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23
Feb
2012
Role of Political Risk in MENA business models

When I look at the regions where the possibility of growth is relatively better, I always grade Middle East & North Africa with other regions like China, South Asia, South America, Russia and Central Asia.

 

This post is indeed not focusing to discuss the wholesome picture of the business opportunities and threats in MENA rather focusing on the issue of pricing political risk in business and financial models.

 

There is no doubt over the regional business significance of MENA. But what has been happening in this region for last two years have certainly impact long term business forecasts. The pricing of political risk has gain top importance whereby the brisk business scene can be tumble with specific events in the region.

 

After having a blow in Tunisia, Egypt and Libya, Syria is another country in the same line of fire. Iran’s nuclear issues can also have serious consequences on countries like U.A.E., Oman, Qatar and Bahrin.

 

After 2008 when the world has been experiencing the impacts of financial and economic meltdown the powerhouses that have significant funds intact, were considering different emerging economies as an alternative of North America and Europe for investments. MENA was one out of them for many.

 

Business calculations started tumbling when investors started seeing the uprising in Tunisia and then in Egypt. It was the time when a lot of concerned started reviewing their strategies and pricing of political risk. There were many that held their plans slow to understand the impact of what has been happening.

 

It was the countries like United Arab Emirates that got a spark of hope in this scenario whereby the political stability in UAE was indeed far better than other countries in the surrounding. Even the impact of their state of the art country security & law n order has always been making them a first choice in the Middle East in many aspects.

 

But then it comes to the threat of war in Iran. Even people in the region don’t believe that it is so easy for the West and Americans but again it is impacting the valuation of the political risks in business models.

 

There are various dimensions of the political risk as it can disturb the supply chain mechanism in the region [even supply from MENA to the West like Natural Gas to Italy from Qatar etc.]; it can massively impact oil prices negatively; the popular uprisings in the countries can impact abruptly in term of changes in economic & over all policies of the countries and there must be some contingencies that are still in need to be assessed.

 

The scenario is indeed unfavorable for the region that has ultimate chances of growth as of intrinsic nature of great business possibilities. It is because of the cost of financing and insurance that can go higher due to increase in premium over political risk.

 

But whatever appears it is not recommended to leave MENA from the business portfolios as of her viable growth chances. It is anyways recommended to focus state of the art risk management practices and structuring of finance to mitigate the risks that can evolve gradually.

 

Even in case of war the world has seen that a certain kind of market appears that benefit those businesses that muster the courage to spoil the opportunity.

 

I advise strategists to properly assess the risks, value it at max and then follow the steps that manage businesses in the presence of volatility around us. It is just to make sure that being businesses we need to stand otherwise if we give up in this way then it is hard to find an absolutely ideal place to do business in the world.


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Mr. Omer

Mr. Omer [1982 born] started  his professional career as a commercial / investment banker after achieving Gold Medal in Finance at master level from University of Karachi in 2006.

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