Political risk assessment taken from the bases.

Semana 32

ISSN 2603 - 9931

 

In the 21st Century, political action groups, even small or individual, may impact any business thanks to a complex communications technology network. As Condolezza Rice and Zegart state, “Political risk was once just about the actions of governments, such as dictators seizing assets or legislatures regulating industries. Today, governments are still the main arbiters of the business environment, but they are no longer the only important ones. Instead, anyone armed with a cell phone or a Twitter or Facebook account can create political risks, galvanizing actions by other citizens (…)”[1]. A good example of these recent puzzle are the Arab Springs. The same authors stress the fact that current risk generators are outside the classical State channels, to include new categories related to civil society, international organizations, cultural lobbies, etc. Thus, with this framework ahead, the question that comes to mind is: is accurate when elaborating a Travel Risk Management Program to focus only in State, governmental political risks? Or shall we include other variables aside the classical ones to make an updated analysis?

 

If political risks are evolved from the exercise of political power, political power may erode the value of a firm in a specific country. Daniel Wagner, based on Robert Egge’s classical definition, classifies political risks in two categories, those directly addressed to a given company, and those related with the country where the firm is set. The ones targeting the firm are going to be usually focused on taxes, shortcomings o even bribes, which the company may solve with solid arbitration and other economic and legal measures. But there is a second category, unrelated to government, but connected to the country where the firm is set, defined as instability risks, and which may include from specific actions against the firm as terrorism or sabotage, to country-level incidents which affects also to the firm, although it is not the selected target: urban rioting, civil conflicts, labor strikes, etcetera may constitute not only a logistic problem, but a risk for the employees safety and hinder the firm’s normal functioning.

 

But what happens when the risk is more than just reputational and it may affect your personnel safety abroad? That represents a risk which a much more dangerous probable outcome than damages to reputation, although these ones may just follow the former. In many cases the pre-deployment job is utmost necessary to guarantee the safety of the employees. What inputs can we analyze in advance to make a preliminary political risk assessment?

  • Political Country profile. A political system may provide more details that the ones available at plain side. The same that a number of studies as the one of Arreguin-Toft[2] provides with indicators about how democracies are less prone to instability than nominal democracies, authoritarian regimes and dictatorship, the accountability levels seem to be higher in democracies, with this fact impacting on other issues also related to security and instability, properly said. Just as an illustrative example, the Fund for Peace publishes every year the Fragile States Index[3], which rates all the States in the world from sustainable -best rate- to alert -worst rate-, using indicators that go from security sector to health and education systems, levels of accountability and government quality, social cohesion, economic variables, etc. Those indicators may provide an image of the States where we want to deploy part of our workforce.

  • Geography. Taken from classical operational planning, geography is still a key factor to understand social construction and the odds of internal strives. Natural resources can trigger instability in presence of fragmented societies, who are divided along territorial lines based on natural elements such as plains, mountains, dense forest, etcetera. Geography is also a good indicator for foreseeing the quality of road transportation network in a country and potential problems evolved from it. Geography will define, specially in developing States and underdeveloped/failing States the reach of governments to exert the monopoly of the use of force, and therefore the presence of non-State actors facing its authority and its stability. Even its continuity.

  • Security risks. From all the above we can infer different security risks associated to the political environment. The lack of democratic transparency and accountability may lead to uprisings with different levels of violence and demonstrations, that may hinder the potential deployment of employees on the terrain. As mentioned before, fragmented societies are hotbeds for insurgencies and terrorisms which provoke casualties and threaten any odds of normal and secure life in the meantime. Road closures and barricades, security checkpoints, insecurity in general terms might come as a consequence, apart from the strictu sensu presence of violence. Likewise, failing States lacking a solid health system have problems on assisting the victims of such violence, adding the problem of violence the problem of lack of local potential treatment or the quality and effectiveness of this one.

  • Finally, elements to assess. The classical definition of political risk as uncertainties to business objectives created by political actors or political conditions, stem from governments and increasingly in non-State actors, although obviously true, seems restrictive, since many of the current risks companies -and especially their employees- face abroad goes much further than briberies, nationalizations, cancellation of licenses or even protests and strikes affecting production. As we have mentioned lines before, the political structure of a country is interconnected to the physical environment where the State is set and the society rooted in it, cohesive or fragmented as it might be. Hence, aside the classical political risks, we have a wide range of elements connected to that political structure as infrastructures, territorial control and monopoly of the use of force -sovereignty, at the end-, services provision, etcetera, which are intertwined to social stability, and consequently affect too not only production, but also business continuity, reputation and, the most important, employees safety.

 

 

 

[1] Rice, C., Zegar, A., (2018.), Political Risk: how business and organizations can anticipate global insecurity, Twelve Publishers, New York, p.4

[2] Arreguin Toft, I. (2005) How the weak wins wars., Cambridge.

[3] Fund for Peace, Fragile State Index 2019 https://fragilestatesindex.org/

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