• Politics Can Be Risky Business

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    The threatPolitical Risk Exposures of political uprisings and civil unrest for companies doing business overseas has never been greater. In 2011 alone we have seen the power of the revolution and how it can wreak havoc on a geographic region. A year ago would anyone have predicted that Egypt and Tunisia would be in complete turmoil and that the threat of unrest could spread so quickly throughout other countries in the region – Libya, Bahrain, Syria, Yemen.

    Political risks happen very quickly and without much notice. Contributing to the problem is social networking, which seems to be accelerating the pace and level of sophistication of these uprisings. Political activists are able to mobilize people faster and spread news that was previously tightly controlled by repressive regimes. Even security services of the various Western governments have been caught off guard.

    Insurance policies are available to provide protection against some of the common political risk exposures such as:

    • damage or destruction of physical assets due to political violence such as revolution, insurrection, civil unrest, terrorism or war
    • expropriation or confiscation of assets by government authorities
    • governmental frustration or repudiation of contracts
    • business interruption associated with political uprisings
    • currency inconvertibility or the inability to repatriate funds
    • credit risk

    Most comprehensive credit insurance policies also include coverage for the risk of “War, revolution, insurrection and civil strife or commotion.” The recent situations in Egypt, Tunisia and Libya definitely fall into this last category. This coverage relates to circumstances where the exporter’s contract is frustrated because the goods that have been shipped can’t be delivered or the financial system is in turmoil to the extent that payments cannot be processed.

    Civil strife in the form of a General Strike is a definite risk in a country where the population is protesting austerity measures that have been adopted by the government. Such events, which can frustrate a contract, may also take place in developed countries.

    The risks identified above are just the very obvious events that can trigger losses during times of political unrest. Other political and commercial risks can impact buyers as well. Businesses may have to close. A new regime may cancel signed contracts. A new regime may confiscate foreign investments or impose foreign exchange restrictions.

    Export risk management must take into account all risks, not just the buyer credit risk, but also all of the risks that are outside the control of both the buyer and the exporter. If a company has a large export component to its sales or it has a concentration of buyers in one country or region, political events can create a major cash flow problem overnight.

    Services companies with equipment abroad and companies with foreign investments are even more exposed because their assets are harder to extricate from the country when problems occur.

    Current geo-political and economic trends require that companies develop a comprehensive risk strategy that encompasses all identifiable risks, before they become apparent. A TechAssure broker can help you assess your international risk exposures and develop a plan to mitigate your exposure to such risks.

    Contributed by Ron Doyle for TechAssure
    Ron is Vice President, Millennium CreditRisk Management Limited, Ottawa, Canada

This entry was posted on July 1, 2011 at 7:49 am
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