If one word characterizes the mood of international investors at present, it is "uncertainty." Dramatic collapses in commodity prices, combined with volatility on equity and currency markets have created challenges for both developed and developing economies. Many observers now fear that the world teeters on the brink of recession, even as recovery from the full effects of the Great Recession still seems only nascent.

While significant political insecurity and concerns about global economic growth dominated headlines, top line estimates of foreign direct investment (FDI) in 2015 appear to belie these fears. The United Nations Conference on Trade and Development (UNCTAD) reported that global FDI rose by 36% to an estimated $1.7 trillion, the highest level of FDI flows since the global financial crisis. Scratch the surface of these figures, however, and the picture becomes less rosy.

Much of the increase in investment is attributable to the surge in mergers and acquisitions activity in the world's most developed economies, particularly the US and the European Union (EU) (see Article, What's Market: 2015 Year-End Public M&A Wrap-Up and Legal Update, Public M&A: Trends and highlights from 2015 (UK)). Furthermore, overall FDI flows into developing economies only increased by 5% in 2015 with much of that activity being concentrated in Asia. Regions such as Africa, Latin America, Central Asia, and Russia all saw dramatic declines in FDI, a reflection of the impact of low oil and gas prices on their resource-dependent economies.

While the decline in resource revenues is a key factor in current uncertainty, broader political and economic events also contribute to the overall sense of unease felt by many investors. In particular:

None of these events (or any other pressing geopolitical issues) are likely to find a quick resolution. Some may even escalate further, possibly in more disruptive ways, in the months ahead. Therefore, developing a comprehensive and nuanced understanding of domestic and regional political and security metrics is integral to the overall process of assessing, managing, and mitigating the risks that international investors face.

A comprehensive review of all of these geopolitical dynamics is beyond the scope of this Article. It is, however, possible to discern a few fundamental trends of particular relevance to international investors, regardless of the region or industry in which they have interest. This Article focuses on five of these trends:

Having considered these broad issues and their potential implications, this Article offers some brief suggestions on how to manage and mitigate risk exposure in an effective and integrated manner.

It can often be difficult to separate the political from the economic dynamics in the issues occupying the minds of investors. While media attention focuses on commodity price declines, stock market volatility, currency fluctuations, and future rates of economic growth, these can all sow the seeds for less obvious, but far more disruptive, political consequences which can further weaken economies and create a vicious circle of uncertainty from which there is no immediate exit.

International investors typically pay close attention to economic conditions in the countries where they are making investments. They should, however, also consider the second-order political consequences of these economic conditions. In placing economic changes in the context of national and regional politics, investors gain valuable insights into potential longer-term risks that could fundamentally alter the environment in the countries where they do business.

Nationalism and the promotion of national interests are long-standing concepts in international relations, but have garnered less attention in recent decades as many governments have devoted efforts to promoting international economic, security, and political cooperation. Prevailing wisdom holds that greater integration and interdependence between countries encourages open borders and trade while dulling the potential for international conflict.

While that narrative largely continues to hold true, recent events are presenting it with fundamental challenges. Acting in "the national interest", even where that is a source of conflict, is becoming more common and some international investors will invariably find themselves caught up in such momentum.

As nationalism asserts itself in the politics of countries around the world, investors cannot assume that doors will remain open and that governments will continue to prefer cooperation over confrontation in their diplomacy. Understanding the extent to which this phenomenon is capable of taking hold in a particular country is integral to assessing the long term health and stability of investments and signaling whether investors will need to adapt to new norms in geopolitical thinking.

Experienced investors know that a comprehensive compliance strategy is critical to managing risk in international investments. However, it is equally important to understand the broader foreign and security policy objectives lying behind these measures, to anticipate further compliance challenges before they arise. This past year saw several events which reinforced the link between compliance and political and security risk.

While many investors have become familiar with compliance obligations associated with sanctions, export controls, and anti-bribery and corruption laws, new issues requiring attention and thorough due diligence and risk management policies are also likely to develop.

Issues such as human rights violations are inherently rooted in a country's political and security environment. Non-governmental organizations and advocacy groups are intensifying efforts to look at the behavior of investors doing business in countries where these issues are endemic. Developing an advanced awareness of these conditions can help investors to identify those projects in which compliance obligations are particularly critical, where public scrutiny is likely to be high, and on which further similar legislation may be targeted during the life cycle of an investment.

