Op-Ed: Politics impacts risk — part 2

Op-Ed: Politics impacts risk — part 2
Derek Smith Jr.

By Derek Smith Jr

Researchers Cason and Lopes explained: “Typically, political risk is defined as an unexpected change in ‘rules of the game’ by host-country governments that may negatively affect business operations.” There has been extensive research surrounding the impact of political risk in developing economies versus advanced economies. Whether a nation’s economy is considered developing or advanced, one point is constant: the type of economy does not exempt an organization from changing external/macroeconomic factors.

As the general election on September 16, 2021, draws closer, multinational investors, local investors, budding entrepreneurs, entrepreneurs and, most importantly, voters are paying special attention to promises and past records of political parties. Promises and records on delivery are key factors involved in the expectation and management of political risks.

In the first of a two-part series, I proctored three key recommendations from a corporate perspective, including strategically planning for political risks, building organizational resilience and responding to political risks. In this, the final article of that series, I will briefly touch on how business and personal decisions are affected by responsible or conversely irresponsible governance.


SMART promises

This is an adaptation from “specific, measurable, attainable, realistic and timely” goals. Every level of the investor will and must consider promises articulated in the political party’s plans and determine whether those promises are SMART. Also, consider their organizational goals and strategies in relation to these plans. Moreover, how does the organization’s corporate culture align with the promises made in the political party’s promises? Taking the above factors into account impacts when, how and even where they will invest — or not invest.

Similarly, the electorate must complete a similar assessment in order to make well-informed plans for their personal opportunities. What must be considered in personal assessments is how your vote impacts social unrest, corruption levels and the type of economy you wish to strive with post-September 16, 2021.


Politics (political cues) posits your position

Law and order in society are enacted, implemented and enforced by the political system, enabling choices and opportunities for the electorate directly or indirectly. Thus, the electorate may wish for proper functioning political systems (i.e. responsible governance) because they determine their freedoms and what they can strive for, regardless of ideology or affiliation. Gamlin, Donf, Labroo & Robinson (2019) claimed that people prefer utilitarian products — promises that benefit the majority — and salient political cues play a prominent role in explaining these preferences.

Alternatively, ambiguity and vague communication by governments negatively impact investor confidence and the electorate’s belief in a government to deliver on promises. Also, a 2018 Transparency International Global Corruption Barometer found that 80 percent of Bahamians consider corruption in government as an important issue. It is a topic that cannot be escaped or brushed aside by simply not addressing it. Economically speaking, corruption is the act of investing in projects that will benefit society but profit only a few individuals and their allies. Moreover, irrespective of what drives corruption, it negatively impacts the growth prospect of a country.

This uncertainty could deter foreign direct investment (FDI) and local risk-taking by the electorate.



In short, it is against this backdrop that political parties must be responsible in their promises and plans for governance. Political risk management is every stakeholder’s business.

Derek Smith Jr is a governance, risk and compliance professional of more than 20 years with a record of leadership, innovation and mentorship. His career has been fortified by holding strategic positions at a TerraLex member law firm, a Wolfsburg Group member bank and a Big 4 accounting firm. Smith is a certified anti-money laundering specialist (CAMS) and the compliance officer and MLRO for CG Atlantic’s family of companies (member of Coralisle Group Ltd) for The Bahamas and Turks and Caicos.