Political Risk

Political Risk refers to the potential for financial losses due to political instability, expropriation, nationalization, or changes in government policies in a foreign country. Such risks can impact a business’s operations, financial obligations, and profit repatriation.

Political instability includes civil unrest, coups, and changes in government. Expropriation involves the government seizing private assets. Nationalization refers to the government taking control of entire industries. Changes in government policies cover tax laws, trade agreements, and regulations.

For example, civil unrest can disrupt supply chains, robbing businesses of revenue. Government seizures of private property can result in direct financial losses. Nationalized industries often see a shift in control, impacting operations and earnings. Shifting tax laws can increase operational costs, squeezing profit margins.

Effective risk management involves comprehensive political risk assessment and strategic contingency planning.