Political risk is the probability that a particular political action will produce changes in economic outcomes. A risk picture that is restricted to the financial component is deficient. A risk-aware culture incorporates, in strategic planning, the insights gained through identification and analysis of risk assessment and risk appetite.
No strategy or risk management process is comprehensive if it does not include the possibility of "abnormal" times. External risks are largely uncontrollable for an organisation. Environmental scanning is thus critical to detect any changes on the horizon and to notice early warning signs that can pose a strategic risk for the organisation.
The world of politics is dynamic and complex. The 2009 ANC election manifesto highlighted challenges facing society, such as the following: "Inequality has persisted and increased in our society. Workers' share of national income has continued to decline. The rural areas remain divided between well-developed commercial farming areas, peri-urban and impoverished communal areas. The benefits of economic growth have not been broadly and equitably shared."
Businesses cannot expend too much energy on demanding certainty from the Zuma-led administration on whether there will be a change in economic policy. What is true today is not guaranteed tomorrow, because of the enormous variety of factors and individuals and complex interactions that shape policy decisions, making accurate forecasts almost impossible. When you try, critical things can get left out, with catastrophic consequences. Political risks are spawned by individuals and people with particular motivations.
There is an undeniable, emerging consensus, evident in protests by disillusioned citizens who are impatient because democratic benefits are merely trickling down to them, in contrast to the Freedom Charter's assertion that freedom would be a reality, not only when the majority took control of the state, but also when wealth of the land that had been illegitimately confiscated was reclaimed and redistributed to the people.
Leaders should know what factors - ideology, nationalism, domestic interest groups, national economic development and geopolitics - have traditionally led governments to seize private property and foreign direct investments. Governments are within their legal rights under international law to expropriate, as long as they compensate the deprived owners promptly and adequately.
Understanding the political dynamics can help business engineer a better outcome by working with government to find a third path between orthodox capitalism and communism - a path that enhances the democratisation and redistribution of wealth, to prevent a costly event of political risk.
Nationalisation remains an appealing ideology to guarantee the use of proceeds from industries such as mining and financial services to achieve developmental goals. This risk event is possible, despite countless examples of how investors and the international community instantly punish the deviation from capitalism. Governments can nationalise whole sectors using various means, such as by proxy, using laws and decrees, taxation, forced sales or the renegotiation of existing contracts to interfere with ownership and operation rights.
It is fundamentally a corporate governance issue to develop appropriate mitigating strategies, ranging from business continuity planning to the development of lobbying capacity and partnerships.
Msomi is CEO of Busara Leadership Partners
Ranking the Analysts 2009
