Published on July 16th, 20130
Political Risk: Where Social Science Meets Business
By Tor G. Jakobsen
Political risk is broadly defined as those events, actions, processes, or characteristics of a socio-political nature that have the potential to – directly or indirectly – significantly and negatively affect the goals of foreign direct investors.
Policy changes and government intervention constitute the most important class of political risk outcomes. Substantial or subtle changes in the “rules of the game” seem to pose a greater threat to Multinational Companies than events initiated by non-government forces, like kidnappings, sabotage, and terrorism. Even so, political instability, revolutions, military coups, and civil wars are also aspects investors need to take into account when deciding where to invest.
Political Risk Analysis has also become a multimillion dollar industry for companies providing assessments for companies interested in investing in risk-prone regions. These firms hire people with a Master’s degree in political science or economics. We in Popular Social Science have had a closer look at the actors on this arena:
Eurasia Group provides information and insight on how political developments move markets. They monitor political, economic, social, and security developments globally. Their clients include financial institutions, multinational corporations, and government agencies. They are headquartered in New York and have offices in Washington, DC, and London, and rests on ground experts and resources in more than a hundred countries.
Political Risk Services Group
PRS is based in Syracuse, New York, and focuses on political risk analysis. They provide both the Political Risk Services, which is a political risk model with three industry forecasts, and the International Country Risk Guide, which comprises 22 variables within the three subcategories of risk: political, financial, and economic.
The Economist Intelligence Unit
This is a branch of the well-known weekly news and international affairs publication The Economist. Their intelligence unit covers every developed and emerging market. Their forecasting and advisory services have informed entrepreneurs, financiers, and governments on potential risks since 1946. The unit provides country reports as well as different types of data.
Aon is a global provider of risk management services and insurance. Their Political Risk Insurance provides risk assessments of both countries and regions. They provide the Political Risk Map, which is a review of political risks global corporations face.
Bergen Risk Solutions
Bergen Risk Solutions is situated in Norway and specializes in providing analysis and strategies for oil, gas, and shipping companies. They provide political risk analysis, security risk assessment, and risk mitigation strategies for any given country, but specialize in the Niger delta and maritime risks.
Jakobsen, Jo (2012) Political Risk and the Multinational Company: Concepts, Theories and Evidence. Trondheim: Tapir.
*Cover photo by Marion Doss, gun photo by Expert Infantry