A key challenge for investors is anticipating and managing emergent potential risks in countries that have previously appeared relatively stable. There can sometimes be a tendency to fall victim to status quo thinking. Conditions of the past and present are simply assumed to remain applicable in the future, without considering emerging dynamics that can fundamentally disrupt the geopolitical environment.

One potential problem lies in the issue of political succession. In countries lacking robust democratic institutions, political power can vest for considerable time with one individual or a small elite group. Little consideration is given to how the passage of power to successors will be managed. Many observers argue that one of the key reasons China's Communist Party has maintained its monopoly on power for so long lies in its ability to identify new generations of leaders and to stick to rigid schedules for successive transfers of power, thereby creating some sense of political regeneration.

The risks associated with lack of political renewal become potentially more acute in times of economic uncertainty. Even in democratic countries, voters often punish governing parties at the ballot box for perceived economic mismanagement. That mechanism does not exist where one individual or group is in complete control of a country's political system. In these circumstances, aggrieved populations may turn to more radical measures to bring about the change they demand. Understanding the degree to which these dynamics exist in countries and the extent to which governments have made provision to manage questions of succession and demands for greater democracy and accountability are always critical, but never more than in times of economic uncertainty.

Equally important will be identifying circumstances in which certain political leaders seek to circumvent constitutional limits on their power. Analysts have coined the phrase "third termism" to refer to situations in which incumbent politicians have sought to change legal limits on their terms of office. This drew particular attention in Africa in 2015 when violent protests erupted against incumbent leaders in the Republic of Congo and Burundi who sought to do that very thing. Further, members of the military loyal to Burkina Faso's former president, Blaise Compaoré, also attempted a coup to restore him to power after he was ejected from office amidst unpopularity over his own decision to seek a third term.

Similar term limits are approaching for other leaders this year, and investors should watch these issues closely given the potentially disruptive effects the protests and civil unrest could generate.

While the term "country risk" is often used to refer to all of the challenges related to investment in a particular place, events in 2015 provided a stark reminder that the political and security components of that assessment are not purely a function of circumstances within national borders. Stability can also be impacted by circumstances in neighboring countries and even those on the other side of the world.

Nowhere has this phenomenon been more recently apparent in the Middle East and North Africa. The Arab Spring was a testament to the ability of events in one country to influence political circumstances in others and spawn further instability. Now, Syria's civil war, itself prompted by the Arab Spring, is reverberating in ways that are impacting neighboring countries. Examples include:

However, it is not just in the case of civil conflict that contagion risk exists. The consequences of an economic slowdown can also transcend national boundaries. For example, due to declining economic circumstances, millions of guest workers from Central Asia are now unemployed in Russia and the remittances that they routinely send back to their home countries are estimated to have fallen by as much as fifty percent. This is having a significant impact on the overall economic health of many Central Asian countries. Approximately 45% of Tajikistan's GDP, for example, is attributable to remittances from abroad, primarily Russia. For Kyrgyzstan, that figure is estimated at 30%. This creates serious economic and political challenges for the governments of those countries, even before considering how declining resource prices are also affecting their future risk profiles.

Modern technology plays a significant role in the amplification of political risk across borders. Decades ago, acts of protest or other potential instigators of political instability often went unheeded beyond their immediate environs. That is no longer the case. The greater interconnectedness caused by the Internet and social media means that aggrieved segments of a population can quickly take notice of the actions of groups elsewhere. Technology also continues to be a highly effective recruiting tool for terrorist organizations like ISIL. In fact, FBI Director James Coney argued in 2015 that ISIL's social media strategy has, in some ways, made it a more effective threat to security than al-Qaeda.

This ability of political and security events to transcend boundaries creates a further dynamic for investors to consider when assessing their international risk profiles. Understanding that political risk analysis cannot occur in a vacuum and that it needs to draw on the implications of seemingly disparate events is an increasingly important component of the entire risk analysis process.

Virtually no investor has the ability to influence the overall economic conditions in the countries where they operate. Likewise, geopolitical events present challenges that are seemingly impossible for individuals to contain or control. However, while events of 2015 demonstrated that the global political and security risk environment is constantly evolving (often in dramatic ways) there is a greater sense of constancy in the means by which investors can factor the assessment and mitigation of these challenges into their overall risk management strategy. To those who have been dealing with these issues for years, none of these strategies will be particularly surprising, but they all bear reiteration. They include: