Risk premiums

MERELY keeping up with fevered events in Brazil has proved a challenge of late. The president suspended from office pending impeachment over dodgy government accounting; a caretaker administration left to tackle the worst recession since the 1930s; all amid an operatic bribery scandal with twists and turns that make Brazil’s telenovelas (soap operas) look logical. Staying ahead, as investors and businesses often need to, can seem a forlorn hope.

Luckily, help is at hand. From niche boutiques to big strategy consultants, a growing number of outfits offer to make sense of it all. Swathes of Brazil’s economy may lie idle, but political-risk advisers report being busier than ever.

In fact, the risk business is booming everywhere, not just Brazil. With the Middle East in flames, Russia in adventurist mood and China paving over disputed reefs, geopolitics is again a concern of bosses everywhere. The threat of Brexit and the migrant crisis make even dull European countries appear too exciting, if anything. In America, meanwhile, the prospect of a President Trump invites probing.

Helpfully for political-risk analysts, the latest surge in global uncertainty has coincided with the maturing of their industry. In its current form it dates to the mid-1990s. Back then pitches to clients would elicit bemusement, recalls Ian Bremmer, founder of Eurasia Group, a veteran purveyor of real-time political science with headquarters in New York. Stratfor, which has been flogging geopolitical foresight for two decades from its base in Austin, Texas, recently notched up a record 550,000 subscribers. “We no longer have to justify our existence,” says Mr Bremmer gleefully.

Demand for such analysis got a fillip with the financial crisis, as multinationals pared back in-house strategy departments charged with providing it (among other things). These have shrunk by half, reckons Joel Whitaker of Frontier, an adviser based in Washington DC. He puts this down to boards’ growing short-termism and pressure to cut costs. Reliance on outside counsel has risen as a result.

Financial firms, which tend to read political scenarios the same way (broadly: sell statist, buy pro-business), were early adopters of generic subscription forecasts first offered by Stratfor and Eurasia. They still use these, but ever more bosses want assessments of company-specific risks too. That is a boon to firms such as Brazil’s Prospectiva, which has been demystifying the country’s confused trade and industrial policies for 14 years. It has grown by 20% to 30% a year since 2012, says Ricardo Mendes, a partner. Bespoke advice now makes up a fifth of Frontier’s revenues, up from nothing 18 months ago. At Stratfor it has outpaced subscriptions in the past five years and accounts for a third of sales.

Larger consultancies are dabbling too. Britain’s Control Risks has 100 political analysts in dozens of offices around the world, up from 30 in London ten years ago; they supplement its main business advising companies on how to keep workers safe and fight fraud. Giant management-consulting firms, such as McKinsey, are bundling political-risk analysis with other prescriptions for corporate betterment. Like the risks themselves, then, risk advisers are becoming more diverse. As important, they no longer simply assist Western firms thinking of investing in exotic places. Eurasia opened an outpost in São Paulo, its first outside the rich world, in late 2014—in principle to cater to Brazilian companies spying opportunities in other markets. In practice it helps perplexed Brazilian bosses make sense of the political crisis at home.

“Political risk” is not something you say out loud in China, yet Chinese companies increasingly feel the need to factor it into their investment decisions—including in developed nations facing new troubles. So do other multinationals. To firms such as Bimbo, a large Mexican baker which Frontier is advising as it looks to expand north, “the US is an emerging market”, notes Mr Whitaker. And it is just as uncertain.