In this final instalment of the series on exporting, Gary Kleyn considers the political risk of trading overseas.
In this final instalment of the series on exporting, Gary Kleyn considers the political risk of trading overseas.
WHILE exporting around the world is fine in times of global and regional stability, lucrative markets can be lost overnight due to changes in the political environment.
This has become increasingly apparent to businesses and the Australian Government with the current war on terrorism and terrorist attacks.
Over the past year the Department of Foreign Affairs and Trade has issued a string of warnings to Australians wanting to visit or do business in parts of Asia and the Middle East.
Businesses following the advice and staying away may miss what would otherwise be a lucrative market.
Exporters can be faced with a number of high risks that are unique to exporting such as political, legal, corruption and financing risks. Major political instability can result in defaults on payments, exchange transfer blockages and nationalisation or confiscation of property. Civil disorder can also affect personal security.
Graft and corruption, though illegal in virtually every country, is also rife throughout parts of Asia and Africa. Under Australian law it is an offence to offer illegal payments and action can be taken against the business or individual in Australia.
Quarantine compliance is another concern for businesses and should be checked closely prior to shipment.
The Export Finance and Insurance Corporation, which offers financial services to Australians wanting to do business overseas, keeps a vigilant eye on the political situation in regions and countries around the globe. EFIC insures projects or investment against losses arising from expropriation such as the nationalisation of the foreign enterprise by the overseas host government. It offers two types of political risk insurance for large projects in addition to credit risk insurance. The first is designed for overseas investors through equity political risk insurance, the second for lenders through debt political risk insurance.
AIG is another option. It offers a general political insurance for exporters and importers with cover up to $US50 million with a minimum premium of $US10,000.
