Countries in Western and Central Europe are better equipped to handle environmental and political risks that may jeopardize business investments, according to a new analysis by a global insurance firm.
The top performing countries in FM Global’s 2021 index feature Denmark in first place and Norway in second, followed by Luxembourg, Germany and Switzerland also in the top five. Finland, Sweden and Austria are ranked sixth through eighth, respectively, while the United States is ranked ninth and United Kingdom in 10th place.
While some routine variance in year-to-year indices is to be expected, “There has been a trend that Western Europe tends to dominate the rankings overall,” says Eric Jones, vice president and global manager of business risk consulting at FM Global.
The only non-European nations featured in the top 20 positions for greater resilience overall were the U.S., Singapore, Canada, Australia and New Zealand. Of those, Singapore had the greatest year-over-year increase in rankings, jumping 10 positions to the No. 12 spot in the 2021 index.
The FM Global index tracks fairly well with U.S. News’ overall 2021 Best Countries rankings, where 12 of the countries in the top 20 are in Europe. European nations also dominated U.S. News’ 2021 Open for Business subrankings, capturing seven positions in the top 10.
Jones attributes European nations’ staying power at the top of the index to a “lack of natural hazards that exist, as well as various political factors that lead to a pretty resilient environment to do business in.” He contrasts that environment with countries that ranked at the bottom of the index this year — Haiti, Venezuela and Iran: “it’s not surprising that they would be bottom leaders for just the opposite reason,” citing both political and environmental hazards in those countries.
Other countries in the bottom 10 include Nepal, Nicaragua, Mozambique, Mali and Lebanon, which have tended to struggle in recent years with political and economic stability.
This year’s Best Countries rankings, released in April, features a new ranking — Agility. The ranking takes off as countries respond to the COVID-19 pandemic — navigating economic downturns and recoveries and increased global calls for addressing social inequities — and assesses countries’ abilities to be adaptable, progressive and responsive.
Lebanon made the list of 10 countries seen as most corrupt in U.S. News’ 2021 Best Countries rankings, as well as 70 out of 78 in the Open for Business subrankings. None of the other worst-ranking countries in FM Global’s index scored within the top 78 for favorable business conditions, based on this year’s Best Countries survey data.
FM Global’s index is based on quantitative data compiled from sources including the World Bank, International Monetary Fund, U.N., and others.
Jones says the index incorporates three main factors — economic, risk quality and supply chain — with four individual metrics for each category. Productivity and political risk are considered economic drivers, for example, while exposure to natural hazards and inherent cyber risk are factored in under the risk quality category, according to FM’s methodology guide.
“The weighting is equal across all of those (categories), and combine into an overall score for each country,” Jones says. “So it’s a measure of relative risk across all 130 countries considered by the index.”
While the coronavirus pandemic upended business operations and workers’ lives around the world in 2020, Jones says those disruptions did not have an outsized impact on individual rankings because “a lot of those things were somewhat temporary in nature.” And he adds that “There’s no specific measure of pandemic risk in the index. But the index does factor in factors that would be needed for an effective rebound out of the pandemic.”
As countries race to get their populations vaccinated against COVID-19, Jones also says that vaccine distribution capabilities are correlated with certain metrics including quality of infrastructure and supply chain visibility, which are evaluated by the FM index and incorporated into their supply chain factor.
“I think the important thing that the index tries to deliver is to understand where you’re doing business,” Jones says. He urges business leaders to evaluate which suppliers they depend on in their operating regions, as well as how resilient their operations are.
Certain regions of the world are more susceptible to particular kinds of natural disaster and raw materials shortages, and Jones says executives should be mindful of those particular risks when evaluating where they conduct business.
“You could look at the natural hazard risk posed in the Asia-Pacific region,” he says. “In the semiconductor industry… the more industries are feeling the pinch of that and how dependent they are on industries in the Asia-Pacific region, it might make them ask how they can make decisions to improve that risk.”
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Western European Nations Top Risk Analysis for Resilience originally appeared on usnews.com