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 Riding on the coattails of the recent upward surge in commodity prices across the globe was a simultaneous growth in Resource Nationalism in several resource-rich countries. An increasing number of governments across Central Asia, South America, West Africa, East Africa and Russia explicitly or implicitly adopted policies of Resource Nationalism that in many cases appear to specifically target the interests of foreign businesses. This, along with growing tensions throughout the world over food prices, the issue of fuel subsidies and the associated civil unrest and political violence have prompted companies investing and operating in foreign territories to pay closer attention to their Political Risks management.
The risks inherent in operating in emerging markets is a personal, physical and financial one. Often the company can be said to be sailing into completely unknown waters. This is more and more the case as trade patterns change significantly across the globe. One perceptible trend in the last few years was the considerable growth in the so called “South- South” trade – i.e. trade between Southern hemisphere countries – at the same time as the continual quest for new resources has led companies into new countries. In addition, the emergence of China and India as global powerhouses and the West now being mired with fears of recession means that the global economic landscape has changed dramatically.
This shift in the global economic equation comes with a new set of risks which need to be fully understood if the pitfalls of operating overseas are to be avoided. Many of the risks can be avoided by taking the time at the outset of the investment or project to correctly assess and identify the Political and Country risks. One common mistake is to take a generic view of a region or country. The context is nevertheless important, but risks need to be assessed in far more detail, identifying all the relevant stakeholders in a particular venture.
 Whilst the host government’s role in the economic success of an emerging market project is critical, the influence and impact of other stakeholders with an interest in the project will also need to be correctly measured and managed. Local communities, municipal governments, NGOs with interests in social and environmental impact, remain equally important and must be fully engaged from the outset.
Political Risks Insurance (PRI) is a valuable tool in helping mitigate those risks that remain within the project. PRI will provide insurance against perils such as Confiscation, Nationalisation, Expropriation, Political Violence, War/Civil War, Currency Inconvertibility and Transfer, Breach of Contract, Concession/Licence Cancellation and Forced Abandonment. The value of the coverage can be measured in many ways – not only in directly insuring your assets and investments – but also in creating access to financing on improved terms and protecting your balance sheet and share price.
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