International Law

Secure And Insecure Countries. In Light Of Egypt. An Open Thread.

By Dan

I am always amazed and impressed and yet also somewhat skeptical of the courage of my firm's clients. Right after the fall of communism in Russia, we represented a whole slew of companies going into Russia's Far East, mostly in an effort to capture its natural resources of timber, fish and metals. I would ask them about political risks and their reaction would typically be something along the lines of how there's is a risky business to begin with.

I can also remember a couple of times where our clients walked away from what looked like great deals because of political risk concerns. One was a deal in Guinea-Bissau. Our client had been asked to take over a company that had been appropriated by the government. The profits were there, but in the end, our client said "no" because of fears that once he built up the company, his company too would be subject to appropriation. I have another client, a very successful manufacturer, who refuses to locate in any country without a strong and functioning democracy. He views even Malaysia and the Philippines too risky due to their religious disputes. Not surprisingly, however, his is a high-end, high margin business so he can easily afford to be choosy. We have another client in the resource business who loves high risk countries because those tend to have less competition and higher margins. He views getting kicked out or having to leave on a short notice as "just a cost of doing business."

But how is political risk measured? And do businesspeople, particularly those with SMEs really even have a clue.  I mean, three months ago, were any of you predicting Egypt would blow so soon?  And how do you determine your own political risk?  And which countries are risky and which are not? Are countries like China and Vietnam really as low risk as they seem? Comments are even more strongly encouraged on this one than usual (if that is even possible). Please, let us hear from you. 

Full post as published by China Law Blog on January 31, 2011 (boomark / email).