Political Risk:

Is the possibility that the political climate in a country will affect its business
environment in a way that a firm’s operating position may deteriorate or force
them to accept lower than projected rate of returns

Types:

1- Systematic Risk: risks that impact all firms whose activities are affected by
the political system, where this impact doesn’t need to create risks that may
decrease potential profits.
Ex. Newly elected government in Egypt created program to regulate &
privatize this country’s state centered economy

2- Procedural Risks: Political actions such as labor disputes & bureaucratic

delays sometimes create frictions that interfere with procedural transactions
between the units involved weather it’s a country or a company
Ex. Corrupt custom official leads to forcing a foreign company to pay for
special assistant if it wants to clear goods from customs in timely fashion

3- Distributive Risks: The process of questioning successful business weather

they are getting their fair share of the growing rewards; this is to maintain
the distributive justice of the rewards operating in a certain market.
Ex. Revising tax codes , Monetary policy

4- Catastrophic Risks: Includes random political developments that adversely

affect the operation of every company in a country this may arise from
specific civil disorder or war. Their impact disrupts the business
environment for all firms; if they spin out of control, these risks can
devastate companies or countries.
Ex. Orascom In Algeria.