CHAPTER 5

Political Risk in CIS Region

Overview

The decision of whether or not to invest in foreign markets should include an assessment of the political environment. Political discontinuities create a level of uncertainty for companies and individuals because they can lead to significant shifts in policies, regulations, governmental administration, and other potential risk factors that are not typically associated with advanced economies. Political instability can lead to restrictions on products, technology, and labor and even lead to practices of discrimination against foreign firms. This chapter will survey the impact of a series of political and economic risk assessments that include factors such as economic growth, labor unrest, social unrest, armed conflict, and how those elements interact with local investments and foreign direct investment (FDI).

The Relevance of Risk

The reader might wonder why assess democratic governance in relation to political risk. A new field in political science has emerged which attempts to explore greater connections between these two phenomena. There is a renewed interest in how the political risk affects multinational corporations operating in emerging markets, and much of the research has focused on the relationship between democratic institutions and the flow of FDI. Nathan Jensen finds, for example, the democratic regimes reduce risks for multinational investors, specifically through increasing constraints on the executive.¹

Table 5.1 provides data across a series of rankings of political risk for Commonwealth of Independent States (CIS) states and nearby territories in the region based on Freedom House indixes. Countries are rated on a scale of 1 to 7, with 1 representing the highest and 7 the lowest level of democratic progress. The average rating across the categories of “Electoral Process,” “Civil Society,” “Independent Media,” “National Democratic Governance,” “Local Democratic Governance,” “Judicial Framework and Independence,” and “Corruption” are used to create the overall country score. Each ranking is calculated using a series of variables derived from the most recent political data available (as of 2015 to 2016).

Table 5.1 Country ranking by political risk

Country	Rating	Political Rights	Civil Liberties	Freedom Rating
Armenia	Partly Free (61)	3	3	3
Azerbaijan	Not Free (16)	7	6	6.5
Belarus	Not Free (17)	7	6	6.5
Georgia	Partly Free (64)	3	3	3
Kazakhstan	Not Free (24)	6	5	5.5
Kyrgyzstan	Partly Free (38)	5	5	5
Moldova	Partly Free (60)	3	3	3
Russia	Not Free (22)	6	6	6
Tajikistan	Not Free (16)	7	6	6.5
Turkmenistan	Not Free (4)	7	7	7
Ukraine	Partly Free (61)	3	3	3
Uzbekistan	Not Free (3)	7	7	7

Note: The Democracy Scores are rated on a scale of 0=Worst and 100=Best, and regime ratings are based on a scale of 1 to 7, with 1 representing the highest level of democratic progress and 7 the lowest. The 2016 ratings reflect the period January 1 through December 31, 2015.²

These relationships, and the variables noted in the Freedom House rankings, will be explored in more detail in country-specific case studies in this chapter. Finally, the chapter will conclude with a discussion on the merits and challenges of attempting to quantify and index political risk.

The next section of this chapter will provide broader analysis and context for the results assigned to each state, including an update on consequential political events from 2016 and data provided from Freedom House. It should be noted that in the Freedom House “Freedom in the World” Report for 2016, the number of countries showing a decline in freedom for the year—72—was the largest since the 10-year slide began. Just 43 countries made gains.

The organization argues

Armenia

Quick Facts—Armenia4
Freedom Status: Partly Free	Capital: Yerevan
Aggregate Score: 46	Population: 3,017,106
Freedom Rating: 4.5	GDP/capita: $3,619.80
Political Rights: 5	Press Freedom: Not Free
Civil Liberties: 4	Net Freedom Status: Free

Corruption, constitutional reform, and a troubled geopolitical environment continued to present challenges to Armenia in 2015. In January of that year, Armenia became a member of the Eurasian Economic Union, a regional trade alliance with Russia, Belarus, Kazakhstan, and Kyrgyzstan, which joined later in the year.

In August, President Serzh Sargsyan formally submitted a reform proposal to transform Armenia’s semipresidential government into a parliamentary system with an empowered prime minister.⁵ Armenia has a semipresidential system with a directly elected president who may serve two consecutive 5-year terms. The prime minister, nominated by a parliamentary majority and appointed by the president, forms the government. The legislature, the unicameral National Assembly, is made up of 131 members serving 5-year terms. Ninety seats are chosen by proportional representation, and 41 are decided through races in single-member districts.

The Republican Party of Armenia (HHK) and Sargsyan dominate political decision making.⁶ The National Assembly includes some of the country’s wealthiest business leaders, who continue entrepreneurial activities despite conflicts of interest. Relationships between politicians and other oligarchs also influence policy and contribute to selective application of the law.

