political risk descrition

1. POLITICAL RISK ANALYSIS
What is meant by POLITICAL RISK ?
Why is it important to know how to carry out a
POLITICAL RISK ANALYSIS ?
What tools can be used in a
POLITICAL RISK ANALYSIS ?

2. WHAT CONSTITUTES A
POLITICAL RISK ?
Political risk is a type of risk faced by
governments, investors, corporations, etc. All
actors have to calculate the risk of strategic,
financial or personnel loss caused by e.g. social
and macroeconomic policies (fiscal, monetary,
trade, investment, industrial, income, labour,
development …. legislation) or events related to
political and social instability (terrorism, riots,
coups, civil war, insurrection, etc. ).

3. Examples:
• Shifts in political power
• Corruption, legal and bureaucratic
irregulatories
• Ethnic, religious conflicts
• Class conflicts – social unrest
• Regional conflicts
• Terrorism
• Civil war
• Natural disasters - Environmental crisis
• External threats

4. POLITICAL RISKS
are often poorly understood
and consequently poorly handled!
• Many actors (corporations) have
underestimated the need for special
competence to evaluate political risks.
• Economic calculations are regarded to be more
straight-forward (scientific) and easier to carry
out and understand.
• Ekonomic actors too often assume they are
qualified to also make political risk
assessments.

5. INVESTORS ARE CONCERNED ABOUT:
• Political and economic system stability,
predictability, acceptable ethical standards,…
• Reliability of government (legislative bodies),
legal system (courts), administrative system
(state and local agencies), local labour force,
infrastructure, …
• Security of assets, personnel, property

6. Identify, assess and calculate the likelihood of
political risks:
• Political risks (Political system)
• Economic risks (Economic system)
• Legal and institutional risks (Legal system)
• Social risks (Social system)
• Corruption (Economic, political, social, legal
system)
• Administrative risks (Bureaucracy)
• Business culture
• Security of personnel, financial and physical
assets

7. THE STATE
• Territorially defined units
• Sovereignty
• Exercise ultimate internal authority
• In most cases the most powerful actor
on the world stage
• Base for citizenship/identity
• International diplomatic recognition

8. The Political System (Internal structure):
• Monarchy – Republic ?
• Democracy – Dictatorship ?
• Unitary, confederal or federal system ?
• Parliamentary democracy or ...?
• Multiparty system or ...?
• Electoral system ?
• Administrative system ?

9. • Type of Government
• Type of Policy Process
• Political Culture
• Actors (formal/informal power) – Domestic
and External (the ”two-level game”)
- The Government/the Opposition
- Other actors (organizations, corporations,
interest groups, mass media, …)
- External actors (states, organizations,
corporations, intererst groups …)
• Public Opinion (domestic and external;
gender, age cohorts, regional factors, …)

10. ”Good Governance” –
• Participation
• Rule of law
• Transparency
• Responsiveness
• Consensus orientation
• Equity and inclusiveness
• Effectiveness and efficiency
• Accountability

11. State authority challenged by:
• Internal opposition
- Minority groups (alternative governance)
- Organized econ/pol interests
- Guerilla/terrorist groups
• External actors
- ”Big powers”
- Alliances
- International organizations (Int. law)
- Popular movements (HR, Environ)

12. • In general, ethics laws, with the open
meetings and public records laws, are
designed to help ensure that local
government is conducted in an open
manner for the benefit of the public and
the local governmental unit, rather than for
the private benefit of local officials.