debt projectionssuggest that sovereign debt levelswill remain moderate for most ofAfrica towards 2023 in light ofsustained economic growth, withCameroon where debt levels areexpected to gradually rise themain exception.Diversify or dieThere are additional causes forconcern. Despite increasedinvestment in services and othersectors, Africas economies remaincommodity-dependent. A drop inenergy or commodity prices canrender debt unsustainable. Theeconomies of Angola, Nigeria andEquatorial Guinea, for example, arevulnerable to a sustained drop in oilprices, and if the low prices of late2014 are sustained this will likelycause significant damage to theireconomies. Cte dIvoire andCameroon are more diversified.Here again, politics comes intoplay. Oil-rich Angola is attemptingto boost its non-oil GDP throughinfrastructure investments, and hasseen sustained growth since aslump in 2009. But all is notresolutely well. Concerns are risingover the viability of state-backedprojects after a bad loans crisis in2014 engulfed the Angolansubsidiary of Portugals BancoEsprito Santo. Its still too early totell whether other investments willgo bad and take Angolas sovereignrisk profile with them.In Angola, and elsewhere in Africa,political accountability will remainthe key factor behind economicmanagement and sovereign risk.Few governments will be able totake a long-term view on publicfinances when their politicalsurvival, and potentially statestability, are at stake. High investorreturns will remain at the mercy ofrisks stemming from gaps inmacroeconomic governance.Sub-Saharan Africa: external debt and cumulative debt forgiveness, 1980-201370Source: International Monetary Fund, World Economic Outlook Database, April 20141986threat of political turnover make it hardfor governments to take a long-termview. Africa certainly has no monopolyhere, but weak accountability andmobilisation among the burgeoningmiddle class mean that governmentsare rarely held to account, particularlyfor pork-barrel spending.No country is immune the laggardsand the best-in-class are equally atrisk. The democratic, relatively stablegovernments of Senegal, Ghana,Kenya and Nigeria are running budgetdeficits, despite economic growth ofbetween 4% and 7% a year. Accordingto Oxford Economics, all fourgovernments will run deficits until 2017.By then, the external debts of Senegal,Ghana and Kenya will have doubled,with Nigeria not far behind. True, debtsare increasing from a low baseline andare not necessarily out of control. Butother risk factors suggest additionalworries. Both Senegal and Ghana arerunning twin deficits both theircurrent account and public financesare in the red underscoring potentialeconomic fragility.African governments arentoverwhelmed with debt. IMF figuressuggest that external public debtstands at 24% of GDP on average.Moreover, high growth rates boost thesustainability of African debt. Butmemories are short. Africas sovereignand external debt levels are at historiclows only because of successivewaves of public and private debt relief6050403020100908070605040302010019801982198419881990199219941996199820002002200420062008201020122004 2005 2006 2007 2008 2009 2010 2011 2012 2013LEFT AXIS: EXTERNAL DEBT (% GDP)RIGHT AXIS: DEBT FORGIVENESS (PRINCIPAL AND INTEREST, CURRENT US$BN) 19. 32RiskMap Report 2015AFRICA31RiskMap Report 2015AFRICAAdding value beyond compliance In Africa, the most attractive growth opportunities are in some of thehighest risk countries. As companies spend more on compliance, there is an opportunity todraw more value from this investment. By breaking down internal walls, companies will get the full benefit ofintelligence-led due diligence for other areas of risk mitigation.A leading international bank in late 2014announced that it will spend 1bn oncompliance in 2015. Other banks havemade heavy one-off investments tomeet their regulatory requirements inthe field of anti-corruption. In mostcases, the budget is earmarked togrow compliance departmentsthemselves. But with such a strongfocus on spending, are businessesputting sufficient focus on value?Most companies have policystatements banning bribes to securebusiness, but only a small minorityhave anti-corruption risk