Political Risk Latin America Blog @PolRiskLatam

How to become politics-proof

Posted in News and Articles, Political Risk by politicalrisklatam on April 1, 2011

by The Economist, March 31st, 2011.

Businesses can get cover against some, but not all, political upheavals.

Regime change has an awkward way of turning useful political contacts into liabilities. Just ask Ahmed Ezz, an Egyptian steel magnate and friend of Gamal Mubarak, son of the country’s ousted president, when you next visit his jail cell. But businesses face political risk even in the absence of the kind of turmoil rocking the Middle East. Governments nationalise assets: in recent years, Congo has taken several mines from their private owners. They change the rules unexpectedly, making it harder to do business, as Research in Motion, the maker of the BlackBerry, found when some governments demanded access to users’ messages. They can enforce the law in the most draconian fashion against firms that displease them, as Russia’s Yukos found.

A survey last year by the World Bank’s Multilateral Investment Guarantee Agency (MIGA) found that political risk was the biggest deterrent for investors in developing countries over the longer term, ranked ahead of economic instability and bad infrastructure. What can they do about it?

Private insurers, national export-credit agencies and multilateral bodies like MIGA offer businesses cover against political shocks. But which firms they will insure, and on what terms, varies. National agencies, such as America’s Overseas Private Investment Corporation, tend to sell cover only to companies from their home country. Private insurers can be more risk-averse than multilateral agencies. (continue reading… )



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