Mapping the new geopolitical divides Summary
We found that, over the past five years, the number of countries expressing a strong 'Western' alignment has fallen sharply. That said, while a handful of the countries we analyzed have made radical shifts in their geopolitical stance, the majority appear to be avoiding extremes of partisanship. Indeed, many Index countries appear to have consciously 'dealigned,' and are playing the superpowers off against each other. Both the handful of radical shifts and the growing number of countries choosing to dealign themselves appear to be increasing risks for investors.
Geopolitical alignment ratings key:
Introduction [i]
Sentiments like this one have raised concern that the world is becoming increasingly divided along geopolitical lines. Events such as the pandemic and the escalation of conflict in Ukraine appear to have accentuated global tensions. At the same time, by some measures, the world remains at or near historic peaks of economic globalization.
How divided is today's world? And how will globalized businesses be impacted by emerging geopolitical divisions?
For this special edition of the WTW Political Risk Index, we have asked Oxford Analytica's contributors and analysts to look beyond the superpowers and focus on the emerging world. We asked the contributors to rate the countries or territories that appear in the WTW Index on their current geopolitical alignment, and to provide a qualitative assessment of this topic at the beginning of each profile.
We asked the contributors to rate countries' orientation in their military, political and economic ties.
The ratings take the form of a 1 to 5 scale, with 5 representing a strong Western orientation (states rated 5 included Jordan, Mexico and Qatar) and 1 representing states that have taken opposing positions on key issues (states rated 1 include Belarus, China, Kazakhstan, and Russia). States' positions can be complex - countries can have military ties that lean in one direction and economic ties that lean in another, for instance. In addition to the alignment scale, we asked the analysts to provide a rating of whether a country's geopolitical alignment was contested, with 3 representing an uncertain and changeable position and 1 representing a stance unlikely to change.
We badged the countries rated 4 or 5 on the alignment scale as 'Western' in orientation, while those rated 1 or 2 are said to be 'Eastern' in orientation. The terms 'West' and 'East' in this context are a convenient shorthand - just as developing countries are often referred to collectively as the 'global South,' even though many are not in the southern hemisphere.
Some important caveats: first, our ratings are subjective. We asked Oxford Analytica's contributors to provide their personal view, not an objective assessment of, for instance, a country's dependence on Chinese, French, Russian, or U.S. military assistance or development lending. Bias and inter-rater comparability can be challenges for such subjective assessments.
A second caveat: the 61 countries and territories in the WTW Political Risk Index are a minority of developing countries worldwide. That said, the Index does include many of the world's largest and fastest-growing emerging markets, because countries are selected for inclusion in the Index based, among other criteria, on their share of global foreign direct investment.
These caveats aside, the text and ratings in the 61 profiles did produce interesting results, which we were able to assess statistically. We review the results of this analysis below.
A portrait of East and West
The geopolitical divide in emerging markets
A portrait of east and west
Source: Oxford Analytica, Freedom House, Heritage Foundation, World Bank
Is a global alliance of democracies now facing off against a group of autocratic regimes, as the U.S. National Security Strategy contends? To some degree, yes. In the accompanying figure, we look at social indicators, and present both individual data points for countries leaning East and West and averages for the blocs (as well an average for those nations maintaining a studied neutrality). Western-leaning countries and territories do tend, on average, to be more democratic, richer and more open economically. They also tend to be better rated for political violence and expropriation risks, and their governments are assessed as having a slightly stronger commitment on climate policy.
But there are outliers in both blocs. While the regional averages for East and West largely correspond to the view outlined in the U.S. National Security Strategy, the distribution tells a more complicated story (see graph). For instance, East-leaning Indonesia is relatively democratic, as are, to a lesser degree, Sri Lanka and Nigeria (according to Freedom House[ii]
A realignment – or dealignment?
Here, the picture is complex. Averaging across all the countries in the Index, the alignment rating five years ago was 3.4 (with 5 representing a strong Western orientation). Today the Index average is 3.1. In every world region, but particularly the Middle East and Africa, the Western bloc has lost ground (see graph and table). The number of countries rated at 1, firmly in the Eastern bloc, has increased compared to five years ago, from 3 to 7. Two countries, Mali and Myanmar, recently the subject of military takeovers, moved sharply Eastward (figuratively speaking).
Turning east, or becoming more neutral?
Average alignment scores globally and in world regions
That said, compared with five years ago, the number of countries leaning West (rated at 4 on our 5-point scale) has actually increased (from 18 to 19). It is the number of countries firmly in the Western bloc that has fallen strikingly - from 13 to 6. The text in the profiles appears to tell a similar story. Compared to the sharp Eastward shifts, ‘dealignment’ appears to be far more common – that is to say, many countries are shifting towards neutrality, playing East and West off against each other, and achieving political leverage by doing so. This strategy goes by different names, according to Oxford Analytica’s contributors. In Central Asia, notably Kazakhstan, it is a ‘multi-vector’ approach; in Brazil it is an ‘independent’ foreign policy; in Chile, ‘active neutrality;’ for the Association of Southeast Asian Nations (ASEAN) members, the Cold War-era term, ‘non-alignment,’ is used; Oman, meanwhile, styles itself the ‘Switzerland of the Middle East.’
