Political Science 354. All 6 questions and answers compiled in an easy-to-learn and coherent format. The document consists of 21 pages. All you need to pass the exam!
, Question 1: You are required to provide a conceptualization of political risk. In your discussion of
the concept, you have to address the following:
- Differentiate between political risk and political instability/uncertainty. Which one is a property
of the environment, while the other is a property of the business/organization?
- What is the meaning of micro political risk and why is it important? Provide examples.
- In a changing global environment, how does your conceptualization of political risk provide
scope to explain new or changing event?
Introduction
Political risk is a type of risk faced by investors, corporations, and governments. It is a risk that can be
understood and managed with reasoned foresight and investment. Political risk analysis is rooted in
the intersection between politics and business, and it deals with the probability that political decisions,
events, or conditions that will significantly affect the profitability of a business actor or the expected
value of a given economic action. Many different meanings have been attached to the term political
risk over time. Actors in political risk include national government, opposition parties, rebel groups,
terrorist groups, countries intervening in other countries. MNC’s also create political risk because they
are not necessarily state-actors and therefore not bound by certain foreign policy, operating
differently. This paper aims to provide a conceptualization of Political risk by differentiating between
political risk and political instability an uncertainty. The paper will then follow with a focus on the
meaning of micro political risk and its important. It will close off by provide an assessment of the
impact of political risk in a changing global environment.
Political risk and political instability
Political Risk and examples
- Political risks arise from the actions of national govts which interfere with or prevent business
transactions, changes the terms of agreements, or cause the confiscation of foreign owned
business property. These actions can also be by other political actors outside of govt. The task of
the analyst is thus to assess the level of probability that political risk will occur.
- Eg: How will the current issues between Zuma and Pravin Gordhan play out in terms of political
risk in 2017? If Gordhan is arrested, what will this indicate for business risk?
Political instability
- There is a distinction between political risk and political instability. Factors of political risk do not
always indicate political instability, and vice versa. Political instability and political fluctuations
do not necessarily change the business environment and do not represent risk for international
business. Furthermore, since political risk is understood as the probability of an event occurring,
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