Food prices have been affected globally since Russia’s invasion of Ukraine, owing to Ukraine’s role as a leading exporter of grain to the world economy, with effects disproportionately felt among developing countries reliant on grain imports, and particularly in parts of Africa.
This was the topic of a recent episode of The Political Risk Podcast, which featured Crispin Hodges, head of trade political risk at Canopius as a guest, discussing the threats to insured assets posed by political instability in Africa, as a result of heightened food security concerns.
The Turkish-brokered Black Sea Grain Initiative between Russia and Ukraine expired in July 2023, immediately causing a dramatic reduction in grain carrier shipping through the Black Sea.
Despite efforts to export grain by rail, on the River Danube, and ongoing Ukrainian efforts to promote trade by hugging the coast of Romania on their way to Ukraine’s ports, many shipping firms have been reluctant to make the dangerous route.
The focus of Hodges’ comments was on the effects that this drop in grain supply this will have in economies such as Egypt and many other Sub Saharan African countries, heavily populated and highly reliant on food imports, particularly of Ukrainian grain.
“One of the problems is going to be if they don't get the right level of food at the right price, there'll be unrest,” he said. “Then we start looking at strikes, riots and civil commotion; we start to get threat to assets and threat to property; and as so often happens in these flare ups, one country can be targeted as because of them that this is happening in our country.”
From a political risk insurance perspective, Hodges listed industries such as luxury hotels, many run by Western multinationals, as well as energy, mining and hydrocarbons as at risk sectors that may be particularly vulnerable to local government interference or popular discontent – whether or not asset owners have much to do with underlying food insecurity.
“We’ve seen situations in Asia where American hotels were targeted. They had nothing to do with any of the underlying challenges in that country, but they were targeted by rioting groups and the like,” Hodges said.
“If these people cannot get basic foodstuffs, to point of sale at a price point that they can afford, and a volume of it that they can afford, then that will lead to civil unrest. And that will lead to economies being significantly challenged. The Egyptian economy is already is under a huge amount of strain,” he added.
For Hodges, a client-focused approach to risk selection is necessary, “backing quality insured's in challenging environments”, he suggested.
“As we've seen the geopolitics of the world getting more and more complicated, it's around backing the right insured, an insured with a track record, an insured with expertise, with boots on the ground, with knowledge, with integrity, and that has a good Corporate Social Responsibility policy, so they're not going to fall foul of local municipalities and regional governments,” he said.
“The point about what we do in the political risk market is that we are effectively finding the gems in a challenging business environment, he said.
Hodges added: “It’s not always going to be the diamond we hoped for, but a big part of our underwriting process is getting that level of comfort with how clients behave in the country of risk, to determine whether they're going to have positive, fruitful interactions with regional government, with local communities, often with local religious leaders, and how they're going to conduct themselves often in impoverished nations that happen to be resource rich.”
Click below to listen to the episode in full, or via Spotify, Apple, etc.