Is the Attempted Coup in Turkey a Surprise?

Some pundits on news channels have claimed that the US government was surprised by the attempted coup in Turkey.

Here are four reasons the attempted coup shouldn’t be a surprise.

1.       Erosion of Democracy

When Erdogan and the AK Party were first voted into power in 2002, there was a broad expectation that they would increase Turkey’s democracy. They were a moderate Islamist group that claimed a dedication to Turkey’s democratic principles. However, after several years in power they began to silence opposition voices around the country, including jailing journalists, and closing down non-governmental organizations and oppositional newspapers.

After his terms as Prime Minister ended, and he was elected President, Erdogan also sought to change the country to a presidential system, rather than the currently established parliamentary system. About the state of Turkey’s democracy, Freedomhouse has said, “Recep Tayyip Erdoğan had pursued an aggressive, society-wide crackdown on dissent in response first to the Gezi Park protests of June 2013 and then in response to the opening of corruption cases implicating the government in December 2013.”

2.        Instability Coming from Syria

Turkey has been hard hit by the war in Syria which happens not only on the other side of the country’s border, but often across it. Turkey has taken in roughly 2.5 million refugees from Syria, and has an on-going battle with Kurdish forces closely tied to the PKK (Kurdistan Workers Party). Turkey’s problems arising from the Syrian conflict have also manifested themselves in numerous bombings in the country and an attack at Istanbul International Airport.

Such instability has eroded the feeling that Erdogan is in control of what happens in Turkey, but has also caused him to be more reliant upon the Turkish military—a reliance that has manifested itself in Erdogan’s empowering the military and issuing immunity from prosecution for military actions taken inside the country. The empowering of the military in this way could have led officers to make bolder moves such as attempting a coup.

3.       There is precedent for military coups in Turkey

Since Turkey’s constitution was established in 1924, Turkey has had 3 coups d’etat. The 1960 coup occurred as a result of general acrimony between the Turkish government and opposition, and a loosening of anti-religious rules. In 1971 the military also intervened by forcing Prime Minister Suleyman Demirel to step down and asked Nihat Erim to take over temporarily. The instability continued through the 1970s, and in 1980 the Turkish military took control of the government.

In 1997, in what experts have called a “postmodern coup” the military forced Prime Minister Necmettin Erbakan of the Islamist Welfare party to step down and to roll back religious laws. 

The role of the military as protectors of the secular republic was written into the Turkish Armed Services Internal Service Code, which states, “the duty of the armed forces is to protect and safeguard Turkish territory and the Turkish Republic as stipulated by the Constitution.”

4.       The Turkish Military Has an Ax to Grind against President Erdogan

The ruling AK Party has diminished the role of the military in politics since coming to power, partly as a requirement of the European Union accession process. The acceptance of Turkey as a candidate country in 1999 meant that Turkey would need to democratize the relationship between the military and the public. The AK Party began the process when it came to power in 2002.

Further problems between the military and Erdogan’s government stem from the Turkish government’s recent arrest of military officers for plans to over throw the government in 2010. Most recently, in August 2013, General Ilker Basbug was sentenced to life for his efforts to plot a coup (to be exonerated in 2014).

Outcomes

We will see how this turns out, but one thing it is not is surprising.

Is the Attempted Coup in Turkey a Surprise?

Some pundits on news channels have claimed that the US government was surprised by the attempted coup in Turkey. The question is: should they have been surprised?

Here are four reasons the attempted coup shouldn’t be a surprise.

1.       Erosion of Democracy

When Erdogan and the AK Party were first voted into power in 2002, there was a broad expectation that they would increase the Turkey’s democracy. They were a moderate Islamist group that claimed a dedication to Turkey’s democratic principles. However, after several years in power they began to silence opposition voices around the country, including jailing journalists, and closing down non-governmental organizations and oppositional newspapers.

After his terms as Prime Minister ended, and he was elected President, Erdogan also sought to change the country to a presidential system, rather than the currently established parliamentary system. About the state of Turkey’s democracy, Freedomhouse has said, “Recep Tayyip Erdoğan had pursued an aggressive, society-wide crackdown on dissent in response first to the Gezi Park protests of June 2013 and then in response to the opening of corruption cases implicating the government in December 2013.”