assessmentprocedures for entering newcountries. This suggests mostcompanies see routine compliancemeasures as a necessary exercise.But too few, it seems, are drawing thefull benefit of intelligence-led duediligence as something that could feedinto their business and operationsstrategies. In the best case scenario,those businesses are just missing atrick, or losing a competitiveadvantage. In the worst case, thenarrow application of complianceprocedures leads to unexpected sideeffects that can have significantoperational implications. A look atrecent activity around Africa helps toillustrate the point.Fine lineShipping, logistics and customsclearance are booming industries asinvestment mushrooms around new oiland gas finds and multi-country valuechains. Amid the boom, it is becomingclear that international regulations tocut out low-level bribery are beingcircumvented by officials who graspthe rules for foreign companies and areworking the system.Instead of asking for cartons ofcigarettes in exchange for clearancecertificates a request that wouldbreach most companies zero-toleranceanti-bribery policies customs officershave turned to issuing semi-officialfines. The fines are usually based onmanifestly spurious grounds, or linkedto misdemeanours previouslyconsidered too minor to sanction. Finesvary, but we have seen some rangingfrom a few thousand dollars to $10,000.The amount is totally unpredictable, butthis much is clear: the dollar sums inquestion are significantly higher thanthe cost of a few cartons of cigarettes.The fines are backed up by anofficial-looking invoice and a stamped,signed receipt. In most cases, thesespurious fines are cosmeticallyindistinguishable from legitimateMaria Knapp,Associate Director,AfricaMaputo 20. 34RiskMap Report 2015AFRICA33RiskMap Report 2015AFRICAAFRICA SNAPSHOTSEconomic prospectsAfricas growth will continue to outpace that of developed economies86420-2-4-62009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019SUB-SAHARAN AFRICAEUROPEAN UNIONG7 ECONOMIESGDP growth rates (%), 2009-19 | Source: IMFbut foreign investment to the continent remains well below LEVELS IN Asia140120100806040200SUB-SAHARAN AFRICACHINA*INDIASOUTH-EAST ASIA2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 *excluding Hong KongInward FDI flows (US$bn), 2003-13 | Source: UNCTADand debt levels are creeping back up from historic lows807060504030201002010 2011 2012 2013 2014 2015 2016 2017 2018 2019SSA AVERAGEKENYAZAMBIAGHANANIGERIAGeneral government gross debt (% GDP), 2000-19 | Source: IMFdocuments, making them difficult todispute on the spot.This fiction has stood the fight againstbribery on its head: a simple piece ofpaper subverts the spirit of the law.Whats worse, it has taken a briberyproblem and turned it into a financialand operational problem.Taking the long viewThe regulatory framework is changingquickly in Mozambiques oil and gassector and Kenyas mining sector,moving towards strict legislation onlocal content. Foreign investors aresearching for a way to enter thesemarkets without compromising oncompliance. And for companies thatplan to capture the real high-growthopportunities on the continent likeemerging manufacturing opportunitiesin Ethiopia or large-scale infrastructuredevelopment in Nigeria only ajoined-up approach will do.Barring a few standout examples likeGhana, Botswana and Namibia, mostAfrican countries still cluster at thebottom of international perceptionrankings of corruption risk. The regionsmost attractive growth opportunitiesare in some of its highest riskcountries. These involve setting upmulti-jurisdiction value chains and havea longer average lifecycle than in moredeveloped markets. For an ordinaryprivate equity investment, mostcompanies are looking at a seven- toten-year commitment, often set ataggressive growth targets. The moststraightforward capital investment intoone of East Africas port developmentprojects will take longer to see returnsthan in developed markets. It is clearthat compliance teams alone will notprovide businesses with the informationthey need to forecast the potentialhurdles in these investments. Theopportunity lies in capturing the benefitthat information can add to riskmitigation in other parts of a business.So how can businesses get the fullbenefit of their investment incompliance tools to mitigate otherareas of risk? When dealing withcustoms, intelligence-led planning thatcombines mandatory complianceprocedures with operational objectiveswould bring to light the likely hurdles.This should include identifying the localdecision-making hierarchy andmapping out possible options forrecourse when faced with thesespurious fines.Investment banks, caught out for beingso far behind the curve on compliancea few years ago, are catching upquickly by taking a much more holisticapproach to this issue. For example,compliance teams and businessdevelopment teams are workingtogether at an early stage to agree onstreamlined terms for pre-investmentrisk assessments that balanceelements of due diligence with localmarket and political intelligence.Breaking down internal walls is a goodfirst step to switching from calculatingthese measures as a cost, to capturingtheir commercial benefit. 21. 36RiskMap Report 2015AFRICA35RiskMap Report 2015AFRICACountries that have removed or are attempting to remove term limits on heads of state Peacekeeping troops in Africa (2014)TERM LIMITS IN PLACE NO TERM LIMITS CURRENTLY ATTEMPTING TO REMOVECAPE VERDESENEGALGAMBIAGUINEA-BISSAU GUINEAM A L I N I G E RBURKINA FASOCTED'IVOIRESIERRA LEONE LIBERIAGHANABENINTOGONIGERIAC H A D SUDANSOUTHCENTRAL AFRICAN SUDANREPUBLICCAMEROONEQUATORIAL GUINEASO TOM AND PRINCIPECONGOGABONCONGO(DRC)RWANDABURUNDIUGANDAERITREAETHIOPIAKENYATANZANIAA N G O L AZ A M B I A MALAWIZIMBABWE MOZAMBIQUEBOTSWANANAMIBIALESOTHOSOUTH AFRICASWAZILANDDJIBOUTISOMALIASEYCHELLESCOMOROSMAURITIUS16,27011,06512,8996,1063509006774,1074,09312022,1262505,90012,5134,67722, 2605,0299,0036,7678,0812,432DARFURMALI/SAHELSENEGALGABONGUINEA-BISSAUABYEISOMALIAUGANDADJIBOUTISOUTH SUDANCENTRAL AFRICANREPUBLICCONGO (DRC)CTE DIVOIRELIBERIA2,7621095,415TOTAL TROOPSUN ANDINTERNATIONALAFRICAN 58,982WINNERS OF THE MO IBRAHIM PRIZE FORGOOD GOVERNANCE, 2010-14NO AWARDNO AWARDPEDRO RODRIGUES PIRESCAPE VERDENO AWARDTO BE AWARDED20102011201220132014SecurityDespite substantial growth in African peacekeeping, international troops stilloutnumber African counterparts ON the continentGovernanceAfrican governance is improving, but only slowly 22. 38RiskMap Report 2015AMERICAS3717RiskMap Report 2015AMERICASUNITED STATES OF AMERICAMEXICOCAYMAN ISLANDSBELIZEDallasGUATEMALAEL SALVADORCUBA(UK)JAMAICAHONDURASNICARAGUACOSTA RICAPANAMABAHAMASTURKS ANDCAICOSBERMUDA (UK)Port-au-PrinceHAITIDOMINICANREPUBLICPUERTO RICOBRITISH VIRGINISLANDSANGUILLA (UK)SINT MAARTENDOMINICAUS VIRGIN ISLANDSARUBA CURAAOBONAIREANTIGUA AND BARBUDAGUADELOUPEMARTINIQUE (FRANCE)ST LUCIABARBADOS ST VINCENT ANDGRENADINESGRENADAST KITTS-NEVISTRINIDAD AND TOBAGOFRENCH GUIANASURINAMECHILEGUYANAB R A Z I LPARAGUAYVENEZUELAARGENTINAURUGUAYMedellnCOLOMBIAECUADORPERUB O L I V I APACIFICOCEANATLANTICOCEANCrdobaVancouverSeattleSan FranciscoLos AngelesTijuanaPhoenixMinneapolisChicagoDetroitTorontoMontralOttawaQuebecNew YorkPhiladelphiaWashington (DC)St LouisAtlantaHoustonHermosilloMonterreyTampicoGuadalajaraMexico CityAcapulcoCancnMiamiHavanaKingstonSanto DomingoBelmopanGuatemala CitySan SalvadorSan Pedro SulaTegucigalpaManaguaSan JosPanama CityColnCaliBogotCaracasGeorgetownParamariboCayenneBelmGuayaquilMantaQuitoLimaArequipa La PazSanta CruzAsuncinSantiagoBuenos Aires MontevideoRecifeBelo HorizonteRio de JaneiroBrasliaSo PauloSalvador da BahiaBostonNew OrleansBolivarian sunsetThe death of Venezuelan president Hugo Chvez (1999-2013) has shownstarkly how out of step his revolutionary dreams were with Latin Americasmore stable reality. Chvezs influence was always overstated and was dependent onspending power frittered away by mismanagement and corruption. Elsewhere, democracy and institutional stability are maturing. The main concerns for business on the continent are shifting away frompolitical risk and towards social issues and corruption.Chvezs death in February 2013robbed both his country and theregion of its most charismatic andpolarising leader. It also removedany pretence of success from hisonce-lofty aims of fulfilling the dreamsof his role model, 19th-century LatinAmerican independence