Constants and Variables in International Business’ Political Risk Assessment (2010-2020s)

Abstract

About a decade ago, the global community came to the realization that progress toward sustainable development would depend largely on the successful mobilization of private capital. However, business has not yet proved willing to assume the leading role – especially in fragile contexts – largely due to increased political risks. This article identifies constants and variables in businessʼ assessments of political risks over the 2010–20s based on selected serial reports summarizing the results of annual surveys of business representatives – Risk Barometer, by a global insurance company, Allianz, and How Leading Companies Are Managing Current Political Risks, produced by Oxford Analytica for Willis, Tower & Watson (WTW). The article first examines long-term patterns and trends in business perceptions that manifested throughout the 2010s. The article then studies the impact that the COVID-19 pandemic and the increased global turbulence following Russiaʼs special military operation in Ukraine in February 2022 had on these patterns. The research confirms the hypothesis about the existence of “constants” in the perception of political risks, despite the volatile changes in their geography, and identifies three consistent, yet paradoxical patterns: first, the clear underestimation of political risks in comparison with other risk categories; second, deprioritization of extra-legal risks and risks of escalation of interstate conflicts over non-military legal-governmental risks; and third, businessʼ limited ability to foresee the most significant political risks of any type. Neither the COVID-19 pandemic nor the escalation of conflict in Ukraine have reversed these patterns. This can be explained by the lack of in-house experience and insufficient use of external expertise in political risk assessment, as well as by an overrepresentation of developed countries (and underrepresentation of the developing world) in expert pools. Improvements in political risk management and a broader use of political risk insurance (and guarantees) might increase the effectiveness of private sector resource mobilization for international development. However, in a much more competitive global environment, a higher propensity of companies from the competing powers to invest in high-risk jurisdictions would create additional zones of tension in the Global South – in the same way as do the official development finance flows. The article concludes by suggesting various possibilities of scaling-up fundamental and applied research in political risks (including their complex interactions with international development policies) based on regular business risk surveys to get results of high importance for Russiaʼs current foreign and foreign economic policies