Political risk


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Political risk

  1. 1. INTRODUCTION: Political risk is a type of risk faced by investors, corporations, and governments. It is a risk that can be understood and managed with reasoned foresight and investment. Broadly, political risk refers to the complications businesses and governments may face as a result of what are commonly referred to as political decisions—or any political change that alters the expected outcome and value of a given economic action by changing the probability of achieving business objectives. Political risk faced by firms can be defined as the risk of a strategic, financial, or personnel loss for a firm because of such nonmarket factors as macroeconomic and social policies (fiscal, monetary, trade, investment, industrial, income, labour, and developmental), or events related to political instability (terrorism, riots, coups, civil war, and insurrection). Portfolio investors may face similar financial losses. Moreover, governments may face complications in their ability to execute diplomatic, military or other initiatives as a result of political risk. Understanding risk as part probability and part impact provides insight into political risk. For a business, the implication for political risk is that there is a measure of likelihood that political events may complicate its pursuit of earnings through direct impacts (such as taxes or fees) or indirect impacts (such as opportunity cost forgone). As a result, political risk is similar to an expected value such that the likelihood of a political event occurring may reduce the desirability of that investment by reducing its anticipated returns. There are both macro- and micro-level political risks. Macro-level political risks have similar impacts across all foreign actors in a given location. While these are included in country risk analysis, it would be incorrect to equate macro-level political risk analysis with country risk as country risk only looks at national-level risks and also includes financial and economic risks. Micro-level risks focus on sector, firm, or project specific risk. 1|Page
  2. 2. POLITICAL ENVIRONMENT OF BANGLADESH: The political system of Bangladesh is followed by representative democracy. Despite being a democratic country the safeguards of democracy are not being exercised properly which have negative impact on business operation. Political unrest is almost a daily occurrence in Bangladesh which hinders the daily national and international trading system of the country. Foreign firms are feared to come in Bangladesh with FDI. Bangladesh is a democratic country in name but not in action. The following biased democracy safeguards are some of the main hindrances of international business in Bangladesh.  Individual right to freedom of expression, opinion and organization are restricted.  Media are more or less biased to the current government.  There is more or less regular election sometimes major parties avoid election.  There are often face to face clashes among the leading political parties.  Despite being the court system is independent most of the times its functions are directed by current government.  Corrupted political state bureaucracy  Corrupted political police and armed force. This situation does not support entrepreneurship that’s why it can’t make a man innovative. That’s why local business can’t be strong. To be competitive in international business such political system and government is failing to make local business more efficient and more effective. That’s why Bangladesh is lagging behind in international business competition. Since born time Bangladesh is facing huge challenges, including a political and economic, serious poverty problems as one of the world's poorest countries, annual floods on its low-lying coasts, power shortages and rampant corruption. However, some recent political and economic developments are encouraging. The economy grew 6.71% during the 2011 fiscal year, following 2|Page
  3. 3. a growth rate of 6.32% in 2012 and 6.01% in 2013. According to the World Economic Forum Global Competitiveness Report 2012-2013, political unrest and corruption is seemed to be the greatest problem by companies facing economic development and doing business in Bangladesh. Most of the leaders of the leading political parties are highly corrupted. The leading parties are dominated mostly by the family members of the chairperson of the parties. DOING BUSINESS IN BANGLADESH: Bangladesh remains one of the poorest countries in the world despite its growth rates. It is considered to be a developing economy and its GDP is estimated to have grown 6.71% in 2011, 6.32% in 2012 and another 6.1% which is consistently decreasing. Even so, economic development is hampered by flooding, power outages and