hero SimnBolvar. Bolvars vision was to createa united Latin America with politicalpower and economic resources inthe hands of the people, an oftendeliberately nebulous, but stillpowerful, concept. Since his death,little has been heard of Bolvarsgrand ideals from Chvezssuccessor, Nicols Maduro, as hestruggles with myriad domesticproblems. Other leftist leaders initiallytipped to take on Chvezs mantle inthe region, such as Ecuadors RafaelCorrea, have shown little interest.Where did it all go wrong? In truth,the influence of Chvez and hisBolivarian Revolution in the widerLatin American region was alwaysoverstated: in life, as in death, heattracted as much opprobrium ashe did adoration. Moreover, whatinfluence Chvez had was alwaysclosely tied to his ability to matchverbosity with spending power.Venezuelas economic strugglesin recent years, triggered bymisguided policy and staggeringlevels of corruption, are likely todeepen in 2015, ensuring that thefocus for the government will beon managing domestic problemsrather than expanding itsregional presence.Economic mismanagement tellsone side of the story of therevolutions failure to carry LatinAmerica along with it. Take the July2014 technical debt default ofanother heterodox government inCristina Fernndez de KirchnersArgentina. This undermined anyclaims that 21st-century socialismis somehow a more effective way ofmanaging the economy than its20th-century equivalent. Leftistpresidents in Ecuador, Nicaraguaand Bolivia have bucked this trend for now but only by adoptingmore orthodox stewardship of theeconomy (and in Nicaraguas casebolstered by significant financial aidfrom Venezuela).Simon Whistler,Director, AMERICASGlobal Risk AnalysisAMERICAS 23. 40RiskMap Report 2015AMERICAS39RiskMap Report 2015AMERICASto fill the vacuum left by Chvezsdeath. The left vs right paradigm ofeven three years ago in LatinAmerica has broken down as eachcountry seeks to find its ownsolutions to the end of thecommodities super-cycle. In achanging regional economic andGreenland(DENMARK)political context, the limits ofpopulism are apparent. Far frombeing the centre of a reinvigoratedLatin America, Venezuela will finditself at the regions extremities in2015 its grandiose Bolivariandreams broken by political, socialand economic discord.GROWING maturityMore fundamentally, Chvezmisunderstood the evolving natureof politics and society in LatinAmerica. The Venezuelan leaderbelieved that the deep-rootedinequalities common to all countriesin the region made them naturallyfertile ground for his grandiosepromises and those of like-mindedleaders. But Venezuelas relativedemise its hollowed outinstitutions, the excessivepersonality cult around Chvez anddeep economic problems alsothrew into stark relief just howpolitically mature many other LatinAmerican countries are becoming.While far from perfect, the signsfrom Latin America are thatdemocracy and the institutionsrequired to uphold it anindependent judiciary and vibrantcivil society, for example areincreasingly promising. Witness thehandovers of government, andchecks and balances on executivepower in Mexicos former one-partystate. The left and right in Chile havealternated power at successiveelections with no significantdeviations in economic course.Colombias Juan Manuel Santos, arightist former defence minister, wasre-elected president in 2014 on aplatform of peace with theRevolutionary Armed Forces ofColombia (FARC) guerrilla groupand backed almost unanimously bythe countrys political left.Kirchnerismo will almost certainly bereplaced by a more moderatepolitical force in next yearspresidential election in Argentina.A different legacyBut it would be wrong to say thatChvezs dreams have had nolong-term impact on Latin America.On the contrary, key tenets ofChavismo are now seen as standard inthe region: strengthening the role ofthe welfare state and directgovernment support for the poorestsectors of society; increasing thestates capture of a countrys naturalresource endowment; and the creationof regional talking shops, such as theUnion of South American Nations(UNASUR), where the shadow of theUS is no longer perceived to hangconstantly over Latin America.Business now operates in a muchmore