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In the current climate, businesses and companies are facing increased political risks all over the globe, many of which have not before been seen and which are reactive to change, unpredictable, and lacking in wider confidence.
Almost every industry is being impacted by political events, even if the events taking place arenโt in your operational country. Businesses and companies that have not before been affected or paid attention to ongoing conflicts are now being forced to do so as it directly affects them.
With more and more businesses realizing that political events are now having major impacts on their businesses, these companies must look at how to mitigate and navigate political risks in emerging markets. With that in mind, letโs take a look at 3 tips for doing just that.
What Is Political Risk?
Political risk is the possibility that your business or company may suffer due to political changes or instability in a country. These can be on a national or global scale, including things such as armed conflict, pending elections, and policy developments. Changes in legislation, laws, and policies can also pose political risks.
Other influential factors that could contribute to political risk also include situations that might influence a countryโs economy. While what might seem like unique political risks that only apply to international businesses, can still affect your business. There are two types of political risk: macro and micro risk. Macro risks pose a threat to a countryโs economic or government environment, which can then impact entire industries. Micropolitical risks have smaller impacts, potentially only affecting small or individual organizations. But, itโs important to remember that a micro-political risk can have just as damaging effects on a business as a macro risk.
Risk Analysis
Researching and analyzing local infrastructure for potential regions is one way to navigate political risks, particularly before you invest in any key strategies. Itโs important that, before investing, you factor in the local political climate, as well as the recent history of the area. A risk analysis should also involve a full range of macro risks, including geopolitical issues, changing stock markets and policies, and economic, regulatory, and social risks. Risk analysis should be an ongoing process rather than a one-off task.
Consult With Local Partners
When it comes to navigating political risks, striking up partnerships with local businesses, companies, and leaders is invaluable. Establishing connections within your local market can enable you and your business to better understand the market in which you operate, as well as any specific risks. Looking to partner with community leaders can show and demonstrate the true value of your collaboration and the more that you connect, the more opportunities will open up for your business.
By teaming up with local partners, you can gain more insight into local areas and regional awareness. This then allows you to gain better insights into certain regionโs struggles and then you have partners who can advocate for you in the future. By connecting with international partners, you are then taking a key step towards better understanding the regionโs priorities and any potential implications.
Take Out Political Risk Insurance
Taking out political risk insurance is a great way to protect both your business and investors. This insurance protects your business against any political actions that would cause your company financial loss. With this insurance, as well as other types, you can get peace of mind when your company is looking to expand into additional territories. Political risk insurance isnโt mandatory and is typically used by large exporters or contractors who are facing a heightened risk of interruption. Political risk insurance can help keep your business and economic interests secure.
What Is The Difference Between Credit and Political Risk Insurance?
Trade credit insurance and political risk insurance are not mutually exclusive forms of insurance – they are instead compatible with one another. Trade credit insurance looks to cover potential risks to your companyโs short-term portfolio. Political risk insurance covers a very specific transaction with risks that vary from short-term to long-term. When it comes to securing your business transactions, credit and political risk insurance are highly compatible.