a terrible infrastructure and embedded and widespread corruption hinders the business environment. The political landscape is unstable as the ruling and the main opposition party shares a historical animosity, severely obstructing any progress on the policy agenda. It is considered not to be a politically stable country as it involves corruption and bribery as key obstacle that needs to be handled. Tensions in the political system have been serious by a series of bombings over the past years, which included bombings of high level opposition leaders, mass bombings on August 17th 2005 and a series of suicide attacks on state institutions. These incidents have thrown the potential impact of growing Islamic extremism in Bangladesh and the need for measures to tackle both its immediate and underlying causes into sharp relief. As a foreign investor investing in the Bangladesh, they will have regular interruptions from these political and social situations. Strikes, changes in regulation policies, bombings, riot, etc. are major problems that a business considers to be ineffective and they are common in Bangladesh which needs to be handled by the business itself. 3|Page
  4. 4. STRENGTHS WEEKNESS 1. Geographic location 1. No inclusive growth 2.strong agricultural backup 2.week HDI performance 3. Rapid development by NGO 3. poor inrustructure 4. Economic reforms remitances from overseas 4.lower per capita productivity 5.mainstearming women 6 limited physical capital. 5. limited resources 6. large human capital SWOT of Bangladesh OPPORTUNITIES 1. Declining vulnarability to natural diasters THREATS 1. Global financial cricis 2. comparatively lower cost of capital 3. young labor force at cheaper cost 2. lower FDIgrowth 4.global recession 3.higher skilled foreign workers 5. sharing the market growth with neighbour countries 4. rise of neighbouring countries 5. political unrest 6. unpenetrated markets Figure: SWOT Analysis of Bangladesh’s Business environment 4|Page
  5. 5. PRESENT POLITICAL SITUATION IN BANGLADESH: Since the year began, a series of general strikes have paralyzed Bangladesh, and hundreds have died in violent clashes between rival political factions. Top opposition leaders and human rights activists have been arrested. Courts have delivered guilty verdicts and death sentences that flout the most basic standards of due process. Responsibility for this crisis sits squarely with Prime Minister Sheikh Hasina, the leader of the Awami League party. Ms. Hasina seems determined to hang on to power in advance of general elections scheduled for January and to neutralize her opponents by any means necessary. In 2011, she scrapped a constitutional provision for the governing party to cede power to a neutral caretaker government three months before elections take place. Instead, Ms. Hasina set up an “all-party” government over which she presides. This is not acceptable to Khaleda Zia, a former prime minister who is the leader of the opposition Bangladesh Nationalist Party, or B.N.P. The two are locked in a potentially explosive impasse. Meanwhile, the Jamaat-e-Islami party, an ally of the B.N.P., has been banned from participating in the upcoming elections. Many Bangladeshis who support the Awami League fear that Islamist parties are threatening the foundation of a country that fought bitterly to separate from Pakistan in 1971. But banning Jamaat-e-Islami from participating in the electoral process is only forcing frustrated supporters into the streets. Figure: Flow diagram of negative impact of hartal. 5|Page
  6. 6. Meanwhile, trials held by the International Crimes Tribunal in Bangladesh, which was set up in 2009 to try people accused of committing atrocities during the 1971 war with Pakistan, have targeted opposition leaders. The tribunal appears to be yet another tool to stifle political opponents. If violations of rights continue, Bangladesh could face pressure, including perhaps sanctions, from the international community. Prime Minister Hasina needs to restore autonomy to Bangladesh’s judiciary, stop persecuting human rights activists and work with the political opposition to find an acceptable transitional government ahead of next year’s election. Table- Estimations of the direct costs of political instability from 1 January to 16 May, 2013 based on news reports from The Daily StarMonth Days of Nations Citizens Citizen Police Police Vechile Bus Police unrest wide killed injured killed injured damage damage van hartals damage Jan 5 2 5 252 2 60 513 50 9 Feb 16 4 41 1381 4 102 183 12 8 Mar 16 9 44 909 2 49 376 26 8 Apr 12 8 5 453 0 74 255 19 3 May 6 4 36 400 4 11 180 54 2 Total 55 27 131 3395 12 296 1507 161 30 Source: Reporting from The Daily Star. Note: May totals only include up through May 16. 6|Page
