Measuring political risk as risks to foreign investment : a computer-assisted model for analysing and managing political risk

[摘要] ENGLISH ABSTRACT:As the title suggests, the major challenge that this study faces is to set out and design a model foranalysing and enabling the management of political risk as investment risk - a model that is both sensitiveto and reflective of the comprehensive business and investment climate in a country, not only credit orcountry risk, or only pure political risk in its narrowest definition.In reading about past and more recent research in the field of political risk analysis, it becomes clear thatmany authors begin by noting the diversity and the discrepancies of the existing definitions of politicalrisk, but evidence in political risk insurance shows that the major perceived political risks that investorsinsure their interests against seem to be confiscation, expropriation and nationalisation. In the light of thisstudy's findings though, a case can be put forward for urging that the conceptualisation of political risk beextended to further include any or all of the micro political risk factors and their indicators that have beenidentified to ensure that political events do not impact negatively on a foreign company's profitability.Foreign investors put assets at risk to achieve their objectives and the assessment of these risks, includingpolitical risks, is the key to successful operations. Opportunities and risks are often two sides of the samecoin and political risk comprises a large part of the environmental forces in terms of the managementchallenges a Multinational Company (MNC) faces in any investment climate.A firm's foreign investment strategy deals with the positioning of the organisation in an uncertain hostcountry environment and investment climate. This study attempts to explain how a firm's political riskexposure, which refers to the sensitivity of a firm's projected profitability and operationability in a hostcountry to changes in the investment climate, could be managed and reduced. It is hoped that politicalrisk analysis and management can assist foreign operations in managing the risks that might haveotherwise proven to be destructive to profitability and operationability.It is irresponsible to present a potential investor with a risk assessment that does not incorporate politicalrisk factors and their indicators, let alone environmental, societal and socio-economic risk factorindicators. Ultimately any business climate, regardless of the country being studied, is underwritten by apolitical system, political climate, political culture and business culture of the system in which foreignbusiness wishes to operate profitably.What is often labelled as unnecessary and irrelevant detail in risk analysis often results in a lack of usingmicro risk factors and their indicators and an underestimation of the importance of such micro riskindicators. Hopefully this study takes up the challenge of showing that political risk can be managed andpolitical risk analysis can be made more precise - that it is possible to measure and manage political risk.

[发布机构] Stellenbosch University