Podcast
Questions and Answers
Why is it important for businesses to assess the political situation of a country before investing?
Why is it important for businesses to assess the political situation of a country before investing?
A calm political situation reduces uncertainty, which makes the country attractive as a potential market. A careful assessment helps in identifying potential political risks.
Describe two types of political risks that a business might encounter when entering a foreign market.
Describe two types of political risks that a business might encounter when entering a foreign market.
Businesses might encounter instability during elections and increasing authoritarianism, factions in government or increasing levels of corruption.
What is the purpose of the Corruption Perceptions Index published by Transparency International?
What is the purpose of the Corruption Perceptions Index published by Transparency International?
It measures the perceived levels of public sector corruption in countries and territories around the world, providing a starting point for understanding corruption levels.
How might external threats, such as border conflicts or trade disputes, lead to internal power changes within a country, and why is this important for business?
How might external threats, such as border conflicts or trade disputes, lead to internal power changes within a country, and why is this important for business?
Explain why a country with a high score (approaching 100) on the Corruption Perceptions Index is considered desirable for investment.
Explain why a country with a high score (approaching 100) on the Corruption Perceptions Index is considered desirable for investment.
Flashcards
Political Stability
Political Stability
The impact of political decisions/events on a country's business environment, affecting investment value.
Political Risks
Political Risks
Risks include election instability, authoritarianism, government factions, corruption, and external threats.
Increasing Authoritarianism
Increasing Authoritarianism
An increase in dictatorial power, diminishing individual liberties, and suppression of opposition.
Factions in Government
Factions in Government
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Transparency International
Transparency International
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Study Notes
Political Stability & Business Environment
- Political decisions and events significantly impact a country's business environment and can affect investment value.
- A stable political climate reduces uncertainty, making a country more attractive for business investment.
- Assessing a country's political situation is crucial before investing to evaluate potential risks.
Key Issues to Investigate
- The nature of a government and its relationship with businesses.
- The government's ties with international bodies, for example, the UN, WTO, IMF, and World Bank.
- Legal orientation, approach to both regulation, and taxation.
- Potential political risks include elections, political vacuums, coups, terrorism, human rights issues, or protests.
Potential Business Risks
- Instability during the election period and increasing authoritarianism.
- Factions in government, such as splits in political parties.
- Increasing corruption levels.
- External threats include border conflicts, trade disputes, or threats of invasion can cause internal power changes.
Corruption Measurement
- Measuring potential corruption is often difficult when entering a new market.
- Transparency International fights corruption via its annual Corruption Perceptions Index.
- The index measures perceived levels of public sector corruption worldwide.
- Ranks 180 countries based on perceived corruption levels in the public sector, according to experts and business people, using a scale of 0-100:
- 0 indicates high corruption.
- Scores near 100 indicate a 'clean' or corruption-free country.
- In 2017, over two-thirds of countries scored below 50, with an average score of 43.
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Description
Political decisions greatly affect the business environment and investment value. Political stability minimizes uncertainty, attracting business investments. Evaluating a country's political situation is essential before investing to assess potential risks.