  7. 7. IMPACT OF POLITICAL VIOLENCE ON TRANSPORT SECTOR: There is a great loss in transport sector due to recent political violence and political instability since November. Political violence activist burnt down about 400 vehicles from November, 2012 to 19th March, 2013.They also set aflame railway 92 times. They burned down the vehicle of Fire Brigade also. According to the calculation of fire service and civil defense, 356 vehicles have been set afire. Figure: No of burned transportation. According to fire service and civil defense, 356 bus-truck have been set alight from November to 18th March and the loss in money amount is about Tk 14,33,00000.According to another reliable source of bus-truck owner‘s association and BRTA, from 28th February to 5th March, a loss money amount is about 18 crore in transport sector. From December to 3rd March, the loss amount of BRTC is about Tk 33,900,000. And the loss of Bangladesh Railway is about Tk 93,900,000. According to BRTA and bus-truck owner‘s association, 955 vehicles have been set ablaze from 28th February to 5th March. As per as calculation of police force, 129 of their vans have been broken and 37 of their vans have been set on fire. 7|Page
  8. 8. RISK FOR SMALL BUSINESS: Small business like Shop owners have incurred losses worth around Tk 15,000 crore in the last two months due to the ongoing political turbulence, traders. The situation has taken a turn for the worse as many shop-owners are being unable to pay monthly rents and employees’ wages. The sector counts Tk 250 crore in lost profits a day as there are little to no customers at the shops for fear of violence. Customers have almost stopped buying non-essential goods amid the ongoing political situation and so, daily sales have fallen significantly. On a normal day, 25 lakh small business owners transact worth around Tk 2,500 crore across the country, but the number has now come close to Tk 500 crore. Most small business owners are facing a cash crisis due to the sales slump. Many traders are also unable to pay their dues to the wholesalers. Traders are being forced to sell their family lands or ornaments to keep the business afloat as most banks are not interested in extending loans to them amid such a volatile situation. It is the peak season for selling warm clothes, but shop owners cannot tap into that opportunity as for such unrest and a short supply of products. Customers are now less interested in buying luxury goods, as people’s purchasing power, especially for the fixed income groups, has declined significantly due to the ongoing political unrest. Daily lost profit: Tk 250 cr. Daily sales decline: 80% to 500 cr. IMPACT OF POLITICAL VIOLENCEON GDP: The economy counts Tk 1,600 crore in losses for each daylong countrywide political violence while the country faces 40 political violences a year on average raising the figure of the losses to Tk 64,000 crore, reports UNB. This was found in a survey conducted by the Dhaka Chamber of Commerce and Industry (DCCI). The survey showed that the GDP is affected by 6.5 percent due to countrywide shutdowns and the GDP growth could be doubled if there is no political violence. The readymade garment (RMG) sector counts Tk 360 crore losses each day for political violence while the wholesale market, shopping malls, showrooms, small shops 8|Page
  9. 9. together count a loss of Tk 600 due to each political violence, it said. The DCCI chief alleged that political demonstrations are taking place even in commercial hubs like Motijheel, halting the business activities and hurting the economy. The country‘s GDP in2011-12 fiscal was Tk 914,780 crore and the estimated GDP for 2012-13 fiscal is Tk 978,814 crore. There are a number of other estimates which has also tried to calculate the economic loss from Political violences – however methodologies used were not available. Sector Loss per one day Loss per one year (core tk) (core tk) 360 14,400 1.56% Govt. Revenue 250 10,000 1.02% Wholesale market, 600 24,000 2.45% Education 50 2,000 0.20% Financial institution 50 2,000 0.20% Insurance Company 15 600 0.06% Transport and 60 2,400 0.24% Tourism 50 2,000 0.20% Production 100 4,000 0.41% Others 65 2,600 0.26% Total 1600 64,000 6.5% Readymade Loss in GDP (%) garments shopping malls and other shops Communication Figure: GDP Loss per day, per year and in percentage 9|Page