As a result, corruption remains pervasive.⁷ Some senior officials faced judicial and disciplinary action for corruption-related offenses in 2015, and the government overhauled and renewed funding for the Anticorruption Council in February that year. The rule of law does not often prevail in civil or criminal cases, and authorities apply the law selectively. Rumors that the judiciary suffers from corruption and systemic political pressure were supported by a 2013 report from the ombudsman’s office, which noted a price list for bribing judges to avoid particular charges.⁸

Finally, Armenia is a source and, to a lesser extent, destination country for men, women, and children subjected to sex and labor trafficking. According to the U.S. State Department’s 2015 Trafficking in Persons Report, the government complies with the minimum standards for the elimination of trafficking, and cooperates with antitrafficking NGOs.

Azerbaijan

Quick Facts—Azerbaijan9
Freedom Status: Not Free	Capital: Baku
Aggregate Score: 16	Population: 9,651,000
Freedom Rating: 6.5	GDP/capita: $7,884.20
Political Rights: 7	Press Freedom: Not Free
Civil Liberties: 6	Net Freedom Status: Partly Free

Azerbaijan’s political rights rating declined from 6 to 7 in 2015 due to an intensified crackdown on criticism and dissent, widespread rights violations in connection with the November 1 parliamentary elections, and serious violations of the right to a fair trial.¹⁰

Azerbaijan’s constitution provides for a strong presidency, and the 125-member Milli Majlis (National Assembly) exercises little or no independence from the executive branch. The president and members of parliament serve 5-year terms, and a 2009 referendum eliminated presidential term limits.¹¹ In reality, elections since the early 1990s have been considered neither free nor fair by international observers. The 2013 presidential election saw incumbent Aliyev—who succeeded his father, Heydar Aliyev, in 2003—reelected to a controversial third term in office, in a vote marred by widespread irregularities and electoral fraud.¹²

Corruption is widespread, and wealth from the country’s massive oil and gas exports creates ever-greater opportunities for graft. Because critical institutions, including the media and judiciary, are largely subservient to the president and ruling party, government officials are rarely held accountable for corruption.

Freedom House reports that

In 2012, the president signed a series of legal amendments to allow companies’ organizational structures and ownership to remain secret, significantly limiting journalists’ ability to uncover corruption. Although public officials are nominally required to submit financial disclosure reports, disclosure procedures and compliance remain unclear, and the reports are not publicly accessible. In April 2015, the Extractive Industries Transparency Initiative (EITI), an international platform that promotes good governance and transparency in resource-rich countries, demoted Azerbaijan from its membership to candidate status due to noncompliance with EITI standards for human rights.¹³

Belarus

Quick Facts—Belarus14
Freedom Status: Not Free	Capital: Minsk
Aggregate Score: 17	Population: 9,524,247
Freedom Rating: 7	GDP/capita: $8,040
Political Rights: 6	Press Freedom: Not Free
Civil Liberties: 6.5	Net Freedom Status: Not Free

President Alyaksandr Lukashenka secured a fifth term in the October 2015 presidential election, which failed to meet international standards, according to observers from the Organization for Security and Cooperation in Europe (OSCE).¹⁵ The president is elected for 5-year terms without limits. The 110 members of the Chamber of Representatives, the lower house of the rubber-stamp National Assembly, are popularly elected for 4 years from single-mandate constituencies. The upper chamber, the Council of the Republic, consists of 64 members serving 4-year terms; 56 are elected by regional councils, and 8 are appointed by the president.

Since Lukashenka was democratically elected to his first term in 1994, elections and referendums in Belarus have been marred by serious and systemic irregularities. The state controls 70 percent of the Belarusian economy, feeding widespread corruption. In addition, graft is encouraged by an overall lack of transparency and accountability in government. Information on the work of about 60 government ministries and state-controlled companies, including the Ministry of Information and the state broadcaster, is classified. Belarus ranks 107 out of 168 countries and territories surveyed in Transparency International’s 2015 Corruption Perceptions Index.¹⁶

The war in neighboring Ukraine, growing regional tensions, and a failing economy motivated Belarus to seek better relations with Europe and the United States during the year. In February, Lukashenka hosted leaders of France, Germany, Russia, and Ukraine for talks that resulted in a new ceasefire agreement¹⁷ and in late October 2015, the government was rewarded for the steps it had taken to improve its still-repressive human rights situation when the European Union and the United States granted the country temporary relief from sanctions.¹⁸

Most recently, tensions with Russia heightened after Russia moved to secure the previously open border shared between the two states. At his February 2017 press conference, President Lukashenka said Russia had “crossed out” existing treaties with Belarus “with the stroke of a pen.”¹⁹ The Belarusian president also accused Russia of trying to bolster its influence over Belarus by pushing to control its energy pipelines and using oil and gas supplies as a lever of power.²⁰ At the same press conference, the president stated unequivocally that Belarus does not plan to quit the Eurasian Economic Union, of which Russia, Belarus, Armenia, Kazakhstan, and Kyrgyzstan are members.

