POLITICAL RISK ANALYSIS: DON'T LEAVE HOME WITHOUT IT !

Many foreign investors find that frequently, they have little or no control over external events which can adversely affect the commercial viability of their investments and future business plans in foreign countries. These developments include:

• slow-down in government decisions due to political instability;
• adverse changes or unpredictability on foreign investment, import, ownership, pricing or tax issues;
• cultural problems, delays or legal disputes due to local partners and suppliers
• labour unrest and industrial action;
• disruption of normal business due to social and political unrest;
• corruption and bureaucratic inefficiency
• unexpected delays and cost-overruns due to overlapping governmental jurisdictions;
• changing regulatory frameworks;
• fluctuation of interest, inflation and currency rates etc..

Political Risk Analysis involves the study of these and other external sources of risk, and to evaluate their likely impact on specific businesses and projects. The purpose of Political Risk Analysis is to identify, analyze and predict major risks before actual investment or commitment, and to offer risk-minimization strategies and options. Political Risk Analysis provides senior company executives with a comprehensive set of determinants-- political, economic, cultural or market related-- that may influence their business, both in the short and long term, and gives them an advance look at how existing trends will likely interplay and result in positive or negative outcomes.

Political Risk is the probability that a particular political action will produce changes in economic outcomes. Political Risk Analysis is an interdisciplinary field which is gaining prominence in today's challenging business environment for the edge that it offers firms operating in politically unstable environments, where a single political development, often ignored by other types of risk analysis, can spell the difference between stunning profits and crushing losses.

Firms and other entities, including non-governmental organizations (NGOs), can use Political Risk Analysis to mitigate that uncertainty in their narrow fields. Uncertainty, like change, is a constant, and there is no such thing as having perfect information in a rapidly changing and developing world. However, astute analysts who can integrate seemingly unrelated pieces of a puzzle to form a clearer picture of the present and a better forecast for the future are much more likely to turn even a downturn into an opportunity.

Political Risk Analysis currently has far more to offer in terms of "emerging markets", with the BRICs (Brazeil, Russia, India, China), at the forefront.

Political Risk Analysis is a constantly evolving product; conditions must be constantly monitored and analyses reevaluated to reflect developments in the areas of regulations etc.. Minor changes in a seemingly stable market can create major exigencies in that market or others in our interconnected and interdependent global business environment.

In the fluid situation that exists in each of the emerging markets of the former Soviet Union, Latin America or Asia, rapidly changing dynamics can make what was a lousy business environment today a far more lucrative one tomorrow. Of course, the opposite is also true; a firm that invests billions in infrastructure or resource extraction today may find its entire enterprise expropriated or nationalized tomorrow. Therefore, Political Risk Analysis has far more to offer in the short term in such areas, helping to increase profits or moderate losses.

In some key ways, a Political Risk Analysis is like intelligence. It depends on the depth of penetration into a particular country, the quality of sources, and the talent of the analyst. Political Risk Analysts inform strategic business planning much like open source intelligence analysts which support the development of foreign policy objectives. In a world over saturated with information, those who can quickly separate the wheat from the chaff are far more likely to succeed, both in the realms of intelligence and global business. Advance knowledge of an impending event can also allow someone to influence that event, making the products of political risk analysis akin to a dual use of technology, not only letting firms mitigate risks, but also to exploit opportunities.