self-confident continent where a(generally) growing consumer classcreates new opportunities for theforeign capitalists Chvez so derided,but also holds companies much moreaccountable than before. This points tothe evolution of the type of risks thatcompanies face in the region.Expropriation and nationalisation Chvezs most potent economicweapons are no longer investors keyconcern. For many businesses,corruption and social risks will be thetop risk management priorities in 2015.This localisation or socialisation ofrisk underlines why there is no rushEconomic policy does not always match official ideologyAlaska (US)CANADAUNITED STATES OF AMERICAMEXICOGUATEMALAEL SALVADORHONDURASNICARAGUACOSTA RICAPANAMACHILEBRAZILARGENTINACOLOMBIAECUADORPERUBOLIVIAVENEZUELAPARAGUAYURUGUAYNOMINAL GOVERNMENT IDEOLOGYRIGHTCENTRELEFTRADICAL LEFTCORE ECONOMIC POLICYLIBERALPOPULISTCENTRISTTOP: Man with an image of lateVenezuelan president Hugo Chvez, SantaCruz, Bolivia, June 2014.BOTTOM: Colombian PresidentJuan Manuel Santos. 24. 42RiskMap Report 2015AMERICASBrazil and Mexico:changing fortunesIs Mexico more likely to benefitfrom the economic recovery inthe US?D: Mexico is reaping thebenefits of two decades ofopenness to free trade, whichhave produced 12 differentfree-trade agreements with morethan 40 nations aroundthe world. While the countryundoubtedly struggled in theearly years of the North AmericanFree Trade Agreement (NAFTA),its open economy has been akey driver of efficiency andcompetitiveness. Today, Chinasrising labour costs are proving abarrier to long-term investments,reversing earlier labour trendsback in Mexicos favour.TF: In contrast, Brazilsinward-looking strategy hasproved costly, particularly in thecontext of global value chains.Brazil has focused instead on asmall group of neighbouringcountries, and the progress madeduring the 1990s under theMercosur common market hasbeen partially reversed by asuccession of protectionistgovernments in Brazil andArgentina. Protectionism oftentranslates into an uneven playingfield for companies and locks inhigh costs for local consumersand firms.D: Latin Americasgeopolitical divide isincreasingly seen asresponding to differences intrade policy rather thanideological affinity, with Mexicosuccessfully leveraging itsinfluence over countries thatare willing to embraceliberalisation. This is alreadyshowcased in the PacificAlliance, which since itsfoundation in 2011 has madesustained progress towardsremoving barriers to trade andinvestment between its fourmembers (Mexico, Chile,Colombia and Peru). The blocalso provides a platform forincreased engagement withthe Asia-Pacific region, asreflected in the Trans-PacificPartnership negotiations. Incontrast, Brazil increasinglystruggles with the baggage ofMercosurs political alliances.What about integrity risks inthe two countries: how doesthe outlook differ?TF: Corruption remains asignificant risk for companiesoperating or looking to operate ineither country, despite efforts totackle endemic malpractice.There are some differencesbetween the two cross-countrycomparisons systematicallyplace Brazil in a better positionthan Mexico, and ahead of mostcountries with similar level ofdevelopment. The issue is verylikely to feature at the top of theagenda in 2015 on both sides.After a hard fought re-election,Rousseff is expected to deliveron her promise to crack down oncorruption allegations ofwrong-doing in state-owned oilgiant Petrobras almost derailedher campaign.D: In Mexico, PresidentEnrique Pea Nieto is very likelyto undermine expectationsabout the countrys take-offwith his lacklustre performancein guaranteeing the rule of law.His lack of effort in promotinganti-corruption institutionalreform, a problem that involvesthe opposition parties just asdeeply, is likely to mark hisadministration and persist wellinto the future. Last but notleast, endemic corruptionwithin Pemex is likely to pose asignificant risk for companieslooking to partner with the stateoil company.The last half-decade has seen a remarkable shift in Latin Americas balanceof power. Mexico is increasingly seen as the regions rising star; a relativelyweak economic performance has tainted the image of emerging marketdarling Brazil. A