The political risk analysis

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GESI Analysis 22/2018

Abstract: The nature of this document is purely didactic, since its purpose is to explain what the analysis of political risk consists of and how to carry it out. For its preparation, a bibliographic search has been carried out that, although far from being exhaustive, will allow observing the different approaches and methodologies of the political risk analysis. This document is intended to serve as the basis for one that will be elaborated later, carrying out an applied political risk analysis.

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Introduction

Any company that is in a state of internationalization, whether settled or in process, has to face multiple risks (Cohen and Blanco, 2017), one of the main ones being political. The analysis of this type of risk is a task that every company that intends to internationalize should do before taking this important step.The execution of this decision involves an investment of huge amounts of money, as well as other resources, whose recovery in the form of benefits could be impeded by events of a political nature whose probability of occurrence can be estimated by conducting a political risk analysis of the country in question. In this sense, a detailed analysis of the political reality of a given country can mean the difference between the failure or the success of an investment project (Bringas Nossti, 2013).

This just pointed out is not a novelty, since academia and multinational companies (MC) have been considering political events for several decades as potential generators of risk for business activities. There are authors that go back to the Cuban Revolution to explain the beginning of the study of political risk by the academic world, while the MC began to take it into account at the beginning of the 70s (Pereira Tripa Dias Costa, 2014). In these years, the first definitions and studies of political risk placed special emphasis on the political events that, emanating from governmental actions in the host country, were likely to endanger the business benefit (Simon, 1984). This is logical if one takes into account that, above all, it was from the expropriations carried out by different governments in the 60s and 70s when the MC began to contemplate the political risk when adopting its decisions of internationalization.

Later, in the 1980s, the period of professionalization of the analysis of this risk was experienced, as well as the provision of scientificity to such an analysis by using quantitative techniques to carry it out. Likewise, from the 90s there was a scientific refinement of the concept of political risk thanks to the contribution of multiple disciplines, such as Psychology, Sociology and Political Science (Wafo, 1998). Precisely, this multidimensional approach has led to the emergence of a multiplicity of concepts of political risk and different ways of analyzing it, making use of multiple methodologies.

In line with the above, what will be done in the following pages will explain what the analysis of political risk consists of and how to carry it out. In a first section (excluding the present introduction) different definitions of political risk will be presented, as well as the sources from which, according to some authors, this risk emanates. In a second section, some of the methodologies used in the analysis of political risk will be presented. Finally, a section of final comments will be included as a conclusion.

 

How to define political risk? What are your sources?

Definitions of political risk

We must begin by making a conceptual clarification about political risk and other types of risk. There are several authors who treat indistinctly the concepts of country risk and political risk. However, we are talking about different risks that, therefore, require taking into account different variables when approaching their study and analysis.

Country risk indicates the ability of a given country to accumulate a quantity of foreign currency that allows it to meet its international credit commitments. This indicator only offers a partial view of the threats that investors have to face when they decide to invest in another country, because economic and financial factors are given an excessive importance, while politicians are only taken as complements. However, from the country risk approach, this decision makes total sense, since the aim is to determine the degree of compliance with international financial commitments of a given country (Bringas Nossti, 2013).

However, the political risk approach, as will be seen below, not only includes government institutions that generate such risk, which in one way or another could have a certain impact on the economic-financial destination of a given country. In a certain sense, political risk is part of the country risk and, at the same time, it exceeds the approach taken by analysts of this last type of risk, since the political risk analysis requires a deep knowledge of the sources, actors and possible effects of said risk.

In addition, it is convenient to carry out analyzes of political risk and not just country risk because political events are among the most influential factors when it comes to making investment decisions abroad, as indicated by Jiménez, Durán and De la Fuente (2011) in one of his studies.

With this first clarification, it is time to answer the following question: How to define political risk? And the answer to it is that there is no universal definition (Hood & Nawaz, 2004). However, in the works consulted for the preparation of this document, two approaches can be distinguished when defining this risk: a negative one and another that could be called neutral.