  10. 10. IMPACTOF POLITICAL VIOLENCE ON HUMAN RIGHTS: Political violence is a common means used by people or political parties around the world to achieve political goals. Many group and individual believe that violence is not only justified but also necessary in order to achieve their political objects. The number of political violence is threatening the livelihoods, safety and security of ordinary citizens. The risk and intensity of political violence in Bangladesh is exacerbated by the easy accessibility of small arms and light weapons. In 2011, 135 people were killed and 11532 injured as a result of political violence. A person was killed and 50 injured during the first day of the 36 hour countrywide political violence called by BNP led 18 party alliance. On the killing spot10 others also injured. In the city‘s Laxi Bazar area at about 8 am 4 bombs exploded. Another 2 bombs was exploded in Pallabi of Mirpur. A group of opposition exploded 2 bombs in front of Mirpur Ideal School. In front of Kancha Bazar at Mirpur 2 bombs was exploded. Three bombs exploded beside the office of the Narcotics Control department in Tejgaon. Political violence supporters exploded a bomb just opposite the Notre Dame College. Another group of political violence supporter blasted 4 or 5 bombs in the south Kamalapur Area. During political violence in Barisal 4 people including ASI of sadar police station injured. In Rajshahi at least 10 people including a police man were wounded in separate clashes. In Chittagong 7 people injured during chase and counter chase. At the AK Khan gate picketers exploded several bombs. In Laxmipur 20 bombs were exploded. In Narayanganj 5 people were injured in a series of clashes. The picketers exploded 5 bombs here Pro- political violence element torched 12 vehicles in separate places of the city on 1st April 2013 ahead of next daylong country wide shutdown of the opposite alliance. A stuff bus of Titas gas was set fire bypolitical violence supporters at Karwanbazar(TheBangladesh CHRONICLE, April 1, 2013). In 2nd April2013 some 40 people were injured when 6 compartment and the locomotive of a passenger train veered off the tracks in estern Bangladesh as miscreants removed several fish-plates hour of before the opposition sponsored political violence began ( Xinhua, April 03, 2013). On 8 april 2013 in Chittagong at least 17 people, including police were injured in clashes between the political 10 | P a g e
  11. 11. violence supporters and law enforcers. In Fatikchari 7 persons were injured for the clash (The Independent, 10 April, 2013). These are the small partial scenario of political violence caused by political violence in bangladesh. Table A enlighten the information gathered by ODHIKAR. The table shows us people killed and injured on account of political violence is increased from January to March. EXPORT SENARIO AT THE PRESENT TIME: Economics and business leaders feel that the economy is facing a disaster because of political violence, blocked and political instability. Exporters are incurring losses as they cannot make shipment of goods due to shut down. The frequent political violence’s are severely damaging the economy. Reporting from Dhaka for Indian daily, Deccan Herald, Hassan Shahriar points out that a single day‘s shutdown means losses amounting to at least us $69 million in export, production and revenue. Business leaders say strike has stalled the economythat was making rapid progress‖ he wrote. According to a source in Bangladesh Garments Exporter Association, the garments sectors which is country‘s biggest sources of revenue, losses $18 million daily during a political violence (Online Asia Times, July 16, 2002). Acting BKME president Habibur Rahman said that the knit wear industry experienced a staggering growth of over 37% in the first four month of the current fiscal year and the general strike would deal a big blow to it (BKMEA, Novembor 27,2010). The country‘s major exporters feared that they are unlikely to achieve the targeted export earning set for this fiscal year (FY 2012-2013). The situation will worsen by the persisting political turmoil. Buyers do not feel confident about coming and placing orders during any political instability. The country‘s major exporters said that the target of earning $28 billion is unlikely to achievr this fiscal if the situation continuous. Exporter of garment, jute, shrimp, leather and footwear products that account for 85% to 90% of the total earnings said many buyers have already cancelled their recent meetings, expressed their concern over the situation and threatened of canceling orders in case of failure to meet lead time. Chairman of Sterling group Md. Siddqur Rahman said that Buyers will shift to other places even it cost them one or two doller extra for a piece of product 11 | P a g e
