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Risk assessment

Enterprises investing abroad have to cope with risks that are unlikely to arise in their home country. Risk management tools can nowadays adequately assess technical and economical risks of a new direct investment. For investments in developing or emerging countries, however, there are moreover political risks which have to be taken into account such as

  • change of government or coup d'état
  • changes of the legal system
  • breach of commitments by public authorities
  • breakdown of public safety
  • war, civil disturbance, terror
  • deliberate and discriminating acts against foreign investors
  • political crises
  • convertibility and exchange problems
  • moratoriums.

As a rule, such political risks either cannot be insured by private insurance companies or prohibitive high premiums have to be paid.

The conditions in a particular host country are well-known at the time of decision. Since investments are long-term engagements, the investor has to bear in mind that the political conditions in the host country are neither predictable for the duration of the investment nor may they be influenced by the single investor.

Therefore, political risk insurance in the form of investment guarantees by the German government means more security for the investor in planning and financing foreign direct investments.

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