From the definition of political risk in a purely negative sense, this risk is translated into political events that negatively affect the operations and businesses of one or several MC. Likewise, within this aspect two positions can be found: 1) authors who postulate that political risk emanates almost exclusively from governmental actions or from some of the powers of the State; and 2) others that expand the focus of analysis and contemplate in their studies another series of actors, both nationally and internationally.

Starting with the first group, Jiménez, Durán and De la Fuente (2011: 123) define political risk "as the probability that the State uses its monopoly of legal coercion to renege on the agreements reached with the MC, in order to affect the redistribution of income between the public and private sectors ". That is to say, such risk would derive from the modifications made in the normative frameworks in force in each country, so as to affect the interests of foreign traders and investors (Ruiz Granada and Becerra, 2000). In a similar vein, Kobrin (in Aguilar Moya, s.f.: 6) points out that the political risk comes from "government actions [...] that interfere in economic transactions, changes in the terms of agreements and expropriations".

Taking into account the above definitions, the State (more specifically, the Executive and the Legislative) would be, almost exclusively, the only actor generating political risk, either through changes in the regulatory framework, or through government actions that adversely affect the MC business.

However, this approach has a series of problems for practical purposes, since defining political risk in such a limited way, focusing only on governmental or legislative actions, leads to poor selection of data sources, inappropriate selection of methodology and, finally, to an erroneous interpretation of the political risk existing in a country (Alon & Martin, 1998). As has already been pointed out, it is not surprising that this conception of political risk was the one prevailing in the first decades in which it began to be analyzed, since this risk came, above all, from the expropriatory action of governments. Today, however, political risk is a multidimensional phenomenon (Jakobsen, 2010).

However, within this so-called negative approach, there is another group of authors who also consider actors other than state actors as sources of political risk, as well as the external dimension. Thus, for Root (1972) the political risk not only emanates from governmental or legislative actions, but, rather, also the political parties, groups of the society or unions can affect the foreign investment and, therefore, constitute generating actors of political risk. With a more refined concept, Simon (1982) defines political risk as the governmental and / or social actions and policies that originate both inside and outside the host country and have a negative effect on a group of companies in a certain sector or on most investments and foreign business operations.

In addition to authors, there are also international firms for which political risk comes from both state and non-state actors. Thus, the company Shell (in Consultora Demison, 1996: 81) defines it as the "probability of not maintaining an oil contract for ten years because of changes in economic or political circumstances, and of the social feeling that negatively affects foreign business."

As it has been observed, from the negative approach, in addition to state actors, it has ended up including the different actors of society as potential generators of political risk, as well as, in addition to the internal dimension, the political events that occur abroad and that in one way or another can have a negative impact on MC investments and operations.

From the second approach, which can be called neutral, political risk not only carries a negative burden, but is seen as any radical change that occurs within a given political system. Thus, Ting (1988) defines it as uncertainties existing in a certain country, not dependent on the market, which could affect the business of a MC, and caused by the political instability of the host country and / or the exchange system of that country with abroad. Similarly, for Theodorou (1993) the political risk is about the possibility of unexpected changes, originating from politically induced or politically related sources, which could modify the disposition of companies with respect to foreign countries.

From the above definitions it can be inferred that this approach, like the broader definitions of the negative approach, includes various actors as generated by political risk, as well as the internal and external dimensions. The main difference between both approaches is that the one that has been called neutral perceives that political risk can bring, not only threats, but also opportunities to MC. To illustrate this, consider the following case as an example: an MC intends to establish itself in country A, where a radical regime change is expected to occur. From the negative point of view, this event would be registered in a political risk analysis as a generator of negative effects for the business environment. However, from the neutral approach, in addition to this conception, it would also contemplate the possibility that the new regime would be more prone than the outgoing to pro-market policies and foreign investment, thus representing this change positive effects on the environment of business.

