26/02/2018
‘Political Turbulence’: Biggest Challenge to Business.
By Damith Kurunduhewa (Risk Focus with DK - Sunday Times - February 25, 2018)
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‘If you don't create a sense of order and stability, if people do not feel secure, then progressive politics is dead.’ - so stated former British politician David Blunkett.
News this week illustrated that ‘Singapore to pay bonus to all citizens after surplus budget.’ Sans dipping in the statistical jargon, that is a display of tangible fruition resulted by obviously sensible and progressive politics.
The expression ‘progressive politics’ suggests that its opposite term is ‘regressive politics’. In regression too, political circuits are hyperactive in all tactical fronts, elatedly engaged in reverse dynamics, often nomadic from bad to worse, perhaps without their realization.
That is what instability generates in any platform - and a country, government or business is not under immunity. In such political crossfires, commerce and economy become spur-of-the-moment victims. It therefore is timely that lead-echelons comprehend how risks created in the political landscape affect enterprise - and boomerang impact it brings on the national growth.
Political Risk:
The term ‘political risk’ has manifold of definitions. It entraps assortment of risks created by political decisions, events or conditions affecting the profitability of investments, corporate yields and also diluting the productivity of national administration - both at macro and micro realms.
Usually, the multinational corporations and off-shore investors include political risk of the region and of the country level at zenith, before the rest. They first study the host government and how its political actions and economic attitudes can promote or demote intended business initiative.
Be it off-shore or local investment - multinational or local conglomerate - existing or futuristic, for a business, there is a likelihood that partisan events may complicate its pursuit of earnings through direct and indirect impacts. Thus is the concern for political risk grasp as a prerequisite of enterprise.
Country Risks:
Instability at direct political domain such as abrupt (or irregular) regime changes, deviation from established democratic norms, mass unrest, politically motivated radicalism, riots, insurgency, military coups, diplomatic conflicts, embargo potentialities and invasion risk create multiple negativities.
These are considered as tier 1 political risks. Such direct political risks, when unmanaged or mismanaged by the governments - add confusion, delays and downsizing of entrepreneurial investment decisions.
For instance, if the political system of the country allows the change in legislative composition by way of cross-over exoduses and thereby creating an unscheduled or abrupt change (or imbalance) in the power corridors, it is captured in the risk study transpiring as a ‘country negative’.
Enterprise Risks:
Indirect political risks (enterprise risks resulted by bad governance) such as trade barriers, currency and forex fluxes, cold legislations and regulatory barricades, tariff and interest fluctuations, red-taped bureaucracy, national debts, down-trend economics, politicization of processes and sponsored (or concerted) corruption can be slotted in the tier 2 risk contour that are enterprise in nature.
Sometimes these risks are calculated based on the industry specifics as well. There’s a lineage and linkage between the two tiers - and the flaws in the direct political risk domain initiate or escalate the hazards in the indirect political risk arena.
For instance, in order to cover up for the losses incurred owing to politically sheltered corruption, an upward tariff revision may be imposed, which is unexpected blow on enterprise. This is just the tip of the iceberg though the actual impact can cause chain detonations in multiple business spheres.
Harmful Results:
The mismanaging of macro and micro political risks by those who grip the reigns propels multi-faceted negativities for enterprise at all levels on immediate - short - mid and long term basis.
At the onset, political instability affects the country brand and business conducive reputation. That may lead to downgrading of country rating in the entrepreneurial indexes and studies. Eventually, whatever the flashy invitations we send around the globe, they seldom attract authentic investments.
The prolonging instability in the political arena is monitored by offshore prospects - and their calculated predictions - often reasoned to them by our own attitudes, expressions and actions can lead to flops such as travel adversaries, transnational insurance up-scaling and so on. All those are evil omens for business sustainability and growth.
When political instability snowballs, the negativity travels down the stream from conglomerates to village boutique doorstep. While major businesses are affected so, the state suffers a percentage of estimated tax revenue. It steadily slows down the economic growth in turn.
Sensible Posturing:
It is vital that the political leaders and national planners realize that for off-shore investments country political stability matters at the top bracket. If the country level political risk study is flashing red-lights, (not withstanding what global risk ratings indicate) it then is unlikely that the prospects would want to invest their energies further on studying enterprise risks at tier
Enterprise risks are undeniably of concern for corporates already standing on soil, but when it comes to fresh investments - direct political risks takes the precedence - greatly for off-shore investments - and to a certain degree for local investments and business expansion drives.
The strategic political decisions and maneuvers need deliberation on holistic picture - with cautious consultation with respective (apolitical) business think-tanks. Managing optimum foreign relations and trade relations externally and stable fiscal policies and administrative formalities internally entail enterprise savvy political leadership. The enterprise profitability and the national economy (ultimately the home economies) shouldn’t ache owing to hasty political perspectives narrowed to mere tunnel vision.
One track focus is good, but only for blinkered horses on the turf - not for the riders at the saddle.
Thus, it is best that every responsible entrepreneur, every responsible enterprise take nerve to insist and influence that political decisions should not solitarily be ‘political’, but be all-inclusive so that the investments, expansions, revenue forecasts, market dynamics and consumer abilities are not disturbed in the livid rush for power stakes. It finally is about the country, its people, its overall economy and its future.
Legendary French General Charles De Gaulle echoed the necessity loud and clear.
‘Politics is too serious a matter to be left to the politicians !!’
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The author is a foremost enterprise risk management specialist and a corporate risk trainer who serves as the CEO of Strategic Risk Solutions. He can be reached via eMail on [email protected] or via web
STRATEGIC RISK SOLUTIONS - Sri Lanka
