Question

What mitigation techniques for political, social, and economic risks should be taken by an MNC considering operation in Brazil take?

Answer 1

Foreign governments may seize, confiscate or otherwise expropriate the investment of a company for no obvious reason or without justification. They can even take a number of ##s that have the impact of being expropriated. The outcome in either scenario is that a company could lose investments or property abroad.

During an financial crisis, foreign governments or central banks may decide to enforce constraints or prohibitions on local currency conversion to hard currency or stop hard currency leaving the nation.

Political terrorism, war, civil conflict, or other types of political violence can harm or ruin the property of a company and stop it from carrying out business-critical activities.

Perhaps the most significant foundational components of any evolving market company approach are due diligence, continuing study and political risk assessment.

The MNC's must do the following

Consider diversifying your foreign investments in order not to concentrate all your risks in just one or two emerging markets. Have a clear and existing plan for mitigating political risk based on your market's "what ifs." Know how to react to a range of hazards in advance.

Involve your main external stakeholders in mitigating political risk, if possible. Brief clients, vendors and agents on your contingency plans to address unforeseen political risks and coordinate your risk reaction if necessary.

It is probable that recovering from an negative political case will be faster and easier if you prepare for it in advance and can coordinate your reaction with your key stakeholders.

Trading in emerging markets can be daunting, but risky, but it does not need to be unreasonably risky if the right strategies for planning and risk mitigation are put in place from the beginning.