Given the above definitions of political risk, and regardless of the approach adopted by the analyst, we must make some clarifications so that not every political event that generates uncertainty in the business environment is taken as a source of political risk. For a political event that generates changes in the business environment to be a risk, such changes "must have the potential to significantly affect the profits or other objectives of a particular company" (Ghabar, in Consultora Demison, 1996: 80). In addition, Pereira Tripa Dias Costa (2014: 15) makes a distinction between risk and uncertainty. Thus, while it "describes a subjective doubt about the political context", the risk supposes "a standardized measure and that results from a probable estimate of that doubt."

 

Sources of political risk

Evidently, depending on how the political risk is defined, some or other variables will be taken into account as explanatory of it. However, several authors have tried to develop a theory of political risk so that each risk situation is not seen as unique to the country in question, but to try to identify trends and recurring patterns in the different experiences analyzed. However, the development of a theory in this field has encountered several obstacles (Simon, 1984):

  • The search for immediate results has prevailed, so that the elaboration of a theory of political risk in order to carry out applied political risk analysis has often been left aside;
  • There has been a certain skepticism among companies regarding the quantification and operationalization of non-economic variables;
  • It has opted for the in-depth analysis of a single country, which provides voluminous information, but prevents the development of a conceptual framework that helps analyze the data; and
  • The very interdisciplinary nature of the analysis of political risk and, consequently, the different ways of approaching the same problem, makes it difficult to elaborate a theory.

Despite these difficulties, as mentioned above, some authors have tried to elaborate a theory of political risk, establishing classifications of it and proposing a series of sources from which this risk emanates. In the first place, some classifications will be shown below, from which it will be easier to detect the sources of political risk.

Brennglass (1983) establishes a double classification. On the one hand, it distinguishes between speculative risk and pure risk. The first considers both the possibility of losses by the MC and profits, while the second contemplates the possibility of losses or non-losses. On the other hand, it makes a second distinction, this time between fundamental risk, which would be associated with large socio-economic changes (apersonal), and particular risk, where it would be possible to identify a specific cause of political risk.

On the other hand, Grosse (1996), like Robock (1971), distinguishes between micro and macro risk. In this sense, while the first is that which affects only certain types of companies or investments, the second refers to the risk that has repercussions on all foreign investments.

In the same order of ideas, Haner (1979), Simon (1982) and Alon (1996) distinguish, respectively, between: 1) political risk derived from internal causes or from external causes, the latter induced by the country of origin of the MC, a third country, or the global environment; 2) political risk that can emanate from factors related to the government or society; and 3) in addition to the above, political risk caused by factors related to the economy.

In view of the above, a political risk approach that allows analyzing multiple countries following the same pattern, thus allowing comparisons to be made, should contemplate macro and micro political risk factors emanating from the social, economic and political spheres, both internally as in the external one.

Thus, going on to the sources of political risk contained in some documents based on the classifications described above, an approach similar to that indicated in the previous paragraph has been adopted by various authors. On the other hand, Alon and Martin (1998) take into account, as shown in Table 1, both in the internal and external dimension, the political risk factors related to the government, society and the economy.

Source: Alon & Martin (1998: 15)

Starting with the internal dimension, and focusing on the factors related to the government, if the scores of the first two items are negative, it means that the probability of a regime change is raised. In order to see if such a change will affect economic policy, an evaluation of the potential differences between the outgoing regime and the incoming one must be carried out. Regarding the factors related to society, the degree of fragmentation refers to the existence or not of a wide social diversity within the same territory. The greater the diversity, the lower the probability that all the demands of the different groups will be met. Regarding the second item, this refers to the degree to which the fragmentation of society can lead to social conflict. To put an end to the factors related to society in the internal dimension, a greater nationalist, fundamentalist feeling, etc., existing in the host country increases the probability of political risk. To conclude with the internal dimension, referring to economic factors, negative scores in each of them will increase the political risk.