Some specific examples of recent shifts: the Central African Republic, facing an arms embargo from the United Nations, has turned to Russia for security support; Cameroon has done something similar. Uganda’s government, disliking the conditionality attached to Western aid, has increasingly sought Chinese development assistance. Pakistan, Saudi Arabia, Egypt and Turkey, although key Western allies, have sought to offset Western pressure regarding democracy and human rights by courting China, Russia or both. Morocco, seeking to counterbalance European influence, has pursued a similar approach. Guyana has long sought to balance Eastern and Western interests. An energy joint venture in Guyana between a U.S. oil major and a Chinese state-owned company is both a symbol of this approach and a reminder of a time when prospects for East-West engagement seemed much brighter.
It should be noted some balancing efforts reflect regional concerns more than great power competition. Bangladesh and Sri Lanka, for instance, have sought closer ties with China largely to counterbalance India (not the West). Lebanon is turning East primarily because of limited support from traditional backers in Saudi Arabia and the U.A.E. Laos has sought China’s assistance to counterbalance the influence not of the U.S., but Vietnam.
We should also admit the East/West divide is over-simplified. There are divisions within both blocs. India, which tends to rely on Russian military equipment, has adopted a studiously neutral approach to the Ukraine conflict – but one of India’s main strategic rivals, against which the country’s Russian arms would be arrayed, is China. The government of Kazakhstan, meanwhile, is seeking to counterbalance Russian influence by turning to China (a theme in several Central Asian countries).
For those keeping score, the Western bloc does appear to be losing this game. But is that simply because the West historically had more countries in its bloc, and thus more to lose? Certainly, the East is not immune to the dealignment trend. Vietnam, for instance, has shifted from leaning East towards strategic neutrality.
Taking an admittedly crude approach to doing the sums, we classify countries or territories that have ‘dealigned’ as those that are closer to neutrality than they were five years ago. Those countries that have moved towards the Eastern bloc from either neutrality or a Western-leaning position are classed as having ‘headed East;’ those doing the opposite are classed as ‘headed West.’ Of the 61 countries and territories in the Index, the largest number, 15, have dealigned. Ten have headed East, and four West (see table).
How will the picture shift in the future? Alignments in some 28 countries are currently ‘contested,’ of which 5 are highly contested or very uncertain: Ivory Coast, Lebanon, Libya, Myanmar, and Uganda. Interestingly, three of the five highly contested countries currently lean East, suggesting the Eastern bloc has more members at immediate risk.
How have countries’ alignments changed in the past five years?
The costs of strategic competition
In its first decade, the project struggled. One of my mentors in political risk, Dr. Marvin Zonis at the University of Chicago, was informed to expect refugee crises in countries with high rates of infant mortality. The research team’s efforts had shown this statistic to be linked strongly with political turmoil – although, according to Zonis, no one really understood why.
In the early 2000s, a breakthrough was made by an unrelated group of World Bank researchers who were studying economic correlates of civil war.[iii] [iv]
The World Bank researchers also included another factor in their model: what social scientists call a ‘dummy variable’ – a simple variable that takes the value zero or one. That factor was the Cold War. Although the variable was insignificant, its inclusion in the best-performing model suggested the Cold War might have made civil wars more likely. On the face of it, this conclusion was surprising, given the end of the Cold War was itself associated with conflict – perhaps most dramatically, the wars of Yugoslav succession.
Subsequent research, and the passage of time, have offered further evidence. Some studies have found that during the Cold War, civil wars were longer, and perhaps more likely, compared to subsequent years (even after taking into account the Yugoslav wars and other such conflicts). During the Cold War, both interstate conflicts and successful military coups were also more frequent.[v]
It is a useful reminder. While the Cold War combatants did avoid nuclear Armageddon, their geostrategic competition had large costs that were passed onto other countries, mostly in the global South, where millions died during incidents of violence that may have been at least partly related to U.S.-Soviet competition.
Will the new Cold War between East and West have similar consequences for the world’s most fragile states? Some signs are ominous. The conflict in Ukraine pits East against West, at least by proxy. Libya is similarly divided, with the Eastern part of the country backed by Russia and the Western portion backed by the U.S. and its allies. In Myanmar, the opposition in exile is conducting a low-intensity civil war against a military regime some believe to have Chinese support.