Georgia

Quick Facts—Georgia21
Freedom Status: Partly Free	Capital: Tbilisi
Aggregate Score: 64	Population: 4,000,000
Freedom Rating: 3	GDP/capita: $3,796
Political Rights: 3	Press Freedom: Partly Free
Civil Liberties: 3	Net Freedom Status: Free

Freedom House analysts argue that democratic institutions and practices in Georgia saw signs of development, stagnation, and even regression in 2015. Positively, the year saw increased evidence of political pluralism and a noticeable slowing in new prosecutions against former officials from the previously ruling United National Movement (UNM), while the structural independence and functionality of the Georgian judicial system were largely sustained in 2015.²² For the most part, the year was characterized by relative political stability. The intensity of partisan rancor between the ruling Georgian Dream (GD) and the opposition UNM was somewhat less apparent during the year, likely due in part to the absence of high-profile election events.

Ambiguity over shared power between the presidency and premiership did put Prime Minister Gharibashvili and President Giorgi Margvelashvili increasingly at odds in 2014 and 2015.²³ In 2014, Gharibashvili and Margvelashvili fought over attendance at the United Nations (UN) Climate Summit,²⁴ and in September 2015, the two leaders sparred again over representation at the UN General Assembly.²⁵ Margvelashvili, preempted from a UN appearance by Gharibashvili, took a separate trip to the United States in the same period, and complained publicly that the Georgian Ambassador to the United States, who accompanied the prime minister at the UN, showed insufficient deference to the presidential office.²⁶

Recent polls indicate that some segments of the Georgian public increasingly embrace pro-Russian and anti-Western policies,²⁷ though they continue to represent the minority and their support significantly lags behind that of Euro-Atlantic integration. Pro-Russian political parties in Georgia are widely seen as being funded by Moscow and part of Russia’s efforts to extend its influence over Georgia and destabilize the country.²⁸

Kazakhstan

Quick Facts—Kazakhstan29
Freedom Status: Not Free	Capital: Astana
Aggregate Score: 22	Population: 17,800,000
Freedom Rating: 6	GDP/capita: $10,510
Political Rights: 7	Press Freedom: Not Free
Civil Liberties: 5	Net Freedom Status: Not Free

Freedom House analysts believe that Kazakhstan’s political rights rating declined from 6 to 7 in 2017 due to voters’ lack of access to any genuine political choice and the continuation of efforts by the government to stifle opportunities for opposition groups. In April 2015, Nursultan Nazarbayev won a landslide victory in an early presidential election, securing a fifth term in office.³⁰ Government corruption and the president’s family remained taboo subjects in the press, social media, and academia, and official hostility toward discussion of two additional controversial topics, the conflict in Ukraine and the spread of the Islamic State (IS) militant group in Central Asia, further diminished space for freedom of expression. Authorities also continued imposing restrictions on freedoms of assembly and association during the year.³¹

Kazakhstan became a member of the World Trade Organization (WTO) in June. New criminal, criminal executive, and administrative codes, however, went into effect in January and contained wide restrictions on the formation and operation of NGOs, including enhanced penalties for the leaders of organizations as well as general restrictions on activities not sanctioned by their organizations’ charters.³² The legislation also contained restrictions on the ability of individuals to organize and hold public gatherings. Foreign citizens cannot create public associations, but can become members.

Kyrgyzstan

Quick Facts—Kyrgyzstan33
Freedom Status: Partly Free	Capital: Bishkek
Aggregate Score: 37	Population: 6,100,000
Freedom Rating: 5	GDP/capita: $1,103
Political Rights: 5	Press Freedom: Not Free
Civil Liberties: 5	Net Freedom Status: Partly Free

In March 2015, Prime Minister Joomart Otorbayev and his government resigned³⁴ after failing to negotiate a more advantageous agreement with the country’s largest foreign investor, the Canadian mining firm Centerra Gold. The parliament confirmed Temir Sariyev as the new prime minister in May.³⁵ He is a long-serving politician who is widely regarded as having close ties to Russia, which became even more significant as Kyrgyzstan officially joined the Russian-led Eurasian Economic Union in August.³⁶

Throughout 2015, nationalist and vigilante groups intensified harassment of minority populations that are perceived to be favored by Western countries.³⁷ European and U.S. organizations faced similar intimidation as well as legal pressure.³⁸ Although legislation modeled on Russia’s “foreign agents” law continued to enjoy public support from President Almazbek Atambayev, it had yet to be adopted at the end of 2015.³⁹