Turning now to the external dimension, starting with the factors related to the government, in what refers to the probability of political violence, the analysis must contemplate the possibility of future border conflicts, wars, etc. In this case, we must take into account events in neighboring countries, as they may affect the country under evaluation[1]. Regarding the degree to which a country is involved in international organizations, the authors take it as a political risk factor because, in so far as it indicates the potential that a country has to receive aid for infrastructure (World Bank) or crisis (IMF), a low degree of involvement could translate into political risk in the event that the country in question was immersed in economic problems[2]. Regarding the third factor related to the government within this external dimension, the probability of political risk increases if the country can be subject to economic, commercial or other sanctions. Turning now to the factors related to society, in the external dimension, the first two allude to the opinion and positions that the citizens of the country of origin of the MC or of third countries adopt with respect to the host country. Obviously, an unfavorable public opinion that carries out pressure actions to disinvest in the host country increases the chances of political risk. Regarding the third factor, a wide regional diversity and incongruous interests of the regional actors can lead to the outbreak of wars or a climate of political instability.

Finally, regarding the economic factors of the external dimension, the first refers to the possibility that, in the future, different trade restrictions will be imposed or measures that require MC to reverse part of their benefits in the development from the host country, among others. The second factor refers to the potential problems that may exist in relation to the current account, the capital account, etc. To conclude, the third factor refers to the instability associated with fluctuations in the currency.

Contrary to what most authors and companies dedicated to the analysis of political risk do, these authors do not take variables such as wars, number of strikes, violation of human rights, etc., as sources of political risk. Rather, they consider that such events constitute symptoms (they are called red flags) and not causes of political risk, and, therefore, are likely to be used as indicators of conditions that may precipitate political risk, but they do not serve as predictors for realizing a proactive management of said risk.

In addition to the internal / external dimension of political risk, also taking political, social and economic factors, Simon (1984: 124) also introduces the direct / indirect political risk dimension. This author seeks to identify "who are the key actors and determine how their interactions (in different media) can affect the formation of political risk" either directly or indirectly. His attention to the actors is justified because the author states that in many cases "the exact nature of the risk will depend on the key actors to shape the events" (1984: 127). The focus of attention is on the intentions and capacities of the main actors. If an actor has a lot of intention to affect an MC, but little capacity to do so, the political risk will be low as long as its capacity does not increase. On the other hand, if an actor has a great capacity to affect an MC, but lacks intention, the political risk will be low as long as the actor's intention does not change. Taking this into account, the worst possible situation is one in which an actor has a lot of intention and a great capacity to cause problems to one or several MC.

In addition, continues Simon (1984), the type of key actors will depend on certain characteristics of the host country, two of the most important being the stage of economic development that this has reached and the degree of openness of its socio-political system.

With regard to the stage of economic development, one can distinguish between industrialized or developing countries, while in terms of the opening of their socio-political system the distinction is made between open or closed system. In a closed system the probability of risk increases, since there are no democratic channels through which citizens can express discontent. In addition, the pressure exerted by the society of the country of origin of the MC will be greater so that it is not implanted in the country with a closed socio-political system, since such action would constitute an implicit approval of the regime. Finally, Simon (1984) points out that developing countries with a closed system tend to take more radical decisions, such as nationalizations, expropriations, etc[3].

Thus, taking into account now the direct / indirect dimension and the variables stage of economic development and degree of openness of the socio-political system, the framework for analyzing political risk, for Simon (1984), can be summarized in the way they appear in Table 2

Table 2. Simon's political risk analysis framework

Source: Simon (1984: 132-133)

The assessment of risk based on these factors is done qualitatively, which requires expert knowledge about the country under analysis. However, one of the negative aspects of this method is the disparities that can be found in different analyzes on the same country depending on the positions of each analyst. In addition, if we take into account what was mentioned above by Alon and Martin (1998), the foregoing would not be sources of political risk, but red flags that would not allow us to anticipate future events.

