It stands to reason that rising populist sentiments combined with economic and social turmoil, particularly in single-cylinder economies, will give rise to economic nationalism. This tendency naturally coincides with a greater likelihood of traditional political risks, such as the recent expropriation of GM’s assets in Venezuela. This case, like many other examples of political risks to corporate assets, raises a series of important questions – ones likely to dominate board rooms and strategy planning for quite some time as we are firmly in a period of “tit for tat” economic reprisals.
Looking at the GM case more closely, it follows all the hallmarks of classical political risks. At once aimed at sending a signal to an iconic American brand and domestic labor groups, this expropriation carries a message to the world – namely, Venezuela is not a safe place for cross-border investors or its beleaguered people. While any seasoned global professional with the ability to read the headlines could have made this determination given the unravelling social cohesion in the country, deeper analysis reveals that when it comes to country risk, industry sectors matter nearly as much if not more than market factors. This subtle truth is often missed by many political risk analysts and market data providers, who often paint an entire country red as a no-go area the second the country appears in the headlines.
When was the last time you heard about Unilever or Proctor & Gamble having their assets seized by government action? While the risk is certainly not 0, it is comparatively lower than the exposure to political risk in the automotive, energy, extractive and transport industries, which have historically been associated with a country’s military-industrial base. Besides, these industries generally rely on marquee assets and host government concessions or guarantees to successfully run their operations. When conditions sour at a national level or when we enter a period of diplomatic and trade disputes, these types of assets fall into sharper focus in the crosshairs of government reprisals.
