In emerging markets such as Zimbabwe the power of entrepreneurship to improve lives is at times limited and hindered due to high political risk arising out of fast moving and unpredictable political developments. Whilst theoretically there are attempts to separate politics from business, finance and investment in reality they are all related and cant be easily separated. Political risk is one of the most important factors affecting the creation of properly developed entrepreneurial infrastructure which Zimbabwe and Africa urgently need.
The country’s political leaders have a specific obligation to establish political and social stability as a first step towards establishing solid entrepreneurial infrastructure. This includes predictable application of rule of law and a stable regulatory environment.
Due to globalization it is critical for any emerging market to seek normal trade relations with other nations especially the developed nations who form the critical markets. Any restrictions such as embargoes or sanctions can negatively affect the entrepreneurial infrastructure and this places an additional burden on political leaders to always act in ways which do not attract embargoes or trade restrictions as this negatively affects the entrepreneurial development potential and hinders economic development.
According to Wikipedia Political risk is defined as “Broadly, political risk refers to the complications businesses and governments may face as a result of what are commonly referred to as political decisions—or “any political change that alters the expected outcome and value of a given economic action by changing the probability of achieving business objectives.” .
Political risk faced by firms can be defined as “the risk of a strategic, financial, or personnel loss for a firm because of such nonmarket factors as macroeconomic and social policies (fiscal, monetary, trade, investment, industrial, income, labour, and developmental), or events related to political instability (terrorism, riots, coups, civil war, and insurrection).” Portfolio investors may face similar financial losses. Moreover, governments may face complications in their ability to execute diplomatic, military or other initiatives as a result of political risk”
For investors, political risk can simply be defined as the risk of losing money due to changes that occur in a country’s government or regulatory environment. Acts of war, terrorism, and military coups are all extreme examples of political risk. Expropriation of assets by the government – or merely the threat – can also have a devastating effect on share prices.
Late last decade Venezuela’s leader Hugo Chavez abruptly announced plans to nationalize CANTV, the local phone company. The Company’s share price collapsed almost 50% before the details of Chavez’s plans or ideas emerged.
As in most markets Investors sell first and ask questions later on the exact details of the proposed plan. This situation is very similar to Zimbabwe’s indigenization 51% rule. The rules and regulations have been interpreted and mis-interpreted variously leading to an unease investment atmosphere which has dampened investor sentiment especially on the Zimbabwe Stock Exchange.
Whilst the Minister responsible for the Indigenization rules and regulations Minister Saviour Kasukuwere has issued various statements on the Act the regulations remain mis-understood and are viewed as a significant political threat on potential and current investment. This situation needs to be urgently addressed through highly organized investor road-shows and investment conferences whereby the Minister and other relenant senior officials clearly explain what these rules mean and how foreign investors can feel assured that their investments wont be seized.
These investment road-shows and conferences will also give the Minister and other senior Government officials an opportunity to clarify the current business disruptions and invasions which appear aimed at foreigners. What is the official Government policy on this. And what is Government doing to ensure that these acts and activities will not be taken as officially sanctioned.
In business and investment perceptions count for everything with each day that passes with business disruptions not officially denounced it sends a bad signal to investors and the current efforts to rebrand the country will be viewed as mere sloganeering and lip service.
High political risk makes doing business in a country very expensive and capital comes at a huge premium whilst assets in the country can only be sold at a discount due to the political-risk-premium which investors demand.
Political risk insurance is available against a broad spectrum of risks, including non-payment products for financial institutions, expropriation, war and political violence, cancellation of operating licences, exchange transfer problems, import and export embargoes .This adds to cost of doing business in the country and it discourages entrepreneurs and thus negatively affects the entrepreneurial infrastructure.
All information on this site is provided "as is" for informational purposes only, not intended for trading purposes or advice. Prior to execution of any security trade, you are advised to consult your authorized financial advisor to verify the accuracy of all information. Neither GMRI Capital nor any independent provider is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein.
This article was prepared exclusively for 3MG MEDIA by GMRI Capital www.gmricapital.com
Contact
http://www.facebook.com/engcapital
http://twitter.com/engcapital
www.engcapital.ca
No comments:
Post a Comment