2.        Instability Coming from Syria

Turkey has been hard hit by the war in Syria which happens not only on the other side of the country’s border, but often across it. Turkey has taken in roughly 2.5 million refugees from Syria, and has an on-going battle with Kurdish forces closely tied to the PKK (Kurdistan Workers Party). Turkey’s problems arising from the Syrian conflict have also manifested themselves in numerous bombings in the country and an attack at Istanbul International Airport.

Such instability has eroded the feeling that Erdogan is in control of what happens in Turkey, but has also caused him to be more reliant upon the Turkish military—a reliance that has manifested itself in Erdogan’s empowering the military and issuing immunity from prosecution for military actions taken inside the country. The empowering of the military in this way could have led officers to make bolder moves such as attempting a coup.

3.       There is precedent for military coups in Turkey

Since Turkey’s constitution was established in 1924, Turkey has had 3 coups d’etat. The 1960 coup occurred as a result of general acrimony between the Turkish government and opposition, and a loosening of anti-religious rules. In 1971 the military also intervened by forcing Prime Minister Suleyman Demirel to step down and asked Nihat Erim to take over temporarily. The instability continued through the 1970s, and in 1980 the Turkish military took control of the government.

In 1997, in what experts have called a “postmodern coup” the military forced Prime Minister Necmettin Erbakan of the Islamist Welfare party to step down and to roll back religious laws. 

The role of the military as protectors of the secular republic was written into the Turkish Armed Services Internal Service Code, which states, “the duty of the armed forces is to protect and safeguard Turkish territory and the Turkish Republic as stipulated by the Constitution.”

4.       The Turkish Military Has an Ax to Grind against President Erdogan

The ruling AK Party has diminished the role of the military in politics since coming to power, partly as a requirement of the European Union accession process. The acceptance of Turkey as a candidate country in 1999 meant that Turkey would need to democratize the relationship between the military and the public. The AK Party began the process when it came to power in 2002.

Further problems between the military and Erdogan’s government stem from the Turkish government’s recent arrest of military officers for plans to over throw the government in 2010. Most recently, n November 2015, General Ilker Basbug was arrested for his efforts to plot a coup.

Outcomes

We will see how this turns out, but one thing it is not is surprising.

Thanks Obama?: Explaining the U.S.’s Recent Run-ins with the Russian Military

On April 14, Russian SU-24 fighter jets made 30 simulated attacks on the USS Donald Cook in the Baltic Sea in international waters—roughly 62 kilometers from the Polish port the vessel had departed, and 70 kilometers from the Russian exclave of Kaliningrad.

That last phrase seems excessively detailed, doesn’t it?

But both bits of information are extremely important, and will be addressed later.

So who in the world is to blame? Obama? Putin?

The responsibility may lie in a “what” rather than a “who.” In other words, we need to look at the situation not only as one in which political agents are acting on the international stage, but rather the confluence of economic and political changes over the past 25 years.

After years of the U.S. dominating international politics and economics, the structure of the international sector has changed from one of unipolarity to multipolarity in which blocks of power have formed to challenge the domination of the U.S. One of these blocks comes in the form of Eurasianism, a political theory that sets the former Soviet states between Europe and Asia with Russia at its center.  As NATO drew closer to Russia after the fall of the Soviet Union, such actions were perceived as an incursion on Russia’s “traditional sphere of influence,” a situation Putin’s regime sought to rectify when the opportunity presented itself.

The Enemy at the Gates

Russian President Vladimir Putin claims the problems between Russia and NATO go back to talks between Mikhail Gorbachev, James Baker and Helmet Kohl, when Baker and Kohl promised not to expand NATO into Eastern Europe. However, in a 2014 interview, Gorbachev noted that in the talks “The topic of ‘NATO expansion’ was not discussed at all, and it wasn’t brought up in those years…. Not a singe [sic] Eastern European country raised the issue, not even after the Warsaw Pact ceased to exist in 1991. Western leaders didn’t bring it up, either.”

In a 2007 speech at the at 43rd Munich Conference on Security Policy, Putin specifically refers to the words of NATO General Secretary Woerner in Brussels on 17 May 1990, “He said at the time that: ‘the fact that we are ready not to place a NATO army outside of German territory gives the Soviet Union a firm security guarantee.’ Where are these guarantees?”