  12. 12. as they do not want to take any risk ( The Financial Express, March 10, 2013). FBCCI vice president Helal Uddin Ahmad said that the country will incur a loss of at least TK 6,000 crore due particularly to disruption in the supply chain as around 20 lakh shops across the country remain shut (New Age, 3 March 2013). As recent political hazard continue to impact our export economy directly, cost of garment manufacturing has already gone up by 30%. Furthermore political violence’s are squeezing out the profit margin of our exporters since nearly half of the exporter are now air shipping the goods to their destination (Dhaka Courier, 14th March 2013). ―Air shipment cost an additional amount of TK 2 million to 2.5 million per container‖ said an entrepreneur. Normally the air cargo charges $3.5 for each kg of weight the authority‘s sources said, demand as high as $5 to $6 for each kg for weight (The Independent, 17 March, 2013). The momentum of export sector seems to be losing theme because protective measures are absolutely absent from preventing worsening situation, Govt. needs to ensure not only safety but also a smooth flow of operation inside the export processing chains. IMPORT SENARIO AT THE PRESENT TIME: Port plays an important role in the economy of Banglaesh. Political violence has a significant influence on port. Following table shows us decreasing amount of released container in Chittagong Port The dispatch rate of container in chittagong port is decreasing from January 2013 to March 2013 due to continuous political violence and violence. Though clearing up of the container is decreased in the February, on average 2 thousand 85 containers are released everyday. The rate of import is relatively less than rate of dispatched container as a result the number of cleared up container increased from 13 thousand to 19 thousand suddenly. Commissioner of Chittagong custom house Md.MasudSadik let us to know that as a result of downward tendency of dispatched container, loss of 800 core taka is incurred in March. The chairman of FBCCI KaziAkram Uddin Ahmed convey that production is stagnated as a result of political violence. Lack of security is the main reason of less clearing up. The imported goods and raw material cann’t be reached to the destiny timely. The chairman of chittagong chamber said that business activity is running less than 15 days in March. As business activity is 12 | P a g e
  13. 13. almost stopped investor are fail to repay the bank loan. For this cause the dispatch of imported product is foiled. If this political situation is continued port will bound to stop its operation. The officials of custom house and the representative of importers inform that on average every container bear the product prized 25 to 35 lakh taka. According to port secretary of caring and forward unit Liakot Ali Haolader, The 19 thousand container approximately hold the product valued 6000 crore taka. The Benepol port is failed to fulfill its target for collecting revenue. Following table shows us the facts. THE RISE OF TERRORISM IN BANGLADESH: Religious terrorism, using violence in the name of religious ideologies, has seen a sharp rise in the country. In all its manifestations, it is one of the most serious security challenges currently confronting Bangladesh. In Bangladesh, the risks and vulnerabilities created by terrorism have become a serious threat to national security. Terrorism has become a threat to life, the economy and political and religious pluralism in Bangladesh. Religious assassinations, political violence and bombings in public places of festivity, entertainment and worship, have stunned the country. In the South Asian regional context, terrorism is a serious and growing threat to regional security. Compared to the other South Asians states, terrorism in Bangladesh is relatively new, and is a largely home-grown phenomenon. Bangladesh has witnessed a sharp rise in terrorism since the mid-nineties. Over the last two decades, a number of militant groups have established their presence through violent acts of terrorism in Bangladesh. As a result critical sectors in Bangladesh, including energy, transportation, law enforcement, information technology, finance and public health, have all become increasingly vulnerable to terrorist activities. Political terrorism largely stems from unhealthy competition to retain/gain power at any cost. This is the most dangerous form of terrorism in Bangladesh. The competition for political support has caused the cost and repercussions of this kind of terrorism to be largely ignored by mainstream political parties. This ignorance and inaction not only further exacerbates the issue, but perhaps even promotes political terrorism by signalling tacit acquiescence. Religious terrorism, using violence in the name of religious ideologies, has seen a 13 | P a g e
