Posted on 29 Apr 2010
Many companies are significantly underestimating the political risks they face when moving into emerging markets, according to a new report launched this week by Zurich Financial Services Group.
Zurich's latest Insights report, which looks at the construction industry, finds that companies are often assuming that current political stability and fiscal and economic reforms will continue indefinitely. With governments from emerging markets turning to foreign private sector companies to finance, build and deliver essential services, the report examines where the pitfalls are for companies tempted to expand in these territories.
“While emerging markets offer enhanced opportunities, these projects also present formidable political risks, including abrupt changes in a host government, abrupt changes to existing policy, the unlawful calling of guarantees, an act of war, civil strife, sabotage, terrorism or a currency crisis.” says Michael P.Bond, Executive Vice President, Zurich International Surety, Credit & political Risk.
“Given that political risk is largely unavoidable, the question hinges around how the risk can be mitigated. Understanding the political, economic and legal context of a country is the key.”
The Insights report provides a global perspective on managing risks associated with major construction projects and looks at areas including hazard analysis, risk profiling, emerging markets, alternative construction methods and enterprise risk management.