This fact has to do with the fact that, following Jakobsen (2010), in many cases sources and effects of political risk are confused, when they are really analytically different. Therefore, this author proposes a causal chain of political risk from four sources: 1) obsolescent bargain mechanisms; 2) socio-political instability and grievances; 3); political institutions; and 4) preferences and attitudes.

Table 3. Causal political risk chain according to Jakobsen

Source: Jakobsen (2010: 484)

This author not only indicates the sources of political risk, but also specifies the actors through which political risk is reflected in concrete effects for MC. Although the number of such effects is small and does not differentiate between direct and indirect political risk, the theoretical elaboration of this causal chain allows detecting which sources of political risk are present in each country analyzed and, therefore, try to anticipate the effects of risk which could emerge and affect the activity of the MC in those countries.

 

Methodology of political risk analysis

How to prepare a political risk analysis?

As it happens when conceptualizing political risk, even when the study of the methodology to carry out its analysis is addressed, it is not possible to find a unique way to do it. And this is because "there is not one (only) correct way to conduct a political risk analysis, having to be adapted to the project and the institution" (Pereira Tripa Dias Costa, 2014: iii).

Before presenting the general steps, some of the methodologies followed by the authors and firms whose theoretical frameworks this document has echoed in previous pages are highlighted below.

The Consultora Demison (1996) points out the existence of three ways of analyzing political risk: a) construction of scenarios; b) the method used by the World Political Risk Forecasting Source (WPRFS); and c) the individual method.

  1. Construction of scenarios

The analyst goes through three main phases when applying this technique (Consultora Demison, 1996): 1) he studies in depth the social relations and the history of the country in question; 2) try to anticipate the evolution of these relationships; and 3) take the most likely scenarios and record them in writing. The variables that would have to be contemplated would be politics, both internal and international, the economy, in its internal and external spheres, and society.

In addition, the number of variables to take into account should not be excessive, since the scenarios would be excessively complex. Likewise, it is not advisable to raise many scenarios (Jordán, 2016). Having said this, once the scenarios are set, a strategic evaluation of them must be made, determining the consequences of each of them for the activity of the MC.

However, although the Consultora Demison (1996) gives to the construction of scenarios the category of method with which to carry out the analysis of political risk, authors like Pereira Tripa Dias Costa (2014) affirm that, really, the scenarios do not they are more than a way to present the results of political risk analysis, but not a method in itself. In this sense, the construction of scenarios serves as a complement to any methodology of analysis of political risk, since this is not only about describing the present environment in which the business activity has to unfold (which would lack of meaning, since this would not require a deep analysis), but to imagine possible future scenarios in which certain political events could affect the MC during the period of their projects in the host country.

  1. The method used by the World Political Risk Forecasting Source (WPRFS)

This method consists of three steps: 1) a group composed of between three and nine specialists in a certain country answer a series of standard questions, identifying a minimum of seven relevant actors within the country being analyzed; 2) later, the probable actions of the actors are fixed according to their orientation, "the certainty that exists of the same, the power that they hold and the importance that each actor grants to a determined fact" (Consultora Demison, 1996: 85); and 3) finally, probabilistic calculations are carried out on the possible future situation taking into account the possibility of political changes occurring, whether or not restrictions are imposed on international business and what economic and commercial policy will be like during the period in which plan to make the investment.

Each of the above topics is given a score of 0 to 10, depending on whether the host country favors foreign investment or not, taking into account that the value 0 means that the country in question is adverse to said investment and the value 10 which is very favorable.

  1. Individual method

To carry out an analysis with this method does not require as much information as in the previous ones, but it is enough to identify the risk areas of a particular investment to subsequently seek in the host country possible risk factors. In this method, tables are used in which the specific areas in which the investment could be affected are presented as dependent variables, while an open list of possible sources generating political risk is exposed as independent variables.