Examining the quoted sentence with those just above it in Woerner’s 1990 speech, we see that Woerner meant the passage to provide guarantees that NATO would use its forces only for defensive purposes, not in relation to Eastern European expansion. The ambiguity of the word “deploy” is, however, there, and what its use signifies most is that NATO did not expect the Soviet Union’s impending collapse, and thus had no sense that such expansion might be possible.

What is more important than Woerner’s specific wording is the perception of slight that Russia felt in the years following, as NATO expanded. Gorbachev puts this most clearly in his interview: “Today we need to admit that there is a crisis in European (and global) politics. One of the reasons, albeit not the only reason, is a lack of desire on the part of our Western partners to take Russia’s point of view and legal interests in security into consideration. They paid lip service to applauding Russia, especially during the Yeltsin years, but in deeds they didn’t consider it. I am referring primarily to NATO expansion, missile defense plans, the West’s actions in regions of importance to Russia (Yugoslavia, Iraq, Georgia, Ukraine). They literally said ‘This is none of your business.’ As a result, an abscess formed and it burst.”

A Neocon’s Paradise

The fall of the Soviet Union left the United States as the lone superpower, with military spending equal to the next 16 countries combined. At the same time, the U.S. had defeated its Vietnam demons with a decisive victory over Saddam Hussein to liberate the Kingdom of Kuwait. From 1991 to 1999 the United States intervened in 12 conflicts around the world, and a notion of the United States’ being in a position of “global leadership” developed in American politics. By 1997, America’s global leadership had firmly established itself. The greatest disagreement among U.S. politic al figures was not the existence of such a leadership role, but whether it should be unilateral or multilateral.

American intervention as a part of its global leadership was not simply military, but also economic and political, with an emphasis on loans—which usually included stipulations of economic reform—and democracy development programs run by USAID (United States Agency for International Development) and NED (the National Endowment for Democracy).

After 9/11, the Bush administration expanded on these by including neoconservative ideas in his foreign policy to deal with the problem of the Middle East. Neoconservatism developed out of a group of intellectuals from City College of New York in the 1930s and ‘40s who put forward four main ideas: “a concern with democracy, human rights and, more generally, the internal politics of states; a belief that American power can be used for moral purposes; a skepticism about the ability of international law and institutions to solve serious security problems; and finally, a view that ambitious social engineering often leads to unexpected consequences and thereby undermines its own ends.”

The Bush administration believed that in its role as global leader the United States could forcefully change regimes in order to develop good governance. Such an idea came out of William Kristol and Robert Kagan’s 2000 book Present Dangers, in which the two neocon thinkers argued, “To many the idea of America using its power to promote changes of regime in nations ruled by dictators rings of utopianism. But in fact, it is eminently realistic. There is something perverse in declaring the impossibility of promoting democratic change abroad in light of the record of the past three decades."

The flaw in the thinking lay in its underestimating the backlash against the policy by authoritarian leaders—the most powerful of whom were the governments of China and Russia.

The Color Revolutions

From 1990 to 2006, the number of democracies increased from 76 to 123, according to Freedom House. Some of these were the result of what came to be known as color revolutions. Three occurred on the borders of Russia in Ukraine, Georgia and Kyrgyzstan. These events greatly concerned the Russian government, a concern that became sharper after the Arab Spring and Russia’s own protests prior to the controversial 2012 presidential elections in which Vladimir Putin was elected to his third term. Putin’s government reacted by creating a law that required NGOs receiving money from foreign governments to register as “foreign agents.”

Since the law was put into place, the Russian government has raided nearly 2000 NGOs. At the same time, independent media in the country has been strangled.

The conflation of democracy development programs, the neocon effort at regime change and color revolutions tied all of Russia’s concerns to the US government.  Efforts by USAID to make its case for further funding didn’t help the situation. Democracy Rising, published by USAID in 2004, described the role its programs had played in helping advance the democratic movements in Lebanon, Ukraine, Kyrgyzstan and Georgia.

A Stronger Military for a Stronger Economy

From 1999 to 2013, the Russian economy increased by leaps and bounds, and with it the country’s military expenditure.  By 2013, Russian military spending had increased to 88 billion dollars, from seventh highest to third highest behind the U.S. and China.  The strengthening of the Russian military was in large part a result of the growth in GDP and the price of oil in international markets.

