Re-examining Political Risk Assessments in Volatile Regions

Abstract

Political risk assessments are increasingly becoming a business imperatives for corporations interested in expanding their business operations into developing and emerging markets, which usually exhibit political uncertainty. Political risk associated with market entry and subsequent business operations is a slowly evolving subcategory of risk analysis, and one that has not lent itself to strict mathematical modeling and probability assessments. To counter the subjective nature of non-scientific assessments, conventional political risk analysis and country risk indexes aimed at standardizing the process within formulas to account for political and social factors, mimicking thereby a standardized approach, applicable to all countries. The persisting shortcoming in this process is that political and social factors are necessarily context specific, i.e. interconnected and part of a complex adaptive system, thereby cannot be correctly evaluated as independent static variables. The resulting indexes hence remained at an artificial interval level spanning from low to high risk, and in most cases devout of valuable and relevant content for the private sector or government agencies.