Kyrgyzstan was ranked 123 out of 168 countries and territories surveyed in Transparency International’s 2015 Corruption Perceptions Index. An opinion survey conducted in early 2015 by the International Republican Institute found that 42 percent of Kyrgyzstanis believe that their parliament is “very corrupt,” and another 37 percent consider it “somewhat corrupt.”⁴⁰

Moldova

Quick Facts—Moldova41
Freedom Status: Partly Free	Capital: Chisinau
Aggregate Score: 62	Population: 3,600,00
Freedom Rating: 3	GDP/capita: $1,848
Political Rights: 3	Press Freedom: Partly Free
Civil Liberties: 3	Net Freedom Status: Partly Free

Moldova experienced a significant political crisis in 2015,⁴² as the aftershock of a banking scandal⁴³ and discord among parliamentary parties and prominent officials caused deep government dysfunction and stalled ongoing reform efforts.⁴⁴ Details about a major fraud scheme involving three Moldovan banks continued to emerge during the year, implicating high-ranking public figures and leading to mass protests. According to Freedom House, “the tense climate complicated the process of government formation, contributing to disagreements among the parties that had won seats in the November 2014 parliamentary elections.”⁴⁵ After multiple transfers of power, the year ended in a political impasse, with parties unable to form a new governing coalition.

The banking scandal, in particular, emphasized the depth of influence wielded by the country’s business elites on the political process, and underlined the extent of corruption at all levels of government. The scandal had serious financial consequences for the country, contributing to the devaluation of the leu, inflation, and the suspension of assistance from the International Monetary Fund (IMF), World Bank, and EU. Moldova was ranked 103 out of 168 countries and territories surveyed in Transparency International’s 2015 Corruption Perceptions Index.⁴⁶

Russia

Quick Facts—Russia47
Freedom Status: Not Free	Capital: Moscow
Aggregate Score: 20	Population: 144,300,00
Freedom Rating: 6.5	GDP/capita: $9,093
Political Rights: 7	Press Freedom: Not Free
Civil Liberties: 7	Net Freedom Status: Not Free

According to Freedom House analysts, Russia’s economy continued to deteriorate in 2015 as “the Kremlin worked to preempt potential domestic discontent through the distraction of foreign interventions.”⁴⁸ With the conflict in eastern Ukraine settling into a stalemate, President Vladimir Putin sent Russian aircraft to Syria in September⁴⁹ and began bombing the opponents of Syrian leader Bashar al-Assad, directly engaging the Russian military outside the former Soviet Union for the first time since Soviet troops left Afghanistan.⁵⁰

Domestically, the Kremlin continued a crackdown on civil society, ramping up pressure on domestic nongovernmental organizations (NGOs) and branding the United States-based National Endowment for Democracy and two groups backed by billionaire philanthropist George Soros as “undesirable organizations.”⁵¹ Freedom House also reported that the regime “intensified its tight grip on the media, saturating the information landscape with nationalist propaganda while suppressing the most popular alternative voices. In the annual round of regional and local elections, serious opposition candidates were again prevented from competing.”⁵²

The economy shrank by approximately 4 percent over the course of the year due to structural problems,⁵³ falling oil prices,⁵⁴ Ukrainerelated sanctions,⁵⁵ and the Kremlin’s own countersanctions on European imports.⁵⁶ In another sign that the country’s aggressive foreign policy was increasing its international isolation, the government imposed new sanctions on a variety of Turkish goods and companies after a Turkish fighter jet shot down a Russian warplane over Syria in November.⁵⁷

In some cases, analysts note that the Kremlin appeared to signal to officials that corruption needed to be scaled down given Russia’s growing economic difficulties. Vladimir Yakunin, a powerful member of Putin’s inner circle, resigned under pressure as head of Russian Railways in August,⁵⁸ with some reports saying that corruption was a factor. Freedom House reports argue that the move was “seen as significant because control over key state companies provides favored individuals with access to considerable funds.”⁵⁹

Tajikistan

Quick Facts—Tajikistan60
Freedom Status: Not Free	Capital: Dushanbe
Aggregate Score: 11	Population: 8,600,00
Freedom Rating: 6.5	GDP/capita: $926
Political Rights: 7	Press Freedom: Not Free
Civil Liberties: 6	Net Freedom Status: Not Free

According to recent reports, Tajikistani authorities continued to “arbitrarily limit free speech, access to information, and the right to civic organization in 2015.”⁶¹ The government led a legal and media campaign against the country’s largest opposition group, the Islamic Renaissance Party of Tajikistan (IRPT), ahead of and following parliamentary elections in March,⁶² in which the ruling People’s Democratic Party (PDP) retained its majority. In September, after a series of decisions revoking the legal status of the IRPT and limiting its activities, the Supreme Court declared the party a terrorist organization, criminalizing membership in or public expression of support for the group.⁶³ Authorities shuttered IRPT offices and arrested scores of members following the decision.