With the strengthening of the military and its economy, Russia began to see itself as deserving of a larger place in the international sphere. In 2010, to counter growing European influence, Russia created Eurasian Customs Union, which brought together Belarus, Kazakhstan and Russia initially, and then later Armenia and Kyrgyzstan. In 2011, Russia, along with the other BRICS countries, called for more influence in the global monetary system.

Russia’s movement toward strengthening its political and military influence began with Belarus, Ukraine, Kazakhstan and Georgia, which Stratfor called imperative to Russia’s interests.

Russia began with the Russia-Georgian war in 2008. After the Rose Revolution in 2003, Georgia had moved closer to Europe and the United States with a pro-American president Mikheil Saakashvili. In 2005, President George W. Bush traveled to Tbilisi in which Saakashvili made a speech thanking America for its “support for our NATO aspirations, just like the U.S. supported Ukraine on its NATO aspirations.”

In 2011, Russia used its military support for separatists in Crimea and the Donbas region of Ukraine after the ouster of a Russia-friendly government. By March 2014, Russia had gone as far as annexing Crimea.

Eurasianism and Empire

Russia’s military and economic expansion was closely connected to the philosophy of neo-Eurasianism. Neo-Eurasianism, as propounded by Russian philosopher Aleksander Dugin, builds on the work of Russian nationalists in exile in the 1930s and ‘40s who were coping with the humiliation of the White Russians after the revolution. Dugin defines Neo-Eurasianism as a theory of society and politics based on the cultural and political placement of Russia and the Turkic countries between Europe and Asia, and argues for a third political way. The geopolitical element of the theory is Dugin’s call for Russia to inhabit the center of Eurasian space and provide for the economic and military leadership.

Marlene Laruelle, in her book Russian Eurasianism: An Ideology of Empire explains “[Eurasianism]  is a political doctrine in the strict sense of the word, a theory of nation and ethnos, an alter-globalist philosophy of history, a new pragmatic formulation of 'Sovietism,' a substitute for the global explanatory schemes of Marxism-Leninism, a set of expansionist geopolitical principles for Russia, and much else,"

Dugin’s theory has often found its way into Vladimir Putin’s speeches about Russia’s activities in Georgia and Ukraine, as well as the development of the Eurasian Customs Union and its stance against NATO.

Beyond the Near Abroad

Following Russia’s entrance into Crimea and building upon the concern that NATO members in Eastern Europe had about Russia’s neo-Eurasianist foreign policy, NATO increased spending for its Eastern flank.

A Report by the European Leadership Network stated, “Between January and September, the NATO Air Policing Mission conducted 68 ‘hot’ identification and interdiction missions along the Lithuanian border alone, and Latvia recorded more than 150 incidents of Russian planes approaching its airspace. Estonia recorded 6 violations of its airspace in 2014.”

The U.S. moved fighters and tankers from London to Lithuania. The U.S. also conducted exercise in collaboration with Estonia, Latvia, Lithuania, and Poland. In June 2015, the United States sent military equipment to Estonia to protect against any further incursions by Russia.

On NATO’s southern frontier, Russia’s involvement in Syria led to an SU-24’s incursion into Turkish airspace ultimately resulting in the plane’s being shot down.

All of these suggest an already tense atmosphere along NATO’s eastern border.

USS Donald Cook

Even before the events of April 14, the USS Donald Cook had run into trouble with SU-24s. In  April 2014 during the height of the Crimean conflict, an SU-24 made 12 low passes near the USS Cook in the Black Sea, which Col. Steve Warren called “provocative and unprofessional." The most recent incident with the SU-24 buzzing the USS Cook demonstrates similarities. Both were in international waters in proximity of a Russian port and the port of a NATO member state. Remember, that Russia claimed the USS Cook was close to Kaliningrad, while the U.S. military focused on its proximity to Poland.

This taken into consideration with the history since 1990, point to the fact that the current tensions have been building for years. NATO has expanded over the years toward the Russian borders leaving no buffer zone between the two great power blocks, and heightening the country’s sense of being under siege. Russia’s previous status as a superpower, it’s expectation that it was soon to return to this status and the most recent economic problems due to sanctions and the decline of oil prices have hampered its Eurasianist aspirations, and have added concerns for maintaining the current internal political order.

At the same time, the U.S.’s unipolar moment ended with the rise of China and the aftermath of the Iraq invasion.  Power has become much more diffuse in the international sector and will ultimately lead to greater challenges to U.S. attempts at influencing international politics. We are seeing this in the South China Sea as well.