Behind these methods are two methodological paradigms resulting from the different points of view from which certain political events are identified as generators of political risk. The first two start from the present scenario where the business activity takes place and identify the risky political events that could affect it. On the other hand, the third one tries to identify the areas in which the MC could be affected and, subsequently, to observe if in the environment in which it intends to be implemented there are risk factors that have the potential to negatively affect those areas. As will be seen in the exposition of the following methods, the first paradigm is the most widespread in the analysis of political risk.

In the method used by Alon and Martin (1998), each variable scores in a range of -2 to +2, since, following the "neutral" approach to political risk, these authors believe that it can manifest itself in a positive or negative sense. In total, a given country can reach a score of -36 to +36. A State will have a high level of political risk as it gets closer to -36, and vice versa. However, each MC can establish weights of the variables in order to adapt the method to their analysis needs. For example, the inconvertibility variable would have no impact on a given investment if the country of origin of the MC and the host had the dollar as legal tender. Therefore, taking this variable as a risk generator and giving it a high weight would be meaningless.

Taking into account the above, analysts, paying attention to the duration of the project in question[4], give a score to each country analyzed, but do not divide the countries by levels of risk, since it is a practice they consider arbitrary (why would a country with, for example, -10 points should fall into a lower risk category than a country that scores with -11?). Thus, what these authors do is establish comparisons between the countries that are being considered to carry out the investment[5].

On the other hand, Howell (2011)[6] elaborates what is known as the International Country Risk Guide (ICRG). This guide includes 22 country risk variables (also known as components), divided into three subcategories of risk: political, financial and economic. The political risk can reach a maximum value of 100 points, while the other two a maximum of 50 each. The total score awarded to each country is divided between two, and classified according to the level of risk as follows: from 100 to 80 very low risk; from 79.9 at moderate risk; and from 0 to 49.9 very high risk.

However, as this document focuses on the analysis of political risk, only the way in which this author analyzes this risk will be exposed, leaving the reader willing or not to consult the original document to obtain information about the other two types of risk contemplated.

Howell (2011: 2), to analyze political risk, takes 12 variables (or components, and 15 subcomponents) of political and social order. Each of these variables can adopt a minimum value of 0, while the maximum "depends on the fixed weight given to that component in the general assessment of political risk", so depending on the branch to which the company belongs, it can be give more weight to some variables or others.

The points are assigned on the basis of a series of questions for each of the components of political risk. When giving a score to these variables, analysts evaluate scenarios with different time periods (present, one and five years) based on subjective analysis of the available information. For each of these periods there are two forecasts (Worst Case Forecast and Best Case Forecast), making a judgment about the "reasonableness of the trend and the ability of the government to counteract it". That is, these forecasts "do not represent the possible extremes of risk, but a 'reasonably possible' result if the identified trends are allowed to persist" (Howell, 2011: 16).

That said, the political risk of each country can be included in one of the following categories: from 0 to 49.9 very high risk; from 50 to 59.9 high risk; from 60 to 69.9 moderate risk; from 70 to 79.9 low risk; and from 80 to 100 very low risk.

Finally, the 12 variables of political and social order and the 15 sub-components that Howell (2011) takes into account when analyzing the political risk of a country, as well as its scores[7], are illustrated in Table 4.

Table 4. Components, subcomponents and political risk scores according to the ICRG

Source: own elaboration based on Howell (2011)

Exposed the previous methods, the common steps that can be detected in most of them are the following: 1) a series of political variables are taken that, in the opinion of the analysts, have the potential to affect the business of MC; 2) a quantitative or qualitative assessment is made of each of these variables and of the political risk as a whole; 3) possible scenarios of short and medium term are elaborated, taking into account the different combinations between variables; 4) the impact of each of these scenarios on MC activities is analyzed; and 5) a series of recommendations are elaborated that the person in charge of deciding whether to invest or not in a certain country should take into account.