Patronage networks and regional affiliations are central to political life, and corruption is pervasive. Major irregularities at the National Bank of Tajikistan⁶⁴ and the country’s largest industrial company, TALCO Aluminum,⁶⁵ have been documented and linked together. Tajikistan was ranked 136 out of 168 countries and territories surveyed in Transparency International’s 2015 Corruption Perceptions Index.⁶⁶ Public officials are not required to disclose financial information, and government decision making and budgetary processes lack transparency.

Turkmenistan

Quick Facts—Turkmenistan67
Freedom Status: Not Free	Capital: Ashgabat
Aggregate Score: 3	Population: 5,400,00
Freedom Rating: 7	GDP/capita: $6,672
Political Rights: 7	Press Freedom: Not Free
Civil Liberties: 7	Net Freedom Status: Not Free

Analysts from Freedom House argue that President Gurbanguly Berdymukhammedov’s government reinforced its repressive controls on politics and society in 2015.⁶⁸ During the year, “legislators discussed constitutional changes that would allow the president to serve for an unlimited number of terms. State authorities continued to limit the availability of independent information, harass and imprison critics, and pressure ethnic and religious minorities.”⁶⁹ International criticism and pressure have not led to genuine respect for fundamental freedoms by the government. When confronted with accusations of human rights violations at the annual Human Dimension Implementation Meeting hosted by the OSCE in September, the delegation from Turkmenistan denied the claims, calling them “subjective, provocative attacks and biased comments.”⁷⁰

Corruption in Turkmenistan, which was ranked 154 out of 168 countries and territories surveyed in Transparency International’s 2015 Corruption Perceptions Index, is widespread.⁷¹ Many public officials are widely understood to have bribed their way into their positions. The government’s lack of transparency affects nearly all spheres of the economy and public services.

Ukraine

Quick Facts—Ukraine72
Freedom Status: Partly Free	Capital: Kyiv
Aggregate Score: 61	Population: 42,700,00
Freedom Rating: 3	GDP/capita: $2,115
Political Rights: 3	Press Freedom: Partly Free
Civil Liberties: 3	Net Freedom Status: Partly Free

According to most analysts, conditions in Ukraine stabilized somewhat in 2015 compared with the previous year, which included the Euromaidan protests,⁷³ the downfall of President Viktor Yanukovych,⁷⁴ Russia’s occupation of Crimea and invasion of the Donbas,⁷⁵ and presidential and parliamentary elections. With Crimea still held by Russia and continued fighting between government forces and Russian-backed separatists in eastern Ukraine, President Petro Poroshenko’s top priority was restoring the country’s territorial integrity and peace within its borders.⁷⁶ The leaders of Ukraine, Russia, France, and Germany agreed in February to the so-called Minsk II accord, which called for a cease-fire, withdrawal of heavy weapons from the front, release of hostages and detainees, changes in the Ukrainian constitution to give more autonomy to the regions, legislation on special status for parts of the Donbas regions of Donetsk and Luhansk, withdrawal of foreign forces from Ukraine, and restored Ukrainian government control over the eastern border by the end of 2015.⁷⁷

Meanwhile, Ukraine continued to pursue greater integration with Europe. A free-trade agreement with the European Union (EU) was set to take effect at the beginning of 2016,⁷⁸ and much of Ukraine’s previous trade with Russia has been cut off by tit-for-tat sanctions between the two countries.⁷⁹ However, obstacles to further integration include stalled anticorruption reforms and the activities of armed militia groups.

A package of anticorruption legislation adopted in 2014 is being implemented slowly. The reforms set up a National Anticorruption Bureau (NABU) to investigate corrupt officials, called for a National Agency for Corruption Prevention (NACP), and sought to establish a separate anticorruption section within the prosecutor general’s office.⁸⁰

Uzbekistan

Quick Facts—Uzbekistan81
Freedom Status: Not Free	Capital: Tashkent
Aggregate Score: 3	Population: 31,900,000
Freedom Rating: 7	GDP/capita: $2,132
Political Rights: 7	Press Freedom: Not Free
Civil Liberties: 7	Net Freedom Status: Not Free

In March 2015, President Islam Karimov was reelected to a fourth term with a reported 90 percent of the vote despite a constitutional limit of two consecutive terms.⁸² The government continued to suppress all political opposition during the year. The few remaining civic activists and critical journalists in the country faced physical violence, prosecution, hefty fines, involuntary hospitalization, and arbitrary detention. In an exceptional case in February, authorities released popular journalist and religious figure Hayrullo Hamidov, who served 5 years of a 6-year sentence on religious extremism charges.⁸³

Gulnara Karimova, the president’s elder daughter, remained under house arrest in 2015 amid persisting allegations of corruption and links to organized crime.⁸⁴ Several high-ranking officials who played a role in the case against Karimova and her associates were dismissed, signaling what many analysts believe are ongoing shifts in internal competition for power and resources.

