Geopolitical conflicts and elections drive risks in emerging markets – Gallagher Specialty

Gallagher Specialty has released its latest market update, focusing on global macroeconomic challenges and their effects on risks faced by those trading with or investing in emerging markets.

The report also provides an overview of the structured credit and political risk (SCPR) insurance market, noting changes in capacity and key market developments.

The report highlights geopolitical tensions, including ongoing conflicts in Ukraine and the Middle East, which continue to impact global markets. Gallagher Specialty points to the upcoming US election in November as a potential turning point, with the outcome expected to have significant implications for Ukraine, trade with China, and Western diplomacy in Africa.

The SCPR insurance market remains crucial in supporting trade and investment amid this volatile environment.

SCPR across emerging markets

In the Democratic Republic of the Congo (DRC), the escalating conflict in the east of the country is increasing risks for investors, particularly in the mining sector. Gallagher Specialty reports that the involvement of regional forces is disrupting mining operations and supply routes, which could impact investor confidence and government revenue.

Despite the instability, global demand for critical minerals is expected to sustain investor interest in the DRC.

Kenya is also facing economic pressures, exacerbated by extreme weather and supply chain disruptions. According to Gallagher Specialty, the country’s government has limited fiscal space to offer reconstruction funding, which has led to increased reliance on external support.

While Kenya’s recent Eurobond buyback has alleviated immediate concerns about sovereign default, debt sustainability remains a longer-term challenge.

In Gabon, political stability has improved since the August 2023 coup, with the military authorities committed to a democratic transition by 2025. Gallagher Specialty notes that while this transition has led to the resumption of external budgetary support, any delays could negatively impact investor confidence and lead to social unrest.

The government’s efforts to reduce external debt have also been noted as a positive step towards improving the country’s economic outlook.

Algeria is expected to hold presidential elections in September 2024, with President Abdelmajid Tebboune likely to remain in power. Gallagher Specialty highlights the country’s ongoing economic challenges, including inflation and unemployment, which may continue to affect foreign investment.

Algeria’s reliance on hydrocarbons remains a key vulnerability, particularly amid restricted oil production.

In Ghana, the approach of the December 2024 general election is raising the risk of civil unrest and political violence. Gallagher Specialty reports that confrontations between rival party supporters are likely as the election nears, and public distrust in electoral institutions is growing.

However, recent debt restructuring agreements and renewed IMF support have improved Ghana’s fiscal stability and debt sustainability outlook.

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