The impact of dealignment
In the 1990s, in the wake of a military coup, the U.S. cut foreign aid to Malawi, at a stroke reducing Malawi’s annual economic output by 7%. Within a year, Malawi’s leaders had agreed to restore multi-party democracy[vi]
“There is no doubt the [1990s] … move to multiparty democracy [in Ghana] came not simply from deep love of that system of government, but had as much to do with the need for continued international finance to keep Ghana going”[vii]
During the 1990s, movements to democracy in the emerging world were widely interpreted as evidence no superior alternative to democracy and capitalism could be envisaged. With hindsight, however, at least some incidents of democratization, like those above, can be partially attributed to pressure from the U.S. and its allies.
And not only incidents of democratization: during this era, development institutions such as the World Bank imposed conditions on foreign aid recipients that covered not only governance but also trade and investment liberalization, privatization, balanced budgets, and financial sector liberalization.[viii]
This era was the so-called ‘unipolar moment,’ when the U.S. reigned as the world’s only superpower. Perhaps just as importantly, the other major world powers, and many multilateral institutions, were aligned with the U.S. on the importance of democracy and open markets. Indeed, one academic study found that if other advanced economies were also providing development lending to a country, the World Bank tended to make the conditions it demanded even harsher.[ix]
During the 1990s and early 2000s a united West, facing no geopolitical competitors, had significant leverage to reshape the world in its image. Whatever one thinks of this effort, it helped to make the world safer for globalized businesses.
That era has come to an end. With rising geostrategic competition has come the ability of emerging countries to gain loans, development aid, military assistance and security guarantees without signing up to great powers’ desired conditions. For instance, the academic study cited above found that when China and the World Bank both provide foreign aid to a country at the same time, the World Bank voluntarily reduces the conditions it demands – by 15%, for every percentage-point increase in Chinese aid.[x]
The dealignment trend, by which emerging market countries play the superpowers off against each other, has given governments greater freedom of choice. Some governments have chosen protectionism; others have chosen to backslide from democracy; others have chosen to take actions prejudicial to foreign investors. The days when the U.S. could cut off foreign aid and have expropriated investments returned – as it did in Sri Lanka in the early 1960s – are long gone.[xi]
Initial evidence suggests these geopolitical trends are raising risks in the countries covered in the WTW Political Risk Index. Looking at changes in risk indicators over the past five years, countries that headed West generally improved (for instance, on expropriation risk), or at least got worse at a slower pace than most others (on economic freedom). Countries that dealigned, by contrast, worsened on every risk indicator – although not so much as countries that headed East, where on average economic freedom worsened by 4%, expropriation risks by 7%, and political rights by 10% (see graph).
Perhaps understandably, the U.S. National Security Strategy focusses on countries heading East. Investors should also be concerned by this trend, as in the past five years investment risks appear to have increased most dramatically in these countries. But the dealignment trend appears to be impacting more countries and territories – and also raising political risks for investors.
While our research is only a first effort at assessing the business impacts of new geopolitical divides, the early signs are worrying. Strategic competition between East and West could have significant costs for globalized firms and could even lead to higher levels of political violence in the emerging world.
The impact of geopolitical realignment on business risks
Sources: Oxford Analytica, WTW, Heritage Foundation, Freedom House
[i] https://www.whitehouse.gov/wp-content/uploads/2022/10/Biden-Harris-Administrations-National-Security-Strategy-10.2022.pdf
[ii] https://freedomhouse.org/report/freedom-world
[iii] https://www.jstor.org/stable/3488799
[iv] https://scip.gmu.edu/political-instability-task-force/
[v] https://www.diw.de/documents/dokumentenarchiv/17/diw_01.c.346920.de/balcells_conflict_gecc.pdf ; https://www.research-collection.ethz.ch/bitstream/handle/20.500.11850/29160/eth-697-01.pdf ; http://www.systemicpeace.org/vlibrary/GlobalReport2017.pdf
[vi] Gary Clyde Hufbauer, Jeffrey J. Schott, and Kimberly Ann Elliott, Economic Sanctions Reconsidered, https://www.piie.com/bookstore/economic-sanctions-reconsidered-3rd-edition-paper
[vii] Stefan Dercon, Gambling on Development, https://www.hurstpublishers.com/book/gambling-on-development/
[viii] Ben Cormier, Mark S. Manger, “The Evolution of World Bank Conditionality: A Quantitative Text Analysis”, https://www.peio.me/wp-content/uploads/2020/01/PEIO13_paper_46.pdf
[ix] Diego Hernandez, “Are ‘New’ Donors Challenging World Bank Conditionality?”, https://www.sciencedirect.com/science/article/abs/pii/S0305750X17301055
[x] Diego Hernandez, “Are ‘New’ Donors Challenging World Bank Conditionality?”, https://www.sciencedirect.com/science/article/abs/pii/S0305750X17301055
[xi] Gary Clyde Hufbauer, Jeffrey J. Schott, and Kimberly Ann Elliott, Economic Sanctions Reconsidered, https://www.piie.com/bookstore/economic-sanctions-reconsidered-3rd-edition-paper