Corruption is pervasive. Uzbekistan was ranked 153 out of 168 countries and territories surveyed in Transparency International’s 2015 Corruption Perceptions Index.⁸⁵ Graft and bribery among low- and mid-level officials are common and at times even transparent. Social-media platforms have given space to new public discourse on corruption, allowing citizens to self-document bribery and other malfeasance. Citizens have made efforts to gather and publicize evidence of abuse of office in some sectors, but these attempts have not been successful in compelling the government to change Uzbekistan’s entrenched culture of corruption.

Assessing Political Risk

As barriers to regional and international trade are lowered, investors continue to seek new opportunities in emerging markets around the world. As we have seen in the individual case studies, these markets are vulnerable to a wide range of forces, known as political risk, which are beyond the control of potential investors. These risks might include corruption, unstable government institutions, reforming financial systems, uncertain legal systems or regulatory regimes, and even currency instability.

Techniques for assessing these risks are wide ranging, from traditional methods employing comparative ratings and mapping systems (as illustrated in the case studies of this chapter), to special reports, expert systems, modeling, and logit analysis. No assessment method is perfect, and correlating the individual variables does not often yield accurate measurements of potential loss generated by political risk.

Yet, companies acknowledge that no matter their size, they must consider the political environment when planning to conduct business abroad. As noted in previous publications within this series, “one of the most undeniable and crucial realities of international business is that both host and home government are integral partners.”⁸⁶

Further, it is important to recognize that political risk is taking new and different forms in both advanced and emerging economies. This includes dealing with real or perceived income inequality, sovereign debt, state actions to promote state-owned companies, erecting of trade barriers—all of which have the potential pose serious threats to companies.

Businesses increasingly focus their attention on financial, market, and operational forms of risk, particularly in the wake of the 2008 economic crisis. According to a recent Global Risk Management study, most companies neither measure nor manage political risk. Instead, they tend to accept (or ignore) them, or avoid entering situations that post significant risk, even when they might lead to a significant opportunity for growth.⁸⁷

Conclusion

Whether corporations and investors are conducting business abroad or investing in emerging markets, they are consistently exposed to political environments that atypical of advanced economies. The risk of major violence is greatest when states lack territorial integrity, recognized sovereignty, institutional legitimacy, or bureaucratic effectiveness and transparency. This vulnerability becomes increasingly apparent with the rise of unemployment, growing income inequality, public witnessing of corruption, and the development of alternative economies (blackmarkets, trafficking networks, etc.) within and across states.

There are many practical strategies that companies and investors can adopt to mitigate the impact of political risk.⁸⁸ In addition to the factors discussed in Prof. Marcus Goncalves’ recent publication (cited in the following), he also suggests working with one of a few great companies, such as ACE Global Markets,⁸⁹ that cover emerging market risks and focus on three specific areas: political insurance, trade credit, and trade credit insurance. Political risk insurance covers investments and trade by addressing issues related to the confiscation of assets and interruption of trade. They can also assist with managing structured trade credit, short and medium term, and extending trade credit insurance.

¹ Jensen (2008).

² Nations is Transition is the only comprehensive, comparative, and multidimensional study of reform in the former Communist states of Europe and Eurasia. Nations in Transition tracks the reform record of 29 countries and administrative areas and provides Freedom House’s most in-depth data about this vast and important region. The 2014 edition covers events from January 1 through December 31, 2013. It is an updated edition of surveys published in 2013, 2012, 2011, 2010, 2009, 2008, 2007, 2006, 2005, 2004, 2003, 2002, 2001, 1999, 2000, 1998, 1997, and 1995. For information, see www.freedomhouse.org/report-types/nations-transit#.VdSJr86lSLg

³ https://freedomhouse.org/report/freedom-world/freedom-world-2016

⁴ https://freedomhouse.org/report/freedom-world/2016/armenia

⁵ https://theguardian.com/world/2015/dec/07/armenia-vote-disputed-referendum-president-powers

⁶ https://armenpress.am/eng/news/876258/hhk-n-qaxaqakan-dashti-orakargdzevavoroxn-e-serzh-sargsyani.html