closer look at the regions two largest economies reveals anuanced competition, particularly for foreign investors. Global ResearchDirector Charles Hecker talks to Control Risks senior analysts Dwight Dyer,based in Mexico City, and Thomaz Favaro in So Paulo.What factors are shiftinginvestors preference fromBrazil to Mexico?D: The Mexican economy isperforming marginally better,not only in terms of growth forecasts for GDP growth in2015 are for 3.7% in Mexicoand only 1% in Brazil butalso in macroeconomicfundamentals, with lowerinflation and a stable exchangerate. Investors rightly perceivethat the Mexican governmenthas been very much involvedin improving the businessenvironment with a raft ofstructural economic reforms.However, this progress isoffset by persistent concernsabout the ruling InstitutionalRevolutionary Partysunwillingness to fightwidespread and markedlygrowing corruption.TF: Meanwhile, the recentlyre-elected Workers Partygovernment of President DilmaRousseff has done relatively littleto tackle the so-called Brazilcost the operational costs ofdoing business in the country.This includes elements like highand complex taxes, deficientinfrastructure, rigid labourlegislation and onerous red tape.In fact, Rousseff has also fuelledconcerns about the future of thelocal business environment witha lax macroeconomic policy andpreference for partial stateintervention. This gap is expectedto widen in 2015, particularlygiven the long-awaited openingof Mexicos energy sector.Despite this divergence, it isinteresting to note that the twocountries have some sharedvulnerabilities, notably on thefiscal front both registeredsignificant fiscal deficits in 2014.Still, Brazil remains a preferredinvestment destination and manycompanies worldwide haveshown continued interest intapping its potential: levels offoreign direct investment haveplateaued since 2012, but remainrobust and among the worldshighest. The question remainswhether either of these twocountries can effectively enforcethe rule of law, at least at aminimum standard acceptablefor global companies.with Dwight Dyer,senior analyst,AMERICASAND Thomaz Favaro,senior analyst,AMERICAS 25. 44RiskMap Report 2015AMERICAS43RiskMap Report 2015AMERICASCompliance: Getting ahead of the gameCompany expansion often exceeds ability to effectively manage risk. Howcan compliance improve things? Consider behaviour-based training, rather than bogging employees downin legalese. Recognise the value of intelligence both as a consumer and as a creatorto re-inform and be a facilitator of the business.We see it play out a hundred timesin a hundred ways every day. Amultinational company doing businessin a difficult market faces a challenge:how do we deal properly withallegations of misconduct and usewhat we learned to prevent theirreoccurrence? It is a conundrumshared in varying degrees largely bycompliance and legal teams. And, in2015, it is a challenge made moredifficult by an ever-shifting series ofregulatory requirements, risk and localenforcement. Unfortunately, due toresource constraints and silos ofresponsibility, it is typically too little, toolate to make a real difference. Growthand expansion of the organisation alltoo often outrun its capability to governitself effectively and manage riskefficiently, at a cost of hundreds ofduplicated hours and millions of dollars.Can compliance catch up? Imagine anorganisation where things work like this:Senior management and the board areconsidering expanding the businessinto a new market or diversifying withina market through a strategicpartnership. At that very moment, theyengage legal and compliance to stresstest the idea by answering some criticalquestions at an early stage. How doesthe transaction change our regulatoryreporting obligations? Are we beingexposed to broader whistleblowerlaws? Who is going to absorb thisincreased compliance and riskmanagement burden? And what arethe anticipated costs of this expandedneed for training, policy oversight andinternal audit?This may seem fantastical, soperhaps a more realistic question is:How can we position compliance sothat we are ahead instead of alwaysbehind? While there is no silver bulletsolution here, consider some or all ofthese