A Skeptical Attitude towards Political Risk Analysis

I've recently spoken to several people who believe that the focus on political risk analysis is overblown and that the field is not as seriously regarded as other types of risk analysis. Specifically, one person told me that he doesn't believe Wall Street will ever pay for this type of subjective analysis.  Have any of you encountered such skepticism? Do you believe that political risk professionals need to work harder to legitimize the field or are these skeptical opinions in the minority?

You need to be a member of Global Risk Community to add comments!

Join Global Risk Community

Email me when people reply –


  • I think this is a misconception across the board but understandably because it's quite a new area of focus. Political risk dictates the operating environment in which businesses thrive and ignoring it would be locking yourself indoors when it's raining the whole day otherwise activity has to go on.

    Much as it's subjective analysis, i believe there are some quantifiable indicators which we can attach risk weights like Gov't stability, Socio economic conditions, internal & external conflict, etc... which insurance companies quantify though the weights varry from country to country and are not provided for public consumption. In fact am seeing more of these insurance covers coming in my country and other developing world.. We only need to do a little more on refinement of the indicators as the professionals.

  • Hello all:

    25 years ago when I was a commercial loan officer or capital markets officer at Bankers Trust, NY, my employer had an analyst attached to the economics department who was responsible for being aware of political ramifications in countries other than the developed countries that might impact the bank's exposures. From my perspective political risk is not new. However if one accepts the concept of increasing world randomness, then political risk in my opinion is now, or will be shortly, equal to the traditional market, credit, and operational risk categories we see on most job bulletin boards.

    As a mundane example, the professional risk management group in Boston in early 2000 came to the collective opinion that US GSE equities were all political risk, not financial risk. Note that we were concerned with the equities, not the GSE liabilities. The bank regulatory staff who participated in the group regularly were the primary holdouts. Based on this consensus, I was able to get my employer in 2000 and in 2006 to take GSE equities off the approved list. I know the one in 2006 did not suffer losses from that asset category in 2008 which was after I left.

  • Hi Milena.

    Depends. Are you talking about political risk analysis at the country level or the local level? If you are talking about the national level, ae you talking about closed societies or those with a free press? In open societies at the national level I would expect businesses to be skeptical about the value for the dollar. It is an inexact science, especially at the country level and above, and when the media gives all the political actors the same set of premises, the value for the price becomes a primary concern.

    However, at the level of specific projects in specific communities and sub-national regions I find a lot of companies recognizing the value. Analyses at these levels that are based on primary research get down to the nitty gritty of specific stakeholder groups and their issues. This information is too local to be gleaned from media. Project level analyses are less ambitious in scope than country level analyses, but more capable of producing a strategy that goes beyond what companies perceive as common knowledge and common sense.

    As for working to legitimize the field, the best way to do that is to find frameworks and methods that are more predictive than lunching with each other and reading blogs, newspapers, and government reports.

This reply was deleted.

    About Us

    The GlobalRisk Community is a thriving community of risk managers and associated service providers. Our purpose is to foster business, networking and educational explorations among members. Our goal is to be the worlds premier Risk forum and contribute to better understanding of the complex world of risk.

    Business Partners

    For companies wanting to create a greater visibility for their products and services among their prospects in the Risk market: Send your business partnership request by filling in the form here!