⁷ See for example, http://business-anti-corruption.com/country-profiles/armenia

⁸ For more, see https://pf-armenia.org/sites/default/files/documents/files/PFA_Corruption_Report.pdf

⁹ https://freedomhouse.org/report/freedom-world/2016/azerbaijan

¹⁰ https://freedomhouse.org/report/freedom-world/2016/azerbaijan

¹¹ http://news.bbc.co.uk/2/hi/7949327.stm

¹² See http://reuters.com/article/us-azerbaijan-election-idUSBRE99812Z20131009 and https://theatlantic.com/international/archive/2013/07/how-azerbaijanis-like-em-the-godfather-em/277717/

¹³ https://freedomhouse.org/report/freedom-world/2016/azerbaijan. See also http://business-anti-corruption.com/country-profiles/azerbaijan

¹⁴ https://freedomhouse.org/report/freedom-world/2016/belarus

¹⁵ http://telegraph.co.uk/news/worldnews/europe/belarus/11925324/Alexander-Lukashenko-The-leader-who-wants-to-turn-Belarus-into-a-North-Koreanstyle-dynasty.html

¹⁶ https://transparency.org/country/BLR

¹⁷ https://nytimes.com/2015/02/12/world/europe/meeting-of-world-leaders-inbelarus-aims-to-address-ukraine-conflict.html?_r=0

¹⁸ http://europarl.europa.eu/RegData/etudes/BRIE/2017/595878/EPRS_BRI(2017)595878_EN.pdf

¹⁹ http://rferl.org/a/belarus-lukashenka-chaos-and-conflict-press-conference/28276919.html

²⁰ http://rferl.org/a/belarus-lukashenka-chaos-and-conflict-press-conference/28276919.html

²¹ https://freedomhouse.org/report/freedom-world/2017/georgia

²² https://freedomhouse.org/report/nations-transit/2016/georgia

²³ “Georgian Prime Minister Acknowledges ‘Worsened’ Ties with President,” Radio Free Europe/Radio Liberty (RFE/RL), September 15, 2014, http://rferl.org/content/garibashvili-margvelashvili-un-ties-worsening-problem-visit-statement/26584943.html

²⁴ “President and PM at Odds over UN Visit, Again,” Civil Georgia, August 19, 2015, http://civil.ge/eng/article.php?id=28509

²⁵ “With His UN Visit ‘Thwarted,’ President Responds to Critics, Lays Out His Role,” Civil Georgia, September 11, 2014, http://civil.ge/eng/article.php?id=27658

²⁶ “Georgian President Criticized Ambassador to the US,” Georgia Today, October 6, 2015, http://georgiatoday.ge/news/1457/Georgian-President-Criticized-Ambassador-to-the-US

²⁷ Thornton, L., and D. Sichinava. 2015. “Public Attitudes in Georgia: Results of a April 2015 Survey Carried Out for NDI by CRRC Georgia.” National Democratic Institute (NDI), May11, https://ndi.org/files/NDIpercent20Georgia_Aprilpercent202015percent20Poll_Publicpercent20Issues_ENG_VF_0.pdf

²⁸ Edilashvili, M. 2014. “Moscow Calling?,” Transitions Online, July15, http://tol.org/client/article/24385-moscow-calling.html

²⁹ https://freedomhouse.org/report/freedom-world/2017/kazakhstan

³⁰ https://nytimes.com/2015/04/28/world/asia/nursultan-a-nazarbayev-kazakhstan-re-elected.html

³¹ https://monitor.civicus.org/country/kazakhstan/

³² http://icnl.org/research/monitor/kazakhstan.html

³³ https://freedomhouse.org/report/freedom-world/2016/kyrgyzstan

³⁴ http://rferl.org/a/kyrgyzstan-atambaev-otorbaev-resignation/26976544.html

³⁵ http://thediplomat.com/2016/04/kyrgyzstan-gets-new-prime-minister-and-speaker/

³⁶ http://rferl.org/a/kyrgyzstan-eurasian-economic-union/27184629.html

³⁷ http://lse.ac.uk/internationaldevelopment/research/crisisstates/download/wp/wpseries2/wp792.pdf

³⁸ http://tribunecontentagency.com/article/european-environmental-team-harassed-in-kyrgyzstan/

³⁹ http://eurasianet.org/node/73721

⁴⁰ https://transparency.org/country/KGZ

⁴¹ https://freedomhouse.org/report/freedom-world/2017/russia

⁴² http://bbc.com/news/world-europe-35366194

⁴³ https://forbes.com/sites/kenrapoza/2016/08/01/billion-dollar-theft-in-moldova-one-rich-bankers-crime-has-a-nation-doing-time/#5079100d4f7e

