Study Unit 2: Conceptualising Risk and Political Risk Forecast Models

Vocabulary and conceptual flashcards focusing on political risk definitions, forecasting models like EIU, BERI, ICRG, and CIFP, and strategic planning based on the Lecture Notes for Study Unit 2.

Political risk (Howell's definition)

The possibility that political decisions or events in a country will affect the business climate in such a way that investors will lose money or not make as much money as they expected when the investment was made.

Political risk (Schmidt's definition)

The application of host government policies that constrain the business operations of a given foreign investment.

Political risk (Political Science perspective)

Broadly understood to include those factors and or processes that might hinder, constrain or obviate the operation of political institutions, the exercise of legitimate rule and the functioning of civil (domestic) and international society.

Uncertainty (Theoretical Grounding)

Derives from either a lack of knowledge or from being unable to control the nature and processes within the environment when a decision is to be made.

Strategy

The setting of long-term aims and objectives within an institution and the acceptance of plans of action as well as the provision of the resources to reach such goals.

Fragile States Index

A tool produced by the Fund for Peace that highlights normal pressures and identifies when pressures are pushing a state towards the brink of failure.

International Country Risk Guide (ICRG) Indicators

Includes government stability, socio-economic conditions, investment profile, internal/external conflict, corruption, military in politics, religious tension, law and order, ethnic tension, democratic accountability, and bureaucratic quality.

Country Indicators for Foreign Policy (CIFP) Factors

Armed conflict, level of democracy (presence/procedures, constraints, civil liberties), regime durability, corruption level, and ethnic risk (population heterogeneity).

Economist Intelligence Unit (EIU) Political Variables

Bad neighbours, authoritarianism, staleness, illegitimacy, military in power, and war/armed insurrection.

Business Environment Risk Index (BERI) Categories

Internal causes (fractionalisation of political spectrum), external causes (dependence on hostile major power), and symptoms (societal conflict, demonstrations, strikes, street violence).

Political Stability (Barnard & Crouwkamp)

Assumed as a key determinant of political risk in South Africa alongside social and economic stability; it is noted that risk is frequently more a perception than reality.

Three Main Groups of Risk Models

Security risks, political risks, and socio-economic risks.

Average Likelihood and Impact (WEF 2020)

The Global Risks Landscape 2020 plotted an average likelihood of $3.31$ and an average impact of $3.47$.

Political Instability (Political Science)

Occurs where order at either the international or domestic level is replaced by chaos or where certainty in public rule and the discharge of political power becomes unpredictable.

Generic Features of Risk Analysis Frameworks

Common elements including war/armed insurrection, ethnic tension, corruption, socio-economic conditions, authoritarianism, bad neighbours, military in government, religion in politics, and government stability.