Ultimately, in the near future, we can expect that this process will continue to unfold with a growth of alliances of major powers.

Many of the smaller states that find themselves in the middle, of course, will seek methods of playing the powers off each other and maneuvering in the interstices to advocate for their own interests.

Unfortunately, this process will make the international sector much more tense and will lead to similar aggressions, standoffs and even potentially conflicts.

What Kills Me…: Globalizing to Make Your Organization Antfragile

“What kills me makes me stronger.”

This is how Nassim Nicholas Taleb, trader turned philosopher and professor of risk engineering, likes to describe his concept of antifragility.  He notes that a system or institution becomes fragile when the harms of risk increase in a non-linear manner.  

They are antifragile when those shocks actually make the system more resilient or resistant to risk.

An organization can become more robust—if not completely antifragile—by becoming more global. A global organization, as opposed to an international organization has a close connection to the place it is working. It builds off the needs of the national or regional community it is serving, rather than simply applying cookie-cutter services to a new geographical location.

But becoming global takes dedication to the place you are serving and a desire to structure the organization to succeed in the international sector and the country where you work.

Representation on the Ground

A company or organization needs to react quickly to changes in the market and the society. Representation on the ground is the best way to do this. A representative office or an individual who can run your local or regional activities will have the information much earlier than those in the head office. If your organization has a more decentralized structure and the representative has been empowered to make decisions, he or she can react more quickly and position your organization to mitigate risks or capitalize on developments.

Make Your Headquarters Everywhere

Having all of your decision-makers in one room is a great thing. They can interact directly and hash out plans and ideas in real time. I can’t argue with this statement at all, but the need to have a centralized headquarters might just be a thing of the past. A globalized organization can have its leaders anywhere in the world and bring them all together in real-time via a broad range of communication technologies through which a globally savvy and diverse team will be completely at ease interacting.

Moreover, the lack of a centralized headquarters and a globally diverse management team might also produce some of those out-of-the-box ideas your company needs to stay ahead of the curve.

A Little Redundancy is Good Thing

Taleb’s biggest criticism of globalization is that the interconnectedness of a globalized system increases fragility by causing a localized shock to ripple across the rest of the system. A global organization can overcome this criticism by admitting that efficiency might not be the solution to every problem. It is often a good idea to have some redundancies. Multiple representatives competing to provide similar services to the organization or in the market and community can help the organization weather localized shocks.

Imagine an earthquake in California that shuts down a factory for a week or a month. The company relying solely on that factory for its product would lose those days and profit. A company with multiple factories in various regions of the world with the same product can make up for the loss by increasing production in other factories.

Groups competing within a company or organization can also increase productivity and help increase the speed of innovation. Although competition can have its downsides, healthy competition can bring people to develop in ways they never thought possible. And this can have infinite benefits for your company or organization.

Many Eggs, Many Baskets

Companies and organizations excel at providing certain things. And it makes sense to expand the reach of these products and services as far as we can. But the markets may be closely interconnected. Mortgage backed securities had consumers worldwide, but once the demand fell, so did the business. Providing products and services on a national or regional level that might not have a worldwide appeal can help diffuse the risks of an interconnected product market.

On the ground representation can help an organization or company find these niche markets and capitalize on them.

Live in the Post-American Era

With the fall of the Soviet Union, everyone wanted what America had. The US shined as the global leader and influencer. We were the symbol of globalization. What we sold and how we did things were to be emulated. But over the past 24 years as other countries have developed and expanded their influence around the globe, people have begun to question the preeminence of the how America conducts business. Recognize this and attempt to adapt to where you are, rather than expecting them to move closer to you and your way of doing things.

Know that Culture Can’t be Reduced to Simple Phrases

When we talk of culture, often we think of an all-encompassing thing, a fishbowl of sorts in which only certain actions or beliefs can survive. There are many business specialists who talk about the individualism of the West and the communitarianism of the East. Representatives on the ground are going to have a keen sense of what culture and society is in the countries and regions where you work. They can challenge any ideas that reduce a culture to a simple phrase and understand that they are much more like a deeply ornate tapestry. Within a country, society or culture, people have competing belief systems, values and institutions. A global structure will help you gain this more textured view of the places and peoples you serve.