  14. 14. sharp rise in the country. In all its manifestations, it is one of the most serious security challenges currently confronting Bangladesh. Anti-state terrorism constitutes acts of terror directed specifically against the government and state institutions and officials. An example of this is the case of the Sarbaharaparty, the objectives of which include overthrowing the existing establishment and reconfiguring state ideology. Ethnic terrorism in Bangladesh is rooted in the quest of indigenous minorities to protect their lands from encroachment and to safeguard their own ethnic identity. This can result in terrorism arising from conflicts in interest between majority and minority groups in a region, which may both resort to violence to further their political agendas. The consequences of terrorism are catastrophic. This is particularly true when certain terrorist groups have geographical protection, financial support and international networks to support their activities. An example of this is some of the militant groups in Bangladesh, which are aided by Muslim extremist organisations. The Bangladesh police and other law enforcement agencies can also be blamed for the rise of terrorism because of their corruption and political partiality. There are regular complaints regarding human right violations by law enforcement. In addition to this, inefficient border management on both the India-Bangladesh and Bangladesh-Myanmar borders facilitates the movement of terrorists and the proliferation of organised crime. Political parties, policy-makers and the civil society have so far failed to chalk out a proper plan to combat terrorism. The government has, on certain occasions, directly or indirectly employed military forces to combat terrorism, but that has only had positive effects in the short term. A set of congruent policies is necessary to combat terrorism in Bangladesh. The incumbent government should also take initiatives to reduce economic inequality. 14 | P a g e
  15. 15. CONCLUDING REMARKS AND RECOMMENDATIONS: Frequently political leaders in Bangladesh are selected according to family practice. In most of the case coming from a political family is prevailed as prerequisite for leadership. As a result prudence and providence is over and over again uncared for. So, the cycle of nepotism must be broken up for political sustainability.  The prime minister of Bangladesh enjoys absolute power which is guarded by the constitution. Reducing of prime minister‘s power and diversifying few to opposition could reduce political tensions.  Scope should be formed for the politicians who have sound experience about root level political affairs. They can use their skill for resolving crisis.  Strong lawful action against any political leaders and government high officials if found guilty through the amendment of the constitution shall raise fear in the minds of dispute planner and executor.  For ensuring Knowledge and efficiency the present rule of eligibility of a political candidate should modified.  NGO and civil society can play a well-built role for building consciousness among the people. The person who active in one political party‘s political violence often seen that the same person is going to another party‘s political violence and play destructive role in both case. This kind of event takes place only for a little amount of money which can be avoided by creating awareness.  Independent judicial division will be effectual to extend the answerability of government.  Parliament is dominated by government where oppositions are so marginalized. As a result they prefer streets rather than parliament to press their demand. Constitution could be amended to enlarge the scope of speaking of opposition party. 15 | P a g e
  16. 16.  Policy makers think that in Bangladesh disguised democracy is continuing. Here monarchy is running under the cover of democracy. To abate this tendency scope for young generation must be created based on their efficiency. TOTAL WORDS- 4,400 REFERENCES Editorial (2013, November 20). Political Crisis in Bangladesh. The New York Times. Retrieved from http://www.nytimes.com. SumanSaha (Monday, December 16, 2013). Shop owners struggle to stay afloat. The Daily Star. Retrieved from http:// www.thedailystar.net Sangbadpatre Politicalviolencechitra by AjoyDasgupta (2001); [42], Ahmed, Imtiaz (2011) [43]. http://www.dhakachamber.com/cipe/EPPs%20&%20Studie s/Political%20stability.pdf http://www.dhakachamber.com/cipe/EPPs%20&%20Studies/Political%20stability.pdf http://eprothomalo.com/displaypage.php?id=2013_03_22_10_0_b# http://eprothomalo.com/index.php?opt=view&page=1&date=2013-03-27# http://eprothomalo.com/index.php?opt=view&page=3&date=2013-03-27# http://banglanews24.com/English/detailsnews.php?nssl=175a462b8596a328146049ce3532894 e&nttl=0804201367436 http://www.thedailystar.net/beta2/news/stockmarke t-a-big-casualty-of-hartal/ http://en.bdtodaynews.com/stocks-plunge-amid- hartal/ http://www.thedailystar.net/beta2/news/loss-not- less-than-tk-500cr/ http://www.thefinancialexpress- bd.com/more.php?date=2012-04-22&news_id=127447 16 | P a g e
  17. 17. http://news.org.bd/news/business/revenue- collection-pace-still-slow-in-july-feb/ http://www.newagebd.com/detail.php?date=2013-03-28&nid=44240#.UZu1XGXyFXh DCCI (Dhaka Chamber of Commerce and Industry) survey 17 | P a g e