resolutions for 2015. They mightjust make a huge difference.Rethink trainingThe legal landscape is shifting fast,from new whistleblower laws inFrance to the Brazil Clean CompanyAct to a sea change in Chineseenforcement. Understanding thenuances at a global level is difficulteven for Ivy League law grads. Dontexpect it of your sales team. Insteadof spending training time on thenuances of facilitation payments,consider behaviour-based training asan alternative. The idea is thatemployees wont remember exactlyhow to spot a government official,but they will remember that theyneed to act carefully and ethically.This approach resounds much betterfrom a cultural perspective too, whenyou get the feared feedback thoselaws dont apply to us in this country,do they?.Get truly connected to theboardA once-a-quarter spot at a boardmeeting is important optically, butwhat does it accomplish? Does theboard really understand what you doand why? Some of the most successfulcompliance officers connect withdirectors outside those meetings forfocused, quality time. Even a brieflunch or call with the chair of the auditcommittee can give you a level ofconnectedness that will be important inkeeping the board up-to-date andunderstanding what they need to hearfrom you at that next meeting.Become a consumer ofintelligenceCompliance officers are too oftencaught in a learn-as-you-go exercise,especially in a crisis. In 2015, escalatinggeopolitical issues can and will have animpact on your organisation and howyou respond. Look for and absorb newsources of analysis of regulatory,political and legal trends, particularly infast-moving, sanctions-ridden marketssuch as Russia and Iran. Work with theboard to understand how companystrategy may play into future changesin risk profile.Become a creator ofintelligenceRemember that a truly functionalcompliance programme is constantlyre-informing the business. Yourprogramme should be developinginternal intel for your organisation andpushing that information out to thestakeholders on a regular basis. Lookaround your programme and find newand more efficient ways to do this.From trends and issues related toemployee management tounderstanding the risks and benefits of distributor relationships, yourprogramme can help the business torun more smoothly by providing criticalinformation that is often being gatheredineffectively by another department.Add value by being morethan a police departmentDespite great strides in perception fromthe early days (read: 2005), complianceis still seen as the company trafficcop, there to pull over an errantbusiness developer and write a ticket,or worse. As organisations move into2015 with expansion and growth at thefront of their minds, compliance officersare well placed to look at theiroperational and strategic partners, andwork together to streamline duediligence procedures and revisit theM&A process, helping the business todrive revenue more efficiently. Askaround the business the question, howcan we improve compliance and makeyour job easier?. You might besurprised what you learn.Michele Wiener,Senior Managing Director,AmericasGreg Esslinger,Senior Managing Director,Americas 26. 46RiskMap Report 2015AMERICASDrugs in the Americas:changing markets, changing risksDecriminalisation in parts of the US and rising consumption amongLatin Americas middle classes will change the dynamics of the regionsdrugs trade. Mexican cartels will vie for control of production territory andtrafficking corridors, potentially affecting promising locations forenergy investment. Cartels will compete fiercely for the growing middle-class market,bringing more street violence and further erosion of institutions. Despite increasingly vocal opposition to the war on drugs,enforcement will remain the watchword. Drug-related violence will notabate in 2015.Compare the marketThe basic dynamics of the regionaldrugs trade are well understood:South American countries grow andrefine the product, Mexican andCentral American gangs move itnorth, and the voracious US marketconsumes it. However, recent movesin the US to legalise or at leastdecriminalise some narcoticsdirectly challenge this model. IfAmericans can get their fix legally atthe local dispensary, there