Where Did the Money Go? Country Risk and Entering Markets Abroad

Country risk only applies to big banks investing vast sums of money in a country, right?

No. It can affect even start-up businesses or non-profit organizations too.

Country risk is “the risk that, due to the country’s political/social situation, level of foreign reserves, international liabilities or government policy, the company will have difficulty obtaining the return on its investment into the country.”

We saw in the previous post that entering a country’s market requires the examination of the political context. The political situation feeds into country risk as well. Armed conflict or large scale protest can affect the availability of hard currency by decreasing the GDP.

In a different situation, a decrease in hard currency could also lead the government to protect its currency. For instance, Azerbaijan, a country that two years ago was awash with U.S. dollars from its flourishing oil industry is now struggling with money leaving the country. In January, the Azerbaijan parliament put a 20% tax on people sending 50,000 dollars or more per year. Aware that such regulations could affect foreign investment Azerbaijan’s Finance Minister was quick to reassure foreign investors that they were exempt from the regulations.

At the same time, to keep the manat from plummeting, the Azerbaijani government has withdrawn licenses from some private currency exchange booths around the country.

Furthermore, in 2015, Azerbaijan hosted the first European Games at a cost of roughly 1.2 billion dollars. Now it is looking to the IMF and Worldbank for 4 billion dollars’ worth of loans to address issues from the downturn in the oil industry.

How does this affect a business investing in Azerbaijan or any emerging market?

The less hard currency available in the country, the less chance the business will be able to receive a return on investment or the non-profit organization will be able to retrieve the money it has brought into the country.

Monitoring Country Risk

The company or organization is well advised to conduct a country risk analysis before going into the country. It’s impossible to predict everything, but that doesn’t mean we shouldn’t get a sense of the probable. Here are some of the tell-tale signs of country risk.

·         Gross Domestic Product—A falling GDP or a GDP that is too closely tied to one commodity or industry means that this country is at high risk if the price of the commodity takes a turn for the worse. This may make it difficult to find hard currency to repatriate.

·         Foreign Debt Level—A country with a high debt to GDP ratio may be too leveraged, and to pay the debt may need to take hard currency out of circulation. Look at what the trends in debt have been in recent years. Have the country’s loans been increasing? Are they relying too heavily on international loans?

·         Foreign Exchange Reserves—A good way to know whether or not hard currency is available in a country is to look at the amount of hard currencies (dollars, Euros, pounds sterling) held by the central bank. It’s also important to know how the national currency is managed. Has it been floated, i.e. does the market determine its exchange rate? Is it pegged to a hard currency or a basket of currencies? Or somewhere in between? In the case that the economy begins to heat up, the pegged currency could result in higher labor rates and thus inflation making the country less competitive in the global market. A decrease in GDP could then follow, meaning less hard currency which would affect the company’s ability to capitalize on investment.

A pegged currency in a downturn could be hard for the country’s government to maintain. It requires a large amount of the country’s reserves to prop up the national currency.

·          Current Account Balance—The current account balance is the ratio of a country’s savings to it expenditures. Often for comparative purposes it is represent as percentage of GDP. Investopedia notes that “A nation’s current account balance is influenced by numerous factors – its trade policies, exchange rate, competitiveness, forex reserves, inflation rate and others.” A negative current account balance can indicate poor overall health of the country’s economy which can be a warning sign for a company or organization beginning to do business in a country.

·         Investment Level—The Azerbaijan Finance Minister’s fear in the earlier example of the restrictions on cash flow in Azerbaijan was right on the money. He knew the parliament’s taxing money leaving the country could stop companies or individuals from investing there. The less investment in the country, particularly one suffering from a significant downturn in its most important industry, could lead to even greater economic woes. For the company or organization doing business in the country, the decline in Foreign Direct Investment would mean less hard currency in the country available for repatriation.

·         Fiscal Balance—An indicator of how well the country’s government can manage its own spending is its fiscal balance, which is the amount of taxes and assets sold, compared to its spending.  This is the indicator that political candidates in the United States are constantly bickering about. For a company or organization looking to invest in a country, fiscal balance is a way to understand whether or the government acts responsibly with its money, but also whether there is a chance in the future that hard currency will be needed for outstanding debts to foreign creditors.

Each of the above, can help your company or organization better understand the economy of the country you are seeking to enter, and it will give you an opportunity to understand the level of risk you are putting your company into with your investment, whether it be the conduct of activities or provision of services or a deeper investment by opening an office or buying into an already existing company. Conducting country risk analysis helps you keep your business safe.