 

Who or who should carry out the political risk analysis?

Among the documents that specify who or who are responsible for carrying out the political risk analysis, there is also no unanimous criterion on the person (s) charged (ideally) to carry out such analysis.

There are authors who propose a team of at least five individuals (Consultora Demison, 1996). After awarding the scores, in the case that the method used so requires, suggests eliminating extreme scores. Likewise, it indicates the following characteristics as desirable: 1) be an expert in the country being analyzed; 2) speak the language of that country; and 3) know their culture. In addition, the Consultora Demison (1996) adds that the group of analysts must have individuals who have knowledge of Sociology, Economics and Politics.

On the other hand, Krayenbuehl (1985) distinguishes between quantitative and qualitative methods when recommending the number of individuals that would carry out the analysis. Using a qualitative method would require at least three people: one with first-hand experience of the country; a specialist in political affairs; and another with responsibility in the company that translated the results into a suitable strategy for the company. On the other hand, a single person would be enough to carry out a political risk analysis when using a quantitative method, since it allows dealing with large amounts of data.

In addition, this same author states that the ideal is that the person in charge of carrying out the analysis has knowledge about all the factors. As this is difficult, he proposes that the analyst carry out his analysis by looking at the type of vulnerabilities that the project in question may present and then determine if there are or could be factors affecting it in the environment in which the MC intends to establish itself. Basically points out that analysts can be external specialists hired by the company or managers who are part of the company.

 

Final comments

In this document, certain definitions of political risk have been presented, some of the attempts to build a theory about this risk have been presented and several methods of analyzing such risk have been observed.

In conclusion, it could be said that political risk can only be understood when considering the results of the interaction between cultural, political, social and economic events and the configuration between these and the MC, for which it is necessary to have expert knowledge about the country that is analyzed to know these interactions and the possible evolution of them. From the foregoing, it can be inferred that, as some authors have pointed out (Kobrin, 1982, De la Torre & Neckar, 1988, Henisz, 2002), one can’t call political risk analysis an analysis made using only one variable. Finally, as indicated by Pereira Tripa Dias Costa (2014), the most important thing, regardless of the method selected, is to specify the assumptions and rationales used in the analysis of political risk in a given country in order not to deceive and to cover certain ideological prejudices of a pretended scientificity[8].

José Carlos Hernández is a political scientist from the University of Granada and a student of the Master's Degree in Latin American Studies at the University of Salamanca, as well as a member of GESI.

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[1] A current example would be the analysis of political risk in any of the countries that share the border with Venezuela, since the exodus of Venezuelans to these States is creating tensions of different kinds.

[2] Of course, everything depends on the counterpart that these organizations demand. For example, the application of strong adjustment measures, at the request of the IMF, can lead to mass protests.

[3] One of the limits detected in terms of the type of regime is a lack of definition of it, as well as clarification of the sources or indicators used to classify it as such.

[4] This reinforces the idea of the utility of the method of construction of scenarios as a technique to be applied together with various methods in the analysis of political risk.

[5] A negative aspect of this method is that, if the MS is only studying to establish itself in a certain country, with what does the score obtained by that country compare? Would there be more or less political risk in relation to what?

[7] The weighting can be modified by the analysts depending on the project in question, taking into account the importance given to each one of the components and subcomponents depending on how much they could affect or not the business activity.

[8] Bringas Nossti (2013) and Aguilar Moya (sf), in the case of Latin America, present their respective documents under the label of political risk analysis taking as the only variable the "populism" of certain leaders of the region, without taking into account another type of actors or the external dimension. That is, they leave out of their analysis most of the factors that have been presented in this document.

Editado por: Grupo de Estudios en Seguridad Internacional (GESI). Lugar de edición: Granada (España). ISSN: 2340-8421.

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