Business Planning: Political Risk Assessments

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Political risk for a company can arise from a government's adverse action that results in excess taxes or restrictions on activities and assets. In political hot spots, political risk can also escalate to governmental overthrows, ethnic warfare, terrorist activities or kidnapping. During volatile times, global business markets that originally have shown sustained stability may quickly turn into an operational disaster for an exporting business or multinational corporation. Business organizations devise various contingency plans and strategies to identify and respond to this type of operational risk.

Business Intelligence

Political risk for a company can arise from a government's adverse action that results in excess taxes or restrictions on activities and assets. In political hot spots, risks can also escalate to governmental overthrows, ethnic warfare, terrorist activities or kidnapping. During volatile times, the business climate in a national market may quickly turn into an operational disaster. Business organizations devise various contingency plans and strategies to identify and respond to this type of operational risk.

Personnel Security

Keeping care over employee's well-being is essential where political risk poses personal danger to personnel. Increased security for both company personnel and customers may be necessary. Additionally, reduction of personnel levels may be warranted in areas where risks are high, starting with non-essential personnel to core operations. Ensure that updated records are maintained on employees in the event of emergency evacuations.

Customer Accommodations

Customers, suppliers and partners may be adversely impacted by a company's inability to continue normal operations where it finds itself in a political hotspot. For example, when an airline receives a terrorist threat, business ethical decisions will have to be made quickly to protect and inform. This may include promptly informing the media about threats and providing temporary shelter to both customers and employees.

Political Force Majeure

Financial lost can occur for multinationals when political tensions erupt into interruptions to global supply chains or into violence that results in damages. Costs are frequently mitigated in these worst case scenarios through business insurance that covers production stoppage due to national political changes. Force majeure takes on great significance in negotiated performance contracts with parties in countries exposed to high political risks. Consult legal counsel familiar with international business law and political risk analysis.

Further Reading:

World Bank: Force Majeure Clauses – Checklist and Sample Wording