Analyzing Political Risk for Global Growth

(This article is the first in a series on global business development)

Globalization has brought two things with it: a greater connection of markets and increased risk from political struggles in far off countries.

Just recently, Citigroup and the Carnegie Europe think tank joined forces to produce a report on Global Political Risk, which notes, “Political events and social trends are becoming increasingly interconnected; links can easily be made between tensions in the Middle East, terrorist attacks around the world and the migration crisis,”

What this suggests is that a company looking to expand anywhere in the world—whether through entering a new market or investing in an office on the ground—should understand and monitor the political risks you might face.

And not just the big stuff either.

Everyone knows to be wary of large-scale conflict or widespread outbursts of protest, but what other political problems can affect a business?

1.       Smaller protests in the country could interrupt the delivery of products or services, as well as supplies you need for production.

2.       Government institutions could limit the amount of money entering or leaving the country.

3.       Political elite involvement in the economy could make the business environment challenging for foreign-owned companies.

4.       Conflicts in nearby countries could lead to a refugee crisis that increases social, economic and political pressures in the society.

To mitigate such risks, companies need to be aware of them beforehand and monitor their development over time. This is why a company or organization looking to enter a market in a new country needs to ensure they have examined the political risks thoroughly.

Tips for Conducting Political Risk

A company with the money to hire a political risk firm should do so, but smaller companies can get a sense of a country’s political environment by looking at the following:

1.       Each year Freedom House puts out its Freedom in the World, report. In fact the report for 2016 has just come out. Look at the past few years to see what direction the country is moving. Is it becoming freer? Less free? Is the country a hybrid regime—one composed of elements of democracy and authoritarianism? While all forms of government have their own challenges, hybrid regimes tend to be more susceptible to political strife.

2.       Find out what the GINI index is for the country you are entering. A number of studies have shown that a large disparity between the haves and the have-nots can increase political dissatisfaction and lead to increased protest and conflict.

3.       Conduct research on how citizens in the country dissent. The fact that citizens take to the streets is not necessarily a bad thing. Citizen involvement is actually healthy. Small protests can lead to the government’s addressing problems in society before they grow too large to handle. A country with very little dissent, on the other hand, could be achieving this through oppression, which means that smaller problems go unsolved and tend to grow into big ones. Look into how the government deals with dissent. You can expect the risk of a heavy-handed Happy Valley will increase exponentially as stressors increase, whereas a country with periodic, small demonstrations will tend be much more resilient.

4.       Take a look at articles on corruption and the government’s involvement in business. Regulations themselves are not the end of the world if they are well targeted. But vague regulations or regulations that contradict each other could serve to support corruption. Are government bodies at the same time regulators and competitors? Are there reports that government officials have a large share of the economy? Do citizens view corruption as being a problem in the country? The Corruption Perceptions Index published by Transparency International can help here.

5.       Understand ethnic divisions in the country. Ethnic strife can quickly flare up in a country and turn to political turmoil. Knowing what these ethnic divisions are and how they ethnic groups interact or are represented in the government can help you assess the potential for interethnic conflict.

6.       Look at the issues in nearby countries and those that have close ties to the country you are seeking to enter. Countries don’t exist in a vacuum. Risks from other countries can spill over into those around them. A rich country may be relatively risk free on its own, but that doesn’t mean it can’t be pulled into its neighbor’s conflicts or economic woes. Economic and political problems in nearby or connected countries can lead to challenges from the influx of refugees or economic migrants, and these can increase political pressure in the country you are seeking to enter. Recent economic and political woes in Russia resulted in workers from Central Asia having to return home where there weren’t enough jobs for them. This increases the political pressure on these countries.

7.       Read political risk reports that are out there for free. Even a report that is a year old is better than having no information at all.

8.       The final and most important thing: focus on the risk, but don’t let it paralyze you. Every country will have some amount of political risk. The goal of Political risk analysis is to challenge your thinking and help you prepare for eventualities. It is not necessarily a go-no go situation. Risk is calculated as probability times expected harm. Let this idea guide you in your decision making. If you assess the probability as high, but the harm as low (or the other way around), maybe these are still viable options, particularly if you can put some safeguards into place that will help mitigate them.