is lessdemand for cartel services. Lessdemand for imported drugs meansless money flowing back through thecartel supply chain.Like any multinational enterprise,drug cartels will try to adapt to shiftingmarket dynamics. We see three distincttrajectories not necessarilyincompatible in 2015 and beyond.1. Fight for share in the illicit marketMexican cartels can try to competewith legal drugs by increasing thequality of comparable products,shifting activities into synthetic drugsthat are still illegal or seizing a greatershare of the illicit market by displacingrival groups. Each of these strategies or, more likely, a combination is arecipe for conflict.Gangs pursuing high quality willfight to control optimal areas formarijuana production above allMexicos Sierra Madre (Chihuahuaand Sinaloa states). Those movinginto synthetics will try to dominateport cities on the Pacific coastwhere precursor chemicals areimported, including LzaroCrdenas (Michoacn) andManzanillo (Colima). The fight forthe illicit market will prioritise themain transit corridors into the US,such as the northern border statesof Nuevo Len and Tamaulipas.Many of these traverse just thoseareas along the US border wherethe government hopes to lureforeign investment into the energysector in 2015.Gavin Strong,Senior Analyst,AmericasMexico City 27. 48RiskMap Report 2015AMERICAS47RiskMap Report 2015AMERICASPrevalence of drug use in the US (%), 2002-12 Global trends in drug supply and supply reduction (index: 2003 = 1), 2003-132. Enter the legal marketCartels could also begin to moveinto emerging legal markets in theUS, either directly or throughinvestment. After all, they have theseed capital and processknowledge to run large growingoperations; all thats required arethe legal permits. Cartels many ofwhich already illegally grow producton public land in the US arealmost certainly considering how toadd legal marijuana cultivation totheir portfolios.3. Target new marketsIf legalisation in the US is changingthe market from the top, expandingmiddle classes throughout LatinECSTASYAmerica are changing it from thebottom. This enticing marketsegment is armed with disposableincome and increasingly permissiveattitudes towards druguse and selling within the region is alower-risk proposition than traffickingacross the militarised US border. Iflegalisation erodes margins in the UStrade, regional markets will becomemore attractive.This will stimulate competition amonggangs to control these markets. Streetviolence has already accompanied thecartels push into Central Americaover the last five years. Furtherexpansion will see further insecurityand subversion of institutions.161412108642020032004200520062007200820092010201120122002ANY ILLICITDRUGCANNABIS COCAINE HEROIN2.82.62.42.22.01.81.61.41.21.00.80.60.40.2020032004200520062007200820092010201120122013CULTIVATION OF OPIUM POPPY CULTIVATION OF COCA BUSHSEIZURES OF COCAINE (BASE, PASTE, SALTS, CRACK AND UNSPECIFIED)SEIZURES OF CANNABIS (MARIJUANA AND HASHISH)SEIZURES OF HEROIN AND ILLICIT MORPHINESEIZURES OF AMPHETAMINE-TYPE STIMULANTSSource: UNODC World Drug Report 2014Source: UNODC World Drug Report 2014 28. 50RiskMap Report 2015AMERICAS49RiskMap Report 2015AMERICASCrackdowns will continueIt is an article of faith in LatinAmerica that the war on drugshas done more harm than goodover the last 40 years. Politiciansacross the region from ColombianPresident Juan Manuel Santos toleft-wing Ecuadorian firebrandRafael Correa are jockeying forleadership of an incipient peacemovement that seeks to trade sometolerance of narcotics for greatersecurity and stability.But 2015 will see no significantchanges in drug policy in the region.Policy emphasis and politicalattitudes remain firmly on the side ofstrengthening law enforcement andcracking down on cartels and theircustomers. Far from the stonerheroes of US folklore who played arole in shifting cultural attitudes farenough to permit legalisation, LatinAmericas drug users are generallystigmatised and repressed.This means that the violence thathas come to characterise the drugstrade in Latin America will persist.Such violence usually avoidslegitimate business and preys moston local nationals, rather thanforeign expatri