Worries about political risk

Earlier, developed markets were completely “safe”, but they are now subject to worrying protectionist pressures, rues Premila Nazareth Satyanand in a chapter titled How BRIC MNEs deal with international political risk , forming part of FDI Perspectives: Issues in international investment from the Vale Columbia Center.

A sudden reversal in established business rules can abruptly disrupt a global business model, causing as much if not more of a loss as expropriation or terrorism in a less strategic emerging market, she adds.

Citing World Investment and Political Risk 2009 which surveyed 90 of the largest BRIC investors, the author notes that Brazilian, Russian, Indian, and Chinese (BRIC) firms appear to worry more about political risk than global counterparts.

This is not surprising, the author observes, since BRIC firms invest heavily even in those developing economies they consider among “the world’s five most politically risky,” in contrast to global counterparts that stay clear of the markets they consider most unstable.

“Brazil, for instance, lists Venezuela as one of its five key emerging markets, even while ranking it as one of the world’s five most high-risk markets. China does the same with Indonesia; India with Russia and Africa; and Russia with Kazakhstan and the Commonwealth of Independent States.”

One learns that BRIC firms, like their global counterparts, worry most about breach of contract and transfer and convertibility restrictions. While Russian and Brazilian firms worry most about breach of contract, Chinese firms about war and civil disturbance, the Indian firms worry about transfer and convertibility restrictions, the author informs.

“Also, while just 9 per cent of Indian firms worry about expropriation, an average of 26 per cent of Brazilian, Russian and Chinese firms do.”

Useful insights for professionals working in the cross-border space.

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