⁴⁴ https://eeas.europa.eu/sites/eeas/files/joint_analysis_0.pdf

⁴⁵ https://freedomhouse.org/report/freedom-world/2016/moldova

⁴⁶ http://transparency.org/news/pressrelease/corruption_index_reflects_moldovas_disappointing_response_to_corruption

⁴⁷ https://freedomhouse.org/report/freedom-world/2017/russia

⁴⁸ https://freedomhouse.org/report/freedom-world/2016/russia

⁴⁹ http://bbc.com/news/world-middle-east-34416519

⁵⁰ https://freedomhouse.org/report/freedom-world/2016/russia

⁵¹ http://washingtontimes.com/news/2015/nov/30/pro-democracy-groups-funded-billionaire-soros-bann/ and https://nytimes.com/2016/03/12/world/europe/national-democratic-institute-banned-russia.html

⁵² https://freedomhouse.org/report/freedom-world/2016/russia

⁵³ https://osw.waw.pl/sites/default/files/raport_crisis_in_russia_net.pdf

⁵⁴ Tatiana, M. 2016. Shifting Political Economy of Russian Oil and Gas, Center for Strategic International Studies, p. 3.

⁵⁵ http://reuters.com/article/us-ukraine-crisis-russia-minerals-idUSBREA3N1EK20140424

⁵⁶ http://carnegie.ru/2017/02/02/decline-not-collapse-bleak-prospects-for-russia-s-economy-pub-67865

⁵⁷ http://money.cnn.com/2015/11/30/news/economy/russia-turkey-plane-sanctions/

⁵⁸ http://uk.reuters.com/article/uk-rzd-yakunin-idUKKCN0QN0TY20150818

⁵⁹ https://freedomhouse.org/report/freedom-world/2016/russia

⁶⁰ https://freedomhouse.org/report/freedom-world/2017/tajikistan

⁶¹ https://freedomhouse.org/report/freedom-world/2016/tajikistan

⁶² https://hrw.org/news/2016/02/17/tajikistan-severe-crackdown-political-opposition

⁶³ http://rferl.org/a/tajikistan-islamic-party-members-trial-begins/27541023.html

⁶⁴ http://rferl.org/a/Tajik_Audit_Reveals_Huge_National_Bank_Shortfalls/1609233.html

⁶⁵ http://eurasianet.org/node/68466

⁶⁶ https://transparency.org/country/TJK

⁶⁷ https://freedomhouse.org/report/freedom-world/2017/turkmenistan

⁶⁸ http://civicus.org/index.php/media-resources/media-releases/2735-turkmenistan-s-elections-under-cloud-as-civil-society-faces-total-clampdown

⁶⁹ https://freedomhouse.org/report/freedom-world/2016/turkmenistan

⁷⁰ http://osce.org/odihr/hdim_2016

⁷¹ https://transparency.org/country/TKM

⁷² https://freedomhouse.org/report/freedom-world/2017/ukraine

⁷³ http://euromaidanpress.com/2016/02/20/the-story-of-ukraine-starting-fromeuromaidan/2/

⁷⁴ http://bbc.com/news/world-europe-25182830

⁷⁵ http://worldaffairsjournal.org/article/ukraine-invasion-one-year-later

⁷⁶ http://president.gov.ua/en/news/vistup-prezidenta-ukrayini-na-zagalnihdebatah-70-yi-sesiyi-36057

⁷⁷ https://nytimes.com/2015/02/13/world/europe/ukraine-talks-cease-fire.html

⁷⁸ http://trade.ec.europa.eu/doclib/press/index.cfm?id=1425

⁷⁹ https://ft.com/content/bf171902-a41e-11e5-873f-68411a84f346

⁸⁰ https://nabu.gov.ua/en

⁸¹ https://freedomhouse.org/report/freedom-world/2017/uzbekistan

⁸² https://theguardian.com/world/2015/mar/30/islam-karimov-re-electeduzbekistans-president-in-predicted-landslide

⁸³ https://cpj.org/2017/02/

⁸⁴ https://theguardian.com/world/2014/sep/16/uzbekistan-first-daughter-gulnara-karimova-house-arrest

⁸⁵ https://transparency.org/cpi2015/

⁸⁶ Goncalves et al. (2014).

⁸⁷ Deloitte (2012).

⁸⁸ See Marcus Goncalves, “Coping with Political and Economic Risks,” in Doing Business in Emerging Markets: Roadmap for Success, Edition: 1st, Chapter: 3, Publisher: Business Expert Press, Editors: Philip J. Romero, Jeffrey A. Edwards, p. 31

⁸⁹ www.aceglobalmarkets.com