Journal of Political Risk, Vol. 12, No. 6, June 2024

Source: Weidnfeld&Nicolson

The book Political Risk: Facing the Threat of Global Insecurity in the Twenty-First Century by Condoleezza Rice and Amy Zegart provides a remarkable overview of the political risk discipline, demonstrating its evolution and growing literature. The ten-chapter book is carefully curated to identify the importance of stakeholders understanding political risk and its evolution in the present century. The writings presented in the book are relevant, but not limited to, businesspersons, government actors, international relations practitioners, corporate personnel, policymakers, organizations, and students – especially given the rate at which the world is changing.

The book defines political risks in the twenty-first century as the probability of political action significantly affecting a business. While the book focuses on political risk in the present century, it also acknowledges the origins of political risk as a concept. For instance, in the 17^th and 18^th centuries, risk was generated by high-seas pirates for the British, Spanish, and French mariners importing exotic wares from the New World. Moreover, in the 20^th century, invasion and armed aggression generated risk for colonial holdings in Europe, Africa, Asia, and Latin America, initially prompting an understanding of political risk[1]. Ultimately, between chapters one and three, the book identifies five levels of action that can potentially generate political risk in the twenty-first century. The first level is that of the individual. Individuals can use powerful technologies to record events and carry out influential advocacy campaigns on social media platforms such as Twitter (X) and Facebook. The second level identified is the local level, including regional organizations such as local governments and political groups. On the third level, the national level, national government actors and their institutions, such as presidents, executives, and the judiciary, can influence business. Coming in at number four are transnational groups such as hackers, terrorist groups, and religious communities. Lastly, supranational and international institutions such as the European Union, the United Nations, and the African Union can be observed as potential risk sources. Throughout these chapters, the book elaborates on how each actor can and has generated political risks.

In the same breath, the book elucidates a potent guiding framework designed to discern effective risk management; the formula is to understand the risk, analyze the risk, mitigate the risk, and finally respond to the risk. The book further emphasizes how risk identification is the first step in disarming the risk. The primary significance of understanding political risk comes with discovering practical ways to prevent the risk; thus, with the formula above, risk practitioners have a tool to identify and mitigate political risk. Rice and Zegart outline the ten types of political risks: geopolitics, internal conflict, laws (regulations and policies), breaches of contracts, corruption, extraterritorial reach, natural resource manipulation, social activism, terrorism, and cyber threats. It is important to note that they have excluded economic and environmental risks (climate change) due to their domino effect. Of equal importance, the authors also note how certain factors from within, such as the ill-treatment of female workers, can also generate unforeseen risks.

In the subsequent chapters, namely chapters four, five, six, and seven, the authors focus on political risk management and the associated challenges many organizations face. A key finding in these chapters is that it is often challenging to measure political risks. This difficulty is then typically exacerbated by individuals’ cognitive bias, usually distorting the main idea of the risk. As a result, organizations require lots of time to continuously update their political risk frameworks. However, the identified risk framework challenges this elusiveness and immeasurableness by understating, analyzing, mitigating, and responding to the risk. This framework can be further enhanced by risk appetite. To best appreciate internal risks and their impact on the organization, every stakeholder must understand this concept of risk appetite. The authors further advise that the elusiveness of political risk can be eliminated through a holistic view of the situation; therefore, understating risk requires substantial creativity and effort to understand different organizational perspectives. Still, on the path of managing risks, the book invites the idea of scenario planning, which requires extensive research into the risk itself. The crucial questions in this regard are: how can we get good information about the risks we face? How can we ensure rigorous analysis? And how can we integrate political risk analysis into business decisions?

This book has not only located the significance of understating political risk but has further curated the tools and frameworks essential for risk management. The beauty of identifying risks lies in mitigating them before they can progress. To this end, chapters 8, 9, and 10 are designed to foster more innovative ways actors can identify and reduce risks. The prominent questions intended to minimize risks are: how can we reduce exposure to the risks we have identified? Do we have a sound system in place for timely warning and action? And lastly, how can we limit the damage when something terrible happens? These three questions facilitate risk mitigation and prompt a comprehensive understanding of the risk and the dynamics that encircle it. This strategy is further enriched by developing a contingency plan based on roles, repertoires of action, and coordination routines between the organization and its stakeholders.

In conclusion, the authors stress the importance of continuously acknowledging and understanding that uncertainty will forever engulf politics. Therefore, including political risk in studies, business decisions, policy frameworks, and investment plans must be understood as crucial for optimal success while fostering innovative ways to predict, mitigate, and respond to such political risks. An important example is using the black swan theory to discern the impact of the 2020 COVID-19 pandemic. While the theory may have seemed far-fetched before 2020, it does, however, aid in identifying a significant paradigm shift the world is still adapting to, even three years after the pandemic. Thus, understanding politics and its fluctuating nature is crucial to political risk analysis methods and frameworks.

Reference List

[1] Jarvis, D. S. and Griffiths, M. (2007) Learning to Fly: The Evolution of Political Risk Analysis, Global Society, 21(1): 5-21, DOI: 10.1080/13600820601116435

Ndzalama Mathebula is an Assistant Lecturer at the Department of Politics and International Relations at the University of Johannesburg. Her crucial research niches are the African political economy, international law, political risk, energy, and IR. This writing does not necessarily reflect the opinion of the institutions with which she is affiliated.